f/EPA
  United States
  Environmental Protection
  Agency
Office of Transportation                  EPA420-R-04-008
and Air Quality                     May 2004
            Summary and Analysis of
            Comments: Control of
            Emissions from Nonroad
            Diesel Engines

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                                       EPA420-R-04-008
                                            May 2004
Summary and Analysis of Comments:
      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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                                    Table of Contents
1.      GENERAL POSITION STATEMENTS  	1-1
       1.1    Supports Rule	1-1
              1.1.1   Air Quality and Health Benefits	1-1
              1.1.2   Impact on States  	1-5
       1.2    Opposes Rule	1-6

2.      ENVIRONMENTAL AND AIR QUALITY ISSUES  	2-1
       2.1    General Public Health Impacts  	2-1
              2.1.1   Reducing Diesel Emissions Is Essential for Protecting the Public Against Health
                     Risks	2-1
              2.1.2   Uncertainty in Health Risks Associated with Diesel Engines 	2-5
              2.1.3   Health Benefits of the Rule and Current Air Pollution Problems	2-7
       2.2    Issues Related to Specific Public Health or Exposure Studies  	2-9
              2.2.1   Long-term Exposure to PM and Diesel Exhaust and Health Effects  	2-9
              2.2.2   Short-term Exposure Effects related to PM and Diesel Exhaust  	2-20
              2.2.3   Health Effects Related to Ozone Exposures	2-22
              2.2.4   Approach for Evaluating Air Quality and Exposure	2-24
       2.3    Nonroad  Contribution and NONROAD Emission Model	2-36
              2.3.1   Nonroad Contribution	2-36
              2.3.2   The NONROAD Emission Model  	2-40
              2.3.3   Draft RIA Emission Reductions	2-83
              2.3.4   EPA Should Report Emission Reductions as a Percentage of Total Emissions2-84
       2.4    Other Environmental Effects	2-85
              2.4.1   Climate Impacts Associated with Diesel Emissions	2-85

3.      NONROAD ENGINE STANDARDS 	3-1
       3.1    Engine Standard Levels, Stringency, and Phase-In	3-1
              3.  .1   General Comments on Engine Standards	3-1
              3.  .2   Over 750 hp Engines	3-14
              3.  .3   75-750 hp Engines  	3-19
              3.  .4   Under  75 hp Engines	3-19
              3.  .5   Power Categories   	3-33
       3.2    Technical Feasibility of Engine Standards	3-36
              3.2.1   General Comments 	3-36
              3.2.2   PM Control	3-46
              3.2.3   NOX Control  	3-53
              3.2.4   HC Control 	3-58
              3.2.5   CO Control 	3-58
              3.2.6   Air Toxics Control  	3-59
       3.3    Engines > 750  hp	3-59
              3.3.1   Feasibility	3-59
              3.3.2   Cost and Design Issues	3-62
       3.4    75 to 750 hp Engines	3-63
       3.5    Under 75 hp Engines 	3-64
       3.6    Crankcase Emission Requirements 	3-66
       3.7    Sulfur's Effect on Diesel Control Devices	3-68
       3.8    Fuel Economy Impacts of the Proposal	3-69

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       3.9    2007 Technology Review  	3-70
              3.9.1   Support for Conducting a Technology Review  	3-70
              3.9.2   Scope of the Technology Review	3-72
              3.9.3   The Proposed Technology Review Is Unnecessary  	3-74
              3.9.4   Timing	3-75
       3.10   Other Standards and Technology Issues 	3-76
              3.10.1   Retrofit Program	3-76
              3.10.2  Retirement of Older Engines  	3-77
              3.10.3   Effect on Existing Engines	3-77
              3.10.4  EPA Should Require Reductions from All Combustion Sources	3-78
              3.10.5   Reactive Oxygenated Species	3-80
              3.10.6  Rental Engines  	3-80
              3.10.7  EPA Should Use the International Si-units  	3-81

4.      NONROAD DIESEL FUEL STANDARDS  	4-1
       4.1    Level of Diesel Fuel Sulfur Standard (both initial 500 ppm and subsequent 15 ppm
              standards)	4-1
              4.1.1   General Support for 15 ppm Fuel Sulfur Standard	4-1
              4.1.2   Incentives for Early Compliance 	4-2
              4.1.3   Home Heating Oil	4-3
       4.2    Timing 	4-4
              4.2.1   500 ppm Fuel Sulfur Standard  	4-5
              4.2.2   15  ppm Fuel Sulfur Standard  	4-6
       4.3    Program Design	4-9
              4.3.1   Two-Step Approach 	4-9
              4.3.2   Baseline Approach versus Designate and Track	4-14
              4.3.3   Dyes and Fuel Markers	4-26
       4.4    Small Refiner Provisions	4-33
              4.4.1   General Support  	4-33
              4.4.2   Oppose  	4-34
              4.4.3   Small Refiner Definition	4-35
              4.4.4   Small Refiner Provisions  	4-37
              4.4.5   Disqualification of Small Refiner Status  	4-38
              4.4.6   Lead time After Acquiring a Small Refinery  	4-40
              4.4.7   Small Refiner 'Option 4'	4-41
              4.4.8   Other	4-42
       4.5    Hardship Provisions	4-43
              4.5.1   Deadline  for Hardship Applications	4-43
              4.5.2   Notification to States on Potential Hardship Waivers  	4-44
              4.5.3   GPA Refiners  	4-44
       4.6    Technological Issues or Limitations of Meeting the Sulfur Standards  	4-45
              4.6.1   Technical Feasibility of Producing 15 ppm Nonroad, Locomotive, and Marine
                      Fuel	4-45
              4.6.2   Permitting 	4-46
              4.6.3   Impact of Standard on Reliability of Nonroad, Locomotive, and Marine Diesel
                      Fuel Supply	4-46
       4.7    Fuel Lubricity  	4-66
              4.7.1   General 	4-66
              4.7.2   Lubricity Issues	4-69
              4.7.3   Other	4-70
                                              11

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       4.8    Cetane and Aromatics  	4-70
              4.8.1   General 	4-70
              4.8.2   Alternatives to the Proposed Cetane and Aromatics Standards  	4-72
       4.9    Geographic Coverage	4-73
              4.9.1   Alaska and Territories	4-73
              4.9.2   American Samoa, Guam, Northern Mariana	4-79
       4.10   Other Fuel Standards Issues	4-80
              4.10.1  Substantially Similar	4-80
              4.10.2  Geographic Issues	4-81
              4.10.3  Overall Program Approach	4-82
              4.10.4  Use of 500 ppm Sulfur Diesel Fuel Produced from Transmix or Segregated
                     Pipeline Interface in the NRLM Market	4-83

5.      ENGINE AND EQUIPMENT COSTS	5-1
       5.1    General Engine and Equipment Cost Issues  	5-1
              5.1.1   Generally Supports EPA's Cost Estimates 	5-1
              5.1.2   EPA Has Underestimated the Economic Impacts of the Tier 4 Standards on
                     Equipment Costs and Operations  	5-2
              5.1.3   EPA Should Use Today's Equipment Cost as the Baseline of Comparison and
                     Not a Tier 3 Level Machine  	5-4
              5.1.4   The Nonroad Sector Has Far less Ability to Absorb the Costs of Developing New
                     Engine Configurations and Redesigning Equipment  	5-5
       5.2    Methodology for Estimating Engine and Equipment Costs	5-6
       5.3    Engine-Related Costs	5-7
              5.3.1   Engine Fixed Costs	5-7
              5.3.2   Engine Variable Costs	5-14
              5.3.3   Engine Operating Costs  	5-15
       5.4    Equipment-Related Costs	5-20
              5.4.1   EPA's Variable Cost Estimates for Nonroad Equipment Should Be Increased to
                     Be Consistent with Industry Practice 	5-20
              5.4.2   EPA Should Evaluate the Equipment Cost Increases Within Each Power
                     Category 	5-22
              5.4.3   EPA Underestimates the Costs Associated with Small Equipment  	5-23
       5.5    Example Equipment Costs Used  for the Analyses	5-24

6.      LOW-SULFUR FUEL COSTS 	6-1
       6.1    Nonroad, Locomotive and Marine Fuel Volumes	6-1
              6.1.1   EPA Should Complete a Comparative Assessment Between the EPA and Baker
                     & O'Brien Work to Assure That the Underlying Assumptions and Impacted
                     Volumes Are Consistent
                       	6-1
       6.2    Refining Costs 	6-3
              6.2.1   Costs Were Underestimated  	6-3
              6.2.2   The Initial Volumes of Ultra-low Sulfur Diesel Will Be the Most Cost-effective
                     to Produce	6-14
       6.3    Costs of Distributing Nonroad Diesel Fuel  	6-15
              6.3.1   Fungible Shipment of 500 ppm Highway and NRLM Fuel	6-15
              6.3.2   Tank Truck Costs  	6-15
              6.3.3   Handling of 15 ppm Fuel Downgraded During Distribution  	6-15
       6.4    Fuel Marker Costs 	6-16
                                             in

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              6.4.1   Distribution of Marked Fuel	6-16
              6.4.2   Geographic Issues	6-17

7.      BENEFITS METHOD AND ENVIRONMENTAL IMPACT ANALYSIS  	7-1
       7.1     Benefits Method	7-1
              7.1.1   Ozone, CO, and Air Toxics Should Be Considered  	7-1
              7.1.2   Uncertainties Associated with the Health Benefits Methodology 	7-1
              7.1.3   Public Health Benefits Below the NAAQS  	7-7
              7.1.4   Assumptions in the Health Benefits Analysis	7-8
       7.2     Economic Impact Analysis 	7-12
              7.2.1   EPA Failed to Perform an Adequate Analysis of Application Market End Users
                     That Will Be Affected by the Rule	7-13
              7.2.2   EPA's Treatment of Fixed Costs in its Economic Impact Analysis Is Incorrec17-18
              7.2.3   EPA's Assumption of Perfectly Competitive Markets Is Incorrect 	7-19
              7.2.4   EPA Did Not Include Substitution Effects in its Economic Analysis  	7-21
              7.2.5   EPA Failed to Account for the Price Sensitivity of Small Equipment Markets in
                     its Economic Analysis	7-24
              7.2.6   Commenter Supports the Conclusions of EPA's Draft Economic Impact
                     Analysis  	7-29
              7.2.7   Commenter Does Not Support the Conclusions of EPA's Draft Economic Impact
                     Analysis
                      	7-29

8.      ALTERNATIVE PROGRAM OPTIONS  	8-1
       8.1     One-Step Alternatives  	8-1
              8.1.1   Supports One-Step Approach	8-1
              8.1.2   Opposes One-Step Approach  	8-4
       8.2     Other Two-Step Alternatives	8-5
              8.2.1   Option 2b  	8-6
              8.2.2   Option 3  	8-6
              8.2.3   Options 5a and 5b	8-7
       8.3     15 ppm Standard for Locomotive and Marine Diesel Fuel  	8-8
              8.3.1   Support for 15 ppm Locomotive and Marine Diesel Fuel in this Rule	8-8
              8.3.2   Oppose 15  ppm Standard for Locomotive and Marine Diesel Fuel	8-10
              8.3.3   Support More Stringent Locomotive and Marine Standards in a Separate
                     Rulemaking	8-17
       8.4.    Other Program Options  	8-19
              8.4.1.   Extended Use of 500 ppm Diesel Fuel in >750 hp Engines Employed by the
                     Mining Industry  	8-19

9.      REQUIREMENTS FOR ENGINE AND EQUIPMENT MANUFACTURERS	9-21
       9.1     Averaging, Banking, and Trading  	9-21
              9.1.1   General Comments 	9-21
              9.1.2   Family Emission Limit (PEL) Caps 	9-27
              9.1.3   Averaging  Sets  	9-28
              9.1.4   Inclusion of Credits from Retrofit of Nonroad Engines	9-29
              9.1.5   ABT Tracking Requirements  	9-34
              9.1.6   Other ABT Issues 	9-34
       9.2     Original Equipment Manufacturer (OEM) Transition Provisions	9-36
              9.2.1   General Flexibility Provisions  	9-36
                                            IV

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       9.2.2   Percent of Production Allowance	9-44
       9.2.3   Small-Volume Allowance	9-46
       9.2.4   Hardship Relief Provision	9-49
       9.2.5   Existing Inventory Allowance 	9-50
       9.2.6   Notification, Reporting, and Labeling Requirements	9-51
       9.2.7   Foreign Manufacturers and Importers	9-53
9.3     Small Business Provisions	9-55
       9.3.1   General  	9-55
       9.3.2   Small Engine Manufacturers	9-57
       9.3.3   Small Business Equipment Manufacturers	9-57
9.4     Encouraging Innovative Technologies 	9-57
       9.4.1   Credit for Early or Very Low Emission Engines  	9-58
       9.4.2   Extending the Existing Blue Sky Program	9-59
       9.4.3   EPA Should Establish More Stringent Optional Standards to Facilitate Credit
              Generation	9-60
9.5     Test Procedures  	9-60
       9.5.1   Transient Test	9-60
       9.5.2   Cold-Start Testing	9-70
       9.5.3   Control of Smoke 	9-78
       9.5.4   TRU Cycle  	9-80
       9.5.5   Other Test Procedure Issues 	9-84
9.6     NTE Requirements	9-95
       9.6.1   Commenters Support the Proposed NTE Requirements	9-95
       9.6.2   Commenter Conditionally Supports the Proposed NTE Requirements  	9-95
       9.6.3   Commenter Supports the Alternative NTE Methodology  	9-96
       9.6.4   Commenters Conditionally Support the Alternative NTE Methodology .... 9-96
       9.6.5   EPA Should Not Finalize the Alternate NTE and Should Instead, Carry over the
              Recently Clarified On-highway NTE Requirements as Modified for Nonroad
              Engines	9-96
       9.6.6   EPA Should Not Include NTE Requirements in the Proposed Rule  	9-98
       9.6.7   EPA should modify the proposed NTE deficiency provisions	9-99
       9.6.8   EPA Should Clarify the NTE Implementation Schedule  	9-101
       9.6.9   EPA Should Adjust the NTE Multiplier Threshold 	9-101
       9.6.10 EPA Should Add Special Provisions to Describe  the NTE Zone Applicable to
              Constant Speed Engines  	9-102
       9.6.11 EPA Should Add Provisions That Would Exempt Engines During Start-up or
              Engines with Exhaust Emission Control Devices  from the NTE Requirements
                	 9-102
       9.6.12 EPA Should Clarify the Procedures That Are Used to Determine Conformance
              with the NTE Provisions	9-103
9.7     Certification Fuel	9-103
       9.7.1   The Emission Test Fuel Specifications Applicable to Nonroad, Locomotive and
              Marine Engines Should Be Limited to No More than 500 ppm Sulfur Contefit-103
       9.7.2   EPA Should Allow for the Use of Low Sulfur Certification Fuel Prior to 2007
              MY for On-highway Engines and  Vehicles That Employ Sulfur Sensitive
              Technology	9-104
       9.7.3   EPA Should Ensure That Certification Fuel Is Representative of In-use
              Fuel	9-104
9.8     General Compliance Provisions	9-105
       9.8.1   Stationary and Competition Engine Requirements	9-105

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              9.8.2   Definition of "Good Engineering Judgement"	9-106
              9.8.3   Confidentiality  	9-106
              9.8.4   Audit Requirements  	9-107
              9.8.5   Identical Terms	9-108
              9.8.6   Exemption Provisions	9-108
              9.8.7   Importing Engines	9-110
              9.8.8   Hearing Provisions  	9-111
              9.8.9   Separate Shipment of Aftertreatment Devices  	9-112
       9.9    Defect Reporting  	9-113
              9.9.1   General Concerns 	9-113
              9.9.2   Specific Concerns Related to Investigation and Defect-Reporting
                     Thresholds	9-117
       9.10   Engine Labeling	9-121
              9.10.1  Labeling Requirements for Certified Engines  	9-121
              9.10.2  Other Labeling Issues	9-128
       9.11   In-Use Compliance Margin	9-131
              9.11.1  EPA Should Modify the Proposed In-use Compliance Margin Provision to
                     Ensure That it Is Beneficial and Useful to Nonroad Engine Manufacturers . 9-131
       9.12   In-Use Testing 	9-132
              9.12.1  EPA Should Propose as Soon as Possible, Strong In-use Controls for Diesel
                     Vehicles and Engines  	9-132
              9.12.2  Further Review Is Necessary in Order to Develop Adequate In-use Testing and
                     On-board Diagnostics Provisions	9-133
              9.12.3  EPA Should Ensure That States Do Not Use In-use Testing as a Mechanism to
                     Impose Fees on Equipment Owners	9-134
       9.13   Other Engine and Equipment Manufacturer Issues	9-134
              9.13.1  EPA Should Modify the Proposed Engine Family Definition at Section 1039.230
                       	 9-134
              9.13.2  EPA Should Establish Non-conformance Penalties (NCPs) as Part of the Tier 4
                     Rulemaking	9-135
              9.13.3  EPA Should Provide Manufacturers with Additional Flexibility with Respect to
                     Meeting the Installation Instruction Requirements	9-135
              9.13.4  The Equipment Manufacturer Should Be Responsible for Following the Engine
                     Manufacturer's Installation Instructions  	9-136
              9.13.5  EPA Should Not Require the Aftertreatment System to Be Shipped from the
                     Engine Manufacturer's Facility with the Engine	9-136
              9.13.6  EPA Should Maintain the Proposed Provisions That Would Limit the Use of
                     Auxiliary Emission Control Devices and Defeat Devices 	9-137
              9.13.7  Users of Nonroad Engines and Equipment Will Most Likely Operate Their
                     Engines for Longer Periods than EPA Projects  	9-138
              9.13.8  EPA Should Clarify the Requirements That Apply to Rebuilt Engines	9-138
              9.13.9  EPA Should Not Require Measurement and Submission of CO2 Emissions  9-139
              9.13.10 EPA Should Allow Multiple Cylinder Arrangements in a Single Engine Family
                       	 9-139
              9.13.11 Shorter Useful Life Values	9-140

10.     REFINERY & FUEL DISTRIBUTION ISSUES	10-1
       10.1   Fuel Markers 	10-1
              10.1.1  General Comments on Marking Provisions 	10-1
              10.1.2  Use of Solvent Yellow 124	10-3
                                             VI

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       10.2    Fuel Sulfur Testing and Sampling Requirements  	10-14
              10.2.1  Testing Requirements	10-14
       10.3    Compliance  	10-20
              10.3.1  Special Fuel Provisions and Exemptions  	10-20
              10.3.2  Technological or Logistical Considerations	10-24
              10.3.3  Recordkeeping and Reporting Requirements	10-29
              10.3.4  Downstream Compliance Issues	10-32
              10.3.5  Transmix Operator Compliance Issues	10-36
              10.3.6  Other Compliance Issues  	10-39
       10.4    Other Refiner Issues	10-46

11.     ADMINISTRATIVE AND PROCEDURAL REQUIREMENTS (UMRAA, APA, PRA, etc.)
        	11-1
       11.1    SBREFA 	11-1
              11.1.1  SBREFA Process  	11-1
              11.1.2  Regulatory Flexibility Act  	11-1
       11.2    Other Administrative and Procedural Requirement Issues 	11-5
              11.2.1  Clean Air Act 	11-5
              11.2.2  Public Hearings	11-5

12.     OTHER ISSUES	12-1
       12.1    Relationship to Other Mobile Source Sectors  	12-1
              12.1.1  Highway Diesel Rule  	12-1
       12.2    Alternative Fuels/Technology  	12-3
       12.3    Harmonization	12-5
       12.4    Other Programs and Regulations	12-8
              12.4.1  Regulations	12-8
              12.4.2  Mitigation Fee Program  	12-8
       12.5    Miscellaneous  	12-9
              12.5.1  Use of Shore Power 	12-9
              12.5.2  ARTBA Petition	12-9
              12.5.3  Involvement of a Neutral Party to Provide an Objective Evaluation of the Rule's
                     Impact	12-10
              12.5.4  End-user Requirements	12-10
                                            vn

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List of Acronyms
ABT
ACES
ACS
AECD
AEO
ARV
ASTM
BOB
BOL
bpcd
CAA
CAMx
CASAC
CFR
CI
CO
COA
CR4
CRA
CRC DPG
CTA
CVSL
DF
DMDBT
DOC
DoD
DOE
DOJ
DTAB
EGR
EIA
EIA
Averaging, Banking, and Trading
Advanced Collaborative Emissions Study
American Cancer Society
Auxiliary Emission Control Device
Annual Energy Outlook
Accepted Reference Value
American Society for Testing and Materials
Baker and O'Brien
Bill of Lading
Barrels per Calendar Day
Clean Air Act
Comprehensive Air Quality Model with Extension
Clean Air Scientific Advisory Committee
Code of Federal Regulations
Compression Ignition
Carbon Monoxide
Certificates of Analysis
Four-Firm Concentration Ratios
Charles Rivers Associates
Coordinating Research Council Diesel Performance Group
Credit Trading Area
Constant Speed Variable Load Test Cycle
Deterioration Factor
Dimethyl-dibenzothiophene
Diesel Oxidation Catalyst
Department of Defense
Department of Energy
Department of Justice
Diesel Treated As Blendstock
Exhaust Gas Recirculation
Energy Information Administration
Economic Impact Analysis
      Vlll

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EUI
FAA
FCC
PEL
FOKS
FTC
FTP
GDP
GPA
HAD
HAP
HDS
HEI
HEUI
HFRR
Hffl
I&M
IRS
ISBL
ISO
kbpd
LCGO
LCO
LDDV
LM, L&M
mmBTU
MVNRLM
MY
NAAQS
NAS
NDEIM
NERA
NMHC
Electronic Unit Injector (ion)
Federal Aviation Administration
Fluid Catalytic Cracker
Family Emission Limit
Fuel Oil and Kerosene Survey
Federal Trade Commission
Federal Test Procedure
Gross Domestic Product
Geographic Phase-In Area
Health Assessment Document
Hazardous Air Pollutant
Hydro-Desulfize
Health Effects Institute
Hydrolic Actuated Electronically Controlled Unit Injector (ion)
High Frequency Reciprocating Rig
Herfmdahl-Hirschman Index
Inspection and Maintenance
Internal Revenue Service
Inside Battery Limits
International Organization for Standardization
Thousand Barrels Per Day
Light Coker Gas Oil
Light Cycle Oil
Light-Duty Diesel Vehicle
Locomotive and Marine Diesel
Mllion British Thermal Units
Motor Vehicle Nonroad, Locomotive, and Marine Fuel
Model Year
National Ambient Air Quality Standards
National Academy of Sciences
Nonroad Diesel Economic Impact Model
National Economic Research Associates
Non-Methane Hydrocarbon
IX

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NOx
NPC
NPRM
NR
NRLM
NRTC
NSE
NTE
OBD
OEM
OMB
OSBL
PADD
PM
ppm
PSA
PSR
PTD
RfC
RFA
RIA
RMC
RPE
SAB-HES
SBA
SBREFA
SCFB
SDAs
SEA
SER
SI
SLBOCLE
SO2
Oxides of Nitrogen
National Petroleum Council
Notice of Proposed Rulemaking
Nonroad Diesel
Nonroad, Locomotive, and Marine Diesel
Nonroad Transient Cycle
National Security Exemption
Not-To-Exceed
Onboard Diagnostics
Original Equipment Manufacturer
Office of Management and Budget
Outside Battery Limits
Petroleum Administration Districts for Defense
Particulate Matter
Parts Per Million
Petroleum Supply Annual
Power Systems Research
Product Transfer Document
Reference Concentration
Regulatory Flexibility Act
Regulatory Impact Analysis
Ramped Modal Cycle
Retail Price Equivalent
Science Advisory Board- Health Effects Subcommittee
Small Business Administration
Small Business Regulatory Enforcement Fairness Act
Standard Cubic Feet per Barrel
Static Dissipator Additives
Selective Enforcement Audit
Small Entity Representative
Spark Ignition
Scuffing Load Ball on Cylinder Lubricity Evaluator
Sulfur Dioxide

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TAP
TCO
TPEM
TRU
ULSD
VCSB
VOCs
VSL
WSDHFRR
WTP
Transient Adjustment Factors
Temporary Compliance Option
Transition Program for Equipment Manufacturers
Transportation Refrigeration Unit
Ultra-Low Sulfur Diesel
Voluntary Consensus Standards Board
Volatile Organic Compounds
Value of a Statistic Life
Wear Scar Diameter High Frequency Reciprocating Rig
Willingness to Pay
XI

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Commenter Acronyms and EDOCKET Reference Numbers
Name
Air Transport Association
Alaska Dept of Environmental Conservation
Alliance of Automobile Manufacturers
American Farm Bureau Federation
American Lung Association '
American Lung Association of Metro Chicago 2
American Petroleum Institute
American Rental Association
American Road & Transportation Builders Assn.
American Society for Testing & Materials
American Society for Testing & Materials (1/19/04 comments)
American Trucking Associations, Inc.
Associated Equipment Distributors
Associated General Contractors of America
Association of American Railroads
Association of Equipment Manufacturers
Assn. of Local Air Pollution Control Officials 3
Association of Oil Pipe Lines
BP
Breakthrough Technologies Institute '
Building & Construction Trades Dept., AFL-CIO
CA Air Resources Board
California Assemblymember Alan Lowenthal
Caribbean Petroleum Corporation
Caterpillar Inc.
CEMA-CECE
Chevron Products Company
CHS Inc. (formerly Cenex Harvest States Coop.)
CITGO Petroleum Corporation
Acronym
ATA (Airlines)
AK DEC, Alaska
Alliance
AFBF
ALA
ALA- Chicago
API
ARA
ARTBA
ASTM

ATA (Trucking)
AED
ACG
AAR
AEM
ALAPCO
AOPL
BP
BTI
BCTD, AFL-CIO
CARB



CEMA-CECE
Chevron
CHS
CITGO
Docket ID #
OAR-2003-00 12-0755
OAR-2003-00 12-0607
OAR-2003-00 12-0792
OAR-2003-0012-0608


OAR-2003-00 12-0804-
0808
OAR-2003-0012-0612
OAR-2003-00 12-0633
OAR-2003-0012-0601
OAR-2003-00 12-0842
OAR-2003-00 12-0632
OAR-2003-00 12-0831
OAR-2003-0012-0791
OAR-2003-00 12-0700-
0701
OAR-2003-00 12-0669-
0670

OAR-2003-0012-0609
OAR-2003-00 12-0649

OAR-2003-00 12-0674-
0676
OAR-2003-0012-0644
OAR-2003-00 12-0475
OAR-2003-0012-0646
OAR-2003-0012-0812
OAR-2003-00 12-0598
OAR-2003-00 12-0782
OAR-2003-00 12-0785
OAR-2003-00 12-0707
                       Xll

-------
Clean Air Council
Clean Air Task Force
CNH Global
Colonial Pipeline
Colorado Department of Public Health and Environment
Connecticut Department of Env Conservation
ConocoPhillips
Countrymark Cooperative, LLP
Crown Central Petroleum Corporation
Cummins Inc.
Deere & Company
Dept of Defense Steering Services Committee- Navy
Detroit Diesel Corporation
Deutz
Electric Power Research Institute
Electric Power Research Institute- from Ron Wyzga
Engine Manufacturers Association
Environment Northeast 2
Environmental Advocates of New York
Environmental Defense
Ergon, Inc.
Euromot
ExxonMobil
FarWest Equipment Dealers Association
Federal Aviation Administration
Flint Hills Resources
Frontier Oil Corporation
Gary- Williams Energy Corporation
General Electric Transportation Systems
Griffin Industries
Group Against Smog and Pollution 2
Houston- Office of the Mayor
CAC
CATF
CNH
Colonial
CO DPHE, Colorado
CTDEP

Countrymark
Crown


DOD- Navy
DDC

EPRI

EMA






FWEDA
FAA
FHR

GWEC
GE, GETS



OAR-2003-0012-0613
OAR-2003-00 12-0508
OAR-2003-00 12-08 19
OAR-2003-00 12-0694
OAR-2003-0012-06887
OAR-2003-0012-0653
OAR-2003-00 12-0777
OAR-2003-0012-0602
OAR-2003-0012-0640
OAR-2003-00 12-0650
OAR-2003-00 12-0692
OAR-2003-0012-0617
OAR-2003-0012-0783
OAR-2003-00 12-0820
OAR-2003-00 12-0772
OAR-2003-00 12-0587
OAR-2003-0012-0656 -
0657

OAR-2003-00 12-0523
OAR-2003-0012-0821
OAR-2003-00 12-0634
OAR-2003-00 12-0822-
0823
OAR-2003-0012-0616
OAR-2003-00 12-0679
OAR-2003-0012-0682
OAR-2003-00 12-0667
OAR-2003-0012-0621
OAR-2003-00 12-0753
OAR-2003-00 12-0784
OAR-2003-0012-0119

OAR-2003-0012-0630
Xlll

-------
Idaho Barley Commission 4
Idaho Grain Producers Association 4
Idaho Wheat Commission
Illinois Farm Bureau
IL Lieutenant Governor Pat Quinn
Independent Fuel Terminal Operators Association
Ingersoll-Rand Company
International Brotherhood of Teamsters
International Union of Operating Engineers
Isotag Technology Inc.
Isuzu
Izaac Walton League of America 2
Kansas Farm Bureau
Kinder-Morgan Energy Partners
Komatsu
Kubota Corporation
Laborers' Health and Safety Fund of N. America
Lister Fetter
Lubrizol
Manufacturers of Emissions Controls Assoc.
Marathon Ashland Petroleum
Massachusetts Department of Env Protection
Mercatus Center (George Mason Univ.)
Michigan Farm Bureau
The Motorcycle Industry Council
The Mountaineers
Murphy Oil Corporation
National Association of Convenience Stores
National Association of Home Builders 5
National Association of Wheat Growers, et al
IBC
IGPA
IWC
IFB

IFTOA

IBT
IUOE



KFB



LHSFNA


MECA
MAP
MADEP

MFB
MIC


NACS
NAHB
NAWG


OAR-2003-00 12-0645
OAR-2003-00 12-0673
OAR-2003-0012-0781
OAR-2003-00 12-0671 -
0672
OAR-2003-00 12-0504
OAR-2003-00 12-0664
OAR-2003-0012-0600
OAR-2003-00 12-0666,
0824*
OAR-2003-00 12-0809

OAR-2003-0012-0825
OAR-2003-00 12-0603
OAR-2003-00 12-0455 -
0457
OAR-2003-00 12-0620
OAR-2003-0012-0638
OAR-2003-00 12-0 155
OAR-2003-0012-1019
OAR-2003-0012-0810-
0811
OAR-2003-00 12-0826 -
0827
OAR-2003-00 12-0641
OAR-2003-00 12-0627,
0828*
OAR-2003-00 12-0625
OAR-2003-0012-0685
OAR-2003-00 12-0773
OAR-2003-0012-0212
OAR-2003-00 12-0635

OAR-2003-00 12-0752
XIV

-------
National Barley Growers Association
National Biodiesel Board
National Corn Growers Association 6
National Mining Association
National Oilheat Research Alliance
National Petrochemical and Refiners Assn.
Natural Resources Defense Council
Nebraska Farm Bureau Federation
New England Fuel Institute
New Hampshire House of Representatives
New York State Dept. of Environmental Conservation
NYC Environmental Justice Alliance
NYC Office of Environmental Coordination
North American Equipment Dealers Assoc.
Northeast States for Coordinated Air Usage Mgmt.
Octel Starreon LLC
Ohio Environmental Council 2
Ohio-Michigan Equipment Dealers Association
Oregon Department of Environmental Quality
Oregon Wheat Growers League
Pennsylvania Dept of Environmental Protection
Petro Star Inc.
Petroleum Marketers Association of America
Public Interest Research Group- various (also see 'US PIRG)
Regional Air Pollution Control Agency
Salt Lake City- Mayor
Salt Lake Clean Cities
San Joaquin Valley Air Pollution Control District
Sierra Club '
Sinclair Oil Company
Small Refiners
Society of Ind Gasoline Marketers of America 7
NBGA
NBB
NCGA
NMA
NORA
NPRA
NRDC
NFBF
NEFI

NY DEC
NYCEJA
NYCOEC
NAEDA
NESCAUM

OEC
OMEDA
ORDEQ
OWGL
PADEP

PMAA
PIRG
RAPCA


SJVAPCD



SIGMA
OAR-2003-00 12-0639
OAR-2003-00 12-0776

OAR-2003-0012-0510
OAR-2003-0012-0840
OAR-2003-0012-0814
OAR-2003-0012-0661,
0665
OAR-2003-0012-0514
OAR-2003-0012-0712-
0713
OAR-2003-00 12-0 126
OAR-2003-00 12-0786
OAR-2003-00 12-0583
OAR-2003-00 12-0631
OAR-2003-00 12-0647
OAR-2003-00 12-0659
OAR-2003-00 12-0642

OAR-2003-0012-0747
OAR-2003-00 12-0779
OAR-2003-0012-0593
OAR-2003-00 12-0699
OAR-2003-00 12-0624
OAR-2003-00 12-0606
OAR-2003-00 12-0780
OAR-2003-00 12-0683
OAR-2003-00 12-0787
OAR-2003-00 12-0778
OAR-2003-00 12-0695

OAR-2003-00 12-0704,
0829
OAR-2003-00 12-0754

XV

-------
South Coast Air Quality Management District
South Carolina Dept of Health & Environmental Control
Southern Alliance for Clean Energy 2
Southern Environmental Law Center 2
Stancil Co. (for Western Refining)
State & Territorial Air Pollution Program Administrators
Sunoco
Tennessee Farm Bureau Federation
Tesoro
Texas Commission on Environmental Quality
Texas House of Representatives
ThermoKing Corporation
Union of Concerned Scientists
United Color Manufacturing
US Custom Harvesters 6
US Public Interest Research Group '
U.S Small Business Administration- Office of Advocacy
USA Rice Federation
Valero Energy Corporation
Western Business Roundtable
Western Regional Air Partnership
Western States Air Resources Council
Williams Energy Partners
Wisconsin Department of Natural Resources
Wyoming Refining Company
Yanmar Co, Ltd.
SCAQMD
SCDHEC
SACE
SELC

STAPPA

TFBF

TCEQ


UCS
UCM

US PIRG
SBA; Advocacy
USA Rice

WBRT
WRAP
WESTAR

WIDNR
WRC

OAR-2003-00 12-0623
OAR-2003-00 12-0476


OAR-2003-00 12-0843
OAR-2003-00 12-0507
OAR-2003-00 12-0509
OAR-2003-0012-0629
OAR-2003-00 12-0662
OAR-2003-0012-0716-
0717
OAR-2003-0012-0658
OAR-2003-00 12-0406
OAR-2003-0012-0830
OAR-2003-0012-0501


OAR-2003-0012-0815 -
0818
OAR-2003-00 12-0652
OAR-2003-00 12-0628
OAR-2003-00 12-0636
OAR-2003-00 12-0774-
0775
OAR-2003-0012-0711
OAR-2003-00 12-0626
OAR-2003-0012-0702 -
0703
OAR-2003-00 12-0651
OAR-2003-00 12-06 15,
0813
1 - commented with NRDC
2 - commented w/ CATF
3 - commented w/ STAPPA
4 - commented with IWC
5 - commented with AGCA
6 - commented with NAWG
7 - commented with NACS
* inadvertently docketed twice; both numbers listed have the exact same comments
                                                    XVI

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XV11

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XV111

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                               Summary and Analysis of Comments
                                                                                    May, 2004
1.     GENERAL POSITION STATEMENTS

What We Proposed:

       The following comments relate in general to the NPRM.  The comments in this section are not on
any specific aspect of the proposed rule; rather, they are directed to the general substance of the proposal.
More detailed proposal items, and their corresponding comments, can be found in later sections of this
Summary and Analysis of Comments.

       For more information on the proposed rule, see 68 FR 28328.

1.1    Supports Rule

       1.1.1   Air Quality and Health Benefits

What Commenters Said:

       A number of commenters expressed strong support for the proposed rule. These commenters
cited the enormous air quality and health benefits that would result from its implementation and many
described the air quality problems they have experienced personally and in their own communities, and
referenced EPA's statistics on the number of premature deaths, hospitalizations, heart attacks, and asthma
or respiratory-related health problems that could be avoided, as well as the costs associated with these
illnesses. The commenters also cited the risks of both cancer and respiratory illness posed by diesel
emissions. Lastly, commenters supported the adoption and implementation of this rule as quickly as
possible without any weakening or delays in the proposal. Additional discussion on the specific health
studies cited by commenters can be found in chapter 2.1.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 1-4
       California Assemblymember Alan Lowenthal, OAR-2003-0012-0475 p. 1
       Clean Air Council, OAR-2003-0012-0613 p. 1-2
       Clean Air Task Force, et. al, OAR-2003-0012-0508 p. 1-8
       Colorado Department of Public Health and Environment, OAR-2003-0012-0687 p. 1
       Environmental Advocates of NY, OAR-2003-0012-0523 p. 1
       Environmental Defense, OAR-2003-0012-0821 p. 1-7
       Illinois Lieutenant Governor Pat Quinn, OAR-2003-0012-0781 p. 1-4
       International Brotherhood of Teamsters, OAR-2003-0012-0664 p. 2
       International Union of Operating Engineers, OAR-2003-0012-0600 p. 1-2
       Laborer's Health and Safety Fund of North America, OAR-2003-0012-0638 p. 1
       Mountaineers, OAR-2003-0012-0773 p. 1
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 1-7
       NESCAUM, OAR-2003-0012-0659 p. 2-4
       New York City Environmental Justice Alliance, OAR-2003-0012-0583 p. 1
       New Hampshire House of Representatives, OAR-2003-0012-0126 p.  1
       Pennsylvania Department of Environmental  Protection, OAR-2003-0012-0699 p. 2
       STAPPA/ALAPCO, OAR-2003-0012-0507  p. 2-3

                                             1-1

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                               Summary and Analysis of Comments
                                                                                    May, 2004

       Salt Lake City, OAR-2003-0012-0787 p. 1
       Salt Lake Clean Cities, OAR-2003-0012-0778 p. 1
       Texas House of Representatives, OAR-2003-0012-0658 p. 1
       U.S. Public Interest Research Group, OAR-2003-0012-0780 p. 1
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 1
       Wisconsin Department of Natural Resources, OAR-2003-0012-0702, 0703 p.  1-2
       100,334 Public Citizens
       1,862 Public Citizens
       New York Public Hearing
                      A-2001-28, IV-D-05 [6 public citizens;  9/11 EA p. 255; ALA p. 61, 108; CATF
                      p. 234; E. Harlem AWG p. 269; ENE p. 251; Environmental Defense p. 147;
                      FPIRp. 264; Mt Sinai COEM, p.241; NRDC p. 27; NY EJA p. 232; NY DEC p.
                      11; NY PIRG p. 126; Sierra Club p. 248; U.S. PIRG p. 185; W. Harlem EA p.
                      259]
       Chicago Public Hearing
                      A-2001-28, IV-D-06 [35 public citizens; Advocate Healthcare p. 275; ALA p.
                      278; Beth El p.  300; BTI p. 264-269; CATF, 254; CAT p. 152-158; ELPC p.
                      249; IL EPA p.  227; IL HSC p.  190; NCBLRD p. 69; NRDC p. 304; OEC p.
                      290-292; STAPPA/ALAPCO p. 34; Sierra Club p. 122, 164; SACE p.  179; U.S.
                      PIRG p. 9]
       Los Angeles Public Hearing
                      A-2001-28, IV-D-07 [21 public citizens; ALA p. 171, 215; BTI p. 159; CARB p.
                      12; CA Earth Corps p. 201; CA ERA p. 77; CA Safe Schools p. 127; CAT p.
                      182; CCA p. 139; CSA p. 188; CBE p. 135; Environment CA p. 109;
                      Environment Canada p. 167; Environmental Defense p. 87; LAP p. 250; LA IEC
                      p. 197; NRDC p. 51; STAPPA/ALAPCO p. 22; Sierra Club p. 257; U.S. PIRG p.
                      175;UCSp. 65]

       Many commenters stated that they believe that the proposed rule is a crucial component of the
effort to meet health based air quality standards, such as the NAAQS, and improve visibility as required
by the CAA and EPA's regional haze regulations. Some commenters (Oregon Department of
Environmental Quality, WRAP, National Park Service) noted that this rule would especially help improve
regional haze and visibility in the west.  NESCAUM commented that attainment of the NAAQS is of
immediate concern to the states in the northeast region. And SACE noted that emission reductions from
nonroad sources would be particularly beneficial to metropolitan areas throughout the  south.  They added
that many southern areas are struggling to address nonattainment designations that have resulted in part,
from the tremendous growth this area has experienced.  NRDC noted that L.A. is estimated to fall short of
attainment by 183 tons of NOX per day and the San Joaquin Valley faces a similar shortfall, they asserted
that since nonroad engines will account for almost 50 percent of the vehicle-related NOX emissions by
2007, and therefore it is crucial that EPA adopt this proposal as soon as possible.  CARB noted that the
CAA preempts California from controlling emissions from new farm and construction equipment under
175 hp, and that EPA action in this area is crucial in order to facilitate attainment with the standards.
They added that 75 percent of the roughly 450,000 land-based and recreational marine diesel engines in
California are in this category and constitute 21 percent and 58 percent of the total mobile source NOX and
diesel PM, respectively, in California. The Connecticut Department of Environmental Protection
commented that in 1999, NOX emissions from nonroad diesel engines alone were responsible for one-third
of the total combined mobile and stationary source inventory in Connecticut, and as a result, this rule is

                                             1-2

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                              Summary and Analysis of Comments
                                                                                    May, 2004

crucial for assisting Connecticut in their efforts to attain and maintain the NAAQS for ozone.
Environmental Defense provided additional discussion on this issue including an assessment of
nonattainment areas throughout the nation and concludes that the problem could worsen without action to
reduce nonroad emissions.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 1-4
       City of Houston - Office of the Mayor, OAR-2003-0012-0630 p. 2
       Connecticut Department of Environmental Protection, OAR-2003-0012-0653  p. 1-2
       Environmental Defense, OAR-2003-0012-0821 p. 1-5
       Massachusetts  Department of Environmental Protection, OAR-2003-0012-0641 p. 1
       New York City Office of Environmental Coordination, OAR-2003-0012-0631 p.  1
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 1-7
       NESCAUM, OAR-2003-0012-0659 p. 2-4
       Oregon Department of Environmental Quality, OAR-2003-0012-0779 p. 2
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 2-3
       South Carolina Department of Health & Environmental Control, OAR-2003-0012-0476 p. 1
       South Coast Air Quality Management District, OAR-2003-0012-0623 p. 1
       Texas Commission on Environmental Quality, OAR-2003-0012-0716,  717 p.  1
       Western Regional Air Partnership, OAR-2003-0012-0774, 0775 p. 1
       Wisconsin Department of Natural Resources, OAR-2003-0012-0702, 703 p. 1-2
       New York Public Hearing
                     A-2001-28, IV-D-05 [ALA p.  108; Environmental Defense p. 149]
       Chicago Public Hearing
                     A-2001-28, IV-D-06 [IL EPA p. 228; NPS p. 207-212; OEC p. 292; SACE p.
                      179; WRAP p. 51]
       Los Angeles Public Hearing
                     A-2001-28, IV-D-07 [CCA p.  141; Environmental Defense p. 88; NRDC p. 52;
                     STAPPA/ALAPCO p. 25; SCAQMD p. 117; WRAP p. 157]

       Some commenters (Clean Air Task Force, Pennsylvania Department of Environmental
Protection, Wisconsin Department of Natural Resources, STAPPA/ALAPCO, and ENE) stated that the
proposed rule is important because of the necessity for federal action in this area.  They further noted that
states are pre-empted from regulating standards from new engines and it is impractical for them to
effectively regulate fuels and locomotives and marine engines at the state level. CARB also commented
that almost 75 percent of the nonroad diesel engines in California are federally preempted and beyond
CARB's authority to regulate.

       We received comments regarding the potential for the rule to reduce the impact of diesel
emissions on global warming. One commenter specifically cited the impact of black carbon from diesels
as a major contributor to global warming, and added that states in the Northeast are increasingly looking
to diesel emissions to reduce global warming emissions. (See additional discussion under Issue 2.2).

       Letters:
       Clean Air Task Force, et. al., OAR-2003-0012-0508  p. 7-8
       Pennsylvania Department of Environmental Protection, OAR-2003-0012-0699 p. 2
       Wisconsin Department of Natural Resources, OAR-2003-0012-0702, 0703 p.  1-2

                                             1-3

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                               Summary and Analysis of Comments
                                                                                     May, 2004

       New York Public Hearing, A-2001-28, IV-D-05 [ENE p. 251]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [STAPPA/ALAPCO p. 23]

       A number of commenters expressed that the proposed rule would be important from an
environmental justice perspective since it would help improve the health of those who are living near
industrial areas or in urban areas where construction is often ongoing.  They commented that it is
important to recognize this proposal as a viable and necessary step for alleviating the disproportionate
adverse environmental effects on minority and low-income communities. The commenters further added
that these regulations could save 1 to 2 percent of hospital care costs among certain susceptible
populations, such as people of color and low-income families. Environmental Defense specifically noted
that when information from the  MATES  II study is matched with 1990 Census Data, it is clear that the
communities most impacted by  diesel exhaust and other air toxics are predominantly low-income
communities of color. They provided additional information on the income, employment, and race of
affected communities and cites to 1990 Census Data, William H. Webster and Hubert Williams, The City
in Crisis: A Report by the Special Advisor to the Board of Police Commissioners on the Civil Disorder in
Los Angeles (1992), reprinted in Robert Garcia, Riots & Rebellion (1997), as supporting documentation.

       In Illinois, locomotives  are quite prevalent especially in the urban area in and around Chicago.  It
is in urban areas that the risk of cancer and asthma is highest.

       Letters:
       Environmental Defense , OAR-2003-0012-0821 p. 6-7
       IL Lt. Governor Pat Quinn, p. 4
       NESCAUM,  OAR-2003-0012-0659 p. 2-4
       New York Public Hearing, A-2001-28, IV-D-05 [NY PIRG p. 126]
       Los Angeles Public Hearing
                     A-2001-28, IV-D-07 [CEC p. 205; CA ERA p. 77; CCA p. 141; CSE p. 189;
                     CBE p. 135; LAP p. 250; L.A.  IEC p. 198; Sierra Club p. 269; UCS p. 65]

       Some commenters noted that the effects of nonroad diesel emissions on fragile ecosystems is well
documented- these emissions produce, among other ecological problems, acid rain.  They further stated
that as the acidity of an aquatic ecosystem increases, species of plant and animal life are  diminished, and
terrestrial animals dependent on aquatic ecosystems are also affected.  The Illinois Department of Natural
Resources noted that acid rain reduces productivity in commercial fisheries, forestry and agriculture
resulting in a loss of jobs and taxable revenue in the  State of Illinois.  The Air Resources Division of the
National Park Service noted that researchers have documented the air pollution effects on biological and
aquatic resources in our national parks and that control of nonroad diesel pollution is a crucial component
of mitigating these effects.

       Environmental Defense and STAPPA/ALAPCO commented that they support the
implementation of the proposed rule since the resulting  NOX and PM emission reductions will  lead to
significant economic benefits in the form of reduced damage to crops. Environmental Defense further
noted that California farmers lost an estimated $333  million to ozone crop damage in 1984 and $265
million in 1989. They commented that they believe that controlling NOX emissions from diesel farm
equipment will reduce ozone formation and will help limit crop damage, and cited a recent study which
demonstrated that farm workers are adversely affected by the pollution from diesel farm  equipment and
have much to gain from rigorous emission standards.

                                             1-4

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                               Summary and Analysis of Comments
                                                                                     May, 2004

       Letters:
       Clean Air Task Force, et. al, OAR-2003-0012-0508 p. 7
       Environmental Defense, OAR-2003-0012-0821 p. 3
       Illinois Lieutenant Governor Pat Quinn, OAR-2003-0012-0781 p. 1-4
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 1-7
       Pennsylvania Department of Environmental Protection, OAR-2003-0012-0699 p. 2
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 2
       Wisconsin Department of Natural Resources, OAR-2003-0012-0702, 0703 p.  1-2
       New York Public Hearing, A-2001-28, IV-D-05 [Environmental Defense p. 149]
       Chicago Public Hearing
                      A-2001-28, IV-D-06 [IL DNRp. 120; NPS p. 211; Sierra Club p.  122]
       Los Angeles Public Hearing
                      A-2001-28, IV-D-07 [Environmental Defense p. 89; STAPPA/ALAPCO p. 23]

Our Response:

       We appreciate the comments that these commenters provided. We believe that reducing
emissions from nonroad sources is critically important to achieving such large improvements. The
systems approach of this program- setting standards for nonroad diesel fuel sulfur as well as engine
emissions standards- will facilitate great pollutant emission reductions from this sector. With expected
growth in the nonroad sector, the relative emissions contribution from nonroad diesel engines without
today's final rule is projected to be approximately 44% of the PM25 and 47% of the NOx emissions from
all mobile sources in 2030. Today's action will achieve engine emissions reductions in PM and NOx
emissions levels in excess of 90%, and will reduce sulfur levels in NRLM diesel fuel more than 99% to
15 ppm.  We note that we are finalizing this program on the same time frame as we proposed in the
NPRM.

       We agree with the commenters that the requirements in this rule will result in substantial benefits
to public  health and welfare through significant reductions in NOx and PM, as well as NMHC, CO, SO2
and air toxics.  Diesel exhaust is of specific concern because it has been judged to likely pose a lung
cancer hazard for humans as well as a hazard from noncancer respiratory effects.  We estimate these
annual emission reductions will prevent 12,000 premature deaths, 15,000 nonfatal heart attacks, and over
5 million lost work days from respiratory symptoms.  In addition, emissions from these engines contribute
greatly to a number of serious air pollution problems and would continue to do so in the future absent
further reduction measures. Ozone, NOx, and PM also cause significant public welfare harm such as
damage to crops, eutrophication, regional haze, and soiling of building materials.

       We also agree with commenters that emissions from nonroad engines account for substantial
portions of the country's ambient PM and NOx levels. We estimate that these engines account for about
ten percent  of total NOx emissions and about ten percent of total direct PM emissions. These proportions
are even higher in some urban areas, which include many poorer neighborhoods, and can be
disproportionately impacted by diesel emissions. These areas will greatly benefit from the adopted
emissions controls.
       1.1.2   Impact on States
                                              1-5

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004
What Commenters Said:
       The Colorado Department of Public Health and Environment and the Western States Air
Resources Council commented that harmonization of diesel fuel standards for on and off road will
ultimately eliminate the potential air quality impacts of misfueling and will ease transport and storage
issues in the petroleum industry.

       We also received comments from CARB, OTC, Environment Northeast, and the Texas
Commission on Environmental Quality, which stated that the proposed rule is important because of the
necessity for federal action in this area. These commenters further noted that States are  pre-empted from
regulating standards from new engines and it is impractical for them to effectively regulate fuels and
locomotives and marine engines at the state level.  CARB specifically commented that almost 75 percent
of the nonroad diesel engines in California are federally preempted and beyond CARB's authority to
regulate.

       Letters:
       Colorado Department of Public Health and Environment, OAR-2003-0012-0687 p. 1
       Texas Commission on Environmental Quality, OAR-2003-0012-0716, 717 p. 1
       Western States Air Resources Council, OAR-2003-0012-0711 p. 1
       New York Public Hearing, A-2001-28, IV-D-05 [ENE p. 251; OTC p. 209]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [CARB p. 12]

Our Response:

       As noted in the sections above, we received many comments from states that were very
supportive of the rule.

       In regard to the comments from Colorado and WESTAR, we note that the fuel program that we
are  finalizing today will lead to harmonization of highway and nonroad fuels in the future. In addition,
the  designate  and track provisions that we are finalizing will help to alleviate concerns with misfueling
and the transportation and storage of fuels (see section IV of the rule preamble for more information on
the  fuel program).

       We appreciate the comments acknowledging the importance of today's action.
1.2    Opposes Rule

What Commenters Said:

       Rule is too stringent

       Three private citizens commented that they do not support the implementation of the proposed
rule because there is no need for additional government regulations in the nonroad sector.  Two of these
commenters specifically noted that emission reductions from nonroad engines are not necessary since
existing engines are already clean enough and are not significant contributors to overall PM and NOx
emissions, summertime ozone levels, acid rain, or water pollution. In addition, they stated, these engines

                                              1-6

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                 Summary and Analysis of Comments
                                                                                       May, 2004

are often operated far from areas with larger or more concentrated populations. [See related discussion
under Issues 5.3.3 and 7.1.]

       The third commenter noted that newer equipment will have larger engines, but the trend towards
fewer, larger, and more efficient farms, less power equipment will be needed to perform the same tasks.
The commenter also stated that this is evidenced by falling tractor and combine sales in the U.S., which
along with the low number of sources and operations in relatively rural areas, precludes the need for
additional regulations aimed at reducing emissions in the nonroad sector.

       Rule is too costly

       Three private citizens commented that they do not  support the implementation of the proposed
rule because it would be too costly. These commenters believed that the proposed rule would likely
unnecessarily increase the cost of equipment, maintenance, and repair.  They further stated that the
proposed standards will cost resource providers millions with no tangible benefit to public health. One
commenter specifically requested that EPA listen to industry concerns in this regard. Another commenter
suggested that in lieu of finalizing the proposed rule, which could prove to be too costly, EPA should
provide tax incentives for heavy equipment manufacturers  that would lead to voluntary emission
reductions. [See related discussion under Issues 5.3.3 and 7.1]

       Rule is too lenient

       Over 80,000 public commenters stated that they support the rule, but are  opposed to the timing
and the possibility of only regulating locomotive and marine fuel to 500 ppm.  These commenters believe
that the rule should be implemented on a more accelerated  time schedule (they do not support providing
lead time for the manufacturing and fuel industries). Further, these commenters believe that all diesel
fuel- including locomotive and marine fuel-  should be  reduced to a sulfur content of 15 ppm.

       Letters:
       3 Public Citizens
       80,000+ Public Citizens

Our Response:

       As described above in section 1.1.1, we continue to believe that the program that we are
finalizing today is necessary, and is technologically and economically feasible  in the time frame allowed.
We also believe that the lead time being offered is necessary for the manufacturing and fuel industries to
be able to comply with the rule. The benefits of this action, with overall quantifiable benefits totaling
over $83 billion annually by 2030, will greatly outweigh the  costs. For a more in-depth description of the
feasibility of the engine and equipment and fuel standards,  please refer to chapters 4 and 5, respectively,
of the Regulatory Impact Analysis (RIA).  In addition, chapters 6 and 7 of the RIA describe the costs of
the rulemaking in greater detail.
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                                                   Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
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2.     ENVIRONMENTAL AND AIR QUALITY ISSUES

What We Proposed:

       The comments in this section correspond to Sections I and II of the nonroad Tier 4 proposal, and
therefore are targeted at environmental and air quality issues from the proposal.  A summary of the
comments received, as well as our response to those comments are located below.  Please note that
comments addressing environmental or public health benefits in the context of EPA's benefit-cost
analysis,  will be included in Section 7.1 of this Summary and Analysis  (which corresponds to Section V.E
of the preamble).

       For the full text of comments summarized here, please refer to the public record for this
rulemaking.

2.1     General Public Health Impacts

       2.1.1   Reducing Diesel Emissions Is Essential for Protecting the Public Against Health
               Risks

What Commenters Said:

       We received many comments that noted  that the emission reductions that would result from the
implementation of the proposed rule would lead to significant reductions in cases of cancer. The
commenters also cited to a variety of reports and agreed that the science to date supports the conclusion
that there is a correlation between diesel emissions and cancer. NRDC  noted that many leading agencies
around the world have concluded that diesel emissions pose some form of cancer risk, including EPA,
and the World  Health Organization's cancer research office. This commenter also noted that diesel soot
pollution is particularly significant for Californians since both the South Coast Air Quality Management
District and CARB concluded that diesel pollution is responsible for more than 70 percent of the cancer
risk in California.  In  addition, STAPPA/ALAPCO have ranked L.A. number 1 and San Francisco
number 3 in total cancer cases expected over the  next 70 years. NRDC cited to and attached as
supporting  documentation: Solomon, Gina, M.D., "Health Effects of Diesel Exhaust," Clinics in
Occupational and Environmental Medicine, 2003; and cited to the ALA/Environmental Defense report
entitled "Closing the Divide," April 2003, and provided a web site reference for this report.
Environmental Defense noted that in L.A. County, 86 percent of the cancer risk from all air pollutants is
due to diesel mobile sources such as construction equipment. This commenter provided as supporting
documentation, a history of determinations of the carcinogenicity of diesel exhaust and a list of toxic air
contaminants and hazardous air pollutants found in diesel exhaust in Appendices A and B of their letter,
respectively. Another commenter (U.S. PIRG) noted that a 2002 report by Illinois PIRG found that the
average cancer risk from diesel exhaust in Illinois exceeds EPA's health protective threshold for cancer by
more than 425  times and 63 percent  of that additional cancer risk comes from the diesel equipment that
will be regulated under the proposed rule. This commenter added that a recent study showed that in
Chicago, diesel equipment produced more than 40  percent of the soot and 25 percent of the  smog
pollutants from all vehicles.  U.S PIRG also cited to their 2002 analysis of EPA's National Scale Air
Toxics Assessment, which suggests that diesel exhaust comprises a significant portion of the cancer risk
from air toxics nationwide. Some commenters (CATF, NCBL, Dorvich, Environmental Defense) also

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                               Summary and Analysis of Comments
                                                                                     May, 2004

cited components of diesel fuel emissions that are considered to be probable human carcinogens and
noted that reductions in diesel emissions would also reduce the cancer rate. One of these commenters
(Dorvich) noted that after taking into account factors like age, smoking, and occupational exposure, diesel
emissions have been linked to about a 40 percent increase in the risk of cancer.  Some commenters
(Environmental Defense, CCA, Miller, Carson, Sierra Club) also cited to the Multiple Air Toxics
Exposure Study (MATES) II, which found that diesel particulate emissions are responsible for 70 percent
of the cancer risk associated with air pollution in California's South Coast region. One of these
commenters (Sierra Club) also provided additional data summarizing the amount of cancer-causing
substances released nationwide, statewide in Wisconsin, and in specific counties within Wisconsin for
both nonroad and onroad mobile sources in terms of percent contribution and pounds released.
NESCAUM noted that the National Toxics Inventory data (1996) indicate that diesels contribute up to 60
percent of the mobile source inventory of formaldehyde and acetaldehyde in the Northeast, which
contributes to the elevated cancer risk in this region. The Building and Construction Trades Department
cited to research conducted by the Construction Occupational Health Program (COHP) at the University
of Massachusetts, which shows that a significant percentage of workers are exposed to diesel pollution
that exceeds threshold values, thus posing a health risk to these individuals. The LHSFNA commented
that health concerns to diesel exhaust spurred the Mine Safety and Health Administration to propose rules
to reduce the risks to miners of serious health hazards that are associated with exposure to high
concentrations of diesel PM. MSHA stated that "The best available evidence indicates that such high
exposures put these miners at excess risk of a variety of adverse health effects, including lung cancer.
Many commenters provided testimony and comments that generally addressed the risk of cancer in the
context of their support for the proposed nonroad diesel rule. See also Issue 1.1.1.

       Letters:
       NESCAUM, OAR-2003-0012-0659 p. 3-4
       Clean Air Task Force, et. al, OAR-2003-0012-0508 p. 1-8
       Environmental Defense, OAR-2003-0012-0821 p. 1-6, 21-22
       Illinois Lieutenant Governor Pat Quinn, OAR-2003-0012-0781 p. 1-4
       Laborer's Health and Safety Fund of North America, OAR-2003-0012-0638 p. 1-2
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 7-13
       Building and Construction Trades Dept, AFL-CIO, OAR-2003-0012-0674-0676 p. 2-3
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 3-8
       South Coast Air Quality Management District, OAR-2003-0012-0623 p. 2
       U.S. Public Interest Research Group, OAR-2003-0012-0780 p. 1-2
       Wisconsin Department of Natural Resources, OAR-2003-0012-0702, 0703 p. 2
       Sierra Club - Chicago (IV-D-742) p. +2-3
       New York Public Hearing
                     A-2001-28, IV-D-05 [ALA p. 109; CATF p. 234; NRDC p. 28;
                      STAPPA/ALAPCO p. 39; U.S. PIRGp. 186]
       Chicago Public Hearing
                     A-2001-28, IV-D-06 [1 public citizen p. 280; CATF p. 254; NCBLRD p. 70;
                      Sierra Club p.  122; U.S.  PIRG p. 11]
       Los Angeles Public Hearing
                     A-2001-28, IV-D-07 [2 public citizens p. 63, 242; ALA- CA p. 172; ALA-LA
                     218; CEC p. 203; CCA p. 147; CSE p. 193; ED p. 88; LAP p. 249; NRDC p. 53;
                      Sierra Club p.  258; U.S.  PIRG p. 176]
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                                                   Control of Emissions from Nonroad Diesel Engines
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       NESCAUM, NRDC, STAPPA/ALAPCO cited to and summarized the interim results of a study
just conducted by NESCAUM on nonroad equipment and operator exposure to PM 2.5 and such toxics as
formaldehyde (see Evaluating the Occupational and Environmental Impacts of Nonroad Diesel
Equipment in the Northeast, Interim Report, June 9, 2003). This study showed that in all industrial
locations sampled, diesel activity substantially increased fine particulate matter and toxic exposure for
workers and nearby residents, in some cases by as much as 16 times.  Measured concentrations of
acetaldehyde, benzene, and formaldehyde around the tested nonroad equipment operations were as much
as 140 times the federally-established screening threshold for cancer risks. NESCAUM summarized
some of the conclusions included in the report and provided a copy of their report, which included
additional discussion and supporting data.

       Letters:
       NESCAUM, OAR-2003-0012-0659 p. 3-4
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 7-13
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 3-8
       New York Public Hearing, A-2001-28, IV-D-05 [NESCAUM p. 94]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [U.S. PIRG p.  177]

       A number of commenters commented that nonroad diesel engines emit huge quantities of
particulate matter and other pollutants that trigger asthma attacks, bronchitis,  emphysema, and other
ailments that can lead to premature death. Some commenters provided specific numbers regarding
adverse health effects that could be avoided through the implementation of this rule. For example, some
commenters (CATF, CCA,  NRDC) noted that the proposed rule will cut more than 9,600 premature
deaths and prevent more than 260,000 respiratory symptoms in children, 5,700 children's asthma-related
hospital emergency room visits, 16,000 heart attacks, and almost 1 million lost work days annually.
NRDC cited to and attached as supporting documentation: Solomon, Gina, M.D., "Health Effects  of
Diesel Exhaust,"  Clinics in  Occupational and Environmental Medicine, 2003; and cited to the
ALA/Environmental Defense report entitled "Closing the Divide," April 2003, and provided a web site
reference for this report.  STAPPA/ALAPCO noted that the proposed rule will prevent annually 8,500
premature deaths, 180,000 asthma attacks, 5,600 cases of adult chronic bronchitis, 18,000 cases of acute
chronic bronchitis in children, nearly 200,000 cases of lower respiratory symptoms in children, 6,000
hospital admissions, and 1.5 million lost work days. The Coalition for Clean Air also cited the USC Keck
School of Medicine study, which found that the health of children growing up in southern California was
directly impaired by NOX and PM emissions and that their lung function was reduced by 10 percent.
Environmental Defense cited a four year study summarized in a 2002 article from the American Journal
of Respiratory and Critical  Care Medicine, which shows that children in L.A. suffer significant deficits in
lung-growth function due to exposure to NOX, PM, and elemental carbon. Environment Northeast cited a
Hartford Health survey, which revealed that 15 percent of adults and 8.7 percent of school-age children
have asthma. This commenter also noted that a recent survey of children visiting primary care facilities in
Hartford, CT found that 33  percent of these children have asthma. The Sierra Club noted that there would
be significant benefits from reducing nonroad emissions from construction equipment to city residents
and the construction workers. The National Coalition of Black Lung and Respiratory Disease noted that
particulates exacerbate medical conditions for patients who already have impaired lung function.  One
commenter (Dr. Pandya) cited to his article as published in 2002 in Environmental Health Perspectives,
which examines the impact of diesel exhaust on asthma.  ALA cited to their report "The American Lung
Association State of the Air 2003" which estimates that nearly 2 million children with  asthma live in
counties that violate the NAAQS. Many commenters provided testimony and comments that generally

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                               Summary and Analysis of Comments
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addressed these risks to public health. See also Issue 1.1.1.

       Letters:
       Clean Air Council, OAR-2003-0012-0613 p. 1-2
       Clean Air Task Force, et. al, OAR-2003-0012-0508 p. 1-8
       Environmental Defense, OAR-2003-0012-0821 p. 1-6
       Illinois Lieutenant Governor Pat Quinn, OAR-2003-0012-0781 p. 1-4
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 7-13
       NESCAUM, OAR-2003-0012-0659 p. 2-4
       New York City Environmental Justice Alliance, OAR-2003-0012-0583 p.  1
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 2-3
       New York Public Hearing
                     A-2001-28, IV-D-05 [1 public citizen, p. 166; ALA p. 108; ALA-NY p. 62;
                     CATF p. 234; ED p. 148;  E. Harlem AWG p. 270; E NE p. 251; Mt. Sinai
                     COEM p. 241; NRDC p. 28; NYC EJA p. 231; STAPPA/ALAPCO p. 39; Sierra
                     Club p. 249; W. Harlem EA p. 259]
       Chicago Public Hearing, A-2001-28, IV-D-06 [NCBLRD p. 70]
       Los Angeles Public Hearing
                     A-2001-28, IV-D-07 [1 public citizen, p. 229; ALA- CA p. 172; ALA-LA p. 216;
                     CCA p. 146; CSE p. 188;  ED p. 88; NRDC p. 53]

       Environmental Defense and West Harlem  Environmental Action commented that EPA's rule is
particularly important from an environmental justice perspective- diesel exhaust has long been a problem
in urban communities of color. West Harlem also  noted that New York has some of the highest rates in
the nation of childhood asthma hospitalization. The commenter added that East Harlem has long led the
country with the highest rates, roughly five times the national average and that recent findings indicate
that a staggering one in four children in  Central Harlem suffer from asthma, four times the national
average.  Communities for a Better Environment noted that the residents of Wilmington, California, 80
percent of whom are Latino, are significantly impacted by diesel pollutants, and  often have difficulty
communicating with regulators on the issue of reducing pollution.  Environmental Defense noted that
over 80 percent of the communities impacted by air toxics emissions are African-American and Latino
with a significant percentage of those living below the poverty line. The proposed standards would have
a direct positive impact on human health and the cancer risk in these communities.

       Letters:
       New York Public Hearing, A-2001-28, IV-D-05 [W. Harlem EA p. 259]
       Los Angeles Public Hearing
                     A-2001-28, IV-D-07 [CBE p. 134; Environmental Defense p. 92]

       The health benefits of the proposed rule will exceed those of other recent vehicle-related
programs. NRDC provided significant discussion  and supporting documentation to support their claim,
including detailed tables that summarize the cases  per year of PM-related adverse health effects that will
be avoided and the monetary and non-monetary health and environmental benefits.

       Letters:
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 7-13
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                                                     Control of Emissions from Nonroad Diesel Engines
                                                                 Summary and Analysis of Comments
                                                                                        May, 2004
Our Response:
        We agree that there are public health benefits from the final Nonroad Diesel rule as described in
Chapter 2 of the RIA. The final rule will reduce harmful emissions and protect sensitive groups such as
outdoor workers, children, asthmatics and those with existing heart and lung disease.

        We agree that diesel exhaust is a likely human carcinogen, and our Health Assessment Document
for Diesel Engine Exhaust (Diesel HAD) provides substantial evidence to support this claim.1 We also
agree that diesel engines comprise a large portion of the national emissions inventory for some specific  air
toxics such as formaldehyde.  The Agency recognizes that in some occupations, exposures to diesel
exhaust are of concern.

        We have reviewed the documents cited that provide a numerical estimate of cancer risk
attributable to diesel exhaust. The Agency does not believe that at this time the data support a confident
determination of a unit risk for diesel exhaust and therefore the cancer-related mortality or morbidity
associated  with diesel exhaust exposure cannot be determined quantitatively. However, the Agency has
determined that the carcinogenic risk from diesel exhaust may be as high as 10~3 to 10~5 but a zero risk
cannot be ruled out.  The basis for these determinations is provided in Chapters 8 and 9 of the Diesel
HAD.

        We concur with the commenter's statements regarding the composition and biological fate of
diesel exhaust particles.

        We have reviewed the interim and final report from NESCAUM and agree that exposures to
hazardous  air pollutants in diesel-associated professions and nearby residential areas can be elevated.

        We agree that reducing nonroad diesel engine emissions will reduce exposures to air toxics and
criteria pollutants in low-income and minority populations. We agree that the rule will benefit
environmental justice.  We agree in general with the importance of receiving comments from
communities who perceive problems related to diesel-related pollution.

        We agree in general with comments supporting the rule due to adverse health effects from
exposure to pollutants such as particulate matter associated with nonroad diesel engines. We agree in
general that the rule provides a health-related benefits associated with a range of health outcomes.
        2.1.2   Uncertainty in Health Risks Associated with Diesel Engines

 What Commenters Said:

        DDC and EMA commented that there is uncertainty in our estimates of the health risks associated
 with diesel engines, and that EPA should reevaluate the effects of diesel exhaust since old studies of
 diesel exhaust from prior decades are not relevant to Tier 4-type engine products. The commenters also
        '[USEPA] U.S. Environmental Protection Agency. Health Assessment Document for Diesel Engine Exhaust.
EPA/600/8-90/057F.  Online at http://www.epa.gov/ncea.

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
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stated that the proposed Advanced Collaborative Emissions Study (ACES) initiative, which EMA is
spearheading, will yield key data in this regard; and that EPA should commit itself and its resources to the
ACES project.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 8
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 93

       API and Marathon commented that the specific components of diesel exhaust that significantly
contribute to health risk are currently not adequately defined. The concentrations of emissions associated
with diesel exhaust have been at concentrations greater than those found in ambient air and it is unclear
whether the  rat carcinogenicity observed experimentally at high concentrations decreases in a linear
fashion as related to dose, or if there is a practical threshold below which additional health benefits  are
unlikely. The uncertainty associated with the dose-response curve confounds the use of existing
carcinogenicity data for quantitative risk/benefit assessment.  The commenters cited to two independent
expert review panels that have recognized the non-quantitative aspect of the relationship of diesel exhaust
to increased risk of lung cancer.  These are: 1) Health Effects Institute  (1999), Diesel Emissions and Lung
Cancer:  Epidemiology and Quantitative Risk Assessment (www.healtheffects.org), and 2) Clean Air
Scientific Advisory Committee (CASAC) of EPA's Scientific Advisory Board, Review of the EPA Health
Assessment  Document for Diesel Emissions (EPA 600/8-90/057D and EPA600/8-90/057E).

       API and Marathon further commented that EPA continues to overstate the certainty that PM alone
is causing mortality and morbidity. In 1998, the NAS recommended a comprehensive long term research
program to evaluate the health effects  of PM. While some new data has been provided as a result of this
study, additional data are needed.  API also noted that they have previously submitted significant
comment on EPA's PM health risk assessments, continues to express concern that the current database
does not allow for an accurate overall  assessment of the human health or environmental effects, and
concludes that EPA has not provided a complete or balanced health effects review and has overestimated
the benefits of reducing ambient levels of PM.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p.  46-47
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 42-43

Our Response:

       As discussed in Chapter 2  of the RIA, the diesel health studies in the Health Assessment
Document for Diesel Engine Exhaust and, published subsequently, are relevant to the types of engines
currently in use in the Nonroad fleet.  These engines are very durable and are often in the fleet for over 20
years. Further, the emissions from on-road diesel engines are similar to those from nonroad diesel
engines. These studies and exposure assessments such as the National-Scale Air Toxics Assessment
(NATA) demonstrate a need to reduce current diesel exhaust.

       As stated in the Health Assessment Document for Diesel Engine Exhaust, we agree in general of
the need to evaluate the health effects  of diesel exhaust from future technology diesel engines.  We  fully
support the ACES research program and are spending considerable staff time to help implement this
work.

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                                                     Control of Emissions from Nonroad Diesel Engines
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        In response to API and Marathon's comments, we concur that, at present, there are insufficient
data to derive a dose-response curve for diesel exhaust. As described in the Health Assessment Document
for Diesel Engine Exhaust, and based on Clean Air Science Advisory Committee (CASAC) advice, we do
not present a cancer incidence estimate.  Similarly, cancer incidence related exclusively to diesel exhaust
PM is not a part of EPA's quantitative economic benefits methodology. We refer to the Health
Assessment Document for Diesel Engine Exhaust for a more detailed discussion of the limitations of the
current health studies specific to diesel exhaust and, also, a discussion of a range of carcinogenic risk that
may be associated with diesel exhaust based on numerous epidemiology studies.

        Regarding API and Marathon's comments that we are overstating the current state of knowledge
regarding PM health effects, we do not agree.  During the review of the PM NAAQS that was completed
in 1997, EPA concluded that PM, alone or in combination with other pollutants, is associated wtih
adverse effects below those allowed by the then-current standards.  EPA has reviewed the substantial
literature  on this topic and believes that health and welfare effects do result from levels of PM25 observed
in ambient air.  The Fourth External Review Draft of Air Quality Criteria for Particulate Matter expresses
EPA's current understanding of PM health effects, as reflected in the 1996 PMCD and in subsequently
published literature. The document is currently under review by CASAC. We have modeled air quality
related to a preliminary control option as illustration. The emission differences between that modeling
and the final  rule impacts are discussed in RIA Chapter 3.6.

       We agree with the commenter on the importance of further PM-related research, suggested in the
NRC's reports on PM research.

        The Agency recognizes that estimates of PM-related health effects are subject to uncertainty
related to different steps of the analytical (modeling) process.  In response to comments from both the
NAS and the SAB's Health Effects Subcommittee (SAB-HES) regarding economic benefits, as well as
various public commenters, the Agency has initiated the development of an integrated strategy to
characterize uncertainty in its benefits estimates. This approach will consider the entire analytical
framework used in quantifying benefits and will focus in on those elements that contribute most
significantly  to uncertainty in those estimates.  As soon as elements of this strategy are finalized, we will
apply them in order to characterize uncertainty in our benefits estimates.  It is also important to note that,
while the NAS highlighted the need for quantitative characterization of uncertainty associated with
benefits estimates, it also stated that the presence of uncertainty in benefits estimates should not delay
action taken to promote or protect public health.

        In addition to developing methods for characterizing uncertainty, we have continued to update
our benefits analysis methodology to reflect advances in the state of knowledge and understanding
regarding specific pollutants. For this rule, we have made the following key updates to the PM modeling
approach (all of which have been recommended by the SAB-HES): (a) use of the Pope, 2002 reanalysis
of the ACS study data as the basis for modeling chronic exposure-related mortality,  (b) incorporation of
updated impact functions to reflect updated time-series studies of hospital admissions to correct for errors
in application of the generalized additive model (GAM) functions in S-plus; (c) inclusion of infant
mortality in the primary analysis, and (d) incorporation of asthma exacerbations into the primary analysis.
        2.1.3   Health Benefits of the Rule and Current Air Pollution Problems

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What Commenters Said:
       The Mercatus Center commented that EPA overestimated the probable health benefits of the rule
and current air pollution problems. The vast majority of the health benefits EPA claims for the proposed
rule are unlikely to be realized because EPA has greatly overestimated the health damage caused by
current air pollution trends.  EPA did not accurately characterize the impact of long-term and short-term
exposure to PM or the overall impact of ozone on public health. EPA has not provided the public with an
accurate assessment of the weight of the evidence on the health effects of current air pollution, since  1)
there are  numerous inaccuracies in the studies upon which EPA has relied to conclude that there is a
significant risk to the public; 2) EPA relies only on those studies that support its conclusion and does not
evaluate or discuss studies that would show otherwise; and 3) overestimates the number of people who
are exposed to, or are at risk from,  elevated air pollution. Commenter (Mercatus) provides significant
additional discussion and  supporting documentation and data to support their position on this issue,
including a critique of the studies upon which EPA has relied (such as the ACS and Six Cities studies)
and suggestions for additional studies that should be taken into consideration.  (See additional discussion
under Issue 2.1).

       The National Association of Wheat Growers pointed out that there are no areas of the county out
of attainment for NO2.  Given that reductions in NOx are a primary goal of the proposed regulation, EPA
is vigorously attacking a problem which does not exist.

       Letters:
       Mercatus Center,  OAR-2003-0012-0627, 0828 p. 12-29
       National Association of Wheat Growers et al, OAR-2003-0012-0752 p. 2

Our Response:

       We disagree with the comments.  Through the development of criteria documents for ozone, SO2
and PM and the Health Assessment Document for Diesel Engine Exhaust (Diesel HAD), we have
carefully reviewed the science in public forums with expert and public review. We are  relying on those
documents in our interpretations of the  science.

       For example, in the criteria document for PM, after evaluating all the relevant studies (positive
and negative and neutral), EPA concludes the following:

       "A growing body of epidemiology studies confirm associations between short-  and long-term
       ambient PM2 5 exposures (inferred from stationary air monitor measures) and adverse health
       effects and suggest that PM2 5 ( or one or more PM2 5 components) is a probable contributing
       cause of observed PM-associated health effects." P 8-276, conclusion #2

We believe that we have taken the  most appropriate, peer-reviewed approach to characterizing long-term
and short-term effects of air pollution on public health.  This document is not meant as a "weight of
evidence" of current air pollution science, but rather a highlight of the key scientific issues as defined in
EPA's criteria documents. These criteria documents and the Diesel HAD lay out the current science on
the criteria air pollutants and diesel exhaust. These documents have been subject to peer review by the
Clean Air Scientific Advisory Committee (CASAC).  Also, several key PM health  studies have been
independently reviewed by the Health Effects Institute which affirmed EPA's conlcusions.

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                                                    Control of Emissions from Nonroad Diesel Engines
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       In the criteria documents, we have evaluated all relevant scientific data from a variety of relevant
disciplines. In these processes, we did take into consideration the studies and issues mentioned in the
comments. As discussed in the criteria documents, we agree that there remain some uncertainties, and
that further research is needed.

       In Chapter 2 of the RIA, we present an analysis of measured air quality data (that has been quality
assured, certified, and that is complete). As described in detail in the technical support document, we list
counties with a monitored PM design value (based on 3 years of complete data) that violates  the standard.
We then report the associated population. We have also included information about the recently
designated 8-hour nonattainment areas. We agree that not every person in the county or nonattainment
area would experience exactly the concentration at the  central monitor.  It is possible, based on activity
patterns, that the exposures to PM could be higher or lower.  For example, we received public comment
(e.g., NESCAUM) that exposures near Nonroad Diesel equipment and residences near construction sites
where this equipment is operated, can be significantly higher than central site monitors. Furthermore, in
Chapter 2 we summarize NATA modeling that takes into account people's activity patterns and presents
exposure to diesel PM and other toxics from all sources, including nonroad diesel equipment.

       In addition, the methodology used to conduct the economic benefits analysis reflects
recommendations provided by both the NAS and SAB-HES regarding specific elements of the analytical
framework design. Consequently, the Agency believes that the methods used in this analysis reflect the
latest science regarding health effects incidence estimation and valuation for ozone and PM.  The
analytical framework used in this benefits analysis is based on the methodology developed by the Agency
to conduct the cost-benefit analysis for the Clean Air Act (the 812 Analysis). The analytical  blueprint for
the 812 Analysis has been subjected to a rigorous peer-review by the SAB-HES which focused on key
elements of the framework including the selection of epidemiological studies as the basis  for modeling
morbidity and mortality. Based on guidance provided by the SAB-HES and the NAS, the EPA has
updated the benefits analysis methodology used for the NRD Final  Rule Making effort to  reflect the latest
science regarding PM and ozone health incidence estimation and valuation.  Specific modifications
include: (a) use of the Pope 2002 reanalysis of the ACS study data as the basis for the primary mortality
estimate, (b) incorporation of child mortality into the primary estimate, (c) incorporation of asthma
exacerbations into the primary estimate and (d) the use of updated time-series data for morbidity that
reflects corrections for GAM-related errors introduced in previous analyses of several key data sets.
These improvements in the benefits analysis methodology for PM reflect the Agency's ongoing effort to
maintain the scientific defensibility of benefits  estimates generated  in support of regulatory analysis.

       Finally, in response to the comment from The National Association  of Wheat Growers, our new
NOx standards for nonroad engines are primarily intended to mitigate ambient concentrations of ozone,
because ozone formation in the atmosphere is directly linked to the concentration of NOx. Although
exceedence of National Ambient Air Quality Standards for NOx may not be a problem, it continues to be
a significant problem for ozone.
2.2    Issues Related to Specific Public Health or Exposure Studies

       2.2.1   Long-term Exposure to PM and Diesel Exhaust and Health Effects

       2.2.1.1 EPA Should Consider Specific Studies

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        2.2.1.1.1       Veteran's Study

What Commenters Said:

        The Mercatus Center commented that EPA should rely on the Veteran's Study as cited in the RIA,
as a more accurate test of the effects of PM exposure on long-term health The Veterans Study reports a
statistically significant decrease in mortality associated with PM25. However, the study population
included men with preexisting high blood pressure, which should have made them more susceptible to the
effects of PM than the comparatively healthy populations of the ACS and Six Cities studies. There may
be some residual confounding that may explain the anti-correlation between PM25 and health.
Nevertheless, this study's statistical analysis of individual health factors is more comprehensive than that
of the ACS or Six Cities studies because it includes other non-pollution health factors such as age,
smoking-status, blood pressure, and body-mass index.

        Mercatus further added that EPA should include the Veterans Study in its health effects analysis;
noting that EPA  cited to the Veterans Study in the Cost-Benefit section of the RIA (Chapter 9), but did
not discuss this study in the section on health effects of air pollution (Chapter 2).

        Letters:
        Mercatus Center, OAR-2003-0012-0627, 0828 p. 16-18

Our Response:

        We do not agree that the Veterans Study provides a better estimate of PM25-related health
effects.2 Unlike  previous long-term analyses, this study found some associations between premature
mortality and ozone but found inconsistent results for PM indicators. We note that, while the PM
analyses considering segmented (shorter) time periods gave differing results (including significantly
negative mortality  coefficients for some PM metrics), when methods consistent with the past studies were
used (i.e., many- year average PM concentrations), similar results were reported:  the authors found that
"(t)he single-mortality-period responses without ecological variables are qualitatively similar to what has
been reported before (SO4  > PM2.5 > PM15)." First, the Veteran's study assessed male veterans with
elevated blood pressure, who had  a higher than average proportion of current and former smokers.  The
population is not sufficiently similar to the general U.S. population to allow for direct comparison.

        Second,  like the ACS study, the Veterans Study was not originally designed to study air
pollution. Rather,  it was designed as a means of assessing the efficacy of anti-hypertensive drugs in
reducing morbidity and mortality  in a population with pre-existing high blood pressure. Due to this study
design, as noted  in the 4th External Review Draft of the PM Criteria Document, this may cause loss of
follow-up resulting from cohort depletion that is unassociated with the  exposure of concern. This effect
can cause a significant loss of statistical power.  This concern is reflected in the statement by the study
authors, cited in  the PM Criteria Document, that "...the  relatively high fraction of mortality within this
cohort may have depleted it of susceptible individuals in the later periods of follow-up."  Rather than
        2Lipfert, F. W.; Perry, H. M., Jr.; Miller, J. P.; Baty, J. D.; Wyzga, R. E.; Carmody, S. E. (2000) The
Washington University-EPRI veterans' cohort mortality study: preliminary results. In: Grant, L. D., ed. PM2000:
particulate matter and health. Inhalation Toxicol. 12(suppl. 4): 41-73.

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making this study more sensitive to the effects of PM-2.5, the study may have lost statistical power
through loss of susceptible populations from conditions not associated with pollution.

       Thus, a variety of issues associated with the study design, including sample representativeness
and loss to follow up, make this cohort a poor choice for extrapolating to the general public.
Furthermore, the selective nature of the population in the veteran's cohort and methodological
weaknesses may have resulted in estimates of relative risk that are biased relative to a relative risk for the
general population.

       In RIA Chapter 9's economic benefits assessment, consistent with guidance from the SAB-HES,
we have elected to use the Pope 2002 reanalysis of the ACS study as the basis for our primary mortality
estimate. This reanalysis includes expanded coverage for risk factors including many of those cited by
the commenter in recommending the Veteran's Study (e.g., age, smoking status, and body-mass index).
Consideration of these risk factors in the Pope reanalysis has shown the association of PM25 and mortality
to be robust to consideration of these variables. Because the Pope 2002 reanalysis addresses the issue of
risk factors, we believe that use of the Pope reanalysis for the FRM-NRD largely addresses this
commenter's concern that risk factors were not being sufficiently addressed in assessing mortality. We
also do not agree with the commenter's assertion that the Veteran's Study population is necessarily more
sensitive to PM effects. Because the Veteran's study included individuals with elevated smoking rates,
and hypertension, it is possible (as stated by the study authors), that the relatively high mortality of the
study population may have depleted that population of susceptible  individuals for PM2 5-related health
effects. This would make it more difficult to  establish an association between PM2 5 exposure and
mortality.  In addition, a compelling argument can be made against the use of the Veteran's Study for
impact estimation on the grounds that it used  a study population, which is not representative of the
general population.  The Veteran's Study population was 1) all male, 2) veterans, and 3) diagnosed
hypertensive. There are also a number of other differences between the composition of the sample and
the general population, including a higher percentage of African Americans (35 percent), and a much
higher percentage of smokers (81 percent former smokers, 57 percent current smokers) than the general
population (12 percent African American, 24  percent current smokers).

       Although we did consider the study (and others that were not explicitly mentioned) because we
are relying on the criteria documents, we have added discussion of the Veteran's  Study to Chapter 2 of
the RIA as well as the AHSMOG studies and the Dutch NCLS cohort (Hoek et al., 2003)
       2.2.1.1.2       County Study

What Commenters Said:

       The Mercatus Center commented that EPA should include the County Study in the RIA, which is
an important analysis of the relationship between PM and mortality.  The County Study (see F.W. Lipfert
and S.C. Morris, "Temporal and Spatial Relations between Age Specific Mortality and Ambient Air
Quality in the United States: Regression Results for Counties, 1960-97," Occupational and
Environmental Medicine, vol. 59, no. 3 (2002), pp. 156-174) is a full ecological study, included all U.S.
counties with air pollution monitoring data, and assessed the relationship between pollution levels and
mortality at the county level between 1960 and 1997. This study also assessed the relationship between
pollution and mortality for several time periods, and included both concurrent and delayed health effects

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of pollution exposure. This study has found an association between PM25 and increased mortality but
also found that there is a threshold between 20 and 25 ug/m3, below which PM2 5 had no effect. This
study showed little or no evidence for cumulative effects from longer term exposure. The Mercatus
Center provided additional discussion on this study and recommended that based on the problems of
uncontrolled confounding, short latencies, and biologically implausible associations in the ACS and Six
Cities studies, combined with the negative results of the Veterans and County studies, EPA should set its
annual PM25 standard at no less than 20 ug/m3.

       Letters:
       Mercatus Center, OAR-2003-0012-0627, 0828 p. 19

Our Response:

       We did consider the study (and others that  were not explicitly mentioned) because we are relying
on the criteria documents.  The Lipfert and Morris  (2002) County Study is not specifically discussed in
the RIA.  As discussed in the 4th External Review Draft of the PM Criteria Document, the ecological
nature of the study makes the County study results  difficult to interpret.  The study included some
covariates which may confound the relationship with air pollution.  Two of the ecological variables,
vehicle miles of travel per square mile per year by gasoline and diesel vehicles, respectively, in a county
(also used in Janssen et al., 2002) are likely to have important associations with air pollution, and had
varying associations with mortality in the study.  Furthermore, some models employed included the
percentage of air conditioning in a county, a factor that may well be correlated with greater secondary
aerosol formation in warmer temperatures and is likely associated with diminished exposure to air
pollution, resulting in smaller acute health effects per |-ig/m3 of PM pollution (Janssen et al, 2002). Given
these potentially confounding terms in this study's  model, the Criteria Document does not rely on this
study in its conclusions, and therefore, the RIA does not address it.

       Consistent with Science Advisory Board's  Health Effects Subcommittee (SAB-HES) advice, the
Agency is using the Pope 2002 reanalysis of the ACS study as the basis for the primary estimate of
mortality in the final RIA Chapter 9. The authors of the Pope reanalysis note that, for the range of
exposures considered in their reanalysis, the slope of the concentration-response function appears to be
monotonic and nearly linear, although they cannot  exclude the potential for a leveling off or steepening at
higher exposure levels.

       The EPA Science Advisory Board's Advisory Council for Clean Air Compliance, which provides
advice and review of EPA's methods for assessing  the benefits and costs of the Clean Air Act under
Section 812 of the Act, has advised that there is currently  no scientific basis for assuming any specific
threshold for the PM-related health effects considered in typical benefits analyses (EPA-SAB-Council-
ADV-99-012, 1999). Also, the National Research  Council (NRC),  in its own review of EPA's approach
to benefits analyses, has agreed with this advice.

       This advice is supported by the recent literature on health effects of PM exposure (Daniels et al.,
2000; Pope, 2000; Pope et al., 2002, Rossi et al., 1999; Schwartz, 2000) which generally finds no
evidence of a non-linear concentration-response relationship and, in particular, no evidence of a distinct
threshold for health effects. A recent draft of the EPA Air Quality Criteria for Particulate Matter (U.S.
EPA, 2002) reports only one study, analyzing data  from Phoenix, AZ, that reported even limited evidence
suggestive of a possible threshold for PM25 (Smith et al., 2000).

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       Thus, it is appropriate and reasonable to include the estimated benefits associated with all
reductions in PM25 using non-threshold models, to provide a comprehensive picture of the estimated
public health impacts associated with projected future controls on PM precursor emissions.

       Consequently, for the primary analysis, the Agency is not assuming a threshold. However, the
Agency agrees with the NAS and SAB-HES that the issue of a potential threshold in relation to PM25-
related mortality remains an area of uncertainty. The Agency is currently developing a framework for
characterizing uncertainty in the benefits modeling process, which will include consideration for the
shape of the mortality concentration response function. As that work is completed, we will consider
integrating a more complete treatment of uncertainty in these functions into our modeling of PM2 5-related
mortality incidence.
       2.2.1.1.3       Other Studies

What Commenters Said:

       NRDC cited to and attached as supporting documentation: Solomon, Gina, M.D., "Health Effects
of Diesel Exhaust," Clinics in Occupational and Environmental Medicine, 2003; and cited to the
ALA/Environmental Defense report entitled "Closing the Divide," April 2003, and provides a web site
reference for this report. The Clean Air Coalition also cited the USC Keck School of Medicine study,
which found that the health of children growing up in southern California was directly impaired by NOX
and PM emissions and that their lung function was reduced by 10 percent. Environmental Defense cited a
four year study summarized in a 2002 article from the American Journal of Respiratory and Critical Care
Medicine, which shows that children in L.A. suffer significant deficits in lung-growth function due to
exposure to NOX, PM, and elemental carbon.

       Letters:
       New York Public Hearing, A-2001-28, IV-D-05 [CATF p. 234; NRDC p. 28]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [NRDC p. 53]

Our Response:

       We agree that emissions from Nonroad Diesel engines contribute to serious health effects and that
children are especially vulnerable.  Through the development of criteria documents for ozone, SO2 and
PM and the Health Assessment Document for Diesel Engine Exhaust (Diesel HAD), we have carefully
reviewed the science in public forums with expert and public review. We are relying on those documents
in our interpretations of the science. The RIA is not meant as a "weight of evidence" of current air
pollution science, but rather a highlight of the key scientific issues as defined in EPA's criteria
documents.
       2.2.1.2  Use of the ACS and Six Cities Studies

       2.2.1.2.1       Pollutants Included in Studies

What Commenters Said:

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        The Mercatus Center commented that the ACS and Six Cities studies do not accurately portray
the association between PM25 and mortality.  The ACS study assessed health effect using a statistical
model that included PM25 as the only pollutant.  But the HEI reanalysis include SO2 levels in the model
as a potential confounder and found that only SO2, not PM25, was associated with mortality. This
suggests that confounding factors by other pollutants compromised the  accuracy of the ACS study.

        Letters:
        Mercatus Center, OAR-2003-0012-0627, 0828 p. 14

Our Response:

        The final rule reduces SO2, as well as PM25, NOx, ozone, and air toxics. In 2010, our final
program will reduce SO2 emissions by 260,000 tons, which will grow to 375,000 tons reduced in 2030.

        We agree with the need to address copollutants when employing epidemiologic models. The HEI
reanalyses generally confirmed the original investigators' findings of associations between mortality and
long-term exposure to PM, while recognizing that increased mortality may be attributable to more than
one ambient air pollution component.  Regarding the validity of the published Harvard Six-Cities and
ACS Studies, the HEI Reanalysis Report concluded that overall, the reanalyses assured the quality of the
original data, replicated the original results, and tested those results against alternative risk models and
analytic approaches without substantively altering the original findings of an association between
indicators of particulate matter air pollution and mortality.

        The most recent external review draft of the PM criteria document reaches similar conclusions.

        While the Agency recognizes the ongoing need to research the  issue of copollutants, including
SO2, and their role in quantifying the  relationship between long-term exposure to PM2 5 and mortality, we
disagree with the commentor's interpretation of the HEI reanalysis and their assertion that SO2 is
associated with mortality and not PM2 5.  Although the HEI reanalysis did find a robust association
between mortality and SO2, such an association was also  reported for fine particles and sulfate. In
addition, the study points out that efforts to address spatial autocorrelation for ecologic-scale variables
such as fine particles and sulfate may have over-adjusted estimated effects for these regional pollutants
compared with effect estimates generated for local copollutants including SO2.  This could partially
account for the higher effect estimate generated for SO2 relative to fine  particles and for sulfate. In
addition, SO2 is associated with sulfate formation and consequently, SO2 concentrations are likely
surrogates for sulfate concentrations,  which could explain their statistical association with PM2 5-related
mortality.

        In considering this issue of SO2 as a copollutant and its impact  on the association between
mortality and long-term exposure to PM25, it is also important to consider the wider literature. Two
recent studies examining the relationship between gaseous copollutants (including SO2) and PM-related
health effects including mortality (Samet et al., 2000,  2001), conclude that SO2 is likely to represent a
surrogate for ambient PM2 5 concentrations and may in certain circumstances represent a surrogate for
personal exposure to PM25. Furthermore, both studies conclude that SO2 is unlikely to be a confounder
for PM25-related health effects (i.e., it is  unlikely to be associated directly with these health effects while
being correlated with PM25 exposure). Further evidence  against SO2 as a confounder specifically for
mortality effects involves biological plausibility.  While SO2 is recognized as effecting airways causing

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difficulty in breathing, especially for asthmatics, there is little evidence of a causal link between SO2
exposure and cardiovascular- or lung cancer-related mortality. This argues against SO2 as a confounder
for PM25-related mortality effects.

        Following recommendations from the NAS and SAB-HES, we have continued to update our
methods for benefits estimation to reflect the latest research and are now using the Pope, 2002 reanalysis
of the ACS study data.  This latest reanalysis has a number of advantages over prior studies in evaluating
the role of SO2 in the relationship between PM25 exposure and mortality. The Pope 2002 reanalysis
includes 8 additional years of follow up data, including data on fine particulates and gaseous copollutant
exposure.  The Pope 2002 reanalysis also considers a variety of additional covariates believed to be
associated with mortality and uses the latest statistical methods (e.g., non-parametric spatial smoothing)
for addressing key issues such as spatial autocorrelation.  While the Pope 2002 reanalysis continues to
show a strong correlation between SO2 and all cause and cardio-vascular mortality, suggesting that it is
likely a surrogate for particulate fine and more likely sulfate exposure, the study also provides the
strongest evidence yet for an association between long-term exposure to PM2 5 and mortality.
       2.2.1.2.2       Sodoeconomic Factors

What Commenters Said:

       The Mercatus Center commented that the ACS and Six Cities study results suggest that the
association of PM25 with mortality might instead be a dubious association caused by confounding socio-
economic factors. For the ACS study, there was no association between PM25 and mortality for people
with more than a high school education, women, elderly (from age 60 to 69), current or never-smokers, or
those that were sedentary or very active.  In addition, when population change was added into the model
as a potential confounder the PM2 5 effect declined by two thirds and became statistically insignificant.
The ACS study included health-related data based on information from 1982, which could be inaccurate
given the potential changes to overall diet, weight and other factors in the past two decades.  The Six
Cities study results also suffer from residual confounding with respect to level of exercise and education.

       Letters:
       Mercatus Center, OAR-2003-0012-0627, 0828 p. 14-16

Our Response:

       We disagree that the ACS and Six Cities studies conclusions regarding PM25 are attributable to
strictly socioeconomic factors. In the studies, the estimated fine particle effect on cardiopulmonary
mortality and cancer mortality remained relatively stable even after adjustment for smoking status,
although the estimated effect was larger and more significant for never-smokers versus former or current
smokers. The estimates were relatively robust against inclusion of many additional  covariates: education,
marital status, body mass index (BMI), alcohol consumption, occupational exposure, and dietary factors.
However, as the authors note, the data on individual risk factors were collected only at the time of
enrollment and have not been updated, so that changes in these factors since 1982 could introduce
risk-factor exposure mis-classification and a consequent loss of precision in the estimates that might limit
the ability to characterize time dependency of effects. Moreover, it is noteworthy that this study found
education to be an effect modifier, with larger and more statistically significant PM  effect estimates for

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persons with less education.  This may be due to the fact that less-education is a marker for lower
socio-economic status and, therefore, poorer health status and greater pollution susceptibility. These
results may also be an indicator that the mobility of the less educated provides better estimates of effects
in this study (with no follow up of address changes) than for the more mobile well-educated. In either
case, because this cohort comprises a much higher percentage of well-educated persons than the general
public, the education effect modification seen suggests that the overall PM effect estimates are likely
underestimated by this study cohort versus that which would be found for the general public.

        Following recommendations from the SAB-HES, we have updated our benefits characterization
methodology to use the latest reanalysis of the ACS study data (Pope, 2002) as the basis for our primary
morality estimate. This analysis incorporates several enhancements that strengthen conclusions regarding
the association between long term exposure to PM2 5 and mortality and increases our ability to examine
the potential for effects modification by a range of possible risk factors including those mentioned by the
commentor (e.g., educational status, age, smoking status).  These enhancements include: (a) addition of 8
years of follow-up data with an increase in number of deaths, (b) inclusion of range of dietary covariates
in modeling, (c) improvements in treatment of occupational exposure and (d) refinements in methods
used to address potential spatial autocorrelation in ecologic variables. The results of the Pope 2002
reanalysis, rather than suggesting that socioeconomic factors are confounders, point to several of these
variables as potential effects modifiers. Furthermore, the results of the reanalysis show that, with the
exception of smoking status, the mortality association with PM25 is not highly sensitive to inclusion of
risk factors considered in the analysis,  including education and age.  The reanalysis suggests that many of
these risk factors may represent effects modifiers for the PM2 5 mortality association (and not
confounders). In the case of educational status, this variable may be linked to socioeconomic status
which can, in turn, be linked to factors which could impact an individual's risk for mortality and
morbidity effects from PM2 5 exposure, such as access to health care. It is likely that, should our benefits
analysis methodology be further refined to model PM2 5-related mortality for populations differentiated on
education and other potential effects modifiers, overall incidence estimates for mortality and morbidity
would increase.
       2.2.1.2.3       Latency Periods

What Commenters Said:

       The Mercatus Center commented that the development of cardiovascular disease or cancer has a
latency period of 15 to 20 years. However, the measurements for the ACS and Six Cities studies occurred
around the same time the study began in the early 1980s, and for the ACS study, the range of PM levels
was about four times higher during the 1960s than during the 1980s. The Mercatus Center further noted
that this suggests that the health effects of a given increase in PM would be significantly lower than these
studies estimate.

       Letters:
       Mercatus  Center, OAR-2003-0012-0627, 0828 p. 15-16

Our Response:

       We disagree with the comment. No data on PM25 is available for periods prior to the U.S. EPA

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Inhalable Particle Network used in the ACS study. The commenter cites information regarding total
suspended particulates (TSP) prior to the study period, but this information is not directly applicable to
the PM2 5 data used in the ACS study.

       The SAB-HES noted in its review of the Agency's method for conducting PM2 5-related
economic benefits analysis, that the issue of latency/lag associated with specific health effects remains a
source of uncertainty in assessing benefits and is an area requiring additional research. As the SAB-HES
points out, a lack of detailed temporal exposure data for individuals included in long-term prospective
cohort studies makes it difficult to characterize latency and lag periods (for purposes of defining cessation
lags following regulatory implementation) for specific PM-related health effects. As additional
information related to latency and lag periods becomes available, we will incorporate those data into our
benefits analysis methodology.

       While acknowledging limitations in our understanding of latency/lag periods associated with
specific health endpoints, we do recognize the likelihood that lung cancer-related mortality may have a
longer latency period. In fact, the Agency has cited this as a likely reason for the original ACS study not
detecting a significant association between PM25 exposure and lung cancer mortality. However, the latest
reanalysis of the ACS study (Pope, 2002), which includes additional follow-up data on exposure,
mortality and risk factor covariates for the study population, has detected a significant association
between lung cancer and long-term exposure to PM2 5. This further strengthens the argument for a longer
latency period for long cancer.  However, consideration of a longer latency period for lung cancer through
inclusion of the follow-up data in the Pope 2002 analysis, has served to strengthen the relationship
between PM2 5 exposure  and long cancer, rather than weakening it, as suggested by the commenter.

       In the case of cardiovascular-related mortality, the inclusion of additional follow-up data in the
ACS reanalysis resulted  in a reduction in the effects estimate, although the association between long term
PM2 5 exposure and cardiovascular mortality remained significant. In contrast to lung cancer, this trend
does not argue for a longer latency period and its specific implications for a cardiovascular mortality
latency period is unclear. However,  it is important to point out that, by including the follow-up data in
the Pope 2002 reanalysis, this study tracks the study population over 20 years from the standpoint of both
exposure and mortality, which weakens the argument that the ACS study focused on mortality associated
primarily with higher PM exposure from earlier periods (i.e., the  1960's).
       2.2.1.2.4       Carcinogenic Substances

What Commenters Said:

       The Mt. Sinai Center for Occupation and Environmental Medicine commented that particulate
matter in diesel exhaust contains a wide range of carcinogenic substances, including those substances that
are present in cigarette smoke that are notorious for their carcinogenicity.  The commenter further noted
that these substances tend to adhere to the particulates in diesel exhaust and are carried deep into the
recesses of the lung, along with fine carbon base parts; in addition, benzene is present in amounts
comparable to the concentrations of the carcinogenic V agents.

       Letters:
       New York Public Hearing

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                      A-2001-28, IV-D-05 [Mt. Sinai Center for Occupational & Environmental
                      Medicine p. 242]
Our Response:
       We agree that diesel exhaust is a likely human lung carcinogen, as described in the Diesel HAD.
In addition, it is possible that the epidemiologically-derived effects estimates for PM2 5 exposure capture
some of the constituent-specific cancer mortality incidence resulting from diesel particles contained in
diesel exhaust.

       While recognizing the challenges associated with modeling benefits for individual HAPs, the
Agency is continuing to develop methods for HAPs benefits assessment and will consider their
application as they become available.
       2.2.1.2.5       PM-Mortality Relationship Over Time

What Commenters Said:

       The Mercatus Center commented that a comparison of the ACS results from 1982 to 1989 with
those for 1990 to 1998 suggest that PM25 risks are decreasing with time. The PM-mortality relationship
for 1990-1998 is statistically insignificant.

       Letters:
       Mercatus Center, OAR-2003-0012-0627, 0828 p. 15

Our Response:

       The commenters do not cite primary data, but rather an inference that is not possible to confirm or
refute at this point. Regarding the issue of significance, the commenters base their estimate of the
confidence intervals on the size of confidence intervals from other periods. This approach is not a valid
method for estimation of confidence intervals.

       It is important to differentiate between trends in PM2 5 concentrations and the strengths of
association between long-term PM25 exposures and mortality. Associations between PM25 exposure and
mortality can remain strong, or even strengthen (in the case of lung cancer), even as the general trend in
PM2 5 ambient concentrations over the study period has decreased. In this context, mortality risk
associated with a unit change in long-term PM2 5 exposure can remain constant, or even increase due to
better data, while overall population-level exposure and hence mortality linked to PM2 5 exposure is
decreasing.  Specifically, with the Pope  et al.  2002 reanalysis of the ACS data, inclusion of follow-up
data, likely including individuals experiencing somewhat reduced overall PM2 5 exposure (reflecting a
general decrease in PM25 ambient trends) has resulted in a strengthening in the effect estimate for lung
cancer mortality, while producing a decrease  in the effect estimate for cardiovascular mortality (although
the association for cardiovascular mortality still remains significant).

       Further, we did not base our conclusions on any single study, and the larger body of time series
PM studies provide evidence for the association between PM and mortality, as discussed in the criteria

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document.


       2.2.1.2.6       Harvard Six Cities Study

What Commenters Said:

       The Mercatus Center commented that the Harvard Six Cities study only included 6 locations, thus
precluding the possibility of investigating whether other pollutants in the statistical analysis affected the
apparent mortality contribution of PM25.

       Letters:
       Mercatus Center, OAR-2003-0012-0627, 0828 p. 16

Our Response:

       As discussed above, through the development of criteria documents for ozone, SO2 and PM and
the Health Assessment Document for Diesel Engine Exhaust (Diesel HAD), we have carefully reviewed
the science in public forums with expert and public review.  We are relying on those documents in our
interpretations of the  science.  The RIA is not meant as a "weight of evidence" of current air pollution
science, but rather a highlight of the key scientific issues as defined in EPA's criteria documents.

       Specifically regarding the commentor's criticism of the Harvard Six Cities study, we recognize
certain limitations of the original study, including the use of a study population selected from a relatively
small number of urban areas, which may decrease coverage  for diverse conditions regarding exposure.
However, the reanalysis of the Six Cities study conducted by the HEI, does examine specific issues
related to PM2 5 mortality that are not addressed as completely by other studies, including the issue of
time-dependent covariates which are supported by follow-up questionnaires administered to the study
population as part of the HEI reanalysis. However, as noted in the PM criteria document and in the HEI
reanalysis report, the  Six Cities and ACS studies each have relative strengths and weaknesses, making
different analyses possible with each data set.

       Consistent with advice from the SAB-HES, we have selected the Pope et al.  2002 reanalysis of
the ACS study as  the  basis for the primary mortality estimate in the final economic benefits analysis in
RIA Chapter 9. One  strength of the Pope et al. 2002 reanalysis is that it integrates follow-up data
regarding possible copollutants including sulfate, sulfur dioxide, nitrogen dioxide, carbon monoxide, and
ozone. Results of the Pope  et al. 2002 reanalysis suggest that, of the copollutants considered, only sulfur
dioxide has a significant association with mortality.  The Agency has concluded, based on a variety of
evidence (see Response to Comment #1 above) that SO2 is unlikely to represent a confounder and is more
likely a surrogate  for  sulfate, which would account for its association with mortality  in the Pope et al.
2002 reanalysis.


       2.2.2   Short-term Exposure Effects related to PM and Diesel Exhaust

       2.2.2.1 EPA Should Consider Specific Studies or Endpoints
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What Commenters Said:
        One commenter (Dr. Pandya) cited to his article as published in 2002 in Environmental Health
Perspectives, which examines the impact of diesel exhaust on asthma.

        Letters:
        Los Angeles Public Hearing, A-2001-28, IV-D-06 [1 private citizen p. 229]

        The American Lung Association and another commenter (Miller) stated that heart attacks can be
triggered by acute inflammatory episodes that are sometimes due to exposure to air pollution.  The private
citizen cited to a paper entitled "Increased Particulate Air Pollution and Triggering of Myocardia
Infarction" published by the American Heart Association in 2002.  This  paper illustrates that there is a 1.7
increase in risk in the 24-hour period following a 20 microgram spike in PM25. The commenters also
noted that for each increase of 10 micrograms, there is a 6 percent increase of cardio-pulmonary mortality
and added that there are numerous other articles that have been published that show a similar correlation.

        Letters:
        New York Public Hearing, A-2001-28, IV-D-05 [ALA p. 109]
        Los Angeles Public Hearing, A-2001-28, IV-D-07 [1 private citizen p. 244]

Our Response:

        The final rule will reduce harmful emissions and protect sensitive groups such as outdoor
workers, children, asthmatics and those with existing heart and lung disease.  We agree in general with
comments supporting the rule due to adverse health effects from exposure to pollutants such as particulate
matter associated with nonroad diesel engines.

        We agree in general with the comment and are doing additional evaluation of the health effects of
particulate matter for adverse cardiac events and cardio-pulmonary problems in the EPA Criteria
Document for Particulate Matter.
       2.2.2.2 Analysis of Short-term PM Exposure Health Effects

What Commenters Said:

       The Mercatus Center commented that EPA's analysis of short-term PM health effects is
inaccurate, since it fails to address research that is counter to EPA's conclusions.  They further stated that
our analysis on short-term PM exposure should address: 1) whether confounding by other pollutants or
from other health-related factors, such as temperature and humidity, have been adequately controlled; 2)
whether PM in general or a specific component is responsible for health effects (recent evidence suggests
that trace metals might be a factor); 3) the degree to which  researchers' judgment and taste affect the
outcome of a modeling study; 4) whether there is a threshold below which PM has no health effects; and
5) whether PM reduces life expectancy by only days in already-frail people or by months or years in
healthy people. The Mercatus Center provided additional discussion on these issues, citing to other
studies that could provide additional information, and concluded that EPA has selectively cited and
highlighted only those studies that support its view of the health effects of daily changes in PM25 levels.

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       Letters:
       Mercatus Center, OAR-2003-0012-0627, 0828 p. 19-22

Our Response:

       We are relying on the conclusions in the criteria document regarding health effects studies.  For
example, Conclusion #2 in the epidemiology chapter of the Fourth External Review draft of the PM
criteria document states, "A growing body of epidemiology studies confirm associations between short-
and long-term ambient PM2 5 exposures (inferred from stationary air monitor measures) and adverse
health effects and suggest that PM2 5 ( or one or more PM2 5 components) is a probable contributing cause
of observed PM-associated health effects." p. 8-276

       The questions of confounding are discussed in detail in Chapter 8 of the Fourth External Review
Draft of the PM criteria document (e.g., see section 8.1.3 (page 8-8) and Section 8.4.8.3 (p. 8-263)). The
PM criteria document's conclusion #10 states,  "One major methodological issue affecting epidemiology
studies of both short-term and long-term PM exposure effects is that ambient PM of varying size ranges is
typically found in association with other air pollutants, including gaseous criteria pollutants (e.g., O3,
NO2, SO2, COO, air toxics, and/or bioaerosols.... Much progress in sorting out relative contributions of
ambient PM components versus other co-pollutants is nevertheless being made, and overall, tends to
substantiate that observed PM effects are at least partly due to ambient PM acting alone or in the presence
of other covarying gaseous pollutants."

       Moreover, Conclusion #5 in the epidemiology chapter of the Fourth External Review draft of the
PM criteria document states, "Long-term PM exposure durations on the order of months to years, as well
as on the order of a few days, are statistically associated  with serious human health effects (indexed by
mortality, hospital admissions/medical visits, etc.)." p. 8-277

       We also agree with the commenter that more research is needed.

       In addition,  the economic benefits analysis framework used in Chapter 9 of the RIA for this
analysis has been subjected to rigorous peer review by the SAB-HES. This review addressed specifically
the selection of epidemiological studies for use in developing effects estimates for key health endpoints.
This analytical framework also reflects recommendations provided by the NAS regarding the selection of
epidemiological studies for mortality and morbidity endpoints.  Consequently, the EPA believes that this
economic benefits analysis reflects the best available scientific data and understanding regarding PM and
ozone health effects incidence estimation and valuation.  Scientists continue to work on improving our
understanding of the health impacts of ozone and PM.  As new studies are published, the EPA updates its
benefits methodology accordingly (often including peer-review or the new data and methods). For the
current analysis, EPA has updated its incidence estimation methods to reflect the latest chronic mortality
study (the Pope 2002 reanalysis of the ACS study data).  This study includes additional coverage  for a
range of individual risk factors not previously considered (e.g., smoking, educational status and age).
       2.2.3   Health Effects Related to Ozone Exposures

       2.2.3.1  The Relation of Ozone Exposure to Asthma Onset


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What Commenters Said:
       The Mercatus Center commented that the assertion in the RIA that ozone could be causing
increased incidence of asthma is based on information that is no longer relevant.  EPA cited two studies
that reported an association between ozone and the development of asthma. The CHS: 1) was based on a
relatively small number of individuals; 2) is irrelevant to current ozone levels, since there are currently no
areas that have ozone levels that are as high as the levels that used to occur in southern California; 3)
actually showed no correlation between asthma and activity level for medium or low ozone areas; and 4)
showed that asthma incidence was actually 30 percent lower in the high-ozone communities when
compared with the low-ozone communities. The AHSMOG study results also do not apply to current
ozone levels.  Mercatus provided additional discussion on this issue and provided data showing the
differences in ozone between when the study was completed and more current levels.

       Letters:
       Mercatus Center, OAR-2003-0012-0627, 0828 p. 22-24

Our Response:

       Studies regarding the association of ozone exposure and the development of asthma (not simply
triggering symptoms in people with existing cases of asthma) are emerging in the peer-reviewed
literature.  We received numerous public comments describing asthma being on the rise and a problem in
many areas across the country (see  #2.1). Although the science is not definitive regarding the onset of
new asthma and ozone exposures, we think these studies are suggestive of an effect and should be
evaluated further. Additional research is also needed.  We agree with the commenter that there was a
relatively small number of new asthma cases in the CHS study, limiting the power of the study to detect
effects of asthma cases at the lower ozone concentrations. The same is true of the AHSMOG study's
limited statistical power, but effects were detected for higher ozone levels.

       If a study of limited statistical power is able to detect an effect of higher ozone levels in a small
study, one cannot rule out effects at lower levels simply because the study doesn't have the power to
detect them. It is certainly possible that lower ozone concentrations have effects. This is supported by a
nonhuman primate study in which ozone exposure was shown to enhance the sensitization of monkeys to
platinum salts which is known to be a cause of new asthma. There is also a McConnell et al. study that
has reported associations between ozone exposure and new onset asthma.

       It has also been demonstrated in human controlled-exposure studies that ozone causes
inflammation of the respiratory tissue when subjects are exposed to levels as low as 0.08 ppm ozone for
prolonged periods of intermittent, moderate exercise. Inflammation of lung tissue is known to increase
the risk of asthma attacks and worsen the severity of attacks. A recent study, Gent et al. (JAMA, Vol.
290, No. 14, October 8, 2003), reported an association between ambient fine particles and ozone
concentrations below the level of the ozone  NAAQS (mean levels were 0.059 ppm 1 hr avg.  and  0.051
ppm 8 hr avg.) and an increased risk of respiratory symptoms in children under the age of 12 with
physician-diagnosed active asthma residing  in southern New England.  The conclusion of Gent et al.
(2003) was that asthmatic children using maintenance  medication are particularly vulnerable to ozone,
controlling for exposure to fine particles, at  levels below EPA standards.

       In addition, in our economics analysis, based on recommendations from the SAB-HES, we have

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not included the onset of new asthma cases resulting from ozone exposure in its primary benefits
estimate. Instead, we have modeled asthma exacerbations (i.e., the increase in incidence of asthma
attacks among individuals already diagnosed with asthma) for the primary analysis.
       2.2.3.2  Ozone Reductions and UVLight

What Commenters Said:

       The Mercatus Center commented that efforts to achieve EPA's 8-hour ozone standard will reduce
beneficial effect of reducing UV light.  Mercatus provided additional discussion on this issue, noting that
achieving the 8-hour standards will be too costly and would reduce the beneficial effect of reducing
exposure to the  sun's UV light (since ozone levels provide some protection in this regard), implying that
achievement of this standard should not be used as a justification for the proposed rule.

       Letters:
       Mercatus Center, OAR-2003-0012-0627, 0828 p. 29-32

Our Response:

       EPA has already addressed this issue in the final response to the remand of the ozone NAAQS
(68 FR 614, January 6, 2003). The final response to the remand, to consider the beneficial shielding
effects of tropospheric ozone, makes clear that EPA has determined that any potential UV-B radiation-
related effects associated with the O3 standard set in 1997 are likely very small from a public health
perspective. Further, the final notice also makes clear that the EPA has judged that the evidence of any
such effects should be weighed no more heavily in a determination of O3's net effects than the record
evidence on O3's potential chronic adverse effects. Thus, EPA has concluded that the information on O3's
net adverse effects is such that it does not warrant any relaxation of the standard set in EPA's 1997 final
rule.

       We further note that Nonroad Diesel controls are very cost-effective and that the net benefits
exceed the costs by approximately three quarters of a trillion dollars over a 30 year period.
       2.2.4   Approach for Evaluating Air Quality and Exposure

       2.2.4.1  Choice of Monitor in a County and Monitor Placement

What Commenters Said:

       The Mercatus Center commented that EPA should modify its approach for evaluating air quality
and exposure; Mercatus believes that we overestimated the number of people exposed to air pollution
levels that are in excess of current standards. EPA's data are misleading since only a portion of many
nonattainment counties actually exceed the standards. Mercatus provided additional discussion on this
issue and included data on the range of annual-average PM2 5 readings for counties with two or more
monitoring locations from 1999 to 2001 and the percent of ozone monitoring locations complying with
the 8-hour and 1-hour ozone standards in selected counties. The commenter noted that many monitoring

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locations in nonattainment areas actually meet the standards, and concluded that we exaggerated the
benefits of air quality improvements by overestimating the number of people at risk.

        Letters:
        Mercatus Center, OAR-2003-0012-0627, 0828 p. 24-29

        API and Marathon commented that the proposed rule and supporting documentation point to the
potential "risk" that several metropolitan areas may fail to achieve or maintain the NAAQS if the rule is
not adopted; however, the population statistics are misleading since the non-attainment status is based on
one monitor placed in a metropolitan area, which are often downwind of the urban core and register
readings that are significantly higher than other monitors. The commenters stated that EPA should not
cite population statistics but instead should develop measures and conduct exposure modeling that would
more accurately characterize the potential risk to public health.

        Letters:
        American Petroleum Institute, OAR-2003-0012-0804-0808 p. 41
        Marathon Ashland, OAR-2003-0012-0826, 0827 p. 37

Our Response:

        EPA recently designated areas for attainment and non-attainment for the 8-hour ozone NAAQS.
EPA has not yet designated new areas as non-attainment under the PM25. In Chapter 2 of the RIA, we
present an analysis of measured air quality data (that has been quality assured, certified, and that is
complete). As described in detail in the technical support document,  we list counties with a monitored
design value (based on 3 years of complete data) that violates the standard. We then report the associated
population as a way to represent potential exposures. We also report populations associated with
nonattainment areas.  We agree that not every person in the county would experience exactly the
concentration at the central monitor. It is possible, based on activity patterns that the exposures to PM
could be higher or lower.  For example, we received public comment (NESCAUM) that exposures near
Nonroad Diesel equipment and residences near construction sites where this equipment is operated, can
be significantly higher than central site monitors. Furthermore, in Chapter 2 we summarize NATA
modeling that takes into account people's activity patterns and presents exposure to diesel PM and other
toxics from all sources, including nonroad diesel equipment.
       2.2.4.2 Use of Metropolitan Statistical Area

What Commenters Said:

       The New York Department of Environmental Protection commented that EPA should use
metropolitan statistical areas (MSA) and CMSA as the basis for assessing attainment and non-attainment.
The proposal utilizes the area wide extent of the county as the basic unit for assessing attainment and non-
attainment, which is inconsistent with the practices of designation or classification of areas.  In assessing
attainment, the air quality analysis and model performance statistics should be limited to the examination
of meeting the current 8-hour ozone NAAQS.

       Letters:

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       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 10

Our Response:

       EPA recently designated areas for attainment and non-attainment for the 8-hour ozone NAAQS.
EPA has not yet designated new areas as non-attainment under the PM25 and 8-hour ozone NAAQS.  We
agree that EPA's past practices of designation or classification for areas for regional-scale pollutants does
generally use larger geographic areas. However, at the time of the proposal, it was premature to
anticipate how nonattainment boundaries might be configured. In Chapter 2 of the RIA, we present an
analysis of county-level measured air quality data for PM25.  For the designated areas, we use the
nonattainment boundaries and present associated population as a way to represent potential exposures.

       We disagree that our analysis should be limited to the 8-hour ozone NAAQS because there
continue to be areas that are designated as 1-hour nonattainment and maintenance  areas.  For our air
quality modeling of future years, however, we presented analysis of 8-hour ozone  violations, not 1-hour
violations.


       2.2.4.3 Accelerated Reductions to Aid Areas in Attaining the NAAQS

What Commenters Said:

       As described in Section 3.1.1.4 below, we received comments that EPA should accelerate
implementation of the standard to help facilitate compliance with the NAAQS.

       The New York Department of Environmental  Conservation commented that, with respect to
projections, the analysis should focus on emissions benefits in 2015 since there are expected to be
significant reduction in NOX emissions by this time from nonroad engines. New York also believes that
we should also address the potential effect of uncertainties on projected air quality, particularly  in those
instances where the projection years are beyond a decade since many jurisdictions have to come into
compliance with the 8-hour ozone NAAQS at least a decade before these projection years.

       Letters:
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 10

       API and Marathon commented that the timing of air quality "need"  is not matched to the
generation of emissions benefits from the proposal.  The assessment of need focuses on the ability of
certain urban areas to attain or maintain the ozone and PM NAAQS in the 2007  to 2014 time frame, but
EPA's inventory projection shows that the emissions benefits from the proposal  are relatively small
during this period of time and do not significantly accrue until after the year 2020.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 42
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 38

       SCAQMD recommended that EPA should phase-in the proposed standards prior to 2010.  This
commenter noted that based on the SCAQMD 2003 Air Quality Management Plan, significant reductions

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of about 330 tons per day of VOC and 220 tons per day of NOX are necessary by 2010 in order to ensure
attainment with the federal ozone standards, and that under the current proposal, the NOX and HC
standard would only affect new nonroad diesel engines starting in 2011, and as a result, no reductions
from these sources will be achieved by 2010. This commenter also recommended that EPA accelerate the
phase-in of these new standard to be consistent with the attainment dates for the federal 1-hour ozone and
PM 10 standards or should consider other interim standards for new engines prior to the attainment dates.
Another commenter (Houston) noted generally that the proposal's delay until 2013 of controls for the
largest equipment impairs their ability to reduce ambient ozone and PM from their own operations. The
Texas Commission on Environmental  Quality added that Texas expects to face 2007 attainment deadlines
for the Early Action Compact (EAC) areas and 2010 and 2013 deadlines for other nonattainment areas
under the 8-hour standard. This commenter concluded that the nonroad standard schedule will not help
the 8-hour nonattainment areas in Texas reach attainment.

       Letters:
       City of Houston  - Office of the Mayor, OAR-2003-0012-0630 p. 2
       South Coast Air  Quality Management District, OAR-2003-0012-0623 p. 1-2, 5
       Texas Commission on Environmental Quality, OAR-2003-0012-0716, 0717 p. 2
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [SCAQMD p. 117]

Our Response:

       In response to the comments from the New York Department of Environmental Quality, we agree
that there will be significant emissions benefits from the program in 2015, and we have presented them in
Chapter 3 of the RIA.  However, because the engine requirements apply to new engines, our modeling
must necessarily take into account the  amount of time  that it may take for the fleet to turn over and the
new engines to be in operation.  Thus,  we  present a stream of emissions benefits as well as costs and
economic benefits.  Given our limited  resources to conduct sophisticated air quality modeling, we were
forced to select years to represent our program.  We selected 1996, 2020 and 2030 and conducted
modeling. These years are consistent with our past modeling for the  on-highway heavy duty diesel 2007
program. We agree that there are uncertainties with projecting into the  future, and that many areas will be
adopting state and local measures that  may allow them to attain the ozone and PM NAAQS.  However,
given that the EPA implementation plans for the PM25 and 8-hour ozone NAAQS are still developing,
and consistent with our past practices,  we  modeled air quality for programs  currently in place.

       Because our regulations apply to new engines, it takes time for the compliant engines to enter the
fleet and emissions benefits to accrue.  The assessment of need focuses  on the current need for reductions
and our judgement that the need will likely continue into the future. We presented a variety of data to
demonstrate this in Chapter 2 of the RIA.  In Section 3.1.1.4 Implementation Timeline summarizes
comments on the engine  requirement timing. Some commenters provided general discussion on the
health benefits of an accelerated schedule  (e.g., Illinois Lieutenant Governor Pat Quinn, New York DEC,
STAPPA/ALAPCO, CARB, SCAQMD) We also received public comment from manufacturers that they
felt there is significant uncertainty regarding whether the technologies required by this rule can be
developed and implemented within the proposed time  frame, and an adequate period of stability is
necessary between different tiers or sets of standards.

       Although we agree that it would be desirable to achieve emission reductions sooner,
manufacturers require adequate lead time to apply the  pollution reduction strategies to meet our

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requirements. Further, as the 15 ppm sulfur fuel serves as a foundation for our systems approach, the
widespread availability of the fuel is critical to the deployment of PM filters and other such technology.

       We also agree that some areas will need to achieve reductions more quickly than our emissions
modeling would suggest. EPA has a successful voluntary retrofit program that promotes emissions
reductions from existing vehicles. Many areas are using innovative approaches to encourage early
reductions. Some areas (e.g., Ohio) have considered using contractual requirements as an incentive for
operators of nonroad equipment to use low sulfur fuel and to operate  lower emitting equipment in
roadway projects. We encourage states, local areas, tribes, businesses and trade groups to work with us to
reduce emissions from this important sector.
       2.2.4.4 EPA Should Clarify the Air Quality Benefits of the Rule

       2.2.4.4.1       Nationwide Annual Modeling Approach

What Commenters Said:

       API and Marathon commented that the inventories calculated by EPA are nationwide and annual,
thus ignoring that ozone is a summertime urban problem.  Consequently, the absolute emissions inventory
benefits may be overstated by at least a factor of three if one adjusts from an annual basis to a summer
ozone basis.  EPA's projections of the urban impact of its proposal should be reduced even further since
approximately 41 percent of the total 1996 nonroad land-based equipment population is located on farms
which are presumably and predominantly in rural areas.

       API specifically cited to Hanna, S.R., J.C. Chang, M.E. Fernau, "Monte Carlo Estimates of
Uncertainties in Predictions by a Photochemical Grid Model (UAM-IV) due to Uncertainties in Input
Variables," Atmospheric Environment 32 (21) (1998), p. 3619-3628, as supporting documentation for the
assertion that there are inherent uncertainties and inaccuracies in ozone modeling.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 42-43
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 39

       The New York Department of Environmental Conservation commented that a national  approach
should not be used to evaluate emissions impact and corresponding emissions  reductions. Ground level
ozone formation can vary on a large scale between different geographic regions due to the topography of
an area and its meteorological patterns.  The emissions modeling should have been performed from a
regional perspective which would better represent the emissions impact of nonroad diesel equipment from
a particular region of the country.  EPA should use a one-atmosphere model (instead of the two
photochemical models CAMx and REMSAD), since some of the precursors are common for ozone,
PM25, and regional haze.

       Letters:
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 11

Our Response:

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       The commenters reason from a faulty premise. For example, although the inventories presented
in the tables in Chapter 3 are annual, those used in the air quality modeling are processed to be
appropriate inputs for air quality modeling as described in the technical support document (US EPA
2003a1).  The mass inventories were prepared at the county level for mobile sources (including nonroad
mobile sources).  These county-level inventories contain typical summer season day emissions for NOx,
VOC, CO, SO2, primary PM and ammonia. The summer day mass emission inventories for each scenario
modeled were processed using the SMOKE (Houyoux et al. 2000) model to create the appropriate
emissions inputs for the Comprehensive Air Quality Model with Extensions (CAMx) air quality model.
These emission inventories also take into account the location of nonroad sources, such as farm
equipment being in more rural locations and construction equipment being located in more populous
areas. These inventories, as described in the technical support document for emissions inventories (US
EPA 2003b) account for average statewide temperatures  and RVP for four seasons, including summer.

       The air quality modeling analyses were conducted using two separate domains, one covering the
eastern US and the other covering the western US. For the eastern U.S. domain, the model was applied
over two  episodes that occurred during the summer (for all five modeling runs). Similarly, for the
western U.S. domain, the model was applied over three episodes that occurred in the summer.  The
meteorology and how the episodes were selected are described in detail in the technical support document
(US EPA 2003a).  As a result, the commenter's notion that the results need to be adjusted is based on an
incorrect  premise. We don't believe any adjustments are appropriate.

1. US EPA 2003a. Technical Support Document for the Nonroad Land-based Diesel Engines Standards
Air Quality Modeling Analysis. US EPA, OAQPS, Research Triangle Park, NC. April 2003 (Docket
number A-2001-28, Document number II-A-183).

2. Houyoux, M. Vukovich, J., Brandmeyer, J. 2000. Sparce Matrix Operator Kernal Emissions
Modeling System  (SMOKE) User Manual, Version 1.1.2 draft, MCNC- North Carolina Supercomputing
Center Environmental Programs, 2000.  Updates at Http://www.cmascenter.org/modelclear.html#smoke)

3. US EPA 2003b, Procedures for Developing Base Year and Future Year Mass Emission Inventories for
the Nonroad Diesel Engine Rulemaking. Prepared by E.H. Pechan and Associates, 2003.

       In conjunction with this rulemaking, we performed a series of ozone air quality modeling
simulations for the Eastern and Western United States using Comprehensive Air Quality Model with
Extension (CAMx).  CAMx simulates the numerous physical and chemical processes involved in the
formation, transport, and destruction of ozone. At present, there are no guidance criteria by which one
can determine if a regional ozone modeling exercise is exhibiting adequate model performance. The base
case simulations were determined to be acceptable based on comparisons to previously completed model
rulemaking analyses (e.g., Ozone Transport Assessment Group (OTAG), the light-duty passenger vehicle
Tier-2 standards, and on highway Heavy-Duty Diesel Engine 2007 standards). The modeling completed
for this rule exhibits less bias and error than any past regional ozone modeling application done by EPA.
Thus, the model is considered appropriate for use in projecting changes in future year ozone
concentrations and the resultant health and economic benefits due to the anticipated emission reductions.

       EPA acknowledges there are inherent uncertainties in air quality modeling and making
projections to future years. Nevertheless, EPA believes air quality models are useful tools to assess
relative changes in future air quality.  In the North American Research Strategy for Tropospheric Ozone

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(NARSTO) assessment of ozone modeling, the authors conclude, "Grid-based air-quality models provide
a critical tool for tropospheric-ozone analysis and management.  In addition to other merits, their ability
to synthesize and assemble multiple, elements of the air pollutant system (or mathematical representations
thereof), and thus allow them to be analyzed collectively, is a particularly attractive and useful feature."
(See NARSTO Ozone Assessment, 2000).

        In regards to the comment from New York, we note that we used a 12 kilometer grid resolution
which is generally considered to be regional modeling. We use this regional scale modeling to evaluate
on a national basis the air quality impacts of emissions and corresponding emissions reductions because
we are regulating at the federal level equipment and fuel across the country. In conjunction with this
rulemaking,  we performed a series of ozone air quality modeling simulations for the Eastern and Western
United States using Comprehensive Air Quality Model with Extension (CAMx).  CAMx simulates the
numerous physical and chemical processes involved in the  formation, transport, and destruction of ozone.
CAMx is a photochemical grid model that numerically simulates the effects of emissions, advection,
diffusion, chemistry, and surface removal processes on pollutant concentrations within a
three-dimensional grid.  This model is commonly used for purposes of determining
attainment/nonattainment as well as estimating the ozone reductions expected to occur from a reduction in
emitted  pollutants.

        We agree that ground level ozone formation can vary on a large scale between different
geographic regions due to the topography of an area and its meteorological patterns. Our regional CAMx
modeling does account for regional differences in emissions and meteorology.  We also agree that a one-
atmosphere model would be beneficial.  EPA has been developing a one-atmosphere model (CMAQ).
However, as that model continues to be developed, we employed REMSAD and CAMx. We did not
undertake new modeling for the final rule.
North American Research Strategy for Tropospheric Ozone. NARSTO: An Assessment of Tropospheric
Ozone Pollution: A North American Perspective. NARSTO Publications, Pasco, WA. 2000.
(http://www.cgenv.com/Narsto/)
       2.2.4.4.2       Analysis ofPM25Modeling and Ultrafine Modeling

What Commenters Said:

       API and Marathon commented that EPA has projected substantial reductions in the populations
exposed to violations of the PM25 annual air quality standard in 2020 and in 2030 as a consequence of
EPA's proposal. However, the modeling used to support these projections are subject to significant
uncertainty. The model (REMSAD) underestimates PM25 mass by 32 percent nationwide, 15 percent in
the eastern U.S., and nearly 50 percent in the western U.S.  It is difficult to reconcile this magnitude of
underprediction with subsequent EPA statements that the model performance is encouraging. NARSTO's
recent scientific assessment of chemical transport models used to model PM concludes that "very low"
levels of confidence characterize the simulations of ultra fine PM performed by available chemical
transport models (see NARSTO, Particulate Matter Science for Policy Makers - A NARSTO Assessment,
February 2003, p. S-25).
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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 41-42
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 37-38

       The New York Department of Environmental Conservation commented that in the analysis of
PM2 5, the model performance is based on the IMPROVE data, which primarily represents Class I areas
that are remote and/or rural. The nonroad land-based diesel engine (NLDE) emissions and controls are
mostly oriented to urban areas.  EPA should provide an estimate of the acceptable level of confidence for
model performance with respect to urban areas that have no measured data during 1996. In addition, the
nitrate data from IMPROVE is considered suspect, and IMPROVE recommends the use of a constant
value.  EPA should provide an explanation of why these data are then used in model performance
assessment.

       Letters:
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 11

Our Response:

       We agree that there are uncertainties with making projections and with modeling complex air
chemistry.  EPA has projected substantial populations will potentially experience elevated concentrations
of PM without our standards. In addition, our projections using a preliminary control scenario described
in Chapters 2 and 3, indicate that there will be reductions in the populations potentially exposed to
violations of the PM25 annual air quality standard in 2020 and in 2030 as a consequence of the final rule.
The commenters pointed out that the  REMSAD model underestimates PM25 mass by 32 percent
nationwide, 15 percent in the eastern U.S., and nearly 50 percent in the western U.S., and that we are
potentially underestimating the need and impact of our rule.  EPA conducted a thorough model evaluation
as part of our proposal (see Air Quality Modeling technical support document US EPA 2003a). We note
that the performance for this analysis was an improvement over past regulatory modeling.

       The commenters also quote the NARSTO report. The NARSTO report states, "The most
advanced [chemical transport models] CTM for PM can currently predict the formation of sulfate and
nitric acid satisfactorily (e.g., within 50%)." In the executive summary of the NARSTO report, the
authors conclude,"Current chemical transport models are one useful tool for guiding policy as part of the
collective scientific analysis, being most informative regarding the inorganic fraction (sulfate, nitrate,
ammonium) on regional and episodic (days to weeks) scale." This is precisely the type of modeling we
have undertaken for this rule, focusing on sulfate, nitrate and direct diesel PM emissions.  Chapter 8 of
the NARSTO report gives a fuller evaluation of the CMTs: "CMTs can predict concentrations of primary
PM (e.g., [black carbon] BC, crustal material) satisfactorily provided the emissions are well
characterized."  The report mentions that there are larger uncertainties regarding particulate organic
carbon and that CTMs typically perform belter for long-term periods (e.g., 1 year) than shorter periods
(e.g., 24 hours or less),  (see NARSTO, Particulate Matter Science for Policy Makers - A NARSTO
Assessment, February 2003, executive summary and Chapter 8 summary).

       NARSTO's assessment of CTMs for ultra fine particles is accurate; however, it is not relevant as
we did not attempt to model ultra fine particles separately from the fine particles (e.g.,  sulfates,  nitrates,
and black carbon) for which satisfactory models exist, such as REMSAD.
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                                                   Control of Emissions from Nonroad Diesel Engines
                                                               Summary and Analysis of Comments
                                                                                    May, 2004

       In response to New York's comments, we believe that we used the best available data to evaluate
model performance. As discussed in Chapter 2 of the RIA and the air quality modeling technical support
document (US EPA 2003a), speciated PM25 data for 1996 are limited. IMPROVE provides a nationally
consistent, chemically speciated data set to compare with our national modeling. Although the
IMPROVE data do primarily represent Class I areas, they also include an urban area (Washington, DC).
We agree that there are uncertainties with the nitrate data from IMPROVE.  There are no other national
data of similar quality and consistency for 1996.

1. US EPA 2003a. Technical Support Document for the Nonroad Land-based Diesel Engines Standards
Air Quality Modeling Analysis. US EPA, OAQPS, Research Triangle Park, NC. April 2003 (Docket
number A-2001-28, Document number II-A-183).
       2.2.4.4.3       Clarification of Design Values and Modeling Assumptions

What Commenters Said:

       The New York Department of Environmental Conservation commented that EPA should clarify
the rationale behind using 1999-2001 design values to obtain future year design values and whether there
were any model simulations performed with emissions from this design value period.  The commenter
believes that the entire modeling analysis should be revised to reflect current emissions and
meteorological periods rather than to use those based on 1996.  New York also commented that EPA
should clarify what assumptions were made regarding electric generating units (EGU), and other large
stationary sources in developing the emissions inventories for 2020 and 2030.

       Letters:
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 10-11

Our Response:

       As discussed in Chapter 2 of the RIA and the air quality modeling technical support document
(US EPA 2003a), 1999-2001 data were the most current 3-year period of complete, quality assured and
certified data for PM25.  In our modeling, EPA projected 1999-2001 design values to the 2020 and 2030
future year base and  control scenarios. To provide future year estimates of PM25 concentrations, relative
reduction factors (RRF) were calculated and applied to the ambient data.  The procedures for determining
RRfs are similar to those in EPA's guidance for demonstrating attainment of air quality goals for PM25
and regional haze (see US EPA 2003a page 46 Section F Projected Future PM25 Design Values for more
details). RRDs (for a given future year) represent the expected change between the 1996 emission and the
future year. While somewhat inconsistent with the design value period, the impact of this inconsistency
is expected to be small.  It is  not necessary to model meteorological episodes from this period, as we are
assuming that meteorology similar to the 1995/1996 meteorology could occur again in the future.

1.  US EPA 2003a.  Technical Support Document for the Nonroad Land-based Diesel  Engines Standards
Air Quality Modeling Analysis. US EPA, OAQPS, Research Triangle Park, NC.  April 2003 (Docket
number A-2001-28, Document number II-A-183).

       In our technical support document for emissions inventories, we specified the  assumptions for

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

EGSs and other large stationary sources in developing emissions inventories for future year air quality
modeling (see Chapter II).  We used unit-level outputs from the Integrated Planning Model (IPM).

1. US EPA 2003b, Procedures for Developing Base Year and Future Year Mass Emission Inventories for
the Nonroad Diesel Engine Rulemaking.  Prepared by E.H. Pechan and Associates, 2003.
       2.2.4.5 NOxReduction Strategy- The "WeekendEffect"

What Commenters Said:

       The Mercatus Center commented that EPA should consider NOX disbenefit and the "weekend
effect". Mercatus believes that our NOX reduction strategy is risky since it might not be effective at
reducing ozone.  The results of weekend effect research suggest that reducing ozone levels from their
current relatively moderate levels down to the very stringent requirements of the 8-hour standard may be
difficult for many areas. The commenter provided additional discussion on this issue, noting that the
CARB study that EPA uses to support its position that NOX reductions will not be detrimental to ozone
formation and that other factors may be contributing to the weekend effect, was not yet published.

       Letters:
       Mercatus Center, OAR-2003-0012-0627, 0828 p. 32-35

       EMA commented that the air quality model fails to take into account the weekend ozone effect
that results  from reduced NOx-emitting activities.  Further, EMA requested that EPA correct this prior to
finalization of the Tier 4 rule.  As supporting documentation, EMA referred EPA to Fujita, et al.,
"Evolution  of the Magnitude and  Spatial Extent of the Weekend Ozone Effect in California's South Coast
Air Basin," Vol. 53, Journal of the Air and Waste Management Association, p. 802-816 (July 2003).

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p.  101

Our Response:

       We agree with the commenters' observation that reducing ozone to the level of the 8-hour
NAAQS may be difficult for many areas. Air quality modeling analyses conducted in support of the
NonRoad Land-based Diesel Engine (NLDE) rule and other EPA rulemakings have indicated that the
most efficient path to attainment of the NAAQS is a combination of national NOx reductions coupled
with local VOC reductions in heavily urbanized areas. The modeling indicates that in 2020 that future
year 8-hour ozone design values will be reduced by an population-weighted average of 1.6 ppb as a result
of the emissions reductions in the NLDE rule.

       The studies to which the commenter refers show that in some cities, decreased motor vehicle
traffic (particularly diesels) results in a higher VOC/NOx ratio which, in airsheds that are VOC-limited,
can result in higher ozone concentrations. As noted in the proposed rulemaking, we did consider both
increases and decreases of pollutants.  In fact, the air quality modeling predicts NOx disbenefits in the
areas identified by some studies as "VOC-limited" (e.g., Los Angeles). This may be viewed as a
additional validation of the models.  However, these areas represent a small minority of the area in the

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

United States.  While some empirical studies to date point to a weekend ozone effect related to NOx
reduction, modeling conducted for this rule predicts that this rule will result in net gains in benefits as a
result of reduced ozone and PM25 related to NOx. In addition, there are substantial PM benefits
associated with reducing NOx emissions.

       We believe that our results indicate that it will be much easier for states to develop their State
Implementation Plans (SIPs) which will attain and maintain compliance with the ozone NAAQS. In the
limited number of cases mentioned above, we will work with states conducting more detailed local
modeling of their specific local programs to ensure that  they are designed to provide attainment. Notably,
other upcoming federal measures to lower ozone precursors will aid these efforts. We are modeling only
one program, not areas' overall strategies to achieve clean air. The comprehensive strategies embodied in
the SIPs can balance various reduction strategies to meet the standards.  If state modeling or local
programs shows  a need, the Agency will work with states to plan further actions to produce attainment
with the NAAQS. For these reasons, we believe that the Nonroad Diesel program, when combined with a
comprehensive program of regional reductions from relevant stationary, mobile, and area sources as well
as local programs, will not result in increases in ozone that the commenter suggests.

       We also  note that no state responsible for achieving attainment of the ozone NAAQS has
commented that the Nonroad Diesel standards will make achieving attainment harder.  Many have
commented to  the contrary that it will aid them, that they would prefer to see the NOx reductions occur
sooner, and that aftertreatment-based NOx controls should apply to diesel engines under 75 hp. For
example, enthusiastic support for the final  rule is  given by the Northeast States for Coordinated Air Use
Management (NESCAUM), by the State and Territorial Air Pollution Program
Administrators/Association of Local Air Pollution Control Officials (STAPPA/ALAPCO)  and by
individual states  and districts (e.g., California Air Resources Board (CARB), South Coast Air Quality
Management District (SCAQMD), Massachusetts, New York Department of Environmental Conservation
(NY DEC) and Illinois).

       Specifically, we received comments from CARB, the Ozone Transport Commission (OTC),
Environment Northeast, and the  Texas Commission on Environmental Quality, which stated that the
proposed rule is important because of the necessity for federal action in this area.  These commenters
further noted that States are pre-empted  from regulating standards from new engines and it is impractical
for them to effectively regulate fuels and locomotives and marine engines at the state level. CARB
specifically commented that almost 75 percent of the nonroad diesel engines in California are federally
preempted and beyond CARB's authority to regulate.  They noted that this program is  an important part of
states' overall  strategies to achieve clean air.

       Finally, we note that the CARB  study is widely available and is posted on CARB's web page.

       In regards to EMA's comments, the studies to which EMA refers, present evidence that in some
cities, decreased  motor vehicle traffic on weekends (particularly diesels) results in an increase in early
morning ozone (due to less ozone titration from NO) and a higher ambient VOC/NOx ratio. In airsheds
that are VOC-limited, these emission effects can result in higher ozone concentrations. As noted in the
response to comment immediately above, the EPA air quality modeling conducted to support the rule
does indicate that a small minority of areas, including the Los Angeles area discussed in Fujita (2003),
will experience ozone increases as a result of the NOx emissions reductions.  However, when viewed
from a national perspective, the Nonroad Diesel rule will result in net gains in benefits as a result of

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

reduced ozone and PM2 5 related to NOx.  EPA believes that air quality models can and should be used as
primary tool to address the issue of the benefits of NOx control scenarios.
2.3    Nonroad Contribution and NONROAD Emission Model

       2.3.1   Nonroad Contribution

       2.3.1.1  Nonroad Sources Are a Significant Source of Diesel Emissions

What Commenters Said:

       We received comments from many commenters which stated that nonroad sources will continue
to be a significant source of diesel emissions.

       The Sierra Club of Wisconsin commented that state and national data show that the reduction of
emissions from the nonroad sector is crucial. EPA's National Air Toxics Assessment (NATA) released in
2002 shows that nonroad mobile sources contribute a greater percentage than all onroad sources of the
cancer causing pollutants Benzene, 1,3-Butadiene, Diesel Particulates and Formaldehyde. In addition,
Wisconsin data  show that nonroad mobile sources accounted for 57 percent of the statewide emissions of
these pollutants  from all mobile sources. This amounts to a combined rate of about 28 million pounds per
year of the most deadly cancer causing air pollutants being emitted solely in Wisconsin.  Lastly, the
commenter stated, diesel particulates comprise 44 percent of this total and are suspected as a cancer-
causing agent and a cardiovascular, blood,  and respiratory poison.

       CARB and the Union of Concerned Scientists (UCS) commented that a significant portion of
California's overall emissions are  from nonroad sources. CARB noted that California has over 450,000
land-based engines in the diesel nonroad category, and a significant number of diesel powered boats and
that these engines constitute 4 percent of total mobile source hydrocarbon emissions, 21 percent of NOX
and 58 percent of mobile source diesel PM. UCS noted that its recently published report includes data
from EPA and CARB which shows that in  every state and metropolitan  area across the country, nonroad
diesel engines are major sources of pollution. This report also shows that California and the L.A. metro
area have the greatest amount of pollution from nonroad engines.  UCS  also noted that in L.A., nonroad
emissions accounted for 118,000 tons of NOX and nearly 7,000 tons of PM in 1999 and that California
and Texas have  the highest nonroad emissions in the nation.

       NESCAUM commented that heavy duty engine emissions are significant contributors to elevated
ozone levels, fine particulate matter, and are the principal emitters of several key toxic air pollutants of
concern in the Northeast. As a result, NESCAUM stated, the concentration of metals such as iron and
nickel are elevated in samples taken near areas where the use of nonroad equipment is prevalent; together,
nonroad and highway heavy duty engines are responsible for roughly 33 percent of all nitrogen oxide
emissions, 75 percent of motor vehicle-related particulate and 60 percent of aldehyde emissions in the
Northeast. Lastly, NESCAUM noted that some estimates suggest that nonroad emissions alone will emit
60 percent of all mobile source particulates by 2010.

       Environment Northeast commented that by 2020, nonroad land-based diesel engines will produce
almost two-thirds of all land-based diesel emissions nationally and in Connecticut, nonroad engines

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                               Summary and Analysis of Comments
                                                                                     May, 2004

currently account for more than half of total mobile source diesel particulate matter and 33 percent of all
mobile nitrogen oxide emissions.

       The New York Department of Environmental Conservation commented that nonroad diesel
equipment is responsible for approximately 24 percent of particulate matter emissions and 13 percent of
NOX emissions from mobile sources in New York State; and if left uncontrolled, these contributions
would be expected to double by 2030 without implementation of the proposed rule. Also, the majority of
the particulate emissions are PM 2.5.

       The Illinois EPA commented that approximately 17 percent of the NOX emissions in Illinois are
generated by nonroad equipment with agricultural and construction equipment comprising almost two-
thirds of that total. The commenter further stated that nationally, it is estimated that nonroad engines emit
nearly 50 percent of all PM emissions.

       SCAQMD commented that in 2010, federal sources, including nonroad engines, aircraft, ships,
and trains will contribute about 34 percent of NOX emission in the South Coast Air Quality basin; and this
amount for nonroad engines accounts for about 14 percent or 108 tons per day of NOX in the basin.

       U.S. PIRG commented that over the last two decades, PM emissions from nonroad engines has
increased by 23 percent.  The commenter further stated that under current standards, new nonroad diesel
equipment greater than 50 hp can release 15 to 30 times more PM and 15 times more NOX than a new
truck or bus.

       City of Houston - Office of the Mayor commented that diesel engines constitute less than 25
percent of the City of Houston's vehicle fleet, but account for 40 percent of the mobile source emissions
and 35 percent of overall emissions.  The commenter also noted that the nonroad portion of the fleet in
Houston produces 26 percent of the mobile source emissions and 21 percent of the city's overall
emissions.

       The Massachusetts Department of Environmental Protection commented that nonroad emissions
account for 22 percent of the  1999 Massachusetts statewide NOX emissions inventory.

       The Oregon Department of Environmental Quality commented that in Oregon, nonroad diesel
engines consume about 25 percent of all diesel fuel used in the state but emit 65 percent of the PM, 47
percent of the NOX, and 91 percent of the SOX pollution from all diesel vehicles.

       Letters:
       City of Houston - Office of the Mayor, OAR-2003-0012-0630 p. 2
       Massachusetts Department of Environmental Protection, OAR-2003-0012-0641 p. 1
       Oregon Department of Environmental  Quality, OAR-2003-0012-0779 p. 2
       New York Public Hearing
                      A-2001-28, IV-D-05 [ENE 251; NESCAUMp. 91; NY DEC p. 1; U.S. PIRG p.
                      188]
       Los Angeles Public Hearing
                      A-2001-28, IV-D-07 [IL EPA p. 229; Sierra Club- WI p. 122]
       Chicago Public Hearing
                      A-2001-28, IV-D-06 [CARB p. 12; SCAQMD p. 118; UCS p. 66]

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004
Our Response:
       We agree that Nonroad Diesel emissions are significant sources of emissions and will continue to
be so. We continue to estimates for the contributions from our national modeling to present a consistent
methodology to evaluate impacts of the rule.
       2.3.1.2  Nonroad Sources Contribute a Very Small Percentage to Overall Emissions

What Commenters Said:

       The Diesel Technology Forum and the Oregon Wheat Growers League commented that
emissions from nonroad engines contribute a very small percentage to overall emissions.

       Diesel Technology Forum also commented that nonroad diesel engines account for less than 1
percent of all PM emissions from all sources, diesel emissions are trending downward and currently
contribute only 7 and 1 percent of all NOX and CO emissions, respectively. Between 1990 and 2000, PM
emissions nationwide have declined by 2.3 percent and emissions from all diesel equipment have declined
by 57 percent.  For the nonroad sector, emissions have declined by 13 percent.  These data show that
progress is currently being made by the diesel industry in reducing emissions.

       Letters:
       New York Public Hearing, A-2001-28, IV-D-05 [Diesel Technology Forum p.159]

       The Oregon Wheat Growers League commented that in Umatilla County, Oregon, there has been
no statistically significant increase in nonroad diesel vehicles in the past 10 years, and in fact, the number
of nonroad engines has decreased given the demise of the forest industry and the consolidation of wheat
farms.  Given these trends, Oregon concluded that nonroad engines are unfairly targeted and labeled as
the cause of deteriorating air quality.

       Letters:
       Oregon Wheat, OAR-2003-0012-0593 p. 2

Our Response:

       We disagree that diesel emissions from nonroad engines are a small source of diesel PM
emissions. A number of state and local agencies commented to the contrary that the emissions from this
category are significant. (See comment 2.3.1.) While it is true that land-based nonroad diesel emissions
are presently decreasing due to existing regulations, EPA's emissions modeling shows that land-based
nonroad NOx and PM25 emissions will begin to increase again between 2015 and 2020 without the new
standards set forth in this rule. Also, a major source of PM in some areas (especially rural areas) is earth
crustal material  and re-entrained road dust which tends to be larger than 2.5 microns. When only PM
below 2.5 microns is considered, the contribution of nonroad diesels is significant.

       Nonroad diesel emissions and equipment populations can vary widely from county to county.
Nonroad diesel emissions might be unchanged or decreasing in Umatilla County, but they may very well
be increasing in neighboring counties.  One of the pollutants that this rule specifically targets, NOx, is a

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

precursor to ozone and PM formation. Research has shown that ozone and PM2 5 can travel long distances
into neighboring counties, regions, and states. While a given county may not have significant nonroad
diesel emissions within its borders, other counties may have significant amounts of these emissions which
may have an adverse impact on the given county. Also, nonroad diesel equipment, such as construction
equipment, may travel from county to county within a region depending on where they are needed.
Lastly, while this rule specifically targets nonroad diesel engines, EPA has also addressed reducing
emissions from on-highway and stationary sources as well.
       2.3.1.3  EPA's Estimate of the Nonroad Contribution to Overall Emissions May Be Inaccurate

What Commenters Said:

       The Colorado Department of Public Health and Environment commented that recent Colorado
study data indicate that nonroad diesel source category emissions comprise roughly 30 percent of total
diesel exhaust emissions.  Study data were obtained from fuel purchase records, VMT data, nonroad and
on-road fuel sulfur content analyses, and off-road diesel equipment surveys. Colorado's 30 percent
estimate contrasts to EPA's estimate of 44 percent. Recent and current construction and development
activity in Colorado as well as projected increases for on-road truck traffic may be similar to other states.
Colorado believes that for improved estimates and more accurate tracking of the HAP and criteria
pollutant emissions reductions, EPA should consider the results of the Colorado study.

       Letters:
       Colorado Department of Public Health and Environment, OAR-2003-0012-0687 p. 1

Our Response:

       Colorado's study gives a more precise estimate of nonroad diesel emissions at the local level and
provides a valuable tool that will help in the effort to reduce diesel emissions there. EPA based its
estimates on an analysis of emissions at the national level. EPA does provide some emissions estimates
for selected cities in the RIA, but these were allocated from the national emission totals. Although EPA
has fine-tuned its emission estimates for the final rule, no new air quality modeling was conducted.


       2.3.2    The NONROAD Emission Model

       2.3.2.1  Peer Review

What Commenters Said:

       EMA commented that there are numerous updates to EPA's NONROAD2002 model that have
not been subject to a peer review, and that unlike EPA's MOBILE model, there is no formal review
process for NONROAD. EMA noted that the "substantially revised" version was not made publicly
available until the beginning of July 2003, more than a month after the publication of the NPRM. Which
it believes has resulted in an emissions model that has received little, if any, technical or peer review.
Also, EMA commented, the exclusive consideration given to States by posting the NONROAD 2002
model earlier  at a secure web site for States, is inappropriate. EMA noted that all stakeholders, including

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                                                  Control of Emissions from Nonroad Diesel Engines
                                                              Summary and Analysis of Comments
                                                                                   May, 2004

the regulated industry, require a fair and equal opportunity to assess EPA's basis for justifying the Tier 4
rule and provide meaningful input.

       API and Marathon commented that even though the model has been presented and discussed at
several public workshops, it has never been subject to formal peer review by an independent panel.
NONROAD2002 is still in draft form and there are significant data gaps, such as the lack of estimates for
hot soak or running loss VOC emissions or nonroad mobile source air toxics. These commenters further
stated that the rule cannot be finalized based on benefits that are subject to such uncertainty.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 45-46
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p.  93
       Marathon Ashland, OAR-2003-0012-0826,  0827 p. 42

Our Response:

       Peer Review

       EPA has adhered to its peer review policy regarding the NONROAD Model. While the
NONROAD model has not undergone peer review by an independent panel, such as the National
Academy of Sciences (NAS), there has been an ongoing process  of peer review for the NONROAD
model. Each type of major input (e.g., emission factors) of the version of the model used to produce
emission estimates in the Nonroad Diesel  Engine NPRM has been reviewed by two individual, external,
independent experts, as required by the EPA's Peer Review Handbook (Science Policy Handbook: Peer
Review. 2nd Edition, December 2000, EPA 100-B-OO-OOl). Due to the complex nature of the model and
the nearly  continuous work to improve the model as additional data become available, the peer review
process for the model has been an evolutionary one that has taken several years.

       EPA had a forerunner of the NONROAD model that had inputs and a structure similar to that of
NONROAD peer reviewed as part of the Tier 2 and 3 Nonroad Compression Ignition Engine Rule in
1998. Much of NONROAD was based on this predecessor.  EPA entered these comments and responses
to them into rule docket A-96-40.

       In 1998, EPA had the Nonroad Small Spark-Ignited Engine Emissions Model (NSEEM) peer
reviewed for the Phase 2 Small Spark-Ignition Engine Rule. These comments were entered into the rule
docket (A-96-55). No responses to the comments were included in the rule docket because the comments
did not identify any major issues or shortcomings. The data inputs used in NSEEM were incorporated
into the NONROAD Model.

       In April 2000, EPA submitted the technical  reports and a memorandum (NR-009a, NR-OlOb, and
"US EPA NONROAD Model Technical Report Addenda for Tier 2 Rulemaking Version") discussing the
compression-ignition (CI) and spark-ignition (SI) emission factors used in the NONROAD model for peer
review. EPA made additional changes to the model and documented  these changes in the  memorandum,
"Changes to the NONROAD Model for the April 2000  Version Used in Support of the 2007 Heavy-Duty
Diesel Engine Rule". EPA submitted this memorandum for peer review in September 2000.  Although
the peer review information was available upon request, the results of these peer reviews were not placed
in the dockets for the Tier 2 and 2007 Heavy-Duty Diesel Rules because these rules applied to on-

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                               Summary and Analysis of Comments
                                                                                     May, 2004

highway emissions for which the NONROAD Model played only a supporting role in estimating the
nonroad portion of the total inventory.

       From late 2000 to mid 2003, EPA continued to work toward getting all of the major aspects of
NONROAD peer reviewed.  EPA completed peer reviews for the most recent CI and SI engine emission
factors and deterioration rates, growth rates, evaporative and refueling emissions, activity rates, load
factors, median life, CI and SI  engine populations, CI and SI engine deterioration rates, allocation factors
(i.e., geographic, seasonal, and week day/weekend day), and several memoranda concerning changes
made to NONROAD inputs for the Recreational/Large SI Engine Rule and the proposed Nonroad Diesel
Engine Rule. EPA has placed  a summary and analysis of the Cl-related peer review comments in the
Nonroad Diesel Engine Rule docket.  The Si-related peer reviews were not completed in time to prepare a
summary and analysis to be entered into the docket before promulgation of the final Recreational/Large
SI Rule, but these comments will be made available as soon as possible.

       As significant changes to the NONROAD Model occur, EPA will continue to undertake
additional peer reviews, and these will be made available to EPA stakeholders via a docket or some other
public means.

       Exclusive Consideration Given to States Is Inappropriate

       EPA properly entered the draft NONROAD2002 model, its supporting documentation, and the
input files used to produce emission estimates for the Control of Emissions of Air Pollution from
Nonroad Diesel Engines and Fuel rule proposal into the public docket A-2001-28, as per required by
administrative procedures. In addition, EPA gave the States a preview of the NONROAD2002 model
because of their role as co-regulators with EPA.

       NONROAD2002 Is Still in Draft Form and There Are Significant Data Gays

       EPA is confident that NONROAD2002 produces reasonable emission inventory estimates
suitable for consideration in the rulemaking. As part of this rulemaking and previous rulemakings (i.e.,
the Recreational and Large Spark-Ignition Engine, Heavy-Duty On-Highway Diesel and, Tier 2 Rules),
the NONROAD model has been extensively quality assured and many improvements have been made to
the model. Peer reviews also have been completed on all the major aspects of the model.  Also, EPA's
confidence is reflected in the fact that EPA has issued guidance allowing states to use draft
NONROAD2002a for their official State Implementation Plan submittals.

       The  lack of running loss and hot soak VOC in the model does not adversely impact the nonroad
diesel rule, since these types of emissions are  negligible in diesel engines. In regard to air toxics not
being a part of NONROAD2002, EPA calculated these emissions for the rulemaking using air toxic VOC
fractions used in the development of the National Emissions Inventory. Links to the documentation for
the NEI can be found  on the EPA's Office of Air Quality Planning and Standards website at
http://www.epa.gov/ttnchiel/net/neiwhatis.html.
       2.3.2.2 Data Sources

       2.3.2.2.1       Inconsistent Basis for Costs and Benefits

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                     May, 2004

       The comments in this section can be summed up as-
       EPA 's use of the NONROAD model to estimate projected benefits and the use of fuel consumption
       projections from EIA to estimate projected costs led to underestimation of the costs of the
       proposed rule relative to the emission reductions, as well as monetized benefits of the proposed
       rule.

What Commenters Said:

       API and Marathon commented that the methodology for determining cost-effectiveness is
problematic since the NONROAD fuel consumption estimates are overstated- EPA employed two
different methodologies for estimating the emissions/fuel consumption impacts of the  proposed nonroad
rule and the associated cost impacts.  Chapter 3 of the RIA presents the emissions inventory and fuel
consumption impacts of the proposed rule,  which are derived from the NONROAD model.  In Chapter 7
of the RIA, diesel fuel use data by end-use  sector for the year 2000 are based on the EIA report Fuel Oil
and Kerosene Sales 2000. The year 2000 fuel consumption estimate for land-based nonroad diesel
engines as derived using the Chapter 7 methodology is 27.1 percent lower than the fuel consumption
estimate developed in Chapter 3 using the NONROAD model.  EPA states that the fuel consumption
estimates in Chapters 3 and 7 differ by approximately 15 percent. However, it is unclear how this
percentage was calculated, since analysis of the data in Chapters 3 and 7 suggests that the discrepancy is
nearly twice as large as that stated by EPA. API also provided a figure that illustrates the difference
between the estimates in Chapters 3 and 7,  and asserts that if the NONROAD estimates are overstated,
this implies that EPA's estimates of the cost per ton of pollutant reduced as presented in chapter 8 of the
RIA, are substantially understated.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 39-41
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 35-37

       API and Marathon further commented that EPA's estimates of emissions benefits should include
some element to account for uncertainty. EPA's proposal estimates the benefits of its proposal in calendar
year 2025 for diesel powered agricultural equipment based on the assumption that this sector would grow
at an annual rate of 2.9 percent from 1996 onward. If EPA had based its projections on a forecast of
farm-based economic indicators such as the 1.3 percent annualized rate of change in "Value of
Agricultural Shipments" shown in Table 32 of the EIA, 2003 Annual Energy Outlook, the estimate  of the
emissions benefit of its proposal for this class of equipment would have been reduced by approximately
25 percent in 2025. This degree of uncertainty in the emissions benefits should be included in the overall
assessment of the social costs and benefits  of the proposed rule.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 43
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 39-40

Our Response:

       For background purposes, we presented the fuel consumption estimates used to project SO2 and
for sulfate PM emission reductions associated with the proposed rule in Table 3.1-8 of the Draft RIA.
These fuel consumption estimates were also implicit in the other pollutant benefits projected, in that

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

nonroad equipment only emit pollutants when they are being operated (i.e., burning fuel). More or less
fuel consumption inherently means more or less emissions, other factors being equal.3

       We presented a second set of fuel consumption estimates in Tables 7.1-14 and 7.1-16 of the Draft
RIA.  These fuel consumption estimates were derived from the EIA FOKS and EIA AEO 2002 and were
used to estimate per gallon fuel costs.  For locomotive and marine diesels, the EIA-based fuel demands
are very similar to those presented in Table 3.1-8 of the DRIA. However, for land-based nonroad
equipment, the EIA-based fuel consumption for 2000 is roughly 20% lower than that from the
NONROAD model (i.e., the NONROAD estimate is  25% higher than the EIA-based estimate).

       Secondly, as shown in Table 3.1-8 of the Draft RIA, NONROAD projects that fuel consumption
will grow at roughly 3% per year. In contrast, EIA's AEO 2002 projects that non-highway diesel fuel
will grow much more slowly.  Using the growth rates from AEO 2002, land-based nonroad fuel demand
would only grow by 1.2% annually, or less than half the rate projected by the NONROAD model.

       Regarding the first point, we pointed out in the NPRM that the underlying nonroad fuel
consumption behind the emissions projections differed from that used to calculate costs.  We did not
believe this inconsistency affected the outcome of our cost effectiveness and cost-benefit comparisons
which were used to evaluate the proposed rule. And, we committed to reconcile this difference for the
final rule. Therefore, as discussed further below, we  will use the NONROAD model to estimate costs,
benefits, and emission reductions related to the final rule. In addition, we have performed a sensitivity
analysis to ensure that the final rule is  still appropriate given the possibility that the NONROAD model
may be overestimating fuel consumed (and thus, emissions) by nonroad equipment.  See RIA Chapter 8
Appendix A.
       2.3.2.2.2       Historical and Current Nonroad Fuel Demand

       The comments in this section can be summed up as-
       The NONROAD model overestimates the current emissions from land-based nonroad equipment
       and thus, the emission reductions attributable to the proposed rule. Adjusting NONROAD fuel
       consumption (and thus, emissions) to match a level consistent with EIA 's Fuel Oil and Kerosene
       Sales Report (FOKS) would produce more accurate estimates of emissions and associated
       emissions benefits.

What Commenters Said:

       EMA commented that there is a wealth of fuel consumption data that EPA has not considered for
the development of NONROAD or the model's input data. EIA conducts annual surveys to determine
current fuel consumption by economic sector.  EIA also completes computer modeling to forecast future
fuel consumption needs. The commenter provided additional discussion on the sources of EIA data (e.g.
EIA-821 as reported in the annual publication Fuel Oil and Kerosene  Sales, and the National Energy
Modeling System (NEMS)) as well as discussion, tables, and a graphic that compare diesel consumption
        While other factors (e.g., emission deterioration rates) might be revised and compensate for any change in fuel consumption, these
factors are independent of those affecting fuel consumption and are addressed elsewhere in this section of the S&A document.

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                               Summary and Analysis of Comments
                                                                                     May, 2004

estimates between the NONROAD model and EIA estimates to show that the latter can provide a more
accurate representation of these estimates through the year 2030. EMA also provided additional
discussion on alternative sources for growth rates in the context of application types such as railway
maintenance and aircraft support, that are included in the NONROAD model but not necessarily
represented in the same manner in the EIA data sources.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 96-99

       API and Marathon commented that the NONROAD model consistently overestimates nonroad
diesel fuel consumption relative to the EIA data in every year and also overstates the historical trend in
nonroad diesel fuel use.  API also provided a figure that shows a comparison of the slopes of simple
linear trends fitted to the EIA and NONROAD model data. This comparison shows that the NONROAD
model overestimates the rate of growth in nonroad diesel fuel consumption between 1995 and 2001 by
approximately 60 percent. This discrepancy will significantly impact long-term inventory projections
because of the approach used by EPA to extrapolate activity based on historical trends.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 44-45
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 40-41

       API and Marathon also commented that EPA applies the 1.9 percent annual growth rate
developed from the NONROAD model to forecast fuel consumption through 2040, but provides no
rationale to support the use of this growth rate as opposed to the significantly lower  annualized  growth
rate of 0.9 percent as derived from the EIA Annual Energy Outlook 2002. The NONROAD model
growth rate is simply based on a linear extrapolation of historical data from the period 1989 to 1996.
EPA should accept the EIA data, which is more sensitive to assumptions concerning future economic
activity.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 39-41
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 35-37

Our Response:

       In summary, fuel consumption estimates based on EPA's analysis of EIA's FOKS reports and
EPA's NONROAD emissions model differ. Available independent surveys of distillate fuel used outside
of the nonroad sector tend to confirm the FOKS results for these sectors (residential, locomotive,
commercial heating, and farm). However, issues exist concerning how FOKS addresses jet fuel being
shifted to the distillate market during distribution. Because of this, and other uncertainties surrounding
FOKS and our use of these survey results in estimating nonroad fuel consumption, we are not sufficiently
confident that the FOKS-based estimates of nonroad fuel consumption is more accurate than the historical
estimates of nonroad fuel consumption in the NONROAD emissions model.  Therefore, for this
rulemaking, we will continue to base historical estimates of nonroad fuel consumption on the NONROAD
emissions model.

       We have also performed a sensitivity  analyses (see Appendix A of Chapter 8 of the Final RIA) in

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                               Summary and Analysis of Comments
                                                                                     May, 2004

which we estimate the costs, emission reductions, and cost effectiveness for the final rule; assuming that
our estimates of nonroad fuel consumption derived using FOKS are correct. This sensitivity analysis also
incorporates future growth rates from EIA's 2003 Annual Energy Outlook (AEO), as discussed in Section
2.3.2.2.3 below. The results of this sensitivity analysis are summarized in Table 2-1 below.

              Table 2-1. Aggregate Cost per Ton Estimates for the Nonroad Final Rule
                  Nonroad Fuel Consumption Using Two Different Methodologies
                   30-year Net Present Values at 3 percent Discount Rate ($2002)
Pollutant
NOx+NMHC
PM
SOx
EPA Draft NONROAD2004
$1,010
$11,300
$710
Derived from EIA FOKS/AEO 2003
$1,490
$15,900
$910
The lower fuel consumption estimates derived from EIA's FOKS and AEO 2003 reduces projected
emission reductions associated with the final rule and fuel-related costs by roughly the same degree.
However, engine-related costs remain unchanged. Therefore, the ratio of costs to emission reductions
increases.  As can be seen in Table 2-1, the increase is greatest for NOx+NMHC, as these pollutants are
controlled through aftertreatment and the costs to control these emissions are dominated by engine-related
costs. The cost per ton estimate for SOx emissions falls at the other extreme, since these emissions are
dominated by fuel-related costs. In all cases, the cost per ton estimates using the nonroad fuel
consumption estimates derived from EIA FOKS and AEO 2003 fall within acceptable ranges for mobile
source emission control.  See, e.g., 68 FR at 28449 (Tables V.D.3 through V.D.5). Thus, even if we used
the nonroad fuel consumption estimates derived from EIA FOKS and AEO information, as the
commenter suggests, the results would not change our decisions regarding the requirements of this final
rule.

       Moving to a detailed description of our response to the comments in this area, Figure 2-1 depicts
historical estimates of fuel consumption by land-based nonroad equipment from EPA's NONROAD
emission model and from our analysis of the estimates of distillate fuel demand from EIA FOKS reports.
It should be noted that FOKS does not directly survey the use of distillate fuel in nonroad equipment.
This estimate must be derived from the estimates of fuel demand from various economic sectors, some of
which clearly do not involve the use of nonroad equipment, some almost entirely represent fuel use in
nonroad equipment and some  are a mixture of the two. Judgment must be used to estimate the fractions
of nonroad fuel use among the various sectors. Therefore, we refer here to nonroad fuel consumption
estimated using the information obtained through FOKS as "derived from FOKS" (by EPA) and not as a
"FOKS estimate." The two sets of fuel consumption are analogous to those presented in Section 7.1 of
the Draft RIA. However, the estimates shown in Figure 2-1 have been updated to reflect the draft
NONROAD2004 model and FOKS 2002.
                                             2-43

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                                                  Control of Emissions from Nonroad Diesel Engines
                                                              Summary and Analysis of Comments
                                                                                   May, 2004
                                         Figure 2-1
ion Ga
Bi
                1980
                       Land-Based Nonroad Fuel Demand
1985
1990
1995
2000
2005
As can be seen, the two sets of fuel consumption differ, particularly in their trends over time. The EIA-
based estimates show very little change between 1985 and 2002, while NONROAD shows a steady
increase in fuel demand for this equipment.  To better understand the reasons behind this difference, it
will be helpful to review the information used to develop the EPA NONROAD model, as well as the
approach EIA uses to develop its fuel sales estimates.

       Nonroad Fuel Demand from Draft NONROAD2002/2004

       EPA's NONROAD model projects emissions (or fuel consumption) using estimates of:

       1) equipment population,
       2) engine size (horsepower (hp)),
       3) equipment activity,
       4) average engine load and
       5) brake-specific emission factors (and fuel consumption).

When combined multiplicatively for sub-groups of equipment, with appropriate consideration of units,
the result is an estimate of total emissions and fuel consumption for the specified geographic area.

       There is considerable interdependence between equipment population and the other factors listed
above, because independent estimates of equipment population at the desired level of disaggregation are
not available. Thus, equipment populations are projected from estimates of equipment sales and
scrappage.  Scrappage depends on the median life of the equipment in years, which is derived from
                                            2-44

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                     May, 2004

estimates of median engine lives in terms of hours of use at full load. These full-load engine lives are
then converted to median equipment lives in years using annual equipment activity and average engine
load.  Thus, annual equipment activity and average engine load have a strong influence on equipment
population estimates, as well as direct influence on fuel usage estimates and estimated emissions for the
nonroad equipment fleet. Independent verifications of the various inputs to NONROAD will also be
evaluated. (For a complete description of how the NONROAD model was developed and its operation,
the reader is referred to EPA's documentation of the series of NONROAD models which are contained at
its website (www.epa.gov/otaq/nonrdmdl.htm). A brief description of NONROAD's operation can also
be found in Ch. 3 of the Draft RIA. The description presented below will only provide an overview in
order to focus on those aspects of the model most relevant to the issue of total activity as indicated by fuel
consumption.)

       Unlike EPA's series of MOBILE models, NONROAD projects absolute emissions for a specified
geographic area. MOBILE6.2, for example, projects emission factors in terms of grams of pollutant per
mile, which are then coupled with estimates of "vehicle miles traveled" (VMT) from other sources, such
as the Federal Highway Administration (FHwA) or state and local transportation agencies. In order to
project these fleet-average emission factors, MOBILE6.2 utilizes estimates of the relative number of
vehicles of various model years in the vehicle fleet (i.e., the vehicle registration distribution, again a
function of sales and scrappage) and the typical number of miles that various types of vehicles are driven
per day or year and how this mileage varies with age. However, the use of independent estimates for
vehicle miles traveled and registration distributions (and in many cases, direct surveys of annual vehicle
mileage accumulation rates) eliminates the need to estimate the size of the absolute vehicle population in
any particular local area or in the nation as a whole.

       NONROAD, on the other hand, does not utilize any independent estimates of equipment
populations or measures of activity, such as hours of use or fuel consumption. This is primarily due to the
fact that such estimates only exist for subsets of the nonroad equipment population (e.g., agricultural
tractors, some types of construction equipment) or for the fuel consumption by broad sectors of the
economy (e.g., industrial, commercial, construction, etc.). Engine emission standards applicable in a
specific model year often vary by horsepower, so EPA desires to have an emission model which is
sufficiently detailed to reflect these differences. The available estimates of in-use nonroad equipment
population and fuel consumption contain no breakdown by equipment type, engine horsepower or
equipment age.

       Thus, in order to produce emission estimates broken down by equipment model year and engine
horsepower that can reflect the level of detail inherent in EPA's emission standards, EPA estimates in-use
equipment populations (by equipment type and horsepower range) from estimated equipment sales and
scrappage.  During a simulation, NONROAD estimates the amount of each pollutant emitted (and fuel
consumed) on a brake-horsepower-hour basis. NONROAD estimates the total amount of emissions
produced or fuel consumed in a state  or the nation by multiplying equipment populations by estimates of
annual activity (i.e., hours per year), mean power rating and load factor for each equipment type.
Equipment populations and emissions are broken down for geographic areas below the national level
using  economic factors, such as construction  expenditures, farm acreage, building square footage, etc. It
will be useful to briefly review how the estimates for each of these factors were derived in order to better
understand their accuracy relative to the EIA  FOKS fuel consumption estimates.  The list of factors is:
        1)      Equipment Population
       2)      Equipment Life

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                               Summary and Analysis of Comments
                                                                                     May, 2004

       3)      Equipment Life and Scrappage
       4)      Engine Median Life
       5)      Engine Load Factors
       6)      Annual Equipment Activity
       7)      Selected Median Equipment Lives
       8)      Scrappage Function
       9)      Base Year Equipment Population Calculation
       10)     Engine Horsepower
       11)     Total Activity
       12)     Fuel Consumption

       Equipment Population:  NONROAD projects future or past emissions and fuel consumption on
the basis of simulated changes in equipment populations. Population estimates for the base year are
provided to the model in  input files. When the NONROAD model is run, growth rates are applied to
forecast or backcast future or past equipment populations, respectively. These growth rates are based on
trends in populations estimated from sales histories and are discussed in more detail below. For now, the
issue is historical fuel consumption, which is best addressed by focusing on how the base year equipment
population is developed.

       Equipment population is developed for a single base year (1998 in Draft NONROAD2002, which
was used for the NPRM,  2000 in Draft NONROAD2004, which is used for the FRM). Base-year
populations are  developed by summing up past sales and applying scrappage rates. This step is
performed outside the model, and the resulting base-year populations are supplied as inputs to
NONROAD.

       We obtained estimates of annual equipment sales by equipment type and horsepower from Power
Systems Research (PSR). Some manufacturers provide actual sales data to PSR.  However, for other
manufacturers, PSR must estimate sales based on other information.

       Sales estimates for some equipment types are available for as far back as  1975. Sales trends are
used to backcast sales to  1975, when sales estimates are not available back to this date. Sales are backcast
further to 1948 by assuming constant sales at 1975 levels. As these estimates apply to sales of diesel-
powered equipment, any  extrapolation of sales prior to 1975 is done assuming that the diesel fraction of
historic equipment sales is constant at the 1975 level.

       Equipment Life: In estimation of base-year populations (and future equipment populations, as
well), equipment life is assumed to be equal to the life of the engine.  NONROAD starts with estimates of
engine life at full load (in hours) and adjusts these "full-load lifetimes" to reflect more realistic in-use
operating conditions. Specifically, engine life at full load is divided by the average load factor of the
relevant equipment type to produce an estimate of actual engine life (in hours). Then, the median engine
(and thus, equipment) life in years is determined by dividing actual engine life (in hours) by annual
activity (in hours per year). For example, equipment with an average load of 20% is projected to last five
times as long as the same equipment (and engine) with an average load of 100%.  Likewise, equipment
used 100 hours per year will last twice as long (in terms of years) as the same equipment used 200 hours
per year.

       Equipment Life and Scrappage:  Equipment scrappage rates are based on the projected median

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

life of the original engine in terms of years.  The NONROAD methodology assumes that nonroad engines
are not rebuilt. However, equipment is also assumed to never fail before the engine is worn out. To the
degree that engines are actually rebuilt in the nonroad equipment fleet, NONROAD would underestimate
the in-use equipment population. In contrast, should the equipment wear out or be damaged before the
engine wore out, NONROAD would overestimate the in-use equipment population.

       Engine Median Life: The median life of nonroad engines is based on estimates of the expected
life of highway diesel engines operated continuously at full load. Median engine lives are estimated for
three nonroad engine categories:

       1.      Engines rated at less than 50 hp: median life of 2,500 hours at full load (estimated life of
               a light-duty, highway  diesel engine)
       2.      Engines rated at 50-300  hp: median life of 4,667 hours at full load (assumed to be 2/3 of
               the estimated life of a heavy-duty, highway diesel engine)
       3.      Engines rated at more than 300 hp: median life of 7,000 hours at full load (estimated life
               of a heavy-duty, highway diesel engine)

The estimated median life of a nonroad diesel engine does not vary by manufacturer, engine design (e.g.,
turbo-charged, after-cooled, indirect or direct injection, etc.), equipment type, etc.

       In Draft NONROAD2002, we substituted engine lifetimes based on highway engine experience
for those  estimated by PSR. A study performed for the California Air Resources Board (CARB)
developed the above estimates of highway engine lifetimes for use in their OFFROAD emissions model,
which they use to estimate in-use emissions from nonroad equipment. The study also made a number of
adjustments to these estimates to reflect differences in the design and operation of highway and nonroad
diesel engines. These adjustments reduced the three lifetimes shown above to 1,250-2,5004, 4,000 and
6,000 hours, respectively, for the three engine classes. In developing Draft NONROAD2002, we
accepted  the CARB estimates of highway engine lifetimes, but rejected the downward adjustments, since
the latter were not based on data and we  believed the logic explaining different lifetimes for nonroad and
highway  engines to be flawed.

       Load Factors:  The load factor in the NONROAD model addresses the fact that engines do not
operate 100% of the time at rated speed and rated horsepower.  The load factors in the Draft
NONROAD2002 and Draft NONROAD2004 models are based on 7 operation cycles developed by the
Southwest Research Institute (SwRI) for EPA.  Three of the cycles, those for agricultural tractors,
backhoe-loaders, and crawler tractors, were developed by having professional operators perform a series
of specified tasks believed to be typical for that type of equipment.  One piece of equipment was tested
from each category and each piece of equipment was tested for 8-20 hours of operation. The three cycles
were developed from selected micro-trips (operations to perform specific tasks).

       The  other four cycles, those for skid-steer loaders, arc welders, wheel loaders, and excavators,
were developed using rental equipment equipped with on-board data loggers. A total of 5 pieces of
equipment were tested for a total of 123 hours of operation. The cycles  were developed from the total
universe  of measured operational data.
         1,250 hours for engines less than 16 hp, 2,500 hours for engines between 16 and 50 hp.

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                 Summary and Analysis of Comments
                                                                                       May, 2004

       The seven cycles yielded average load factors ranging from 0.21-0.78. Since operating cycles
were not developed for every type of equipment (NONROAD includes about 80 equipment types), we
grouped the seven cycles into three categories (transient cycles with relatively high load factors, transient
cycles with relatively low load factors and steady-state cycles). The load factors of the cycles assigned to
each category were arithmetically averaged.

               High, transient load factor: 0.59 (average of 4 cycles (agricultural tractor, crawler dozer,
               rubber-tire loader, excavator) with load factors ranging from 0.48-0.78)
               Low, transient load factor:  0.21 (average of 3 cycles (backhoe/loader, skid-steer loader,
               arc welder) with load factors ranging from 0.19-0.23)
       •       Steady-state load factor: 0.43 (average of all seven transient cycles)

Each type of nonroad equipment was assigned to one of the three load factor categories.  The seven types
of equipment tested were assigned to the high or low transient grouping that its cycle was used to
develop.  Other equipment were assigned to load factor groups based on engineering judgment.

       Annual Activity:  Estimates of the annual activity of various types of equipment are obtained
from PSR, who in turn develops them from periodic surveys of nonroad equipment users. The
methodology used by PSR to determine who is surveyed, as well as the way the survey results are
compiled is proprietary. The annual  activity estimates vary by equipment type, but not by engine  size or
age or model year. The insensitivity of annual activity to both equipment size and age make it important
that the sample of users surveyed by  PSR be representative, as activity in the field may vary versus these
parameters.  Due to the proprietary nature of the sampling performed by PSR, we cannot assess the
representativeness of the sampling.

       Selected Median Lifetimes: Table 2-2 depicts annualized median life estimates for selected
equipment types in NONROAD (in order from shortest lived to longest).
                                              2-48

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

                                           Table 2-2
              Selected Median Equipment Lives in Draft NONROAD2002/2004 (years)
Equipment Type
Fork Lift
Off-highway Truck
Refrigeration/AC
Crawler
Ag Tractor
Backhoe
Skid-Steer Loader
Generator Set
Welder
Other Material Handler
Combine
Pressure Washer
Load
Factor
0.59
0.59
0.43
0.59
0.59
0.21
0.21
0.43
0.21
0.21
0.59
0.43
Activity
(hrs/yr)
1700
1641
1341
936
475
1135
818
338
643
421
150
145
Median Equipment Life (years)
Engine < 50 hp
2.5
N/A
4
4.5
9
10
15
17
18.5
28
N/A
40
Engine 50-300 hp
4.7
5
8
8.5
17
20
27
32
35
53
53
75
Engine >300 hp
7
7
N/A*
13
25
N/A
N/A
48
N/A
79
79
112
* N/A: Equipment with that engine horsepower are not produced for sale.

As can be seen from the table, the estimated equipment life can be very short for equipment with small
engines, high activities and high load factors (e.g., 2.5 years for fork lifts with engines rated at less than
50 hp) and very long for equipment with large engines, low activities and mid to low load factors (e.g.,
75-112 years for pressure washers fork lifts with 50+ hp engines).

       Scrappage Function: The percentage of a model year's equipment which is scrapped in any
given year is estimated using a normal distribution with a standard deviation equal to half the estimated
median life (in years).  According to this equation, the peak annual scrappage rate occurs at the median
life.  Also, 50% of the equipment is still in-use just as the median life is reached. Equipment starts being
scrapped a few years prior to this and has been completely scrapped by twice the median life (e.g., two
standard deviations beyond the mean). Weibull distributions are most commonly used to estimate the life
of mechanical parts and equipment.5 However, the information necessary to fully utilize the flexibility
afforded by Weibull distributions are not available.

       Engine Horsepower: NONROAD breaks down each type of equipment into a number of
horsepower ranges (e.g., 0-6 hp, 7-11, 12-16, 17-25, etc.). These groupings were developed to represent
differences in applicable emission standards. Where possible, they also represent natural breaks in the
distribution of engine sizes used in nonroad equipment.  The average engine horsepower for each range of
horsepowers for each type of equipment is based on sales estimates provided to EPA by PSR for 1990-
2000 model  years.  This average horsepower is then used for all past and future model years.

       Total Activity: NONROAD multiplies the estimated in-use equipment population for each
combination of equipment type and engine size by the annual activity, horsepower and load factor for that
combination of equipment type and engine size to estimate the total annual activity for that combination
(in terms of brake-horsepower-hours per year).
                                             2-49

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

       Fuel Consumption: The final step in development of the NONROAD model is to estimate
brake-specific emission and fuel consumption rates (mass or volume per brake horsepower-hour) and
apply this to the level of total activity described above (e.g., the product of population, activity, mean
rated power and load factor).  Since fuel consumption is the only focus here, we will not describe the
development of brake specific emission factors.

       Brake-specific fuel consumption in NONROAD is estimated to be 0.408 Ib/bhp-hr for engines
rated at 100 hp or less and 0.367 Ib/bhp-hr for engines rated over 100 hp. These figures are based on the
fuel consumption as measured during nonroad engine certification and thus, represent those over the EPA
certification test cycle.  Fuel density is estimated to be 7.1 Ib/gal, based on various in-use fuel surveys,
such as those conducted by the Alliance  of Automotive Manufacturers (and its precursors) and the
National Institute for Petroleum and Energy Research (now conducted by TRW).

       One of the interesting technical features of the way NONROAD estimates total activity, and thus,
emissions and fuel consumption, is the way changes to certain factors have little impact on total emissions
or fuel consumption. The reason for this insensitivity is that changes in inputs such as activity and load
factor must be reflected in both the estimation of base-year population inputs (developed outside the
model) and in the estimation of equipment activity, fuel consumption and emissions during model runs.
For example, reducing the annual activity level of a type of equipment has little impact on the total
projected emissions  or fuel consumption by that type of equipment.  Reducing the annual activity
lengthens equipment life (in years), since equipment life is equal to engine life divided by the product of
annual activity and load factor.  Longer equipment life, at the same level of sales, leads to larger in-use
equipment populations, since equipment scrappage has been reduced. Since the two changes occur
roughly to the same  proportion, the net effect is very  little change in emissions or fuel consumption.
Changing the load factor would have a similar non-effect, since equipment life also changes inversely in
proportion to any change in load factor.

       Thus, reducing the  load factors in NONROAD would have very little impact on total emissions or
fuel consumption, due to compensating changes in total equipment populations in the base year.
However, should independent estimates of equipment population be developed, then changing load factor
would directly impact NONROAD's projected emissions and fuel consumption.

       Nonroad Fuel Demand Derived From EIA 's Fuel Oil and Kerosene Survey (FOKS)

       EIA conducts an annual  survey of fuel distributors to assess the volume of distillate fuels used in
a wide variety of economic sectors. EIA surveys  roughly 4,700 fuel distributors, which are selected using
statistical sampling criteria. Each distributor is asked to estimate the volume of distillate fuel that he sold
in various fuel use categories. The specific categories tracked by EIA are:

       Highway vehicles                            Railroad
       Marine vessels                              Farm
       Oil Company                                Electric Utility
       Industrial                                   Commercial
       Off-highway (Construction)                   Other off-highway (logging, etc.)
       Military

Some of these categories are also broken down further into various types of distillate fuel. For example,

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commercial fuel is broken down into low sulfur diesel, high sulfur diesel, high sulfur fuel oil and
kerosene.  Most categories with some use of No. 4 fuel oil break out this fuel separately.

       Distributors primarily estimate the use of the fuel which they sell based on the primary business
of the fuel purchaser (e.g., fuel purchased by a construction firm is off-highway fuel, fuel purchased by an
individual home owner is residential fuel, etc.). Given that FOKS categorizes fuel use by economic
sector, it is usually possible to place an individual or a firm clearly into one category or another.  While
some distributors likely use actual sales records to respond to the survey, others may provide more
approximate estimates.

       The FOKS sampling method is statistically designed to cover the sale of fuel to all but two of the
categories listed above: highway vehicles and electric utilities.  Instead, EIA substitutes highway fuel
sales estimates from the Federal Highway Administration.  The FHwA estimates are based on fuel tax
receipts, minus  requests for highway excise tax refunds from those who purchased highway diesel fuel for
use in non-highway applications. EIA obtains more accurate distillate fuel use estimates  for electric
utilities from the Federal Energy Regulatory Commission (FERC) and adjusts their fuel use estimates
accordingly. Finally, EIA also adjusts their fuel use estimates to match the total volume of distillate fuel
supplied from both domestic refiners and importers (per EIA's Petroleum Supply Annual reports).

       Because of these adjustments, EIA publishes two sets of fuel use estimates.  The  first is labeled
"unadjusted," but includes estimates of on-highway fuel usage adopted from FHwA. The second set of
volumes are labeled "adjusted" and include improved electric utility usage as adopted from FERC, as well
as adjustments to match the total volume of distillate fuel supplied to the U.S. market. We believe that
the  adjusted estimates are the more relevant for our purposes, as the FERC usage estimates are widely
recognized as representing improvements and provide closure between total product supplied and total
sales.

       As noted above, EIA categorizes distillate fuel use into eleven sectors. Distillate fuel in three of
these sectors (farm, off-highway (construction) and off-highway (other)) represents fuel used primarily in
what EPA defines as land-based nonroad equipment. Significant quantities of commercial and industrial
fuel are also likely used in land-based nonroad equipment.  Very little fuel use in the remaining sectors
likely involves land-based nonroad equipment.  Because fuel use in land-based nonroad equipment as
defined by EPA is not directly tracked in FOKS, the FOKS estimates must be processed to produce an
estimate of fuel use in land-based nonroad equipment which is comparable to Draft NONROAD2004.

       The methodology which we use to derive land-based nonroad fuel use from FOKS estimates is
described in Section 7.1.5 of the Final RIA. We applied that methodology here to the 2002 FOKS
results.5 The basic methodology used and the results are summarized in Table 2-3. The last line in Table
2-3 shows the total land-based nonroad fuel consumption as estimated by EPA's Draft NONROAD2004
emission model described in Chapter 3 of the  Final RIA. As is  shown, the difference in nonroad fuel
consumption using the two methodologies is 2.4 billion gallons in 2002.
       5 The analysis in Section 7.1.5 of the Final RIA utilizes estimates from 2001 FOKS. FOKS 2002 was only
released in November, 2003.  The RIA analysis had to be completed on an earlier schedule that this analysis of
comments to allow the completion of other analyses which depended on its results.

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                                           Table 2-3
               Distillate Fuel Demand from EIA FOKS 2002 (million gallons per year)
Sector

Residential
Commercial
Industrial
Oil Company
Farm
Electric Power
Railroad
Vessel Bunkering
On-Highway
Military
Off-Highway
US Total
US Total: EPA NONROAD
Total No 2
Distillate Fuel

5,928
3,065
2,238
825
3,179
634
3,081
2,070
34,309
331
2,224
57,884

Land-Based Nonroad *
"EPA Nonroad" Factors (%)
0%
100% of high sulfur diesel fuel
20% of kerosene
100% of high sulfur diesel fuel
40% of No. 1 distillate fuel
50% of no. distillate
100% of diesel fuel
0%
0.95%
0%
0.7%
85% of diesel fuel
95%
—
Estimated Nonroad Fuel
-
491
1,883
413
3,109
-
29
-
240
258
2,116
8,537
|| 10,920
* Per EPA methodology described in Section 7.1.5 of the Final RIA.

       As mentioned above, FOKS is a survey and the results are subject to uncertainty. While
independent estimates of nonroad fuel use do not exist to verify the nonroad fuel consumption estimates
in Table 2-3, some independent data exist to verify the total distillate fuel consumption estimates for some
of the economic sectors covered by FOKS. These independent data are examined below.
       Independent Verification of NONROAD and FOKS Estimates

       NONROAD Emission Model

               The wide variety of the types of nonroad equipment, their varied uses and the lack of
state registration makes it extremely difficult to obtain representative estimates of in-use equipment
populations and its operation. Regarding sales projections, to date, EPA has utilized only industry-wide
totals from PSR, not broken down by manufacturer. Thus, it is not a simple task to try to confirm or
improve those sales figures which must be estimated by PSR.  Sales data for on-road vehicles can
generally be considered to be quite accurate, as they are tracked by a number of external parties and
vehicles are registered in every state. Nonroad equipment sales are not tracked as carefully, and there are
no state or federal registration requirements (other than some limited equipment registration requirements
in California). Thus, there is some degree of uncertainty in exactly how many pieces of equipment of
each type and horsepower are sold each year. As part of the engine certification process, EPA receives
projections from manufacturers of their upcoming year's production of engines which is directed to the
U.S. market.  However, being projections, they do not always match eventual sales.  Thus, the uncertainty
in the sales estimates cannot be estimated quantitatively.
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       Regarding equipment life, no data are available regarding the actual life of nonroad equipment.
Likewise, there is a similar lack of available data with which to verify the inputs to EPA's estimation of
equipment life (i.e., the estimated lives of the three categories of highway diesel engines at full load and
rated speed, the extrapolation of these highway diesel engine lives to nonroad engines, the premise that
engine life is a reasonable  surrogate for equipment life, and the assumption that equipment life varies
inversely proportional to average engine load). Given the fact that we expect nonroad diesel engines to
be designed to be at least as robust as highway diesel engines, with respect to durability, we have
confidence in our approach of using engine life as a surrogate for equipment life.

       Regarding average load factor, due to the methods used to develop and apply the seven cycles, it
is not possible to assess their absolute accuracy with respect to actual average in-use operation. The
agricultural tractor, backhoe loader, and crawler tractor cycles only included pre-determined operation.
While the specific tasks assigned to these equipment are  believed to be quite typical, there is no way of
assessing the representativeness of the amount of idle time included, the distance of travel to and from the
area where the tasks were performed, the resistance associated with the task (e.g., hardness of dirt, weight
of the load, depth of the dig, etc.). However, there is no  indication that the operation was atypical. In
fact, given the involvement of the engine manufacturers' technical staff in helping to determine the
microtrip weighting for the cycles and confirming the component activity sets for the duty cycles, we
have some measure of confidence in the accuracy of the  composite application duty cycles.   The skid-
steer loader, arc welder, wheel loader, and excavator data are based on actual day in the life operation
without regard to incorporating targeted activity, since their operation was under the control of the renter.
However, only a small amount of operation and limited sets of applications, size ranges, etc. were
sampled. Most of the equipment was by design "rental", which  itself only represents a portion of nonroad
equipment use. We were able to obtain owner operator equipment for some of the applications, however
in all instances, the operation was conducted by experienced operators. Unfortunately, due to the
proprietary nature of the PSR process, and the lack of comprehensive and detailed alternative data
sources, we are not able to make an independent assessment of  representativeness.  As detailed above,
we have provided discussion in niche areas for which we have been able to access alternative data
sources, but broad, sweeping changes based on a fully documented, comprehensive alternate source is not
possible. We have however confirmed the type of operation is consistent with operation from similar
applications in Europe. This is confirmed by the adoption of the nonroad transient duty cycle for nonroad
mobile machines in European Directive 2004/26/EC.

       Regarding annual activity, no publically available data are available to confirm the PSR
estimates. Measuring average annual activity would actually be a difficult task to perform.  Measuring
the activity of an individual piece of equipment is relatively straightforward. Most equipment have usage
meters, which show the number of hours that the engine  has been operating and which could be read
periodically.  However, measuring every piece of nonroad equipment in-use would be impractical. Any
sample of equipment would need to be representative of all equipment of that type. This is difficult to
achieve, as it is very difficult to ascertain where all the equipment is located at a given point in time, its
current usage pattern, etc.  Unless such sampling was coupled with a similar effort to measure the in-use
equipment population, one would need to ensure that any measurement of activity was consistent with the
current estimate of the total population of equipment, which is projected using median lives and
scrappage, not measured or surveyed. This should be a major consideration given to any effort to
measure either in-use equipment population or annual activity in the  future.
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       Regarding equipment life, the very limited survey data we are aware of (e.g., Construction
Equipment Magazine's 1999 analysis by MacKay and Company) tends to roughly corroborate many of
the construction equipment median lives used in NONROAD. We are not aware of any other survey data
which directly indicate the median life of other nonroad equipment.

       Regarding the shape of the scrappage function, no information is available to verify the validity
of using a normal distribution, nor of the assumption coefficient of variation around the mean.

       Regarding in-use equipment population, a few estimates of equipment populations for limited
types of nonroad equipment are available from other sources. For example, the U.S. Department of
Agriculture estimates the population of tractors and several other types of farm equipment. In general,
their population estimates exceed the NONROAD populations by a significant degree. In contrast,
MacKay estimates the population of several types of construction equipment and their population
estimates fall below the NONROAD populations.

       One difficulty in making such comparisons is that NONROAD categorizes equipment differently
than USDA or MacKay, or other analysts of economic sectors. NONROAD categorizes equipment
according to the primary way that type of equipment is used.  For example, all generators are classified as
commercial, though some may be used on farms, construction sites, etc. All skid-steer loaders are
classified as construction, while this type of equipment is used in nearly every economic sector.

       USDA, MacKay and, as we will see later, EIA, categorize equipment, fuel, etc. according to the
type of business that the equipment user is conducting. Thus, farm equipment includes all nonroad
equipment used on farms, whether the primary use of that type of equipment is agriculture or not.
Individual pieces of the same type of equipment might be classified as construction, farm, industrial, etc.
if it is used in all these economic sectors. Thus, one would not necessarily expect that equipment
populations developed using the two different approaches to classification would yield the same result.

       If independent estimates of in-use equipment populations were available for every economic
sector, the totals for each equipment type could be summed and compared to the NONROAD estimates.
These comparisons could then be used to evaluate if the estimated lifetime for any particular equipment
types deviated dramatically from the NONROAD estimate based on engine lifetime, load and annual
activity.

       Regarding average horsepower of the in-use fleet, no data are available with which to evaluate the
accuracy of this assumption.

       Regarding the fuel consumption of in-use nonroad equipment, EPA has performed some limited
in-use testing of nonroad equipment using portable, on-board devices. The purpose of this testing was
primarily to demonstrate the measurement equipment and the testing procedures, though the gathering of
some valid in-use data was also a goal. Of thirteen pieces of nonroad equipment so equipped,
measurements of engine speed, torque, and emissions were recorded over a total of roughly 400 operating
hours. Problems with the instrumentation invalidated roughly half of the data, leaving about 215 hours of
validly measured operation.

       The  selection of the equipment and the limited amount of operation measured does not allow
estimation of engine or equipment life or annual activity. However, the type of testing performed would

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allow the estimation of load factor and brake-specific emissions and fuel consumption.  The available
valid data are too limited to be used as the primary source of these estimates in NONROAD.  However,
the data indicate that the load factors in NONROAD for the types of equipment tested are not too low and
could be too high.

        Thus, overall, we have limited ability to confirm the NONROAD estimates of fuel consumption
using independent estimates of either the factors involved in making these estimates or of any direct
measure of in-use fuel consumption aside from FOKS, which is the focus of the next section.

        El A FOKS

        Independent estimates of the fuel consumption in some of the 11 economic sectors covered by
FOKS are available.  Specifically, independent estimates of distillate fuel used in residential and
commercial heating, industrial use and on farms and by locomotives can be compared to those of FOKS.

        Most of these independent estimates of distillate fuel consumption (farm, industrial, commercial
and residential) come from surveys of fuel or energy use conducted by the agencies of the U.S.
government (Department of Agriculture (USDA), the Bureau  of the Census, and EIA).  In these cases,
users of distillate fuel are surveyed,  as opposed to fuel distributors, as in FOKS. Thus, the estimates are
independent from FOKS.  In addition, the American Association of Railroads (AAR) tracks annual  fuel
use by its members (i.e., railroads).

        Table 2-4 shows the results  of the various survey results, as well as the comparable FOKS
estimate, along with the year in which the surveys were taken.  EIA FOKS estimates shown have been
matched to the year of the corresponding survey or AAR report.

                                           Table 2-4
             Distillate Fuel Consumption From Sources other than  FOKS and NONROAD
                                    (Billion gallons per year)
Sector
Farm
Construction
Industrial
Commercial
Residential
Railroad
Total
Calendar
Year
1997
1997
1998
1999
1997
1998
1997/8
EIA
FOKS
3.28
2.07
2.25
1.527
6.45
3.18
18.8
User
Survey
3.26
1.97
2.27
1.30
7.72
3.90
20.4
Source: User Survey
USDA Census of Agriculture
Census Bureau 6
EIA Manufacturing Energy Consumption Survey, Table N3.1
EIA Commercial Buildings Energy Consumption Survey,
Tabled
EIA Residential Energy Consumption Survey, Table 2
AAR

       6 U. S. Census Bureau. 1997 Economic Census, Construction Subject Series, Industry Summary,
EC97C235-15, Table 4.

       7 Total no. 1 and no. 2 distillate fuel use minus low sulfur diesel fuel use, minus no. 1 kerosene use, minus high
sulfur no. 2 diesel fuel use, per FOKS.
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        The user survey estimates of fuel consumption in the industrial, commercial, and residential
sectors were taken directly from fuel oil consumption figures reported in the various EIA surveys. The
estimate of locomotive fuel consumption were also taken directly from figures reported by AAR.
However, the estimates for the farm and construction sectors required a number of steps in their
derivation, which are described below.

        USDA estimates total combined annual farm expenditures on gasoline and diesel fuel. However,
the most recent estimate of diesel fuel separate from gasoline is for 1997, from the 1997 Census of
Agriculture* In 1997, U.S. farms spent $2.164 billion on diesel fuel. The average price of diesel fuel
was 87.4 cents per gallon.9 Thus, total diesel fuel consumption is estimated to be 3.26 billion gallons in
1997.

        The Bureau of the Census surveys fuel expenditures in the construction industry.  The latest
census available, from 1997, indicates that construction firms spent $7.45 billion on gasoline and diesel
fuel, $2.117 billion of which was for off-highway use. The Federal Highway Administration estimates
that the construction sector consumed 300.5 million gallons of gasoline in 1997.10 At an average price of
1.299 per gallon, this translates into a total gasoline expenditure of $3.88 million in  1997.n  This leaves a
total expenditure of $1.729 billion on diesel fuel in 1997. Using the average diesel fuel price of 87.4
cents per gallon  from above, this translates into a total diesel fuel use of 1.97 billion gallons by the
construction industry in 1997.

        Most of the fuel consumption figures shown above for FOKS were taken directly from the
applicable FOKS report (1997,  1998, or 1999). We chose to present the fuel consumption estimates after
adjustment for fuel use by electric utilities and adjustments to match total demand with supply, as
discussed above.

        There is some question whether kerosene use as estimated by FOKS should be included or
excluded when comparing to the user survey results.  We chose to exclude FOKS kerosene consumption,
as the user surveys tend to focus on fuel oil or diesel fuel use and include an "other" fuel category, which
could include kerosene. We excluded this other fuel category when reporting the user survey results.
Fortunately, kerosene use is only a small fraction of total distillate fuel  use in all these categories.

        Also, FOKS does not present an estimate for commercial building use, but for the entire
commercial sector. This sector also includes significant fuel use in highway vehicles which are exempt
from excise taxes, as well as diesel fuel which we presume is used in nonroad equipment.  We assumed
that the FOKS-based estimate for building use was equal to the FOKS estimate of high sulfur fuel oil use
in the commercial sector.  This is consistent with our methodology for deriving nonroad fuel consumption
        8 USDA, 1997 Census of Agriculture, Table 14.

        9 USDA, National Agricultural Statistics Service, Agricultural Statistics 1999, Table 9-

        10 Federal Highway Administration, Office of Highway Information Management, Office of Policy
Development, Highway Statistics 1997, FHWA-PL-98-020, Table MF-24.

        11 Oak Ridge National Laboratory, Center for Transportation Analysis, Energy Division, Transportation
Energy Data Book, Edition 18, ORNL-6941, Table 4.3.

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estimates from FOKS results. In that methodology, we assume that all high sulfur diesel fuel in the
commercial sector is used in nonroad diesel equipment. We also assume that all low sulfur diesel fuel
used in the commercial sector is used in on-highway vehicles which are part of public fleets.  These three
fuel types (high sulfur diesel, low sulfur diesel, and No. 2 high sulfur fuel oil) comprise the great majority
of the commercial sector's fuel use.

       Construction Fuel Use:  As shown in Table 2-4, EIA FOKS shows 100 million gallons more
fuel usage in the construction sector compared to the Census Bureau. This difference is only 5% of total
fuel use in this sector.  Also, as FOKS provides the higher of the two estimates and construction fuel is
predominantly assumed to be nonroad fuel, the Census Bureau estimate provides some indication that
FOKS is not underestimating nonroad fuel use in this sector. Thus, were one to assume that the Census
survey provided the more accurate fuel estimate for construction, this 100 million gallon difference would
increase the total 2.4 billion gallon difference in nonroad fuel consumption resulting from the two
methodologies by roughly 4%.

       Commercial Building Fuel Use:  As shown in Table 2-4, EIA FOKS shows 220 million gallons
more fuel usage by the commercial building sector compared to the EIA user survey.  This difference is
15% of total fuel use in this sector per FOKS.  Also, FOKS provides the higher of the two estimates.
High sulfur fuel oil is assumed to be not consumed in nonroad equipment.  Thus, the user survey provides
some indication that FOKS may be overestimating commercial building fuel use. For example, it may be
possible that some of the high sulfur fuel oil is being consumed in nonroad equipment. Thus, it is
possible that our methodology of deriving nonroad fuel use from FOKS is underestimating nonroad fuel
use in this sector. This 220 million gallon difference represents about 9% of the total 2.4 billion gallon
difference in nonroad fuel consumption resulting from the two methodologies.

       Residential Building Fuel Use:  As shown in Table 2-4, FOKS estimates residential fuel
consumption to be 1.3 billion gallons per year lower than EIA's residential survey.  This difference is
roughly 20% of the FOKS fuel use estimate. The difference indicates that FOKS may be underestimating
residential fuel use. Our methodology assumes that this sector includes no diesel fuel use by land-based
nonroad equipment. Thus, if FOKS does tend to underestimate residential fuel use, then FOKS is likely
overestimating fuel use in other sectors. As a whole, these other sectors are more oriented towards land-
based nonroad equipment than residential.  However, we cannot accurately estimate which sectors might
be over-estimated, so we cannot estimate to what degree this 1.3 billion gallon difference might be
leading to an overestimate of land-based nonroad fuel use per  our FOKS-based methodology. However,
as every other sector outside of locomotive and marine contain significant nonroad fuel usage, the effect
could be significant.

       Locomotive Fuel Use:  As shown in Table 2-4, FOKS also estimates over 700 million gallons
per year lower distillate fuel usage by locomotives than AAR. This difference is roughly 25% of the
FOKS fuel use estimate. The difference indicates that FOKS may be underestimating locomotive fuel
use.  Our methodology assumes that this sector includes essentially no diesel fuel use by land-based
nonroad equipment. Thus, if FOKS does tend to underestimate locomotive fuel use, then FOKS is likely
overestimating fuel use in other sectors. As a whole, these other sectors are more oriented towards land-
based nonroad equipment than locomotive.  However, we cannot accurately estimate which sectors might
be over-estimated, so we cannot estimate to what degree this 1.3 billion gallon difference might be
leading to an overestimate of land-based nonroad fuel use per  our FOKS-based methodology. However,
as every other sector outside of residential and marine contain significant nonroad fuel usage, the effect

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could be significant.
        Industrial and Farm Use: As shown in Table 2-4, the FOKS and independent survey estimates
are essentially identical for these two sectors.  Our methodology assumes that farm fuel use is roughly
98% nonroad, while that for the industrial sector is 75-85% nonroad.  Thus, the independent users surveys
indicates that FOKS is unlikely to be underestimating fuel use in these nonroad equipment sectors.

        Summary of Independent User Survey Comparison: Taken together, the independent user
surveys do not indicate that our methodology for deriving nonroad fuel demand from FOKS is
underestimating nonroad fuel use. The largest difference indicating a possible underestimation is that for
commercial building use, 220 million gallons. However, the difference in the construction sector of 100
million gallons would roughly cut this in half. It is likely that the two billion gallon difference in the
residential and locomotive sectors combined would more than compensate for the remaining 100 million
gallon difference. The nearly identical fuel use estimates by FOKS and the user surveys for the industrial
and farm sectors is strong support for the FOKS estimates.

        The differences between the FOKS and user surveys for the residential and locomotive sectors are
relatively large. One possibility is that somehow fuel is entering the distillate markets covered by FOKS
that is not considered when EIA adjusts the FOKS results to total fuel supply. This is investigated in the
next section.

        Adjusting to Match Distillate Fuel Supply: As described above, EIA adjusts their FOKS fuel
consumption estimates so that total no. 1 and no. 2 distillate fuel consumption matches total no. 1 and no.
2 distillate fuel supply per their Petroleum Supply Annual.  However, jet fuel is excluded from this
reconciliation.  The overall difference of 1.6 billion gallons per year shown between FOKS and the user
surveys in Table 2-4  above could indicate that more distillate fuel is being consumed than indicated by
EIA's Petroleum Supply Annual.  For example, some jet fuel could be making its way into the diesel fuel
and fuel oil markets,  including the highway diesel fuel market. Unlike other high sulfur distillate fuels,
jet fuel is not dyed at the refinery. Thus, jet fuel can physically be blended into highway diesel fuel
without causing a visible color, indicating the addition of an illegal fuel.

        There appear to be two ways that jet fuel could be entering the other distillate markets: 1) via
mixing and contamination during shipment, and 2) as a tax evasion strategy.  These two possibilities are
discussed below.

        Mixing During Distribution: One way that jet fuel could enter the distillate market is through
contamination via shipment by pipeline.  Section 7.1 of the Final RIA presents a detailed description of
how fuels are shipped through pipelines. Mixing occurs at the interface between every adjacent batch of
fuel.  This interface grows in volume as the shipments progress down the pipeline. Usually, the interface
is cut into one of the two adjacent batches, usually the one with the least  stringent product quality
specifications.  However, the interface between gasoline and jet fuel or distillate cannot be blended into
either batch. This interface is called transmix and shipped to a transmix processor to be separated once
again into gasoline and distillate.

        Batches of jet fuel can be shipped adjacent to either gasoline or distillate fuel, such as highway
diesel fuel or high sulfur distillate. Jet fuel that mixed with gasoline would end up in the distillate fuel
produced and sold by transmix processors. This distillate rarely meets jet fuel specifications, so it is

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usually sold as highway diesel fuel or high sulfur distillate. Thus, this jet fuel which was produced at a
refinery ends up in the distillate pool. However, it appears that EIA's Petroleum Supply Annual includes
fuel produced by transmix processors, so this "new" distillate fuel produced from processing jet fuel
would be included in EIA's total distillate supply and in the adjusted FOKS results.

       However, when jet fuel is adjacent to distillate fuel, the interface is usually just cut into the batch
of distillate at the end of the pipeline. Thus, this jet fuel also enters the distillate market.  However, since
it was not ever produced by a refinery, it is unlikely that this new distillate would be accounted for in
EIA's total supply  of distillate. It would be covered by the FOKS, since it would be sold by a terminal or
bulk plant.  However, its volume would essentially be removed through the adjustment process.

       As discussed in Section 7.1 of the Final RIA, estimates of the volume of jet fuel lost during
shipment vary widely, from 1-7%. Assuming that half of this is lost to transmix and half to distillate, this
implies that 0.5-3.5% of all jet fuel could be entering the distillate market unaccounted for by EIA's
supply estimates.  In Table 7.2-7 of the Final RIA, we show jet fuel consumption  by PADD in 2001.
Excluding fuel consumed in Alaska and Hawaii, which have no pipelines which carry jet fuel, total jet
fuel consumption was 20.4 billion gallons. Thus, the volume  of this fuel which might be entering the
distillate pool unaccounted for is  102-713 million gallons per year. This would explain some, but not all
of the 1.6 billion gallon difference seen between the FOKS and user survey estimates. The possibility
that this source of distillate fuel is not being accounted for in FOKS should be investigated further.

       Tax Evasion: The other possibility is that jet fuel is being consciously shifted to the distillate
market during distribution. If this is done prior to the payment of highway fuel excise tax, then this
addition is legal. If the shift from jet fuel to diesel fuel occurs after the excise tax has been paid, the
addition is illegal.  Jet fuel typically commands a slightly higher wholesale price than highway diesel fuel
and high sulfur distillate.  Therefore, we do not believe that jet fuel is often added to highway diesel fuel
or high sulfur distillate  legally. However, some blending might occur during temporary shortages of the
distillate fuels.  Since blending in the other direction is highly unlikely due to produce quality constraints,
this possibility should be explored further.

       Untaxed jet fuel, however, is much cheaper than taxed highway diesel fuel. Therefore, there is a
tremendous economic incentive to blend jet fuel  illegally.  The potential extent of such illegal blending is
not known.  The Internal Revenue Service clearly tries hard to ensure that taxes are paid on all fuel used
in highway vehicles which are not tax exempt (such as government-owned vehicles and school buses).
However, the difference between fuel use from FOKS and the user surveys of roughly 1.6 billion gallons
per year represents 4-5% of highway diesel fuel consumption. (This percentage is even less considering
that some jet fuel likely gets downgraded to distillate fuel via pipeline contamination, as discussed
above.) While it is conceivable that tax cheating could be occurring at this level, this is hopefully not the
case.  However, the degree that this might be occurring should be pursued further.

       Effect of Adjustment in FOKS on Derived Nonroad Fuel Consumption: Another way to
evaluate the effect  of the adjustment in FOKS to match reported distillate supply is to evaluate the effect
of the adjustment on each sector's fuel demand.  In 2002, the adjustment process in FOKS reduced total
distillate fuel consumption by all  sectors except highway vehicles and electric utilities by 1.34 billion
gallons. This is twice the upper end of the range of estimated jet fuel volume downgraded to distillate
during distribution. This could indicate that some jet fuel is being illegally blended into highway diesel
fuel, or could be due to some other unknown factor. If we apply the "nonroad" factors presented in Table

                                              2-59

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                               Summary and Analysis of Comments
                                                                                     May, 2004

2-4 above to the adjustments, we find that the adjustment process reduced nonroad fuel consumption as
derived from the FOKS results by 509 million gallons per year. This is 20% of the 2.4 billion gallon
difference in 2002 between the NONROAD and FOKS-derived estimates.  Thus, the adjustment process
within FOKS appears to have a signficant impact on estimated fuel consumption within the various
sectors and derived nonroad fuel use. However, most of the adjustment occurs in sectors not believed to
represent nonroad fuel use.

       Extension of NONROAD Methodology to Stationary Source Diesel Engines

       One additional evaluation of the NONROAD model estimates of fuel consumption can be made.
The methodology used to develop the Draft NONROAD2004 model can be easily applied to stationary
source diesel engines, which EPA does not include in its nonroad diesel emission inventory.  The PSR
sales data for several equipment types (e.g., generator sets, air compressors, pumps, welders, etc.) include
equipment believed to be classified as stationary, as well as some that is mobile.  PSR does not attempt to
differentiate between mobile versus stationary, but EPA believes that most of the smaller equipment in
these equipment categories is mobile (e.g., those with <175 hp engines), while larger equipment is mostly
stationary.  NONROAD excludes the assumed stationary source equipment sales and population from its
calculations, but PSR's estimates for the annual activity for these equipment include both stationary and
mobile equipment. Thus, EPA's estimates for load factor and useful life should also apply equally well to
both stationary and mobile applications of these particular equipment types.

       Table 2-5 presents those inputs from Draft NONROAD2004 for generator sets which vary by
horsepower category. All generator sets are estimated to be used 338 hours per year at an average load of
43%.  As indicated above, nonroad engines below 100 hp are estimated to have a brake specific fuel
consumption of 0.408 Ib/hour, while large engines consume 0.367 Ib/hour.
                                             2-60

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                               Summary and Analysis of Comments
                                                                                     May, 2004
                                           Table 2-5
                     Draft NONROAD2004 Selected Inputs for Generator Sets

<6
6-11
11-16
16-25
25-40
40-50
50-75
75-100
100-175
175-300
300-600
600-750
750-1000
1000-1500
1500-2000
^°000
p
23,785
94,304
45,746
76,863
67,603
35,729
96,210
172,077
183,930
145,475
113,819
26,003
31,455
27,888
11,553
? 35°
5
90%
90%
90%
90%
90%
70%
70%
70%
20%
15%
10%
0%
0%
0%
0%
00/-

5.4%
3.6%
1.9%
4.2%
1.7%
3.2%
1.8%
2.5%
1.1%
1.9%
0.3%
0.6%
2.5%
2.4%
4.9%
? 50/-
•<->• •" 5^
5.4
8.4
13.6
21.3
33.4
45.2
60.0
86.4
135.7
238.0
419.3
682.1
887.1
1247.9
1732.0
O/]f)f) O
       Starting with the base year population (in 2000) for each horsepower category, we subtracted
those assumed to be in the mobile category, grew the population for two years (linearly, in Draft
NONROAD2004), multiplied the resulting projection by the annual activity per piece of equipment, the
average load factor, the average horsepower and the applicable brake specific fuel consumption. The
result is an estimate of total fuel consumption by stationary equipment in each horsepower category.
These were summed across all the horsepower categories to produce a total fuel consumption estimate for
all stationary generator sets. This methodology was then repeated for air compressors, pumps, welders,
irrigation pumps, gas compressors and hydraulic power units, all of which are assumed to have similar
splits between mobile and stationary uses.  The result was a fuel consumption by stationary equipment for
the year 2002 of 5.17 billion gallons per year.

       These equipment would likely fall under a variety of EIA FOKS sectors, primarily industrial,
commercial, electric utility, and oil company. Of the total fuel use  in these four sectors, this stationary
diesel equipment fuel use would not include fuel that we assumed above that was used for nonroad
equipment (by definition), building and water heating (included in commercial), and on-highway vehicle
use (highway use category plus some in commercial).  It is possible to obtain a more robust evaluation of
the potential accuracy of the NONROAD methodology by adding those sources which clearly do not
include any power equipment (either mobile or stationary) to the NONROAD estimates for all power
equipment (mobile and stationary) and comparing the sum to the total amount of distillate supplied to the
U.S.

       We took the estimate of fuel use by nonroad equipment directly from the NONROAD model.
We then applied the NONROAD methodology to diesel equipment which the EPA assumes is non-mobile
(stationary) in the NONROAD model to estimate fuel use by this equipment. Fuel use in the residential,
marine, and highway sectors were assumed to include no fuel used in either mobile or stationary diesel
                                             2-61

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

equipment. We obtained estimates of fuel use for these categories directly from FOKS. We assumed that
99% of fuel used in the locomotive sector was not fuel used in any of the mobile or stationary diesel
equipment covered by the NONROAD model. Total locomotive fuel use was taken from both FOKS and
AAR (a range was used).  Finally, we added fuel use from the commercial sector which would not include
any fuel used by stationary or mobile diesel equipment. We assumed that this would include fuel used in
commercial buildings and by highway vehicles exempt from the highway fuel excise tax. Fuel used in
commercial buildings was assumed to be all No.2 fuel oil in the FOKS commercial sector (consistent with
our FOKS-based methodology above) and from the EIA commercial building fuel use survey.  Fuel used
by tax exempt highway vehicles was taken from DOT.  We assumed that all fuel used in the FOKS
categories of industrial, military, oil industry and electric company could be either mobile or stationary
diesel equipment included in the NONROAD model or the stationary versions of equipment included in
the NONROAD model. This assumption is likely to under-estimate total distillate fuel consumption, as it
is highly unlikely that 100% of all of these categories fuel use is in such equipment.  However, absent any
independent information to the contrary, we believed that this approach was the most appropriate. It
effectively minimizes total distillate fuel consumption from these sectors and allows for the highest
practical level of fuel consumption from stationary generator sets.  Thus, should the application of the
NONROAD methodology to stationary generator sets lead to a higher prediction of overall distillate fuel
use than indicated by EIA fuel supply statistics, this would be a strong indication that the NONROAD
methodology for generator sets was over-predicting in-use fuel consumption.

       Total distillate supply was taken from EIA's  Petroleum Supply Annual. This EIA report is based
on 12 months of reporting by every U.S. refiner, as well as every importer.  Thus, it is not a survey, per
se, but a mandated reporting of production, exports and imports. It is expected to be much more accurate
than any of the sector specific estimates of fuel consumption.

       These distillate fuel consumptions and total supply are shown in Table 2-6.
                                             2-62

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                                                     Control of Emissions from Nonroad Diesel Engines
                                                                  Summary and Analysis of Comments
                                                                                         May, 2004

                                            Table 2-6
         Distillate Demand With Draft NONROAD2004 Extended to Stationary Sources:  1999
Sector
Mobile Land-Based Nonroad Equipment (Draft NONROAD2004)
Stationary Equipment (Draft NONROAD2004 Methodology)*
Residential Heating (FOKS residential sector and EIA Residential Fuel Use Survey)
Commercial: Building Heating (FOKS No. 2 fuel oil use from commercial sector and EIA
Commercial Building Fuel Use Survey)
Commercial: School buses and public fleets (DOT)
Locomotive (FOKS locomotive sector and AAR)
Marine Vessel (marine sector from FOKS)
Highway (FOKS highway sector)
Total Demand
Tntdl niatillntp Snnnlv fKTA PS A 1
Distillate Usage (Billion
gallons/year)
10.05
5.05
5.82-7.72
1.30-1.52
1.00
2.75-3.86
2.05
32.06
60.08-63.31
^Alf,
* NONROAD does not normally produce estimates for stationary equipment. To obtain such estimates one must feed the model
stationary equipment populations instead of the normal mobile equipment populations

        Table 2-6 shows that the application of the NONROAD methodology to both mobile and
stationary source diesel powered equipment results in an over-prediction of fuel consumption relative to
total distillate supply per EIA of 5.35-8.37 billion gallons per year.  This is much greater than the
difference between the Draft NONROAD2004 and FOKS estimates of land-based nonroad equipment in
1999, which was 2.39 billion gallons per year. The reason is that the Draft NONROAD2004 estimate of
fuel demand by stationary power equipment is greater than that implied within FOKS. Again, these
equipment would necessarily fall under five EIA FOKS sectors, industrial, commercial, electric utility,
military and oil industry. The total amount of fuel used in these five sectors, as estimated by EIA FOKS
1999, is 7.03 billion gallons per year. However, 2.57 billion gallons of this total were allocated to
nonroad equipment according to the methodology outlined in Chapter 7 of the Final RIA.  This leaves
4.43 billion gallons per year. However, the commercial sector also includes low sulfur diesel fuel
consumed in selected highway vehicles, namely school buses and public (federal, state and local) fleets,
which do not pay highway fuel excise tax. Per estimates from the Department of Transportation, these
fleets consumed 1.00 billion gallons per year.12  Finally, as discussed above, roughly 1.30-1.52 billion
gallons per year is  used in commercial buildings.  While some of this might be occasional use by back-up
generators, it is unlikely that this use is a sizeable fraction of total building use.  This is supported by the
fact that the  EIA commercial building survey shows that most distillate fuel use is in buildings for which
distillate fuel is the primary fuel used for heating and cooling (i.e., no use of natural gas). Thus, the
maximum FOKS-based total for stationary diesel fuel consumption is roughly 1.90- 2.12 billion gallons
        12 EIA FOKS for 1999 estimates that 0.93 billion gallons of low sulfur diesel fuel was consumed by the
commercial sector. Per our methodology outlined in Chapter 7 of the Final RIA, we assume that this fuel is used in
school buses and public fleets.  The fact that the DOT and EIA FOKS estimates are within 7% confirms this assumption
quite well.
                                               2-63

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                               Summary and Analysis of Comments
                                                                                     May, 2004

per year, versus the 5.05 billion gallon per year estimate generated by extending the Draft
NONROAD2004 methodology to stationary diesel equipment. Thus, extending the NONROAD
methodology to stationary diesels increases the difference between "NONROAD" and FOKS by an
additional 2.93-3.15 billion gallons per year. The FOKS estimates for non-diesel fuel consumption,
namely residential and commercial building heating, railroad and marine vessel fueling, are, if anything,
lower than those from the independent surveys. Thus, it appears likely that some aspect of the
NONROAD methodology for generator sets is leading to overly high projections of fuel consumption.

       Summary

       The difficulty in using the other estimates of fuel consumption (FOKS, Census, AAR, etc.) to
adjust NONROAD fuel consumption estimates is that the source of the difference in estimates is
unknown. An across-the-board adjustment might be adjusting the fuel consumption of an equipment type
whose fuel consumption is not being over-estimated.  Or, both new and old equipment's fuel consumption
could be adjusted to the same degree, but the difference could in fact be due primarily to one term or the
other. Thus, rather than build  such an adjustment into the NONROAD model, we have decided that it is
more prudent to leave the model as is and continue to use it as our primary estimate of NONROAD fuel
demand and emissions. However, to ensure that a potential error in the model's outputs are not leading to
an inappropriate decision regarding the additional control of nonroad emissions and fuel quality, we
conducted a sensitivity analysis using fuel consumption estimates derived from the FOKS results, as
described. We reiterate that in this sensitivity analysis (see Appendix A of Chapter 8 of the Final RIA),
the fuel consumption from the NONROAD model at the national level was adjusted to match that of
FOKS on an annual basis. The emissions projections from NONROAD were adjusted by the same annual
factor. In this way, we have considered the available data relating to NONROAD fuel demand and
emissions and have concluded that the variations in available data are not so large as to affect the
rulemaking outcome.
       2.3.2.2.3       Future Growth

What Commenters Said:

The comments in this section can be summed up as follows-

       The NONROAD model overestimates the future growth in emissions from land-based nonroad
       equipment and, thus, emission reductions due to the proposed rule. Adjusting NONROAD fuel
       consumption (and thus,  emissions) to match the growth projected by EIA 's 2002 Annual Energy
       Outlook (AEO 2002) [or now 2003] would produce more accurate estimates of emissions and
       associated emissions benefits.

       DDC and EMA commented that the model significantly overestimates growth in diesel use and
the methodology used to develop the NONROAD growth rate appears to be technically unsound.  The
growth projections used in NONROAD 2002A have been carried over from previously versions of
NONROAD, even though EPA has found that the Power Systems Research (PSR) data used as the basis
are flawed. There are several alternatives from which growth projections can be obtained, the most
relevant being diesel fuel consumption projections, which offer a more robust analysis of future off-
highway diesel use. The growth rates from NONROAD appear to be overstated by a factor of three as

                                             2-64

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

compared to EIA data, and by 2010 the diesel fuel consumption estimates are more than 50 percent
greater than those of EIA.  The model consistently overestimates growth rates, thus overstating the
activity and emissions from diesel nonroad equipment. EMA also provided a table comparing the EIA-
based growth rates to the NONROAD rates within each type of nonroad application to support their
assertion that the growth rates are overestimated across all applications.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 8
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 93-95

       EMA further commented that separate growth projections are applied by fuel type, but the model
contains only national average growth rates.  No regional variation is accounted for in the model.  In
addition, the 7-year window of the  PSR data used by EPA is not sufficiently long enough to be
considered  representative of more general national growth trends.  Lastly, EMA noted that projecting the
linear growth rates unchecked to 2050 without considering changes to demographics and economic
sectors is technically unsound.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 94-96

       EMA commented that EPA is using their own evaluation of PSR sales data to derive the current
model's 1998 base year population  data, but is using unadjusted PSR population data for growth
projections. This inconsistency is inappropriate and unreasonable.  PSR population estimates are derived
and are not directly measured and have  not undergone adequate peer review, as the data are considered to
be proprietary. EPA believes that the PSR population data are  flawed, yet continues to use these data as
the basis for growth projections in NONROAD. EMA provided additional discussion on this issue and
concludes that this cannot be a reasoned basis for the rule.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 95-96

       EMA commented that the growth factors analysis has not been updated in five years and does not
reflect more recent data now available from both PSR and alternative sources or recent economic trends.
Growth projections were derived from data from the PSR PartsLink database, which is based on diesel
engine population estimates between 1989 and  1996 and EPA has not updated their original analysis of
NONROAD growth projections since 1998.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 95-96

       EMA commented that EPA overestimates the growth estimates in the NONROAD model, thus
overstating the need and justification for the proposed Tier 4 standards. The EIA-based growth rates were
incorporated into the NONROAD model to determine the net change in the national, land-based diesel
off-highway inventory for NOX and PM (not including the effects of the proposed rule). This analysis was
completed by running the NONROAD model for each year from 1998 to 2030 and by converting the
modeled emissions and fuel consumption into a mass per unit fuel consumed variable. The fuel
consumption increase from 1998 was assumed to equal 1.1 percent as derived from EIA resources. The

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

modified inventory was then estimated by multiplying the mass per unit fuel consumed times the  1.1
percent growth rate in fuel consumption.  By updating the growth data, NOX and PM inventories
decreased by 17 and 22 percent in 2010 and 2015, respectively, which is a critical planning period for the
upcoming 8-hour ozone and fine PM air quality plans. The commenter provided additional discussion
regarding the results of their analysis, including figures that show PM and NOX emission trends in the
context of the revised growth rates.  EMA concluded that this analysis supports their assertion that EPA
has overstated the need and justification for the proposed Tier 4 standards.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 99-101

       AEM commented that EPA overestimates the emissions inventory growth estimates in the
NONROAD model. EPA should use its data representing fuel usage by segment as the best indicator of
nonroad equipment usage. Data for farm  and off-highway fuel sales are flat from 1984 to 2002, which
indicates that the emissions contribution from these engines cannot be increasing at the rate EPA is
projecting in its emissions inventory analysis.

       Letters:
       Association of Equipment Manufacturers, OAR-2003-0012-0669, 0670 p.  11-12

       API and  Marathon commented that it is not possible to predict an accurate emissions inventory 27
years into the future, regardless of whether it is based upon a simple extrapolation of 7 years  of recent
equipment population history or projections of economic indicators. EPA's estimates should account for
the uncertainties  in the estimated emissions benefits that are based on these predictions (see additional
discussion under Issue 2.4).

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 43
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 39

       API and  Marathon commented that there are two factors that contribute to the relatively large
future growth in total activity estimated by the NONROAD model. These are the assumptions that
equipment hours of use per year and load factor are a function of equipment type and do not vary with
age. These assumptions run counter to numerous motor vehicle-related studies in the literature that have
demonstrated that consumers tend to use older vehicles less intensively than newer ones. This pattern of
use would also be characteristic of nonroad engines.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 43-44
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 39-40

       API and  Marathon commented that EPA relies on the extrapolation of historical trends in
population size in order to project the emissions inventories and benefits associated with nonroad land-
based diesel engines using its draft NONROAD2002 model. However, for the railroad locomotive
equipment sector, EPA developed estimates of emissions inventories and proposal benefits based on fuel
consumption projections and growth rates drawn from Table 7 of the EIA Annual Energy Outlook 2002.
It is inconsistent  for EPA to reject the use of economic indicators for growing the population of one

                                              2-66

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                               Summary and Analysis of Comments
                                                                                    May, 2004

segment of the nonroad diesel engines while endorsing and applying this method for another segment.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 45
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 41

Our Response:

       In summary, the projected growth in nonroad fuel consumption based on projections in EIA's
Annual Energy Outlook (AEO) 2003 report and the EPA NONROAD emissions model differ
substantially.  Growth based on AEO 2003 is 1% per year (from year 2000 levels), while that for the
NONROAD model is 3% per year (from 2000 levels).  Any future growth rate is uncertain to some
degree. However, the historic trend in estimated nonroad fuel consumption based on FOKS from 1984-
2002 indicate less than 1% per year growth. While uncertainties exist in the FOKS estimates and our
methodology to convert the survey results to nonroad fuel consumption estimates, it is not clear why these
discrepanices would change significantly over time. At the same time, we recalculated the growth in
nonroad equipment populations in NONROAD using additional sales data, as well as segregating sales
and population growth by horsepower type. This process led to an increase in the projected growth in
equipment population and thus, fuel consumption. Thus, the reasons for the difference in the projected
growth in nonroad fuel demand between AEO 2003 and NONROAD remain unclear.  Because of this, we
are continuing to base future growth on the growth in nonroad equipment population as incorporated in
the NONROAD emissions model. However, as a cross-check, as noted above, we have conducted a
sensitivity analysis  (see Appendix A of Chapter 8 of the Final RIA), to look at the effect of estimating the
costs, emission reductions and cost effectiveness for the final rule program assuming future growth in
nonroad fuel consumption based on AEO 2003. The results of this sensitivity analysis are summarized at
the beginning of the Section 2.3.2.2.2 above.

       Figure 2-2 shows both Draft NONROAD2004 and FOKS-based fuel demand for land-based
nonroad equipment from 1984 through 2030. EIA growth rates were taken from the Annual  Energy
Outlook 2003.
                                            2-67

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                                                  Control of Emissions from Nonroad Diesel Engines
                                                              Summary and Analysis of Comments
                                                                                    May, 2004
                                          Figure 2-2
                         Land-Based Nonroad Fuel Demand
   CQ
           1980
1990
2000
2010
2020
2030
As can be seen, the Draft NONROAD2004 model projects a much higher growth rate (roughly 3% per
year, linear relative to 1998) than EIA (roughly 1% per year).  No one can predict future growth with
absolute accuracy, given the uncertain nature of future economic growth. However, one indication of the
reasonableness of any future prediction is its consistency with the past.  The methodology used by
NONROAD produces the same growth rate in the past as in the future.  EIA FOKS estimates, however,
show essentially no growth in nonroad fuel demand since the mid-1980's and slow growth over the past
decade . EIA's projection of future growth is consistent with this slow growth seen in FOKS estimates
since 1992 or so.  Thus, one important question is whether there is any evidence that one or the other
estimate of historical growth is more accurate.

       Growth in total equipment activity in NONROAD is driven by growth in equipment population.
At EPA's request, PSR developed total equipment populations by equipment type for the years 1992-
1998. Generally, PSR utilized their own sales database from  1973-1998, as well as estimates of
scrappage, to generate these populations.  These seven years of equipment population were based on sales
by horsepower class, as well as equipment type. Therefore, the population trends should ideally reflect
any trends towards smaller or larger equipment occurring during this timeframe. However, in
NONROAD, the same growth rate is applied to all equipment in a given category, regardless of
horsepower class.

       As indicated in Section 2.3.2.2.2, for several inputs, data do not exist to confirm or refute the
inputs to the NONROAD model.  Therefore, the accuracy of these inputs cannot be assessed. However,
in attempting to respond to the comments made on the model and its use in support of the  nonroad rule,
                                            2-68

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                               Summary and Analysis of Comments
                                                                                     May, 2004

EPA performed a number of analyses to evaluate the specific growth rates incorporated in Draft
NONROAD2002.13  As historic equipment sales provide one of the primary inputs into the projection of
future equipment populations, for these analyses, we updated the historical sales data that is used to
generate the base year equipment populations. Specifically, EPA requested updated equipment sales data
from PSR for 1999 and 2000. We also requested that PSR review and update its sales estimates for
previous years to better account for imports and exports. These expanded and updated sales estimates
were used in our assessment of future growth as projected in the NONROAD model.

       Finally, EPA evaluated whether applying the same growth rate for all equipment by type,
regardless of horsepower, might be introducing a bias in the growth rates. We were particularly interested
in the possibility that the growth in sales of smaller equipment was outpacing that of larger equipment,
this would lead to an over-estimation of the growth in fuel consumption, since larger equipment use more
fuel per hour than smaller equipment.  This could conceivably occur as diesel engines penetrated the
market for smaller equipment.

       EPA therefore prepared sales growth rates for a number of equipment types by horsepower
category and evaluated whether these horsepower-specific growth rates produced a different growth in
fuel consumption than the more typical growth rates based just on equipment type. In fact, the
horsepower-specific growth rates increased the projected growth in fuel consumption, as opposed to
lowering it. Given the already large discrepancies between NONROAD results and AEO-based results
discussed above, we decided not to incorporate these horsepower-specific growth rates at this time,
though we do note that they raise the possibility that NONROAD results are conservative. It may be
more feasible to incorporate higher sales growth in to NONROAD in the future once we are able to
confirm or improve other aspects of the model, such as scrappage, annual activity, load factor, etc.

       Regarding the growth in fuel demand resulting from the FOKS performed over time, the survey
has essentially been  applied in a consistent manner since 1984. We are not aware of any reason why a
potential bias in the survey  would change over time. Looking at the fuel consumed in the various sectors
tracked by EIA FOKS, only the highway and off-highway (construction and other) sectors grew
substantially from 1992 to 2002 (61% and 28%, respectively). Military use was the only sector to shrink
substantially, while use by electric utilities varied widely, but without a distinct temporal trend. The
remaining sectors showed little net change  (e.g., less than 10% over the 10 year period).  Thus, the
significant growth indicated by NONROAD (37% between 1992 and 2002) is only exceeded by the
FOKS highway sector.  FOKS off-highway shows about three-fourths of the NONROAD growth.
Assuming that any bias in the FOKS estimates is consistent over time, the only way that the NONROAD
and FOKS historic growth rates can be reconciled would be for an increasing volume of taxed, low sulfur
diesel fuel to be used in nonroad equipment without a tax refund being requested. The volume of taxed,
highway fuel used in nonroad equipment when the user does not request a tax refund is certainly not well
known. However, why this volume would increase between 1992 and 2002 is not clear.  Also, the degree
of increase would need to be substantial to  explain the growth projected by NONROAD.  NONROAD
projects an increase in nonroad fuel usage of 3.0 billion gallons between 1992 and 2002.  Using FOKS,
this increase is only  0.25 billion gallons.  The difference of 2.75 billion gallons represents more than a
third of total nonroad fuel usage in  1992 per NONROAD or FOKS.  Thus, essentially all of the growth in
       13 NONROAD Emissions Modeling Team, "Growth Analyses for Nonroad Diesel Modeling", EPA
memorandum, April, 2004.

                                             2-69

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

nonroad equipment fuel usage between 1992 and 2002, equal to a third of total nonroad equipment fuel
usage in 1992, would have to be by users who did not take the effort to obtain a tax credit equal to
roughly 40 cents/gal.

       Of course, the other explanation is that there is a trend in some bias within FOKS that is masking
a significant increase in nonroad fuel use. While the confirmation of the FOKS estimates by AAR and
Census surveys in 1999 was described above, comparisons of earlier FOKS estimates with earlier user
surveys show similar results. Thus, any trend in a bias within FOKS would have to be in a sector not
addressed by user surveys, such a the military or marine sections.  The volume of nonroad fuel within
these sectors is much smaller than the volume needed to explain the difference in growth, however. Thus,
substantial questions exist about the substantial growth prior to 2002 projected by NONROAD.

       The primary reason for NONROAD's projected growth is an increase in equipment sales over
time. As mentioned above, this increase in sales also appears to be accompanied by a small increase in
average horsepower and/or annual activity, so that the growth in total horsepower-hours per year by
nonroad equipment increases at a slightly greater rate than simply number of in-use nonroad  equipment.
While there may be  some uncertainty in the PSR sales estimates, we have no reason to believe that there
is a substantial bias which is changing over time. In other words, we have no reason to doubt that
nonroad sales are increasing. Given the assumptions built into NONROAD (constant equipment life,
scrappage rates, annual activity, horsepower, engine efficiency, load factor, etc.), this sales trend
translates fairly directly into increased fuel usage. Thus, the only explanation for increasing  equipment
sales and constant fuel usage is that one or more of the above factors are changing over time. For
example, nonroad equipment could be scrapped at a faster rate due to earlier onset of obsolescence.  Or,
rather than being scrapped, this older equipment is simply being stored and not used as often as older
equipment in the past. Or, as diesel engines have penetrated new equipment markets, or nonroad
equipment has taken on new uses, the load factors, annual activities, etc. have dropped, causing the rate of
increase in fuel usage to be much lower than that of sales. Due to a lack of information quantifying,  or
even pointing to, any such trends, NONROAD  assumes that most aspects of nonroad equipment usage
and life remain constant over time.

       Finally, it should be mentioned that there is significant uncertainty in the sales growth rate of
farm equipment. There was a significant spike of farm equipment sales in the mid 1970's related to
increased grain exports to the Soviet Union. When these exports ended, sales of farm equipment dropped
precipitously.  We considered two approaches to accommodating this spike in sales: 1) include them, and
2) exclude them. The first approach yielded essentially zero growth in projected farm equipment sales.
We believed that this would be inappropriate for a projection scenario  stretching over several decades
long past the 1970's  anomaly. Excluding the sales spike yielded a growth rate close to 3% per year for
farm equipment sales, which we believed to be  more appropriate.

       However, a third approach to addressing the spike can be considered, which is not reflected in our
numerical analyses based on approach (2) above, namely, to assume that the imposition of the grain
embargo led to depressed sales in new agricultural equipment during the early 1980's.  This view would
interpret the spike in sales as uncharacteristically high and the depressed sales immediately following the
spike as uncharacteristically low. This third approach would lower the historic "base trend" from which
growth is projected relative to the first approach described above, but would raise this base relative to the
second approach. Thus, it would have likely resulted in a positive rate of growth in farm equipment  sales,
but less than the 3% currently projected.  As farm equipment represents a quarter of the fuel consumption

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by nonroad equipment in Draft NONROAD2004, any significant reduction in farm growth would have a
significant impact on total growth.  Taking this approach to assessing farm sales growth would likely
bring the Draft NONROAD2004 and EIA FOKS estimates of historic growth closer, but it is unlikely that
they would match.  Thus, some other factor(s) appear to be causing significant differences between
equipment sales growth and fuel usage growth.

       EIA projects future growth in fuel demand by economic sector in the Annual Energy Outlook
reports (AEO). Applying the AEO 2003 growth rates to the baseline year 2002 estimate of fuel use by
land-based nonroad equipment using FOKS, nonroad fuel growth would average just under 1% per year
from 2000-2025 on a linear basis relative to 2000. The comparable NONROAD projection is 2.2%
growth per year over the period 2000-2025.  Both projected growth rates are larger than the historic
growth rate per FOKS, which is essentially flat. Of the two future projections, the AEO 2003 projection
is closer to the historic rate. Again, the cause of Draft NONROAD2004's higher growth rate is unclear
and what types of equipment might have a lower growth rate are unknown. Thus, we decided not to try to
adjust the aggregate Draft NONROAD2004 growth rate to match that of AEO 2003, but will continue to
evaluate the issue of nonroad equipment growth in the future. However, as we evaluate the sensitivity of
our decisions regarding  Tier 4 nonroad emission and fuel quality standards to the use of FOKS nonroad
fuel estimates, we will do the same with the use of AEO 2003 growth rates.

       We will continue to evaluate the estimation of growth in the use of nonroad equipment in the
future. Based on our updated assessment of historic equipment sales, sales of some important equipment
types are growing at a fairly high rate.  In contrast, the EIA FOKS surveys indicate that fuel use is
growing much more slowly. Why, based on available data sources, fuel use is not growing at the same
rate as sales is not clear. A trend towards a smaller nonroad engine fleet does not appear to be the reason
for the difference. There may be differences in fuel use trends within the larger FOKS sectors which
affect nonroad fuel  use relative to heating oil.  Some of the assumptions contained in the NONROAD
methodology, such  as equipment life (in hours) being solely a function of engine horsepower, constant
annual activity over the  entire useful life, etc., may be affecting the projected growth in fuel use. As EPA
incorporates nonroad emissions into the Motor Vehicle Emissions Simulator (MOVES) model, we hope
to resolve these issues to improve our confidence in current and future projections of nonroad emissions.
Nevertheless, as discussed above, we do believe the our nonroad diesel rulemaking makes use of the best
data available to us for projecting growth at this time.
       2.3.2.3  Transient Adjustment Factors

What Commenters Said:

       API and Marathon commented that the uncertainty associated with the use of TAFs in the
NONROAD model should be quantified. The transient adjustment factors (TAFs) were developed from a
very limited dataset of tests on nonroad engines.  The commenters stated the belief that EPA arbitrarily
increased the Tier 2 TAFs for NOX and PM by 10 percent and 20 percent respectively, citing the lack of
sufficient test data and applied the TAFs to the Tier 3 steady-state emission factors in the model. The
TAFs for PM range from 1.00 to 2.37 while those for NOX range from 0.95 to 1.21. Lastly, the
commenters stated that EPA has not fully documented the criteria used to assign specific TAFs by
nonroad equipment category and the overall net effect of the TAFs is unclear.
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       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 45
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 41

Our Response:

       EPA based the TAFs used in the draft NONROAD Model (as well as the parallel use of these
factors in the Transient Compliance Adjustment Factors found in section 1039.104 (g)) on the most
comprehensive set of data available. These data included nine engines tested on three cycles and three
engines tested on seven cycles.

       We disagree with characterization of the TAP adjustments for Tier 3 engines as arbitrary. EPA
has extensive experience with the technologies manufacturers are likely to use for emission control to
comply with the Tier 3 regulations, and our engineering judgement suggests strongly that these
technologies will have a different and detrimental impact on transient emissions when compared to Tier 2
technologies. We therefore made an estimate of the potential change in TAFs for Tier 3 based on our
engineering judgement. In the future, as Tier 3 engines are produced and certified we may at a later date
update the model to reflect the latest information regarding the TAFs for those engines. The application
on TAFs to the Tier 3 steady-state emission factor was an oversight. In the revised version of the
NONROAD model used  in the final rulemaking process (draft NONROAD2004), the TAP adjustment to
Tier 3 steady-state emission factors has  been removed.

       In regard to not fully documenting the criteria used to assign specific TAFs, EPA discussed this
in the technical report entitled, Exhaust  Emission Factors — Compression-Ignition. NR-009b (EPA420-P-
02-016).  This report, as well as others containing documentation for the NONROAD model can be found
on the EPA/OTAQ website at http://www.epa.gov/otaq/nonrdmdl .htm.  As stated in this report, EPA
matched nonroad applications with the test cycle that most closely represents the nonroad activity for a
given application. The TAP adjustments have also been peer reviewed, and EPA made some changes to
the TAP adjustments based on that review.

       In regard to the net effect that the TAFs have, running the NONROAD model without the TAFs
shows that NOx emissions are 1 to 3 percent higher out to 2011.  After 2011, there is a less than 1 percent
difference. For PM25, the non-TAF-adjusted emissions vary between 20 and 27 percent lower from year
to year out to 2015. Beyond 2015, the difference between TAF-adjusted and non-TAF-adjusted
emissions decreases down to about 10 percent in 2040 as Tier 4 engines are introduced into the fleet.
       2.3.2.4 Deterioration Rates

What Commenters Said:

       The Colorado Department of Public Health and Environment commented that deterioration rates
should be revised. Colorado further commented that EPA should account for the emissions performance
and deterioration exhaust rates of on- and nonroad diesel equipment using a higher sulfur diesel fuel and
increases in emissions or the rate of emissions tampering as a result of poor in-use performance.

       Letters:

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       Colorado Department of Public Health and Environment, OAR-2003-0012-0687 p. 2

Our Response:

       We agree with the commenter that it is important to account for increases in emissions over the
life of the vehicle due to any number of influences including fuel quality, tampering and deterioration.
Currently, our nonroad model does account for fuel sulfur levels and the impact of fuel sulfur on direct
PM emissions and SOx emissions. We believe the model accurately captures the impact of the fuel sulfur
level both on current technology engines and future technology engines.

       Similarly, the model does currently include deterioration factors intended to account for both the
gradual deterioration inherent in even well maintained engines, and also, the substantial higher
deterioration caused by malmaintenance and tampering. These estimates are based on data for on-
highway  diesel engines that we believe is broadly representative of nonroad diesel engines as well.

       Thus, we believe our nonroad engine model already appropriately accounts for the issues raised
by the commenter.


       2.3.2.5  Engines in  the Greater than 750 hp Category

What Commenters Said:

       The Union of Concerned Scientists commented that the NONROAD model does not include
accurate data for engines in  the greater than 750 hp category.  Emissions from engines greater than 750 hp
may be underrepresented by EPA's NONROAD model, which does not account for any emissions from
generator sets. Lastly, UCS commented that the RIA  shows that over 5,000 engines over 750 hp are sold
every year, and over half of those are generator sets.

       Letters:
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 6-7

Our Response:

       The version of NONROAD being used for this rulemaking, based on information developed in
the past, does not account for mobile generator sets over 750 horsepower. Through this rulemaking
process, EPA has gathered useful information about the character of the market for mobile generator sets
over 750 horsepower, however, we did not feel that sufficient documentable quantitative information was
available at this time to warrant making changes to NONROAD. Instead, we performed a sensitivity
analysis increasing the fraction of diesel generators sold in the U.S. which are considered "mobile" (and
therefore decreased the percentage which are "stationary") and increasing the annual hours of use for
several categories of mobile machines in the >750 horsepower category, for which some indication exist
that these too may be underestimated. Results of this  sensitivity analysis are presented in Appendix A to
Chapter 8 of this RIA.  The  results of the sensitivity analysis do not change our view as to the standards
we are adopting in this rulemaking for greater than 750 hp engines, and indeed helps to confirm our
approach to setting standards focused achieving emission reductions from these engines, and especially
from large generator sets, as early as possible.

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       2.3.2.6  Use of NONROAD2002 as a Justification for the Proposed Rule

What Commenters Said:

       The New York Department of Environmental Conservation commented that NONROAD2002 is
currently the best available tool for the development of nonroad mobile source emissions inventory
development, but should not be used to justify the proposed rule since it is still in draft form. New York
believes that it is inappropriate to propose a rule of this magnitude based on an air quality modeling tool
that is still in draft form. The proposed emissions standards are built into NONROAD2002, which
precludes the model's fmalization until the proposed standards are finalized. However, EPA has had
ample time prior to the proposal to finalize the Nonroad Model in one of its previous versions.  EPA has
been using a draft version of the Nonroad Model for several years now for its own emissions inventory
development (e.g. NEI) so it remains unclear why the model has never been finalized.

       Letters:
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 11

Our Response:

       We concur that this model is currently the best available tool for estimating nonroad engine
emissions. We are confident that NONROAD2002 produces reasonable emission inventory estimates on
which the Nonroad Diesel Rule can be based. As part of this rulemaking and previous rulemakings (i.e.,
the Recreational and Large Spark-Ignition Engine, Heavy-Duty On-Highway Diesel and, Tier 2 Rules),
the NONROAD model has been extensively quality assured and many improvements have been made to
the model. Peer reviews also have been completed on all the major aspects of the model. Also, our
confidence is reflected in the fact that we have issued guidance allowing states to use draft
NONROAD2002a for their official State Implementation Plan submittals.
       2.3.2.7 Incorporation of Commercial Marine Vessels and Locomotives in Model

What Commenters Said:

       The New York Department of Environmental Conservation commented that commercial marine
vessels and locomotives should be incorporated into a future version  of the Nonroad Model or another
software based modeling tool.  The commenter further stated that it is extremely difficult to quantify
emissions of CMV and LM using the present acceptable methodologies and in many cases, states must
rely on data provided by EPA.

       Letters:
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p.  11

Our Response:

       We agree with this comment.  Our goal is to incorporate commercial marine vessels and
locomotives into the Motor Vehicle Emission Simulator (MOVES) model, which is currently under

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development.


       2.3.2.8 SOx versus SO2

What Commenters Said:

       The New York Department of Environmental Conservation commented that EPA should clarify
the difference between SOX and SO2 in the context of the proposed rule as compared to that in the present
version of NONROAD2002. EPA is very inconsistent with its nomenclature when referring to sulfur
oxides or oxides of sulfur. Until now, sulfur oxides have been referred to as SOX as the environmental
and industry norm.  However, in this proposed rule EPA refers to sulfur oxides as SO2. EPA reports
emissions of SO2 based upon modeling performed using NONROAD2002.  However, SO2 is presently
not an output of NONROAD2002.  SOX is presently the emissions output in NONROAD2002 when
modeling for sulfur oxides. This is confusing because SO2 has never been a modeling output in any
previous draft version of the Nonroad Model. This issue must be addressed since the diesel fuel sulfur
reductions contained in this proposal have a direct impact on emissions of either SOX or SO2.

       Letters:
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 11-12

Our Response:

       Sulfur dioxide, or SO2, belongs to the family of sulfur oxide gases (SOx).  EPA has established a
National Ambient Air Quality Standard for SO2.  The NONROAD model calculates  SO2 emissions, but
refers to the output as SOx. Therefore, although the nomenclature in the proposed rule and the outputs
from the NONROAD model differ, they are consistent.  For the final rule, the nomenclature in the version
of the model being used, draft NONROAD2004, has been changed to SO2.  In any case, the majority
(generally 99%) of the SOx emissions are in the form of SO2 with minimal sulfate emissions.
       2.3.2.9  Toxics Emissions Incorporated into Model

What Commenters Said:

       The New York Department of Environmental Conservation commented that EPA should include
toxics emissions in a future release of the Nonroad Model. At a minimum, the commenter added,
emissions factors for the toxics of concern specific to this proposed rule (benzene, formaldehyde,
acetaldehyde, 1,3-butadiene, acrolein) should be built into the model to help analyze their impact on the
total emissions inventory.  The Department does not feel that this would be a difficult task since the
present version of the model already speciates VOCs into its more specific categories (exhaust, crankcase,
refueling, etc.).  Current modeling for toxics is an arduous task.  Speciation for toxics must be performed
using EPA provided emissions factors after VOC and PM emissions are generated using the Nonroad
Model.

       Letters:
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 12

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Our Response:
       We plan to incorporate nonroad toxics emissions into the Motor Vehicle Emission Simulator
(MOVES) model, which is currently under development.
       2.3.3   Draft RIA Emission Reductions

What Commenters Said:

       The Mercatus Center commented that the emission reductions in the RIA may be in error. The
RIA appears to rely on implausible NOX and VOC inventories that might render the model output
meaningless for substantive air quality projections. According to the RIA, NOX emissions will be reduced
with and without the proposed rule by 40 and 37 percent, respectively, between 1996 and 2030.
However, based on a conservative reading of the actual requirements of proposed rules for just the major
NOX sources, national NOX emissions will decline by at least 50 percent during the next 20 years even
when calculated from the current year as a baseline, rather than the higher 1996 baseline used for the RIA.
The commenter provided additional discussion on this issue including a table that displays EPA's 2001
NOX inventory by source category and a histogram that compares source contributions to the 1996 mobile
source NOX inventory based on EPA's emission models versus "real-world" fuel-based estimates (based
on A.J. Kean, R.F. Sawyer and R.A. Harley, "A Fuel-Based Assessment of Off-Road Diesel Engine
Emissions." Kean et.  al.).

       The Mercatus Center also commented that the RIA baseline inventory has total VOC emissions
declining just 25 percent between 1996 and 2020, decreasing to 17 percent in 2030, which is likely due to
EPA's underestimate of the contribution of gasoline vehicles to the VOC inventory.  EPA's inventory has
only about 40 percent of VOC coming from gasoline vehicles, which is inconsistent with source
apportionment studies that show gasoline vehicles as 50 to 75 percent of anthropogenic VOC emissions,
with urban and suburban areas more likely to be at the high end of that range.  Tier 2 will reduce total
emissions from gasoline vehicles by more than 80 percent during the next 20 years, suggesting that actual
VOC reductions will be substantially larger than the RIA forecasts.

       Lastly, the Mercatus Center commented that CO emissions, which contribute to ozone formation,
are overestimated in EPA's models. For example, MOBILE6 projects fleet-average CO emissions of 11
grams/mile in 2005 and 5 grams/miles in 2025, which is inconsistent with data from I/M programs,
tunnels, and remote sensing in several cities indicating that CO emissions ranged from 4 to 6 grams/mile
during  1999 to 2002.  The discrepancy appears to be much too large to be accounted for by missing cold-
start emissions.

       Letters:
       Mercatus Center, OAR-2003-0012-0627, 0828 p. 35-38

Our Response:

       EPA believes that the commenter has not taken into account how the NOx and VOC emission
benefits will be offset somewhat by the growth of nonroad diesel equipment population.
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       Tunnel studies estimate motor vehicle emission rates in highway tunnels within which vehicles
operate at a relatively constant speed and load while they are fully warmed up. These operating
conditions limit their comparability to MOBILE6 predictions.  MOBILE6 accounts for cold-start
emissions and transient vehicle speeds that occur in real-world driving.  EPA thoroughly evaluated the
role of tunnel studies in validating overall emission models. (EPA Report Highway Vehicle Emission
Estimates I, June 1992; EPA Report Highway Vehicle Emission Estimates II, May 1995). Also, as EPA's
guidance on use of remote sensing (Description and Documentation for Interim Vehicle Clean Screening
Utility, EPA 420-P-98-008, May 1998) states, remote sensing gives emissions at a single instant in time
and, while they represent emissions at that instant, they may not represent emissions over a composite of
driving conditions which consist of cold/hot starts, cruises, idle, acceleration, and deceleration.  Also, I/M
data are generally obtained on a short-test cycle without all the driving modes (especially cold start) of the
full Federal Test Procedure). Thus, on an overall basis, there is no inconsistency between these data and
MOBILE6 estimates.

       It is also worth noting that nationally, diesel engines are not as large a contributor to ambient CO
as are gasoline engines. Furthermore, CO reacts at rates far slower than other VOCs and, for most ozone-
related assessments in this rule, NOx emissions play a larger role.
       2.3.4   EPA Should Report Emission Reductions as a Percentage of Total Emissions

What Commenters Said:

       API and Marathon commented that EPA should report emission reductions as a percentage of
total emissions. The commenters stated that currently, EPA reports emission reductions of NOX, SO2,
VOC, and PM25 from baseline nonroad diesel engine emissions of these species. These commenters
believe that it would be helpful if EPA would report both absolute and percentage reduction of these
species from total emissions (including nonroad, highway, stationary and natural emissions), which would
provide an indication of the overall effectiveness of the proposed control measures.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p.  53
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 49

Our Response:

       There are many possible ways of reporting and summarizing the results of our analyses and, for
the sake of making the rulemaking documents as clear and concise as possible, we decided the approach
taken is the most appropriate. We note, however, that there is enough information provided in the tables
contained in Chapter 3 of the RIA that the reader can calculate both absolute and percentage reductions of
the pollutants from total emissions.


2.4    Other Environmental Effects

       2.4.1   Climate Impacts Associated with Diesel Emissions
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What Commenters Said:
        The Clean Air Task Force commented that EPA should include an assessment of the climate
impacts associated with diesel emissions.  Climate change impacts are now becoming better understood
and recognized as important. Nonroad diesel engines are significant emiters of at least two pollutants
associated with climate change; black carbon and ozone-forming NOX. Light-absorbing carbonaceous
particles (black carbon) affect global and regional climate by absorbing sunlight and thus heating the
atmosphere. These particles typically represent a significant portion of diesel particulate emissions. In
addition, while NOX is unstable in the atmosphere and has little impact on climate directly, it commonly
reacts to form tropospheric ozone, which is a significant contributor to global warming.  The commenter
also provided estimates of positive climate forcing from these substances and noted that EPA should
consider the benefits of reducing climate impacts in the proposed rule.

        Letters:
        Clean Air Task Force, et. al, OAR-2003-0012-0508 p. 6-7

Our Response:

        While we agree that the role of black carbon in climate may be important, we disagree that EPA
can estimate climate-associated benefits for the rule since there is no global  warming potential yet
assigned to black carbon as there are for gases such as carbon dioxide, methane, and nitrous oxide.
Various investigators (e.g., Marc Jacobson at Stanford University and James Hansen at NASA) are
conducting research in this area.  Although additional work is underway to characterize emissions of
black carbon and its atmospheric chemistry, current modeling indicates black carbon and associated
organic material  play a major role in global climate  change. Diesel PM emissions consist largely of black
carbon and associated organic matter. Thus, a reduction in diesel PM emissions will likely contribute to a
reduction of global climate change. The use of particulate traps and oxidation catalysts on diesels may
result in the eventual elimination of the black carbon and associated organic matter component of diesel
particulate, but more research is needed.  (1, 2, 3, 4)  Regarding the effect of carbon aerosols on global
climate, chapter 4 of the fourth draft PM criteria document states,

        [t]he body of available evidence, ranging from satellite to in situ measurements of aerosol effects
        on radiation receipts and cloud properties, is strongly indicative of an important role in climate
        for aerosols.  This role, however, is poorly quantified. No significant advances have been made
        in reducing the uncertainties assigned to forcing estimates provided by the IPCC for
        aerosol-related forcing, especially for black carbon-containing aerosol. The IPCC characterizes
        the scientific understanding of greenhouse gas-related forcing as "high" in contrast to that for
        aerosol, which it describes as 'low' to'very  low.'

        Given the low level of understanding of black carbon's role in global warming, it is not feasible
to estimate the effect of this rule on global climate.  Still, the rule's effects on reducing black carbon
could have a positive benefit on global warming but whether there is  such overall benefit and certainly its
magnitude cannot presently be substantiated. It would also be important to characterize all of the effects
of the rule on climate (e.g., tropospheric ozone, fuel economy, etc), and the  methods to conduct such an
assessment are not available.
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Penner, J.E. et al. 2001. Aerosols, their Direct and Indirect Effects. In: Climate Change 2001: The
Scientific Basis. J.T. Houghton et al. Eds., Intergovernmental Panel on Climate Change,
Cambridge University Press.

U.S. Climate Change  Science Program. 2002.  Strategic Plan for the Climate Change Science
Program (November Draft).

Jacobson, M.Z. (2002) Control of fossil-fuel particulate black carbon and organic matter possibly
the most effective method of slowing global warming. Journal of Geophysical Res., Vol. 107,
No. D19,pp 4410-4431.

Hansen, J.E. and M. Sato. (2001) Trends of measured climate forcing agents. Publications of the
National Academy of Science, Vol. 98, No. 26, pp. 14778-14783.

Lipson, Charles and Narendra J. Sheth, "Statistical Design and Analysis of Engineering
Experiments," McGraw-Hill, New York, 1973, page 36.
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3.     NONROAD ENGINE STANDARDS

What We Proposed:

       The comments in this section correspond to Section III of the NPRM, and therefore are targeted
at issues dealing with the proposed nonroad engine standards. A summary of the comments received, as
well as our response to those comments are located below.  For the full text of comments summarized
here, please refer to the public record for this rulemaking.


3.1     Engine Standard Levels, Stringency, and Phase-In

       3.1.1   General Comments on Engine Standards

       3.1.1.1 Stringency of Standards

       3.1.1.1.1       General Support for the Proposed Level of Stringency

What Commenters Said:

       The New York Department of Environmental Conservation (NY DEC) and Western States Air
Resources Council (WESTAR) commented that the proposed new engine power rating classifications
offer a tightening of standards in those classes where technology already exists while allowing flexibility
to set tighter standards as new technology becomes available for the smallest engine category; in
particular, the standards being proposed for all nonroad diesel engines over 75 horsepower are adequate
and appropriate.  These commenters believe that engines will be able to use existing on-highway
technology to meet the proposed standards, and further, that there may be some redesign of the
componentry to make it more durable in a nonroad environment, but the necessary technical development
is achievable.

       The California Air Resources Board (CARB) and the Manufacturers of Emission Controls
Association (MECA) also stated that they believe that the stringency of the standards is appropriate since
they are technologically feasible and would provide significant air quality benefits. (See additional
discussion on feasibility under Issue 3.2)

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 3
       New York Department of Environmental Conservation, OAR-2003-0012-0786) p. 6
       Western States Air Resources Council, OAR-2003-0012-0711 p. 2
       New York Public Hearing, A-2001-28, IV-D-05 [NY DEC p. 12]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [CARB p. 13, MECA p. 57]

Our Response:

       A  number of commenters expressed general support for our proposed engine standards program.
After considering all of the comments, we are finalizing a comprehensive program that in most respects

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matches the proposed program.  We believe that the resulting overall program will achieve the necessary
emissions reductions resulting in significant health and environmental benefits.
       3.1.1.1.2      Equal Stringency for All Engines

What Commenters Said:

       A number of commenters (ALA, the Mountaineers, STAPPA/ALAPCO, OTC, SC DHEC, US
PIRG, CAC) expressed the belief that the proposed standards should be equally stringent for nonroad
engines of all sizes. They commented that these state-of-the-art emission control technologies should be
required on engines of all sizes to achieve a 90 to 95 percent reduction in NOX and PM. The also
commented that no special loopholes or exemptions should be created for any categories of nonroad
diesel engines, large or small, because they all contribute to the pollution which causes health effects.

       The NY DEC further commented that since lower hp engines are subject to much more lenient
standards, the proposed rule could potentially encourage equipment manufacturers to use smaller engine
sizes that would not result in the desired decreases of emissions. As written, they state, the proposed rule
could encourage diesel engine manufacturers to rerate diesel engines from slightly above 25 hp to slightly
below 25 hp. This would allow a ten fold increase in PM emissions. They raise the same concern for
engines near the 75 hp cut point; stating that a 74 hp engine could be used in place of a 76 hp engine,
allowing a ten fold increase in NOX.

       NY DEC also commented that Transportation Refrigeration Units (TRUs) are usually diesel
powered and many of the engines powering these units are below 25 hp. TRUs are often running in a
continuous mode, keeping the product cool during transportation and waiting to load and unload these
products. TRUs are very often used in an urban setting where air quality is a major concern. TRUs
should  be held to the same standards as larger horsepower engines.

       Lastly, NY DEC commented that the proposed regulations may cause a wholesale migration from
diesel engines to gasoline engines in the low horsepower range.  They state that emission regulations
should  be consistent for all engines regardless of the fuel used and that the gasoline engine regulations
may need to be revisited to achieve this.

       Letters:
       Mountaineers, OAR-2003-0012-0773 p. 1
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 6
       Ozone Transport Commission (IV-D-629) p. N214
       Sierra Club of Wisconsin (IV-D-714) p. C122, +1
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 8
       STAPPA/ALAPCO  (IV-D-604) p. N45
       STAPPA/ALAPCO  (IV-D-703) p. C36-C37
       South Carolina Department of Health & Environmental Control, OAR-2003-0012-0476 p. 1
       U.S. Public Interest Research Group, OAR-2003-0012-0780 p. 3
       60,833 Public Citizens
       930 Public Citizens
       Clean Air Council, OAR-2003-0012-0613 p. 2

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

       New York Public Hearing
                      A-2001-28, IV-D-05 [ALA p. 110; Environmental Defense p. 152; OTC p. 214,
                      STAPPA/ALAPCO p. 45]
       Los Angeles Public Hearing
                      A-2001-28, IV-D-07 [ALA p. 220; Environmental Defense p. 93]
       Chicago Public Hearing
                      A-2001-28, IV-D-06 [ALA-Chicago p. 284; STAPPA/ALAPCO p. 36]

Our Response:

       These rules implement statutory provisions which require technology-based standards, not risk-
based standards. Section 213 (a)(3) of the Clean Air Act calls for EPA to establish standards that provide
for the "greatest degree of emission reduction achievable through the application of technology which the
Administrator determines will be available for the engines or vehicles to which such standards apply,
giving appropriate consideration to the cost of applying such technology within the period of time
available to manufacturers and to noise, energy, and safety factors associated with the application of such
technology."  Section 213 (a) (4) likewise requires consideration of "technology which the Administrator
determines will be available." Thus, unless all engines are technically capable of achieving the same
standards, they could not have identical emission standards. We are also required to take costs into
consideration in adopting these standards, and again, it is unlikely that all nonroad engines incur identical
cost impacts.  Because of the large diversity in nonroad diesel engines, complying with these provisions
involves examining individual power categories and setting appropriate standards for each category.  (The
75 hp cutpoint referred to by the commenter, for example, reasonably reflects a point at which highway
engine platforms are less likely to be used for nonroad engines.) This we believe we have done as
explained in detail in Section II of the final rule preamble and in Chapter 4 of the RIA. As might be
expected, this process quite appropriately results in different numerical standards for some engines
compared to others.

       Regarding the potential for market migration from diesel to gasoline engines, we analyzed this
potential as part of the final rulemaking.  See Issue 7.2.4 for details.
       3.1.1.1.3       Stringen cy ofNOx Limits

What Commenters Said:

       CEMA-CECE commented that the final NOx limit is too stringent. Considering the nonroad
operating conditions, the final NOX limit of 0.4 g/kW-hr is too low in the context of the first
implementation of aftertreatment technologies. Given the introduction of transient testing (partially under
engine cold conditions), NTE, and the unknown deterioration of technologies over 8,000 operating hours,
a 90 percent reduction from Tier 3 levels is unrealistic. EPA should start with a more conservative
reduction of 60 to 70 percent in order to  provide enough flexibility for the industry to fix the numerous
technical problems that will certainly arise.

       Euromot commented that we should reassess the stringency of the NOX standards at a time when
experience from the on-highway sector is available. They believe that this reassessment should address
the differences between test cycles (FTP vs. NRTC), detailed NTE procedures and OBD requirements,

                                              O O
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                                                     Control of Emissions from Nonroad Diesel Engines
                                                                 Summary and Analysis of Comments
                                                                                       May, 2004

availability of NOX aftertreatment technologies on an industrial and competitive scale, and the relation to
test cycles selected, specifically the NRTC.

       Letters:
       CEMA-CECE, OAR-2003-0012-0598 p. 5
       Euromot  (IV-D-489) p. 5

Our Response:

       Our basis for stringent NOx standards on the schedule described in this rule is laid out in Section
II of the final rule preamble and in Chapter 4 of the RIA.  We factored in the conditions discussed by the
commenter in assessing the NOx standards' feasibility.  We note too that engine manufacturers, through
the application of the alternative standards discussed in Section II.A.2.b of the preamble, can effectively
create a phase-in of lower efficiency Tier 4 NOx controls for a number of years before the final standards
take effect, thus addressing the  CEMA-CECE concerns about achieving 90% reductions in the early years
of Tier 4.  In fact, EMA indicated in its comments that this compliance path is likely for most
manufacturers.

       We believe that the final program provides sufficient time to gain from the field experience with
NOx controls in the highway sector over the latter part of this decade. To wait until this experience is in
hand before promulgating standards would delay the NOx benefits by several years, because of the need
to provide sufficient lead time for manufacturers.  This would also create a large amount of uncertainty
for manufacturers, and would offset the timing for NOx control from the timing for PM control, forcing
another redesign step.
       3.1.1.1.4       Stringen cy of CO Limits

What Commenters Said:

       DDC and EMA commented that the CO limit for nonroad engines is significantly more stringent
than for on-highway trucks, which is inconsistent with the premise of the NPRM and the derivative nature
of nonroad technologies.  The stringency of the CO limit for nonroad engines is likely to impede
technology transfers and is inconsistent with the CAA section 213(a), which requires that nonroad engine
standards be set generally at levels that are equivalent in stringency to on-highway engine standards.
While the numerical limits proposed for CO in Tier 4 are unchanged from the Tier 2 and 3 limits, there
are ancillary changes in Tier 4 that cause this limit to be much more stringent.  These changes include the
proposed NTE limits, the addition of the new transient test cycles, and the inclusion of cold start testing.
The proposed limits will complicate development efforts and may limit technology choices.  In addition,
CO is no longer a major environmental issue and is not significantly  related to the operation of nonroad
machines.  (See related discussion under Issue  3.2.1.4).

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 3
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 26, 111

Our Response:

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                 Summary and Analysis of Comments
                                                                                       May, 2004
       In response to comments that CO should not be addressed at all in this rule because it is no longer
a significant environmental problem, and further, that any standard must be equivalent in stringency to
CO standards for highway engines, we note that EPA has already found that nonroad engines contribute
to CO concentrations in more than one area that does not meet the CO NAAQS, 59 FR 31306 (June 17,
1994), satisfying the prerequisites for establishing CO standards for these engines under section 213 (a)
(3). Moreover, EPA is not obligated to adopt standards for CO identical to those for highway engines.
Section 213 (a) (3) requires EPA to first consider standards "equivalent in stringency" to those for
highway engines in establishing standards for nonroad engines. EPA has done so for all pollutants
regulated under today's rule, as set out in RIA chapter 4.1, which emphasizes how the standards adopted
in today's rule related to the standards for highway engines and the use of the technologies on which
those highway standards are based.

       The commenters also note that we are in effect adopting new CO standards for Tier 4 engines by
requiring new certification tests for CO as part of this rule. Our intent in adopting these new certification
requirements is not to alter the level of stringency of the standard but rather to ensure robust control of
emissions to this standard in use. As shown in RIA chapter 4 and further discussed in Issue 3.2.5, the CO
standards remain readily achievable using these tests, and we anticipate that no additional engine
adjustments are necessary for the standards to be achievable (so there are no significant associated costs).
We also explain there that the CO standards can be achieved without jeopardizing the ability to achieve
all of the other engine standards.  See also Issue 3.1.4.5  for further discussion.
       3.1.1.2 Stationary Diesel Engines

What Commenters Said:

       Environmental Defense and the Clean Air Council commented that EPA should close the
stationary diesel engine loophole as stationary diesel engines have eluded comprehensive air pollution
abatement requirements. Environmental Defense notes that in California alone, there are more than
16,000 stationary diesel engines including both emergency backup generators and prime engines (see
CARB, Risk Reduction Plan to Reduce PM Emissions form Diesel-Fueled Engines and Vehicles, Oct.
2000, App. 2, p. 17). Unlike backup generators, which typically operate on a limited basis, primary
engines run on a regular basis to supplement or substitute energy from the power grid and have a
pollution potency many times that of other engines (see Jim Lents and Juliann Emmons Allison, Can We
Have Our Cake and Eat it Too? Creating Distributed Generation Technology to Improve Air Quality,
Energy Foundation, Dec. 1, 2000, note 5, 13-18).  They provided additional discussion on this issue and
cites to the attachment to their letter entitled "Smaller, Closer, Dirtier: Diesel Backup Generators in
California" as additional supporting documentation. The Clean Air Council noted that some power
companies, such as First Energy of Ohio, are employing a strategy of using dirty, exempted diesel
"peaking units" at electrical substations in the areas they control.  These commenters believe that EPA
should take action to control emissions from these sources.

       Letters:
       Clean Air Council, OAR-2003-0012-0613 p.  2
       Environmental Defense, OAR-2003-0012-0821 p.  13-14
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                                                     Control of Emissions from Nonroad Diesel Engines
                                                                 Summary and Analysis of Comments
                                                                                       May, 2004
Our Response:
       This rulemaking's engine standards are being adopted under the provisions of Clean Air Act Title
II, "Emission Standards for Moving Sources". Title II does not grant EPA authority to regulate these
stationary engines. They are being addressed under Title I section 112 (d) of the Act, a provision which
requires EPA to adopt standards which reduce the emissions of hazardous air pollutants from major
sources to a level reflecting the maximum achievable reduction (generally abbreviated as MACT),
followed by a determination (under section 112 (f) of the Act) of whether sufficient residual risk from
emissions from those sources remains to require further control to reduce that residual risk.
       3.1.1.3 Phase-in

What Commenters Said:

       Detroit Diesel Corporation (DDC) and the Engine Manufacturers Association (EMA) commented
that the averaged phase-in standards should be stated instead in the form of interim average standards.
They believe that our proposed phase-in approach, though instructive for explaining how the standards
were derived, adds unnecessary complication; and that manufacturers around the world need to be able to
readily understand what the rule will require in practice. More specifically, they state, European and
Japanese regulatory authorities need to have a clear understanding of the averaged standards  so they can
harmonize their respective standards with EPA's.  The commenters believe that it should be clear in the
final rule that the averaged standards do not require the adoption of any type of ABT program. In
addition, they believe that outreach efforts are needed to explain that the proposed rule will not require
full NOX aftertreatment at the outset, but rather will allow for set, specific "interim" NOX levels.
Therefore, they state EPA should finalize the Tier 4 rule to contain only the following "average"
standards: 2.3 g/kW-hr NOX + NMHC for engines between 56 and 130 kW (effective as of 1/1/2012), 3.3
g/kW-hr NOX + NMHC for engines between 130 and 560 kW (effective as of 1/1/2011), and 3.5 g/kW-hr
NOX + NMHC for engines greater than 560 kW (effective as of 1/1/2011). Lastly, they stated that we
should finalize the "phase-out/phase-in" program only in terms of these interim averaged NOX + NMHC
standards.

       Ingersoll-Rand commented that we should modify the proposed phase-in to aftertreatment-based
standards for NOX to account for the difference between highway and nonroad applications. They argue
that the establishment of a NOX phase-in period creates the opportunity for a distinct competitive
advantage to vertically-integrated manufacturers.  Under the phase-in beginning in 2011, an engine
manufacturer must produce at least one phase-in engine  for  each phase-out engine, but it is likely that the
former will be significantly more expensive to produce than the latter. Therefore, manufacturers could
gain an economic advantage by keeping phase-out engines for its own equipment, while attempting to sell
phase-in engines to equipment manufacturers who are not vertically integrated. Ingersoll-Rand believes
that, to resolve these issues, we should set an interim NOX standard that takes effect at a 100 percent level,
without a phase-in, at the beginning of the proposed phase-in period, and that is more stringent than the
Tier 3 standard but does not require installation of NOX aftertreatment.

       The IBT commented that the phase-in period is adequate to address economic and fuel supply
concerns. Further, IBT stated that the length of the phase-in period is sufficient to reduce undue
economic hardship on employers.

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                       May, 2004

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 3
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 26,  111
       Ingersoll-Rand, OAR-2003-0012-0504 p. 12
       International Brotherhood of Teamsters, OAR-2003-0012-0664 p.  2

Our Response:

       As discussed in Section II.A.2.C of the preamble to the final rule, we are adopting an option in the
final regulations that will allow engine manufacturers to certify all engines in power categories that have a
percentage phase-in to alternative NOx standards, instead of the certifying  some as phase-in engines and
some as phase-out engines.  However, we disagree that these alternative  standards should be the only
option, replacing the phase-in, or that the phase-in approach should in some other way be de-emphasized.
Clearly, providing both options will help to maintain consistency with the highway program (which has
very similar options) from which NOx control technology will migrate. We also are convinced that the
implementation of these standards is still too far off to expect that every manufacturer can have a firm
compliance plan in place today, even if they currently expect that only the  alternative standards path is
likely to be used. We believe, based on discussions with manufacturers and with officials in other
standards-setting bodies, that our approach involving two compliance paths is readily understandable and
creates no great confusion.  The early phase-in of engines meeting the final 0.30 g/bhp-hr NOx standard
will benefit the Tier 4 program by providing early experience with them, and so it is important to
establish a compliance path and incentives program that encourages them,  as we are doing in the final
rule.

       We do not think that integrated manufacturers will keep phase-out engines for themselves and
force other equipment makers to use the phase-in engines.  An engine manufacturer that chose such a path
would be taking a significant business risk. It would be dependent on the other equipment makers to
purchase the phase-in engines so that it could produce an equal number of phase-out engines.  If its sales
of phase-out engines fell short, it would face either a stop in its production  of phase-out engines or large
non-compliance fines. Thus, such a business plan is unlikely.  We note that our nonroad engine program
has created other provisions of this type that allow an engine manufacturer to concurrently build engines
with different emissions levels and therefore at different costs (the transition flexibility provisions for
equipment manufacturers, for example), and we are not aware that this has  led to problems of this sort.
       3.1.1.4 Implementation Timeline

       3.1.1.4.1       The Timeline Should Be Accelerated

What Commenters Said:

       The commenters provided general discussion on the health benefits of an accelerated schedule.

       Letters:
       Illinois Lieutenant Governor Pat Quinn, OAR-2003-0012-0781 p. 6
       New York Public Hearing
                      A-2001-28, IV-D-05 [NY DEC p. 15; STAPPA/ALAPCO p. 45]

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                               Summary and Analysis of Comments
                                                                                    May, 2004

       Los Angeles Public Hearing, A-2001-28, IV-D-07 [ALA p. 174]
       55,216 Public Citizens
       89 Public Citizens

       EPA should require the implementation of all standards by 2012. This approach is feasible and
affordable.  Many of the technologies that will be used to reduce diesel emissions from highway sources
can be modified for use in the nonroad sector by 2012. Meeting the proposed standards by 2012 is
feasible since many of the engine families will be able to adapt highway-based emission controls to the
nonroad sector and since low sulfur diesel will be required by 2010, there is no fuel impediments to full
implementation by 2012. One commenter (NRDC) provided additional discussion on this issue, cites to
the progress that has already been made in developing control technologies for the highway sector as
summarized in the Clean Diesel Independent Review Panel's October 2002 report, and asserts that the
progress made to date shows how the certainty of a final regulation can provide the  impetus for
technology investment and innovation.

       Letters:
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 16-18
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 6-8
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 8
       South Carolina Department of Health & Environmental Control, OAR-2003-0012-0476 p. 1
       10,786 Public Citizens
       893 Public Citizens
       New York Public Hearing
                      A-2001-28, IV-D-05 [ALA p. 110; NRDC p. 33;NYPIRGp. 129]
       Los Angeles Public Hearing
                      A-2001-28, IV-D-07 [1 public citizen; ALA p. 220; CA ERA p. 79;  U.S. PIRG p.
                      179;UCSp. 71]
       Chicago Public Hearing
                      A-2001-28, IV-D-06 [ALA p. 284; OEC p. 293; STAPPA/ALAPCO p. 37; U.S.
                      PIRG p.  13]

       EPA should accelerate implementation of the  standard to help facilitate compliance with the
NAAQS. One  commenter (SCAQMD) recommended that EPA should phase-in the proposed standards
prior to 2010. This commenter noted that based on the SCAQMD 2003 Air Quality Management Plan,
significant reductions of about 330 tons per day of DOC and 220 tons per day of NOX  are necessary by
2010 in order to ensure attainment with the federal ozone standards, and that under the current proposal,
the NOX and HC standard would only affect new nonroad diesel engines starting in 2011,  and as a result,
no reductions from these sources  will be achieved by 2010. This commenter also recommended that EPA
accelerate the phase-in of these new standard to be consistent with the attainment dates for the federal 1-
hour ozone and PM 10 standards  or should consider other interim standards for new engines  prior to the
attainment dates. Another commenter (Houston) noted generally that the proposal's delay until 2013 of
controls for the largest equipment impairs their ability to reduce ambient ozone and PM from their own
operations.  One commenter (TCEQ) added that Texas expects to face 2007 attainment deadlines for the
Early Action Compact (EAC) areas and 2010 and 2013 deadlines for other nonattainment areas under the
8-hour standard. This commenter concluded that the nonroad standard schedule will not help the 8-hour
nonattainment areas in Texas reach attainment.

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

       Letters:
       City of Houston - Office of the Mayor, OAR-2003 -0012-0630 p. 2
       South Coast Air Quality Management District, OAR-2003-0012-0623 p. 1-2, 5
       Texas Commission on Environmental Quality, OAR-2003-0012-0716, 0717 p. 2
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [SCAQMD p. 117]

       EPA should implement the alternative option 2b as identified in the proposed rule, which would
require the implementation of PM standards for nonroad engines over 75 hp by 2011, for nonroad engines
between 25 and 75 hp by 2012, and the implementation of the NOX and nonmethane hydrocarbon
standards by the end of 2012. This option provides a cost benefit and would benefit the environment and
public health as well.

       Letters:
       Chicago Public Hearing, A-2001-28, IV-D-06 [CATF p. 258]

       EPA's proposal not to advance the Tier 4 PM compliance dates by a year as set out in Option 2b
appears to be based on the concern that the PM standards would be decoupled from the NOX standards,
resulting in a large increase in engineering workload for engine and equipment manufacturers. In
response to this concern, commenter (CATF) noted that 1) the additional engineering costs have been
included in EPA's incremental cost analysis of Option 2b, which are far outweighed by the incremental
monetized benefits by a factor of over 13; and 2) it will be feasible to pull-ahead the Tier 4 NOX standards
by a year so that they coincide with the Tier 4 PM standards since there is nothing fundamentally
different about applying NOX adsorber technology to nonroad engines. This commenter concluded that
EPA should advance the Tier 4 NOX standards by beginning the  50 percent phase-in a year earlier than
proposed and requiring 100 percent compliance by the end of 2012.

       Letters:
       Clean Air Task Force, et. al, OAR-2003-0012-0508 p. 13

       There is nothing in the CAA that would prohibit EPA from tightening the implementation
schedule and there is no reason to assume that Congress intended that EPA rigidly follow the Section 202
directives that call for a 4-year lead time and 3 years of regulatory stability in the nonroad engine context.
In setting nonroad engine standards, Section 213 of the CAA directs EPA to "first consider standards
equivalent in stringency to standards for comparable motor vehicles or engines (if any)" but offers no
guidance on lead time and regulatory stability requirements for nonroad engines. By requiring full
implementation of the standards by 2012, EPA will be providing eight years of lead time, which is both
legally sufficient and technically feasible, given the technology transfer that is likely to occur from the
highway diesel sector.

       Letters:
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 17-18

       The compliance timeframes set forth in the proposed rule are longer than necessary, and do not
reflect the "earliest possible effective dates" as required by Section 213(b).  Full compliance with the new
standards is not proposed  for some engine categories until 2014. The basic technology likely to be used
to comply with the nonroad proposal will be in widespread use no later than 2007 in order to comply with
the highway rule, but there is a substantial time lag before this technology will be required in nonroad

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                                                     Control of Emissions from Nonroad Diesel Engines
                                                                 Summary and Analysis of Comments
                                                                                       May, 2004

engines.  EPA has not provided sufficient explanation regarding why such additional time is necessary.
The nonroad compliance dates can and must be accelerated. Even though the diversity of applications
associated with nonroad engines can create a logistical compliance issue, the nature of nonroad equipment
use generally renders such changes less burdensome than for the highway sector. Other factors that will
allow for a more accelerated schedule are that nonroad engine manufacturers have dealt with the issue of
adverse operating conditions for years and should be able to incorporate emission control devices, that the
ABT program provides sufficient flexibility, and that the costs of emission control technologies will
decline over the next 7 to 8 years as they become commercially available due to technology
improvements and economies of scale. The commenter provided additional discussion on these issues
noting that the compliance timeline should be consistent with the time allowed under the highway rule,
which would necessitate a compliance date for 15 ppm diesel fuel of 2009 and Tier 4 compliance dates
that are a full year earlier than proposed.

       Letters:
       Clean Air Task Force, et. al., OAR-2003-0012-0508 p. 10-13

Our Response:

       Section II .A of the preamble to this final rule includes detailed discussion of comments
requesting acceleration of Tier 4 standards. We note in addition that Option 2b in the NPRM alternatives,
advocated by some commenters, involves a coordinated acceleration of 15 ppm fuel and Tier 4 engine
standards, as it is the  fuel change that enables the technologies upon which the engine standards are
based. See Chapter 5 of the RIA and our response to Issue 4.2.2 for discussion on constraints to timing
for the fuel change apart from coordination with engine standards.  Even if the fuel change could be
accelerated, there would be problems for setting earlier Tier 4 standards due to, for example, overlap with
Tier  3 standards  and a lack of adequate lead time to transfer technology from the highway sector. Refer
to Section 12.4.2.3 of the Draft RIA that accompanied our proposal for a detailed discussion of this
option. Also see Section 2, and especially our response to Issue 2.2.4.3, regarding how this rule affects
attainment of the NAAQS.
       3.1.1.4.2       The Timeline May Not Be Feasible

What Commenters Said:

       There is significant uncertainty regarding whether the technologies required by this rule can be
developed and implemented within the proposed time frame. The transfer of highway technology can be
costly, time consuming, and in some cases, infeasible. The lack of durability of PM and NOX control
devices under transient conditions may cause significant problems. In addition, nonroad equipment duty
cycles may not provide the steady state, high load operation required for regeneration of the catalyzed
particulate filter. EPA should not assume that emission control strategies can be developed for on-
highway use and then simply transferred to nonroad applications.  The potential equipment failures would
negatively impact users, dealers, and manufacturers alike. In addition to these concerns, some engine
manufacturers may be able to comply with the highway rule by modifying engine architecture rather than
by using aftertreatment devices, thus delaying the implementation  of NOX aftertreatment until 2010 or
later.  This delay may have an adverse effect on the ability of nonroad engine manufacturers to transfer
this technology in time to comply with the Tier 4 rule.

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

       Letters:
       Associated Equipment Distributors, OAR-2003-0012-0831 p. 3
       Ingersoll-Rand, OAR-2003-0012-0504 p. 6
       New York Public Hearing, A-2001-28, IV-D-05 [IRp. 224]

       An adequate period of stability is necessary between different tiers or sets of standards. This
period should be at least 3 years. Having the time to develop the necessary technologies, first for the
highway market and then for the much wider range of nonroad engines is crucial. Providing adequate
lead time creates stability for the manufacturers. The highway standards will require a significant capital
investment, and the manufacturers must be given adequate time to recoup this investment. In addition,
the diversity of nonroad engine models will make it difficult to implement design changes across the
entire range of product lines.  Given these concerns, EPA must provide adequate compliance flexibility to
allow manufacturers and aftertreatment suppliers to meet the standards while producing engines with a
high level of performance.  Failure to do so may lead to problems with the reliability and performance of
compliant nonroad engines. One commenter (CNH Global) noted that this issue is particularly relevant
for engines between 50 and 174 hp that require implementation by 2012. Some commenters (AEM,
Cummins, EMA, John Deere) noted that EPA has proposed two compliance  options in the Tier 4
standards for engines between 75 and  175 hp (56 and 130 kW); one option has two years of stability and
the other has two years and nine  months, which is unacceptable and contrary to the CAA. One
commenter (John Deere) suggested that EPA eliminate  the first option entirely and finalize a 3.3 gram per
kilowatt hour NOX standard effective January 1, 2015 without phase-in percentages.  This commenter
provides significant additional discussion including sales and volume data for their products and a
detailed explanation of why creating different power categories or providing additional equipment
flexibility credits does not address the  lack of stability in this case. Other commenters (AEM, Cummins)
recommended generally that the  final rules for these engines incorporate a compliance deadline of 2015.
One of these commenters (AEM) reiterated in this context, that the power cutpoint should be raised to
100 hp, in which case the 2015 deadline would apply to the 100 to 175 (75 to 130 kW) category (see
related discussion under Issue 3.1.5).  One commenter (EMA) provided additional discussion regarding
this issue and the feasibility of the proposed implementation schedules.  Another commenter (Euromot)
noted that at least  four years is needed between implementation of the highway rule in 2007 and the
effective dates of the Tier 4 standards to ensure adequate technology transfer to nonroad engines.  This
commenter added that most manufacturers of on-highway engines will use the  split-family approach
instead of the 50 percent NOX phase-in, since NOX aftertreatment is unlikely to be available by 2007, and
that if these technologies are not introduced into the highway sector until 2010, manufacturers will have
difficulty transferring this technology to the nonroad engine by 2011.

       Letters:
       American Road and Transportation Builders Association,  OAR-2003-0012-0633 p. 2
       Associated General Contractors of America, OAR-2003-0012-0791  p. 11
       Association of Equipment Manufacturers, OAR-2003-0012-0669, 0670 p. 10-11
       Cummins, Inc., OAR-2003-0012-0650 p. 8
       Deere & Company, OAR-2003-0012-0692 p. 2-4
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p.  15-17
       Euromot,  OAR-2003-0012-0822, 0823 p. 3-5
       New York Public Hearing, A-2001-28, IV-D-05 [EMA p. 102; Deere p. 56]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [EMA p. 151-155; Cummins p. 37]
       Chicago Public Hearing

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                               Summary and Analysis of Comments
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                      A-2001-28, IV-D-06 [AEMp. 224; CNHp. 66; EMAp. 29-31; Euromotp. 233]

       Aside from the issue of adequate stability between different tiers, an adequate period of stability
is also needed for the time period between finalization and implementation of the rule in order to provide
the necessary design and development lead time between changes in standard levels. This is particularly
important since the transfer of technology from onroad to nonroad equipment will be challenging.  Some
commenters (AEM, John Deere) noted that four years is the minimum time needed to make the necessary
engine and machine changes. These commenters noted in this context, that the lead time is adequate with
the exception of the optional Tier 3 2008 PM standard for the 50 to 75 hp (37 to 56 kW) category.
Manufacturers may not be able to apply particulate aftertreatment to these smaller engines prior to 2013.
It would require the implementation of particulate aftertreatment to the majority of power makers (i.e.
between 37 and 560 kw) in only two years, 2011 and 2012, which would be an enormous burden.
Commenters provide additional discussion on this issue and recommend that EPA implement a 2013
deadline for particulate aftertreatment for those engines below 75 hp (56 kW).  (See additional discussion
under 3.1.4)

       Letters:
       Associated General Contractors of America, OAR-2003-0012-0791 p.  11
       CEMA-CECE, OAR-2003-0012-0598 p. 2
       CNH Global, OAR-2003-0012-0819 p. 6
       Deere &  Company, OAR-2003-0012-0692 p. 2-4
       Euromot, OAR-2003-0012-0822, 0823 p. 3-5
       Ingersoll-Rand, OAR-2003-0012-0504 p. 10-11
       New York Public Hearing, A-2001-28, IV-D-05 [EMA p. 102; Deere p. 55]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [EMA p. 152]
       Chicago Public Hearing, A-2001-28, IV-D-06 [EMA p. 28]

       EPA is moving forward with the development and implementation of a nonroad rule within the
span of a few years, despite the fact that it took decades to work through the onroad program. Moving
too quickly is a recipe for failure.  Agricultural and construction equipment, while sharing diesel as a
main power source with onroad trucks and buses, have little else in common with onroad vehicles.
Nonroad equipment runs at much slower speeds and often at a higher rpm on rough terrain and in dusty
and dirty conditions. The development and implementation of a rule that can account for these factors
will take more time that EPA anticipates.

       Letters:
       Far West Equipment Dealers Association, OAR-2003-0012-0679 p. 2-3
       North American Equipment Dealers Association, OAR-2003-0012-0647 p. 2-3
       Ohio-Michigan Equipment Dealers Association, OAR-2003-0012-0747 p. 2-3
       USA Rice Federation, OAR-2003-0012-0652 p. 2-3

       EPA should refrain from implementing emissions standards until emissions reduction technology
has been developed and has been demonstrated to be adequately effective with low-sulfur diesel fuels in
all nonroad applications. Adequate emissions control technology should be available in the market for
several years prior to standards taking effect.

       Letters:

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       Associated General Contractors of America, OAR-2003-0012-0791 p. 11

       From a timing perspective, the Tier 4 requirements for PM aftertreatment are consistent with EU
Stage IIIB. However, the proposed rule contains aftertreatment forcing NOX standards (50 percent phase-
in or as an option the split family limit values) that are inconsistent with the Stage IIIB proposal.  The
Tier 4 proposal should be aligned with the EU Stage IIIB proposal.

       Letters:
       Euromot, OAR-2003-0012-0822, 0823 p. 4

       The proposed rule provides adequate time for engine manufacturers to integrate the emissions
control systems into the affected engine families, but does not provide adequate lead-time for OEMs to
produce the most cost effective and reliable equipment.  This lack of lead time for OEMs may lead to an
increase in the cost of equipment and may have an adverse effect on the end-user, including those who
rent equipment.

       Letters:
       American Rental Association, OAR-2003-0012-0612 p. 2

       If engine manufacturers use increased EGR rates to achieve the model year 2007 NOX standard,
NOX aftertreatment components will not be widely used until 2010. Several engine manufacturers
reported at the EPA Clean Truck Workshop held in August 2003, that they will be taking this approach.
This delay will reduce the technology transfer lead time to nonroad from 4 years to 1 year. EPA has not
addressed this concern in the proposed rule and should do so in order to accurately assess whether the
Tier 4 rule can be successfully implemented within the proposed time frame.

       Letters:
       CNH Global, OAR-2003-0012-0819 p. 3-4

       EPA's Tier 1 regulation accounted for the following factors in setting the scope of the standards
and the implementation schedule: 1) the CAA authorized California to set nonroad standards for engines
at or above 175 hp; 2) engine manufacturers  and equipment manufacturers did not have the resources or
facilities to implement the Tier 1 standards for all engines on the same date; 3) for engines under  175
horsepower, it is more difficult to transfer on-highway technology and the market is more cost sensitive;
and 4) there are many more applications under 175 horsepower than above. In contrast, EPA's Tier 4
standards considered only one factor - the technology transfer issue, but the other three factors remain
extremely important as well as international harmonization.  Since engineering resources to design
products for Tier 4 engines will double, there is an even greater need for staggered introduction dates. To
address this issue, EPA should  1) eliminate the pull ahead Option  1 and move the effective date to 2013
for engines in the 37 to 55 kW range; 2) move the effective dates for interim and final standards to 2013
and 2016, respectively, for engines in the 56 to 74 kW range; and 3) move the effective date for a final
standard to 2015 for engines in the 75 to 129 kW range.

       Letters:
       CNH Global, OAR-2003-0012-0819 p. 6

       For engines between 19 kW and 56 kW, EPA should provide a phase in schedule that is similar to

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
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the schedule for engines greater than 56 kW. The phase-in for these smaller engines should be 50 percent
in 2013, 50 percent in 2014, and 100 percent in 2015.

       Letters:
       Yanmar, OAR-2003-0012-0615, 0813  p. 5

       Ingersoll-Rand commented that the NOX phase-in should be tied directly to a calendar year
schedule.  They believe that we should set January 1, 2015  as the date for implementing the NOX  standard
for engines rated between 100 and 175 hp.  Currently, the proposal calls for 100 percent phase in of the
NOX standard by the end of September 2014, which they believe will unnecessarily complicate equipment
manufacturers' schedule for production and use of flexibility allowances.

       Letters:
       Ingersoll-Rand, OAR-2003-0012-0504 p. 12

Our Response:

       As is described in Sections II and III of the preamble to this final rule and in Chapter 4 of the
RIA, we have determined that the amount of lead time available, combined with a number of provisions
for implementation flexibility for engine and equipment manufacturers, will allow the manufacturers to
develop and apply the new emission control technologies in time to meet the new standards.  We  do not
agree that a percent phase-in, which was proposed for engines above  75 hp to align their phase-in of
aftertreatment NOx standards with parallel standards for highway engines, is needed for engines below 75
hp which do not have an aftertreatment-based NOx standard, nor do we see another valid basis for
adopting a percent phase-in for <75 hp engines.

       As is evident in those discussions, we have not simply assumed that emission  control technology
derived from experience in the highway sector  can be transferred to the diverse nonroad sector, but have
evaluated the technological feasibility of new standards specifically for the nonroad sector. Regarding the
potential for mismatched implementation paths should the highway engine manufacturers choose to
comply with 2007 standards without the use of advanced NOx aftertreatment devices, we note that we
intentionally set up the NOx phase-in approach for nonroad engines with this possibility in mind, with
alternative implementation approaches allowed that are parallel to those in the highway program. See
Issues 3.2.1.2 and 3.2.2.1, as well as RIA sections 4.1.1.3.2 and 4.1.3.1.1, for discussions on the
commenter's concern that the duty cycles of these engines may not  be conducive to PM filter
regeneration.

       In response to comments suggesting that EPA should wait until technologies have been proven,
or until uncertainties have been removed, we note that under Section  213 of the Clean Air Act, the
nonroad engine "standards  shall achieve the greatest degree of emission reduction achievable through the
application of technology which the Administrator determines will  be available for the engines or
vehicles." This requirement clearly allows and even requires that we project the development of
technology during the lead time we provide, and we  have done so in this rule. Commenters who made
generalized statements about uncertainties that  exist  at this time did not describe how the  existence  of
such uncertainties today render EPA's assessment of feasibility in the lead time provided inadequate.

       The rule contains a number of features  designed to  ensure adequate lead time. These include

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providing stability between new sets of standards (e.g., the interim and final standards for 25-75 hp
engines), and establishing flexibility for engine and equipment manufacturers (e.g., the ABT and
equipment manufacturer flexibility provisions).  We also have made a number of changes from the
proposal to further ensure that these combined provisions will result in adequate lead time, including
changes affecting the power categories focused on by commenters. A detailed discussion of the adequacy
of the lead time provided for the 2008 Tier 4 standard for 50-75 hp engines is provided in Section II.A. 1 .a
of the preamble. We also note that, in response to the comments here, we have extended the compliance
date for full compliance with Tier 4 aftertreatment-based NOx standards for 75-175 hp engines using the
25%-25%-25% phase-in option until December 31,  2014.  (See Preamble  section II.A.2.b.) For a
discussion of issues relating to harmonization with standards in Europe, see preamble Section II.A.8.

        The concerns raised by CNH over the lack of implementation flexibility in Tier 1 have been
addressed in subsequent tiers, including this Tier 4,  through the addition of flexibility provisions.  We
agree that it may be more difficult to transfer highway technology to engines below 175 hp, but we
believe that we have addressed this concern and the concern about spreading the redesign workload
burden for the many machine models in this category by setting Tier 4 standards for these engines to
begin in 2012 (one year later than for larger engines), by providing multiple compliance options, and
through the design of the equipment manufacturer flexibility program.
       3.1.2   Over 750 hp Engines

       3.1.2.1  Standards Should Be Equally Stringent for All Engine Categories

What Commenters Said:

       A few commenters stated that the standards for engines greater than 750 hp should be just as
stringent as those for other engine categories.  They believe that these engines should be subject to the
same NOX and PM standards as the 75 to 750 hp engines and implementation of the standards should be
completed by 2012.  Commenters stated that we should require 50 percent of these engines to comply by
2011 and the remaining 50 percent to comply by 2012, as they believe that these engines are small in
number (nationally comprising only 0.3 percent of annual nonroad engine sales), but are
disproportionately high in their local impact (emitting 6 percent of national nonroad diesel PM). The
commenters  noted the example of mining equipment in Bingham Canyon, which borders Salt Lake City,
contributing  25  percent of Salt Lake County's total PM10 pollution.  However, they add, given the unique
challenges presented by these engines, we could consider "opt-out" provisions on a case-by-case basis.

       Further, Environmental Defense commented that we should require engines over 750 hp to meet
the same standards in the same time frame as engines below 750 hp, since any decision to the contrary
would violate EPA's delegated rulemaking responsibilities under the operative provisions of the CAA.
They believe that we should not accept the argument that engines over 750 hp should have their own
special category, and stated that the D.C. Circuit has previously affirmed EPA's decision not to create a
separate, special category for these engines. Environmental Defense offers the example of Engine
Manufacturers Assoc. v. U.S. EPA., 88 F.3d 1075, (D.C. Cir. 1996), in which EMA challenged the EPA
regulations promulgated under Section 213 for surface mining equipment. The  court held that EPA was
not arbitrary or  capricious in classifying surface mining engines with construction or large CI engines and
cited statistics about mining equipment being used in nonattainment areas for determining that the "cause

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                                                    Control of Emissions from Nonroad Diesel Engines
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                                                                                      May, 2004

or contribute" trigger had been met under Section 213(a)(3).

       Many public citizens commented that EPA should ensure that large equipment greater than 750
hp used in the mining industry are also subject to the same standards as equipment below 750 hp since the
rule provides ample time for the manufacturers of mining equipment to make the adjustments necessary
to meet the standards and since this approach would reduce overall pollution in communities that are in
close proximity to mines.

       Letters:
       Environmental Defense, OAR-2003-0012-0821 p. 9
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 21-22
       Salt Lake City, OAR-2003-0012-0787 p. 1
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 7
       Chicago  Public Hearing, A-2001-28, IV-D-06 [ALA p. 284]
       4,320 Public Citizens
       170 Public Citizens

Our Response:

       See our response to Issue 3.1.1.1.2
       3.1.2.2  The Over 750 hp Engine Standards Are Too Stringent

What Commenters Said:

       Cummins and Komatsu commented that the standards for those engines greater than 750 hp are
too stringent. They stated that these engines fall outside the range of on-highway power and experience,
yet EPA has specified the same implementation dates as the highway engines with a similar range of
power. They believe that developing aftertreatment systems for these engines and applications poses
unique challenges for many manufacturers; there are no on-highway engines of this size that have
demonstrated DPF or NOX reduction technology and thus, there is no basis to assume that there can be a
technology transfer. Both commenters noted that these engines only represent 1 percent of total nonroad
engine sales and the investment necessary to meet the standards would be substantial.  Cummins also
noted that regulatory changes in this single category will impact seven of their engine platforms which
provide power from 750 to 3,500 hp. Both Cummins and Komatsu provided additional discussion on this
issue and requested that we address the stringency of the standards for these larger engines by reviewing
the overall proposal for this category and/or postponing the imposition of technology-forcing standards.

       DDC and EMA commented that given the numerous significant and unique technological
challenges related to the greater than 750 hp power category, a transfer of on-highway technologies  is not
feasible in all cases. However, they believe that there is a potential opportunity in this category of
engines given the fact that there are two distinct mobile source applications; portable power generation
equipment and other mobile machines. They believe mobile machinery category, such as large earth-
moving and mining equipment, presents the most costly and technically challenging problems- stating
that these  applications have multiple duty cycles, substantial space constraints and are  often subject  to
high shock loads. Further, they stated, this equipment is often used in dusty and harsh environments that

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                                                                Summary and Analysis of Comments
                                                                                      May, 2004

are not located in highly populated areas. In contrast, power generation equipment has constant speed
duty cycles and, comparatively, less limiting space constraints and since it is stationary when operated, it
is relatively free from mechanical shock loads. EMA and its members recommended that we recognize
the difference between these two types of engines and require only those engines used in mobile power
generation to install aftertreatment devices. We could then conduct a feasibility review in the 2013 to
2014 time frame to assess the costs and technical challenges of further expanding the standard. EMA
believes that reductions from other large nonroad sources should be required only if it is technologically
feasible and in any case, not prior to 2018.

       Further, DDC and EMA added, the proposed NOX PEL of 3.1 g/kW-hr is too stringent and should
be changed to 3.5 g/kW-hr to allow manufacturers to achieve the significant reduction in PM. 3.5 g/kW-
hr represents an approximate mid-point between the  6.4 g/kW-hr previous NOX limit and the appropriate
next Tier NOX limit. They stated that this limit would be approximately 44 percent lower than the
previous Tier NOX standard for this large power category and along with the 50 percent reduction in PM,
will provide significant emission reductions in a power category that only represents 1 percent of sales
and 5 percent of the total emissions inventory. The commenters added that the final NOX limit is  also too
stringent and represents a 94 percent reduction from  the previous Tier. If on-highway NOX aftertreatment
devices can be applied to greater than 560 kW engines, then a 90 percent reduction would be assumed.
They believe, therefore, that the final NOX limit should be 0.64 g/kW-hr, not 0.40 g/kW-hr as proposed.

       Cummins also commented that they believe  that the proposed interim NOX level for engines
greater than 560 kW should not be a result of a calculation based on a 50/50 phase-in strategy that will
not be used. They believe the interim NOX level should be one that provides manufacturers with cost
effective and technically feasible alternatives and should be based on applying aftertreatment with the
same efficiencies to the greater than 560 kW Tier 2 engines as those for the  130 to 560 kW Tier 3
engines.  They suggested that we should finalize the  2011 interim Tier 4 standards for these larger
engines at 3.5 g/kW-hr NOX and 0.10 g/kW-hr PM, which represent a 44 percent and 50 percent NOX and
PM reduction, respectively, from Tier 2 levels.  And added that we should finalize 2015 Tier 4 standards
at 0.64 g/kW-hr NOX and 0.02 g/kW-hr PM, which should only apply to mobile power generation
equipment. Finally, Cummins stated, these final Tier 4 standards should apply to other mobile machinery
no earlier than 2018.

       A few commenters (Murphy, NMA, and the  Western Business Roundtable (WBT)) stated that
given the unique and customized nature of mining equipment engines over 750 hp, we should exempt this
equipment from the Tier 4 standards. WBT specifically recommended that we provide a specific cost-
benefit analysis that addresses the continued exemption of engines in this  sector.

       Lastly, Komatsu commented that we should  revise the phase-out standards to require the  use of
diesel PM filters  only for engines 560 kW and below and Tier 2 standards for engines over 560 kW.
Therefore, any rule changes that affect NOX emissions, such as the transient test requirement, NTE
requirements, and the revised definition of test speed should be eliminated for phase-out engines to avoid
additional NOX re-design development expense.

       Letters:
       Cummins, Inc., OAR-2003-0012-0650 p.  3-5
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 4
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657  p. 21-23, 111

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                                                                Summary and Analysis of Comments
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       Komatsu, OAR-2003-0012-0455 - 0457 p. 2-3
       Murphy Oil, OAR-2003-0012-0212 p. 4
       National Mining Association, OAR-2003-0012-0510 p. 2-3
       Western Business Roundtable, OAR-2003-0012-0636 p. 4
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [Cummins p. 37]

Our Response:

       See our responses to Issue 3.1.2.3 and 3.3.1.


       3.1.2.3  Compliance Deadline

What Commenters Said:

       DDC and EMA commented that we should extend the compliance deadline for engines greater
than 750 hp. They believe that standards for nonroad engines (> 750 hp) should not be implemented any
sooner than January 2015 and the final application of high efficiency aftertreatment systems should be
limited only to power generation applications, since even for these engines, it is not possible to meet the
Tier 4 limits by January 2014. They added that engine and equipment manufacturers require more than a
3 year period of stability. Due to the low sales volume and high costs associated with these engines, these
commenters believe that we should only implement standards at this time  for the power generation
applications, should not require implementation of these standards prior to January 2015, and should
expand the flexibility provisions for the Tier 4 interim standards.  (See related discussion under Issues
3.1.1 and 3.2.2).

       AEM added that the proposed program implementation provisions for engines greater than 750
hp do not adequately address the manufacturers' timing concerns.  They believe that we should move the
introduction date until 2012 (one additional year) before beginning to phase in Tier 4 standards for this
category.  AEM believes that mobile machinery such as off-road mine haul trucks and bulldozers present
unique challenges that could require more time to resolve than would be afforded by the proposed phase-
in completion date.

       Letters:
       Association of Equipment Manufacturers, OAR-2003-0012-0669, 0670 p.  11
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 4
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p.  22, 111

Our Response:

       We believe that it is appropriate to adopt different Tier 4 standards for over 750 hp engines from
those we proposed, and to adopt different implementation dates for these engine standards. The approach
being adopted reflects our careful review of the technical issues presented by these engines. For some of
these engines, we are accelerating standards based on the use of aftertreatment controls. For others, we
are deferring a decision on such aftertreatment-based standards. This approach represents a feasible and
efficient approach to redesigning engines and installing aftertreatment in a coordinated, orderly manner
over a decade or more, and will achieve major reductions in PM and NOx emissions from these large

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                                                     Control of Emissions from Nonroad Diesel Engines
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                                                                                       May, 2004

diesel engines.  See Section II.A.4 of the preamble to this final rule and Section 4.1 of the RIA for more
discussion of this issue. We believe that the approach we are taking in the final rule addresses the
comments raised by engine and equipment manufacturers about feasibility, lead time and time needed to
redesign low-volume engines and machines.
       3.1.2.4 Diesel Generating Sets

What Commenters Said:

       WESTAR commented that we should streamline the definitions and control strategies for diesel
generating sets. Dependent on their usage and mobility, identical generator sets may be classified as
stationary or mobile units. Control and permitting requirements can differ for identical technologies
depending on this classification. They believe that we should consider addressing this issue in a future
rulemaking.

       Letters:
       Western States Air Resources Council, OAR-2003-0012-0711 p. 2

Our Response:

       This rulemaking's engine standards are being adopted under the provisions of Clean Air Act Title
II, "Emission Standards for Moving Sources".  Title II does not grant EPA authority to regulate stationary
sources.  See our response to Issue 3.1.1.2. However, there is nothing in the regulations we are setting
that would prevent manufacturers from selling engines certified to these new standards for use in
stationary applications, should they choose to do so, and in fact this practice is common today under our
pre-Tier 4 standards.
       3.1.3   75-750 hp Engines

What Commenters Said:

       CNH commented that, in the 50 to 175 hp range, we should revise the power categories and
introduction dates. They believe that Tier 4 should use the same power categories and staggered
introduction dates that were used with the Tier 1, 2, and 3 regulations.

       John Deere commented that, for engines between 56 and  130 kW, we should replace the two
phase-in options with one NOX + NMHC standard of 3.3 g/kW-hr. They stated that the first option, which
allows for the use of Tier 2 ABT credits and has a 50/50 phase-in/phase-out until 2014, should be
eliminated since it adds unnecessary complication to the rule and  since it is unlikely that there will be
enough Tier 2 credits available to make it the preferred option for any manufacturer. Further, they
believe that phase-in/phase-out approach should be eliminated since it adds unnecessary complication,
particularly with respect to harmonization with Europe. (See additional discussion under Issues 3.1.1.3).

       Letters:
       Deere & Company, OAR-2003-0012-0692 p. 2

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       Chicago Public Hearing, A-2001-28, IV-D-06 [CNH p. 67]

Our Response:

       As is described in Section II.A.5 of the preamble to this final rule, we continue to believe that the
power categories being used are appropriate. See also our response to Issue 3.1.5.1. We discuss our
reasons for retaining two compliance options for 56-130 kW engines in Section II.A.2.b of the preamble
for this final rule. Regarding the comment about dropping the phase-in approach, see our response to
Issue 3.1.1.3.


       3.1.4   Under 75 hp Engines

       3.1.4.1 The Proposed <75 hp Standards Should Be More Stringent

What Commenters Said:

       The standards for engines less than 75 hp should be just as stringent as those proposed for the
engines greater than or equal to 75 hp. There is a very large number of these engines and given the
significant risk they pose to the public, they should be controlled to mitigate the effects of the toxic
hydrocarbon emissions.  Emission control technologies that would achieve a 90 to 95 percent reductions
in NOX and PM should be required for nonroad diesel engines between 25 and 75 hp. In addition, more
stringent standards for engines less than 25 hp must be set to control toxic hydrocarbon emissions from
these smaller engines. Some commenters (ED, NY) specifically recommended that all engines should
meet the PM standard of 0.01 g/bhp-hr, the NOX standard of 0.30 g/bhp-hr standard for NOX and a 0.14
g/bhp-hr standard for NMHC no later than 2012.

       Letters:
       Environmental Defense, OAR-2003-0012-0821 p. 7-8
       Massachusetts Department of Environmental Protection, OAR-2003-0012-0641 p. 2
       New York Department of Environmental  Conservation, OAR-2003-0012-0786 p. 5-6
       NESCAUM, OAR-2003-0012-0659 p. 5
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p.  19-20
       Pennsylvania Department of Environmental Protection, OAR-2003-0012-0699 p. 3
       Regional Air Pollution Control Agency, OAR-2003-0012-0683 p. 1-2
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 8
       South Coast Air Quality Management District, OAR-2003-0012-0623 p. 2-3, 5
       U.S. Public Interest Research Group, OAR-2003-0012-0780 p. 3
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 5-6
       Wisconsin Department of Natural Resources, OAR-2003-0012-0702, 0703 p. 2
       New York Public Hearing
                     A-2001-28, IV-D-05 [STAPPA/ALAPCO p. 45; U.S. PIRGp. 190]
       Los Angeles Public Hearing
                     A-2001-28, IV-D-07 [STAPPA/ALAPCO p. 26; U.S. PIRG p. 179; UCS p. 70]
       Chicago Public Hearing, A-2001-28, IV-D-06 [STAPPA/ALAPCO p. 36]

       EPA should take into consideration the control capability of diesel oxidation catalysts (DOC) and

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should set the standards for engines less than 75 hp, accordingly. If the standards are too lenient, DOCs
may not be used, and an important opportunity to protect the equipment user and the public from PM and
HC emissions will be lost. One commenter (MECA) noted that DOCs are capable of reducing total PM
by up to 50 percent and toxic HC by up to 70 percent.  This commenter noted that the proposed PM
standard for engines less than 25 hp can be met with engine modifications alone and is not sufficiently
stringent to necessitate the use of DOC technology. Another commenter (CARB) noted that since the
proposed PM standards for engines from 25 to less than 75 hp do not reach the final filter-based level
until 2013, there is no lead-time impediment to requiring the use of oxidation catalysts in the interim.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 5
       Environmental Defense, OAR-2003-0012-0821 p. 8
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 7
       Los Angeles Public Hearing, A-2001-28, IV-D-07  [CARB p. 15; MECA p. 61]
       Chicago Public Hearing, A-2001-28, IV-D-06 [MECA p. 49]

       EPA should also extend the more stringent aftertreatment based standards to engines under 75
horsepower.  Engines under 75 hp account for a significant portion of nonroad emissions. More stringent
standards for 2008 are supported by Section 213 of the CAA since they are achievable through the  use of
oxidation catalysts and the optimization of engine performance. One commenter (NRDC) recommended
that EPA finalize PM standards at 0.2 and 0.15 g/bhp-hr for engines < 25 hp and 25 to 75  hp,
respectively, by 2008, and that all engines less than 75 hp be subject to aftertreatment-based PM and NOX
standards, and that given the large number of these engines and the risk they pose due to air toxics
exposure, EPA should finalize stronger standards to reduce the toxic hydrocarbon emissions.  This
commenter added that the more stringent 2012 standards are achievable given the long lead time and EPA
should reject industry claims for delay, exemption or weakening of the standards and timetables for these
engines.  One commenter (UCS) also recommended an interim PM standard for engines 25 to 75 hp of
0.15 g/bhp-hr.  Another commenter (West Harlem) expressed concern that the more lenient standards for
these engines could encourage consumers to use multiple smaller engines in lieu of a larger engine  that
would be subject to more stringent emission standards.

       Letters:
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 19-20
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 5
       New York Public Hearing, A-2001-28, IV-D-05  [NRDC p. 34; W. Harlem EA p.  261]
       Los Angeles Public Hearing, A-2001-28, IV-D-07  [NRDC p. 55]

       The standards for engines less than 25 hp should be more stringent. One commenter (CARB)
noted that small diesel engines under 25 hp will comprise at least 20 percent of all nonroad land-based
diesel engines in California by 2010, and this percentage will continue to grow. This commenter added
that the proposed level of control for these engines, at an approximate 50 percent reduction for PM,
doesn't go far enough to protect public health and that EPA should establish more stringent PM and
hydrocarbon standards for this group of engines for the 2008 model year based on the use of oxidation
catalysts and eventually, PM filter technology (and if more stringent standards are not promulgated, EPA
should at the very least, reduce or eliminate the number of flexibility options proposed for these engines).
One commenter (WI) added that reactive hydrocarbon emissions remain an important piece of
Wisconsin's ozone nonattainment picture. One commenter (MECA) recommended that EPA set tighter

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PM and NOX standards for these engines effective in the 2012/2013 timeframe, given that additional cost-
effective NOX and PM control strategies such as lean NOX catalysts and low efficiency DPFs (capable of
reducing NOX and PM by 25 percent and 50 to 60 percent, respectively), may emerge for these smaller
engines. One commenter specifically recommended that EPA set a PM standard for engines less than 25
hp at 0.2 g/bhp-hr.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 4-5
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 7
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 5-6
       Regional Air Pollution Control Agency, OAR-2003-0012-0683 p. 2
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 5
       Wisconsin Department of Natural Resources,  OAR-2003-0012-0702, 0703 p. 2
       New York Public Hearing
                      A-2001-28, IV-D-05 [ALA p. lll;CARBp. 140-142; NY DEC p. 13]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [CARB p.  15]

       EPA has failed to propose adequate HC standards for engines less than 75 hp, which results in the
loss of an important opportunity to reduce exposure to toxic HC emissions. EPA should apply the 0.14
g/bhp-hr NMHC standard that currently applies to engines 75 hp and greater, to engines in the 25 to less
than 75 hp category.  For engines in the 25 to 50 hp range, this standard should take effect in 2008, and
for engines from 50 to 75 hp, this standard should take effect at the earliest possible  date consistent with
providing four years lead-time and three years stability with the existing NMHC standard.

       Letters:
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 7

       Unless EPA tightens the emission control requirements for diesel engines in the 25 to less than 75
hp category, an inequity will be created between the emission control requirements for similar-sized SI
and CI nonroad engines. Manufacturers of diesel engines in  this category have the option of meeting very
modest HC+ NOX  standards until 2012 that will be met with relatively inexpensive engine modifications.
This situation could create the unintended consequence that the market share of higher polluting diesel
engines will increase  at the expense of the very low emitting gasoline, CNG, and LPG fueled-engines.
One commenter (UCS) recommended that EPA consider developing harmonized emissions standards for
gasoline and diesel engines to prevent manufacturers from taking advantage of the higher allowable
emissions afforded by the different standards and switching fuels.

       Letters:
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 8-9
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 6

       EPA has proposed two compliance options for engines from 25 to less than 75  hp. Some
manufacturers have called for the elimination of the interim PM standard under Option  1 since it does not
meet the 3-year period of stability. However, if EPA decides to drop Option 1, the effective date  for
meeting the 0.02 g/bhp-hr PM standard should  remain as 2012, since it is technologically feasible.
Option 1 provides an  opportunity to reduce harmful toxic HC and PM exposure to the equipment
operators during the period from 2008 to 2013. However, to maximize the potential benefits of this

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option, the interim 0.22 g/bhpO-hr PM standard should be tightened to take advantage of the emission
reduction potential of DOCs. EPA should adopt a PM standard in the range of 30 percent more stringent
than currently proposed.

       Letters:
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 8

       EPA's proposed standards for smaller engines 25 to 75 hp, clearly violate its statutory duty since
over 10 percent of these engines are already capable of meeting the proposed 2008 PM standard.  Many
of these engines already meet this PM standard by using only engine-out technology. Also, more than 90
percent of the engine families in the 25 to 50 hp range are meeting the proposed CO standard today. In
light of these observations, EPA should set more rigorous emissions standards for these engines.

       Letters:
       Environmental Defense, OAR-2003-0012-0821 p. 8

       EPA should tighten the 2008 PM standard for engines rated at less than 75 hp to 0.1 g/bhp-hr,
which would be consistent with the PM highway standards that have been in effect since 1994.  In
addition, the NOX + NMHC standard of 3.5 g/bhp-hr for engines from 25 to 75 hp does not meet the
requirements of Section 213(a)(3) that standards achieve the greatest reductions possible and does not
reflect recent developments in combustion and emissions control. EPA's rationale for the lenient standard
for engines in the 25 to 75 hp category is that NOX adsorbers may not be available for these small  engines.
However, despite this concern, there will be other control options available for these engines which could
provide deeper emission reductions on an earlier timeframe than EPA has proposed. NOX controls with
efficiencies in the 30 to 50 percent range potentially may be used for some equipment that use pre-
chamber diesels, which have lower uncontrolled NOX emissions that are in the 3 to 4 g/bhp-hr range.
With some development and the use of EGR, engine-out levels as low as 1.5 g/bhp-hr may be attainable.
Therefore, this commenter (CATF) recommended that this standard should be lowered to between 1.5 and
2.0 g/bhp-hr and should be implemented by 2012 at the latest.

       Letters:
       Clean Air Task Force, et. al., OAR-2003-0012-0508 p. 14-15

Our Response:

       These comments are addressed in the preamble to this final rule (See Sections II.A.3.a and
II.A.3.b). We have determined that the standards being adopted for engines under 75 horsepower are the
most stringent standards that are technologically feasible considering costs and other relevant factors.  See
also preamble Section II.B.4 and RIA Section 4.1.4 for more detailed discussions of this determination.
Harmonization issues are discussed in preamble Section II.A.8, and issues relating to the appropriateness
of the cutpoints established in the rule are discussed in preamble Section II.A.5.  Regarding
Environmental Defense's comment on CO standards, see our responses to Issues 3.1.1.1.4 and 3.1.4.5.
Our justification for the flexibility provisions we are adopting is discussed in detail in Section III of the
preamble. We do not believe that reducing or eliminating these flexibility provisions for this category of
engines is appropriate.  We also  do not believe that the standards we are setting will discourage non-
diesel-fueled engines. To the extent that cleaner alternatives can meet the  Tier 4 standards with less
design modification from today's engines than will be required for diesels, they will become more cost-

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competitive in the Tier 4 timeframe.
       3.1.4.2  Opposed to Stringent PM andNMHC Standards in 2008

What Commenters Said:

       A few commenters (Ingersoll-Rand and Euromot) commented that the proposed PM standards for
engines between 19 and 37 kW (25-50 hp) are too stringent and may not be feasible or cost-effective.
They stated that smaller engines may not be able to meet the PM standard by 2008. This type of power
source is crucial within the construction and agricultural community and attempting to meet the proposed
standards may compromise the advantages of these smaller machines. Some commenters (Euromot,
Lister-Petter (LP)) noted that EPA's PM limit of 0.3 g/kW-hr is not achievable with current DI engine
technology and provide additional discussion on this issue, noting that a PM limit of 0.45 g/kW-hr could
be met in this time frame if a practical phase-in scheme and flexibility provisions for small volume
products  are provided.  One of these commenters  (LP) noted that this  standard would help encourage the
continued use of the efficient DI combustion technology. Commenters (IR, LP) noted that the continued
use of DI engines is essential in this power range because of their lower heat rejection and significant fuel
economy benefits when compared with indirect injection (IDI) engines.

       Letters:
       Euromot, OAR-2003-0012-0822, 0823 p. 6
       Ingersoll-Rand, OAR-2003-0012-0504 p. 10, 13-14
       Lister Fetter, OAR-2003-0012-0155  p. 2
       Chicago Public Hearing, A-2001-28, IV-D-06 [Euromot p. 235]

       The stringency of the standards for engines from 19 to 37 kW are inconsistent with other on-
highway  and international standards. Highway engines provide the basis from which to design the
nonroad engines and currently, EPA's large spark-ignited engine regulations use 37 kW as the lower limit
for stringent emission levels on gasoline engines.  In addition, in Europe, amendments to NRMM
Directive 97/68/EC establish particulate trap-forcing standards only for engines over 37 kW. If this
disparity remains, engine and equipment manufacturers will have to design and introduce PM traps for a
very limited market.  The resulting higher cost of the engine would adversely  impact the viability of this
market segment and the implementation of the relevant Tier 4 standards.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 24
       Ingersoll-Rand, OAR-2003-0012-0504 p. 10, 13-14

       Euromot commented that the proposed PM limit for engines below 19 kW (25 hp) is too
stringent. They believe that we should expand the intended relief for  engines  less than 8  kW to engines
between  8 and 19 kW, as hand start engines between 8 and 19 kW are an important component of the
U.S. domestic construction and forestry sector. They added that hand start engines can be equipped with
an electric starter and should  fall under this special provision as well and that the term "hand-startable" in
regulations Section 1039.101(j) should be introduced consistently.

       Letters:
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       Euromot, OAR-2003-0012-0822, 0823 p. 7-8
       Yanmar commented that we should not impose a more stringent NMHC standard for engines
below 56 kW.

       Letters:
       Yanmar, OAR-2003-0012-0615, 0813 p. 5

Our Response:

       These comments are addressed in the preamble to this final rule (See Sections II.A. 1 .a).  We have
determined that the standards being adopted for engines under 75 horsepower are feasible and that they
are the most stringent standards that are technologically feasible considering costs and other relevant
factors. In making this determination, we considered the unique features of these engines.  See also
preamble Section II.B.4 and RIA Section 4.1.4 for more detailed discussions of this determination.
Harmonization issues are discussed in preamble  Section II.A.8, and issues relating to the appropriateness
of the cutpoints established in the rule are discussed in preamble Section II.A.5.
       3.1.4.3  Opposing PM Filter-Based Stan dards for < 75 hp

What Commenters Said:

       CNH commented that PM controls should not be imposed for engines under 75 hp since it is
inconsistent with the Clean Air Act. They believe that smaller products will be the most difficult to
design due to the compact product requirements and the comparatively large size of aftertreatment
systems required and the need to locate the aftertreatment systems close to the exhaust manifold.
Euromot commented that the need for active regenerating traps will lead to filter costs that are equivalent
to the engine cost itself.  They and the Association of Equipment Manufacturers requested that EPA not
require PM filters on engines below 50  hp, or even 75 hp, subject to the Technology Review.  Ingersoll-
Rand commented that the 2013 standard misaligns EPA requirements for 25-50 hp engines with those
proposed in Europe, leading to market disruptions and increased costs. I-R also expressed general
concerns about cost impacts, performance and safety of the Tier 4 standards for these engines. The
Association of Equipment Manufacturers requested that EPA delay the final decision on setting standards
that require PM filters on engines below 50 hp pending the findings of the Technology Review.

       In the proposal EPA analyzed a number of alternative scenarios, including Options 5a and 5b that
involved no aftertreatment-based standards or no new standards at all for <75 hp engines. The Small
Business Administration Office of Advocacy urged EPA to adopt either Option 5a or 5b in order to
minimize burdens on small entities, pursuant to the RFA and the President's Executive Order 13272.
Advocacy believes that a large number  of small manufacturers of equipment will be negatively affected
by aftertreatment requirements for engines below 75 horsepower. Also, Advocacy notes that EPA is
within its statutory  discretion in reducing emissions for engines above 75 horsepower alone. Advocacy
believes that the information developed during the exhaustive SBAR Panel process supports the adoption
of the least burdensome alternatives, Options 5a or 5b.  Advocacy noted that these alternatives resulting
from the SBAR Panel process described above would achieve essentially the same emissions reductions
as EPA's proposed regulatory approach while imposing significantly less regulatory burden upon small

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entity equipment manufacturers. Advocacy recommended that EPA adopt Option 5a or 5b because: (1)
the incremental benefits of requiring aftertreatment for smaller engines do not justify the large differences
in cost, (2) EPA has not demonstrated the technical feasibility of aftertreatment technology for nonroad
diesel engines below 75 hp, and (3) small entities will bear an unfair and disproportionate  share of the
economic costs associated with this rule.

       Letters:
       CNH Global, OAR-2003-0012-0819 p. 5
       Euromot, OAR-2003-0012-0822, 0823 p. 6
       Ingersoll-Rand, OAR-2003-0012-0504 p. 10
       Association of Equipment Manufacturers, OAR-2003-0012-0669, 0670 p. 5
       U.S. Small Business Administration Office of Advocacy, OAR-2003-0012-0815--0818, p. 10

Our Response:

       As discussed in our responses to Issues 3.2.2.1 and 3.5.3, we continue to believe that
aftertreatment-based PM standards are feasible for 25-75 hp engines with the lead time provided, and so
are appropriate within the meaning of section 213(a)(4) of the Act. As set out in detail in RIA 4.1.4.3.2.1,
there is no technical reason that the standards cannot be achieved. The ability of a PM filter to trap and
eliminate nearly all of the soot PM in the exhaust is well established and is not a function of engine
power. Due to their typically lower fuel efficiency, some smaller engines do have a somewhat higher
production rate of sulfate PM, which is not well controlled by a PM filter.  However, this is addressed
through the virtual elimination of sulfur in diesel fuel and, for the small residual amounts of sulfur left in
the fuel, through our setting a higher Tier 4 PM standard level for 25-75 hp engines compared to larger
engines.  We also explain in detail in the RIA how we expect these engines' exhaust temperature profile
can be adapted to ensure regeneration of PM filters used by these engines, and  our cost estimates include
the cost of active regeneration systems for these engines to accomplish this. We also show that there are
no significant issues regarding feasibility of equipment design or of safety for these engines.  See, for
example, Section II.B.l.b of the preamble. For additional responses to comments on technological
feasibility, see Issues 3.1.4.2 and 3.5.3.  The packaging issues raised by CNH are addressed in our
response to Issue 3.2.1.2.

       The comment from Euromot that the cost of a small engine filter system will be equivalent to the
engine cost did not include any information on how this cost estimate was derived.  SBA Office of
Advocacy based their concerns about the costs involved with PM aftertreatment for 25-75 hp engines on
two sources of cost information. The first is a study performed by VTT Processes for the European
Union, which includes some very high estimated costs.  As discussed in detail in our response to Issue
5.3.1.2, this study does not appear to be backed by factual information. It is noteworthy that no
manufacturers who commented on our proposal chose to rely on this study in any way, though it has been
widely available for over a year. The second source is EPA' s own cost estimates for these engines
reported in the Draft RIA, which we are essentially confirming in the final RIA for this rule. We have
factored these costs into our economic impact analysis for this rule; the results  of this analysis do not
indicate that we should drop the aftertreatment-based standards for engines under 75 hp. See Chapter 10
of the RIA for details.

       The paramount objective of section 213 is to improve air quality by reducing pollutant emissions
based on technological capability;  all other enumerated factors, including cost considerations, are

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secondary. See Husavarna AB v. EPA. 254 F. 3d 195, 200 (D.C. Cir. 2001) ("[t]he overriding goal of the
section [213] is air quality, and the other listed consideration, while significant, are subordinate to that
goal"). Here, PM aftertreatment-based reductions are technically feasible for 25-75 hp engines. The
analyses we performed at proposal of options with reduced or no Tier 4 standards for engines under 75 hp
estimate the net present value through 2030 of the lost benefits stream are very substantial, $70 billion
and $43 billion for Options 5a and 5b, respectively.  The corresponding cost savings through 2030 are far
less- $3.8 billion and $2.6 billion, respectively. (See Table VI-1 at 68 FR 28462.) The final rule
analyses of the emissions reductions and costs that form the bases for these numbers have not changed
appreciably from the proposal analyses. (See RIA Chapters 3 and 6.) We note further that many of these
smaller engines operate in populated areas and in equipment without closed cabs— in mowers, small
construction machines, and the like, where personal exposures to toxic emissions may be pronounced
well beyond what is indicated simply by a comparison of nationwide emissions inventory estimates.
(This point was made not only in written comments, but repeatedly in public hearing testimony.) We
would also emphasize the remarkable growth in recent sales and usage for these  smaller diesel machines,
and we expect this trend to continue, pointing up the need for effective  PM emissions control from these
engines.

       We have carefully considered costs for the engine standards as  a whole and for engines in this
power band. We have estimated the compliance costs for these engines (RIA Chapter 10 Table 10.3-13),
the compliance costs for representative types of equipment using these engines (id. Table 10.3-14), and
found no significant economic impacts on manufacturers of these engines, manufacturers of equipment
using these engines, or end users of equipment using these engines (id.  at Appendices A and B). This
analysis, by itself, supports the reasonableness of the conclusion that aftertreatment-based PM standards
are appropriate for these engines. Husqvarna. 254 F. 3d at 200 (section 213 does not mandate any
specific method for considering costs).

       EPA has also evaluated the cost-effectiveness of the engine standards as a whole, and determined
that the dollar per ton of PM removed is reasonable, and well within the cost effectiveness range of other
PM-control standards adopted by the Agency. See RIA chapter 8.  This is also a permissible means of
considering costs under section 213. Husqvarna. 254 F. 3d at 200.

       SB A Office of Advocacy, however, maintains that the standards for this subset of engines are
unreasonable viewed from the standpoint of cost effectiveness (cost per ton of the increment of PM
removed by aftertreatment-based control). As noted above, we determined that the final standards are
clearly cost effective.  The commenter has not pointed to information showing that marginal cost
effectiveness analysis is needed or appropriate because of any special or unique factors for this power
category.

       In any case, however, we provided such cost effectiveness analysis for this subset of engines at
proposal, and found it to be reasonable. Adoption of Option 5a (no 2008 or 2013 PM standards for
engines up to 75 hp) would result in foregone PM and NOx + NMHC reductions of 209, 000 and 334,000
tons respectively (much of the NOx + NMHC reduction being potentially carcinogenic or otherwise
hazardous air toxics).  Draft RIA Chapter 12 at pp. 79. We estimated the costs of this option as resulting
in savings of $3.8 billion (both fuel and other operating costs and engine and equipment costs saved, id.).
The incremental cost per ton of PM is $ 16,500; for NOx+ NMHC it is $1,100.  Id at 80. These costs are
well within the cost-effectiveness ranges found acceptable for these pollutants in other rules.  See 68 FR
at 28449 (Tables V.D.3 through V. D. 5).  For option 5b (adopting the 2008 standards but no

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aftertreatment-based standards), the facts are much the same: foregone PM and NOx + NMHC emission
reductions of 121,000 tons and 333, 000 tons, respectively, with a cost per ton of PM at $18,300 and
$1,100 per ton, respectively, Draft RIA Chapter 12 at p.80, again, values easily within cost-effectiveness
ranges for these pollutants already deemed reasonable. 68 FR at 28449.  As noted above, monetized
benefits of the PM standards for these engines exceed the costs by a factor of over 17-fold. EPA not
surprisingly concluded at proposal that these options were not warranted.  Draft RIA Chapter 12 at pp.
103-104.14

        These aftertreatment-based standards achieve important emissions reductions and public health
and welfare benefits. They are technically feasible, the benefits of the standards significantly outweigh
the costs, the overall set of standards are cost effective, the economic impact analysis indicates there  will
not be a significant adverse economic impact on either engine or equipment manufacturers in this power
category, and, even if we considered cost effectiveness for just these engines, the standards remain
appropriate. The body of evidence here thus clearly indicates that it is appropriate to adopt
aftertreatment-based PM standards for this power category (and indeed, strongly indicates that to do
otherwise would be inappropriate, within the meaning of CAA section 213 (a)(4)).

        The impact of new emissions standards on small entities was the subject of the analysis carried
out by the government SBAR panel under the requirements of SBREFA as part of this rulemaking.  The
panel report included a number of recommendations to help small businesses, and these were
subsequently incorporated into the proposal and are being adopted in this final rule.  In conducting the
SBREFA analysis, we observed that equipment manufacturers who  are small entities are not
disproportionately focused in the under 75 hp market, but rather participate in a wide diversity of nonroad
applications, using engines large and small, and their issues are not  restricted to the under 75  hp category.
Therefore, we believe it is more appropriate to address issues unique to small equipment manufacturers in
this category through the  set of special flexibility measures that apply to the wide spectrum of horsepower
sizes.

        SBA Office of Advocacy recommends setting a less stringent standard for all engines and
equipment in the power category, whether produced by small or large manufacturers in a situation where
the vast majority of engines and equipment in this power category are produced by large and not small
manufacturers. EPA's equipment manufacturer flexibility program contains provisions specifically
tailored to help small manufacturers, and avoids the loss of important  public health and welfare benefits
that SBA Office of Advocacy's overbroad approach would entail.

        Finally, although it is  appropriate to set these Tier 4 standards in this rule, we recognize that there
is much development work ahead for manufacturers over the next nine years before these standards take
effect. We discussed in the proposal,  and are reiterating in this final rule, our plans to conduct a
technology review in 2007 to examine these issues again in the light of progress made between now and
then.  As discussed in Section VIII.A of the preamble, this review for  engines under 75 hp will be a
comprehensive undertaking that may result in adjustments to standards,  implementation dates, or other
provisions (such as flexibilities) in either direction (that is, toward more or less stringency), depending on
conclusions reached in the review about appropriate standards under the Clean Air Act. All relevant
        14 Given that all of this analysis appears at length in the record to the proposed rule, EPA does not agree with
the commenter's assertion that EPA failed to provide the means to analyze this option.

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factors including technical feasibility and commercial viability of engines and machines designed to meet
the standards will be taken into account.
       3.1.4.4  Options for 25-50 hp

What Commenters Said:

       The Small Business Administration Office of Advocacy commented during the interagency
review process that EPA should not adopt an aftertreatment-based standard for PM for 25-50 hp engines.

Our Response:

       Our comments to this option are much the same as to the same commenter's request not to apply
aftertreatment-based PM standards to engines in the entire 25-75 hp power category. As described in
Sections II.A and II.B of the preamble, we continue to believe that the application of PM filters to small
engines is both feasible and is an important element of our efforts to address air quality concerns
associated with nonroad engines.  As a courtesy, we nonetheless evaluated a new Option 5c in which the
trap-based PM standard and the Tier 4 NOx standard would not be applied to 25 - 50 hp engines, but
would continue to apply to above 50 hp engines.  See generally, RIA chapter 12.2.2.2.

       The concern was raised that small businesses in this power grouping will face a greater relative
burden in designing equipment for engines with aftertreatment, and that they may need additional lead
time beyond that provided by the small volume allowances.  EPA believes that in general the small
volume allowances should provide reasonable lead time opportunity for these manufacturers, but
recognizes that there may be individual cases where more lead time would be appropriate for small
business manufacturers in this power category.  EPA is therefore adopting a technical hardship provision
similar to that adopted for the percent of production allowance.  Small business manufacturers using
engines in the 25-50 hp range could petition EPA to approve additional needed lead time in appropriate,
individualized circumstances, based on a showing of extreme technical or engineering hardship as
provided in 40 CFR 1039.625(m). EPA  could approve additional  small volume allowances, up to a total
number of 1100 units. This total number includes the allowances that are already available under the rule
without request.  These additional allowances could only be used for engines in the 25-50 horsepower
range, and could only be approved for qualifying  small business equipment manufacturers. The
additional allowances would not be subject to the annual limits noted earlier but they could only be used
after the maximum amount of the standard allowances are used.

       EPA recognizes that it is important to facilitate the process for small business equipment
manufacturers to seek such approval, and intends to work with small manufacturers so that any
transaction costs for them or for EPA can be minimized. For example, EPA could consider at one time a
common request from similarly situated small business equipment manufacturers, as long as all of the
necessary individual information for each applicant were provided.

       Emission Inventory Impacts

       Option 5c is identical to our final program, except that it would not require 25-50hp engines to
meet the trap-based PM standards that are in our final program, nor would it require these engines to meet

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the Tier 4 NOx standards. As a result, the PM and NOx emission reductions for Option 5c would be
lower than those for our final program. Moreover, pollutants other than PM and NOx would also be
affected under this option.  For instance, the reductions in non-methane hydrocarbons (i.e. air toxics,
many of which are carcinogenic) and CO that will occur for our final program are generated primarily
through the presence of catalyzed diesel particulate traps, so the removal of the trap-based PM standards
for 25-50 hp engines will also produce a corresponding reduction in the air toxics and CO benefits.

        In evaluating the inventory impacts of Option 5c, we assumed that the 2008 PM standards for 25-
50 hp engines were met using a steady-state test cycle for both our final program and Option 5c. Whether
these engines should be required to meet standards under a transient test procedure is a separate issue
from the use of aftertreatment. Our analysis was designed to  focus on the impacts of foregoing the use of
aftertreatment.

        Option 5c produces fewer benefits for all pollutants starting in 2013 in comparison to our final
program. RIA Table 12.2.2.2.1-1 (reprinted below) shows  the net impact of Option 5c on the 30-year net
present value inventory estimates.
                       50-State 30-Year Net Present Value Emission Increases
                        For Option 5c In Comparison to Final Program (tons)

PM
NOx + NMHC
3% discount rate
56,833
381,459
7% discount rate
25,238
170,819
EPA regards these foregone benefits as highly significant, especially given that they are readily
achievable at reasonable cost.

       Cost Analysis

       Option 5c would reduce the overall costs of the program since 25-50 hp engines would not need
to install PM traps nor make engine modifications to comply with more stringent NOx standards.  We
calculated the total nationwide cost savings by summing the per-engine savings across all engines for
each year starting in 2013. RIA Table 12.2.2.2.2-1, reprinted below, shows the resulting 30-year net
present value cost savings for Option 5c.
                         50-State 30-Year Net Present Value Cost Savings
                      For Option 5c In Comparison to Final Program (Smillion)

All pollutants
PM
NOx + NMHC
3% discount rate
2,041
1,514
527
7% discount rate
997
735
263
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       Benefits Comparison
       We were able to estimate the benefits of Option 5c using the benefit-transfer methodology
developed in Chapter 9 for estimating the monetized benefits of the final program.  Accounting for the
reduction in monetized health and welfare benefits from the net emission inventory impacts of Option 5c
in comparison to our final program produces 30-year net present value of loss in benefits of $36.6 billion
at a 3 percent discount rate, and $14.8 billion at a 7 percent discount rate. This loss in benefits is much
larger than the costs savings associated with not applying trap-based PM standards to 25-50-hp engines as
shown above, highlighting the fact that there is a substantial net benefit to society of applying the trap-
based PM standards to 25-50 hp engines. These calculations, furthermore, do not estimate benefits of
emission reductions of NOx or air toxics (i.e. NMHC).  These benefits, though not quantified here, are
significant, especially considering the large numbers of these 25-50 hp engines and the fact that they are
often used in populated areas and in equipment without closed cabs. See Draft RIA 12.6.2.2.9 where we
voiced similar concerns regarding forgoing trap-based PM controls for 50-75 hp engines.

       Costs Per Ton

       The cost-effectiveness of the final standards for 25-50 hp engines can be calculated from the
values in RIA Tables 12.2.2.2.1-1 and 12.2.2.2.2-1, and are summarized here.
                       50-State 30-Year Net Present Value Cost-Effectiveness
                        For Option 5c In Comparison to Final Program ($/ton)

PM
NOx + NMHC
3% discount rate
26,600
1,400
7% discount rate
29,100
1,500
       These cost-effectiveness values remain within the ranges that EPA has traditionally accepted as
reasonable.  See 68 FR at 28449, Tables V.D.3 to V. D. 5.

Summary: The aftertreatment-based standards for PM for these engines are feasible at reasonable cost.
Monetized benefits for PM reductions alone exceed the costs of aftertreatment-based PM controls for
these engines by well over an order of magnitude. Benefits of air toxics reductions resulting from use of
PM-traps are also substantial. For these reasons, EPA sees no basis in law or in policy for adopting this
option.
       3.1.4.5 Options for 50- 75 hp

What Commenters Said:

       Caterpillar and John Deere commented that the proposed optional program for engine from 50 to
75 hp (37 -56 kW) undermines the integrity of the rulemaking process. They stated that the modification
to the previously promulgated Tier 3 requirements for the 37 to 56 kW category represented by the
optional program does not respect the basic need to provide certainty of investment associated with
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promulgated future standards. Even though the Tier 3 requirements for this category of engines do not
become effective until 2008, there needs to be recognition that engines in the category form part of an
integrated product range and are derived from an engine platform covering a much wider power range.
For Caterpillar, the 1 litre/cyl. platform will be used for products in this category but will also be the basis
for derivatives with power outputs of greater than 130 kW. The basic product architecture decisions for
the platform had already been confirmed on the basis of the promulgated Tier 3 provisions before the
issue of the proposed rule. The argument that manufacturers have a choice does not acknowledge that
ultimately the market will make the choice and manufacturers will need to respond to the needs of the
market. One commenter (Deere) noted that in addition to these concerns, the NOX-PM tradeoff at the
lower PM standard could require the use of cooled EGR whereas the original standard may not, and
recommends that EPA maintain the original Tier 3 PM standard of 0.40 g/kW-hr for 2008.

        Caterpillar believes that the 37 to 56 kW Tier 3 option could potentially disrupt New Product
Introduction programs that are already in progress and undermines the imperative to maintain US/EU
harmonization for nonroad engine emissions standards.  They stated that the EU legislative structure does
not provide an appropriate mechanism for such an optional program and it is improbable that the EU
legislators would support the logic of the program.  Further, Euromot stated that this approach corrupts
EPA/EU harmonization already achieved for this power category and potentially undermines
manufacturers' product plans that were predicated on the already promulgated and reconfirmed Tier 3
requirements by EPA in October 2001 that would be modified by the option program.

        Caterpillar also commented that the Tier 3 option raises concerns regarding the lack of
appropriate controls to prevent OEMs from changing engine suppliers in order to benefit from potentially
lower cost Option A engines until the validity period expires, and then adopting Option B engines for a
period before the mandatory introduction of Tier 4. They believe the approach of linking the Tier 4
requirements with the Tier 3 optional selection has the effect of structurally locking out an engine
manufacturer from a significant portion of the Tier 4 market.  Caterpillar believes that the optional
program represents an anti-competitive measure since it will restrict the OEMs' choice of the Tier 4
engine suppliers and should be eliminated from the proposed rule.

        Cummins commented that regardless of the optional PM standard in 2008 for engines in the 37 to
56 kW category, the 2012 implementation date for the second option is unacceptable in terms of the
phase-in of power categories.  A reasonable phase-in period is required to manage engineering resources.
This is an issue not only for engine manufacturers but also for nonroad equipment manufacturers with the
large numbers  of applications  in this power range. The Tier 4 proposal drastically reduces the power
category phase-in provided to manufacturers. The optional PM standard for 2008 should be omitted from
the proposal and the implementation date for aftertreatment forcing standards should be 2013.

        Letters:
        Caterpillar, Inc., OAR-2003-0012-0812 p. 3-4
        Euromot, OAR-2003-0012-0822, 0823 p. 2-3
        Deere  & Company, OAR-2003-0012-0692 p. 4-5
        Cummins, Inc., OAR-2003-0012-0650 p. 8

Our Response:

        These  comments are addressed in the preamble to this final rule (see Sections II.A. 1 .a and

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II.A.S.b), where we explain why we are keeping the two options approach for 50-75 hp engines. We do
not believe that providing two options for manufacturers, one of which is essentially aligned  with the EU
program, disharmonizes emission standards. See preamble Section II.A.8.  Manufacturers for whom the
paramount goal is to produce a single engine design meeting like standards in both markets can do so by
choosing the aligned standards option. Deere's concern is addressed in Section 4.1.5 of the RIA, where
we show that the combination of the lower sulfur certification test fuel and the addition of a diesel
oxidation catalyst would reduce PM emissions sufficiently to meet the 2008 standard, without a need to
work an engine's NOx-PM tradeoff for PM reductions at the expense of NOx. In fact, the oxidation
catalyst would reduce NMHC emissions, thus providing additional margin under the NMHC+NOx
standard for NOx emissions.
       3.1.4.6 CO Standards

What Commenters Said:

       Euromot commented that the proposed CO limit for engines below 8 kW is too stringent. They
stated that CO emissions rise when retarded injection timing is used to reduce NOX emissions, and
oxidation catalysts are necessary for small engines to meet the standard.  However, the use of this
technology increases the price of such engines considerably and could result in their disappearance from
the market. Euromot believes that we should finalize a CO limit of 7.5 g/kWh instead of 6.5 g/kWh for
engines with a power less than 8 kW.

       Similarly, Yanmar commented that we should maintain the Tier 2 CO  standard for engines below
8 kW, and that we should not reduce the standard for these engines to 6.6 g/kWh. They added that SI
engines comprise a majority of engines in this category and CI engines already have a much lower
standard and sales volume than SI engines, and as a result there is no reason to impose this more stringent
standard that would be costly and would provide very little environmental benefit.  Yanmar provided
additional discussion and data to support their position on this issue in its public comments.

       Letters:
       Euromot, OAR-2003-0012-0822, 0823 p. 7-8
       Yanmar, OAR-2003-0012-0615, 0813 p. 5

Our Response:

       We proposed the changes in CO standards solely for the purpose of helping to consolidate power
categories. We stated in the proposal that we were not exercising our authority to revise the CO standard
for the purpose of improving air quality, but rather for purposes of administrative efficiency. Because we
proposed the CO standard changes for the  sake of simplifying and consolidating power categories and not
because of any technical considerations relating to emission reductions, we do not believe it productive to
take issue with the manufacturers' views that these proposed changes raise serious feasibility concerns.
We instead are withdrawing this aspect of the proposal, the result being that the existing CO standards
remain in place.  In doing so, we are not considering or reexamining (and at proposal did not consider or
reexamine) the substantive basis for the level of those standards.  See Issue 3.1.1.1.4 for our response
regarding application of new test cycles to CO standards.
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       3.1.5   Power Categories

       3.1.5.1  Selection of Power Categories

What Commenters Said:

       EMA expressed support for the new Tier 4 75 hp (56 kW) cutpoint, but commented that we
should consider additional factors in the process of establishing the number of power categories and
corresponding cutpoints.  In establishing the 56 kW cutpoint, and in reducing the number of power
categories from nine categories down to five, they believe that we only took into consideration one of the
various factors that impact the establishment of power categories (i.e. the transferability of on-highway-
like technologies). EMA  suggested that we should also examine the workload, the need for
manufacturers to spread out the workload, the number of engine families and equipment applications, and
the natural breakpoint for engine platforms that can be categorized in more than one power category.  In
setting the nonroad engine standards and power categories, the difficulty, costs, and technical hurdles
associated with technology transfer between different engine applications should be carefully assessed.
Transfers of technology require significant investments  of manpower and capital and often also require
manufacturers to overcome complex technological and design hurdles.

       EMA stated that the 37 to 130 kW power range is an especially challenging group of products
since this range encompasses a very large number of engine families and an even larger number of
applications.  They believe that the proposal would require  all engines and applications within the 37 to
130 kW power range to meet the new standards in 2012, and even though the rule provides for delayed
compliance for engines from 37 to 56 kW, this comes at a very high penalty (i.e. the need to pull ahead
low PM technology in 2008 which requires manufacturers to revamp Tier 3 products late in the planning
process). Engine platforms that will be redesigned in 2012 for the low end of the 56 to 130 kW power
category, are also used in  the 37 to 56 kW category. EMA  believes that it is not feasible or practical to
spread the engineering and design work on the same engine platform used in two power categories. By
necessity, some engine platforms in the 37 to 56 kW category will have to be redesigned in the 2012 time
frame under EPA's proposal. To better deal with the workload issues, EMA suggested that we  either
allow equipment flexibility credits to be exchanged between the power categories involved with the 37-
130 kW (50-175 hp) range, or create more power categories and further stagger the workload burden.

       Ingersoll-Rand commented that by basing the standards on engine power rating, we blurred very
significant technical and economic distinctions between diverse equipment designs. They offered the
example of a Bobcat skid-steer loader and a Thermo King refrigeration unit which might employ engines
within  the same power rating, but the engines would be  used under vastly different operating conditions.
As a result, they believe, the Tier 4 rule appears to be inconsistent with the CAA, which requires emission
standards be established for individual classes and categories of nonroad engines and vehicles.

       Further, Ingersoll-Rand added, consolidation of all equipment models rated between 175 and 750
hp from three power categories into one fails to take into account the diversity of nonroad applications
across this expansive power band.  They believe it also creates significant hardship by requiring the
introduction of aftertreatment technologies in a single year  when PM and NOX standards take effect in
2011.  In contrast, introduction of Tier 2 standards for the same power band occurred over a three year
period. Ingersoll-Rand believes that consolidation of power categories will result in transition difficulties
and demands on the resources of equipment manufacturers, thus necessitating a greater degree of

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flexibility than what was offered in the NPRM.
       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p.  10-11
       Ingersoll-Rand, OAR-2003-0012-0504 p. 3-4, 13

Our Response:

       Section II.A.5 of the preamble to this final rule includes a detailed response to comments
objecting to the power categories we are adopting. Regarding EMA's comment about adequate time for
technology transfer to smaller engines, our Tier 4 standards provide for 25-75 hp engines to achieve PM
filter-based standards in 2013, one year after new standards take effect for 75-175 hp engines. As
discussed in Section II.A of the preamble to this final rule, we believe this and other phase-in and
flexibility provisions provide an adequate opportunity for manufacturers to transfer technology from
larger engines and spread the redesign workload.  We disagree with EMA's contention that the 2013 Tier
4 date for 25-75 hp engines is not real because it entails also meeting the new PM standard for 50-75 hp
engines in 2008, and this latter requirement comes at too high a penalty. We believe that the 2008/2013
compliance path is feasible, as explained in Section II.A. 1.a of the preamble to this final rule.  We do not
believe that creating additional power categories and flexibility provisions to deal with EMA's concerns
are warranted, given that the standards we are adopting, without such additional flexibilities, are already
feasible and appropriate.

       EMA's comment about allowing equipment manufacturer credits to be transferred between power
categories is addressed in our response to Issue 9.2.1.5. In response to EMA's alternative suggestion for
dealing with the redesign workload burden (creating more power categories), we have dealt with these
workload concerns by providing substantial implementation flexibility and by staggering start years for
the categories we  have created, and thus we believe that creating additional power categories is not
necessary.

       Regarding Ingersoll-Rand's comment about the need to set standards based on factors  other than
power rating, such as the diversity of operating conditions, we believe that varying standards by the
engines's expected operating conditions or similar parameters  would create an unwieldy system of
standards, in which engine manufacturers would face large uncertainty about what standards they must
design their engines to. Power rating, explicitly defined, is  readily and unambiguously identifiable for an
engine, and has been used as the primary delimiter in standards-setting for Tiers 1, 2 and 3.  We believe it
is the appropriate  delimiter for Tier 4 as well.  The diversity of operating conditions experienced in use by
engines in these power categories is taken into account in our  feasibility assessment in Chapter 4 of the
RIA.  In addition, we note that we have made special provisions to allow the testing of engines that
operate on restricted operating cycles, such as constant speed engines and refrigeration units (the
application that Ingersoll-Rand specifically identified).

       3.1.5.2  Proposed 75 hp Cutpoint for Emission Control Technology

What Commenters Said:

       EMA, Euromot, Lister-Fetter, and Yanmar expressed  support for the 75 hp (56 kW) cutpoint,
arguing that it best defines the demarcation between those engines related to on-highway engines and the

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simpler, low cost nonroad engines under 56 kW.  (See additional discussion under Issues 3.2.1 and 3.1.4).

       ARTBA, AEM, and Ingersoll-Rand commented that our proposed reclassification of engine
power categories does not correctly reflect the cutpoint in emission control technology. They stated that
setting "highway-like" categories is not always appropriate since many nonroad engine manufacturers
have no on-road product presence. A precedent has already been set with the Tier 1 through 3 regulations
that already established the power ranges from 50 to 100 hp and 100 to 175 hp as separate power
categories for regulation.  In addition, Europe and Japan have also aligned with this convention that will
now be upset by the sudden switch to 75 hp as the new cutpoint.  They stated that many nonroad
equipment manufacturers disagree with the assumption that nonroad engines will display similar
characteristics to their on-highway counterpart of similar displacement per cylinder, and have indicated
that the similarities to on-highway diesel engines do not begin to uniformly appear until a higher power
level. AEM provided additional discussion on this issue noting that equipment manufacturers see their
greatest difficulty in producing Tier 4 complying machines in the 75 to 100 hp (56 to 75 kW) range and
some predict a sharp decline in sales  within this power category due to the Tier 4 standards.

       These commenters believe that we should establish the power categories based on a 100 hp (75
kW) cutpoint, since this is the point above  and below which the highway derived nonroad engine families
do and do not exist, respectively. They stated that we should also reconsider the proposed standards in
the context of the power cutpoint as well. They believe that adopting this strategy would help resolve
some major concerns with the emission control technology and offer five points to support their belief.
First, there is a technology development gap for emission control systems designed for nonroad engines
less than 100 hp because there is no direct surrogate in the on-highway market. Second, NOX adsorbers
and PM traps need to be introduced into the on-highway market by 2007, which will limit the resources
of engine manufacturers and emission control suppliers, thus compromising the effort to comply with the
Tier 4 nonroad standards.  The nonroad industry has experienced this diversion of R&D resources with
the recent implementation of Tier 2 amidst the pull-ahead of on-highway controls caused by the consent
decree.  Third, the proposed 75 hp cutpoint is inconsistent with Tiers  1 through 3. Fourth, the large cost
increase associated with Tier 4 compliance will be more easily absorbed by the larger equipment types.
Fifth, there are more engines within the 50 to 100 hp category that share a common machine platform
than for the 75 to 175 hp category, and as a result, the industry would benefit from a 100 hp cutpoint by
spreading the costs of redesign over a larger volume of machines.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p.  10-11
       Euromot (IV-D-489) p.  4
       Lister Fetter, OAR-2003-0012-0155 p. 1
       Yanmar, OAR-2003-0012-0615, 0813 p. 5
       American Road and Transportation Builders Association, OAR-2003-0012-0633 p. 2
       Association of Equipment Manufacturers, OAR-2003-0012-0669, 0670 p. 9-10
       Ingersoll-Rand, OAR-2003-0012-0504 p. 11-12

Our Response:

        Section II.A.5 of the preamble to this final rule includes a detailed response to these comments.
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3.2    Technical Feasibility of Engine Standards

3.2.1   General Comments

       3.2.1.1  Standards are Feasible

What Commenters Said:

       A number of commenters believe that the standards are feasible provided 15 ppm sulfur fuel is
available.  They stated that the required emissions control technologies have been and can be integrated
into a variety of nonroad applications. The use of exhaust emission control technology for nonroad diesel
engines is not new. For over 35 years, nonroad diesel engines used in the construction and mining
industries have been equipped with exhaust emission control technology. The diesel oxidation catalyst
and the diesel particulate filter has been installed on nonroad engines both as original equipment and as
retrofit technology on over 250,000 nonroad engines. These technologies have been and can be
integrated in nonroad vehicles and equipment. The technologies can fit in the available space, can be
located in a way that enables the control device to function effectively, and can be operated on a variety
of nonroad engine applications and operating environments. For example, technology such as Johnson
Matthey's already commercially available CRT particulate filter are being combined with NOX control
strategies such as EGR, lean NOX catalysts, SCR and NOX adsorber technology.  These are being
integrated into engine packages that have also seen dramatic advances in both physical design and
operating parameters. Several commenters argued that the proposed standards are feasible within the
proposed time frame and can be met cost effectively. One commenter (MECA) provided additional
discussion on this issue and cited to a comprehensive list of references discussing the considerable
progress in developing, optimizing, and applying advanced emission control technologies and strategies
for reducing emissions from diesel engines as included in Diesel Emission Control:  2001 in Review, SAE
Paper No. 2002-01-0285 (2002 SAE Congress, Detroit) and Diesel Emission Control: 2002 in Review,
SAE Paper No. 2003-01-0039 (2003 SAE Congress, Detroit).  This commenter also cited to (and provides
a copy of) their document entitled Exhaust Emission Controls Available to Reduce Emissions from
Nonroad Diesel Engines, which includes a more  detailed discussion of the emission control technologies
for nonroad diesel engines, operating experience, and application considerations. Another commenter
(UCS)  cited to their recently published report "Cleaning Up Diesel Pollution; Emissions from Off-
Highway Engines by State," which showed that pollution controls under development for highway trucks
and buses can be cost-effectively applied to nonroad engines as well.

       Letters:
       3M Company  (IV-D-765) p. C290
       Building and Construction Trades Dept, AFL-CIO, OAR-2003-0012-0674 - 0676 p. 3-4
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 2, 5-6
       NESCAUM, OAR-2003-0012-0659 p. 5-6
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 9
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 1
       New York Public Hearing, A-2001-28, IV-D-05 [MECA p. 116]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [JM p. 105; MECA p. 58]
       Chicago Public Hearing, A-2001-28, IV-D-06 [JM p. 160-163; MECA p. 46]

       The technologies necessary to implement EPA's proposal are available.  In particular, PM trap

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technology is available now and should be easily transferred to nonroad engines. NOX adsorbers and
other NOX control technologies also are expected to be available and transferable to nonroad sources.

       Letters:
       Clean Air Task Force, et. al, OAR-2003-0012-0508 p. 9-10
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 9
       New York Public Hearing, A-2001-28, IV-D-05 [Engelhard p. 203]
       Chicago Public Hearing, A-2001-28, IV-D-06 [CATF p. 256; SACE p. 181-183]

       Some of the emission reduction technologies have already been demonstrated for nonroad
engines.  Commenter cited to the program in the Boston area as an excellent example of how these
technologies can be applied to the nonroad sector, but does not provide any additional details on this
program.

       Letters:
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [CCA p.  145]

       The proposed nonroad standards are realistic and attainable, especially given the long time frame,
provided 15 ppm sulfur diesel is available. The emission controls industry is currently working to ensure
that the technology is available to meet the standards.

       Letters:
       New York Public Hearing, A-2001-28, IV-D-05 [Corning p. 146]

       EPA's proposed standards are feasible and the technologies that are necessary to meet the
standards will be available prior to the proposed compliance deadlines. Section 213(a)(3) and (b) of the
CAA directs EPA to establish nonroad standards that provide the greatest degree of emission reduction
achievable at the earliest possible date.  Section 213 mandates a technology forcing standard, which is
supported by case law (see Husavarna AB. et al. v. EPA. 254 F.3d 195, 201 (D.C. Cir. 2001) and
National  Petrochemical & Refiners Ass'n. v. EPA. 287 F.3d  1130 (D.C. Cir. 2002)). With respect to NOX
emissions, it is expected that NOX adsorbers will be available to meet the standards within the proposed
time frame.  With respect to PM emissions, catalyzed diesel particulate trap (CDPF) technology can
reduce these emission in modern diesel engines burning ultra-low sulfur fuel by over 90 percent.  The
commenter (CATF) provided additional discussion on this issue, notes that this technology is available
and allows for the PM Tier 4 standards to be met today and asserts that even though the nonroad rule
complies with the mandate in Section 213 in many respects,  some improvements will be necessary to
ensure that the stringency and timeline of the standards meet the requirements of this section. (See
additional discussion under Issues 3.1.1 and 3.1.4).

       Letters:
       Clean Air Task Force, et. al., OAR-2003-0012-0508 p. 8-10

       The nature of nonroad equipment use generally  renders such changes less burdensome than is the
case in the highway sector. Nonroad equipment is usually less sensitive to repackaging issues so long as
overall functionality is maintained.  Also the likelihood that consistent and effective maintenance will be
available to support any implemented emissions control strategy is greater in the nonroad sector given the
more centralized fleet nature of many nonroad equipment applications. For example, SCR might be more

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widely acceptable since urea refueling could be more readily incorporated into a fleet-type refueling
structure.  Also, CDPF maintenance could be performed as an integral component of existing fleet
maintenance practices.  The potential for redesign acceptance and effectiveness is much greater in the
nonroad sector and the standards and compliance deadlines should be established accordingly.

       Letters:
       Clean Air Task Force, et. al, OAR-2003-0012-0508 p. 10

       Further, MECA commented that the emission control technology industry will be able to provide
the support necessary for implementation of the proposed standards and the industry will have the
capacity to engineer prototypes, provide technical assistance, and  manufacture the needed products in
adequate quantities to meet the engineering and production schedules of the engine and equipment
manufacturers over the full range of engine applications covered by EPA's proposed rule. MECA
member companies plan to spend over $1.5 billion to develop and manufacture emission control
technologies for diesel engines, much of which will be targeted at increasing the manufacturing capacity
to meet the anticipated demand. The number of companies developing and manufacturing emission
control technologies for diesel engines continues to grow and EPA's standards will further facilitate
efforts to meet product demands.

       Letters:
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 6-7

Our Response:

       We agree with the  commenters in general that advanced emission control technologies, especially
PM filter based technologies, can be applied to a wide range of nonroad diesel engines provided clean 15
ppm sulfur diesel fuel is used. We appreciate the additional data and information provided by the
commenters that further informs the decisions taken in this action. As described in section II of the
preamble,  we have made some changes from the proposed program to address relatively specific issues
related to certain horsepower categories. Those modifications do  not change our overall conclusion that
advanced NOx and PM emission controls enabled by clean diesel  fuel can be applied to a broad range of
nonroad diesel engines as reflected in these comments.
       3.2.1.2  Standards May Not Be Feasible/Uncertainty in Emissions Control Technology

What Commenters Said:

       A number of commenters also believe that the standards may not be feasible since it is uncertain
whether the required emissions control technologies will function reliably in all types  of nonroad
applications.  These commenters believe that space limitations in the nonroad engine, the  burden on
equipment manufacturers to redesign and manufacture machines with particulate filters and NOX
adsorbers will be substantial. The addition of these devices will require a reconfiguration of the entire
equipment envelope to accommodate an enlarged engine package. This can be extremely difficult in
smaller machines, such as Bobcat skid steer loaders and mini-excavators, where compartment space is
limited. EPA's proposed rule will require significant internal changes, compromising safety and function.
One commenter (AGCA) added that equipment designs must comply with OSHA and other worksite

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safety standards for visibility, rollover protection, stability, engine lockouts, and other requirements and
that EPA must include all of these considerations in its deliberations, allowing for sufficient time for
redesign, manufacture, and approvals.

       Letters:
       Associated General Contractors of America, OAR-2003-0012-0791 p. 9
       CEMA-CECE, OAR-2003-0012-0598 p. 2
       Ingersoll-Rand, OAR-2003-0012-0504 p. 8
       Yanmar, OAR-2003-0012-0615, 0813 p. 2-3
       New York Public Hearing, A-2001-28, IV-D-05 [EMA p. 102; IRp. 225]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [EMA p. 152]
       Chicago Public Hearing, A-2001-28, IV-D-06 [EMA p. 27]

       Unlike highway engines, nonroad engines are produced in a much wider power range, from less
than 8 hp to over 3,000 hp.  These engines are used in a larger number of specialized applications.
Nonroad engines are installed in over 6,000 different types of machinery and equipment, which are
designed to carry out a variety of functions. The nonroad equipment operators' situations can vary greatly
including the need for multiple duty cycles, the capability to operate in harsh environments and the need
for high reliability and durability. The aspiration system for small nonroad engines below 56 kW is
mainly naturally aspirated instead of turbo-charged and air cooled like highway engines.  For nonroad
machines that operate at very low ground speeds or are stationary, there is no "ram air" effect to aid
cooling systems, as in highway engines, so additional power is often needed to operate the cooling fan.
As a result, reducing NOX becomes more complicated. In addition, when emission control technology is
scaled upward to a higher power category, the technology does not always grow on a linear scale. The
demands on emission-control technologies in higher horsepower applications can increase exponentially
leading to larger, heavier emission control devices.  Therefore, applying highway technologies to nonroad
engines could be very costly, resulting in machines that cost more than the consumer is willing to pay.
The commenters provided additional discussion regarding the difficulty of transferring emission reduction
technologies to the nonroad engine (see related discussion below on the technical feasibility of PM and
NOX control technologies). One commenter (AGCA) added that the number of nonroad diesel engine
types is much higher than the highway sector, with more than 1,700 equipment manufacturers involved,
and that because of the diversity in the marketplace, it is possible  that each specific engine could require a
complex redesign for each equipment application. Another commenter (Yanmar) provided additional
information on their products to illustrate the diversity of nonroad engines and the potential challenges
associated with the transfer of highway technology.

       Letters:
       Associated General Contractors of America, OAR-2003-0012-0791 p. 9
       CEMA-CECE, OAR-2003-0012-0598 p. 2
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 11-14
       Far West Equipment Dealers Association, OAR-2003-0012-0679 p. 3-4
       Ingersoll-Rand, OAR-2003-0012-0504 p. 6-9
       North American Equipment Dealers Association, OAR-2003-0012-0647 p. 3-4
       Ohio-Michigan Equipment Dealers  Association, OAR-2003-0012-0747 p. 3-4
       USA Rice Federation, OAR-2003-0012-0652 p. 3-4
       Yanmar, OAR-2003-0012-0615, 0813 p. 2-3
       New York Public Hearing, A-2001-28, IV-D-05 [EMA p. 103]

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

       Los Angeles Public Hearing, A-2001-28, IV-D-07 [EMA p. 152]
       Chicago Public Hearing, A-2001-28, IV-D-06 [AEM p. 222; EMA p. 27]

       Some nonroad engines may operate in low load applications that do not provide high enough
exhaust gas temperatures to enable the use of on-highway aftertreatment devices that depend on the
availability of high temperature exhaust gas for efficient operation and regeneration, while others may
operate at high load where the application of EGR technology may overtax already limited vehicle
cooling systems. In many cases, the nonroad engine must be designed to accommodate both types of
operation, which results in design constraints for the application of emission control technologies.

       Letters:
       CEMA-CECE, OAR-2003-0012-0598 p. 2
       Engine Manufacturers Association,  OAR-2003-0012-0656, 0657 p. 14
       Yanmar, OAR-2003-0012-0615, 0813 p. 2-3

       EPA has not fully addressed the issue of whether aftertreatment devices on smaller engines and
equipment such as lawn and garden equipment can operate reliably in an environment that involves
severe vibration, tight heat, height and space constraints, and operation in and around flammable debris.
The heat generated by aftertreatment devices may conflict with the stringent product safety requirements
that lawn and garden equipment must comply during and immediately after use. Even though mining
equipment operating in flammable coal dust situations have been proven safe, this does not address the
potential problem with high temperatures from PM filters that can  burn operators,  ignite debris, or simply
violate consumer product safety requirements.

       Letters:
       U.S. Small Business Administration Office  of Advocacy, OAR-2003-0012-0815 - 0818 p. 8

       EPA should not require further reductions in nonroad diesel engine emissions unless it is
demonstrated that the necessary technology  and accompanying low-sulfur fuel are available and will
work effectively in all nonroad applications.  Emission control devices should be available in nonroad
engine markets several years prior to implementation of a new standard for nonroad engines.

       Letters:
       Associated General Contractors of America, OAR-2003-0012-0791 p. 5

       Diesel particulate filters (DPFs) and DOCs often necessitate a narrow temperature window to
ensure maximum efficiency, which often cannot be ensured in conditions associated with construction
applications.  Similarly, NOX adsorbers have both high and low temperature requirements, with efficiency
decreasing with lower temperatures.  This strategy can also require optimal tuning and a restricted range
of power output that can be exacerbated by the type of use and site conditions.  Given these concerns,
many highway applications may not be suitable for nonroad engines.

       Letters:
       Associated General Contractors of America, OAR-2003-0012-0791 p. 7-8

Our Response:
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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

       As we described extensively in the draft RIA at proposal, we agree with commenters that nonroad
diesel equipment is diverse spanning a wide range of engine sizes and equipment types and uses.  Further,
we agree that the Tier 4 program must consider these differences in setting both the stringency of the
emissions standards and the implementation date and schedules for those standards. Our Tier 4 proposal
specifically addressed a number of these issues in the proposed emission standards and the timing for
those proposed standards. Based in part on the information provided in these comments and our own
continuing technical analysis for nonroad equipment, we have modified the Tier 4 program from proposal
in further consideration of unique nonroad issues.  Yet in general, the overwhelming evidence
documented in the RIA, preamble, and the numerous comments supporting the program show that
advanced emission control technologies can be applied to nonroad diesel engines when enabled by clean
15 ppm sulfur diesel fuel.

       We appreciate comments noting that nonroad equipment using Tier 4 diesel engines will require
redesign  in order to accommodate the new emission control technologies. We agree that such
modifications will be necessary and we gave specific consideration to the time required to complete these
redesigns and the cost of the redesigns in our proposal. We have accounted for the engineering (design)
and hardware (variable) costs for nonroad equipment redesign to accommodate Tier 4 emission control
technologies in Chapter 6 of the draft RIA for the NPRM, and we have updated that analysis  in this final
rule.

       We disagree however, with the implication that the redesign efforts will in some way compromise
safety (including visibility, rollover protection, stability, engine lockout,  etc.) or function.  These
technologies have already been applied in automotive applications and in nonroad equipment used in
mining and other applications where OSHA or other safety requirements must be met. The design tools
and engineering challenges to safely apply these new technologies are similar in scope and complexity to
existing engineering challenges to install other exhaust components such as exhaust mufflers. As
described in Chapter 4 of the RIA (and Chapter 4 of the draft RIA), these technologies have already been
successfully applied to some nonroad applications where particular safety issues must be considered.  See,
e.g RIA 4.1.3.2; see also preamble section II.B.

       The Tier 4 program is staged to phase-in over a number of years  reflecting both the time and
effort that we believe engine manufacturers will need to appropriately transfer the advanced emission
control technologies to nonroad diesel engines.  Similarly, this extended implementation schedule
considers the time between the Tier 3 standards and the Tier 4 program needed for equipment
manufacturers to redesign nonroad equipment to accommodate the new technologies.  We are projecting
that this lead time is sufficient to allow for redesign,  manufacture and approval of new nonroad
equipment for Tier 4 engines.  Finally, the implementation schedule  for the NR Tier 4 program considers
the timing and technologies of the heavy-duty 2007 on-highway emission program. The similar,
advanced emission control based, NR Tier 4 standards do not begin to phase-in until 4 years after the
heavy-duty 2007 rule begins.

       The diversity of nonroad engine duty-cycles as noted by the commenter was an important
consideration of the Agency in evaluating appropriate technology options for the Tier 4 program.
Chapter 4.1 of the RIA specifically evaluates this question for a significant number of known nonroad
operating cycles. Further, we recognize that it would be impossible in a finite analysis to consider every
possible way that a nonroad diesel engine could be used.  This is also a practical limitation of the  engine
manufacturers. For this reason we are expecting (and have estimated a cost for, see RIA chapter 6) that

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                                                     Control of Emissions from Nonroad Diesel Engines
                                                                 Summary and Analysis of Comments
                                                                                       May, 2004

Tier 4 engines with diesel particulate filter systems will have automatic active backup PM filter
regeneration systems.  This means that should a nonroad piece of equipment be used in an application
whose duty-cycle is not well matched for passive PM filter regeneration (the predominant mechanism for
filter regeneration, see preamble II.B and RIA 4.1), an active means will be automatically engaged to
ensure reliable filter regeneration and emission control. Such technologies are already well proven for
light-duty diesel applications (more than 500,000 passenger cars in Europe) and have also been applied in
more limited ways to nonroad equipment already today (see RIA Chapter 4.1.3.1.1). Similarly, light and
heavy-duty engine manufacturers have developed active regeneration strategies for NOx adsorbers (such
as changes to EGR and fuel-injection strategies) which are applicable to nonroad diesel engines. Id. and
RIA Chapter 4.1.2.3.2 and Highway Diesel Progress Review Report 2.

       The commenter similarly raises concerns regarding ram-air effect and other impacts on engine
and charge-air cooling which are different for nonroad diesel engines when compared to similar on-
highway diesel engines. We agree with the commenter that such unique nonroad issues must be
considered, and we have appropriately given consideration to these issues (see Preamble Section II.A,
II.B and RIA  Chapter 4.1). We gave specific consideration to these issues when we set the Tier 2 and
Tier 3 emission standards and have similarly considered these issues in the Tier 4 program. The NOx
standards for nonroad diesel engines in Tier 4 are in all cases somewhat higher than the comparable on-
highway emission standards due to the lack of ram-air.  Also, where we are setting EGR based emission
standards (for engine 25-50 hp and >750 hp) we have made a specific analysis of the additional cost for
engine cooling (see Chapter 6 of the RIA). Since PM filters operate with essentially equal efficiency in
different operating modes (see e.g. RIA 4.1.1.3.1), and having the backup (i.e. active) regeneration system
assures that the filter will operate (i.e. not plug), we think issues of feasibility of the PM standard is
settled.  (We have included costs of the active regeneration system in our cost estimates, as noted above
and in other responses.)

       Regarding technical feasibility of the NOx standard, the commenters also highlight unique
concerns for the very largest diesel engines (those with rated power >750 hp in our analysis)  and the need
for larger heavier emission control systems.  Based on comments such as these and our own analysis of
the potential concerns for the largest heavy-duty diesel engines, we have made several changes to the Tier
4 program for engines in the power category >750 hp. Specifically, we are finalizing a PM standard that
is slightly higher (0.02 for genset engines and 0.03 for mobile machines) giving consideration to concerns
regarding use of very large ceramic substrates in parallel systems and the potential for improved
durability that could be realized by using slightly less efficient depth filtration technologies (wire or fiber
mesh filter technologies).

       We disagree with commenters suggesting that lawn and garden equipment are somehow unique
in the realm of nonroad diesel equipment and the assertion that proven solutions used in other nonroad
applications can not be applied to lawn and garden equipment.  Quite to the contrary, lawn and garden
equipment would be expected to experience lower levels of impact vibration when compared to mining or
excavating equipment.  Regarding unique  product safety concerns and OSHA requirements, as we
describe in the RIA (and in the draft RIA), the challenge regarding safety and the potential for igniting
combustible materials will be less  for Tier 4 nonroad diesel equipment than it already is for today's
existing gasoline based systems (e.g., surface temperatures for the muffler of a small gasoline engine).
Further, we list a number of technologies available to mitigate such concerns where they may exist. We
do not believe the Tier 4 emission technologies significantly  change these characteristics.
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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                 Summary and Analysis of Comments
                                                                                       May, 2004

       The issues with space constraints typified by small equipment with transversely mounted engines
(such as the skid steer loader and mini-excavators cited the comments) and challenges with respect to
maintaining sufficient catalyst temperatures for proper operation of the exhaust emission control systems
at very light loads are also faced by the manufacturers of light-duty automobiles. Light-duty vehicles
must be capable of operation both at highway speeds and in congested urban traffic with large amounts of
idle time, while still meeting the demanding constraints of performance, safety, emissions, and durability
design targets and emissions and safety standards. With respect to packaging, three-way catalysts, and in
particular close-coupled three-way catalysts have been successfully designed and packaged into
extremely challenging platforms (e.g., small transverse front-drive light-duty vehicles) in order to meet
the stringent U.S. light-duty Tier 2 standards while still meeting engine compartment
thermal-management and other design constraints. Similar compact system designs are now been applied
to a combination NOx adsorption catalyst/PM trap system on a small, low emission,
transverse-front-wheel-drive light-duty diesel vehicle that recently went on sale in Europe:  the 2004
Toyota Avensis D-CAT diesel. In this vehicle, a NOx adsorption catalyst flow-through substrate and a
combination CDPF and NOx adsorption catalyst wall-flow substrate are both packaged into a
close-coupled catalyst that is integrated directly into an extremely tight space by integrating the
double-walled catalyst housing directly into the turbocharger downpipe. This vehicle uses its electronic
engine management system, high-pressure common-rail injection, and other systems to provide the
thermal management and management of exhaust chemistry needed to force PM regeneration, NOx
regeneration, and SOx regeneration at very lightly-loaded conditions including extended idle conditions
(see memo to Air Docket A-2001-28, OAR-2003-0012-0867).  We believe such examples clearly show
that it is possible to address tight packaging constraints through careful design. Further, they highlight
the substantial developments for on-highway products to address similar design issues as will need to be
addressed for nonroad Tier 4 diesel engines and equipment.

       In summary, the commenters raise a number of important issues regarding the uniqueness of
nonroad diesel equipment especially in comparison to the on-highway products EPA has identified as the
starting point for technology migration for Tier 4. We gave careful consideration to these issues in our
proposal and further we have made  additional modifications in this final rulemaking to address these
issues. We are confident that the Tier 4 program can be implemented successfully in the timeframe
provided under the program.
       3.2.1.3  Analysis is Incomplete

What Commenters Said:

       AGCA, AEM, EMA, and AFB (including various state Farm Bureaus) all believe that the
analysis provided in the proposal is not adequate to show that the proposed standards are technologically
feasible.

       AGCA and AEM commented that we should perform a thorough evaluation of the technological
feasibility and the related cost effectiveness of the proposed rule. They stated that the burden of
regulatory compliance is not the sole domain of the engine maker, but is shared throughout the entire
chain of the nonroad equipment industry including the equipment user. They believe that there are
several critical elements of the rule that need to be addressed in order to ensure that the technology exists
and is feasible for all impacted nonroad equipment, and that we should evaluate the application of

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

aftertreatment technology for nonroad machines by power category. The commenters do not believe that
the transferability of on-highway like technologies to small engines and very large engines will be
practical or cost effective given their small contribution to the emissions inventory.

        Further, EMA commented that we failed to propose standards that are technologically feasible.
They added that EPA is obligated under CAA Section 202(a)(3)(A) (sic) to propose standards that are
technologically feasible and cost-effective.  EMA believes that we failed to meet our obligations with
respect to various aspects of the proposed heavy-duty engine program and have failed to fully analyze the
additional stringencies and infeasibility concerns related to the supplemental test procedures and emission
limits, including the NTE requirements - and as a result, we have not provided an adequate overall
analysis of the technological feasibility and cost-effectiveness of the proposal.

        The National Association of Wheat Growers and AFB (including the IL, KS, MI, NE, and TN
Farm Bureaus) commented that the proposal does not include adequate analysis regarding the
transferability of onroad technology to all varieties of nonroad equipment and engine retrofit requirements
and costs, including the impact on the used equipment market.  There was also a concern that this
rulemaking would requirement equipment owners to replace their old equipment with  newer ones, or
would otherwise require existing engines to be retrofitted or rebuilt to meet the new standards.

        Letters:
        American Farm Bureau, OAR-2003-0012-0608 p. 2-3
        Associated General Contractors of America, OAR-2003-0012-0791 p. 10
        Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 108
        Illinois Farm Bureau, OAR-2003-0012-0673 p. 1
        Kansas Farm Bureau, OAR-2003-0012-0825 p. 2
        Michigan Farm Bureau, OAR-2003-0012-0625 p. 1-2
        National Association of Wheat Growers, et. al, OAR-2003-0012-0752 p. 2
        Nebraska Farm Bureau, OAR-2003-0012-0514 p. 1-2
        Tennessee Farm Bureau, OAR-2003-0012-0629 p. 1
        Chicago Public Hearing, A-2001-28, IV-D-06  [AEM p. 221]

Our Response:

        We disagree with commenters who assert that the Tier 4 analysis is inadequate for the
Administrator to determine the feasibility and appropriateness of the Tier 4 standards.  Quite  to the
contrary, we determined that the Tier 4 Preamble, RIA, and supporting technical documentation including
the 2007 RIA, EPA's Highway Diesel Progress Review Reports, EPA Contractor Studies and a wide
range of technical papers included in the Tier 4 docket provide overwhelming evidence that the Tier 4
standards are feasible and appropriate. Further, these standards are based on technologies which are
already  in use today on diesel engines used in a wide range of applications, including nonroad
applications.  To suggest that the technologies cannot be developed further for broader application to a
wide range of nonroad equipment is inaccurate.  Indeed, these commenters (with minor exceptions)
provided no data to support their contentions, but rather relied on general, undocumented assertions.

        We agree that there are some unique nonroad engine and equipment issues which must be
considered in setting these standards, and we have appropriately addressed those issues in developing the
Tier 4 program.  See response to comment 3.2.1.2.

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                       May, 2004

       EPA has conducted a thorough feasibility and cost analysis for this program with consideration to
different horsepower categories as detailed in the Preamble and RIA. Our estimates regarding the cost
effectiveness of the program are based on these analyses and can be found in Chapter 8 of the RIA.

       The commenters' basis for contending that standards for "small" and "very large" nonroad diesel
engines are not practical or not cost effective is unclear. Chapter 12 of the draft RIA for the Tier 4 NPRM
included several analyses specific to engines below 75 horsepower and above 750 hp (the categories the
commenter appears to be referring to). Those analyses showed that failure to set new Tier 4 emission
standards for engines >750 hp could mean foregoing potential NOx reductions of 742,000 tons and
potential PM reductions of 30,000 tons (30 year net present value). Further, the analysis estimates the
benefit of those potential emission reductions at $18 billion with an incremental cost of $0.5 billion (i.e.,
a benefit to cost ratio of more than 30:1). Similarly for the engines <75 hp, the proposed Tier 4 program
was estimated to result in NOx +NMHC emission reductions in excess of 300,000 tons and PM emission
reductions in excess of 120,000 tons (30 year net present value). The estimated benefit for these
reductions was $70 billion at a cost of less than $4 billion. At proposal, we gave specific consideration to
the appropriateness of emission standards for both small and large nonroad diesel engines, and we
concluded that the proposed Tier 4 standards for those categories of engines were appropriate. Although,
we have made some changes to the >750 hp emission standards giving consideration to the unique
challenges present in that horsepower category, the underlying importance of realizing significant
emission reductions for this category of engines remains unchanged.  The commenter provides no new
evidence that causes us to reconsider this conclusion.

       With regard to the comment that EPA has failed in its Clean Air Act obligation to show technical
feasibility, EPA is not obligated to promulgate standards based solely on technology that has already been
proven and matured in-use.  The standards under section 213 (the commenter erroneously cited to section
202) may require advancements from current technology so  long as EPA provides a reasoned explanation
of its basis for projecting that the standards can be met by technology that will be available at that later
time. See, e.g., National Petrochemical & Refiners Ass'n v. EPA. 287 F. 3d 1130, 1136 (D.C. Cir. 2002)
(upholding in all respects the 2007 HD standards, the  standards the commenter states lacked adequate
record support).  Our NPRM, draft RIA and supporting technical documents contain a detailed
description of the technologies that could be used to meet the standards, the current state of these
technologies, and the expected developments that would allow the technologies to meet the proposed
standards, including the proposed supplemental requirements.  The proposal also discusses the manner in
which these technologies can work together to meet the standards.  The final rule contains further
information regarding technological feasibility, including results from EPA's most recent Highway Diesel
Progress Review. The final rule also addresses the  commenters' concerns regarding the ability of these
technologies to meet the standards throughout their useful lives.  We have provided a clear roadmap
toward the achievement of the final standards. We  have met our obligation to show that the standards,
though requiring advancements from current technology, are technologically feasible within the
timeframe provided.

       Finally, with regard to the concern that this rulemaking might requirement equipment owners to
replace their old equipment with newer ones or might require existing engines to be retrofitted or rebuilt
to meet the new standards, we note that the standards we are setting apply only to new engines.  Today's
rulemaking does not require owners of existing engines to change or replace those engines.
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                                                     Control of Emissions from Nonroad Diesel Engines
                                                                 Summary and Analysis of Comments
                                                                                       May, 2004

       3.2.1.4 Feasibility of Aftertreatment Devices

What Commenters Said:

       API commented that we should address issues related to the use of aftertreatment devices on
nonroad engines.  Given the multiple rebuilds, high usage rates, and long life spans of nonroad diesel
engines, they believe that it is unlikely that aftertreatment systems will function effectively for the full life
of the equipment. In the event of equipment failure, operators must know that they have options for
replacement parts. They added that in the light-duty vehicle/truck arena, we have established an
aftermarket catalyst certification program to ensure that vehicle owners have access to reasonable choices
for replacement parts while ensuring some level of continued emissions performance.  Because nonroad
diesel engines are generally operated significantly beyond the original warranty period, they believe that
operators will not receive the same consumer protection absent an EPA program or policy to facilitate
aftermarket catalyst devices. API believes that we have not addressed this issue and may not be justified
in claiming full life emission reductions absent some assurance that catalyst devices will continue to
operate for the full life or will be replaced as necessary with devices that are fully effective.  Further,
ARA commented that adding emissions control may result in increased equipment downtime. They
stated that the thermal management problems associated with NOX control could be problematic with the
addition of particulate filters in some nonroad applications, especially when coupled with future OBD
requirements.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 23
       American Rental Association, OAR-2003-0012-0612 p. 3

Our Response:

       We believe that our rebuild regulations contained in 40 CFR §89.130 adequately address
concerns about engines not being rebuilt correctly. Those regulations require that someone rebuilding an
engine must have "a reasonable technical basis" for believing that the rebuilt engine is equivalent (with
respect to emissions) to an appropriate certified configuration.  Moreover, we believe that the
anti-tampering provisions of section 203(a)(3) will effectively prohibit the use of inadequate replacement
parts for emission controls. Regarding replacement parts that may be installed on engines after their full
useful life, EPA has existing aftermarket part certification regulations for light duty vehicles, as the
commenter notes, that allow part suppliers and purchasers to determine whether the part will continue to
allow satisfactory emission performance. EPA may consider creating similar regulations in the future to
address unique concerns that may arise on nonroad diesel engines but we can not finalize such provisions
here as they were not proposed.
3.2.2   PM Control

       3.2.2.1  Feasibility

What Commenters Said:

       The Standards are Feasible

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                                                     Control of Emissions from Nonroad Diesel Engines
                                                                 Summary and Analysis of Comments
                                                                                       May, 2004

       MECA and NESCAUM commented that they believe that the PM standards are feasible within
the proposed time frame, provided ultra low sulfur (15 ppm) fuel is  available. Filter technologies that
achieve PM reductions of 90 percent or more are feasible and cost-effective for engines above 25 hp.

       MECA provided additional discussion on the commercial availability, durability, and
effectiveness of DPFs. They specifically noted that where diesel fuel with < 15 ppm sulfur is used,
precious metal catalyst-based diesel particulate filters (CB-DPFs) have consistently demonstrated the
capability to reduce PM (on a mass basis), carbon-based PM, and hydrocarbon species and PAHs by over
90 percent, 99.9 percent, and 80 percent, respectively. In addition, systems are emerging that are
designed to provide exhaust flow turbulence and increased particulate residence time, achieving PM
reductions in the 40 to 65+ percent range.  MECA cited one design  currently being evaluated for
passenger car and heavy truck application in Europe (as described in New Diesel Catalyst Systems to
Achieve European Legislation Tested on a Volvo  S60 Passenger Car, 24th Vienna Motor Symposium,
May 15-16, 2003, Vienna, Austria) and noted that another design is being developed for nonroad engines,
including those under 50 hp. CARB also noted recent testing by the Southwest Research Institute (SRI)
under joint contract with ARB and EPA clearly demonstrated that the proposed PM standards for several
nonroad diesel engines using particulate filters and 15 ppm sulfur fuel is achievable. They added that the
results for two of the prototype engines are available in an interim final report from SRI titled
"Application of Diesel Particulate Filters to Three Nonroad Engines," February 2003.

       Further, MECA stated, diesel oxidation catalyst (DOC) technology is available today and
represents a cost-effective, interim PM control strategy for nonroad engines less than 75 hp. They believe
the technology could be applied to nearly the entire range of nonroad engine applications in 2008 when
the 500 ppm sulfur diesel is available.

       The Standards May Not Be Feasible

       EMA and AGCA commented that the PM standards may not be feasible given the challenges
associated with the transfer of emission reduction technologies to the nonroad engine.  EMA stated that
we note that oxidation catalysts can be applied to nonroad diesel engines in order to meet the interim Tier
4 PM reduction standards for 2008; however, they believe that the effectiveness of oxidation catalysts is
highly temperature and load dependent. They further stated that this technology generally does not
reduce emissions at low loads and temperatures and efforts to improve  the effectiveness at light loads by
making the oxidation catalyst more "active" can result in an increase in sulfate formation at high loads.
EMA believes that we have failed to account for the fact that oxidation catalysts can actually increase PM
sulfate emissions under certain high load (i.e. high exhaust temperature conditions).  Engine
manufacturers have provided data to EPA illustrating this effect. Where this occurs, overall PM levels are
not reduced and, in fact, can be increased at medium to high loads (over the 8-mode test cycle) when
there is too much sulfur (> 300 ppm) in the fuel.  Therefore, an oxidation catalyst will reduce PM
emissions only when operated at high load and when used with low sulfur fuel (< 300 ppm) and given the
potential increase in sulfate PM, will not provide real reductions of PM in the field.

       AGCA believes that we are relying too heavily on PM emissions reduction technologies that are
still under development for highway applications and may not be readily transferable to nonroad
applications. They stated that even though MECA has noted that technology to reduce diesel PM
emissions is available and that DOCs and DPF have been used for both onroad and nonroad applications,
these statements are not complete. The vast majority of PM emissions  solutions have been employed on

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                 Summary and Analysis of Comments
                                                                                       May, 2004

engines within the 75 to 600 hp range only, which are commonly found in highway applications.
However, the nonroad standards would require PM reductions from a much larger range of engines from
8 to over 3,000 hp. Therefore, AGCA stated, PM aftertreatment for certain nonroad engines could require
costly electronic components that are not currently included in the engine or equipment design in the
smaller powerbands.  They believe that this could adversely affect engine performance, fuel economy,
and engine durability and could substantially increase the price of the equipment.

       EMA further added that they do not believe it will be feasible to apply PM filter technology to
larger nonroad engines (above 750 hp).  For nonroad engines greater than 750 hp, there are significant
challenges associated with the use of multiple parallel PM filters. A large number of parallel filters must
be used on the larger engines if on-highway technology is to be used  directly. A 600 hp highway truck
will require at least two parallel filters, while a 3,000 hp engine will require up to five times as many, or
10 parallel PM filters. Each filter must reach sufficient temperatures  to burn out the accumulated soot,
but the filters will not all run at the same temperatures and only some will reach sufficient temperatures to
burn out the soot.  Excessive soot accumulation in the cool-running filter can lead to excessive thermal
gradients causing cracks or temperatures so high that the ceramic trap will melt, or causing  a pressure
drop across the filter. The likelihood of at least partial failures and cracks allowing soot bypassing for
large filters made up of smaller segments or of multiple parallel units is high.  Therefore, without
substantial new technology development, it will not be feasible to apply PM filter technology in these
applications.

       Euromot and SBA Office of Advocacy commented that applying PM filter technology to smaller
nonroad engines will be technologically difficult. They added that the need for automatic regeneration of
PM filters has been noted as one of the most important feasibility issues for small diesel engines by
Euromot (see EMA/Euromot, Investigations into the Feasibility of PM Filters for Nonroad Mobile
Machinery, at 11-18, Aug. 31, 2002).  A recent study by the Southwest Research Institute also
acknowledges this issue (see Southwest Research Institute, Nonroad Emissions Study of Catalyzed
Particulate Filter Equipped Small Diesel Engines, Sept. 2001). The information in these reports indicate
that the backpressure in small engines would require the owners to  periodically, or perhaps frequently,
manually regenerate and clean out the CDPFs. The commenters believe that this is inconsistent with
EPA's position that it would be possible to automatically regenerate the CDPFs for small engines.  The
market viability of products requiring manual regeneration would be  significantly imperiled by the lack of
an automatic feature since owners are unlikely to buy equipment with such aggressive maintenance
requirements.  Though EPA believes that automatic regeneration systems might be developed by 2013 for
engines below 75 hp, these commenters believe that the availability of this technology in that timeframe
remains uncertain.

       SBA Office of Advocacy also believes that we did not present data showing that small engines
will be able to operate at the temperatures needed to facilitate proper  particulate destruction and catalyst
regeneration. They stated that we acknowledged that this was an issue and should present additional data
in this regard.  They added that information has been submitted during the development of the proposed
rule by small entity representatives such as AEM, which submitted an EMA study that includes test
results that demonstrate insufficient exhaust temperatures for passive regeneration.  SBA Office of
Advocacy also commented that we did not fully address the  issue of where manufacturers of compact
machines are expected to  place aftertreatment devices such as PM filters.  Lawn and garden equipment
applications have specific packaging concerns as illustrated by comments submitted by small entities to
EPA during the SBAR Panel process. They believe that we  have not provided sufficient evidence for the

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

assumption that aftertreatment devices can be made to fit under the equipment hoods of lawn and garden
equipment or that equipment packaging concerns can be overcome. SBA Office of Advocacy also
commented that the feasibility and cost for this type of redesign for small business equipment
manufacturers remains uncertain. They provided additional discussion on this issue  and the document
issued by the Southwest Research Institute entitled "Nonroad Emissions Study of Catalyzed Particulate
Filter Equipped Small Diesel Engines," September 2001, as supporting documentation.

       The National Mining Association (NMA) commented that EPA should consider the experience of
the Mine Safety and Health Administration (MSHA) in setting new emission standards for nonroad diesel
engines. They note the value of conducting research prior to promulgating new regulations to help
identify potential issues related to cost, impacts on day to day operations, the safety and health of
workers, and the ability to perform maintenance. In particular, they note the possibility that catalyst
technologies may generate unexpected secondary emissions and provide as an example experience
showing catalyzed diesel particulate filters can increase nitrogen dioxide (NO2) emissions by 10 fold.

       Lastly, Lister Fetter agrees with EPA that given the difficulties associated with cost and
availability, PM traps should not be required for engines under 19 kW.

       Letters:
       Associated General Contractors of America, OAR-2003-0012-0791 p. 8
       California Air Resources Board, OAR-2003-0012-0644 p. 3
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 14,  19-20
       Euromot, OAR-2003-0012-0822, 0823 p. 6
       Lister Fetter, OAR-2003-0012-0155 p. 3
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 2-3
       National Mining Association, OAR-2003-0012-0510 p. 2-3
       U.S. Small Business Administration Office of Advocacy, OAR-2003-0012-0815 - 0818 p. 6-8
       New York Public Hearing, A-2001-28, IV-D-05 [MECA p. 118; NESCAUM p. 97]
       Chicago Public Hearing, A-2001-28, IV-D-06 [MECA p. 46]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [CARB p. 70, 139]

Our Response:

       We agree with commenters noting that catalyzed diesel particulate filters (CDPF) enabled by 15
ppm sulfur diesel fuel are a well proven technology that can be applied across a wide range of nonroad
diesel engines. As noted previously in our response to 3.2.1.1, we have made certain modifications from
our proposal respecting unique issues for the largest nonroad diesel engines with rated power above 750
hp. We appreciate the additional technical data provided further substantiating the proven viability of
CDPF technology and its ability to realize PM reductions in excess of 90 percent.

       We appreciate the additional information provided by the commenter regarding impact of sulfur
on diesel oxidation catalysts (DOC) and the commenter's concern that the impact (increased sulfate PM
emissions) may be incompatible with the interim 2008 Tier 4 PM standards for engines <75 hp. We have
specifically considered the issue of PM formation (sulfate make) from diesel oxidation catalysts when
operated on 500 ppm sulfur diesel fuel. This is one reason that we did not set a more stringent standard
for engines in this power category as a number of commenters argued would be appropriate. As we
explain in Section II.B of the Preamble and Chapter 4.1.4.3 and 4.1.5.3 of the RIA, DOCs can reduce PM

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                 Summary and Analysis of Comments
                                                                                       May, 2004

emissions even with 500 ppm sulfur diesel fuel given the appropriate design of the catalyst coating.
Further, we are finalizing a provision that will allow engine manufacturers in 2008 to certify engines
under 75 hp to the interim Tier 4 PM standards on 15 ppm  sulfur diesel fuel if they take appropriate
actions to ensure that 15 ppm sulfur diesel fuel (which will be widely available after 2006) is used with
the engine. See Preamble Section III.D for a description of this provision.

       We agree with commenters that point out the diversity of nonroad equipment and the need to
consider whether on-highway emission solutions can be further developed and applied to nonroad diesel
engines.  However, we disagree with the  suggestion that simply because there are some differences
between on-highway and nonroad diesel  engines that we should simply conclude that the technologies
cannot be applied to nonroad equipment.  Instead, careful analyses as described in Preamble Section II
and RIA Chapter 4.1 (and in Chapter 4.1  of the Draft RIA) are needed to define the similarities and
differences between on-highway and nonroad diesel engines. Further, having defined the relevant
differences consideration must be given to the possibility for engineering solutions to address nonroad
specific issues. We have done that in our Tier 4 program and have adjusted the emission standards and
the timing of those standards in a number of ways to reflect important differences between on-highway
and nonroad diesel engines.

       First, we should be clear about the fundamental similarities between on-highway and nonroad
diesel engines regarding PM emission control with a PM filter (see Chapter 4.1 of the RIA for additional
detail). All diesel engines produce PM emissions composed primarily of organic materials (semi-volatile
hydrocarbons and solid carbon particles,  soot). These PM compounds can be captured in a PM filter with
high efficiency (approaching 100 percent for ceramic based wall flow filters). The capture efficiency of
PM filters is only a function of the filter media design and PM soot loading level. Filtering efficiency is
independent of engine size or operating mode. Thus, a PM filter is highly effective at capturing and
reducing PM emissions for any diesel engine (on-highway  or nonroad), during both transient and steady-
state operation. The captured PM must be oxidized in order to prevent filling the filter completely with
PM. This process is called regeneration and is primarily dependent on exhaust temperatures. Absent
adequate high exhaust temperatures PM filters can fail due to excessive PM accumulation in the filter.
For both on-highway and nonroad diesel  engines it is conceivable that absent control of exhaust
temperatures excessive PM accumulation could occur. For this reason on-highway engine manufacturers
have developed active backup regeneration technologies that can automatically raise exhaust temperatures
in order to promote PM oxidation in order to regenerate the PM filter. Such systems are well proven in
automotive applications today and, as our recent Highway Diesel Progress Review Report 2 discusses, are
being developed  for heavy-duty on-highway applications in 2007.  The exhaust temperature necessary to
regenerate a PM  filter  is defined by chemical property and  is not a function of engine size nor of whether
the engine is used in a nonroad or on-highway application.  The mechanisms employed to raise exhaust
temperatures in active  backup regeneration systems are also not fundamentally limited by engine size or
application although they may require the addition of technologies not currently applied to some engine
categories.

       Yet, in spite of these fundamental similarities there are differences to which we have given
specific consideration  in setting the Tier 4 standards.  We have set a slightly relaxed PM standard of 0.02
g/bhp-hr for engines between 25 and 75 hp recognizing that sulfate emission levels will be slightly higher
from these engines due to their higher brake specific fuel consumption levels. We have not set a diesel
particulate filter-based PM standard for engines below 25 horsepower because we cannot today say with
confidence that the active backup regeneration systems needed can be appropriately applied to these

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                                                                 Summary and Analysis of Comments
                                                                                       May, 2004

engines.  The commenter here has made the same suggestion for engines between 25 and 75 horsepower;
however we disagree with this assertion as detailed in RIA Chapter 4.1.4.3.2.1, and Preamble Section
II.B. Regarding the suggestion by the commenter that the cost for engines in this category would be
unduly expensive see RIA Chapter 6 for our cost estimates, RIA Chapter 10 for our economic impact
analysis and the discussion in Chapter 12.4.3 and 12.6 of the Draft RIA giving particular consideration to
the cost effectiveness of the PM standards for these engines.  In short, we have estimated the cost for
applying the needed technologies for these engines, we have evaluated the economic impact of these costs
and we have concluded that the it is appropriate to set the PM standard at the 0.02 g/bhp-hr level given
consideration to cost, safety and the potential emission reductions. The implementation schedule for
engines in this horsepower category (beginning in 2013) also reflects our recognition that substantial
leadtime (9 years in this case) is appropriate to allow for the redesign of nonroad diesel engines and
equipment to apply this technology.

        In addition to the differences noted for smaller nonroad diesel engines, we have also given
consideration to the differences for the largest engine category, those above 750 hp.  There we have set a
PM standard of 0.02 g/bhp-hr for gensets and 0.03 g/bhp-hr for nonroad mobile machines reflecting the
use of a slightly less effective PM filter media (wire or fiber mesh depth filters).  We have done this
because we recognize that data relative to the development of very large ceramic based PM filters is
limited and that there are specific concerns with the application of multiple smaller filters. Thus we
cannot conclude today with sufficient certainty that such solutions will be appropriate in the timeframe
needed. However, we should be clear that we do believe such developments may occur and we are not
precluding in any way the future application of the more effective PM filter media to engines in this
power category. In addition to the purely technical differences noted here, we have also given
consideration to the relatively low volumes of these largest nonroad diesel engines in determining the
appropriate timeframe to require compliance with these new standards. The substantial leadtime provided
here (nearly 11 years until 2015) provides ample time for engine and equipment manufacturers to plan
and implement redesigns of engines and equipment to  accommodate new technologies.

        Regarding comments concerned with frequent manual cleaning-out of PM filters, we believe it
likely that engines below 175 horsepower can be designed such that PM filter maintenance to remove  ash
will be unnecessary.  EPA's recent Highway Diesel Progress Review Report 2 documents two new diesel
PM filter designs which in light-duty diesel passenger  car applications are designed to  be maintenance
free for the life of the vehicle. This is accomplished by designing the filter geometry and materials to
significantly increase the ash storage volume of the filter. Such filters can store an engine's lifetime ash
emissions while maintaining PM control to the emission  standards and without excessive build up of
exhaust backpressure. Such solutions are equally applicable to nonroad diesel engines.

        In our cost analysis, we have assumed that ash cleaning maintenance occurs at the minimum
maintenance interval spelled out in EPA regulations (e.g., 3,000 hours for engines <175 hp).  More
frequent maintenance is generally not allowed.  By using this interval, while believing  it likely that actual
maintenance intervals will be longer (in fact in some cases unnecessary over the life of the vehicle), we
have made a conservative estimate of the potential costs  for diesel PM filter ash maintenance.

        Finally, it should be noted that the commenter, SBA Office of Advocacy, included in their
comments a discussion of the Euromot-EMA report "Investigation into the Feasibility of PM Filters for
Nonroad Mobile Machinery", a copy of which is available in EPA Air Docket A-2001-28. In this report,
EMA/Euromot discuss two types of active PM filter regeneration methods.  One  method is similar to the

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

active back-up regeneration techniques we believe nonroad engine companies will use to comply with the
Tier 4 program and discussed in detail in Chapter 4 of the RIA. That method is based on a variety of
means of providing supplemental heat to the PM filter to increase the exhaust gas temperature to the level
at which PM will oxidize.  The second method discussed in the Euromot-EMA report for active filter
regeneration is the actual removal of the PM filter from the equipment and the subsequent heating of the
filter in a specialized oven. Such techniques have been used in mining operations in Europe and the U.S.,
where each night the filters are removed, placed in an oven to force regeneration, and than reinstalled in
the equipment the following morning. We want to be clear that this type of filter regeneration is not the
basis for EPA's Tier 4 standards, and, in fact, such a system would likely not be  allowed in the U.S. as a
means to comply with Tier 4 standards, as it requires PM filter maintenance on a very frequent schedule
and would not meet the EPA regulations for minimum PM filter maintenance intervals.  To the extent the
commenter believes this second type of PM filter maintenance is inconvenient, we would agree, but such
systems are not the basis of EPA's feasibility or cost assessments for the Tier 4 standards.

       Regarding the concerns that AGCA raises regarding the cost of electronic controls and the impact
of new control technologies on engine performance, fuel economy, and durability the comment includes
no information or analysis to substantiate these concerns. Moreover, the additional  cost for electronic
controls (and other technologies as appropriate) are estimated in detail in chapter 6 of the RIA. Similarly,
the impacts on fuel economy (both positive and negative) are expressly analyzed in  chapter 6 and are
included in overall cost analysis.  Regarding impacts on durability and performance it is clear from the
on-highway experience that new more sophisticated electronic control systems on diesel engines improve
the flexibility, reliability and overall performance of diesel engines by virtue of the control system's
ability to adapt to any number of different operating conditions.  Finally, chapter 10 of the RIA
documents an in-depth economic model of the impact of the new emission control technologies on
equipment price and sales volumes.

       We appreciate the comments from the National Mining Association regarding the experience of
the Mine Safety and Health Administration, and further, we agree that research as well as studies of
relevant experience in other fields can be a valuable part of the regulatory development process and the
regulatory implementation process. Our nonroad Tier 4 program is based significantly on the experience
of existing retrofit programs with catalyzed diesel particulate filters (CDPFs) both for on-highway
applications and in the various construction programs include the Swiss VERT program. The evidence
from those programs does not cause us to believe that increased NO2 emissions (as a fraction of total
NOx emissions) pose a significant risk to public health or welfare.  To be clear, the total NOx emissions
are not changed by CDPFs; it is only the relative fraction of NO2 and NO in the  total NOx emissions that
is changed.

       However, we agree with the commenter that it is prudent and appropriate that research continue
to confirm that potentially harmful secondary pollutants are not formed from new technologies, catalytic
or otherwise.  For this  reason, the Agency is funding new research at the Health Effects Institute to test
new diesel emission engine technologies (i.e., the technologies we expect will be used for compliance
with the HD 2007 program, and our nonroad Tier 4 program) specifically for increased emissions of
unregulated pollutants. Further, the Agency continues to work with the California Air Resources Board
(CARB) to evaluate the potential impact of NO2 emissions.  The results from these programs,  as well as
extensive field experience from heavy-duty diesel engines for on-highway trucks in the 2007 program,
will provide the Agency with additional information prior to nonroad Tier 4 implementation.
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        See response to comment 3.2.1.2 for our response to concerns regarding the redesign and
packaging on emission control technologies on small nonroad equipment.
       3.2.2.2 Efficiency of DPF Filters

What Commenters Said:

       Deutz commented that we overestimated the efficiency of DPF filters. They added that there is
considerable, reliable data available indicating that lower filter efficiencies should be expected. First, at
the August 6-7, 2003 "2007 Clean Diesel Implementation Workshop," Ricardo presented test results
showing 83 percent DPF efficiency.  Second, the U.S. Department of Labor Mine Safety and Health
Administration has certified numerous particulate filters, all with efficiencies in the 85 to 87 percent
range.  Third, Deutz has previously presented test data to EPA showing DPF efficiencies ranging from  79
to 88 percent on a wide range of fuel sulfur.

       Letters:
       Deutz, OAR-2003-0012-0820 p. 1

Our Response:

       We recognize, as the commenter notes, that not all PM filters exhibit the same level of emission
reduction (percentage reduction) and that other factors including the sulfur content of diesel fuel can
impact the PM reduction noted. We have given specific consideration to these facts in setting the PM
emission standards (see in particular the discussion of standards for engines from 25 - 75 hp in Preamble
Section II.B).  However, in general we contend that diesel particulate filters can enable compliance with
the 0.01 g/bhp-hr standard when operated on 15 ppm sulfur diesel fuel for a wide range of nonroad diesel
engines (75 hp - 750 hp).  We have presented substantial data in Chapter 4.1 of the RIA showing emission
reductions consistently in excess of 90 percent. Further the data shows the ability to comply with the
standard over the various  emission test cycles and the NTE.

       The data the commenter cites is somewhat misleading because it is presented in terms of percent
reduction instead of total reduction. PM filters do not control sulfate PM and as Chapter 4.1 of the RIA
details, sulfate PM can make up a substantial fraction of the total PM from a PM filter equipped diesel
engine.  The RIA shows data where the residual sulfate PM level could approach 0.009 g/bhp-hr. This
level of residual sulfate PM is dependent on the fuel sulfur level and not the efficiency of the PM filter,
nor the base PM level from the engine. Thus if the base PM emission levels are below 0.09 g/bhp-hr the
resulting emission reduction could be less than 90 percent, yet the total emissions would be below the 0.1
g/bhp-hr emission standard. This is the case for the emission data cited from the Ricardo presentation
referenced in the comment.

       We have submitted a copy of the Ricardo/AECC report that was the basis of the comment to the
nonroad docket (OAR-2003-0012-0915). The report shows that after 1,000 hrs of aging, the PM
emissions were reduced across a PM filter from 0.05 g/bhp-hr engine-out to 0.008 g/bhp-hr after the filter
over the European Transient Cycle (an 83 percent reduction).  The results  over the European Transient
Cycle were similar with engine-out emissions of 0.05 g/bhp-hr and emissions after the PM filter of 0.005
g/bhp-hr (89 percent reduction). While the data does support the commenters contention that PM filters

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                                                                Summary and Analysis of Comments
                                                                                      May, 2004

are not always more than 90 percent efficient, it does not support EPA setting a more relaxed PM
emission standard.  Rather, it simply highlights a vagary of mathematics. As the base level of the engine-
out emissions decrease, the percent reduction realized to the same endpoint (the endpoint being nearly
fixed by the sulfate emission level) is decreased. EPA regulations do not require that engine
manufacturers demonstrate a 90 percent emission reduction, only that they demonstrate emissions below
the level of the standard.

       For additional discussion of the impact of sulfur on PM emissions and how this impacts the
efficiency of PM filters see RIA Chapter 4.1 and the Chapter 3 of the Heavy Duty 2007 RIA.
3.2.3   NOX Control

       3.2.3.1  Feasibility

What Commenters Said:

       The Standards are Feasible

       MECA, NESCAUM, and CARB all commented that the NOX standards are feasible provided low
sulfur (15 ppm) fuel is available.  They added that standard is technically and economically feasible in the
timeframe proposed using a number of NOX reducing technologies such as NOX adsorbers.  They believe
that this technology will be available for nonroad engines ranging from 75 hp to greater than 750 hp.
Over the  past two years, significant advances have been made in the development of durable and highly
effective  NOX adsorbers, with studies showing greater than 90 percent reduction in heavy duty diesel NOX
emissions.  MECA provided additional discussion on this issue, noting that the current focus of NOX
adsorber  technology development and optimization is on expanding the operating temperature window in
which the technology will perform, improving the thermal durability of the technology, improving the
desulfurization methods and performance, and improving system packaging and integration. They added
that even though NOX adsorber catalysts are not currently available for nonroad diesel engines, they will
be available for use within the leadtime provided in the proposal and that the incorporation of on-highway
type fueling systems will allow for the use of this technology on smaller diesel engines as well.

       MECA believes that Selective Catalytic Reduction (SCR) technology is a strategy that could be
used to help meet the proposed nonroad diesel emission standards for NOX. They commented that SCR
has recently been applied to select mobile sources and in 2005, it is expected to be used for on-road diesel
HDE engines to help meet the Euro 4 emission standards.  SCR is capable of reducing NOX, PM  and HC
emissions from diesel engines and has already been installed in a variety of marine applications ranging
from 450 to over 10,000 kW.

       MECA noted that low-pressure EGR is being successfully demonstrated in retrofit applications
on trucks, buses, and other applications, is capable of reducing NOX by 30 to 60 percent, and is a viable
option for controlling NOX emissions from nonroad  engines. They added that with an active DPF and
sulfur levels below 15 ppm, control levels as high as 80 percent may be achieved; and current experience
with this  control technology has been in the 185 to 440 hp range but can be optimized for a larger range
of engine categories.
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       Lastly, MECA commented that lean NOX catalyst (LNC) technology was recently verified by
CARB (25 percent NOX control) in retrofit applications and is being demonstrated and commercialized for
a variety of nonroad applications, including heavy-duty earthmoving equipment, agricultural pumps, and
portable engines.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 3
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 2-4
       New York Public Hearing, A-2001-28, IV-D-05 [MECA p. 118; NESCAUM p. 97; CARB p.
        139]
       Chicago Public Hearing, A-2001-28, IV-D-06 [MECA p. 46]

       The  NOX Standards May Not Be Feasible

       EMA, SB A Office of Advocacy, AGCA, and Ingersoll-Rand all commented that the NOX
standards may not be feasible for certain nonroad engines. EMA added that it is inherently more difficult
to cool nonroad equipment and machines than trucks, the task of lowering NOX becomes inherently more
difficult than it is for on-highway applications. Nonroad machines typically operate at very low ground
speeds or are stationary and as a result, there is no "ram air" effect to aid cooling systems.  They
commented that nonroad equipment relies almost entirely on the ability of cooling fans to move enough
air to cool all the systems, which requires additional power from the engine.

       AGCA commented that we are proceeding with aggressive NOX emissions reductions in the
absence of existing NOX emissions  reduction technology. Even though MECA has stated that NOX
technology will be readily available in the future, this premise is based on the fact that SCR technology
has been used on stationary sources and some mobiles. They also added that MECA's argument that NOX
adsorbers can be transferred to nonroad applications is not convincing since many technological
challenges remain in this regard. And Ingersoll-Rand believes that we have not provided a reasonable
justification  for implementing NOX aftertreatment in nonroad applications by 2011 and have not included
any evidence in the record that demonstrates that NOX adsorbers have been applied successfully to a
nonroad engine. They believe that we should conduct a more thorough review before establishing a
timetable forNOx emission standards.

       SB A Office of Advocacy further commented that we should maintain our position of not
requiring NOX aftertreatment devices such as  adsorbers on small horsepower engines or equipment until
such a requirement can be shown to be feasible, cost-effective,  and beneficial.

       Letters:
       Associated General Contractors of America, OAR-2003-0012-0791 p.  8-9
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 13
       Ingersoll-Rand, OAR-2003-0012-0504 p. 11
       U.S. Small Business Administration Office of Advocacy, OAR-2003-0012-0815 - 0818 p. 8

Our Response:

       We agree  with commenters that given 15 ppm sulfur diesel fuel, the NOx adsorber technology
can provide  substantial reductions in NOx emissions consistent with the emission standards we have set

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for engines >75 hp. We have made a modification from our proposal regarding the NOx emission
standards for nonroad engines >750 horsepower as described in Preamble Section II.A.4. We appreciate
the comments regarding the potential feasibility of urea SCR technology to reduce NOx from nonroad
diesel engines.  In fact, such systems are available today from Caterpillar for some genset applications.
As we describe in Preamble Section II.B, urea SCR systems have a unique burden to demonstrate that
urea will be provided in-use to realize the desired NOx reductions.  In order to certify a urea SCR system,
an engine manufacturer would need to show that urea was readily available (i.e.,  address the urea
infrastructure need) and further to show that the end-user would indeed add the needed urea (i.e.,
demonstrate some means to guarantee user compliance).  We do believe that some nonroad diesel
engines, such as those used in large nonroad gensets, may be able to make such demonstrations in the
timeframe of the Tier 4 program.

       We agree further, that exhaust gas recirculation (EGR) can play an important role in a NOx
reduction program and can enable substantial NOx reductions as detailed in our recent Highway Diesel
Progress Report 2 and the final RIA for the HD 2004 program. As described in Preamble Section II.A,
we are finalizing a 201 ITier 4 NOx standard for mobile machines greater than 750 hp based on the use of
cooled EGR or other equally effective NOx control technologies.

       We appreciate the comments regarding Lean NOx catalyst technologies and the demonstrated
potential of this technology to reduce NOx emissions from nonroad diesel engines. We have not
premised any of the Tier 4  emission standards on this technology, but recognize that it could provide yet
another option for nonroad diesel engine manufacturers to meet the Tier 4 emission standards.

       We agree with the  commenters that note the lack of ram-air for most nonroad diesel equipment
and as we state in the response to comment 3.2.1.2, we have taken this into account in setting the
emission standard levels in Tier 4 as we did for the Tier 2/3 program.

       We appreciate the commenters who noted that the NOx adsorber technology has not today been
widely applied to nonroad diesel engines. However, we disagree with the assertion that the technology
path between now and 2011 is too unclear for us to set Tier 4 emission standards for engines above 75 hp
and below 750 hp based on the performance of this technology. As described in  our recent Highway
Diesel Progress Review Report 2, there has been substantial progress to develop the NOx adsorber
technology, to  demonstrate its durability, and to introduce NOx adsorber equipped diesel engines into the
light-duty diesel market in  Europe and the light heavy-duty diesel market in Japan. Further, we have
given particular consideration to the unique operating in-use operating cycles and more importantly to the
regulatory test cycles for nonroad equipment as detailed extensively in Chapter 4.1 of the RIA.  There we
show that the NOx adsorber technology is well matched to nonroad diesel engine operating cycles and
further document the means and technologies available to better match engine operation to NOx adsorber
performance. The NOx adsorber based technology path for Tier 4 is well grounded in the on-highway
diesel program for 2007 and is clearly defined in Chapter 4.1 of the RIA. There is more than adequate
evidence for the Agency to reach a conclusion that the technology will be generally available and can be
applied to 75-750 hp nonroad diesel engines and equipment, as well as >750 hp generator sets, by 2011.
       3.2.3.2  Advanced NOX Aftertreatment Systems on Large Nonroad Engines (over 750 hp)

What Commenters Said:

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       EMA commented that advanced NOX aftertreatment systems may not be available for use on large
nonroad engines (i.e. over 750 hp). While NOX adsorber development is underway for on-highway
engines, they believe that various basic limitations and technology hurdles have not been addressed.
EMA also noted that there are significant additional challenges for engines greater than 750 hp, including
the scalability of NOX aftertreatment hardware and the complexity of the regeneration systems.  They
added that the size and durability concerns associated with PM filters also apply equally to NOX
adsorbers.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 20

Our Response:

       While we do believe it may be possible to apply the NOx adsorber technology broadly to diesel
engines above 750 hp, we recognize that there are additional uncertainties for mobile machines in this
largest horsepower category and therefore we have decided not to set a NOx adsorber based emission
standard for nonroad mobile machine diesel engines above 750 hp as described in Preamble Section II.A.
We are setting a stringent (aftertreatment-based) Tier 4 emission standard for nonroad generator set
engines above 750 hp as described in Preamble Sections II.A and II.B.
       3.2.3.3  SCR

What Commenters Said:

       CNH and Euromot commented that we should recognize SCR as an important alternative to the
NOX adsorber and we should not dismiss the feasibility based on the potential for tampering.  Euromot
believes that the problem of empty urea tanks can be solved by appropriate sensors for many types of
machinery. If the sensors detect an empty tank or a tank only filled with water, the power of the engine
could be significantly reduced, so that the operator is forced to replenish the tank. They stated that SCR
has advantages over the NOX adsorber in terms of cost, fuel consumption and CO2 emissions. They
believe that the urea price estimated by us is far too high, and that a more realistic estimate combined with
the fact that the  high catalyst volumes and precious metal loading of NOX adsorbers results in significantly
higher catalyst hardware costs, would show that SCR is less costly in comparison.  Aftertreatment and
EGR systems are generally sensitive to potential tampering and this is not considered to be a problem
inherent to SCR. Euromot believes that we should establish certification requirements for SCR systems
that are equivalent to other aftertreatment systems using additives for proper operation.

       CNH also commented that SCR provides superior engine fuel efficiency and requires less vehicle
cooling than NOX adsorbers and a media volume of 2 times engine displacement. And further, that this
technology is being developed for on-highway trucks in Europe, but in order to be acceptable for the U.S.
market, an infrastructure in the US is required as well as the adoption of SCR by several engine
manufacturers.

       Letters:
       Euromot, OAR-2003-0012-0822, 0823 p. 5
       CNH Global, OAR-2003-0012-0819 p. 4

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Our Response:
       We do not dispute that urea SCR can be an effective means for NOx control provided that urea is
readily available (i.e., urea infrastructure is addressed), provided that appropriate mechanisms are in place
to ensure the urea tank is filled in-use and provided 15 ppm sulfur diesel fuel to protect oxidation function
and prevent excessive PM emissions. The commenters suggested several mechanisms that may be
effective as part of an overall solution to address end-user compliance. However, we do not believe urea
SCR can be generally available by 2011 due to the lack of a urea infrastructure and therefore we are not
predicating the Tier 4 emission standards on performance of this technology. This in no way precludes a
manufacturer from using urea SCR to comply with the Tier 4 emission standards provided the engine
manufacturer can make a demonstration that the urea will be readily available and that adequate
mechanisms will be in place to ensure that the needed urea is  always added.

       We have not made an estimate of the cost for a urea SCR catalyst system nor for the cost to
distribute urea broadly. The commenter's mention of an EPA cost estimate for urea is apparently
referring to a  recent Department of Energy funded study investigating the cost for a urea infrastructure.
However, if the commenter is correct that the urea SCR technology is cheaper than the approach EPA has
estimated in the Tier 4 program, and further, if the solutions suggested by the commenter to address urea
compliance prove to be adequate, this would not change any decisions in the Tier 4 program but only
reduce its cost.
       3.2.3.4  Issues Associated with NOX Control Technologies

What Commenters Said:

       CNH commented that we should acknowledge certain challenges associated with NOx control
technologies. They believe that substantial vehicle and systems development is required for the adoption
of NOX adsorber technology, which requires a media volume of 2 times engine  displacement to achieve a
90 percent reduction. CNH added that there have been some driveability problems during regeneration
with this technology as applied to light duty automotive engines, and there may also be issues with
reduced durability for high load factors and efficiency deterioration after several thousand hours of use.
In regard to the  combined packaging of a diesel particulate filter and NOX after-treatment, CNH believes
that this will require a significant amount of space with a total after-treatment package volume of 6 to 8
times engine displacement.  They stated that packaging must be at least 1 inch larger in diameter than the
media volume for suitable insulation wrap and crush space to prevent substrate damage from accidental
impact.  This volume also includes space required for suitable transition sections for exhaust expansion
into media then contraction back to the outlet pipe. Finally, they stated, exhaust piping volumes would be
in addition to after-treatment package volume.

       Letters:
       CNH Global, OAR-2003-0012-0819 p. 4

Our Response:

       We appreciate the commenter's concerns regarding the application of the NOx adsorber
technology to nonroad diesel engines, and we have given specific consideration to the issues in setting the

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standard level and timing of the Tier 4 standards for NOx. For additional discussion of the packaging
issue please see the response to comment 3.2.1.2.  For additional discussion of the reduction potential of
the NOx adsorber technology in order to achieve a 90 percent reduction over the regulated test cycles see
RIA Chapter 4.1. Lastly, for the most up-to-date information on the substantial demonstrated progress to
apply NOx adsorbers to diesel engines see the recently published Highway Diesel Progress Review
Report 2.
3.2.4   HC Control

What Commenters Said:

       No comments were received on this issue during the public comment period.


3.2.5   CO Control

What Commenters Said:

       EMA commented that the proposed CO limit will complicate development efforts and could limit
technology choices. They believe that the technologies that will be used to implement the necessary
aftertreatment and regeneration systems to comply with the Tier 4 standards are largely unknown at the
current time. EMA also added that the proposed CO limit, along with the NTE and other testing
requirements, may constrain the technology that can be applied to aftertreatment. They offered the
example of regeneration of the exhaust filter may cause high CO for limited periods of time when the
carbon is being burned off. In addition, they believe that regeneration as a component of NOX adsorber
systems is likely to increase CO emissions during regeneration events. (Also, see related discussion
under Issue 3.1.1.)

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 15

Our Response:

       We are not requiring an additional level of CO control in this rulemaking, although the existing
CO standards will now also apply for the new test procedures. The standard levels listed in the regulatory
tables along with the new Tier 4 standards are the same as the part 89 previously applicable.

       We disagree with the contention that the technologies for Tier 4 are unknown and that our
existing (unchanged in Tier 4) CO  standards may restrict the use of some emission control technologies.
We do recognize that under certain circumstances of regeneration, emissions can be slightly increased
over the normal level. However, we allow for the averaging of those emissions over the extended period
between regeneration events in order to accurately account for their impact (see 40 CFR §1039.525).

       Regarding the new test procedures, while transient operation can increase CO emissions as
estimated in EPA's nonroad model, the additional CO control realized from the addition of an oxidation
catalyst or CDPF as needed to meet the PM standards, will more than offset any  emission increase.

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Diesel oxidation catalysts and CDPFs can reduce CO emissions by more than 80 percent.  Even if CO
emissions were to double from their Tier 3 levels under transient conditions, an 80 percent reduction from
that new higher baseline would result in emissions that are 60% below the Tier 3 level (i.e., if the baseline
is 1 and is doubled to 2, and then reduced by 80% to 0.4, the result is 60% lower than the original level of
1).  Given that the standard level is unchanged from Tier 2/3, we do not believe that additional control
technologies beyond the technologies already necessary to meet the Tier 4 PM standards, will be required
to meet the  CO standards even with the new emission test cycles.

        The oxidation technologies we  expect will be employed to control PM emissions (DOCs and
CDPFs) are highly effective at reducing CO emissions (see RIA Chapter 4.1).  Testing of combined NOx
adsorber and PM filter systems as we would expect to see used in nonroad diesel equipment has
demonstrated very low CO emissions (see EPA's recent Highway Diesel Progress Review Report 2). In
general, the Tier 4 program will lead to a reduction in CO emissions over the Tier 3 baseline, not an
increase as  implied in the comments. Further, because of our averaging provisions for regeneration
emissions, those lower overall levels will be reflected in the compliance emission level (i.e., a
manufacturer is not unduly penalized by slightly higher emissions during regeneration).
3.2.6   Air Toxics Control

What Commenters Said:

       No comments were received on this issue during the public comment period.


3.3    Engines > 750 hp

       3.3.1   Feasibility

What Commenters Said:

       The Standards are Feasible

Environmental Defense and MECA believe that our proposed standards for engines greater than 750 hp
are technologically feasible and that the challenges associated with integrating emission control
technology on large engines can be met.  They commented that DOCs, DPFs and SCR have been installed
successfully on large  engines such as mining equipment, switcher locomotives, commercial marine
engines, and/or stationary 1C  engines. They believe that the larger size of the vehicles on which these
engines are used is typically beneficial when integrating engine/emission control technology for optimum
performance, and state that the cost of meeting the standards will be a relatively small portion of the
overall engine and equipment costs. Both commenters believe that the proposed timeframe provides
adequate time for the  emissions control industry to develop, engineer, and make commercially available
the necessary emission control products.

       Letters:
       Environmental Defense, OAR-2003-0012-0821  p. 9
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810,  0811 p. 9

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        The Standards Are Not Feasible
       A number of commenters (Caterpillar, Komatsu, Murphy, EMA, NMA) believe that requiring the
use of aftertreatment technologies for nonroad diesel engines greater than 750 hp, which are typically
used in construction and earthmoving, is not feasible and would render the equipment impractical and too
costly for the end-user.

       Caterpillar, Komatsu, and Murphy added that the requirement for using a transient test cycle for
these engines would require a great deal of development work along with a significant capital investment
in additional test cells.  Therefore, they stated, we should revise the proposed rule to regulate this engine
category beginning in 2012 with the split family emission levels certified using the steady state test. (See
additional discussion under Issues 7.5.1 and 3.1.2.)

       EMA commented that problems associated with applying on-highway-like technologies to
nonroad engines are exacerbated when nonroad engines fall outside the typical size range of highway
engines.  For nonroad engines greater than 560 kW or 750 hp, there are no corollary on-highway engines
from which aftertreatment systems and technologies can be readily transferred. They stated that the
power range of this single category is over nine times larger than the entire power range for on-highway
engines, these engines require multiple cylinders often arranged in a "V" configuration, and multi-stage
turbocharging with dual exhaust is common for these engines.  EMA provided significant additional
discussion on this issue with respect to the design and space constraints, durability concerns, and other
issues specific to PM filters and NOX aftertreatment systems. (See additional related discussion below
(under this issue) and under Issues 3.2.1.1 and 3.2.1.2.)

       EMA also believes that developing aftertreatment systems that can meet the design and space
requirements for large nonroad applications will be a challenge. They stated that the control of exhaust
backpressure is a major design constraint for manufacturers,  and with the higher exhaust flows of large
nonroad engines, this constraint becomes an even more significant issue and designing additional
"manifolding" of exhaust systems to allow for multiple aftertreatment devices is not a practical solution
for manufacturers. Increasing the size of the PM filter to alleviate the backpressure concerns would be
limited since even a larger assembly of filters do not meet the requirements of large nonroad engines
without additional manifolding. Manifolding aftertreatment  devices also causes significant installation
issues since the required use  of manifolding multiple exhaust and aftertreatment systems exacerbates the
space constraint problem.

       EMA also commented on concerns with durability, which they will be a significant issue when
considering the installation of controls on larger nonroad engines. They stated that engines placed into
the largest types of nonroad equipment are often used in earth-moving or mining applications, and that
these engines are exposed to much more punishing environments than on-highway engines. They added
that engines and equipment operating in large mines are of particular concern to manufacturers, as G-
loads experienced by this equipment exceed that of most smaller pieces of equipment and the larger size
and weight of aftertreatment systems required for this equipment will impact the durability of such
systems.  Further, EMA stated, leaks are also a risk for filters assembled from smaller pieces; the
efficiency of larger, multi-piece filters can be much less than a single piece unit due to the cracking that
can develop quickly in use.  EMA provided additional discussion on the issue of durability and
practicality for the largest nonroad engines, particularly with respect to complications associated with the
use of multiple parallel PM filters.  (See related discussion under Issue 3.2.1.1.)

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       NMA commented that the highway sector is unlikely to provide any useful information regarding
the application of emissions control technology to larger engines.  They believe that the application of
these technologies to engines and equipment used in the mining industry will be difficult, the market is
small, and significant capital investment will be required leading to a substantial cost burden for mining
operators. Therefore, NMA believes that these engines should be exempt from the Tier 4 rule.  (See
additional discussion under Issue 3.1.2)

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 17-20
       Komatsu, OAR-2003-0012-0455 - 0457 p. 2-3
       Murphy Oil, OAR-2003-0012-0212 p. 4
       National Mining Association, OAR-2003-0012-0510 p. 2
       New York Public Hearing, A-2001-28, IV-D-05 [Caterpillar p. 77]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [Caterpillar p. 83]
       Chicago Public Hearing, A-2001-28, IV-D-06 [Caterpillar p.  61]

Our Response:

       While we do believe it may be possible to apply the NOx adsorber technology broadly to diesel
engines above 750 hp as some of the commenters have suggested, we recognize that there are additional
uncertainties for mobile machines in this largest horsepower category and therefore we have  decided not
to set a NOx adsorber based emission standard for nonroad mobile machine diesel engines above  750 hp
as described in Preamble Section II.A. We  are setting a stringent Tier 4 emission standard for genset
mobile machines above 750 hp as described in Preamble Sections II.A and II.B.

       We disagree with the commenters who suggest that advanced emission control technologies are
too expensive and impractical for large earthmoving or other applications that use nonroad diesel engines
above 750 hp. As the commenters from MECA and Environmental Defense accurately note, large
physical size can be beneficial in a number  of ways including for temperature management due to the
improved volume to surface area ratio for large catalyst systems. Additionally, we agree as was clear
from the analyses in the draft RIA, that the cost of emission control systems for engines greater than 750
hp represents only a small portion of the overall cost for large nonroad diesel equipment.

       We do recognize that there are some specific challenges with respect to large >750 hp nonroad
diesel engines, especially for large earthmoving mobile machines as noted by the commenter. We have
taken specific consideration of this in setting the PM emission standards for genset diesel engines above
750 hp and nonroad mobile machine diesel  engines above 750 hp as described in Preamble Sections II.A
and II.B, and also in determining the appropriate test cycles applicable to these engines, as described in
section III.F of the preamble.

       We do not believe that NMA's preferred approach of exempting its engines from Tier 4 standards
is permissible. Our detailed response is found at section 12.6.2.2.7 of the Draft RIA, and is briefly
summarized here. Mining engines have already been held to be properly subject to regulation under
section 213, Engine  Manufacturers Ass'n v. EPA. 88 F. 3d  1075, 1098 (D.C. Cir. 1996), and we are
finding in this rule that further reduction in  PM and NOx emission from these engines is technically
feasible at reasonable cost. These engines emit very high volumes of PM and NOx, notwithstanding that
they are sold in relatively small numbers. We have taken into account these engines' long design cycle

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and low annual sales volume in the long lead time provided in the rule, which includes the ABT and
equipment manufacturer flexibility programs.

We note further, however, that we have made certain changes in the proposed standards for these engines.
As noted in other comment responses and in section II.A.4 of the Preamble, while retaining
aftertreatment-based standards for PM for all greater than 750 hp engines, we are increasing the level of
those standards over those proposed based on technical concerns. We also are deferring a decision on
whether to adopt an aftertreatment-based standard for NOx from greater than 750 hp engines in mobile
machines, which would include aboveground mining equipment.

       See also our response to comment 3.2.1.2.
       3.3.2   Cost and Design Issues

What Commenters Said:

       EMA and Cummins commented that resource constraints may limit the design and development
of aftertreatment systems for the high-cost, low volume market represented by nonroad engines over 750
hp.  EMA further added that there are a large number of engine platforms in the over 750 hp category,
which exacerbates the problems associated with these high-cost and low-volume engines.  They believe
that aftertreatment developers necessarily will be focused on the challenges of designing and improving
systems for the much higher volume on-highway products in the lower horsepower ranges. However,
they stated, the sales volume of large nonroad aftertreatment systems will be very low, while the technical
challenges will be extremely high and costly.  EMA modeling indicates that nonroad engines greater than
750 hp (560 kW) are responsible for less than 5 percent of the total nonroad inventory. Therefore, they
believe that an alternative approach that would allow for additional flexibility would not significantly
affect overall emission reductions from nonroad engines, and that we should consider staggering the
introduction dates for these large nonroad engines.

       Cummins commented that we should have accounted for the increased technical challenges of
transferring technologies developed for on-highway products to nonroad engines outside the on-highway
power range. They provided additional discussion on this issue and provides a chart showing that many
larger engines are outside the scope of the on-highway power range noting that this chart illustrates the
relatively narrow scope of the on-highway rule as compared to the nonroad rule in terms of the number of
platforms impacted as well as the power range covered.

       Letters:
       Cummins, Inc., OAR-2003-0012-0650 p. 2-3
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 20-21

Our Response:

       As we describe in our responses to comments 3.2.1.2 and 3.3.1, we have made anumber of
specific changes from our proposal design to address technical challenges and other aspects of nonroad
diesel engines > 750 hp. Similarly, as described in Preamble Section II.A, we have given consideration to
the relative sales volumes for these engines in developing an implementation schedule that is appropriate

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for engines in this category. Lastly, based in part on comments from Cummins, we have further refined
our estimate of the research and development costs for nonroad diesel engines in order to estimate those
costs more precisely. The change we have made (described in Preamble Section VI and in Response to
Comment 5.3.1.3) increases our estimates of the cost for engine manufacturers >750 hp. Our cost
estimates accurately reflect the cost for this category and the changes we have made to our
implementation schedule and the emission standards address the unique issues for engines greater than
750 hp.
3.4    75 to 750 hp Engines

What Commenters Said:

       MECA commented that our proposed standards for engines in the 75 to 750 hp category are
technologically feasible. (Also see Issues 3.2.1, 3.2.1.1 and 3.2.1.2 for a general discussion of MECA's
comments on feasibility.)

       NESCAUM commented that our proposed NOx standards for engines in the 75 to 750 hp
category are technologically feasible.  NESCAUM added that manufacturers are developing advanced
strategies such as NOX adsorbers and lean NOX traps to meet the 2007 and 2010 on-highway requirements
which will facilitate the effective application of these technologies to nonroad engines in 2011. In
addition, they stated,  application of EGR in nonroad engines will help manufacturers in reaching the 0.3
g/bhp-hr standard for NOX. EGR technology is the most likely strategy for on-highway engines to meet
the 2007 standards and is being considered by NESCAUM states and others as a viable technology  for
retrofit application for existing on-highway vehicles  and nonroad equipment. NESCAUM believes that
the proposal provides manufacturers of nonroad engines ample lead time to integrate EGR, adsorber, and
other technologies into new diesel engines.

       NESCAUM further stated that the proposed  PM standards for engines between 25 hp and  750 hp
are feasible, as technologies to reduce diesel PM, such as diesel particulate filters and diesel oxidation
catalysts are commercially available today.  They added that DOCs and particulate filters have been
installed on vehicles and equipment, and approximately 200 pieces of nonroad equipment have been
retrofitted in the NESCAUM states with oxidation catalysts over the last 3 years at the Big Dig, the World
Trade Center, the Connecticut 195 project, and other sites. NESCAUM offered the example of PM  filters
installed as part of a NESCAUM pilot retrofit project of nonroad equipment reduced nonroad engine PM
by more than 90 percent. This project demonstrates the feasibility of installing filters on new equipment,
since this is generally less difficult than retrofit installations. They believe that the proposal provides
ample time to integrate PM filter technology into nonroad equipment.

       Letters:
       Manufacturers of Emission Controls Association,  OAR-2003-0012-0810, 0811 p. 9
       NESCAUM,  OAR-2003-0012-0659 p. 4-6

Our Response:

       We agree with commenters that there is substantial evidence to show that the emission standards
for nonroad diesel engines  between 75 hp and 750 hp are feasible.  Further, as the commenters note, this

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evidence includes the use of advanced emission control technologies today on nonroad diesel engines.
3.5    Under 75 hp Engines

What Commenters Said:

       MECA and NY DEC commented that there are available technologies to control emissions from
smaller nonroad engines.  MECA cited two examples of integrating emission control technologies on very
small engines (25 hp or less) which include the successful design and installation of over 15 million
catalysts worldwide on small motorcycles and mopeds, and the installation of over one million catalyst
devices on a variety of lawn and garden equipment including chainsaws, trimmers, and lawn mowers in
the U.S. and Europe.  They believe that the same type of innovations in design and packaging can be
applied to even the smallest-sized nonroad diesel engines. In addition, they stated, diesel oxidation
catalysts are available for smaller engines, which will reduce PM and hydrocarbon emissions.

       In regards to future emissions control technology, MECA also commented that technologies such
as lean NOX catalysts  (capable of reducing NOX by up to 25 percent or more) and lower efficiency DPFs
(capable of reducing PM by 50 to 60 percent) may emerge in the near future for the smaller engines.
They believe that for nonroad diesel engines in the 25 to 75 hp range, cost-effective NOX control
strategies (such as lean NOX catalyst technology or possibly low-pressure EGR) will emerge. MECA
believes that we should tighten the standards  for these engines as these technologies become more viable.

       NY DEC further commented that one possible way for smaller horsepower engines to reduce
emissions is to have catalytic converters and/or particulate matter filters added to assist in emission
controls.  They added that gasoline engines as small as homeowner lawnmowers are now starting to carry
catalytic converters for emission control.  They believe that the ability to attach catalytic converters to
small gasoline engines demonstrates that manufacturers' concerns about space issues with small diesel
engines can be accommodated.

       Letters:
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 2-5
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 7
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [MECA p. 58]

       EMA does not believe that the standards will be feasible for smaller engines. They commented
that the proposed RIA suggests that very small engines (19 KW to 37 kW) may be able to meet the
standards through the use of currently identified systems that use combusted fuel or electric heat for PM
filter regeneration. However, they believe that those systems are complex, expensive, unreliable and
unproven. They  added that the proposed NOX standards call for EGR-forcing NOX reduction, which adds
further to the cost and complexity of the requirements for these smaller engines.  EMA believes that the
proposed standards would require the invention of a duty-cycle-independent PM filter regeneration
system that is cost effective and durable; however, manufacturers know of no such invention that exists or
that is under development.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 24-25, 111

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       Ingersoll-Rand and Lister Fetter believe that the proposed standards may be difficult to meet for
the manufacturers of smaller engines.  Ingersoll-Rand commented that some nonroad engine
manufacturers, particularly those whose expertise involves manufacturing engines below 100 hp, do not
manufacture highway engines.  They cited the example of the two suppliers who provide 80 percent of
the engines purchased by Ingersoll-Rand (Kubota and Yanmar) lack a significant presence in the highway
sector yet will be required to comply with the nonroad standards without the benefit of experience from
highway  engines.

       Lister Fetter added that the availability of systems for the lower power categories where volumes
are lower and the number of applications is larger, is a major concern. They believe that the
aftertreatment industry will be focused on the largest customers and the largest markets and are concerned
that the necessary systems may not be available for the lower power categories in time to meet the
proposed Tier 4 introduction dates.

       Letters:
       Ingersoll-Rand, OAR-2003-0012-0504 p. 7
       Lister Fetter, OAR-2003-0012-0155 p. 2

Our Response:

       While we agree with commenters that note the importance of controlling emission from these
engines and the availability of technologies to do so, we also recognize the important technical issues that
must be addressed in order to apply those technologies.  We have given consideration to these issues in
setting both the level of the emission standards and the timing of the emission standards for engines in
this category as described in Preamble Section II.A and II.B. See also response to comments 3.2.1.2 and
3.2.2.1.

       As described in the RIA, we carefully analyzed the feasibility of our new standards for engines
under 75  hp, and determined that the standards being adopted are feasible.  See RIA 4.1.4.3 and 4.1.5.3.
Regarding the appropriateness of controls for these engines and the commenters concern regarding issues
such as the relative cost effectiveness of emission standards for these engines, EPA specifically
investigated this issue at proposal through an alternative options analysis documented in the Draft RIA,
Chapter 12 (see Options 5a and 5b). That analysis clearly shows, that the cost of control for these engines
(both NOx control with EGR and PM control) is not excessive given consideration to the substantial
emission reductions and the benefits accrued from those reductions. We have given specific
consideration to the fact that some nonroad engine manufacturers, including the two cited in the
comment, make only nonroad diesel engines in estimating the cost of compliance with the Tier 4 program
(See RIA Chapter 6). See also response to comment 5.3.1.4. While we have accounted for higher
research and development costs for these manufacturers, we do not believe that their lack of on-highway
experience will preclude them from being able to develop the needed technology. Prior to the 2007
regulations, on-highway engine manufacturers would not have extensive experience with these
technologies either.

       We disagree with the commenter suggesting that the lower horsepower markets will be under-
served by the emission control development companies. Sales volumes for small  engines exceed those
for larger engines  and are more similar in size to current automotive technologies than are typical heavy-
duty diesel engines. Hence, the small engine power category benefits significantly from developments

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made for the high volume diesel passenger car market.  Also, it is cheaper and easier to manufacturer
small ceramic catalyst components than large ceramic catalyst components which can "sag" under their
own weight prior to firing in the kiln.

       Lastly as described in Preamble Section VIII.A, we are committing to conduct a technology
review for engines in the horsepower categories below 75 hp in part to confirm that technologies are
progressing as we expect.
3.6    Crankcase Emission Requirements

What Commenters Said:

       Environmental Defense, MECA, NY DEC, and NESCAUM support the proposed crankcase
emission requirements.  MECA added that the proposed crankcase emission standard for nonroad diesel
engines can be achieved in a cost effective manner within the lead time provided, if 15 ppm diesel fuel is
available. Environmental Defense and the NY DEC commented that we should maintain the provisions
for crankcase emissions, as these emissions contain significant quantities of toxins that previously have
been uncontrolled, and with reductions in other areas, they assume even greater significance.
Environmental Defense agrees that EPA should eliminate the exception for turbocharged nonroad diesel
engines starting in the same model year that the Tier 4 standard first applies.

       MECA and NESCAUM further stated that the approach developed for highway engines is an
approach that can be used for nonroad engines as well.  Concerns about fouling of the turbocharger and
aftercooler caused EPA to make an exception for turbocharged heavy-duty diesel engines.  They offered a
solution to this problem of using a multi-stage filter designed to  collect, coalesce, and return the emitted
lube oil to the engine's sump. Filtered gases are returned to the intake system, balancing the differential
pressures involved. The commenters believe that these systems  have the capability to virtually eliminate
crankcase emissions.  They added that the technology is currently being used in Europe and will be used
on highway diesel heavy-duty engines in the U.S. beginning in 2007.

       Letters:
       Environmental Defense, OAR-2003-0012-0821 p. 9-10
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 5
       NESCAUM,  OAR-2003-0012-0659 p. 6
       New York Public Hearing, A-2001-28, IV-D-05 [MECA p. 115; NY DEC p. 12]

What Commenters Said:

       DDC and EMA commented that the proposed crankcase requirement could have an adverse effect
on the ability of nonroad engines to meet the tier 4 standards. They do not believe that it will be
technologically feasible to achieve the proposed Tier 4  NOX and PM emission standards for the full useful
life of a nonroad engine in the face of a requirement to  recirculate crankcase emissions. They added that
nonroad engine manufacturers also face the additional challenge of designing blowby filtration systems
which will operate at  high angularity, a consequence  of the fact that due to unlevel ground, nonroad
machines are often required to operate in orientations with high angles of pitch and roll, often for
extended periods of operation. The commenters believe that we should simply require manufacturers to

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combine crankcase emissions with exhaust emissions for test purposes and for demonstrating compliance
with applicable emission standards during certification and verification testing. If this approach is taken,
they stated, EPA should show that the standards are feasible when crankcase emissions are accounted for
in this way and should develop and promulgate standardized measurement procedures. Further, EMA
cited to the following concerns in this context that were previously raised in response to the 2007 on-
highway rule:  1) lost efficiency when routing blowby gases into the engine intake system due to fouling
of charge air coolers and other air system components; 2) accelerated poisoning of aftertreatment systems
due to the high sulfur content of lubricating oil; 3) feasibility of meeting the proposed standards over the
useful life of the engine; and 4) the need for manufacturers to be able to vent to gases into the atmosphere
as long as emissions are accounted for.  (See, EMA Statement on 2007 On-Highway Rule, p. 52-53.)

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 6
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 50-51, 112

Our Response:

       We agree with commenters that note the importance of controlling emission from diesel engine
crankcases and the ready availability of systems to control these emissions.

       Our feasibility analysis in the NPRM was based on the use of closed crankcase technologies
designed to inertially separate oil-aerosol and filter crankcase gases before sending the cleaned gas to the
engine intake for combustion and returning the oil removed from the gases to the engine crankcase.
These systems are proven in use, are commercially available (in some cases by subsidiaries of EMA
member companies) and the use of this technology to eliminate crankcase emissions is acceptable to
demonstrate compliance.

The use of this type of system:

       - prevents fouling of charge-air cooling systems by inertially removing the oil aerosol

       - routes the sulfur containing oil back to the crankcase, thus preventing its introduction into the
       combustion system and subsequent effects on exhaust aftertreatment.

       We acknowledge as one commenter states that closed crankcase systems must consider angularity
(the degree to which the engine may be  tipped in use), but disagree with the implication that such an issue
would make the closed crankcase requirement infeasible. Currently naturally aspirated nonroad diesel
engines have closed crankcase systems that work in the wide range of typical nonroad engine operation
including high angularity.  Similar solutions to address this particular issue (essentially careful  geometric
design) will be effective for turbocharged engines as well.

       The option to vent crankcase emissions into the exhaust or to continue to vent crankcase
emissions to the atmosphere provided the total emissions including tailpipe and crankcase emissions do
not exceed the standards are provided as alternate solutions that are clearly effective to control  emissions
(i.e., if the emissions are measured and are  below the standard they are adequately controlled).  See
Preamble Sections II.A and II.B for additional discussion of our closed crankcase requirements.
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3.7     Sulfur's Effect on Diesel Control Devices

What Commenters Said:

        EMA commented that oxidation catalysts reduce PM emissions, as well as VOCs and CO, and are
durable, with little or no deterioration in emissions over time. However, they stated, in 500 ppm diesel
fuel, the sulfur is converted to sulfate particulate, offsetting the reductions in organic PM. Ultra low
sulfur (15 ppm or lower) fuel minimizes the sulfate conversion problem and enables the use of more
active catalysts, allowing for greater organic PM reductions. They further believe that even though there
are numerous problems with the use of oxidation catalysts in nonroad engines and equipment applications
and the  use of this technology cannot achieve the levels of PM reductions in the Tier 4 proposal, the
availability of 15 ppm sulfur fuel will enable and encourage the development of more efficient oxidation
catalysts.

        EMA also added that PM filter technology can be very effective at reducing PM emissions to
extremely low levels, provided ultra low sulfur fuel is available. The pre-catalyst converts fuel sulfur to
sulfate particulate which is not trapped by the downstream filter and which has a significant effect on
tailpipe  PM emission levels.  Approximately 1 to 3 percent of fuel sulfur converts to sulfate during the
engine combustion process, which is emitted as PM and collected and measured as part of the PM test
procedure requirements. The balance of fuel sulfur is emitted as gaseous SO2 and, even though it is not
measured as tailpipe PM, the majority  is later converted to sulfate in the  atmosphere.  They stated that
engine manufacturers expect that the use of advanced catalysts in PM filter systems will increase the
sulfate conversion rate  of emission control systems to 40 percent or more ~ the increased sulfate
conversion rate of such emission control technologies represents a significant portion of the PM
emissions from nonroad engines. Further, they stated, for PM filters sulfur in the fuel can inhibit the NO
to NO2  conversion process causing the regeneration light-off temperature to increase outside the normal
exhaust temperature range, with the result that the filter can become susceptible to plugging. They added
that this is particularly  critical for light-duty applications, which generally operate at lighter loads and
lower exhaust temperatures, and for heavy-duty  applications that operate extensively at light loads and
low speeds.

        MECA commented that sulfur affects precious metal catalyst-based diesel particulate filter
performance by inhibiting the performance of catalytic materials upstream of or on the filter, which
adversely affects the reduction of emissions and  the regeneration capability of the filter.  They added that
sulfur also competes with chemical reactions intended to  reduce pollutant emissions and creates PM
through catalytic sulfate formation. MECA believes that diesel fuel containing less than 15 ppm sulfur is
required to ensure maximum emission control performance. Further, MECA commented that even
though DOC technology will function  effectively with less than 500 ppm fuel, the availability of 15 ppm
fuel will improve overall catalyst PM control efficiency by reducing the  sulfate production and will
enable the use of more  active catalyst formulations that could provide greater reductions in  both toxic HC
and the  soluble organic fraction (SOF) of the PM emissions.

        Letters:
        Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 6-7
        Manufacturers  of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 9-10

What Commenters Said:

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       EMA and MECA commented that NOX adsorbers are particularly sensitive to the presence of
sulfur in diesel fuel, as sulfur converts to sulfate and the sulfate consumes the storage sites needed for
effective NOX adsorption. They added that, due to sulfur's effect as a cumulative poison in NOX
adsorbers, such technology is not usable with current diesel fuel sulfur levels. MECA also commented
that while a sulfur regeneration mode or desulfurization cycle will be necessary, the frequency of
desulfurization must be minimized to avoid substantial fuel economy penalties and degradation of the
NOX adsorber performance.  Further, EMA noted that a recent research program in which EMA
participated, evaluated various sulfur-sensitive technologies and obtained data on the sulfate conversion
levels over a broad range of highway engine operating conditions.  This program showed that there are no
sulfur-tolerant aftertreatment technologies capable of meeting future emission standards and technologies
such as NOX adsorbers, are so sensitive to fuel sulfur that they are judged to be infeasible  without the use
of ultra-low sulfur fuel.  They referenced "Statement of the EMA," p 10-12, August 14, 2000, which
provides additional details on this issue.

       Lastly, MECA commented that the effectiveness of SCR and lean NOX catalyst technologies
would benefit from the use of less than 15  ppm sulfur diesel fuel in terms of improved emission control
performance and minimization of the sulfate formation when precious metals are used.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 8
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 10

Our Response:

       We agree with commenters that 15 ppm sulfur diesel fuel is necessary to ensure that advanced
PM and NOx emission control technologies will be fully effective. See RIA  Chapter 4.1.7 and Chapter
III.A.7 of the HD 2007 RIA (EPA420-R-00-026) for detailed discussions of the effect of sulfur on NOx
and PM control.  These comments are consistent with EPA's analysis presented in the RIA.
3.8    Fuel Economy Impacts of the Proposal

What Commenters Said:

       The Associated General Contractors of America (AGCA) commented that PM (as well as NOx)
aftertreatment could require costly electronic components that currently are not included in the engine or
equipment design in the smaller powerbands. AGCA stated that these electronics could affect engine
performance, reduce fuel economy, reduce engine durability, and ultimately substantially increase the
price of the equipment. The commenter also stated that some contractors have questioned whether the
use of ULSD will result in reduced fuel economy. According to the DTP, AGCA commented, as refiners
remove sulfur from diesel, fuel can have a slightly lower energy content. The impact likely will vary
from refinery to refinery and from tank to tank, based on refinery operating conditions, equipment,
feedstocks, and blendstocks.

       Ingersoll-Rand commented that it believes customers will react unfavorably to cost increases
from Tier 4, particularly when they will also encounter reduced durability, increased heat rejection,
increased maintenance costs and lower fuel economy. The commenter also stated that it believes that the

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introduction of aftertreatment will impair performance and safety of small, compact equipment because of
increased heat rejection, decreasing fuel economy, and larger engine configuration.

       Letters:
       Associated General Contractors of America, OAR-2003-0012-0791 p. 9 p. 15
       Ingersoll-Rand, OAR-2003-0012-0504 p. 9-10

Our Response:

       We agree with commenters that the application of some advanced emission control technologies
can affect fuel economy, both positively and negatively.  As discussed in RIA Chapter 6, we have made
detailed estimates of the fuel economy impacts of the Tier 4 program.  Additionally, the economic impact
analysis described in RIA Chapter 10, gives consideration to any increased operating costs, including
costs related to changes in fuel consumption.  The commenters provided no data or other evidence to
cause us to believe the estimates we have made are inappropriate regarding the impact of the Tier 4
emission standards on fuel economy. We disagree with the commenter noting a link to electronic controls
and decreased fuel economy. In general, electronic controls provided improved fuel economy through
better engine management and more precise controls. Significant end-user benefits  are commonly
realized with the application of electronic controls.  Please see 3.2.1.2 above, for responses regarding the
commenters' concerns about heat rejection and larger engine configuration.
3.9    2007 Technology Review

       3.9.1   Support for Conducting a Technology Review

What Commenters Said:

       John Deere commented that a timely and credible 2007 technical review is critical to assessing
the ultimate feasibility of the proposal, particularly since developing cost-effective aftertreatment to
engines as small as 19 kilowatts may be difficult.  Deere, along with EMA and Euromot, believe that we
should thoroughly analyze the cost-effectiveness (or lack thereof) of regeneration systems in the
anticipated technology review to determine the feasibility of the proposed PM trap and EGR forcing
standards for engines in the  19 to 37 kW range.  They believe that we should use the technology review
not only to review the standards and feasibility, but also to harmonize the standards with international
protocols. The commenters also stated that there were numerous shortcomings to the 2001 review, which
should not be repeated in this review; and they believe the 2007 review should be conducted by a panel
that is completely independent of EPA. The commenters would like this review to include demonstration
projects, establish clearly defined criteria for what constitutes a successful demonstration, and include
specific focus on those issues that threaten alignment of emissions regulations between the U.S. and EU.
Deere also provided additional discussion on each of these factors.

       DDC and EMA commented that a technology review could be useful, however the specific
parameters for the review process should  be discussed and agreed upon well in advance. They believe
that there should be agreement on: 1) a definitive process and timeline for the review, 2) the entity or
group that should have overall responsibility for the review, 3) the ultimate work product that will result,
4) the scope of the review, and 5) agreement on the criteria to be applied in assessing potential

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modifications to the Tier 4 rule.  EPA should initiate a consultative process to develop key parameters for
the 2007 technology review.

        Euromot commented that the technical review should focus on: 1) analyses of the application and
use of aftertreatment systems on the type of engine and machinery; 2) the stringency of the NOX standards
using aftertreatment; 3) the standards for engine power categories subject to PM aftertreatment; 4) the
application of the NRTC on the type of engine and machinery; and 5) engines both above and below the
new power category split at 56 kW. They also noted that the Tier 4 rule covers a broader power range
than the EU Directive and suggested that we postpone the regulation for engines below 19 kW and above
560 kW, carefully coordinate with the EU technical review on the need to regulate these engines, and
agree to a common solution in order to avoid trade barriers.

        CARB, MECA, and NESCAUM commented that they support the proposed 2007 technical
review, but only if it also evaluates the feasibility of imposing more stringent standards.  They added that
many States believe that cost effective NOX and PM control strategies such as lean NOX catalysts will be
available in the near future for engines smaller than 75 horsepower and possible diesel particulate filters
for engines smaller than 25 horsepower. It was suggested by the commenters that the 2007 technical
review should evaluate the availability of cost effective NOX and PM controls with the lower horsepower
rating ranges and modify the  standards accordingly.  And further,  that we should consider the feasibility
of setting tighter NOX standards for these smaller engines in the 2012/2013 timeframe given the
possibility that cost-effective NOX control strategies, such as lean-NOx catalysts, may emerge for these
smaller engines.  CARB noted generally that a scheduled 2007 technology review could be used to
confirm the feasibility of more stringent standards for smaller engines.

       WBRT commented that this review should be conducted to evaluate whether appropriate, cost-
effective technology has been developed. To conduct this review, they believe  that we should use an
independent entity or "honest broker" that has the ability to provide a thorough  evaluation of engine
performance and the effectiveness of aftertreatment technologies.

       AEM commented that there should be a government and industry sponsored pilot program to
verify the transfer of advanced emission control technology to nonroad equipment, which would sponsor
the build-up and in-field testing of at least one example piece of equipment in each of the Tier 4 power
categories to determine the transferability of on-highway technologies. They added that the pilot program
should address certain specific issues, such as tracking potential cost increases to nonroad equipment;
evaluating the 56 to 75 kW (75 to 100 hp) equipment in terms of feasibility, cost-effectiveness, and the
appropriateness of the 100 hp cutpoint; and determining the practicality of the emission limits proposed
for the 25 hp and under category. AEM believes that a pilot program would be  beneficial in acquiring
some 'real world' data on aftertreatment transferability and cost impacts.

        Letters:
       Association of Equipment Manufacturers, OAR-2003-0012-0669, 0670 p. 5-6
        Deere & Company, OAR-2003-0012-0692 p. 7-8
        Detroit Diesel Corporation, OAR-2003-0012-0783 p. 8
        Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 25, 101-102
        Euromot, OAR-2003-0012-0822, 0823 p. 6, 8-9
        Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 2, 8, 12
       Western Business Roundtable, OAR-2003-0012-0636 p. 2

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       New York Public Hearing, A-2001-28, IV-D-05 [CARB p. 143; Deere p. 53; NESCAUM p. 97]

Our Response:

       Many commenters from a diversity of viewpoints expressed support for our conducting a
technology review.

       Regarding the need to coordinate the review with ongoing activities in Europe, the October 2003
amendments to the Directive that sets future nonroad diesel standards in the European Union would very
closely align the EU program with our program in the Tier 4 timeframe.15 Further enhancing prospects
for close harmonization, the amended Directive would include plans for a future technical review: "There
are still some uncertainties regarding the cost effectiveness of using after-treatment equipment to reduce
emissions of particulate matter (PM) and of oxides of nitrogen (NOx).  A technical review should be
carried out before 31 December 2007 and, where appropriate, exemptions or delayed entry into force
dates should be  considered."  We are greatly encouraged by the degree of harmonization achieved thus
far, and, given our common interests, issues and planned timing, expect to work closely with Commission
staff in carrying out the 2007 technology review, with an aim of preserving and enhancing harmonization
of standards.

       Regarding comments expressing interest in having the review conducted by an independent
entity, although we plan and hope to have the active participation of all interested parties in the review
process, assigning responsibility for the review to groups or individuals outside the Agency would be
inappropriate. As the review would be closely tied to potential subsequent rulemaking action by the
Agency, it is essential that it adequately cover the relevant issues. To ensure this, it is imperative that we
retain overall responsibility for the review.  We have not yet worked out process details for the review,
but will do so at some later date.
       3.9.2   Scope of the Technology Review

What Commenters Said:

       ARTBA, AEM, and CEMA-CECE commented that we should verify that the evolving
technologies that will be used to meet the proposed standards will perform as assumed when transferred
from heavy-duty trucks to nonroad equipment. They believe that there are several issues that we should
evaluate and address in a technology review.  First, they stated, nonroad diesel regulations should be
globally aligned, particularly with respect to the European Directive (97/68/EC Amendment or Stage
IIIB). Second, NOX aftertreatment controls may not be ready for application to nonroad engines given
that the 2007 on-highway rule will not be fully implemented until 2010, only one year before the Tier 4
introduction date of 2011.  Third, additional information is needed to assess the performance and
feasibility of aftertreatment devices for small equipment between 19 and 37 kW, and standards should not
be finalized for this category until additional information demonstrates the feasibility of the proposed
standards.  Fourth, OEMs with no on-highway product line have to rely  on third parties for outsourcing
        15  Council of the European Union, "Proposal for a Directive of the European Parliament and of the Council
amending Directive 97/68/EC", October 10, 2003.

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their R&D and hardware procurement.  Fifth, an on-highway counterpart may not exist for the smallest (<
100 hp) and largest (> 600 hp) engines.  Sixth, nonroad engines experience a much wider duty cycle,
which is not conducive to catalyst performance efficiency or the system regeneration cycles necessary to
assure adequate reduction efficiency. Finally, they commented that for nonroad engines, the  performance
and durability of advanced emission controls will be affected by extremes of terrain, vibration, weather,
dust and ambient variations.

        AED, AGCA, CEMA-CEC, and CNH commented that the proposed technology review will
review the progress of the aftertreatment technology and its appropriateness for adoption on the smaller
machines. However, they believe that this scope is too narrow given the unknowns associated with this
rulemaking. They believe that we should conduct a rigorous and more comprehensive review of the
technology of emissions reduction strategies in 2007 and prior to the full implementation of the standards.
The commenters suggested that we should assess the progress of: 1) manufacturers of diesel engines and
emissions control systems in developing technology to reduce exhaust pollutants from all horsepower
ranges, and 2) the fuels industry in developing and demonstrating technologies to effectively lower the
sulfur level of highway diesel rule in order to evaluate the appropriateness of the nonroad standards. In
addition, they believe that an essential element of the technology review should be the creation of a
government/industry Pilot Program to gather information on technology transfer, performance, and
incremental costs. CNH added that the technology review should be completed in conjunction with the
EU.

        Ingersoll-Rand commented that we should conduct a thorough review to determine whether the
standards and timing of the Tier 4 standards are technically feasible and commercially viable. They
believe that the complexity and projected impact of the Tier 4 rule warrants a detailed assessment of the
rate of progress towards implementation of the necessary advanced technologies.

        Lister Petter also commented that we should consider whether the appropriate aftertreatment
systems and fuel injection systems for smaller engines are available from more than one source to avoid
any type of supply monopoly situation to protect customers and users from excessive costs.

        AED added that the technology review should re-examine the impact that the new  regulations
will have on the unit and operating costs of equipment and should reassess the costs associated with
delivering the new technology to equipment users. They believe that if the cost increases are too high,
equipment users will be less likely to invest in new engines with clean diesel technologies. (See
additional discussion under Issue 5.1).

        Kubota commented that the standards will not succeed if engine and equipment manufacturers
cannot recover the significant investment in product development.  They believe that we should fully
examine the economic impact of the proposed rule including other factors in the rulemaking that either
directly or indirectly impact economics, including the feasibility of the transient test for small engines and
the feasibility of the NOX phase-in for engines in the 56 to 230 kW power category.

        The American Trucking Association (ATA) also commented that it is critical that we commit to
on-going reviews of the nonroad rule regarding the state of engine technology developments  and the state
of fuel availability, purity, and costs to  ensure that sufficient progress is being made.  They believe that
the reviews that we have conducted for the on-road rule have proven to be very useful. ATA  asserted that
we should remain flexible when evaluating the progress and should consider revising the proposed

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standards, as appropriate, to accommodate the wide power range of nonroad engines.

       Letters:
       American Road and Transportation Builders Association, OAR-2003-0012-0633 p. 2
       American Trucking Association, OAR-2003-0012-0632 p. 4-5
       Associated Equipment Distributors, OAR-2003-0012-0831 p. 2-3
       Associated General Contractors of America, OAR-2003-0012-0791 p. 5-6, 11
       Association of Equipment Manufacturers, OAR-2003-0012-0669, 0670 p. 4-5
       CEMA-CECE, OAR-2003-0012-0598 p. 3, 5
       CNH Global, OAR-2003-0012-0819p. 10
       Ingersoll-Rand, OAR-2003-0012-0504 p. 13
       Kubota, OAR-2003-0012-0620 p. 1-2
       Lister Fetter,  OAR-2003-0012-0155 p.  2

Our Response:

        As discussed in the proposal, we do not believe that a generalized technology review of the sort
being conducted for the heavy-duty highway engine program is warranted, primarily due to the very fact
that the nonroad standards are modeled on the highway program, and the highway program does include
this comprehensive review. We also do not see the specific technical issues for engines above 75 hp that
have been identified for smaller engines, such as might warrant our expanding the review at this time.
We have not determined at this time what specific actions should be taken to prepare for and conduct the
2007 technology review, and  so we do not feel it appropriate to evaluate or provide our opinions on the
usefulness of future actions suggested by commenters, such as a government/industry pilot program or
demonstration projects.

       In response to the comments we received, we wish to clarify that the technology review for
engines under 75 hp will be a comprehensive undertaking that may result in adjustments to standards,
implementation dates, or other provisions (such as flexibilities) in either direction (that is, toward more or
less stringency), depending on conclusions reached in the review about appropriate standards under the
Clean Air Act. All relevant factors including technical  feasibility and commercial viability of engines and
machines designed to meet the standards will be taken into account.
       3.9.3   The Proposed Technology Review Is Unnecessary

What Commenters Said:

       NRDC and STAPPA/ALAPCO commented that we should not undertake a mid-term technology
review at the outset of the implementation period. They believe that this review could be used to delay
final decision-making and undermine the regulatory certainty that is necessary for industry to commit the
resources to develop new technologies, build new infrastructure, or make other investments. However,
they stated, in some cases a limited mid-term technology review that is clearly defined in terms of scope,
duration and range of outcomes may be beneficial (such as for engines less than 75 hp).  The commenters
also believe that if we choose to conduct a technology review, the possibility of tightening the standards
beyond those adopted as part of this rulemaking should be included if technology has advanced
sufficiently to make tighter standards feasible.

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       Letters:
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 20-21, 33
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 17-18

Our Response:

       As is described in Section VIII.A of the preamble to this final rule, we believe that the technology
review that we are planning is necessary and appropriate, considering issues that we have identified for
the application of advanced aftertreatment on engines under 75 hp. At this time we have not decided
what long-term PM standards for engines under 25 hp are appropriate. No PM filter-based standards are
being adopted for these under 25 hp engines in this final rule.  Likewise, we have not decided what the
long-term NOx standards for engines under 75 hp should be, and no NOx adsorber-based standards are
being set for these engines in this final rule. As part of the technology review, we plan to thoroughly
evaluate progress made toward applying advanced PM and NOx control technologies to these smaller
engines.  We considered carefully the scope of this review and believe it appropriate.
       3.9.4   Timing

What Commenters Said:

       NY DEC commented that (if possible) our proposed technology review for 2007 for the under 25
horsepower category and the 25 to 75 hp category should be conducted in 2005.

       Environmental Defense and WRAP commented that we should make a binding commitment in
the final regulations to complete a technology review and adopt appropriate additional standards for
engines under 75 hp no later than 2006. They believe that this deadline is pivotal for states facing multi-
faceted SIP submittal deadlines in 2007 for the 8-hour ozone standard, PM2.5 standard and regional haze
protections.

       Yanmar commented that little or no information from the field will be available in 2007,
particularly on the reliability and durability of NOX aftertreatment systems, given that this coincides with
the implementation of the highway rule.  They believe that it will take a longer period of time to evaluate
the on-highway field experiences and apply the appropriate technologies to small CI engines. Yanmar
suggested that we should conduct a technology review no earlier than 2010, since it would allow 3 years
after the implementation of the 2007 highway regulations to evaluate the effectiveness of technologies
and the potential for their application in smaller engines.

       Letters:
       Yanmar, OAR-2003-0012-0615, 0813 p. 7
       Environmental Defense, OAR-2003-0012-0821 p.  8-9
       Western Regional Air Partnership, OAR-2003-0012-0774, 0775 p. 2
       New York Public Hearing, A-2001-28, IV-D-05 [NY DEC p. 14]

Our Response:

       We disagree with Yanmar's view that the technology review should be delayed because little or

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no information from the field will be available in 2007.  Based on the rate of technology development
progress to date for highway engines, we believe that there will be a very large amount of pertinent new
information available by 2007, even though widespread field experience may be lacking. Waiting longer
to conduct the technology review would, we believe, provide insufficient leadtime to the industry should
an adjustment to the 2013 standards be found appropriate. On the other hand, we also do not believe that
the review should be moved up to 2005 or to a date that would allow for a rulemaking setting revised or
additional standards to be completed by 2006, as we do not expect fundamentally new information to
become available this early. We continue to believe that 2007 is the appropriate time to conduct the
review.
3.10   Other Standards and Technology Issues

       3.10.1  Retrofit Program

What Commenters Said:

       Several commenters stated that we should implement programs that would encourage emission
reductions from existing nonroad engines. CATF, SCAQMD, and SACE all commented that existing
engines will comprise a majority of the nonroad fleet for years to come, and therefore we should develop
requirements for these engines, which could be in the form of retrofit regulations, sales requirements or
incentive programs. The commenters stated that given the long useful life of diesel engines and the
lengthy period before diesels complying with the new standards will replace significant numbers of the
existing fleet, we should support substantial funding to enable the retrofit of existing diesel engines and
should consider making full use of enforcement penalties to achieve as many retrofits as possible.

       Environmental Defense also commented that we should create incentives for diesel retrofits.
They believe that these could provide more immediate public health and welfare gains without all of the
complex issues associated with providing formal emission reduction credits for such action. They added
that cost-effective retrofit programs like the Carl Moyer program in California are necessary to make
significant progress in the near term.

       We also received several comments (from AGCA, BCTD, IBT, IUOE, LHSFNA) which stated
that we should not impose a requirement to retrofit existing nonroad engines, but should consider
developing voluntary diesel retrofit programs.  They believe that such programs should incorporate
research and development of engineering controls in order to minimize the  economic burden on
employers seeking efficient methods  of reducing diesel emissions from existing equipment.

       The Idaho Wheat Commission and the National Association of Wheat Growers, et al commented
that farmers are already stretched to the limit financially and many can barely afford the machines and
equipment necessary to run their farm. They believe that we should not burden farmers with regulations
that would force the retrofit of their existing nonroad engines, particularly since the cost of retrofitting
these older engines is often greater than the value of the machine itself.

       EMA expressed support for a retrofit program that would provide ABT program credits for
retrofitted engines. However, EMA argued that it is premature to do so as part of this rule, and instead
stated interest in working with EPA to develop a sound program.

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       Letters:
       Associated General Contractors of America, OAR-2003-0012-0791 p. 14
       Building and Construction Trades Dept, AFL-CIO, OAR-2003-0012-0674 - 0676 p. 1
       Clean Air Task Force, et. al, OAR-2003-0012-0508 p. 20
       Environmental Defense, OAR-2003-0012-0821 p. 18
       Idaho Wheat Commission, et. al., OAR-2003-0012-0645 p. 1
       International Brotherhood of Teamsters, OAR-2003-0012-0664 p. 2
       International Union of Operating Engineers, OAR-2003-0012-0600 p. 3
       Laborer's Health and Safety Fund of North America, OAR-2003-0012-0638 p. 2
       National Association of Wheat Growers, et. al., OAR-2003-0012-0752 p. 2
       South Coast Air Quality Management District, OAR-2003-0012-0623 p. 3, 5-6
       Chicago Public Hearing, A-2001-28, IV-D-06 [SACE p. 185]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [1 public citizen p.  119]
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 39

Our Response:

       We agree that programs to encourage the retrofitting of existing nonroad engines with clean
technologies are worth considering, and we asked for comment on one idea for such a program in the
proposal. Considering the issues raised in comments we received, we are not ready to finalize such a
program in this rule. We will continue to investigate whether such a program can be developed to
achieve emission reductions sooner than would otherwise be possible with programs focused on new
engines.
       3.10.2 Retirement of Older Engines

What Commenters Said:

       SCAQMD and NY DEC both commented that we should design the standards in a manner that
would encourage the retirement of existing sources, they believe that this approach would help accelerate
reductions from the nonroad sector. NY DEC specifically recommended that we create incentive
programs that will increase fleet and engine turnover in nonroad applications in order to accelerate
emissions reductions in the field.

       Letters:
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 8
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [SCAQMD p. 119]

Our Response:

       We agree that provisions to encourage the early retirement of older engines would accelerate
reductions from the nonroad sector. However, such provisions would be outside the scope of this
rulemaking, and we did not propose or request comment on any such provisions.
       3.10.3 Effect on Existing Engines

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What Commenters Said:

       Several commenters stated that we should clarify how this rule might affect existing nonroad
engines.

       FWEDA, NAEDA, OMEDA, and USA Rice Federation all commented that we should evaluate
and provide addition information on how the 15 ppm sulfur standard will affect the operation of these
engines, whether a retrofitting requirement will be included, and whether there will be any restrictions on
the sale of used equipment in general. They believe that we should consult with the equipment dealer
industry to evaluate  issues related to how the rule will affect the used equipment market in general.

       AGCA, CHS, NMA, and WBRT all believe that given the fact that the production of higher
sulfur diesel will be  significantly reduced or eliminated following the implementation of this  rule, existing
engines will be forced to use low or ultra-low sulfur diesel. However, they stated, no assessment has been
completed on the impact of low sulfur (<500 ppm) or ultra low sulfur (<15 ppm) diesel on engine
efficiencies. Further, the commenters believe that low sulfur fuels may have an adverse impact on engine
efficiencies, engine life, and maintenance.  WBRT provided additional discussion on this issue noting that
the highway rule will not provide sufficient information in this regard given that the types of use,
demands, and sizes of the nonroad engines are generally much broader and thus, can differ significantly
as compared to highway engines. The commenters recommended that we fully investigate the potential
impact of low sulfur diesel on existing engines.

       AGCA also  commented that the use of ultra-low sulfur diesel may cause certain types of fuel
system seals to leak. They added that this issue has been addressed in most engines after 1993, but
owners and operators of pre-1994 equipment may not be able to use ultra-low sulfur diesel since it would
not be compatible with certain engine components. AGCA believes that this may pose a problem for the
construction industry if the low sulfur fuel enters the market too quickly, and therefore we should
consider this possibility as the nonroad rule is finalized.

       Letters:
       Associated General Contractors of America, OAR-2003-0012-0791 p. 14
       CHS Inc., OAR-2003-0012-0785 p. 3
       Far West Equipment Dealers Association, OAR-2003-0012-0679 p. 4-5
       National Mining Association, OAR-2003-0012-0510 p. 2
       North American Equipment Dealers Association, OAR-2003-0012-0647 p. 4-5
       Ohio-Michigan Equipment Dealers Association, OAR-2003-0012-0747 p. 4-5
       USA Rice Federation, OAR-2003-0012-0652 p. 4-5
       Western Business Roundtable,  OAR-2003-0012-0636 p. 2-3

Our Response:

       The final rule contains no requirements for retrofitting existing engines or equipment. It also
does not contain any restrictions on the sale of used equipment.  Both beneficial and adverse  potential
impacts of lower sulfur fuel on existing engines have ben evaluated in the rulemaking. See Sections IV.G
of the preamble to this final rule and Chapter 6 of the RIA. A sizeable base of information on these
impacts has already  accumulated in the highway sector as  fuel with 500 ppm maximum sulfur has been
required there since  1993, and is also required in the nonroad sector in California, and experience with  15

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ppm sulfur fuel is now beginning to occur. Based on the comments we have received, manufacturers
appear to be confident that lessons learned from the highway experience will  ensure a smooth transition
to lower sulfur fuels for existing nonroad engines.
       3.10.4  EPA Should Require Reductions from All Combustion Sources

What Commenters Said:

       NY DEC commented that we should examine other sources of fine particulate matter and ozone
precursors, including aircraft and ocean-going marine vessels, in addition to this rule.  They added that
although these are not emission standards in the traditional sense, programs to facilitate the electrification
of those applications where connection to the electric grid is feasible, such as around airports and truck
refrigeration units at loading docks, could provide significant emissions reductions, particularly in high-
impact local areas.

       The New York Office of Environmental Coordination and New York Waterways believe that we
should encourage the expansion of retrofit technologies for marine engines.  They commented that some
companies are currently upgrading their ferries' engines.  NY Waterways noted that they will have
upgraded all of their engines to state of the art IMO compliance electrically controlled engines by January
2005, they believe a regulatory push by EPA could encourage these and other retrofits and upgrades.

       WESTAR commented that commercial marine vessels contribute significant quantities of
emissions in several major port cities, and further, marine vessel emissions exceed or are likely to exceed
the emissions from other mobile source categories in some locations.  WESTAR believes that we should
align commercial marine vessel diesel fuel sulfur and exhaust aftertreatment standards to levels equivalent
to those for other nonroad and highway mobile source categories.

       CARB commented that since there are a significant number of recreational diesel-powered
watercraft, they believe that we should promulgate a PM standard for these engines based on the
reduction capacity of oxidation catalysts in the near term, followed by Tier 4 equivalent levels in the 2013
time frame. They noted that the precedent for these standards has already been established in California
with CARB's adoption of catalyst-forcing standards for 2009 gasoline-fueled boats. CARB further stated
that the technology needed to adopt diesel aftertreatment testing to a water-based environment would be
almost identical to that for gasoline water-based engines; and recent testing has verified the  safety of
onboard catalysts for these engines.

       Yanmar supports regulating marine diesel engines below 37 kW in a future rulemaking. They
noted that they are willing to work with us to develop practical and effective regulations for these smaller
engines.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 5
       New York City Office of Environmental  Coordination, OAR-2003-0012-0631 p.  2
       Western States Air Resources Council, OAR-2003-0012-0711 p. 2-3
       Yanmar, OAR-2003-0012-0615, 0813 p.  9
       New York Public Hearing

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                      A-2001-28, IV-D-05 [CARB p. 144; NY DEC p. 15; NY Waterways p. 190]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [CARB p. 16, 70]

Our Response:

       Emissions standards for marine engines, locomotives, and aircraft involve issues not examined in
this rulemaking.  We recognize the importance of controlling emissions from these sources and are
pursuing control of these emissions in separate actions.
       3.10.5  Reactive Oxygenated Species

What Commenters Said:

       EMA supports the proposal of not including separate standards for reactive oxygenated species.
They state that given the current level of understanding of potential emissions control technologies, our
approach of accounting for the reactive oxygenated species as a fraction of the THC seems reasonable.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 71

Our Response:

       We agree that separate EPA standards for reactive oxygenated species would not be appropriate
at this time.
       3.10.6  Rental Engines

What Commenters Said:

       ARA commented that the standards could be difficult to maintain for rental engines, since they
are subject to multiple users, thus leading to a higher potential for misfueling.  They believe that the
proposed rule creates a problem for rental owners who will be liable for the performance of emissions
control systems but will not be able to control the fuel introduced into those systems by renters. They
noted that the emissions control systems are highly sensitive to sulfur and the use of high sulfur fuel,
whether deliberate or unintentional, will void the emissions warranty. And repeated misfueling would
cause systems to fail and in the event that in-use testing becomes a reality, ARA members would become
responsible for the repair costs caused by equipment renters. ARA stated that given the fact that higher
sulfur fuels will be available in the market even after Tier 4 engines are introduced and the possibility for
contamination of low sulfur fuels from higher sulfur kerosene or lube oils, we should implement
enforcement procedures that discourage misfueling (including any OBD that could help detect and
prevent misfueling) and should work with states to help minimize the use of heating oil and lube oil in
nonroad fuels.

       Letters:
       American Rental Association, OAR-2003-0012-0612 p. 5

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Our Response:
       We have adopted provisions to discourage misfueling, such as by requiring warning labels on fuel
pumps and on equipment at the fuel filler inlet, and by making it illegal for anyone to pump higher sulfur
fuel into nonroad equipment after certain dates.  The highway diesel rule adopted similar provisions.
Beyond these, as discussed in Section VIII of the preamble to the nonroad diesel proposal, we have had
subsequent discussions with fuel retailers, wholesale purchaser-consumers, vehicle manufacturers, and
nozzle manufacturers and continue to examine additional methods for preventing accidental or intentional
misfueling under the highway diesel fuel sulfur program. Although no consensus yet exists among the
affected stakeholders, we will continue discussions with these and other stakeholders, and we will
consider any new developments that result from these highway discussions in any future nonroad action.
For example, it may be sensible to create an educational program as the Tier 4 program approaches to
help ensure that users are made aware of the serious consequences of misfueling. We would expect too
that rental companies may want to avoid unnecessary and potentially expensive repairs by including
agreements about proper fueling in rental contracts and by posting information to potential renters.
       3.10.7  EPA Should Use the International Si-units

What Commenters Said:

       CEMA-CECE and Euromot commented that we used a different set of units in the preamble (e.g.
hp) and in the regulation (e.g. kW), which they believe is confusing. They suggested that we should
refrain from using Imperial units, as it causes unnecessary work and may lead to mistakes.

       Letters:
       CEMA-CECE, OAR-2003-0012-0598 p. 5
       Euromot, OAR-2003-0012-0822, 0823 p. 11

Our Response:

       Consistent with past EPA rulemakings for nonroad diesel engines, our regulations express
standards, power ratings, and other quantities in international SI (metric) units-kilowatts, gram per
kilowatt-hour, etc. This aids in achieving harmonization with standards-setting bodies outside the U.S.,
and in laboratory operations in which these units  are the norm. However, in the preamble and in other
rulemaking documents for the general reader, we have chosen to use terms more common in general
usage in the U.S.  Hence standards are expressed in units of grams per brake horsepower-hour, power
ratings in horsepower, etc. In any compliance questions that might arise from differences in these due to,
for example, rounding conventions, the regulations themselves establish the applicable requirements.
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4.     NONROAD DIESEL FUEL STANDARDS

What We Proposed:

       The comments in this section correspond to Sections IV and VIII of the NPRM, and therefore are
targeted at fuel related issues from the proposal. A summary of the comments received, as well as our
response to those comments are located below.
4.1    Level of Diesel Fuel Sulfur Standard (both initial 500 ppm and subsequent 15 ppm
       standards)

       4.1.1    General Support for 15 ppm Fuel Sulfur Standard

What Commenters Said:

       We received many comments supporting implementation of a 15 ppm fuel sulfur standard.  These
commenters all noted that the 15 ppm standard should be implemented as soon as possible to facilitate the
development and implementation of advanced emission controls. Without such low sulfur fuel, the
technologies capable of achieving tight emissions standards will be rendered inoperable. EMA
specifically noted that diesel fuel with sulfur levels near zero, and no higher than 15 ppm, is necessary for
the implementation of the Tier 4 standards since the level of emission reductions required under the
proposed Tier 4 rule will drive the use of NOX aftertreatment, catalyzed particulate filters, and other
advanced aftertreatment technologies that require low sulfur fuel. In addition, Caterpillar commented that
given the prosperous state of the oil industry, financial constraints should not be an issue in ensuring
compliance with a 15 ppm standard within the proposed time frame. [See Issue 4.2.2 for a discussion of
the 15 ppm compliance deadlines as supported by these commenters.]

       Letters:
       CNH Global, OAR-2003-0012-0819 p. 3
       California Air Resources Board, OAR-2003-0012-0644 p. 6
       Caterpillar, Inc.,  OAR-2003-0012-0812 p. 1
       City of Houston - Office of the Mayor, OAR-2003-0012-0630  p. 2
       Clean Air Council, OAR-2003-0012-0613 p. 2
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 6
       Environmental Advocates of NY, OAR-2003-0012-0523 p. 1-2
       Environmental Defense, OAR-2003-0012-0821 p. 7, 14-15
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 9-10
       NESCAUM, OAR-2003-0012-0659 p. 6
       New York City Office of Environmental Coordination, OAR-2003-0012-0631 p. 2
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 2
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 9
       Salt Lake City, OAR-2003-0012-0787 p. 1
       South Coast Air Quality Management District, OAR-2003-0012-0623 p. 3, 6
       U.S. Public Interest Research Group, OAR-2003-0012-0780 p. 2
       Wisconsin Department of Natural Resources, OAR-2003-0012-0702, 0703 p. 3

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       73,742 Public Citizens
       1,086 Public Citizens
       New York Public Hearing
                      A-2001-28, IV-D-05 [1 public citizen; CARB p. 141; Caterpillar p. 76; ED p.
                      151; NESCAUM p. 98; OTC p. 210; STAPPA/ALAPCO p. 46; U.S. PIRG p.
                      188]
       Los Angeles Public Hearing
                      A-2001-28, IV-D-07 [ALA p. Ill, 174, 220; CARB p. 13; Caterpillar p. 82;
                      CAT p. 184; EMAp. 151; MECAp. 60; STAPPA/ALAPCO p. 27; U.S. PIRG p.
                      178]
       Chicago Public Hearing
                      A-2001-28, IV-D-06 [AEMp. 219; CNHp. 66; Caterpillar p. 59; CAT p. 156-
                      158; MECA p. 48; STAPPA/ALAPCO p. 38; U.S. PIRG p. 12]

       The Alliance  commented that the main advantage of capping sulfur in nonroad diesel fuel at 15
ppm is that it is identical to the recently finalized highway diesel standard, and as such will maintain the
fuel's fungibility.  However, EPA's selection of this limit was predicated on the expectation that refiners
will produce fuel at levels far below this cap. This compliance margin may not persist over time,
depending on sulfur measurement technology and contamination rates in the distribution system.  As
these methods become more precise, reliable and convenient for field applications, the amount of fuel
degradation will decrease and the compliance margin will shrink as a result. In addition, as  fuel
distributors gain experience handling ultra-low sulfur diesel, they will further reduce fuel degradation.
The Alliance expressed support for our proposal to reduce the sulfur in NRLM to 15 ppm but adds that a
near-zero sulfur level would be preferable. The commenter recommended that given the potential for a
smaller compliance margin and the fact that compliant engines will operate best on near-zero sulfur
levels, EPA should cap the  sulfur level below 10 ppm.

       Letters:
       Alliance of Automobile Manufacturers, OAR-2003-0012-0792 p. 1-2

       CARB and Countrymark both commented that national alignment of the fuel sulfur standard by
2010 will ensure that  all equipment operating in California will use clean fuel, regardless of its origin.
CARB also noted that it plans to adopt a 15 ppm sulfur standard for on-road and nonroad diesel fuel
purchased in California, effective in 2006.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 6
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [CARB p. 14; Countrymark p. 142]

Our Response:

       We agree with comments supporting our decision to finalize  a 15 ppm sulfur limit in today's rule.
We recognize the  concerns  expressed that we should consider setting the cap even lower. However, we
are confident that the  program that we are finalizing today- 15 ppm sulfur fuel- will be sufficient  for Tier
4 compliant engines to operate on, that refiners will be able to meet this cap with a certain degree of
compliance margin, and that all parties in the fuel distribution system will be able to maintain the fuel at a
sulfur level below this standard.

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       4.1.2   Incentives for Early Compliance

What Commenters Said:

       We received two comments which stated that we should offer incentives for early compliance.
The South Carolina Department of Health and Environmental Control commented that these incentives
would be particularly beneficial to areas promoting and implementing diesel retrofits for school buses and
off-road equipment and would further encourage the retrofits to be used. Similarly, the Clean Air Task
Force commented that we should explore various mechanisms to provide incentives for the early
introduction of ultra-low sulfur diesel into major metropolitan areas.

       Letters:
       New York Public Hearing, A-2001-28, IV-D-05 [CATF p. 235]
       South Carolina Department of Health & Environmental Control, OAR-2003-0012-0476 p. 2

Our Response:

       Refiners and importers may in fact generate early credits for the production of 500 ppm sulfur
NRLM diesel fuel from June 1, 2006 through May 31, 2007 and for the production of 15 ppm sulfur
NRLM diesel fuel from June 1, 2009 through May 31, 2010.  Though the credit generation provisions are
not specifically geared towards major metropolitan areas, as suggested in the comments, we believe that
they can help facilitate some of the environmental benefits of the program being achieved earlier than
otherwise required, and may increase the overall environmental benefits of the program. Credits for the
early production of 500 and/or 15 ppm sulfur fuel are fungible, may be banked for future use, or traded to
another refiner or importer.  Further, provisions are included in the final rule to ensure that these early
credits are real and not merely shifts from the highway market.
       4.1.3   Home Heating Oil

What Commenters Said:

       West Harlem Environmental Action, Sinclair, and the Ozone Transport Commission commented
that home heating oil should also be subject to a low sulfur standard. Sinclair added that there is currently
no national sulfur standard for home heating oil, and state sulfur regulations for residential, commercial
and industrial distillate fuel oil range from 2,000 to 4,000 ppm. Sinclair further noted that if it is assumed
that current sulfur levels for these fuels are 2,000 ppm on average, a reduction to 15 ppm sulfur level
would eliminate nearly 200,000 tons per year of SO2 emissions nationwide.

       Letters:
       Sinclair Oil Corporation, OAR-2003-0012-0704, 0829 p. 2
       New York Public Hearing, A-2001-28, IV-D-05 [OTC p. 214; W. Harlem EA p. 261]

       WRAP and Chevron commented that some of the expected benefits of the proposed sulfur
controls may be eroded by increases in sulfate emissions resulting from refiners selectively diverting
more difficult to desulfurize distillate streams into home heating fuels.  They commented that we are

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missing a significant opportunity to capture additional sulfate reduction benefits that would further
improve visibility in Class I areas in the northwest and northeast states. The commenters further stated
that we should take steps to control the sulfur content of heating fuels to 500 ppm as well.  Even though
the CAA does not provide EPA with the authority to directly regulate heating fuel sulfur content,  it is
within EPA's capability to facilitate a coordinated action among the affected states, which do have the
authority to regulate heating fuel sulfur content. WRAP also noted that this approach could result in a
reduction of over 1,000 tons per year in additional sulfate reductions  for the WRAP states and well over
100,000 tons per year nationally. Lastly, Chevron suggested that states could cap heating fuel sulfur at
500 ppm simultaneously with the implementation of the first step to a 500 ppm cap for nonroad fuels. In
addition to the considerable sulfate reduction benefits such a requirement would provide, a 500 ppm
sulfur cap on heating fuel would eliminate the need for a new marker or dye for heating fuel, at least until
mid-2010.

        Letters:
        Western Regional Air Partnership, OAR-2003-0012-0774, 0775 p. 2
        Chevron, OAR-2003-0012-0782 p.  2

        Environmental Defense commented that EPA may have ample  legal authority to address the
sulfur content of home  heating oil and should provide technical and policy resources to help states adopt
low sulfur fuel program for home heating oil.

        Letters:
        Environmental Defense, OAR-2003-0012-0821 p. 16

        CNH Global commented that EPA should require the 500 ppm sulfur fuel be distributed to
markets other than the nonroad industry such as home heating fuel, etc. or alternatively, release the engine
manufacturer from legal liability from misfueling.

        Letters:
        CNH Global, OAR-2003-0012-0819 p. 2

Our Response:

        Title 2 of the CAA provides authority for fuels used in motor vehicles and nonroad equipment.
This authority, does not extend to regulating the content of fuels used in stationary sources. Title 1
provides EPA with authority to control emissions from certain stationary  sources, but contains no direct
authority to set standards for fuel used in stationary sources.

        Though we are not regulating heating oil, we do expect that the sulfur levels of heating oil will
decrease because of this rulemaking. Beginning in mid-2007, we expect that controlling NRLM diesel
fuel to 500 ppm sulfur will lead many pipelines to discontinue carrying high sulfur heating oil as a
separate grade.  In  areas served by these pipelines, heating oil users will likely switch to 500 ppm sulfur
diesel fuel and ultimately 15 ppm diesel fuel.  This will reduce emissions of sulfur dioxide and sulfate PM
from furnaces and boilers fueled with heating oil.  The primary exception to this will likely be the
Northeast, where a distinct higher sulfur heating oil will still be distributed as a separate fuel. Also, we
expect that a small volume of moderate sulfur distillate fuel will be created during distribution from the
mixing of low sulfur diesel fuels and higher sulfur fuels, such as jet fuel, in the pipeline interface. Such

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moderate sulfur distillate will likely be sold by the terminal as high sulfur heating oil, but in fact its sulfur
level will be much lower than that normally sold as heating oil. It may also be sold as locomotive and
marine fuel outside the Northeast/Mid-Atlantic Area, if it is less than 500 ppm. Alternatively, this
material could be reprocessed by transmix processors.
4.2    Timing

       4.2.1   500 ppm Fuel Sulfur Standard

What Commenters Said:

       We received numerous comments stating that the proposed 2007 compliance deadline for the 500
ppm standard is feasible and appropriate.  These commenters noted that meeting the 500 ppm diesel fuel
standard by mid-2007 will be a challenge, but remains a realistic compliance deadline. They further
commented that any modifications to the nonroad proposal that would accelerate the implementation
schedule of a 500 ppm standard could reduce the overall volume of the diesel fuel pool. The commenters
stated that refiners are in the process of engineering appropriate refinery modification to meet the 15 ppm
highway standard in June 2006, and the refining industry is already within the 4-year time period
typically required to make such modifications; any acceleration of the process would result in additional
negative supply consequences.  [See additional discussion  under Issues 4.3]

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 1
       American Road and Transportation Builders Association, OAR-2003-0012-0633 p. 3
       Associated General Contractors of America, OAR-2003-0012-0791 p. 12-13
       Association of Equipment Manufacturers, OAR-2003-0012-0669, 0670 p. 15
       BP, OAR-2003-0012-0649 p. 1
       Chevron, OAR-2003-0012-0782 p. 1
       Citgo Petroleum Corporation, OAR-2003-0012-0707 p. 1
       ConocoPhillips, OAR-2003-0012-0777 p. 2
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 4
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 5-6
       Environmental Advocates of NY, OAR-2003-0012-0523 p. 2
       Ergon, Inc., OAR-2003-0012-0634 p. 2
       ExxonMobil, OAR-2003-0012-0616 p. 2, 9
       Flint Hills Resources, OAR-2003-0012-0667 p. 4
       International Brotherhood of Teamsters, OAR-2003-0012-0664 p. 2
       International Union of Operating Engineers, OAR-2003-0012-0600 p. 2
       Kubota, OAR-2003-0012-0620 p. 1
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 11
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 1
       National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 2-4, 14-15
       NESCAUM, OAR-2003-0012-0659 p. 6-7
       New England Fuel Institute, OAR-2003-0012-0712, 0713 p.  1
       Tesoro, OAR-2003-0012-0662 p. 1
       New York Public Hearing

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                      A-2001-28, IV-D-05 [API p. 19; AOPL p.  173; EMA p. 102; MECA p. 119;
                      NPRA p. 82]
       Los Angeles Public Hearing
                      A-2001-28, IV-D-07 [API p. 40; Cummins p. 33; EMA p. 151; MECA p. 61]
       Chicago Public Hearing
                      A-2001-28, IV-D-06 [API p. 83; BP p. 170; EMA p. 26; Ergon p. 239;
                      NACS/SIGMA p. 244; NPRA p. 16]

       EMA commented that the compliance deadline for the 500 ppm standard should be accelerated.
EMA believes that the 500 ppm nonroad diesel fuel sulfur standard should be in place by January 1, 2007.
EMA further commented that, in order to support the advanced technologies that are required for existing
Tier 3 standards and new Tier 4 standards, EPA must require implementation of low sulfur fuel by this
date or as soon as possible. If the January deadline cannot be met, in no event should this cap be
implemented any later than June 2007. Typically heavy-duty engine manufacturers introduce new engine
models in the previous calendar year.  The 2008 model year could begin as early as January 2, 2007.
With such an early start of production date, emission systems could be in jeopardy without the required
fuel.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 8, 110

       Environmental Defense, WRAP, and WESTAR commented that the 500 ppm sulfur standard
should apply in June 2006, rather than June 2007, since this will harmonize the nonroad and highway
rules and will eliminate the presence of a third grade of diesel fuel  (5,000 ppm nonroad/locomotive) in the
supply and distribution network throughout most of the country for this one year. Environmental Defense
specifically recommended that if the one-step approach is not taken, an accelerated two-step approach
requiring 500 ppm fuel in June 2006 should be followed; and, that there is strong support among a variety
of western interests for this approach. [See additional discussion under Issues 4.2.1]

       Letters:
       Environmental Defense, OAR-2003-0012-0821  p. 15
       Western Regional Air Partnership, OAR-2003-0012-0774, 0775 p.  1
       Western States Air Resources Council, OAR-2003-0012-0711 p. 1

Our Response:

       We believe that the time frame being finalized today is both necessary and sufficient for refiners
and others throughout the distribution system to plan for and implement desulfurization technologies. As
this first step is only to 500 ppm  sulfur, we have allowed for a short lead time for implementation, this
will enable the environmental benefits to begin accruing as soon as possible, and this time frame is
consistent with the current  specification for highway diesel fuel. This rule will provide refiners and
importers approximately 38 months before they will have to begin complying with the 500 ppm cap for
NRLM diesel fuel on June  1, 2007. Our lead time analysis projects that 27-39 months are typically
needed to design and construct a diesel fuel hydrotreater.16 Thus, we believe that the lead time available
       16The leadtime analysis in the RIA can be found in Section 5.3.

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for the 500 ppm cap in mid-2007 will be sufficient. At the same time, however, attempting to implement
the standard any sooner would not provide sufficient lead time for a number of refineries. These parties
will need the time to secure financing, begin plans for desulfurization technique, and to optimize their
processes (to ensure production of 500 ppm sulfur NRLM fuel) once they have stepped down to the 500
ppm level. EPA does not expect that the Tier 3 engines will be jeopardized by this date, as the Tier 3
emissions standards are not premised on such low sulfur diesel fuel.
       4.2.2   15 ppm Fuel Sulfur Standard

What Commenters Said:

       We received many comments which stated that the proposed 2010 compliance deadline for the 15
ppm standard is feasible and appropriate, and that meeting the 15 ppm diesel fuel standard by mid-2010
will be a challenge, but remains a realistic compliance deadline. EMA noted that in order to support the
advanced technologies that are required for EPA's Tier 4 proposal, it is essential that EPA require
implementation of lower sulfur fuel at least by the date proposed or as soon as possible and recommends a
January 1, 2010 deadline; and further, that if this cannot be met, the  15 ppm standard be in place no  later
than June 2010. [See additional discussion under Issue 4.3]

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 1
       American Road and Transportation Builders Association, OAR-2003-0012-0633 p. 3
       Associated General Contractors of America, OAR-2003-0012-0791  p. 12-13
       Association of Equipment Manufacturers, OAR-2003-0012-0669, 0670 p. 15
       BP, OAR-2003-0012-0649 p. 1
       Chevron, OAR-2003-0012-0782 p. 1
       Citgo Petroleum Corporation, OAR-2003-0012-0707 p. 1
       ConocoPhillips, OAR-2003-0012-0777 p. 2
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 4
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p.  5-6, 8, 110
       Environmental Advocates of NY, OAR-2003-0012-0523 p. 2
       Ergon, Inc., OAR-2003-0012-0634 p. 2
       ExxonMobil, OAR-2003-0012-0616 p.  2, 9
       Flint Hills Resources, OAR-2003-0012-0667 p. 4
       International Brotherhood of Teamsters, OAR-2003-0012-0664 p. 2
       International Union of Operating Engineers, OAR-2003-0012-0600  p. 2
       Kubota, OAR-2003-0012-0620 p. 1
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 11
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 1
       National Petrochemical & Refiners Association,  OAR-2003-0012-0814 p. 2-4, 14-15
       NESCAUM, OAR-2003-0012-0659 p. 6-7
       New England Fuel Institute, OAR-2003-0012-0712, 0713 p. 1
       Tesoro, OAR-2003-0012-0662 p. 1
       New York Public Hearing
                      A-2001-28, IV-D-05 [API p. 19; AOPL p. 173; EMA p. 102; MECA p.  119;
                      NPRA p. 82]

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       Los Angeles Public Hearing
                     A-2001-28, IV-D-07 [API p. 40; Cummins p. 33; EMA p. 151; MECA p. 61]
       Chicago Public Hearing
                     A-2001-28, IV-D-06 [API p. 83; BP p. 170; EMA p. 26; Ergon p. 239;
                     NACS/SIGMA p. 244; NPRA p. 16]

       Many commenters stated that the implementation timeline for the 15 ppm standard should be
accelerated to expedite air quality improvements, and that we should pursue an earlier and more
aggressive implementation of the fuel standards.  Some commenters (the Alliance, Environmental
Defense, OTC, RAPCA, STAPPA/ALAPCO) suggested full implementation of the 15 ppm standard by
2008, while others (ALA, Clean Air Council, CAT, Houston, UCS) suggested that this standard be in
place by 2007. Clean Air Task Force recommended a 2009 compliance date, and noted that this is similar
to EPA's option 2b. Some commenters (NY, SCAQMD,  TCEQ) recommended a compliance deadline of
2006 but one of these commenters (NY) also acknowledged that there are constraints on the refining
industry that could impact the implementation timeline.  Other commenters (CARB, Clean Air Council,
PA Department of Environmental Protection, U.S. PIRG, West Harlem Environmental Action; public
citizens) noted generally that the schedule should be accelerated but do not recommend a specific date.
One  of these commenters (CARB) also noted that California will have ultra-low sulfur fuel in 2006 for
on-highway, nonroad and certain stationary diesel engines, and another (West Harlem Environmental
Action) noted that since onroad vehicles will be using ultra-low sulfur fuels starting in 2006, the schedule
for nonroad diesel should be accelerated.

       Letters:
       Alliance of Automobile Manufacturers, OAR-2003-0012-0792 p. 2
       California Air Resources Board, OAR-2003-0012-0644 p. 4
       City of Houston - Office of the Mayor, OAR-2003-0012-0630 p. 2-3
       Clean Air Council, OAR-2003-0012-0613 p. 2
       Clean Air Task Force, et. al, OAR-2003-0012-0508 p.  12
       Environmental Defense, OAR-2003-0012-0821 p. 7, 14-15
       Natural Resources Defense Council, et. al.,  OAR-2003-0012-0661, 0665 p. 22-23
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 2
       Pennsylvania Department of Environmental Protection, OAR-2003-0012-0699 p. 3
       Regional Air Pollution Control Agency, OAR-2003-0012-0683 p. 2
       South Coast Air Quality Management District, OAR-2003-0012-0623 p. 3, 6
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 9-10
       Texas Commission on Environmental Quality, OAR-2003-0012-0716, 0717 p.  1
       U.S. Public Interest Research Group, OAR-2003-0012-0780 p. 2
       Union of Concerned  Scientists, OAR-2003-0012-0830 p. 2-4
       Wisconsin Department of Natural Resources, OAR-2003-0012-0702, 0703 p. 3
       12,976 Public Citizens
       170 Public Citizens
       New York Public Hearing
                     A-2001-28, IV-D-05 [CATF p. 237; ED p. 151; NRDC p. 35; NY DEC p. 14;
                     OTC p. 210; STAPPA/ALAPCO p. 46; W. Harlem EA p. 260]
       Los Angeles Public Hearing
                     A-2001-28, IV-D-07 [ALA p. Ill, 174, 220; CAT p.  184; Countrymark p. 143;
                     ED p. 93; SCAQMD p. 17; STAPPA/ALAPCO p. 28; U.S. PIRG p. 179; UCS p.

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                      70]
       Chicago Public Hearing
                      A-2001-28, IV-D-06 [ALA p. 284; CAT p. 157; STAPPA/ALAPCO p. 38]

       USA Rice Federation and various dealer associations commented that we should clarify how 500
ppm fuel will be handled after the 2010 compliance deadline for 15 ppm fuel, since the proposed rule did
not address how dealers and farmers should handle any 500 ppm fuel that is still in the tanks of trucks
after the 2010 compliance deadline and whether EPA plans to purchase this fuel.

       Letters:
       Far West Equipment Dealers Association, OAR-2003-0012-0679 p. 5
       North American Equipment Dealers Association, OAR-2003-0012-0647 p. 5
       Ohio-Michigan Equipment Dealers Association, OAR-2003-0012-0747 p. 5
       USA Rice Federation, OAR-2003-0012-0652 p. 5

Our Response:

       Our primary driver for the timing of the 15 ppm NR standard is the timing of the engine
standards, which will begin with the 2011 model year. We are confident that the June 1, 2010 start date
for NR will provide the fuel necessary in time, particularly given the large volume of 15 ppm highway
fuel produced beginning in 2006, as well as the early credit provisions that we are finalizing today.  In
addition, June 1, 2010 is consistent with the timing of the highway diesel program, and it will allow for a
harmonized transition for both programs.

       We also believe that there is a need for a period of lead time between the 500 ppm and 15 ppm
standards. Given the challenge of meeting the 15 ppm standard, this step could not be required with the
same timing as the first step to 500 ppm, and moving the 15 ppm step up earlier would obviate the ability
to implement step 1. Furthermore, without step 1 we would lose important early benefits, since step 1
provides 90 percent of the fuel related benefits. This would result in a net  loss of program benefits.
Therefore, the timing that we are finalizing today for both steps of the program provides the optimal
balance of lead time  and environmental benefits. More discussion  on this issue is located below in
section 4.3.
4.3    Program Design

       4.3.1   Two-Step Approach

       4.3.1.1  Support for Two-Step Approach

What Commenters Said:

       A number of commenters were in support of the proposed two-step approach for implementation
of the fuel sulfur standards.  The commenters stated that the two-step approach will provide additional
flexibility over the alternative single-step approach that would impose a 15 ppm standard by 2008 and
will provide additional benefits in the form of early and significant emission reductions. Commenters
also stated that these early reductions will provide corresponding health benefits a year earlier than the

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more expensive, less flexible single-step approach.  Some commenters (ConocoPhillips, Teamsters,
IUOE, Tesoro) noted that this approach will also provide a more reasonable capital expenditure timeline
and could reduce the economic burden to industry.

        Letters:
        American Petroleum Institute, OAR-2003-0012-0804-0808 p. 1
        Associated General Contractors of America, OAR-2003-0012-0791 p. 12-13
        Chevron, OAR-2003-0012-0782 p. 1
        ConocoPhillips, OAR-2003-0012-0777 p. 2
        ExxonMobil, OAR-2003-0012-0616 p. 2, 9
        International Brotherhood of Teamsters, OAR-2003-0012-0664 p. 2
        International Union of Operating Engineers, OAR-2003-0012-0600 p. 2
        Marathon Ashland, OAR-2003-0012-0826, 0827 p. 1
        National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 2-4
        Tesoro, OAR-2003-0012-0662 p. 1
        New York Public Hearing
                      A-2001-28, IV-D-05 [API p. 19; NPRA p. 82]
        Los Angeles Public Hearing
                      A-2001-28, IV-D-07 [API p. 40; Cummins p. 33]
        Chicago Public Hearing
                      A-2001-28, IV-D-06 [API p. 83; NACS/SIGMA p. 244; NPRA p. 16]

        Many commenters stated that adoption of the phased approach will help mitigate potential diesel
fuel supply and distribution problems associated with the convergence of low sulfur highway and nonroad
diesel. Refiners are preparing to reduce highway diesel to 15 ppm in 2006 and to meet a 15 ppm sulfur
standard for nonroad diesel in one step by 2008 would be difficult and could exacerbate potential supply
problems. By lowering the sulfur level to 500 ppm in mid-2007 as an interim measure followed by a 15
ppm standard in mid-2010  would provide refiners with a more  adequate and feasible time frame for both
planning and implementation of the standard.  A two-step approach would also alleviate any potential
adverse effects on fuel supply during the transitional period, by providing the industry with an outlet for
higher sulfur distillates during refinery upsets and turnarounds. BP added that even small leakages from
joints in feed product heat exchangers can necessitate the outlet for higher sulfur distillate products, and
that with distillate feed stocks containing several thousand times as much sulfur as the new finished
products, refineries will need to find ways to eliminate such small leakages and other sources of sulfur
contamination.  NPRA added that the two-step approach will help minimize the volume of diesel fuel that
is lost due to contamination, loss of fungibility, or difficulties associated with desulfurization.  AEM
noted that a two-step method is more appropriate since it will help ensure an adequate supply to the
nonroad market and maintain lower fuel costs.  The commenters noted that if the fungible shipment of
500 ppm fuel is allowed, the two-step approach could provide a more reasonable approach since it would
allow for fuel that is originally intended as 15 ppm nonroad diesel to be sold as 500 ppm nonroad diesel
in the event that it is contaminated in the pipeline or that refineries experience difficulties associated with
desulfurization. Commenters also stated that the potential for these circumstances will be greater during
the initial implementation phase and as a result, the two-step approach, which provides a greater degree of
flexibility, will help alleviate potential supply problems.  API specifically referred to the Baker &
O'Brien report as supporting documentation in the context of this issue.

        Letters:

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       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 1
       American Road and Transportation Builders Association, OAR-2003-0012-0633 p. 3
       Associated General Contractors of America, OAR-2003-0012-0791 p.  12-13
       Association of Equipment Manufacturers, OAR-2003-0012-0669, 0670 p. 15
       BP, OAR-2003-0012-0649 p. 1
       Chevron, OAR-2003-0012-0782 p. 1
       Citgo Petroleum Corporation, OAR-2003-0012-0707 p. 1
       Environmental Advocates of NY, OAR-2003-0012-0523 p. 2
       Ergon, Inc., OAR-2003-0012-0634 p. 2
       Flint Hills Resources, OAR-2003-0012-0667 p. 4
       Kubota, OAR-2003-0012-0620 p. 1
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 1
       National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 2-4
       New England Fuel Institute, OAR-2003-0012-0712, 0713 p. 1
       New York Public Hearing, A-2001-28, IV-D-05 [API p. 23; AOPL p. 173; NPRA p. 82]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [API p. 40; Cummins p. 33]
       Chicago Public Hearing
                      A-2001-28, IV-D-06 [API p. 83; BP p. 170; Ergon p. 239; NPRA p. 17]

       API and Marathon commented that refiners generally need four years to plan for and implement
major changes in fuel specifications; refiners are already preparing to produce 15 ppm sulfur highway
diesel starting in mid 2006 and it will be an additional challenge for refiners to  significantly lower the
sulfur level of nonroad fuel to 500 ppm by 2007.  However, they stated, the two-step approach would
provide the refining industry sufficient time and flexibility to transition smoothly to the 15 ppm sulfur
level.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 1
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 1
       New York Public Hearing, A-2001-28, IV-D-05 [API p. 20]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [API p. 40]
       Chicago Public Hearing, A-2001-28, IV-D-06 [API p. 83]

       DDC, EMA, and MECA commented that providing 500 ppm fuel in 2007 as part of the two-step
approach, is important for  providing fleet-wide emissions reductions and will help minimize excessive
wear and increased maintenance costs. They noted that this is particularly true for engines that are
equipped with exhaust gas recirculation (EGR) systems, which can be damaged without the use of low
sulfur fuel. Lastly, the commenters stated, an interim 500 ppm standard will allow for the use of diesel
oxidation catalysts (without which certain elements of EPA's proposed rule are not feasible), and will
enable compliance with the Tier 3  standards.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 4
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 5-6
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 11
       New York Public Hearing, A-2001-28, IV-D-05 [EMA p. 102; MECA p. 119]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [EMA p. 151; MECA p. 61]

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       Chicago Public Hearing, A-2001-28, IV-D-06 [EMA p. 26]

       IFTOA commented that the two-step program will allow for the refining industry to reduce sulfur
content gradually, thus minimizing the overall economic and compliance burden. However, IFTOA
noted, for the northeast and other parts of the country that use home heating oil as a basic fuel, the burden
of the rule will fall most heavily on terminals unable to store and distribute three streams of fuel (on-
highway, nonroad and heating oil).

       Letters:
       Independent Fuel Terminal Operators Association, OAR-2003-0012-0671, 0672 p. 1

       NESCAUM commented that we should finalize the schedule for introduction of low sulfur fuel as
proposed, with no delays; as the introduction of ultra-low sulfur fuel in 2010 is crucial to the introduction
of advanced emission control devices in new engines and is also essential for the expansion of state
retrofit programs for nonroad engines. NESCAUM further stated that currently, the lack of readily
available ultra-low sulfur diesel fuel is hampering state efforts to retrofit nonroad equipment.

       Letters:
       NESCAUM, OAR-2003-0012-0659 p. 6-7

       NRDC, STAPPA/ALAPCO, UCS, and the Wisconsin Department of Natural Resources
commented that they conditionally support EPA's two-step approach.  It is preferable that EPA implement
a one-step approach. Some commenters (NRDC, STAPPA/ALAPCO, UCS) noted that if a two-step
approach is taken, EPA should use the baseline approach for implementing the sulfur phase-in. Others
(UCS, WI) noted that if a two-step approach is taken, EPA should ensure that the 2007/2010 compliance
schedule is maintained. [See additional discussion under Issues 4.2.1]

       Letters:
       Natural Resources  Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 22-23
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 9-10
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 2-4
       Wisconsin Department of Natural Resources, OAR-2003-0012-0702, 0703 p. 3

Our Response:

       We have decided to finalize the two-step approach today primarily because it enables the
achievement of the greatest reduction in sulfate PM and sulfur dioxide emissions from nonroad,
locomotive,  and marine diesel engines as early as practicable.  By starting with an initial step of 500 ppm
sulfur we can achieve significant emission reductions and associated health and welfare benefits from the
current fleet of equipment as soon as possible. In addition, the two-step approach provides for a more
smooth and orderly transition to 15 ppm sulfur standard for NR and LM diesel fuel, by providing more
time for refiners to develop the most cost-effective approaches, finance them, and then  implement the
necessary refinery modifications.  Finally, by waiting until 2010 to drop to the  15 ppm  sulfur standard for
NR diesel fuel, the two-step approach harmonizes with the highway diesel fuel program by delaying the
implementation of the 15 ppm sulfur standard for NR diesel fuel until the end of the phase-in period for
15 ppm sulfur highway diesel fuel. As a result, refiners are able to undertake both changes
simultaneously, minimizing disruption and optimizing design.

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        The two-step program, with the initial step to 500 ppm sulfur fuel will provide refiners with an
outlet for off-spec 15 ppm highway fuel during the period from 2007 to 2010. In addition, since the LM
sulfur standard of 15 ppm does not go into effect until 2012, it also provides an outlet for off-spec 15 ppm
fuel during the period from 2010 to 2012.

        In response to IFTOA's comment regarding the Northeast, we note that the burden on these
parties is not greater- it is in fact less. They have the choice to carry a third fuel,  but they can always
choose to eliminate high-sulfur heating oil as the rest of the country may do. We have further reduced the
burden in the Northeast by eliminating the need for the heating oil marker there.

        Regarding retrofit programs, the provisions that we are finalizing for early-credit fuel can be
utilized earlier than the 2010 date for compliance with the ultra low sulfur standards.  In addition,
highway fuel will be available by June 1, 2006, and we do not believe that the limited volumes needed for
retrofits will impact the supply of the highway market.
        4.3.1.2 Oppose the Two-Step Approach (cross-contamination and misfueling issues)

 What Commenters Said:

        AEM commented that the proposed two-step approach may increase the opportunity for cross-
 contamination and misfueling. They further stated that allowing the supply of 500 ppm fuel to the
 nonroad market through May 2014 will increase the chances of misfueling, which in turn, creates
 concerns with respect to reduced engine durability and in-use compliance. (Note: this oral testimony
from AEM during the Chicago Public Hearing was modified in their written comments, OAR-2003-0012-
 0669—0670, as summarized above in 4.3.1.1. 'Support for the Two-Step Approach.')

        Letters:
        Chicago Public Hearing, A-2001-28, IV-D-06 [AEM p. 219]

        Sunoco and UCS commented that while refineries can take steps to ensure that high and low
 sulfur diesel fuel supplies remain separate, distribution and marketing networks may have difficulty
 maintaining strict separations. Low sulfur diesel can be easily contaminated if it is stored in tanks that
 previously held higher  sulfur fuels. The commenters stated that the best method for preventing cross-
 contamination is to hold all diesel fuels to a maximum sulfur level of 15 ppm at the same time. [See
 additional discussion under Issue 8.1.1.]

        Letters:
        Sunoco, OAR-2003-0012-0509 p. 1
        Los Angeles Public Hearing, A-2001-28,  IV-D-07 [UCS p. 70]

        Houston, UCS, and Caterpillar commented that maintaining diesel fuel with different sulfur levels
 will increase the risk of cross-contamination. These commenters all expressed the belief that EPA should
 protect the gains made  in the highway rule by holding all diesel fuels to  15 ppm starting in 2007.  They
 further stated that the one-step approach will reduce the risk of cross-contamination and that the surest
 method for protecting emission controls from sulfur contamination is hold all diesel fuels, including
 highway, nonroad, locomotive, marine and heating oil, to a 15 ppm standard as soon as possible.

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       Letters:
       City of Houston - Office of the Mayor, OAR-2003 -0012-0630 p. 3
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 3
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [CAT p. 184; UCS p. 69]

       Case-New Holland commented that EPA should not promulgate hardship provisions that would
allow for the production and distribution of 500 ppm diesel fuel through May 2014.  The commenter
further stated that use of 500 ppm sulfur diesel fuel will create serious problems that reduce engine
durability and cause in-use compliance concerns, and EPA should ensure that the final rule addresses
these concerns.

       Letters:
       Chicago Public Hearing, A-2001-28, IV-D-06 [CNH p. 66]

Our Response:

       Provisions for hardship, small refiner, and credit fuel mean that somewhat less than 100 percent
of the total  diesel fuel pool will meet the same standard on a given date. Furthermore, heating oil will
continue. Therefore, a one-step program would not resolve all misfueling or contamination concerns.
However, we have designed the two-step program in a way that will minimize these concerns.

       Under the designate and track program, refiners and importers would designate the volumes of
fuel they produce/import. These designations would follow the fuel through the distribution system.
Further, all fuel will be accompanied by a product transfer document with the specific fuel designation on
it. Fuel that is greater than 15 ppm sulfur content should be clearly identified, and thus should not be
used in MY 2011 engines. In addition, fuel pump labels will be required to specify the respective grade
of fuel, and this should help to limit concerns about misfueling for the time period where multiple grades
of nonroad  fuel are in the market.

       We did not include specific misfueling provisions, such as nozzle size requirements, in the rule.
This is partly because we are not aware of an effective and practicable scheme to prevent misfueling
through the use of different nozzle sizes or shapes, but also because we do not believe that improper
fueling will be a significant enough problem to warrant such an action.

       Regardless of whether we adopted a one-step or two-step fuel program, by the time MY 2011
equipment  (the equipment at risk of misfueling) is in the marketplace, 15 ppm diesel fuel will be the
dominant fuel in the market,  estimated to comprise about 80 percent of all number 2  distillate in 2010,
and increasing to over 80 percent in 2012.  In addition, we believe that 500 ppm diesel fuel will have only
limited availability between 2012 and 2014. High-sulfur distillate for heating oil uses will remain,  but
will only exist in significant volumes in certain parts of the country.  In any event, we believe that most
owners and operators of new nonroad diesel engines and equipment will not risk voiding the general
warranty and the emissions warranty by misfueling.

       In the highway diesel fuel rule we did not finalize any provisions beyond fuel pump labeling
requirements, though we recognized that some potential for misfueling could still exist.  We expressed a
desire to continue to explore with industry simple, cost-effective approaches that could further minimize
misfueling  potential such as color-coded nozzles/scuff guards. Since the highway diesel rule was

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promulgated, we have had discussions with fuel retailers, wholesale purchaser-consumers, vehicle
manufacturers, and nozzle manufacturers, and continue to examine different methods for preventing
accidental or intentional misfueling under the highway diesel fuel sulfur program.  To date, affected
stakeholders, including engine and truck manufacturers, truck operators, fuel retailers, and fuel nozzle
manufacturers have not reached any common view whether the concerns over misfueling warrant any
additional prevention measures. Expanding the 15 ppm pool to NRLM, however,  reduces the opportunity
for misfueling.

       In response to Case-New Holland's comment, we are confident that the compliance assurance
provisions being finalized today will solve these concerns. Refiners will have to designate  all of their
diesel fuel (type of fuel, sulfur level, volume, etc.) and the identification of the transferor at the point of
delivery to a party in the distribution system. As the fuel is transported through the distribution system, it
is similarly required to maintain a designation and product transfer document that accurately reflects its
sulfur level. Any pump labels for the fuel must also clearly show the designated sulfur level. These
labels match those required on the engine.
       4.3.2   Baseline Approach versus Designate and Track

       4.3.2.1  Baseline Approach

       4.3.2.1.1       General

What Commenters Said:

Support for Baseline Approach
       A number of commenters (NRDC, UCS, WIDNR) supported the baseline approach since it will
ensure the enforceability and viability of the fuel standard. A baseline approach is preferred since it will
be able to ensure that adequate supplies of each grade of highway and nonroad diesel fuel are available
throughout the nation during the 2006 to 2010 timeframe.  The baseline should be predictive enough to
account for regular market fluctuations and flexible enough to enable the development of new markets.
There are several objectives that should be met by the program, which include adopting an approach that
maintains the benefits and program integrity of the highway diesel program, maximizing environmental
benefits, ensuring adequate fuel supplies nationwide and the fungibility of highway and nonroad fuels,
and using an implementation approach that is verifiable, transparent and enforceable. The designate and
track approach is unlikely to meet these objectives, since it will place an enormous compliance burden on
EPA and does not provide an opportunity for the public to evaluate the progress associated with
implementation. In addition, the lack of any centralized information bank combined with each refiner's
ability to designate each batch as it is produced would reduce EPA's ability to predict when and where
low sulfur diesel is being delivered.

        STAPPA/ALAPCO commented that based on their review of the alternatives, the baseline
approach is the  only alternative that would ensure that the standard is enforced and would ensure against
any adverse effects to the highway diesel fuel program.

       Letters:
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 24

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                     May, 2004

       Union of Concerned Scientists, OAR-2003-0012-0830 p. 4
       Wisconsin Department of Natural Resources, OAR-2003-0012-0702, 0703 p. 3
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 10
       New York Public Hearing, A-2001-28, IV-D-05 [STAPPA/ALAPCO p. 46]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [STAPPA/ALAPCO p. 27]
       Chicago Public Hearing, A-2001-28, IV-D-06 [STAPPA/ALAPCO p. 39]
       New York Public Hearing, A-2001-28, IV-D-05 [NRDC p. 34]

       Oppose Baseline Approach

       Many commenters (ConocoPhillips, Exxon, FHR, NACS/SIGMA, NPRA, Tesoro) believed that
the baseline approaches could adversely interfere with the market and may create an anti-competitive
environment.  These commenters all stated that the proposed baseline compliance option is too restrictive
because it would control production ratios of distillate fuels in an attempt to assure that adequate supplies
of highway fuel are available.  Even temporary baseline approaches could create an anti-competitive
environment.  These baselines will be established well in advance of any known changes in the market
environment.  Volume swings  due to changes in  contracts for distillate fuels exempt from the nonroad and
highway rules would have a significant impact on a refinery operating under the baseline approach.
Therefore, these commenters stated, EPA should examine alternatives to the proposed baseline approach
that would take  into account such changes in contract supply and demand.

       Some commenters (API, p. 3; Exxon, p.  13; Marathon, p. 3) also stated that the compliance
monitoring and  reporting mechanism that EPA has proposed to ensure that the 80/20 ratio  requirement is
maintained could adversely affect the market. The baseline approach essentially requires the production
of diesel fuel  products in the same historical three-year proportions, which may be inconsistent with
market demands.  If EPA finalizes a baseline approach, refiners should be able to adjust the three-year
2003-2005 historical baseline to reflect the 2006-2007 capabilities  of refiners modified to meet the
requirements  of the highway rule. This approach would minimize  potential mismatches among early
decade production ratios and potential changes in market demand later in the decade.  [See additional
discussion below on mitigating the adverse effects of the baseline approach.]

       AOPL commented (pp. 4-12) that the baseline option attempts to create the desired fungibility for
different types of fuel but only under certain conditions.  Pipeline customers, refiners, and importers will
find the baseline restrictions to be detrimental to  their business.  Other pipeline customers may not be
bound by the  baseline under the EPA's proposed rule.  As a result,  pipelines serving only one refiner (or
only refiners that select the baseline) will benefit from more limited product streams, but the majority of
pipelines that service many refiners and importers will be faced with  supporting baseline and non-baseline
refiners desiring to transport the full range of fuel options, thereby  eliminating or reducing the benefit of
the baseline approach. AOPL  also noted that EPA's new on-road diesel rule combined with the proposed
nonroad rule adopting the baseline  and dye options would lead to 13  distillate grades requiring 12
separate batches for the interim 2007 to 2010 implementation period, provides a detailed summary table
describing these products, and concludes that it will be difficult,  if not impossible, for pipelines to carry
all of these different products.

       API and ExxonMobil (pp. 9 and 15, respectively) commented that baseline approaches may
simply be unworkable. The alternative NRLM baseline that would have EPA assign a NRLM percentage
of non-highway baselines to refineries based on the average for the PADD where they operate would

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                 Summary and Analysis of Comments
                                                                                       May, 2004

severely restrict the ability of refineries to respond to market changes, particularly due to the intensity of
seasonal or other short-term weather changes. The similar approach of defining a LM percentage baseline
post 2010 in lieu of using a marker for LM has many of the same problems, although not as severe since
it does not limit the production of heating oil. The commenters stated that, in general, if the additional
burden of demonstrating compliance is sufficiently high, some refiners may opt to just dye their NRLM
production and avoid the increased reporting burden associated with a baseline approach.

        Many commenters (ExxonMobil, p.  13; IFTOA,  p. 2; NEFI, p. 1; PMAA, p. 2; Sunoco, p. 2;
Tesoro, pp.3-5) commented that a baseline approach would restrict the industry's ability to respond to
market demand.  For example, in the event of a cold winter, refiners and importers would be unable to
increase the supply of home heating oil substantially. Even though EPA is considering small deviations
from the baseline with appropriate compensation the following year, such a provision could not be
adjusted to meet strong consumer demand during a crisis. In addition, as the natural gas shortage
continues and prices remain high, it is reasonable to assume that during a cold winter, consumers with
dual-fuel capability would switch to the lower priced fuel, which in recent years has been heating oil.
These surges in demand could result in substantial price spikes and supply problems, which would only
be exacerbated by the baseline program.  These commenters all believed that if we were to decide to
implement a baseline program, the production or importation of home heating oil should not be subject to
the restrictions of an historical baseline. [See additional discussion below on mitigating the adverse
effects of the baseline approach.]

        ConocoPhillips commented (p. 2) that the baseline approach would provide the potential for 500
ppm NRLM diesel to be distributed into the highway market, which could discourage investment by
refiners, particularly foreign refiners, resulting in less 15  ppm product than anticipated by the Agency in
its highway rulemaking. The perceived degree of crossover of product could affect investment decisions
that are based on projections of the 15 ppm demand and margin. This is a serious concern for refiners
who are faced with making significant capital investments to produce  15 ppm diesel fuel.  The highway
diesel pre-compliance report results, which indicate ample supplies of 15 ppm diesel fuel in the necessary
regulatory time frames may be considerably different in the next reporting cycle, especially if margins for
the 15 ppm diesel product are compromised by crossover allowances in the NRLM rule.

        The New England Fuel Institute (p. 2) commented that EPA's alternative baseline constrains the
market. There are three main concerns associated with this alternative baseline. First, appropriate NRLM
volumes cannot be accurately predicted and assigned. Second, the use of a credit system to permit
increased production and  imports of heating oil adds substantial cost to home heating oil.  Third, deficit
carryover of credits would not solve the problem since it is not certain that credits from the following
season would be able to compensate for an unusually cold winter.

        Tesoro commented (p. 4) that the baseline approach limits the ability of a refinery to address
operational difficulties. In cases where a refinery experiences operational difficulties such as an
exchanger leak, compressor problem, or hydrogen purification issue, they can generally still run safely
but may not be able to produce diesel fuel to meet the 15 ppm specification.  If repairs are lengthy, then a
larger amount of 500 ppm fuel would be produced and sold. However, in order to meet the annual
baseline requirement, a refinery may need to either slow  down operations while repairs are scheduled or
reduce total production of distillate for the rest of the year to ensure compliance.

        ConocoPhillips (p. 4) commented that the proposed baseline approach  creates confusion

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                               Summary and Analysis of Comments
                                                                                     May, 2004

concerning how to account for kerosene volumes relative to the highway 80/20 requirement and for the
NRLM baseline. This confusion would not be an issue under a designate and track approach.  The
confusion under the baseline approach is particularly true if the kerosene sulfur levels are greater than 15
ppm but less than 500 ppm (typical of No. 1 Kero), allowing it to be blended and sold into the 500 ppm
highway diesel market.  Since the kerosene product is shipped all-purpose, only a portion of the kerosene
batch would actually end up in the highway market.  Counting all of the volume as part of the 20 percent
500 ppm pool would be inappropriately constraining to the refinery.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 3, 9
       Association of Oil Pipelines, OAR-2003-0012-0609 p. 4-12
       ConocoPhillips, OAR-2003-0012-0777 p. 2-4
       ExxonMobil, OAR-2003-0012-0616 p. 4-6, 12-13, 15
       Flint Hills Resources, OAR-2003-0012-0667 p. 2
       Independent Fuel Terminal Operators Association, OAR-2003-0012-0671, 0672 p. 2
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 3
       National Association of Convenience Stores/Society of Independent Gasoline
                      Marketers of America, OAR-2003-0012-0635 p. 3-4
       National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 9-10
       New England Fuel Institute, OAR-2003-0012-0712, 0713 pp. 1-2
       Petroleum Marketers Association of America, OAR-2003-0012-0606 p. 2
       Sunoco, OAR-2003-0012-0509 p. 2
       Tesoro, OAR-2003-0012-0662 p. 3-5
       New York Public Hearing, A-2001-28, IV-D-05 [API p. 23]
       New York Public Hearing, A-2001-28, IV-D-05 [AOPL p. 176]
       New York Public Hearing, A-2001-28, IV-D-05 [NPRA p. 83]
       Los Angeles Public Hearing, A-2001-28, IV-D-07  [API p. 46]
       Chicago Public Hearing, A-2001-28, IV-D-06 [API p. 90]
       Chicago Public Hearing
                      A-2001-28, IV-D-06 [BP p. 176; NACS/SIGMA p. 247; NPRA p. 18]

Our Response:

       See the response under issue 4.3.2.1.2.

       4.3.2.1.2       Suggested Improvements for Baseline Approach

What Commenters Said:

       The  Alliance commented that it supports the baseline approach, but recommended specific
improvements:
       •       The baseline period of 2003 to 2005 may present a problem if refiners manipulate their
               production
               In establishing this baseline period, predictions should be based on the timing of
               publication of the proposed rule, not the final rule.
               To prevent refiners from manipulating production to the disadvantage of the highway
               ultra-low sulfur diesel market, the period should start one year earlier.

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                                                                 Summary and Analysis of Comments
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       NRDC and others recommended several improvements and suggested allowances for the baseline
approach:
       •       A 5 percent shortfall in the production of low sulfur diesel within a year (provided it is
               made up in the following year) should be allowed. This variance offers a reasonable
               level of production flexibility while maintaining a realistic overall projection of volume
               The proposed option that allows refiners wishing not to be limited to the non-highway
               distillate baseline percentage of production, to segregate and dye its fuel at the refinery
               gate should not be incorporated; as this would undermine the baseline approach and
               would add an unnecessary level of flexibility for the refiners.
       •       Refiners choosing the option to use the period June 1, 2006 to May 31, 2007 for
               calculation, should not be allowed to participate in the early NRLM credit program and
               would need to continue dyeing their fuel at the refinery gate until June 1, 2007 in order to
               present an objective set of numbers for analysis. The  commenters believe that
               establishing the baseline with average volumes of over three years may limit refiners who
               have begun lowering their highway diesel production volumes for compliance with the
               fuel standards, and that the option for refiners could help reflect a more accurate picture
               of production volumes and capacity.
       •       The provision that allows for new or restarted refineries or new importers to be assigned
               a non-highway baseline percentage that reflects the projected average regional production
               of fuel in 2004 should be maintained.
       •       The cap on the use of credits at 25 percent of a non-highway baseline (less marked
               heating oil) is too high- a 15 percent cap should be implemented instead
               Early credit provisions should not be created in the final nonroad diesel rule that have
               the potential to undermine the  national  availability of 15 ppm highway diesel fuel during
               the 2006 to 2010 timeframe. Credits awarded for 500 ppm fuel produced prior to June 1,
               2007 should not be used to delay compliance with the 500 ppm NRLM standard in 2007
               or the  15 ppm nonroad standard in 2010. In addition, EPA should not allow for the
               creation of credits for early production  of 15 ppm fuel (prior to June 2009), since any
               such fuel could be treated as highway diesel fuel and the credits could be traded under the
               highway credit program.
       •       The baselines of refiners with multiple  refineries and importers with multiple points of
               import should not be allowed to be aggregated on a nationwide basis. This could have a
               negative impact on the nationwide availability of 15 ppm sulfur highway diesel fuel from
               2006 to 2010.

       Tesoro provided the following  suggestions for a baseline approach:
       •       A baseline percentage based on on-road diesel fuel production should be developed.
               Baseline percentages based on the facility's 2003-2005 on-road distillate production
               versus total distillate, or June 1, 2006 through May 31, 2007 total on-road distillate
               production versus total distillate should be derived.
               Refineries should be required to produce 15 ppm diesel equivalent to 68 percent of its
               baseline, which is derived from the requirement to produce 80 percent at the 15 ppm level
               and an adjustment factor of 85 percent. An adjustment factor is a critical safety margin
               for refineries that would provide needed flexibility to  address market shifts and
               operational difficulties.

       Wyoming Refining commented that the proposed definition of "Non-Highway Baseline

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                 Summary and Analysis of Comments
                                                                                       May, 2004

Percentage, B%" should be revised. The proposal defines the baseline as the percentage of diesel fuel and
heating oil produced or imported during the baseline period that was dyed, which presents a problem that
will make practical enforcement and compliance very difficult.  Since diesel fuel is dyed when dispensed
at the terminal, not at the refinery, the refiner producing exchanged diesel fuel and heating oil cannot
control and does not know whether diesel fuel delivered on exchange is dyed when sold.  Therefore, it is
impossible to track fuel produced that is dyed.  The problem in the proposed formula for the nonroad
baseline percentage is that it requires comparing a volume that can only be determined from sales data
(i.e. a sales volume with a production volume).  Wyoming Refining provided suggested changes to the
rule that will resolve this problem:
       •       It should be clarified that proposed Section 80.534(a) allows a refiner to use the off-
               highway baseline percentage provisions "in lieu of the  dye requirements of Section
               80.520(b)..", however, proposed Section 80.520(b) contains no dye requirements, only a
               prohibition against the presence of dye in on-highway diesel fuel and an acceptance of
               untaxed fuel that is dyed.  This provision seems to stem from the misconception that all
               off road diesel fuel is dyed at the refinery.  EPA's authority to change IRS rules on what
               must be dyed is limited.
               The purpose of the diesel fuel designation requirement of Section 80.523 should be
               clarified.  It is unclear why this designation is required for diesel produced rather than
               diesel sold- this provision seems to stem from the misconception that all off road diesel
               fuel is dyed at the refinery. For refiners who will be producing nearly all 15 ppm diesel
               fuel starting June 1, 2006, there seems to be little purpose in requiring designations, off
               highway baseline percentages, or a 20 percent limit on downgrades.

       Flint Hills Resources commented that the designate and track approach is highly preferred.
However, they stated, as an alternative EPA could determine the percentage of NRLM sold in each
PADD and apply that percentage to every refinery in the PADD. Credit sales could be used to better
match specific areas in the PADD that have high or low NRLM usage with refineries that have
corresponding capabilities.

       API, BP, ConocoPhillips, ExxonMobil, Marathon Ashland, and NPRA commented that if we
were to proceed with the baseline approach, it should be modified as follows to mitigate the resulting
adverse impacts:
               Refiners should be allowed to establish baselines that reflect their operations from June 1,
               2006 to May 31, 2007, in response to the requirements of the highway diesel rule.
       •       Seasonal  flexibility should be provided in allowing refiners to meet a higher than normal
               heating oil demand.
       •       The aggregation of refiner baselines, nationally or by PADD, should be allowed.
               Refineries should be allowed to apply for adjustments to their highway and nonroad
               baselines in their annual compliance reports based on DOE/EIA forecasts of changes in
               demand for highway and non-highway diesel fuels.
               Refiners should be allowed to meet an alternative highway baseline.

       In addition, API, BP, Marathon, and NPRA provided significant additional discussion on each of
these potential modifications, concluding that the baseline approach may simply be unworkable and if
implemented, should not be viewed as a precedent for future fuels regulations. NPRA commented that the
baseline compliance options as a ratio of product blends sets de facto production volume limits since
refiners are currently operating at or near capacity. NPRA also provided further discussion on the

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modification concepts above, specifically on providing seasonal flexibility for refiners and applying for
adjustments to baselines based on demand change forecasts. NPRA also recommended that we allow a
refinery to adjust its baseline if specific demands change due to the expiration of contracts for product
purchased or for new business contracts for specific products, otherwise, potential customers will have
undue leverage in any contract negotiations. Lastly, NPRA commented that to address the seasonal
flexibility issue, we should allow for the nonroad baseline percentage to be exceeded at the refinery's
discretion during the period from November 1 to March 31  of each year, provided that the increment of
production above the normal baseline is all heating oil that  is dyed and marked prior to sale.  The
incremental heating oil could be  reported separately as "seasonal heating oil." BP added that refiners
should have the capability to adjust the original nonroad baseline each year to reflect changes in contracts
of distillate fuels exempt from the nonroad and highway rules; that refiners should be provided with the
flexibility to comply with the nonroad distillate baseline, the dye and segregate option, or the highway
baseline; and that an enforcement mechanism should be established for refineries electing to comply with
either baseline approach. Without such an enforcement mechanism in place, BP stated, those refiners
who made the necessary capital investments to make 15 ppm and 500 ppm highway diesel fuel would be
at a distinct disadvantage to those who were in a position to produce, distribute, and market large volumes
of 500 ppm nonroad diesel fuel into the highway market.

        Letters:
        Alliance of Automobile Manufacturers,  OAR-2003-0012-0792 p. 3
        American Petroleum Institute, OAR-2003-0012-0804-0808 p. 6-8
        BP, OAR-2003-0012-0649 p. 2-4
        ConocoPhillips, OAR-2003-0012-0777  p. 7-8
        ExxonMobil, OAR-2003-0012-0616 p. 4-6, 12-14
        Flint Hills Resources, OAR-2003-0012-0667 p. 4
        Marathon Ashland, OAR-2003-0012-0826, 0827 p. 5-7
        National Petrochemical & Refiners Association, OAR-2003-0012-0814 p.  10-13
        Natural Resources  Defense Council, et.  al., OAR-2003-0012-0661, 0665 p. 24-26
        Tesoro, OAR-2003-0012-0662 p. 6
        Wyoming Refining Company, OAR-2003-0012-0651 p. 3-4

Our Response  (for 4.3.2.1.1 and 4.3.2.1.2):

        We proposed the baseline approach because, in the absence of a red dye requirement at the
refinery-gate for NRLM diesel fuel, we expected that it would allow for the fungible distribution of 500
ppm sulfur highway and NRLM  diesel fuel, ensure the enforceability of the highway diesel fuel and
NRLM diesel fuel standards, maintain the projected production volume of 15 ppm sulfur highway diesel
fuel, allow refinery production of 500 ppm sulfur NRLM and heating oil to remain flexible to meet
market demand, and enable the efficient distribution of diesel fuel while imposing the least burden on the
parties in the fuel production and distribution system.

        Of the options that were  available at the time of the NPRM, we expected that the baseline
approach would provide the best mechanism to achieve our fuel program goals. Since the proposal, we
have comprehensively evaluated the advantages and disadvantages of both the baseline approach,
including potential modifications, as well as the  designate and track approach. Based on this review, we
now believe that a baseline approach would produce significant adverse problems because of its overly
restrictive impact on the ability of fuel producers and distributors to efficiently respond to the needs of the

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                                                                 Summary and Analysis of Comments
                                                                                       May, 2004

markets for NRLM (as well as highway) fuel. Its implementation would also appear to produce an
unintended bias that would tend to reduce the benefits of the highway program and reduce the availability
of 15 ppm highway diesel fuel. We found that a designate and track approach can be implemented in an
enforceable manner and would not be expected to cause a reduction in the environmental benefits of the
highway diesel fuel program, or adversely impact the widespread availability of 15 ppm highway diesel
fuel. For these reasons, we have chosen to finalize the designate and track approach for today's fuel
program.

        For a more in depth response and discussion, please refer to section IV.D of the preamble to the
final rule.
       4.3.2.2 Designate and Track

       4.3.2.2.1       Support for Designate and Track

What Commenters Said:

       Many commenters supported the designate and track approach since it would eliminate
restrictions imposed by the proposed baseline method.  The designate and track approach is consistent
with the current distribution system, which will be used more efficiently by shipping and storing two
physically identical products together.  The current distribution system already allows for the ability to
track and differentiate between products and position holders of the same product. Pipelines currently use
multipurpose product specifications to achieve the desired fungibility and the reduction in the grades
handled is similar to what would be possible under the designate and track approach.  The current
approach allows pipelines to commingle products with similar specifications and simply track volumes to
assure compliance. Using industry volumetric accounting procedures, products are tracked from the
origin receipt to the delivery point, which may be the terminal truck rack for some pipelines.  Regular
gasoline, certain brands of premium gasoline, and jet fuel (both domestic and bonded) are moved fungibly
within pipelines. Pipelines meter product coming into and out of the system both as to ownership and
specifications. All affected parties rely on the pipeline's meter, which is regularly proved for accuracy.
Pipelines then conduct an inventory assessment to track both the ownership and quantities of these
products that are commingled.  This assessment entails  balancing the opening inventory against the
closing inventory, taking into account the products received into the system against the  products delivered
out of the system. Pipelines are accountable to their customers and settle any differentials on a monthly
basis. Product volume accounting and frequent metering is used, which could be provided to EPA
quarterly and reconciled annually. Pipelines also require origin Certificates of Analysis (COA) and
perform routine oversight testing as batches move through the system to ensure that appropriate
specifications are maintained. These records can also be provided to EPA on a monthly basis.

       Some commenters stated that while monitoring fuel movements through the system is somewhat
more burdensome on EPA, it is quite feasible using electronic reporting mechanisms. With electronic
reporting and potential electronic screening, EPA could screen results or review a representative sample
of reports to determine and focus enforcement efforts as necessary.  Only modest upgrading of
recordkeeping software would be necessary to ensure that this approach is fully workable.  In addition,
the  designate and track approach allows refiners to supply fuels to the market as needed, does not push
preset ratios of product into the marketplace in the hope that they will somehow match up with demand,

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                                                                Summary and Analysis of Comments
                                                                                      May, 2004

and eliminates the potential for more supply disruptions and market volatility. The designate and track
approach may be unenforceable if noncompliance were the norm, but pipeline and terminal operators will
continue to make the best effort to comply with the standards.  Commenters provided additional
discussion on this issue, including a description of how products are already being tracked throughout the
transportation network and how a designate and track approach would be incorporated into the existing
system, and recommended that EPA include the designate and track approach as a third option during the
three year phase-in period.  One commenter (Citgo) noted that designate and track should be the only
option since multiple options add unnecessary complexity and would likely require a pipeline to select
either the baseline or designate and track method.  This commenter provided additional details and
discussion regarding the logistical, recordkeeping and reporting, and enforcement issues that were raised
by EPA in the proposed rule and would need to be addressed under a designate and track approach.

        Additionally, API,  Citgo, and Marathon commented that the designate and track approach should
be used since it will be accepted by the industry. They commented that the relative reporting burden
imposed for dyeing versus the baseline approach to demonstrate compliance is quite large, and that given
the choice between the current proposed baseline approach and dyeing the fuel, most refiners will opt for
the dye approach. The commenters believe that the baseline approach is too inflexible and creates a
situation where a refiner may be forced to downgrade 500 ppm diesel to a limited heating oil market.
Using a dyed approach will eliminate most of the highway 500 ppm diesel in  the market since storage
will be limited.  The overall diesel supply system will need the volume of 500 ppm highway and nonroad
diesel that a fungible distribution alternative can facilitate.

        IFTOA commented that the designate and track program would not necessarily impose a huge
enforcement burden on the  EPA (as  some supporters of the baseline approach commented). IFTOA
believes that refiners and importers should be required to maintain appropriate volumetric records of on-
and off-road diesel fuel.  They also commented that compliance determined by volume in and out of the
facility would simplify the process substantially. Lastly, IFTOA stated that under the IRS EXSTARS
program, terminals are currently required to report and maintain records of all products entering and
leaving the facility; to fit with this program, refiners and importers could simply grant permission to the
IRS to allow their monthly  reports to be shared with the EPA.

        Citgo and NPRA specifically commented that the designate and track approach should be adopted
as it is a sound and prudent concept that is directly applicable to the fungible  shipment of 500 ppm diesel
fuel and to enforcement.  Even with a baseline approach, there will still  be a requirement to have a
designate and track program.   The adoption of a baseline compliance  strategy will not eliminate perceived
enforcement problems posed by the designate and track approach. Under the  baseline approach, it will
still be necessary to track volumes of baseline, undyed NRLM diesel for the purpose of compliance
verification. As a result, the refining industry would end up with mandated baseline compliance plus the
designate and track approach,  and EPA would still need to track product throughout the system.

        SIGMA/NACS commented that the designate and track mechanism would permit EPA to achieve
the environmental goals of the off-road program and preserve the integrity of the on-road program while
at the same time permitting refiners, pipelines, and bulk suppliers with maximum  flexibility to respond to
market demands and supply disruptions.

        Letters:
        American Petroleum Institute, OAR-2003-0012-0804-0808 p. 2-4,  21

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       Association of Oil Pipelines, OAR-2003-0012-0609 p. 4-12
       Citgo Petroleum Corporation, OAR-2003-0012-0707 p. 3-8
       ConocoPhillips, OAR-2003-0012-0777 p. 2
       ExxonMobil, OAR-2003-0012-0616 p. 4-6, 11-12
       Flint Hills Resources, OAR-2003-0012-0667 p. 2-4
       Independent Fuel Terminal Operators Association, OAR-2003-0012-0671, 0672 p. 3
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 3-4, 13
       National Association of Convenience Stores/Society of Independent Gasoline
                      Marketers of America, OAR-2003-0012-0635 p. 3-4
       National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 7-10
       Petroleum Marketers Association of America, OAR-2003-0012-0606 p. 2-3
       Sunoco, OAR-2003-0012-0509 p. 2
       Tesoro, OAR-2003-0012-0662 p. 4-5
       Williams Energy Partners, OAR-2003-0012-0626 p. 3
       New York Public Hearing, A-2001-28, IV-D-05 [API p. 24; AOPL p. 177]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [API p. 48]
       Chicago Public Hearing, A-2001-28, IV-D-06 [API p. 92-94]

       Colonial Pipeline commented that even though there are some compliance issues associated with
the designate and track approach, it can be a viable option. EPA should implement this approach and
should remove any marker requirements, which will eliminate concerns associated with jet fuel
contamination, test method accuracies and compatibility.  In considering the compliance issues associated
with a designate and track approach, EPA should consider establishing a clearinghouse for party-to-party
volume reconciliation and a range of tolerance for gains and losses. EPA should also examine the
possible use of Product Transfer Documents (PTDs), which would allow for the removal of marker
requirements.

       Letters:
       Colonial Pipeline Company, OAR-2003-0012-0694 p. 2

       Citgo and FHR commented that the designate and track approach would not reduce the volume of
15 ppm fuel required to be produced under the highway program. If a refinery invests in the capital to
produce 15 ppm highway fuel, they will maximize production regardless of which approach is used.
Also, there are safeguards in place with the current tracking system that will prevent refineries from
"cheating" and using NRLM diesel for 500 ppm highway diesel. In addition, a designate and track
approach will not reduce spillover volume since it is primarily driven by logistic constraints. There are
some pipelines and terminals where it does not make sense to carry two grades of diesel, and economics
dictate installing red dye injection systems and providing only low sulfur diesel to the terminal to be used
for both highway and nonroad diesel sales. The same will be true in the future.  Lastly, the commenters
stated that the designate and track approach is not a factor in capital decisions on whether or not to invest
for the production of 15 ppm highway diesel fuel.

       Letters:
       Citgo Petroleum Corporation, OAR-2003-0012-0707 p. 5
       Flint Hills Resources, OAR-2003-0012-0667 p. 2-4

Our Response:

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                                                                 Summary and Analysis of Comments
                                                                                       May, 2004

       As stated above in 4.3.2.1, we are finalizing the designate and track approach today in lieu of the
proposed baseline approach. In addition to the comments we received regarding the two approaches, we
also had many discussions with various parties throughout the fuel distribution system, which led us to
believe that the designate and track approach is the preferred method, as many parties are already
designating/tracking fuel as a part of their normal business operations.  They stated that only  modest
upgrades in their recordkeeping procedures would be needed to compile the needed information and that
preparing the necessary reports would not represent a significant burden. Thus, our concerns that a
designate and track approach might represent a large burden to fuel distributors were unfounded.  In
addition, we believe that we have developed appropriate solutions to the various open questions and
issues with the designate and track approach from the proposal, and that this approach can be designed to
meet the enforcement and compliance assurance needs of today's rule.  Section IV.D of the preamble
contains a complete discussion of the rationale of our decision to finalize the designate and track
approach.

       A complete discussion of the designate and track provisions that we are finalizing today is located
in section IV.D.3 of the preamble. The basic program is as follows:
               First, refiners will have to designate all of their diesel fuel at the point they deliver it to a
               party in the distribution system.
       •       When custody of a volume of fuel  is transferred to the next person in the distribution
               system, the transferor would again designate (in the product transfer document) the fuel
               that they deliver.
               The designation a party makes for  fuel that it delivers has to be accurate, e.g. fuel
               designated as 500 ppm NRLM has to meet that sulfur level.
       •       As long as certain volume balances are maintained over the required time period, parties
               in the distribution system are free to re-designate the diesel fuel in any way that is
               accurate (e.g. 500 ppm NRLM that is received can be redesignated as heating oil when
               you deliver it, 500 ppm NRLM can be redesignated as highway, and so on).
               In general, the designate and track  requirements stop when the diesel fuel has been taxed
               as highway diesel fuel, dyed as NRLM, or marked as heating oil.

       Further, there are various record keeping and reporting provisions to ensure that the required
volume balances are maintained.  Parties in the refining, importing and distribution system will register
with EPA and receive numbers that identify themselves and their facilities,  and these ID  numbers will be
used in tracking the fuel.  By comparing the volumes that each party reports as delivered or received to
the  reports of other parties in the system, we will be able to quickly verify whether the required volume
balances have been maintained.
       We considered utilizing IRS records and the IRS EXSTARS reporting system as a basis for our
designate and track program. However, difficulties in access to IRS records, and differences in the fuels
being tracked, prompted the need for a separate program.  However, there may be opportunities for both
Agencies to benefit from each others' programs in the future.
       4.3.2.2.2       Oppose Design ate an d Track

What Commenters Said:

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       Some commenters (NRDC, UCS, WIDNR) believed that the designate and track approach is
unlikely to meet specific objectives which should be achieved.  These objectives  include: adopting an
approach that maintains the benefits and program integrity of the highway diesel  program, maximizing
environmental benefits, ensuring adequate fuel supplies nationwide and the fungibility of highway and
nonroad fuels, and using an implementation approach that is verifiable, transparent, and enforceable. The
commenters believe that the designate and track approach will place an enormous compliance burden on
EPA and does not provide an opportunity for the public to evaluate the progress associated with
implementation.  They added that the lack of any centralized information bank combined with each
refiner's ability to designate each batch as it is produced would reduce our ability to predict when and
where low sulfur diesel is being delivered.

       The Alliance and CARB commented that the designate and track approach may not be feasible
given the complexity associated with this  approach and the potential for misfueling, and may create
problems with fuel  supply, verification, and enforcement. CARB also noted that several problems may
arise from using the designate and track approach: (1) all  distributors receiving marked and unmarked
fuel from the refinery would be required to document where the fuel was to be used, which would
mandate the creation of an infrastructure just to process the reports and track fuel sales and usage to
assure compliance in a timely manner; (2) it would be difficult to enforce given the number of entities
involved in the bookkeeping process; and, (3) if distributors overextend the allocation of diesel  fuel to
one sector over another, widespread disruption of the fuel supply could result.  CARB concluded that we
should adopt the fuel distribution proposal which would leave allocation in the hands of the refiners  as a
more verifiable and enforceable approach.

       The Clean Air Task Force, et al (including PIRG  and the American Lung Association)
commented that the main problem with the designate and track approach  is the lack of accountability.
Once the fuel is produced, designated, and leaves the refinery gate, the refiner would have no further
liability in the event that the fuel finds its  way into a market different from that for which it was
designated. The responsibility would instead lie with the  multitude of other actors in the fuel distribution
system that otherwise are not substantially and directly affected by the nonroad proposal. If a refiner
believes that the baseline approach overly restricts its marketing flexibility, then it can elect to continue to
dye its nonroad diesel fuel, as it has been  since 1993.

       Letters:
       Alliance of Automobile Manufacturers, OAR-2003-0012-0792 p. 2
       California Air Resources Board, OAR-2003-0012-0644 p. 6-7
       Clean Air Task Force, et. al., OAR-2003-0012-0508 p. 21
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 24
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 4
       U.S. Public Interest Research Group, OAR-2003-0012-0780 p. 2
       Wisconsin  Department of Natural Resources, OAR-2003-0012-0702, 0703 p. 3
       New York  Public Hearing, A-2001-28, IV-D-05 [CARB p. 141]
       New York  Public Hearing, A-2001-28, IV-D-05 [NRDC p. 34]
       New York  Public Hearing, A-2001-28, IV-D-05 [ALA p. 111]
       Chicago Public Hearing, A-2001-28, IV-D-06 [ALA p. 285]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [CARB p.  14]

Our Response:

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       Many of the concerns with the designate and track approach that commenters raised are those
highlighted by EPA in the proposal. Subsequent to the proposal, however, we have developed many
mechanisms to minimize or eliminate these concerns.  Conversely, during discussions with
representatives from the fuel industry, new concerns were raised with the baseline approach which defied
effective resolution. After careful review of both the designate and track and baseline approaches, we
have concluded that the designate and track is the approach that will best meet our program objectives.
Please see section 4.3.2.1 above, and section IV.D of the preamble, for further discussion on this issue.
       4.3.3   Dyes and Fuel Markers

       4.3.3.1  Use of Dyes at the Refinery Gate

What Commenters Said:

       API and Marathon commented that the use of red dye to distinguish products and detect
contamination is an effective solution to ensure compliance.  The compliance tracking issues downstream
of wholesale terminals concerning heating oil (2006-2010) and locomotive marine (2010-2014) are
unique due to current IRS regulations regarding the use of red dye.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 13
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 9
       New York Public Hearing, A-2001-28, IV-D-05 [API p. 23]
       Los  Angeles Public Hearing, A-2001-28, IV-D-07 [API p. 44]
       Chicago Public Hearing, A-2001-28, IV-D-06 [API p. 87]

       API and Marathon also commented that EPA should establish a mechanism that would allow for
the fungible  shipment of 500 ppm highway and nonroad diesel; therefore, they stated, the option to dye
NRLM at the refinery gate should be maintained as an alternative. The commenters believed that this
would be essential to minimize the stress on the downstream distribution system and facilitate the actual
distribution and availability of low sulfur diesel after 2006.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 2-3
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 3

       CHS commented that allowing for some flexibility may be helpful and may reduce costs and the
enforcement burden since the use of dyes or other markers for offroad diesel is complicated by the fact
that two 500 ppm fuels will exist simultaneously in the distribution system for several years. CHS also
expressed their support for the use of Solvent Yellow 124 in home heating oil.

       Letters:
       CHS Inc., OAR-2003-0012-0785 p. 3

       CHS also commented  that allowing for voluntary dyeing  at the refinery appears to be inconsistent
with the approach that would use dyed fuel at the gate for setting  baselines. EPA should reevaluate how

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baselines are established in the context of the use of dyes.  EPA's approach for determining the nonroad
baseline percentage for each refinery may not work if refiners would have the option of dyeing at the
gate, especially if the refiner only makes 15 ppm diesel. The formula for setting a baseline using dyed
fuel at the gate appears to negate the voluntary aspect of the dyeing.

       Letters:
       CHS Inc., OAR-2003-0012-0785 p. 3

       Wyoming Refining commented that the assumptions regarding the use of dyes in the distribution
system are incorrect.  The proposal indicates a belief on the part of EPA that all nonroad diesel fuel is
currently dyed at the refinery, that nonroad diesel fuel is always dyed before being transported by
pipeline, and that all refiners can track how much of their production is eventually dyed as nonroad diesel
fuel. These  erroneous assumptions have led EPA to propose rules governing fuel distribution and
segregation that are unworkable and unenforceable. [See additional discussion under Issue 4.3.1.]

       Letters:
       Wyoming Refining Company, OAR-2003-0012-0651 p. 2-3

Our Response:

       In place of the refiner baseline approach, we are finalizing a designate and track approach, as
discussed above in 4.3.2.  Under this approach, refiners/importers will identify whether their diesel  fuel is
highway or NRLM and the applicable sulfur level.  They may continue to dye their NRLM as they
currently do today, so there is visible evidence of the dye.  However, the designate and track provisions
were specifically designed to allow them to mix and fungibly ship highway and NRLM diesel fuels
meeting the  same sulfur specification without dyeing their NRLM diesel fuel at the refinery gate. The
volume designations will follow the fuel through the distribution system with limits placed on the ability
of downstream parties to change the designation. Only at the terminal will NRLM have to be dyed, just
as it is today for IRS tax purposes.  We believe that this approach will be the most useful for refiners and
importers, as it allows them to fungibly ship fuel meeting the same specification, rather than having to
separate non-dyed highway and dyed NRLM if we had finalized a provision to dye fuel at the refinery
gate.  Further, in discussions with refiners and other parties in the distribution system,  it was generally
stated that the requirement to dye NRLM fuel at the refinery gate would also have require the segregation
of highway and NRLM fuels meeting the same specification.
       4.3.3.2 Use of Fuel Markers

What Commenters Said:

       API and Marathon commented that they do not oppose the use of a separate marker for heating
oil during the unique transitions of the nonroad proposal since it may discourage and allow for the
detection of misuse of fuels downstream of wholesale terminals, but note that the value of its use should
be assessed against its potential quality impact and feasibility.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p.  13

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       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 9
       New York Public Hearing, A-2001-28, IV-D-05 [API p. 23]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [API p. 44]
       Chicago Public Hearing, A-2001-28, IV-D-06 [API p. 87]

       CHS expressed support for the use of Solvent Yellow 124  in home heating oil.

       Letters:
       CHS Inc., OAR-2003-0012-0785 p. 3

       IFTOA and PMAA commented that the use of a chemical marker to distinguish between nonroad,
locomotive and marine fuel and heating oil is simply unnecessary.  They further commented that widely
available technology to test the sulfur content of fuel should be used. Lastly, they stated that simple
enforcement procedures can more effectively and efficiently prevent the use of heating oil in nonroad
applications than the use of an expensive marker that requires equally expensive equipment to detect.

       Letters:
       Independent Fuel Terminal Operators Association, OAR-2003-0012-0671, 0672 p. 4
       Petroleum Marketers Association of America, OAR-2003-0012-0606 p. 1

       IFTOA, NORA, NEFI, and PMAA commented that we should not require the use of a fuel
marker since this approach would result in a loss of flexibility for terminal operators and could have an
adverse effect on fuel supplies. Independent terminals that are located in remote rural areas often only
have the capacity to store and market two fuels; on-highway diesel fuel and home heating oil. To meet
the needs of a nonroad marine or locomotive customer, a terminal could blend the two streams to achieve
a 500 ppm fuel. However, the use of a marker in the heating oil would preclude such blending.
Therefore, the use of a marker would restrict flexibility and would make it impossible for some terminals
to respond to consumer demand. One commenter (NORA) noted that blending 15 ppm product with
heating oil is often the most cost-effective approach for delivering  500 ppm sulfur fuel.

       Letters:
       Independent Fuel Terminal Operators Association, OAR-2003-0012-0671, 0672 p. 4
       National Oilheat Research Alliance, OAR-2003-0012-0840 p. 2
       New England Fuel Institute, OAR-2003-0012-0712, 0713  p.  3
       Petroleum Marketers Association of America, OAR-2003-0012-0606 p. 1-2

       The use of a fuel marker will have an adverse effect on the ease of alternating the use of the
NRLM dyed fuel with the 500 ppm fuel.  If a marketer alternates filling their tanks between nonroad
diesel containing red dye and clear onroad diesel without cleaning  the tanks and lines, contamination
occurs. This same issue will occur with yellow dye and during the winter months, this issue will affect a
marketer's ability to supply fuel to customers in a timely manner.  In addition, the use of a fuel marker
will have an adverse impact on marketers who sell both nonroad diesel and heating oil since they will be
forced to purchase extra tankage and trucks if they want to sell the NRLM dyed fuel, which is highly
impractical due to the costs involved.

       Letters:
       Petroleum Marketers Association of America, OAR-2003-0012-0606 p. 2

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       NORA commented that the marking system proposed by EPA will help with the implementation
of an averaging, banking and trading (ABT) program for refiners producing low sulfur fuel for off-road
(other than heating oil) applications.  However, a mandated marking system will be very costly and the
effectiveness of an ABT program to reduce these costs is uncertain at this time.  (See Issue 6.4.4 for
additional discussion on the costs associated with the use of a fuel marker).

       Letters:
       National Oilheat Research Alliance, OAR-2003-0012-0840 p. 1

       NORA also commented that any marking system should only be implemented after all the risks to
the homeowner and the environment from the proposed marker have been fully evaluated. Even though
the EU has used the proposed marker for a year, EPA should release all additive testing and toxicological
tests of all constituents and should provide an opportunity for comment on those tests  prior to the
finalization of the rule.

       Letters:
       National Oilheat Research Alliance, OAR-2003-0012-0840 p. 1-2

       NORA further commented that the  program of marking heating oil could undermine efforts to
encourage a low sulfur fuel for heating oil and thus the environmental achievements of organizations such
as NORA, which has invested considerable effort into a voluntary conversion to 500 ppm fuel. Even
though it appears that EPA's efforts could enhance  the distribution of this product, the marking
requirement will require terminal operators to decide whether they will mark the heating oil and incur a
capital expense or forego marking the fuel and limit their ability to import high sulfur heating oil (and
thus commit to selling fuel with a sulfur content of 500 ppm or less).  Unanticipated changes in demand
based on conditions such as a colder than normal winter season can require substantial imports to keep the
market in balance and to impose a marking system would limit the ability of refiners to blend higher
sulfur imported fuels with lower sulfur diesel to meet the overall demand. Commenter (NORA) provides
additional discussion on this issue noting that EPA's proposed marking system would impact both current
residential consumers of heating oil as well as all energy users since heating oil serves as a backup system
for both natural gas and electricity. (See Issue 6.4.4 for additional discussion on the costs that refiners
will face in order to distribute marked fuel).

       Letters:
       National Oilheat Research Alliance, OAR-2003-0012-0840 p. 2

Our Response:

       Given our decision to finalize reducing the  sulfur in locomotive and marine fuel to 15 ppm in
2012 (2014 for small refiner fuel), the addition of a marker to locomotive and marine diesel fuel after
2012 is no longer necessary to successfully enforce the program. However, the marker will be required in
LM fuel in the 2010 - 2012 timeframe.

       To prevent shifting heating oil into the NRLM market, we proposed that a fuel marker be added
to heating oil at the refinery gate, and that the presence of the heating oil marker in NRLM diesel fuel
would be strictly prohibited, this would be similar to red dye requirements for high sulfur diesel fuel that
were implemented in 1993 to prevent its use as highway diesel fuel subject to the then applicable 500

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ppm sulfur standard. We proposed that the marker be added at the refinery gate rather than at the terminal
for three additional reasons.  First, this seemed to be the least costly and most efficient way to add the
marker given that the number of terminals is far greater than the number of refineries.17  Second, marking
heating  oil as it is introduced into the distribution system would ensure that high sulfur small refiner and
credit NRLM fuel could be differentiated from heating oil at any point in the system. Third, under the
proposed baseline approach there was no true way to ensure that heating oil was not shifted into the
NRLM pool during distribution from the refinery/importer to the terminal.

        The comments summarized above, as well as discussions with various parties throughout the fuel
distribution system raised several concerns.  These concerns were  with jet fuel contamination, the costs
for segregating marked heating oil in the distribution system, and overall costs.  Since we are finalizing
the designate and track approach, we believe this will alleviate these concerns about the use of the heating
oil marker. By extending the designate and track approach to high sulfur NRLM diesel fuel and heating
oil, these otherwise identical fuel grades can be tracked down to the terminal, and the marker then can be
added at the terminal- at the same point where dye is added for IRS purposes- instead of at the refinery
gate.  Since it is not feasible to go beyond the terminal  with designate and track, given the breadth and
nature of the entities involved, the marker will still be required downstream  of the terminal (this includes
heating  oil). Shifting the point of marker addition downstream to the terminal eliminates any significant
opportunity for jet fuel contamination.  See issue 10.1.2.2. for additional discussion re marker
contamination concerns.  Shifting the point of marker injection to the terminal also addresses the
segregation issues raised by fuel distributors. The marker will no longer hinder the fungibility and ability
to mix different products with heating oil upstream of the terminal.

        However, discussions with terminal operators in the Northeast, and other representatives of
heating  oil users and distributors, revealed concerns that shifting the point of the heating oil marker
injection to terminals would represent a substantial burden. Terminal operators stated that the cost of
installing new injection equipment would be burdensome to them, the  cost of the marker would be
significant given the large volume of heating oil used in the Northeast, and the marker requirement was
not needed in the Northeast since neither small refiner nor credit NRLM would be  used in this area.  After
taking this into consideration, we modified the refiner flexibility provisions  in the final rule such that we
could avoid the need for the marker entirely in the Northeast, Mid-Atlantic states, and Alaska where the
majority of all heating oil is expected to continue to be sold. By doing so we have greatly reduced the
cost and burden of the marker provisions from the proposal. NORA's concern  that the heating oil marker
requirement might discourage the use of 500 ppm fuel for heating  purposes was predicated on the idea
that once a terminal had invested in marker injection equipment, it would have  an incentive to continue
marketing high sulfur heating oil.  Today's rule minimizes the number of terminals that will need to
install such injection equipment and the volume of heating oil that will need to  be marked, thereby
mitigating this potential concern. A further discussion of fuel markers is located later in chapter 10 of this
Summary and Analysis.

        We projected that as many as 1,000 bulk plants who previously handled only high sulfur fuel for
sale into both the nonroad and heating oil markets will  need to install an additional storage tank and
demanifold 3 tank trucks on average (converting from a single to two storage compartments per truck) in
order continue supplying both the nonroad and heating oil markets after the  implementation of today's
        17Additional injection equipment will be required to inject the heating oil marker.

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rule (See Chapter 7.4 of the RIA). We believe that the $120,000 cost per bulk plant, although significant,
will be manageable. When the distribution areas of two bulk plants overlap, such bulk plants may have
the option of entering into an exchange agreement so that they can continue to supply both the heating oil
and nonroad markets without the need to install an additional storage tank. Alternately, the bulk plant
operator could switch their storage tank from heating oil service in the winter to nonroad diesel fuel
service in the summer (contamination concerns are discussed below). We expect that the implementation
of today's rule will not result in the need for additional storage tanks or tank trucks at bulk plants beyond
that discussed above.

        We anticipate that due to the Northeast/Mid-Atlantic Area provisions in today's rule (see Section
IV.D. of today's preamble) few bulk plants will be faced with the choice of carrying marked heating oil.
Heating oil used in the Northeast/Mid-Atlantic Area and Alaska does not need to contain the heating oil
marker. After the implementation of today's rule, the vast majority of all heating oil in the U.S. will be
used in the Northeast/Mid-Atlantic Area. We expect that what heating oil remains outside of the
Northeast/Mid-Atlantic Area will be distributed directly from the refinery rack. Thus, only a limited
number of bulk plants outside of the Northeast/Mid-Atlantic Area will have access to  heating oil and be
faced with potential concerns regarding limiting marker contamination of nonroad diesel fuel.

        In situations where a bulk plant operator might use a stationary storage tank for marked heating
oil in the winter and nonroad fuel in the summer, we expect that the bulk plant operator could avoid
marker contamination of nonroad diesel fuel by switching to unmarked nonroad fuel prior to the end of
the heating oil season. By doing so, we believe that the tank could be turned over sufficiently so that
what ever marked heating oil might remain would not be sufficient to result in a concentration greater
than the 0.01 mg/liter threshold below which the presence of the marker in nonroad diesel fuel is not
considered a violation under today's rule. Switching compartments on tank trucks from marked heating
oil service to nonroad diesel service could be more readily accomplished. We anticipate that upon
completely emptying the tank compartment, the tank compartment and fuel delivery system could be
flushed of any residual marked heating oil with nonroad diesel fuel (that could then be sold as heating
oil).18
        4.3.3.3 Kerosene

What Commenters Said:

        API, Colonial, Marathon, and ExxonMobil commented that kerosene intended for off-road use
should not be dyed.  In Section 80.520, EPA proposes to require all kerosene not used in jet aircrafts to be
dyed, with the only exception being the kerosene in the refiner's 80/20 temporary compliance as 500 ppm
highway diesel fuel or in the baseline compliance option as non-highway volume.  This requirement
creates some major complications.  First, many states currently do not allow the use of red dye in
kerosene and EPA's proposal will create a conflict with State requirements.  Second, many fuels are
shipped under multipurpose specifications to create the greatest flexibility in the distribution system, and
the inclusion of the "for use only" comment would have an adverse impact on the production, movement,
        18 Depending on the applicable downstream sulfur standard for nonroad diesel fuel (See Section IV. A. of today's
preamble), this process may also be necessary to ensure that the nonroad diesel fuel is in compliance sulfur standard.

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and distribution of jet fuel, kerosene, and winterization volumes of 500 ppm diesel.  Third, beginning
with the winter of 2006/2007, some amount of 15 ppm kerosene will be needed for winter blending with
highway 15 ppm diesel and requiring this material to be dyed would preclude its intended use.  API and
Marathon further recommend that EPA allow for the continued use of multipurpose kerosene for K-l
kerosene, jet fuel, and winterization of 500 ppm highway diesel by allowing the movement of this fuel
undyed and the removal of the term "for use only" specifically for jet fuel.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 16
       Colonial Pipeline Company, OAR-2003-0012-0694 p. 3-4
       ExxonMobil, OAR-2003-0012-0616 p. 17
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 10

       AOPL and ConocoPhillips commented that when kerosene is blended with off-road diesel, it is
dyed at the terminal to meet IRS excise tax standards. If it is sold as aviation fuel or K-l kerosene, it
cannot be dyed since the aviation industry and the Kerosene Heater Association are concerned about
additives that may affect engine or heater performance.  If EPA imposes a requirement that kerosene be
dyed, any pipeline moving that fuel must do so as a separate batch, resulting in more interface and a need
for additional separate tankage. The seasonal nature of this product and the relatively small volumes used
will certainly limit the number of pipelines willing to handle it. EPA should permit kerosene for any
purpose to be carried in a fungible batch with the end-use being appropriately designated and tracked
through the distribution system for compliance. ConocoPhillips recommended that we work with the
FAA and others to assure that widespread use of ultra-low sulfur kerosene in jet aircraft does not have any
adverse consequences.

       Letters:
       Association of Oil Pipelines, OAR-2003-0012-0609 p. 17
       ConocoPhillips, OAR-2003-0012-0777 p. 4

       ConocoPhillips commented that dyeing the multi-purpose kerosene stream at the refinery gate is
not an option due to dye restrictions for jet fuel and kerosene used in space heaters, etc. In order to
continue to ship multi-purpose kerosene undyed, the refiner would either have to count the volume in
their diesel production (i.e. toward the 80/20 requirement), include it in their NRLM baseline, or ship the
entire volume as jet fuel. The kerosene distributed from the terminal would have product transfer
documents that would indicate the sulfur level, which prevents cross-contamination.  EPA must re-
examine this kerosene issue.  Since the actual volumes that  are used in diesel are relatively small, EPA
should consider excluding undyed kerosene from the refinery's highway 80/20 compliance calculations.

       Letters:
       ConocoPhillips, OAR-2003-0012-0777 p. 4

       ExxonMobil commented that it supports the proposed sulfur content restrictions for kerosene and
additives.

       Letters:
       ExxonMobil, OAR-2003-0012-0616 p. 22
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Our Response:
       We have modified the provisions for the final rule to avoid a dye requirement for kerosene.
Furthermore, we have designed the designate and tracking provisions to allow for the continued
wintertime blending of kerosene without undermining the enforceability of the provisions that are being
finalized.
4.4    Small Refiner Provisions

       4.4.1   General Support

What Commenters Said:

       Some small refiners and others commented that they support the proposed small refiner
provisions. The small refiners commented that they are at a financial disadvantage because of the higher
production costs per gallon and severe financing restraints; it is difficult for small refiners to raise capital
through earning or borrowing, and they are unable to secure capital from the normal lending markets or
from their owners.  Countrymark also commented that it is particularly difficult for cooperatives to raise
the necessary funds to make the improvements to the refinery to allow for the removal of sulfur from
fuels. Small refiners do not have the economies of scale that large refiners do, and they cannot allocate
costs or losses to other, more profitable segments of their business.

       Letters:
       Colorado Department of Public Health and Environment, OAR-2003-0012-0687 p. 2
       Countrymark Cooperative, OAR-2003-0012-0602 p. 1
       Frontier Oil Corporation,  OAR-2003-0012-0621 p.  1
       Small Refiners Coalition, OAR-2003-0012-0754 p. 2
       Texas Commission on Environmental Quality, OAR-2003-0012-0716, 0717 p. 1
       Western States Air Resources Council, OAR-2003-0012-0711 p. 2
       New York Public Hearing, A-2001-28, IV-D-05 [Gary-Williams p. 67]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [Countrymark p. 98]

       Some small refiners also commented that they do not have in-house research, engineering or
construction departments and do not have ongoing relationships with independent engineering firms and
large contractors who specialize in refinery construction.  As a result, small refiners will need much more
time than the larger refiners to arrange for outside engineering and construction. EPA should  maintain
the small refiner provisions in the proposed rule that allow for that extra time.

       Letters:
       Countrymark Cooperative, OAR-2003-0012-0602 p. 1
       New York Public Hearing, A-2001-28, IV-D-05 [Gary-Williams p. 67]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [Countrymark p. 99]

       Gary-Williams commented that the small refiner provisions are necessary since the cost of
compliance for these refiners are significant.  The refiner estimated that it will cost more than  $45 million
to revamp their refinery's hydrocracker unit and install the necessary ancillary equipment to provide 15

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ppm motor vehicle diesel fuel, which is more than twice what was paid for the refinery in 1995.  Gary-
Williams further added that increased operating costs are estimated to be about $5 million a year, and that
to desulfurize gasoline to the new national standard will require additional capital investment of about
$20 million, bringing their total capital commitment for compliance with these fuel desulfurization rules
to almost $70 million.

       Letters:
       Gary-Williams Energy Corp., OAR-2003-0012-0753 p. 2-3
       New York Public Hearing, A-2001-28, IV-D-05 [Gary-Williams p. 67]

Our Response:

       We agree that small refiners have an inherent hardship in complying with emissions standards
relative to non-small refiners. We are in fact finalizing the provisions that were proposed for small
refiners, including similar provisions for the treatment of locomotive and marine fuel. Provisions such as
these have proved invaluable for many small refiners in the recent implementation of the gasoline sulfur
standards, as well as in refiners' planning for the highway diesel standards.
       4.4.2   Oppose

What Commenters Said:

       Marathon and API commented that we should not allow for the extension of compliance
deadlines for small refiners and should promulgate a rule that provides a level playing field upon which
all refiners can compete. They stated that allowing small refiners and farm coops to meet the lower sulfur
requirements later than other refiners puts the quality of the diesel fuel in the distribution system at risk,
threatening the viability and value of lower sulfur products. Postponing compliance dates will also give
small refiners the ability to operate and produce substandard fuels longer and at a competitive advantage
and will not significantly change the business decisions that those refiners would ultimately make. The
commenters believe that the requirement that small refiners take steps to identify and track their
noncomplying products is insufficient to address these concerns.  In addition, they stated that many
refiners that are not qualified as small, are faced with situations similar to those of qualifying small
refiners with respect to their older or smaller refineries.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 17-18
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 12

Our Response:

       We do not agree with comments suggesting that small refiner flexibility should not be offered.
The Agency has identified regulatory flexibility provisions that assist small businesses in complying with
new standards while appropriately alleviating the burden that these businesses may face.  Small refiners
generally face unique circumstances with regard to compliance with environmental programs compared to
'non-small' refiners.  Absent specific provisions for small refiners, we would have to consider delaying
the overall program until the  burden of the program on many small refiners was diminished, which would

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delay the air quality benefits of the overall program. By providing temporary relief to small refiners, we
are in a better position to adopt a program that expeditiously reduces NRLM diesel fuel sulfur levels in a
feasible manner for the industry as a whole.

       We recognize that while the sulfur levels in the proposed program can be achieved using
conventional refining technologies, new technologies are also being developed that may reduce the
capital and/or operational costs of sulfur removal. We believe that allowing small refiners some
additional time for newer technologies to be proven out by other refiners may have the added benefit of
reducing the risks faced by small refiners. Further, this additional time may also increase the availability
of engineering and construction resources.  Some refiners will need to install additional processing
equipment to meet the nonroad diesel sulfur requirements.  Vendors will be more likely to contract their
services with the larger refiners first, as their projects will offer larger profits for the vendors.  Therefore,
we anticipate that there may be significant competition for technology services, engineering resources,
and construction management and labor.  Temporarily delaying compliance for small refiners will allow
for overall lower costs of improvements in desulfurization technology and would spread out the demand
for construction and engineering resources, and likely reduce any cost premiums caused by limited
supply.

       In regards to statement that small refiner fuel could possibly threaten the viability of lower sulfur
fuels, we recognize the concerns raised about the state of the distribution system, however we believe that
any problems that might occur will be readily solvable through such programs as designate and track (see
Section IV of the preamble for more information on this program). We do not believe that allowing the
presence of high sulfur small refiner fuel in the distribution system imposes a significant additional
burden with respect to limiting the sulfur contamination of 15 ppm diesel fuel. Today's rule does not
regulate the sulfur content of heating oil (current maximum sulfur content of 2,000 - 5,000 depending on
state requirements) or jet fuel (maximum sulfur content of 3,000 ppm per industry standard).  Thus, other
high sulfur fuels will remain in the fuel distribution system. The highway diesel rule will require  15 ppm
highway diesel fuel beginning 2006. Therefore, we expect that the distribution  system will be well
accustomed to limiting sulfur contamination during the distribution of 15 ppm highway fuel prior to the
2010 implementation date for the 15 ppm NR standard. Small refiner fuel will also not be the only higher
sulfur fuel in the distribution system, as the credit provisions and hardship provisions apply broadly to all
refiners. Neither do we believe that small refiner fuel will threaten the  value of lower sulfur fuels. Small
refiner fuel will be of limited value, small refiners already face higher costs, and small refiners often serve
isolated markets, which in many cases has allowed them to remain competitive despite higher than
average costs.
       4.4.3   Small Refiner Definition

What Commenters Said:

       Ergon and SIGMA commented that we should revise the definition of small refiner in the
proposed rule. EPA has proposed to adopt a small refiner definition that is identical to the onroad rule.
EPA should update this definition to reflect Congress' most recent declaration on the most appropriate
criteria for classifying refiners as small. The energy tax titles of H.R. 4, the House energy bill, and S. 14
(the Senate energy tax bill) all define a small refiner as a company that owns or operates/controls 155,000
barrels per day of crude oil refining capacity and employs fewer than 1,500 employees in its refining

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operations. The Congressional definition differs from EPA's proposed definition, which does not
distinguish between company employees engaged in refining operation and other employees in other parts
of the company unrelated to petroleum refining. In developing their definition, Congress has recognized
that the most relevant factors in determining size are the crude capacity cap and the number of workers
engaged in refining operations. EPA should recognize these factors as well.  EPA's definition does not
allow for Ergon and other refiners that employ more than 1,500 employees company-wide but own and
operate refineries that are very small in terms of crude capacity, to take advantage of important flexibility
provisions for small refiners.

       Letters:
       Ergon, Inc., OAR-2003-0012-0634 p. 3
       Society of Independent Gasoline Marketers of America, OAR-2003-0012-0635 p. 5-6
       Chicago Public Hearing, A-2001-28, IV-D-06 [Ergon p. 240; SIGMA p. 248]

       Crown Central commented that we should ensure that the definition of a small refiner is
consistent between all fuel regulations, and that the employment criterion should be eliminated from the
proposed rule.  Crown believes that this criterion works to the detriment of refiners who have retail
outlets, especially those who staff these outlets using employees rather than contractors. Approximately
ten personnel are required to staff a typical retail outlet and a refiner owning as few as 150 retail outlets is
likely to exceed the employee criteria. The proposed criteria were established to identify refiners who are
less able to comply but smaller and less efficient refineries tend to require more personnel per barrel of
capacity, and therefore, the employment criterion works against the intended outcome.  The employee
criterion is difficult to administer and enforce since a significant number of personnel can be engaged
through contractors, rather than by direct employment. If EPA decides that this criterion must be
included, it should be established at 1,500  employees in the refining segment (excluding retail, chemical,
and other segments unrelated to refining).

       Letters:
       Crown Central Petroleum Corporation, OAR-2003-0012-0640 p.  1-2

       ExxonMobil commented that we have unreasonably expanded the purview of the "small" refiners
to the current 155,000 BP/CD definition. ExxonMobil believes that refiners of this size simply do not
have a sufficient need for help to justify the additional level of complication required, the loss of emission
reductions involved, and the increased potential for contamination of ultra-low sulfur diesel. The refiner
further stated that the provisions would create a patently unfair situation in the marketplace since these
"small" refiners possess a considerable competitive advantage during the period when other refiners must
begin trying  to recover the cost of their investments to comply with the rule.

       Letters:
       ExxonMobil, OAR-2003-0012-0616 p.  18

Our Response:

       The  155,000 bpcd capacity limit and the 1,500 employee limit were first justified as appropriate
limits in the  Tier 2 gasoline rule.  The criterion of 1,500 employees is an SBA size standard. We will
neither be eliminating nor altering the scope of this criterion from the small refiner definition. Further,
this limit will enable the rule to remain consistent with previous fuel rulemakings.  Also, as with the

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previous rules, this limit will continue to apply to all employees of a company, not just those involved in
refining activities.

       When combined with the SBA size standards of having 1,500 employees or less, we continue to
believe that the 155,000 bpcd capacity limit is a very reasonable determination of who should be
considered a small refiner. Refiners of this size (or smaller) in previous rules have generally needed some
sort of regulatory flexibility to meet the standards finalized, and as such, we believe that this is an
accurate definition to determine the status of a refiner as small.
        4.4.4   Small Refiner Provisions

What Commenters Said:

        The compliance option to allow a 20 percent increase in small refiner gasoline sulfur standards
should be extended to all small refiners. The proposal provides an adjustment only to the small refiner
gasoline sulfur standard established under 40 CFR 80.240(a). There are one or two small refiners for
which small refiner gasoline sulfur standards were established through the hardship process of 40 CFR
80.270. These small refiners have had their hardship situation examined and affirmed in a quasi-judicial
proceeding and are experiencing as much or more hardship as many other small refiners. Commenter
(WFC) provides specific changes to the rule language in this regard.

        Letters:
        Wyoming Refining Company, OAR-2003-0012-0651 p. 1-2

        The requirement for the production of a minimum volume of nonroad diesel unnecessarily
restricts small refiners.  Proposed Section 80.554(d)(l)(ii) would require a small refiner choosing
compliance option #4 to produce 15 ppm nonroad diesel fuel "at a volume that is equal to at least 85
percent of V-NRLM." However, V-NRLM as proposed in Section 80.534(c)(l), is the maximum amount
of NRLM diesel fuel a refiner may produce.  These provisions require a small refiner choosing this
compliance option to produce at least  85 percent of V-NRLM but not more than V-NRLM.  This is
contrary to the apparent purpose of the proposed rule and restricts small refiners. Mandating a minimum
volume of NRLM production, either at 15 ppm or 500 ppm, would conflict with the purpose of
maintaining adequate on road 15 ppm volumes.  Commenter (WFC) provides revised rule language that
could be used to address this issue.

        Letters:
        Wyoming Refining Company, OAR-2003-0012-0651 p. 2

Our Response:

        EPA maintains the authority to consider flexibilities such as those contained in small refiner
Option 4 (the NRLM/Gasoline Compliance option being finalized in today's action) as part of a hardship
application.  However, as with any hardship application, the need for the flexibility would have to be fully
justified according to the hardship criteria in the regulations.
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       4.4.5   Disqualification of Small Refiner Status

What Commenters Said:

       EPA should maintain the current definition of small refiner. EPA should maintain the two
criteria of 155,000 bpd and less than  1,500 employees in the company.  The omission of the 155,000 bpd
criterion was obviously an administrative oversight as indicated by EPA.  The explanation provided by
EPA that both criterion were still in place and required and that the omission was a mistake, has
influenced CHS merger negotiations.  EPA should maintain the original requirement that the small
refinery lose its 'small' status upon merger/acquisition.

       Letters:
       CHS Inc., OAR-2003-0012-0785 p. 4

       A refiner should be disqualified from small refiner status when it exceeds the small refiner
criteria. Previous small refiner definitions lacked consistency and were incomplete in definition.  A
refiner designated as "small" should not be eligible for regulatory relief through EPA's small refiner
program, use those savings to help finance large mergers and acquisitions to expand beyond small refiner
criterion, and then be eligible for further EPA small refiner relief. From an environmental and
competitive perspective, EPA must take action on this matter immediately to maintain the integrity  of its
small refiner program.

       Letters:
       Sinclair Oil Corporation, OAR-2003-0012-0704, 0829 p. 4
       Tesoro, OAR-2003-0012-0662 p. 2

       EPA has not addressed the issue of a refiner (non-small) that is acquired by a "small" refiner,
which then loses its small refiner status by doing so. In response to a recent hardship application, EPA
extended small refiner options to a former non-small refinery, even though that refinery had previously
been required to meet the non-small refinery standards prior to acquisition. Such actions by EPA seem to
suggest a disregard for the need for equal treatment and fairness under any small refiner provision.  EPA
should prevent unjustified extensions of hardship status by including provisions that clearly state that any
"small" refiner who loses its small refiner status due to knowingly acquiring a non-small refinery with
non-small refinery requirements is ineligible for any type of hardship relief.

       Letters:
       ExxonMobil, OAR-2003-0012-0616 p. 18-19

       Stancil & Co.  commented that we should modify the language regarding crude capacity to allow
two qualified small refiners that merge together to retain small refiner status even if the merged crude
capacity exceeds 155,000 bpcd (and offered suggested language  in their comments).  Stancil commented
that it believes that mergers are a "joining" of company assets and can be done without any money
changing hands.  Further, mergers are contemplated as a way to improve competitive position and are
defensive in nature; they reduce costs by consolidating manpower, knowledge, and corporate overheads.
Stancil also stated that mergers do not improve the new entity's balance sheet or borrowing capability,
and future capital spending requirements are not drastically reduced.  Stancil further commented that
acquisitions  are altogether different: one refiner buys another for reasons of enhanced value and growth;

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the acquisition is expected to pay out a reasonable return on the purchase price and often be accretive to
earnings immediately; and the acquiring refiner considers in the price negotiations the capital spending
requirements post completion and makes sure they can fund those requirements while still meeting the
payout criteria.

        Letters:
        Stancil & Co., for Western Refining Company, OAR-2003-0012-0843 p. 1-3

        The small refiner status of an entity that expands from internal growth should be able to keep its
small refiner status, but not small refiners that grow by acquisition or merger. The proposed  rule has the
unintended consequence of disqualifying refiners who have grown internally without merger or
acquisition.  The problem is one of strict interpretation of the language defining the requirements for a
small refiner, and the placement of the words "and" and "or." In addition, the proposed rule does not
include similar provisions for a continuance of small refiner flexibility  for refiners who qualified under
the on-road diesel sulfur rule. In fact, the language in the proposed rule is in direct conflict with the
language in the preamble.  Commenter (Murphy) provides additional discussion on this issue and
recommends that EPA clarify their intent in the preamble language, and adjust the rule language
accordingly. This commenter provides recommended rule language to address these issues in Attachment
1 to their letter.

        Letters:
        Murphy  Oil, OAR-2003-0012-0212 p. 1-3, Art. 1
Our Response:

       In the Tier 2 gasoline rule, the 155,000 capacity limit was justified as an appropriate limit for
small refiner status. Since then, it has served as one of the two criteria (the other being the 1,500
employee limit) for the definition of a small refiner. However, it was inadvertently left out of the
regulations when it came to circumstances that would disqualify a refiner if they grew. The purpose of
adding it in today's action is merely to correct that mistake, not to re-define small refiner criteria.

       We also do not agree with the idea that a small refiner, that meets the nonroad small refiner
definition, but later exceeds the employee limit or the 155,000 bpcd limit due to normal business practices
(i.e. not through a merger with a non-small refiner or the acquisition of any size refiner) should
automatically lose its small refiner status. We do not intend for the small refiner program to stifle growth
through normal business practices, as this is markedly  different than a company electing to acquire
another company.

       We proposed that an approved small refiner that exceeds the 1,500 employee limit or the 155,000
barrel per calendar day crude capacity limit due to merger or acquisition will lose its small refiner status.
Our intent has been and continues to be, limiting the small refiner relief provisions to a small subset of
refiners that are truly challenged. At the  same time, it  is also our intent to avoid stifling normal business
growth. Therefore, the regulations we are finalizing today will disqualify a refiner from small refiner
status when it exceeds the small refiner criteria through its involvement in transactions such as being
acquired  by or merging with another entity, through the small refiner itself purchasing another entity or
assets from another entity, or when  it ceases to process crude. However, an approved small refiner which

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exceeds the employment or crude oil capacity criteria without merger or acquisition, may keep its small
refiner status. Furthermore, in the case of a merger of two small refiners, we will allow both entities to
retain their small refiner status if they exceed the employee or crude capacity criteria. We agree with
commenters that in this situation additional financial resources are not being provided, and as a result the
justification for small refiner relief is still valid. The amount of lead time being offered for small refiners
that lose their small refiner status through acquisition is discussed below.

        In a change from the proposal, we have also  allowed for some continued flexibility for those
refiners who qualified as small for the Highway diesel rule, but will not qualify under this final rule. We
did not intend for the small refiner provisions  of the NRLM program to undermine the benefits of other
small refiner programs, however we do want to preserve the provisions for small refiner status to those
refiners that meet the criteria described in section IV.C. of this preamble. Under the program in the
NPRM, refiners that qualify for small refiner status for previous fuels programs but not for the NRLM
program would have to produce 500 ppm sulfur NRLM diesel  fuel in 2007,  15 ppm sulfur highway and
NR diesel fuel in 2010, and 15 ppm LM fuel in 2012. To maintain small refiner flexibility for the
highway program (and limit flexibility somewhat for today's program), we are providing refiners facing
this situation the flexibility to entirely skip the first step to 500 ppm for NRLM.  However, they would be
required to comply with the 15 ppm sulfur standards for both the highway and NR programs in 2010 and
the LM program in 2012.
        4.4.6   Lead time After Acquiring a Small Refinery

What Commenters Said:

        CHS Inc. commented that the event that a large refiner acquires a small refiner, EPA should not
provide an extension- the EPA proposal to allow an additional 24 months for compliance in cases where a
large refiner purchases a small refinery, is unnecessary and may only benefit the large refiner. This could
be used as a delay tactic and is inconsistent with the approach taken in the highway rule. Any small
refinery that did not originally apply for (and receive) 'small refiner' status should not receive a
compliance extension of 24 months.

        Letters:
        CHS Inc., OAR-2003-0012-0785 p. 4

        ExxonMobil commented that the  proposed provision to provide "small" refiners that lost their
small refiner status due to mergers or acquisitions a minimum of a two year lead time to comply, should
be limited to those small refers who merge with other small refiners. In addition, it would be
inappropriate to allow such small refiners to generate any credits for "early" production of lower sulfur
diesels during this two year lead time.  EPA should recognize that mergers and acquisitions are internal
business decisions that should not be based on an advantage bestowed by EPA.

        Letters:
        ExxonMobil, OAR-2003-0012-0616 p. 18

        Crown and Valero commented that the proposed time frame of 24 months for a refiner who loses
small refiner status to construct desulfurization facilities is reasonable once approval  is given. However,

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the new management of the former small refinery will likely have different perspectives and plans for the
facility and should be allowed to review the processes, technology selection, and other project issues, and
be given adequate time to merge the required capital expenditure into the capital budgeting and approval
process. A transition criterion of 24 months would tend to result in the submittal of a waiver application
following almost every small refinery acquisition by a larger entity. Therefore, EPA should establish a
transition criterion of 36 months.

        Letters:
        Crown Central Petroleum Corporation, OAR-2003-0012-0640 p. 2
        Valero Energy Corporation, OAR-2003-0012-0628 p. 1-2

        Tesoro commented that the two year phase-in period to come into compliance with the standards
after losing the small refiner exemption or for a refinery previously owned by a small refiner and sold to a
non-small refiner, is appropriate (provided there are provisions to extend this time period as necessary).

        Letters:
        Tesoro, OAR-2003-0012-0662 p. 2

Our Response:

        We agree that some time is necessary for a refiner to come into compliance after losing their
small refiner status.  The lead time necessary to comply with today's standards could otherwise force the
refinery to shut down. As discussed in section IV of the preamble, we agree that 24 months may not be
sufficient in many cases.  Therefore, in order to provide some certainty, we are finalizing a provision for
refiners that acquire a refiner or refinery that, prior to the acquisition, was taking advantage of the small
refiner provision to delay compliance. The acquiring refiner would be afforded 30 months of additional
lead time to perform any necessary upgrades for the acquired refiner/refinery to meet the non-small
standards. We believe that 30 months is both a reasonable and adequate amount of time. This lead time
will not be afforded to the acquired refinery in instances where a 'non-small' refinery is acquired. The
additional lead time will only apply for an acquired refinery that was previously considered small.

        Similarly, in the case of a small refiner that acquires a non-small refinery,  that small refiner will
be afforded 30 months of additional lead time for its existing refinery to be able to comply with the non-
small standards. However, it will not receive any additional lead time for the newly acquired refinery.

        Furthermore, since the purpose of this grace period is solely to provide time to bring the refinery
into compliance with the NRLM standards, refiners will not be allowed to generate credits for early
compliance during this 30 month period.  We have also included provisions for a refiner facing instances
where the technical characteristics of its planned desulfurization project require additional lead time to
apply for additional time.
       4.4.7   Small Refiner 'Option 4'

What Commenters Said:



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        Gary-Williams Energy commented that delayed finalization of the rule could undermine small
refiner flexibility. The proposed rule outlines four options for small refiners (80.554). In lieu of Options
1, 2 or 3, a refiner may elect Option 4, which would allow refiners to increase their interim gasoline per
gallon average and cap by 20 percent, effective January 1, 2004, if the company produces 15 ppm offroad
diesel fuel by June 1, 2006. However, it now appears unlikely that EPA will  issue the final rule before
January 1, 2004. In fact, final publication may be delayed until sometime much later in the year.  As a
result, companies like Gary-Williams Energy which elect Option 4 will be significantly disadvantaged.
Delay in issuing the nonroad rule and thus the opportunity to apply the interim gasoline flexibility will
prevent refiners from taking full advantage of the credits they have earned. If the nonroad rule is issued
and effective subsequent to January 1, 2004, EPA should create a provision that would address the
disadvantages resulting from delaying the small refiner interim gasoline flexibility of Option 4. Gary-
Williams provided additional discussion on this issue including suggested alternatives such as granting
temporary relief in order to realize the agency's intent expressed in Option 4 or revising the sulfur caps to
adjust for the disadvantage caused by delay.

        Letters:
        Gary-Williams Energy Corp., OAR-2003-0012-0753 p. 2-3

        The ad-hoc coalition of small refiners commented that if the final rule is not issued before
January 1, 2004, the effective date for the small refiner interim gasoline flexibility option provision
should be made to accommodate the intent of the proposal by granting temporary relief through the Tier 2
gasoline rule hardship provision, increasing the cap and per gallon average and/or extending the
applicable time period.

        Letters:
        Small Refiners Coalition, OAR-2003-0012-0754 p. 2

        Countrymark Cooperative commented that EPA should clarify whether a small refiner who has
already committed to producing ultra-low sulfur diesel by June 1, 2006 in exchange for an extension of its
interim gasoline sulfur standards under 40 CFR 80.553, can elect to exercise the options allowed under 40
CFR 80.554. In addition, 40 CFR 80.554 is not clear as to how many of the first three listed options a
small refiner can choose. If a refiner can elect to take any or all of the first three options (in the event that
it does not elect to use option 4), it should be clearly stated in the rule. It is important that small refiners
be able to use options 1, 2, and 3 in combination with each other.

        Letters:
        Countrymark Cooperative, OAR-2003-0012-0602 p. 2

Our Response:

        We believe, consistent with past interpretations of our rules, that Option 4 can also apply to
refiners in hardship situations if they can demonstrate that it is the appropriate relief in a hardship
situation, where we determine that one exists pursuant to the hardship criteria. In regard to the refiners
commenting that a provision would be needed for small refiners wishing to use Option 4 if the rule is not
finalized by January 1, 2004, we have already issued an enforcement discretion which would allow
refiners to use this option from January  1, 2004 until this rule becomes effective 60 days from today.
Regarding the clarity of the provisions, we have  revised the language  of these provisions and believe that

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it satisfactorily addresses the clarity concerns that commenters expressed. These provisions are described
in section IV.B of the preamble.
       4.4.8   Other

What Commenters Said:

       Crown Central commented that refiners who divest, and as a result, meet the criteria for small
refiner status should be allowed to apply for a hardship waiver.

       Letters:
       Crown Central Petroleum Corporation, OAR-2003-0012-0640 p. 2

       Countrymark Cooperative commented that EPA should continue to evaluate the impacts of this
rulemaking on fuel supplies, particularly in the context of the small refiners' ability to efficiently
segregate and move their product.  EPA should evaluate on an ongoing basis, the impact of the regulation
on refiners, and particularly small refiners.  While small refiners make up only a small percentage of the
U.S. refining capacity, each plays an important part in the markets it serves, and the loss of any small
refiner would be damaging to those markets and to the consumers. Even a small loss in refining capacity
can cause supply shortages and price spikes. The U.S. refining capacity  is  already at a critically low level
and any further reductions would result in supply shortages and increased reliance on off-shore refining.

       Letters:
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [Countrymark p. 100]

Our Response:

       Small refiner hardship provisions are for the purpose of allowing refiners that are small an
opportunity to comply with the standards without undue hardship. They are not intended to provide a
mechanism for other refiners to escape from the standards by selling off assets or reducing employee
count.  If other refiners are facing hardship, we have provisions to grant flexibility if justified.

       We believe that the provisions being finalized today will help alleviate the burdens on small
refiners, and enable them to comply with the sulfur standards being set without negatively impacting
supply. We will continue to assess supply throughout the implementation of these standards.
4.5    Hardship Provisions

       4.5.1   Deadline for Hardship Applications

What Commenters Said:

       Crown Central commented that EPA should allow refiners to apply for a hardship waiver at any
time prior to the full implementation of the regulation. The proposed rule includes a 2005 deadline for
the application of a hardship waiver, even though the rule will not be fully implemented until 2015. In

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business, conditions can change radically overtime and a refiner who encounters difficulties with
compliance should be able to seek relief as necessary to assure continued operation.

       Letters:
       Crown Central Petroleum Corporation, OAR-2003-0012-0640 p. 2

Our Response:

       Due to our comprehensive evaluation of both financial and technical information, we are
finalizing the requirement that refiners seeking additional time under the hardship provision must apply
for relief by June 1, 2005. However, we realize that unusual circumstances could be
apparent now or could emerge in the future, therefore we also retain the discretion to consider hardship
applications later as well, for good cause.
       4.5.2   Notification to States on Potential Hardship Waivers

What Commenters Said:

       The New York Department of Environmental Conservation commented that EPA should ensure
that there is adequate communication with the States regarding any waivers associated with small refiners
or hardship. The proposed rule does not include any process of notification regarding potential waivers
that could be granted to industry by EPA. Fuel properties such as sulfur content have impacts on
emissions inventories used by states for air quality planning purposes. Any deviations from fuel content
regulations that affect fuels consumed can undermine the State planning process.  The commenter also
noted that even though waivers may be acceptable in some cases, there should be  greater communication
from EPA regarding these decisions since they impact the quality of fuels consumed in New York and
could have an adverse impact on air quality.

       Letters:
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 4

Our Response:

       We plan to communicate closely with all affected parties, including states, on the fuel provisions.


       4.5.3   GPA Refiners

What Commenters Said:

       Sinclair commented that EPA should offer incentives to GPA refiners to enhance NRLM diesel
fuel sulfur compliance if there is an environmental benefit. Sinclair stated that it believes that the interim
gasoline sulfur cap adjustment and the one year extension in the interim gasoline sulfur standards should
be maintained.  Sinclair further commented that, with respect to the cap adjustment, EPA should apply
this incentive to the gasoline  sulfur cap (not the 150 ppm sulfur average), meaning the sulfur cap  for
participating GPA refineries would be no higher than 345 ppm.

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       Letters:
       Sinclair Oil Corporation, OAR-2003-0012-0704, 0829 p. 6-7

Our Response:

       We disagree with the statements made by the commenter. The entities that currently receive this
relief are in hardship situations (qualified small refiners and refiners with approved hardship relief). The
commenter is suggesting that GPA refiners also have an inherent hardship situation, similar to small
refiners, which we do not agree with. GPA refiners may, however, apply for hardship relief.
4.6    Technological Issues or Limitations of Meeting the Sulfur Standards

       4.6.1   Technical Feasibility of Producing 15 ppm Nonroad, Locomotive, and Marine Fuel

What Commenters Said:

       Environmental Defense, NRDC, and STAPPA/ALAPCO commented that the proposed 15 ppm
standard is feasible. Desulfurization technology is already available worldwide, and as more active
catalysts and new processes to hydrotreat and otherwise reduce sulfur levels are developed and refined,
both capital and operating costs should decline.  The successful adoption of 10 ppm sulfur diesel in
Sweden and Germany demonstrates that ultra-low sulfur diesel fuels can be affordably achieved with
current technology.  One commenter (STAPPA/ALAPCO) provided additional discussion on the
technologies used by refineries to remove sulfur from diesel feedstocks (i.e. hydrotreating) as well as the
technologies that are currently being developed, such as more active catalysts. This commenter also
noted that many additional changes can improve sulfur removal performance of current distillate
hydrotreaters by 40 to 60 percent, such as a reduction in hydrogen sulfide concentrations, an improved
vapor-liquid distributor, and an increase in hydrogen purity.  An increase in the reactor temperature could
also lower sulfur levels but can reduce the lifetime of the catalyst. More extensive changes could include
increased reactor volume and addition of a reactor.  The commenter concluded that refiners have a variety
of technical options for reducing sulfur concentrations down to the necessary levels.  Environmental
Defense noted that most western refiners will be producing 15 ppm by 2006 and many refiners will be
producing significant quantities as early as 2004.

       Letters:
       Environmental Defense, OAR-2003-0012-0821 p. 16
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 26
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 10-11

       API and Marathon commented that production of 15 ppm nonroad diesel is technologically
feasible but could result in significant yield losses.  Diesel fuels are formulated from various refinery
streams, including production from conversion units and virgin feed stocks. Each of the streams contains
numerous types of sulfur compounds, which can be simple or immensely difficult to process. There are a
number of reliable methods for the production of ultra-low sulfur diesel. The first alternative to be
considered is usually reconfiguration (revamps) of existing assets. In situations where a revamp is
insufficient,  other processing options such as hydrotreating are considered. API provided additional
discussion on the possible options that refiners can take to reduce sulfur, and the potential yield losses

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associated with these options. The commenter asserted that no matter which option a refiner elects to
construct, there will be yield losses.  In addition, a refiner must further include excess capacity in the unit
design to have the capability of reprocessing off-spec diesel. In new units, refinery planners may include
an additional 5 percent for downtime and 5 percent or more for off-spec processing. If a refinery does not
have the capacity to make up for lost or off-spec production, the additional volume will disappear from
the market.  EPA must assess the likelihood of significant product yield loss resulting from the
application of hydrotreating and other technologies and strategies as well as the overall impact that these
losses would have on the supply of diesel fuel.

        Letters:
        American Petroleum Institute,  OAR-2003-0012-0804-0808 p. 18-20
        Marathon Ashland, OAR-2003-0012-0826, 0827 p. 18-19

Our Response:

        We agree with commenters that the 15 ppm standard is technologically feasible. Refining
technology is technically capable of desulfurizing all refinery streams to 15 ppm, although the  cost varies
among the different streams.  Furthermore, we have provided provisions in the final rule that will allow
flexibility for distribution and sale of off-spec material, especially that generated in the distribution
system without requiring it to be reprocessed. Please see the response to issue 4.6.3.1 for a more detailed
discussion and response to the issues of product yield losses and supply.
        4.6.2   Permitting

What Commenters Said:

        API, ExxonMobil, and Marathon commented that they support the continuation of national and
regional permit teams to facilitate permit reviews.  The proposed rule will add to the already numerous
projects, and thus the construction resources and permits needed, to complete refinery capital
improvements.  EPA should continue to support and facilitate the permitting of needed refinery and
distribution system facility changes that will be required by the rule.

        Letters:
        American Petroleum Institute, OAR-2003-0012-0804-0808 p. 21
        ExxonMobil, OAR-2003-0012-0616 p. 21
        Marathon Ashland, OAR-2003-0012-0826, 0827 p. 13

Our Response:

        We plan to continue the efforts begun for the Tier 2 gasoline and highway diesel fuel programs,
to help states in facilitating the issuance of permits under the NRLM diesel fuel sulfur program whenever
such assistance may be needed and requested.  We anticipate that such assistance may include both
technical and procedural assistance as would be provided by the appropriate EPA Regional and
Headquarters offices.  To facilitate the processing of permits, we encourage refineries to begin
discussions with permitting agencies and to submit permit applications as  early as possible.
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       4.6.3   Impact of Standard on Reliability of Nonroad, Locomotive, and Marine Diesel Fuel
               Supply

       4.6.3.1  Supply Shortages

What Commenters Said:

       NPRA commented that the proposed rule is likely to cause  supply shortages. The supply and
demand balance will most likely tighten in the diesel market due to the highway diesel standards,
effective in 2006. High capacity utilization rates at U.S. refineries, growing petroleum product demand
for transportation fuels, and the need to address several overlapping fuel standards could stretch supply
capabilities to the breaking point. Given these conditions, the likelihood of tight fuel supplies and price
volatility becomes much higher, and could be exacerbated by the proposed rule. NPRA also  provided
data and graphics to support their conclusions on this issue, including information on gasoline, distillates
and jet fuel imports, typical refinery production in terms of fuel type produced, highway diesel supply
sources, and highway diesel movement within the U.S. Lastly, the  commenter cited to examples where
supply disruptions have resulted from the implementation of fuel sulfur standards.

       Letters:
       National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 4-7
       New York Public Hearing, A-2001-28, IV-D-05 [NPRA p. 86]
       Chicago Public Hearing, A-2001-28, IV-D-06 [NPRA p. 22]

       API, ExxonMobil, and Marathon commented that EPA has not substantiated its conclusion that
the proposed nonroad diesel rule will not adversely affect diesel fuel supplies. EPA examined four cases
that could adversely affect the supply of nonroad diesel fuel due to  the implementation of the proposed
rule. These include blendstock shifts, processing losses, exits from the NRLM diesel fuel market and
refinery closure. EPA addressed each of these areas  using unsubstantiated arguments and its analysis
suffers from a lack of any formal economic or engineering analysis to support its claim of negligible
supply impacts. API provided significant additional discussion  on each of the four arguments used by
EPA in support of its claim that no supply shortages will result,  detailing why EPA's analysis in this
context is  inadequate.  API also provided a copy, and detailed discussion and summary of the Baker &
O'Brien Study, which shows that supply shortages will occur and that some refiners will close as a result
of the proposed rule.

       The commenters further stated that EPA cannot reach a conclusion regarding supply  without
defensible supporting data and analysis. In addition, EPA's supply  analysis is not adequately integrated
with the potential supply impacts of the impending highway diesel  rule, and since it is assumed that there
is no tightness in the highway diesel volumes, the cumulative impact of the proposed nonroad diesel rule
is not accurately assessed.  A recent study by Baker & O'Brien shows that the nonroad diesel rule will
exacerbate an already tight diesel market brought about by the impending  highway diesel rule.  This
conclusion is also supported by a recent research report (Fitch Special Report, "What a Smell of Sulfur!"
Impact of Low Sulfur Regulations on the U.S. Refining Sector, July 1, 2003) and by the  EIA (Energy
Information Administration, Department of Energy, Timing of Startups  of the Low Sulfur and RFS
Programs p. 6, September 2002).  In addition to having inadequate  data and analysis to support the four
cases discussed in the RIA, EPA does not account for the potential  strain on the construction and
engineering firms that will be used to make the necessary changes to the refineries and has not given

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sufficient attention to potential operational upsets or downgrades.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 23-32
       ExxonMobil, OAR-2003-0012-0616 p. 21
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 19-28

       ExxonMobil also commented that the key distribution issue remains how to fit the 500 ppm grade
of highway and nonroad diesel in the 2006 to 2010 period into an existing one or two grade distillate
distribution system.  To the extent that a viable mechanism can be defined that allows for the fungible
shipment of highway and nonroad low sulfur diesel during this period, distribution issues will be eased,
but not solved entirely.  Individual terminals with the capability to manage one or two grades of distillate
will need to parse the three-grade structure in such a way that all three grades of fuel are generally
available, which will allow for a viable distribution system that can maximize the use of the flexibility
provided in the highway and nonroad diesel regulations.

       Letters:
       ExxonMobil, OAR-2003-0012-0616 p. 20

Our Response:

       API raised supply concerns related to the proposal, and comments by others are within the scope
of the API comments. API raises two issues related to EPA's projection that there would be an adequate
supply of NRLM fuel under the proposed standards. The first objection is that we assumed that there
would be an adequate supply of highway diesel fuel (15 and 500 ppm) under the 2007 highway diesel fuel
program, which they challenged. The second objection is that the proposed NRLM fuel standards would
exacerbate this already tight supply situation. Thus, this analysis will begin with the impact of EPA's
2007 highway diesel fuel program on diesel fuel supply, followed by a further assessment of the impact
of the proposed NRLM fuel program on supply.  EPA's response applies equally to nonroad, locomotive
and marine fuel supply.

       Supply Under the 2007 Highway Diesel Fuel Program

       API claims that EPA underestimated the supply impacts of the proposed NRLM  standards by
starting with the assumption that there will be ample supply of diesel fuel after implementation of the
2007 highway diesel fuel program. API cites three studies which project that the 2007 highway diesel
fuel program will cause some degree of supply shortfall in the first year or two of the program.  These
studies were performed by 1) Charles River Associates and Baker and O'Brien (CRA)/BOB),2 2) EIA,3
and 3) Fitch.4 API did not mention three other studies which addressed the fuel  supply impacts of the
2007 highway diesel rule, those performed by 1) Muse-Stancil,5 2) National Economic Research
Associates (NERA)6 and 3) Mathpro.7 These latter three studies identified a number of shortfalls
associated with the three studies  cited by API and projected little, if any shortfall was likely to occur due
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to the highway diesel fuel program
                                19
       The study by CRA/BOB, which was commissioned by API, assessed refiners' ability to maintain
an adequate supply of highway diesel fuel under the 15 ppm cap effective in 2006.  As part of this study,
CRA/BOB polled a subset of U.S. refiners concerning their plans under a 15 ppm sulfur cap.  Using the
results of this survey, as well as other information, CRA/BOB projected refiners' costs of meeting the 15
ppm standard, as well as their likely production volumes.  CRA/BOB projected that 20 refineries would
cease producing highway diesel fuel, reducing national highway diesel fuel production by 12 percent,
creating significant shortages and price spikes.

       We reviewed the  CRA/BOB study in the summary and analysis to the 2007 highway diesel rule.
There, we identified a number of weaknesses in the study and rejected its conclusions. In particular,
CRA/BOB's conclusions appear to have been strongly affected by their assumptions, as well as the refiner
survey they conducted. For example, CRA/BOB assumed that the new sulfur standard would cause 10
percent more highway diesel fuel to be "lost" in the distribution system compared to today (i.e.,
downgraded to nonroad diesel fuel or heating oil). A much more reasonable estimate would be a total
loss of 4.4 percent, as outline in the Final RIA for the highway diesel rule,  which represents a 2.2 percent
increase over today's estimated losses. Reducing CRA/BOB's incremental loss of 10 percent to 2.2
percent increases the final supply of 15 ppm highway diesel fuel by 9 percent (97.8 percent of refinery
production versus 90 percent) compared to that estimated by CRA/BOB. This change alone negates 75
percent of CRA/BOB's projected 12 percent national supply shortfall.

       CRA/BOB also concluded that 20 refineries producing highway diesel fuel today would leave the
highway diesel fuel market rather than produce  15 ppm fuel and  that many other refiners would reduce
production. The study did not include sufficient detail to allow a detailed evaluation of CRA/BOB's
criteria in selecting these 20 refineries, nor was it possible to determine how much of the shortfall was
attributable to this conclusion.  Part of their reasoning was that they projected that these refiners faced
relatively high costs of producing 15 ppm fuel.  CRA/BOB may  have also believed that these refiners'
financial situation made future  capital investment unlikely. However, it does appear that in comparing
the compliance costs of various refiners, CRA/BOB did not break the nation into its various fuel markets.
Instead, they assumed that every refiner was in direct competition with every other refiner.  Also, while
CRA/BOB evaluated whether refiners currently producing highway diesel  fuel would be likely to leave
the market, they did not assess whether any refineries currently not producing highway diesel fuel might
enter the market.

       EPA did conduct such an assessment as part of the 2007 highway diesel fuel rule. We found that
one refinery currently not producing highway diesel fuel could build a grassroots hydrotreater and be
competitive with other refiners likely to revamp their current hydrotreating units. In addition, we found
that at least 17 other refineries could economically increase their production of highway diesel fuel using
nonroad diesel fuel blendstocks (e.g.,  for a cost of less than 5 cents per gallon).  The diesel fuel
production from these refineries would represent 17 percent of highway diesel fuel production. Together
        19 There are three additional studies which addressed the costs or supply of highway diesel fuel under more
stringent sulfur caps, performed by Argonne National Laboratory for DOE, the National Petroleum Council, and EnSys
for DOE.  These studies are not discussed here in any detail, as they have been essentially superceded by the studies by
Mathpro, EIA and CRA/BOB.

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with a more reasonable estimate of downgrades in the distribution system, this would more than
compensate for the lost production projected by CRA/BOB.

       CRA/BOB also implicitly assumed that the material being removed from the highway diesel
market could be sold at a reasonable price in other markets. However, CRA/BOB did not analyze the
impact of this additional supply on prices in these other markets, or even if these alternative markets
could physically absorb all of this material. Much of the material which CRA/BOB  assumed would not
be used to produce highway diesel fuel is not even diesel fuel, but poor quality blendstocks, such as light
cycle oil or the higher boiling portion of straight run or cracked material. It is not clear that such material
could be blended into non-highway diesel fuel and CRA/BOB did not analyze this likely problem.  Our
analyses, supported by a study by Muse, Stancil and Co. (discussed further below), indicate that any
substantial quantities of highway diesel fuel diverted to other markets would depress prices in those
markets substantially.  Thus, CRA/BOB's analysis, which only considered the cost to desulfurize highway
diesel fuel, and ignored the loss in revenue of dumping this fuel  into other markets must be considered to
be seriously flawed in this regard. As pointed out by AAM in their comments to the highway diesel fuel
rule, profitability drives investment, not simply cost.  If refiners  are faced with considerable losses if they
have to sell their highway diesel fuel in other markets, this increases their incentive to invest in meeting
the 15 ppm standard.

       Finally, CRA/BOB ignored the fact that roughly 15 percent of today's highway diesel fuel is
consumed in engines and furnaces not requiring low sulfur fuel.  Any shortage of highway diesel fuel, or
increased difference in price, would lead many of these non-essential users to switch to nonroad diesel
fuel or heating oil. Limitations in the fuel distribution system could cause some of these users to continue
to burn highway diesel fuel.  But, again, any potential shortage in supply would encourage distributors to
increase the availability of high sulfur fuel  to those able to burn this fuel. CRA/BOB basically assumed
that there would be no reduction in the volume of highway diesel fuel consumed in non-highway use.

       These problems with CRA's analysis, plus the lack of detail available concerning the  specifics of
the study, lead us to reject the study's conclusions that there will be significant supply shortfalls under a
15 ppm sulfur standard.

       The EIA and Fitch studies were published after the final highway diesel rule, so they were not
evaluated in the summary and analysis of comments to that rule. The EIA study evaluated the likely
supply impacts of the highway diesel fuel program using refinery-specific cost projections, similar to
CRA/BOB and EPA. EIA used many of the cost inputs developed by EPA in the highway rule, as well as
many of their own estimates to project the cost of individual refineries to meet a 15 ppm cap for their
highway diesel fuel. In particular, EIA evaluated how these costs might vary if a refiner decreased,
increased or maintained their current highway diesel fuel production volume.

       EIA projected likely highway diesel fuel supply in 2006 under four assumptions regarding how
domestic and overseas refiners would approach new investment  in pollution control equipment. EIA also
projected demand for highway diesel fuel from domestic refiners under four assumptions regarding the
likelihood and level of imports and the use of highway fuel by non-highway diesel engines and  furnaces.

       Of the four demand scenarios, the most reasonable appears to be Demand B, which includes
consideration of the small refiner and temporary compliance options included in the  final rule plus
assumed imports from refineries in Canada and the Virgin Islands which are generally dedicated to

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supplying the U.S. market.20  Under this demand scenario, EIA projected that highway diesel fuel supply
would be sufficient in the short run if only a few refiners exited the highway diesel fuel market or a
significant number of refiners currently not producing highway diesel fuel entered the market by building
new hydrotreaters. Otherwise, if refiners were more cautious in their investment approach, supply would
only be adequate if a significant number of non-highway users of highway diesel fuel  switched to NRLM
fuel or heating oil.

       Fitch recently issued a report on the desirability of investing in the common stock of oil industry
and oil refining companies.  Generally, they foresaw increased profitability in these industries, due in part
to their projection that a number of refiners would decide not to invest to meet the upcoming gasoline and
diesel fuel sulfur standards and close down. The reduced domestic supply of these fuels would then
increase prices and increase the profitability of the remaining refiners.

       Being more of a business forecast than a technical analysis, Fitch did not publish any of the
details behind their projections. Nor did they present any analysis of the accuracy of their past
projections for other markets. We also did not conduct a review of past Fitch projections compared to
ensuing events.

       NERA conducted a review of the CRA/BOB study, primarily from an economic point of view.
NERA focused on the possible price impact of the highway diesel program,  as opposed to supply.
However, their analysis touched on supply, as well.  They found API's price projections (based primarily
on the CRA/BOB study) to be "highly pessimistic".  Besides being based on an incomplete conceptual
framework, NERA found that the CRA/BOB study had made a number of overly pessimistic
assumptions:
       1)      The firm with the highest cost of compliance also had the highest cost of diesel fuel
               production;
       2)      That high fuel prices would have no impact on domestic refiners' investment decisions;
               and,
       3)      Imported fuel would only be available at the price of the highest cost domestic refiner.
               NERA projected much lower price impacts than API (CRA/BOB). In doing so, NERA
               presented a number of potential reasons why the reduction in fuel supply would be less
               than that projected by CRA/BOB, namely:
       1)      Those refiners facing desulfurization costs in the top 15 percent of refiners were not price
               setters in their markets;
       2)      Imports were available at the 90 percentile of the distribution of cost impacts faced by
               domestic refiners; and,
       3)      Moderately higher highway fuel prices would encourage voluntary users of highway fuel
               to switch to high sulfur diesel fuel or heating oil.

       Finally, Mathpro also reviewed the EIA and CRA/BOB studies.  One of their criticisms of both
studies is that they projected  refiners' decisions to invest to meet the highway diesel sulfur cap based
solely on their estimated cost per gallon of diesel fuel produced.  Mathpro believed that this was overly
       20 EIA states that imports from these refiners is likely, so Demand A is likely too high. Demands C and D
assume large reductions in use of highway fuel for non-highway uses, which may not be feasible without significant
investments in the distribution system infrastructure.

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simplistic and failed to consider refiners' position in their market, the overall profitability of the refinery,
etc. Mathpro made their own cost projections for every domestic refinery.  For the refineries facing
higher costs, they evaluated whether the refiner served a niche market or faced direct competition from
other refineries facing lower costs.  They found that roughly two-thirds of the supply reduction projected
by CRA/BOB was likely from refineries that would be able to pass their costs on to consumers. Thus,
Mathpro projected that these refineries would likely invest to meet the highway diesel fuel standards.
Mathpro found a much more limited set of refineries which might be challenged to invest to meet the new
highway diesel fuel standards.

        Muse, Stancil, in a study performed for EPA, evaluated the alternative markets in which refiners
could sell their current highway diesel fuel should they decide not to invest to meet the new standards.
They found that domestic refiners located on the Gulf and East coasts (PADDs 1 and 3) could most easily
shift their diesel fuel to the high sulfur distillate market or export their fuel with a moderate loss in
revenue (e.g., 2-5 cents per gallon).  Refineries located outside of these two areas would face much more
significant losses (e.g., 15-25 cents per gallon) if the net shift out of the highway diesel fuel market
exceeded more than a couple of percent.

        The loss of revenue estimated by Muse, Stancil for PADD 2, 4 and 5 refiners far exceeds their
likely cost of producing 15 ppm highway diesel fuel. Given that the price of highway diesel fuel is likely
to rise to some degree in response to higher refining costs, it is unlikely that these refiners would decide
to leave the highway fuel market.  This is consistent with the findings of Mathpro, as most of the potential
drop in highway diesel fuel production projected by Mathpro was in PADDs 1 and 3.  It should be noted
that it is easy to import fuel into PADDs 1 and 3.  Therefore, should any reduction  in highway diesel fuel
production occur, there would likely be no logistical constraints associated with replacing this supply with
imports.

        The above studies apply a variety of approaches and level of detail to analyzing the likely supply
of highway diesel fuel under the 2007 highway diesel fuel program.  Of all the above studies, EIA
appears to have performed the most detailed study, which was facilitated by their access to a considerable
amount of refiners' proprietary production data.  Some of this data was available to EPA (refiners current
production volumes of highway and high sulfur distillate), but some was not (e.g., refinery-specific
blendstock volumes).  Still, EIA had to make a variety of assumptions regarding refiners' approach to
investing in desulfurization equipment, as this cannot be predicted with accuracy, as it depends on yet
more refiner-specific information not available to any of the above analysts.

        As indicated by the widely varying conclusions resulting from EIA's various demand and supply
scenarios, the conclusions of these studies are a strong function of the assumptions made by the authors.
If an author has a pessimistic view concerning the potential for refiners to invest in desulfurization
equipment, then they are likely to project supply shortfalls. If the author is more optimistic, then they are
likely to project adequate  supply. The most pessimistic study (CRA/BOB) ignores the downside of not
investing: lost revenue and potential oversupply in the alternative market.  CRA/BOB  also ignores the
capability of most of the refiners facing high compliance costs to pass these costs along to consumers due
to a lack of local competition or because their competitors face the same relatively high cost. Even Fitch
concludes that profits should be good for those refiners who remain in the market.  This expectation
should actually encourage refiners to stay in the market,  because of the expectation that they will be able
to pass their costs through to the consumer.
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       EPA also has an important, additional source of information on future highway fuel supply. As
part of the 2007 highway diesel fuel rule, EPA requires refiners to submit projections of their production
of their 15 and 500 ppm highway diesel fuel in the 2006-2010 time period. EPA recently published a
summary of these pre-compliance reports.8 Nationwide, in 2006, the first year of the program, the vast
majority of refineries currently producing highway diesel fuel project that they will continue to do so.
Forty percent projected that they would reduce their production of highway diesel  fuel, while 60 percent
projected that they would increase production.  Eight refineries plan to  cease production of highway
diesel fuel. However, two of these refineries plan to ship their distillate fuel to other refineries for
subsequent processing to produce highway diesel fuel.  Thus, highway  diesel fuel production will only be
lost from six of these eight refineries.  Five refineries which currently do not produce any highway diesel
fuel plan to do so for the first time in 2006. Overall, refiners' plans indicated that there would be an
adequate supply of highway diesel fuel in the 2006-2010 time period.

       The refiners' highway pre-compliance  reports clearly represent the most accurate projection of
future supply of 15 ppm highway diesel fuel available.  It is useful to compare refiners' plans from these
reports to EIA's and CRA/BOB's expectations regarding refiners' desire to invest  in desulfurization
capacity. With respect to EIA, it appears that refiners are approaching investment to produce 15 ppm
diesel fuel like that assumed in EIA's two more optimistic scenarios. EIA's two other scenarios appear to
be overly pessimistic.  With respect to CRA/BOB, their projections appear to be much more pessimistic
than refiners' actual plans.

       Now that we have established that there will an adequate supply of highway diesel fuel, we can
move on to the issue of the impact of the NRLM fuel program on diesel fuel  supply.

       Supply Under the Final NRLM Diesel Fuel Program

       In the nonroad NPRM, we presented four ways that refiners might reduce their production of
NRLM fuel in response to the proposed sulfur caps:  1) shift a portion of their distillate blendstocks to
other markets, 2) loss of distillate fuel during desulfurization (process losses), 3) exit the NRLM fuel
market, and 4) close the refinery.  API took issue with our analysis of all of these factors.  Therefore, we
will address each of these areas below.

       Blendstock shift: It is well known that there are a wide variety of sulfur-containing compounds
in diesel fuel and that some are more difficult to desulfurize than others. The reader is referred to the
Chapter 5 of the Final RIA for a more detailed  discussion of the chemistry of desulfurization. The most
difficult compounds, commonly called sterically hindered compounds,  are concentrated in the heaviest
portion of the distillate (e.g., that with the highest density and distillation temperature), because the
sterically hindered compounds have a relatively high molecular weight. Light cycle oil (LCO) and to a
lesser extent light coker gas oil (LCGO), typically contain more of these sterically hindered compounds
than straight run distillate or hydrocracked distillate.  Thus, refiners could have an incentive to "undercut"
their LCO or LCGO and shift the heavier compounds to their residual oil pool. This would be most
feasible with regard to LCO if the refiner's FCC unit fractionator (the distillation column at the end of the
cracking process unit) was already sufficiently flexible to perform this shift.  Refiners could also shift
some or all of their LCO and/or LCGO streams to other fuel pools. This would be less efficient (in terms
of minimizing the loss of diesel fuel volume per reduction in the concentration of sterically hindered
compounds), but could be more easily accomplished, as LCO and LCGO exist as distinct blendstock
streams in every refinery.

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       In the NPRM, EPA concluded that 1) it was technically feasible to hydrotreat LCO down to 15
ppm sulfur and 2) that the revenue lost from shifting LCO volume from diesel fuel to residual fuel would
exceed the cost of hydrotreating LCO to 15 ppm.  API agreed with the first point, but disagreed with the
second point. API did not present any analysis which compared the cost of desulfurizing LCO and other
diesel fuel blendstocks.  Nor did they provide any comparison of the economics of shifting LCO to other
fuel markets versus hydrotreating it. Nonetheless, our own cost methodology outlined in Section 7.2 of
the Final RIA quantifies the cost of desulfurizing LCO relative to the other blendstocks.  As some current
highway diesel fuel refiners indicated in their highway pre-compliance reports that they would reduce
their production highway diesel fuel in 2006 to some degree, we decided to estimate the incremental cost
of desulfurizing LCO to 15 ppm sulfur. Once this is done, we will roughly estimate how the savings from
shifting the heavier portion of LCO and LCGO to other markets might compare.

       To assess the savings associated with shifting LCO out of the NRLM pool, we assumed that
refineries which had FCC units (where LCO is produced), shifted a volume of LCO equal to 10 percent of
their total non-highway diesel fuel pool to another market.  This volume represents about 30 percent of
the total LCO volume. We included the impact of the reduced total volume of distillate fuel treated on
the economy of scale of the desulfurization unit, etc. We applied our best estimate assumptions regarding
future desulfurization technology, etc., as described in Chapter 7 of the RIA.  The results are shown Table
4-1 below.

                Table 4-1: Impact of Shifting LCO Out of the NRLM Diesel Fuel Pool
PADD
1
2
-\
5
4
5
Base Cost of 15 ppm Nonroad Fuel Cap (c/gal of all 15
ppm fuel produced)
5.1
7.8
5.1
11.8
5.7
Cost Savings of Reducing LCO
(c/gal of LCO removed)
15.2
11.8
9.4
15.6
15.6
       As can be seen, the cost savings associated with removing some of the LCO from the nonroad
fuel pool are nearly twice the costs of meeting the 15 ppm nonroad fuel cap with all the blendstocks
projected to comprise future nonroad diesel fuel. This is not surprising. As shown in Tables 7.2.1-3
(conventional hydrotreating) and 7.2.1-11 (Linde IsoTherming) in the Final RIA, the projected capital
costs and hydrogen consumption for LCO exceed those of straight run distillate by a factor of 1.4 and 4,
respectively. The costs to treat LCO exceed those of LCGO by a factor of 1.5-2. As the cost to
desulfurize LCGO fall in between straight run and LCO, it is reasonable to project that the savings from
removing LCGO from the nonroad fuel pool would be roughly halfway between the average
desulfurization costs shown above and the savings from removing LCO.

       If LCO were removed from the NRLM diesel fuel pool, it would have to be blended into another
fuel. Heating oil would be the fuel pool with the next highest value.  It is quite possible that some refiners
could shift some LCO to  heating oil and continue to meet the applicable specifications for this fuel,
possibly with some mild hydrotreating. This shift could free up some straight run, hydrocrackate or
LCGO distillate to move  from heating oil to nonroad diesel fuel, resulting in no net reduction in  nonroad
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                                                     Control of Emissions from Nonroad Diesel Engines
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diesel fuel supply, but reducing total desulfurization costs. While possible, we have not considered this
shift in estimating the cost of the rule, because determining the actual volume of LCO which could be
shifted is difficult to assess.

       It is also possible that a refiner would shift more volume of LCO to heating oil than that of other
blendstocks back to NRLM diesel fuel.  (This is only feasible in the Northeast and for Gulf Coast refiners,
since the heating oil market after the NRLM rule in other areas of the country will be too small for any
on-purpose production of high sulfur distillate, let alone increased volumes.) In this case, the supply of
heating oil would increase and the supply of NRLM diesel fuel would decrease. If NRLM fuel prices
only rose relative to heating oil by 5-13 cents per gallon, as projected in Section 7.6 of the Final RIA
(average total cost case), then a refiner would increase its net profit by saving 10-15 cents per gallon of
LCO shifted while losing just 5-13 cents per gallon in terms of the price obtained  on the shifted material.
However, the NRLM fuel price increase of 5-13 cents per gallon assumes an adequate supply of nonroad
diesel fuel.  This would only be the  case if other refiners compensated for the supply loss due to the LCO
shift. The increased supply of heating oil would  in fact free up distillate volume at other refineries,
particularly those overseas, to move from heating oil to nonroad diesel fuel.  If these refiners could
produce 15 ppm NRLM fuel for 5-13 cents per gallon, then the price increase would remain at this level.
However, it could rise above this level, which is the risk that the refiner planning on shifting  LCO out of
the NRLM fuel pool would take. Thus, a refiner planning on reducing NRLM fuel production volume
has to consider a potential drop in heating oil prices, as well as higher prices for NRLM fuel.

       A more extreme move would be to shift the LCO to the residual fuel pool. This is a significant
downgrade,  but nevertheless represents a floor price that a refiner could expect for his LCO.  We
compared the relative market prices of highway diesel fuel, heating oil and residual fuel. We did so on a
percentage basis, as the cost of crude oil, and thus, the absolute prices of all three  fuels varied
substantially over this time period.  Using spot market prices obtained from EIA, we found that from mid-
1994 through the present, heating oil was worth 33 percent more per gallon than residual fuel on the U.S.
Gulf Coast.  Also, since January 1, 2000, heating oil and highway diesel fuel prices have averaged 73.7
and 75.3 cents per gal, respectively.  (These costs were evaluated in absolute terms, as the difference
represents the cost of desulfurization, which is less sensitive to crude oil price.) Dividing the 73.7 cent
per gallon heating oil price by 1.33 yields a price for residual fuel of 55.3 cents per gallon. The difference
between highway diesel fuel and residual fuel price would then be about 20 cents  per gallon. We focus
on price of highway diesel fuel, as once nonroad fuel meets a 15 ppm cap, it will be indistinguishable
from highway diesel fuel.

       Thus, shifting LCO to the residual oil market appears to reduce revenue more than hydrotreating
the LCO to  15 ppm sulfur. Unless a refiner faced significantly higher than average costs of processing its
LCO, there does not seem to be an incentive to shift full-range  LCO to the residual fuel market.
However, if a refiner could undercut its LCO with its existing FCC fractionator and had a ready market
for increased residual fuel volume, it is possible that it could break even or increase profits by shifting
some heavy LCO to residual fuel.

       The volume of this shift is limited by the demand for residual fuel. As discussed in Section 7.2.1
of the Final  RIA for this rule, U.S. refiners have been increasing their hydrocracking and coking capacity
faster than they have increased crude oil distillation capacity. These two units convert residual fuel and
even heavier material to lighter products having a greater price per gallon. This implies that the market
for heavy fuels, such as residual fuel are limited.

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       Some indication of the extent that refiners believe they can maximize profits by shifting LCO out
of the NRLM fuel market can be obtained from refiners' pre-compliance reports for the highway diesel
rule. As described earlier in this section, some refiners are planning on either reducing their production of
highway diesel fuel or leaving the market entirely. However, others are planning to increase production,
either from current levels or by entering the market for the first time.  These reports were produced
assuming that NRLM diesel fuel would continue as a high sulfur fuel.  Therefore, LCO could be shifted
to the NRLM market with only a modest sulfur reduction. However, the cetane number of LCO is so
poor and costly to increase substantially that refiners are unlikely to have included a substantial shift of
LCO to the NRLM fuel pool in their pre-compliance reports for the highway rule. Thus, the absence of a
significant drop in highway diesel fuel production with the onset of a 15 ppm cap should indicate  that the
degree of blendstock shift in the case of NRLM fuel is also likely to be small. Thus, it appears that API's
concerns that refiners will shift a large volume of LCO out of the NRLM fuel market are not well
founded.

       Moving to the issue of undercutting LCO or LCGO (i.e., shifting only the heaviest material to
another fuel market), such a shift is difficult to assess quantitatively. It requires detailed knowledge of the
concentrations of sulfur compounds in a particular refinery's LCO and LCGO streams, as well as  how
hydrogen consumption and required reactor residence time varies with various LCO and LCGO
distillation endpoints.  This knowledge is typically proprietary. Only more general descriptions of the
distribution of sulfur compounds in total straight run, LCO and LCGO have been published, and even
then without much detail.  While most of the studies  described above mention this approach to reducing
diesel fuel sulfur, none attempt to quantify it. As mentioned above, undercutting LCO and LCGO, if
feasible with existing distillation equipment, would be more efficient at reducing sterically hindered
compounds. We cannot quantitatively estimate the savings from undercutting LCO. However,
depending on how deep the cut, the savings per gallon of heavier LCO shifted could be twice those shown
above.

       Saving twice the LCO desulfurization costs estimated in Table 4-1  above are clearly significant.
However,  in this case, the heavy LCO material can only be sold to the residual fuel market.  This heavy
material is unsuitable for blending into heating oil. As stated above, the size of the residual fuel market is
limited and domestic refiners have been making significant investments to convert heavy fuels to gasoline
and distillate fuel. The relative savings available to refiners by removing heavy LCO from their 15 ppm
diesel fuel pool exists under the highway diesel fuel program, as well as the final today's NRLM fuel
program. If this incentive was sufficient to encourage refiners to shift a large volume of heavy LCO to
the residual fuel market, it would have been reflected in the refiners' highway pre-compliance reports.
Some refiners did project lower production volumes of highway fuel starting in  2006.  This could be due
to the capability of their existing highway diesel fuel to either produce or be revamped to produce 15 ppm
fuel. Or, it could reflect a shift of LCO or heavy LCO to  other fuel markets. The fact that such
reductions in production were small indicates the  limits on such shifts. In fact, any such shifts occurring
from the highway fuel program further limit such shifts under this NRLM fuel program.  Thus, we do not
expect that any shifts of heavy LCO out of the NRLM fuel market will significantly reduce NRLM fuel
supply.

       Processing Losses: API stated in their comments that hydrotreating NRLM fuel to  meet  a 15
ppm cap could reduce  the  volume of NRLM fuel by 2 percent due to cracking of distillate molecules to
lighter hydrocarbons.  API does not present the source of this estimate. In Chapter 7 of the Draft RIA, we
present technology vendor estimates showing  a 2  percent reduction in distillate yield upon hydrotreating

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to 7 ppm. However, this yield loss is in terms of mass, not volume.  The yield loss in terms of volume is
essentially zero, as density is expected to decrease by 2 percent. This 2 percent loss in distillate mass is
converted to naphtha (gasoline blendstock), LPG and refinery gas (ethane, methane). These lighter fuels
have both energy and monetary value, the latter being considered in developing overall desulfurization
costs. Here, the relevant point is that there is no loss in energy, just a slight shift in its form.

        Regarding the supply of diesel fuel, we make the point that these lighter fuels can be used in a
refinery and that refiners can adjust their processes to shift other material to the distillate pool, resulting in
little net impact in distillate production. API disagrees with this, arguing that refiners currently maximize
gasoline production in the summer and distillate production in the winter in order to meet the shifting
demands of each product. Thus, API argues, shifts between the two products are not possible.

        However, API does not present any information to support their  premise that refiners "maximize"
production of gasoline in the summer and distillate in the winter.  Certainly refiners produce more
gasoline in the summer and distillate in the winter.  However, it would be a coincidence that the
maximum production of each product just matched that of demand.  Of the two fuels, it is  more likely that
gasoline production in the summer is nearer the absolute maximum, since some refiners convert distillate
fuel to naphtha in hydrocrackers.  However,  API presents no evidence that a  small fraction of gasoline
material could not be shifted to the distillate  pool in the winter should additional gasoline material (like
that created in a distillate hydrotreater designed to produce 15 ppm fuel)  become available. Numerous
units in the refinery split hydrocarbons into naphtha (for gasoline production) and No. 2 distillate, such as
the atmospheric crude tower and the fractionators which are part of the FCC unit, the coker, and the
hydrocracker. Nearly all refineries have an FCC unit and the heaviest portion of FCC naphtha can be
easily shifted to the distillate pool. In fact, if refiners are maximizing gasoline production in the summer
and additional gasoline blendstock is produced during distillate processing, it should be easy to shift
gasoline back to the distillate pool, since refiners were presumably doing all that they could to make their
gasoline in the first place.

        The absolute maximization of distillate production in the winter  is less supportable. Refiners do
not convert gasoline blendstocks into distillate.  API presents no evidence that additional FCC naphtha
could not be shifted to the distillate pool. API does state that refiners' production slates are economically
driven.  However, API fails to consider the effect of prices on distillate production. Relative prices will
encourage refiners to produce the fuel in the  greatest demand. If desulfurization to 7 ppm sulfur reduces
NRLM fuel production slightly and increases gasoline production slightly, absent other changes, the price
of NRLM fuel will increase and the price of gasoline will decrease.  This will encourage refiners to shift a
small volume of gasoline blendstock to the NRLM pool, exactly as we argued in the Draft RIA. Thus, we
continue to project that process losses during desulfurization will not adversely affect NRLM fuel supply.

        Leave the NRLM Fuel Market: In the Draft RIA, EPA presented six reasons why we believed
that refiners would not leave the NRLM fuel market in order to avoid the costs of producing 15 ppm
NRLM fuel.21 API disputes these arguments, primarily by asserting that  they are unsubstantiated  and not
        21Currently, the NRLM fuel and heating oil markets are usually indistinguishable, as the same physical fuel is
sold to both markets. We fully expect that some domestic refiners will continue to produce high sulfur heating oil for the
heating oil market. By exiting the NRLM fuel market, we mean that a refiner would decide not to produce NRLM fuel
without being confident that he had an established market for its heating oil, or would decide to export his high sulfur

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                                                     Control of Emissions from Nonroad Diesel Engines
                                                                  Summary and Analysis of Comments
                                                                                        May, 2004

supported by quantitative arguments. These six reasons primarily extend findings made in support of
adequate highway diesel fuel supply under the 2007 highway diesel rule to NRLM fuel supply under this
NRLM rule.  These six arguments are represented below:

1.     Approximately one-half of what is currently the U.S. high-sulfur diesel fuel market will have
       become part of the 500 ppm and 15 ppm markets by the time the 2007 highway diesel rule and
       the sulfur caps on NRLM fuel have been  implemented. Within that same timeframe, we expect
       few, if any, of the common carrier pipelines, except perhaps those serving the Northeast, will
       carry high sulfur heating oil.  Therefore, the sale of high sulfur distillate may be limited to markets
       that a refiner can serve by truck.

2.     The technology to desulfurize fuel, including refractory feedstocks, to less than 500 ppm sulfur
       has been used commercially for over a decade. The technology to reduce fuel to less than 15 ppm
       sulfur will have been commercially demonstrated in mid-2006, a full four years prior to the
       implementation of the  15 ppm sulfur standard for nonroad diesel fuel.

3.     The volume of fuel affected by the 15 ppm nonroad diesel fuel standard in 2010 would be only
       one-seventh of that affected by the 2007 highway diesel program. This dramatically reduces the
       required capital investment.

4.     Both Europe and Japan are implementing rules to reduce sulfur levels in highway and nonroad
       diesel fuel to the  10-15 ppm range, which will effectively eliminate these regions as alternative
       export markets for high sulfur fuel.

5.     Refineries outside of the U.S. and Europe are operating at a lower percentage of their capacity
       than U.S. refineries.22  Capacity utilization rates at U.S. refineries are well over 90 percent.
       Historically, if refinery utilization rates approached their maxima, it was usually a strong
       indication that demand for finished products was high.  In this environment, product prices
       usually rose and held until the demand pressure was reduced or eliminated. Foreign refinery
       utilization rates as well as wholesale prices tend to be well below domestic rates, again, a
       reflection of lower demand relative to the potential output of finished products. The preceding
       condition can have at least two  effects on the  marketing decisions domestic refiners may face.
       First, if foreign margins are low and U.S. market prices high, a foreign refiner could, and most
       likely would, sell his products into the U.S. market, thereby reducing the upward pressure on
       prices and likely reducing domestic refinery margins.  And, second, it is highly unlikely that a
       domestic refiner would decide to further reduce his margins by adding the cost to ship his product
       into a foreign market with a less stringent sulfur standard where wholesale prices are already
       lower than in the U.S.  Consequently, we do not believe U.S. refiners will have a reasonable
       opportunity to export their high sulfur fuel.
heating oil.

        22 Europe currently imports diesel fuel and is expected to continue to do so. However, European sulfur caps
will be equivalent to those in the U.S. Therefore, exporting distillate fuel to Europe is not an option for U.S. refiners to
avoid complying with stringent sulfur caps here. Likewise, imports from European refiners are not likely.

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6.      One measure of the overall fiscal well-being of a refining operation is its margin. Refinery profit
        margins23 during the 1990s were not very encouraging until about 1997. In fact, in 1994, the net
        margin was less than $0.50 per refined barrel.  By 1997 it had nearly tripled and by 2000 had
        increased to nearly five times the 1994 average. Margins leveled out again during 2001 and
        decreased somewhat during 2002, but recovered during the last few months of 2002 and in early
        2003. Current industry projections into the future indicate the expectation for continued high
        profit margins.

        API argues that Muse, Stancil stated that their analysis assumed that the current relative prices
existing between various distillate fuels, such as highway diesel fuel and heating oil will continue. This is
true. However, API's concern about 15 ppm fuel supplies implies that they believe that the price of 15
ppm fuel will be closer to that of high sulfur heating oil than has been the case in the past. However, API
presents no justification for why this would occur. Also, this clearly implies a low price for 15 ppm
diesel fuel. Thus, API's premise includes both low prices and short supply. Both can't  be true at the
same time. It is theoretically possible that refiners could anticipate  low prices, leading them to not invest
in 15 ppm fuel production capacity and producing a supply shortfall.  However, there are at least some
industry observers predicting a supply shortfall and, therefore, high prices.  This encourages refineries to
invest. Also, it supports the  premises of the Muse, Stancil study, which indicates that many refiners are
likely to see a significant loss in revenue if they do not invest in producing  15 ppm fuel.

        In addition, while it  is true that EPA did not conduct extensive economic analyses of refiners'
economic condition and balance sheet in making the above six points, API  did not present any economic
or financial analyses of their own to support their challenge of the above findings.  As discussed above
under the blendstock shift issue, CRA/BOB performed analysis of highway diesel fuel supply for API as
part of their comments on the 2007 highway diesel rule. However,  this study did not include any of the
types of economic analysis, such as the impact of refiners' decisions on fuel prices, refiners' profits under
various  decision scenarios, etc., which API asserts that EPA failed to perform.

        API did submit a new study by BOB in support of their comments to the proposed NRLM rule.
In this study, BOB apparently assumed that any refiner with ready access to an export market would
export its high sulfur distillate rather than desulfurize to 15 ppm.  No support was given for this premise.
It is in direct contradiction to refiners' projections in their highway  pre-compliance report. It is also in
direct contradiction to refiners'  responses to every other fuel quality standard which EPA has set since the
mid-1980's. Refiners have never responded en masse by exporting  their fuel production. Yet, based on
this premise, BOB projects NRLM fuel shortfalls of roughly 50 percent, at  least based on domestic
refinery production.24
        23The terms "margin" or the plural "margins" are often used in the petroleum industry in reference to several
different variables including "spread" or "spreads," "net margin" or "cash margin," "gross margin," and "profit margin.'
The numbers these terms represent are all basically a measure of a revenue minus the cost to produce that revenue,
expressed on a per barrel basis of either crude oil or finished product(s).

        24This shortfall also assumes that 14 refineries will shut down. This assumption is addressed in the next sub-
section.

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       Thus, other than these general disagreements with our six points, API presented no additional
arguments supporting their position. Therefore, we continue to project that few refiners will exit the
NRLM fuel market as a result of this rule.

       Refinery Shutdown: The last of the four ways in which NRLM fuel supply could decrease in
response to the NRLM rule would be if domestic refineries decided to cease operations altogether.  API
presents a number of arguments supporting their premise that the NRLM fuel program will cause several
domestic refineries to shut down. One argument is that refineries have been shutting down annually in
the U.S. and environmental regulation is a frequently cited cause. They cite two refinery closures where
the refiner explicitly cited EPA's low sulfur regulations as the cause of the closures.  Two, API presents a
study performed by Baker and O'Brien (BOB) which projects a number of refinery closures due to both
the 2007 highway diesel rule and a couple of options for NRLM fuel control.

       It is true that the number of domestic refineries has been decreasing since the mid-1980's. A
number of these refineries had just been reopened in the late-1970's in response to crude oil allocations.
Then, in the early 1980's, the combination of higher fuel prices and CAFE standards reduced gasoline
consumption. When crude oil allocations ceased and the refining industry became subject once again to
competitive market forces, a large refining over-capacity existed and a large number of mostly smaller
refineries closed over the 5 year period from 1987-1992. During this time, however, total U.S. refining
capacity actually increased, as refineries which continued to operate increased capacity. It was not until
the late 1990's that refining capacity utilization reached maximum practical levels. While no grass-roots
refineries have been constructed in the U.S., total refining capacity has continued to  increase through
modifications at existing refineries.

       A study of the U.S. refining industry performed by the National Petroleum Council (NPC),9
estimated the capital investment made by refiners in the mid-1990's in response to new environmental
regulations.  They estimated that this investment represented about half of the total investment made in
the refining sector. This study drew a connection between the level of environmentally related
investment and the number of refineries closing in the  1990's.

       This study also noted the increasing, but still relatively low utilization of refining capacity during
the late 1980's and early  1990's. It wasn't until the time of the NPC study that capacity utilization rose to
levels which approached the practical maximum. Thus, any refinery  closures up to that point did not
decrease domestic refining capacity below that needed to fulfill demand. In other words, the refining
industry spent roughly 15 years going through a classic rationalization to address chronic over-capacity.

       We have clearly entered a new era since 2000. Capacity utilizations are high and imports are
increasing.  Refinery closures have also slowed. API (and Baker and O'Brien) cites  two examples of
refineries which have closed since 1999.  API does not name the refineries, but they  are well known to be
the Premcor refineries in Blue Island, IL and Hartford, IL. The Blue  Island refinery  closed in January,
2001 and the Hartford refinery closed in October, 2002. API states that the owners of these refineries
cited EPA's Tier 2 gasoline sulfur standards and the 15 ppm diesel fuel sulfur cap as key reasons that
these refineries had to be closed.  Premcor did blame these EPA standards  on the refinery closures, as can
be confirmed on their corporate internet website.

       The first thing to note about these two refinery closures is their timing relative to the EPA sulfur
standards. The two refineries closed in 2001 and 2002, respectively.  The Tier 2 gasoline sulfur standards

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                                                                                       May, 2004

did not begin to phase in until January 1, 2004 and the highway diesel fuel sulfur cap begins on June 1,
2006. Thus, the EPA sulfur standards could not have possibly been the only reason that these refineries
closed when they did.  If this were the case, they would have operated until December 31, 2003 and
closed just prior to the beginning of the phase in of the Tier 2 gasoline sulfur standards.  Thus, the
question is why these refineries closed when they did.

        We reviewed information presented at the Premcor internet website, as well as information
available about environmental activities at these two refineries. There have been a number of incidents at
the Blue Island over the past few years.  The State of Illinois announced that 23 tons of spent catalyst
particles were released on June 16, 2000.10  Federal and State agencies have also taken a number of
enforcement actions against Premcor regarding compliance with local air and water pollution standards at
their Blue Island refinery.  On August 24, 2000, Premcor announced that they had paid a $2 million fine
for illegal wastewater discharges and were investing $70 million to improve process controls at the
refinery. On April 1, 2002, Premcor announced that they had reached a settlement with the U.S.
Department of Justice, U.S. EPA and the State of Illinois requiring the payment of $6.25  million, again
regarding unallowed wastewater discharges. Thus, it appears that Premcor faced significant investments
to bring at least one of these two refineries into compliance with local safety and environmental
standards. These investments were necessary to allow the continued operation of these refineries in the
immediate future. The timing of their closure, therefore, appears to have been due to these other safety
and environmental problems and not the EPA sulfur standards.

        This understanding is confirmed by the fact that Premcor did not request that EPA grant it relief
from either of the two  sulfur programs based on hardship.  Both the gasoline and diesel fuel sulfur control
programs  include provisions for obtaining relaxed or delayed standards due to financial hardship.11  Other
refiners have requested and been granted such relief.  While the specifics of this relief are confidential, it
is reasonable to assume that the relief available to Premcor could have been similar to the delays granted
to small refiners. Small refiners were allowed an additional two years to meet the  30 ppm gasoline sulfur
standard (2008 instead of 2006)  and were also granted relaxed sulfur standards in the interim period
(2004-2006). Analogous provisions under the highway diesel fuel sulfur program  could have potentially
delayed any  action to produce 15 ppm highway diesel fuel  until 2010. The fact that Premcor did not seek
such relief is strong evidence that the primary problems facing the operation of these refineries were of a
more near term nature and  economically significant.

        As mentioned above, Premcor pointed to the EPA sulfur standards as the reasons that these
refineries  were shut down.  It is certainly easier to point to new standards which are outside of
management's control than to problems meeting existing safety and local environmental standards, as
well as the refineries' specific economic situations, as reasons why these refineries had to be shut down.
Also, while the closures in 2000 and 2001 were clearly not due to the EPA sulfur standards, the sulfur
standards  may still have played some role in the ultimate decisions to close these refineries.

        For example, it is likely that compliance with safety and local environmental standards would
have required immediate capital investments.  Whether Premcor could have raised the necessary funds for
these investments is unknown. It is also unknown whether either of these two refineries could have been
operated profitably once these investments had been made. However, it is possible that Premcor could
have raised the necessary funds and operated these refineries profitably thereafter.  If this were the case,
Premcor would then have to decide whether future profits could cover both the immediate investments
and the fuel sulfur investments.  The answer to this last question seems to have been no; future profits

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would not be sufficient to recover all anticipated investments.  Thus, the refineries were closed. What is
not clear is the relative contributions of the immediate investments and those related to EPA's fuel sulfur
standards. Given the lack of publicly available information on the profitability of these two refineries and
the relative investments needed to keep them operating through this decade, it is not possible to determine
whether the EPA sulfur standards played a major role in their closure or whether they were a scapegoat
for other difficulties. However, the fact that Premcor did not even apply for hardship relief under either
of the two sulfur control programs indicates that the pro forma profits of these refineries could not have
been large even with a delay in the sulfur standards.

       In addition, both refineries are located in the Midwest. This area has seen above average refining
margins over the past 3 years. This may partly be due to the closure of the two Premcor refineries, so one
cannot assume that these refiners would have seen the same refining margins had they stayed open.
However, despite the unusually high refining margins of the summer of 2000, Premcor still closed their
Hartford refinery in 2001.  Thus, it appears that the immediate investments were so  substantial as to
prevent their recovery in 5-7 years of high margins.  It should be noted that Conoco-Phillips has since
purchased the Hartford refinery and appears to have integrated at least some of the process units with its
adjacent refinery.

       To further support their claim that the proposed nonroad rule will close additional refineries, API
refers to a study that they sponsored with Baker and O'Brien (BOB). This study examined the refining
costs related to both the 2007 highway diesel program, as well as a couple of NRLM fuel control options.
These two options were: 1) the one-step fuel program with all NRLM fuel capped at 15 ppm sulfur in
2008 and 2) the two-step fuel program with nonroad fuel capped at 15 ppm in 2010, but locomotive and
marine fuel capped at 500 ppm indefinitely. BOB estimated that both rules would cause a substantial
number of refineries to close, as indicated in Table 4-2 below.

                                            Table 4-2
               Projected Refinery Closures: API Sponsored Study by Baker and O'Brien


Highway Diesel Program
Highway plus One-Step NRLM Programs
Highway plus Two-Step NRLM Programs
2008
No.
8
14
12
Crude Capacity (1000
bbl/day)
504
1043
924
2010
No.
13
14
14
Crude Capacity (1000
bbl/day)
971
1043
1043
       There are roughly 125 refineries currently producing diesel fuel in the U.S. (outside of
California), with a total crude oil capacity of roughly 16 million bbl/day.  As these refineries are operating
near full capacity, the closure of 8-14 refineries with a capacity of 0.5-1 million bbl/day would be very
significant. The means used by BOB to make these projections should be carefully evaluated.

       First, BOB projected future demand for highway and NRLM diesel fuel in the U.S. They stated
with EIA's 2000 FOKS report to estimate current diesel fuel consumption. BOB then grew these fuel
consumptions using fuel demand growth rates from EIA's 2002 AEO. BOB's future fuel demands are
quite consistent with those described in Chapter 7 of the Final RIA for the "EIA" sensitivity case.
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       Second, BOB projected future growth in domestic, diesel fuel production capacity. They based
current production capacity on EIA's PSA report, essentially assuming that domestic refineries were
operating at maximum capacity utilization. BOB based future increases in production capacity on
increases in crude oil distillation capacity from EIA's 2002 AEO.  BOB noted that EIA's AEO 2003 was
released during their study and that 2003 AEO projected significantly higher growth in domestic crude oil
distillation capacity than AEO 2002 (an additional 700,000 bbl/day by 2008). However, BOB's opinion
was that the updated growth rate was too high and they did not update their study accordingly.

       BOB's approach of projecting diesel fuel production capacity using growth in projected
distillation capacity is consistent with the approach used by EPA in the NPRM.  However, BOB's
acceptance  of EIA's 2002 projection and their rejection of EIA's 2003 projection appears quite
subjective, as BOB provides no analysis to support the  previous EIA projection.

       In AEO 2003,  EIA's projected growth in distillate fuel from domestic refineries is larger than the
growth in crude oil distillation capacity.  This occurs because domestic refineries are expected to augment
their crude oil purchases with increased volumes of heavy oil. We have increased our projections of
future distillate fuel production in Section 7.2.1.3.3 of the Final RIA to reflect this. Thus, not only does
BOB's choice of AEO 2002's growth in crude oil distillation capacity over that of AEO 2003 decrease
their projection of domestic diesel fuel production capacity, but it also ignores the impact of heavy oil
feedstock on diesel fuel production. Thus, BOB's projections of future domestic distillate fuel production
capacity are low in two ways.

       The effect of these two differences is large. The difference between crude oil consumption by
domestic refiners in AEO 2002 and AEO 2003 amounts to 5 percent just between  2003 and 2008. The
effect of adding heavy oil consumption by refiners is roughly the same size. Thus, BOB appears to be
underestimating refiners' distillate production capacity  in the 2008-2010 timeframe by at least 10 percent.
This shortfall occurs prior to BOB's prediction that a number of refineries will close in response to the
highway and NRLM fuel programs, while EIA's projections include refinery closures, if any, which they
anticipate.

       There is one more way in which BOB may have underestimated diesel fuel supply under an
NRLM rule. BOB assumes that 5 percent of 15 ppm highway fuel will be downgraded to high sulfur fuel
in 2008 and that this will drop to 4 percent in 2010. BOB does not say what they assumed for additional
15 ppm NRLM fuel which would be produced under an NRLM rule. However, if they applied these
downgrade  levels to 15 ppm NRLM fuel in addition to  15 ppm highway fuel, this would overestimate
downgrade  and underestimate supply of 15 ppm NRLM fuel.  Under the highway  fuel program, 15 ppm
highway fuel will be widely available across the country. If additional NRLM fuel volume is added to
this fuel supply, the number of fuel batches being shipped by pipelines (the major source of downgrade)
will not increase. Thus, the absolute level of downgrade should not increase and every incremental barrel
of 15 ppm NRLM fuel should basically make it to market. We discuss this  in more detail in Section 7.3
of the Final RIA. If true, this would add another 5 percent to the difference between EPA and BOB
NRLM fuel supplies prior to the prediction of any refineries exiting the NRLM market or closing.

       BOB then estimated the capital cost that each U.S. refinery would likely face in complying with
these regulations. BOB projected which refineries would be able to raise the necessary capital and which
would be unable to do  so. BOB states that they assumed that refineries would defer investment to meet
the diesel fuel sulfur caps "whenever they had a reasonable alternative, such as selling heating oil or

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exporting high sulfur diesel fuel." They "also assumed that some refineries would be unable to raise or
justify the capital needed" to produce 15 ppm diesel fuel. They assumed that the other refineries could
raise the necessary capital.

        Overall, BOB projects that refiners will invest $1.2-1.3 billion to produce 15 ppm NRLM fuel.
This is well below the $2.3 billion that we project in Section 7.2.2 of the Final RIA.  One reason for the
low BOB estimate is that they project that only about half of the required volume of 15 ppm NRLM fuel
will be produced. Considering this, BOB's projected capital costs are not much larger than our own. We
project an average capital cost of $36 million per refinery. This is well below the $63 million which we
project the average refinery will need to invest to produce 15 ppm highway fuel. The highway pre-
compliance reports indicate that refiners are planning on making these investments.  BOB provides no
analysis supporting their finding that refiners of NRLM fuel cannot raise the lower capital investment
needed to produce 500 and 15 ppm NRLM fuel.

        In predicting refinery closures, BOB states that they considered eight factors:

        1) Ownership (large, small, integrated, independent, etc)
        2) Product slate (fuels, specialty)
        3) Primary market served (niche, competitive, highly competitive)
        4) Logistics
        5) Local environmental status (attainment, non-attainment)
        6) Historical refinery financial performance
        7) Competitive threats (imports, new pipelines)
        8) Regulatory provisions for small refiners and special geographic areas

These factors are likely to have an impact on any refiner's decision to continue operation or close.
However, BOB provides no indication in how they estimated each of these factors, nor how they
combined them in order to make a decision. For example, the list refers to historical financial
performance. It does not say whether this history goes back 1,5, or  10 years or whether the consistently
higher refining margins of the past 2-3 years were considered. Also, the impact of new pipelines are
mentioned, presumably as a source of less expensive fuel from distant competitors. For this to be a
significant factor, the refineries using this pipeline to supply a new market must have excess production.
Otherwise, there would appear to be little reason to expand into a new market, particularly given the high
costs of building new pipelines in the U.S. Yet BOB projects significant diesel fuel supply shortfalls in
every region of the country except the Gulf Coast. These projected shortfalls far exceed the excess supply
in PADD 3. Thus, new pipelines should have very little impact on competition because the fuel to fill the
pipeline simply doesn't exist. BOB might have assumed that inexpensive imports would feed these
pipelines and fulfill market shortfalls. However, BOB estimated that imports would cost 10-17 cents per
gallon, delivered to a U.S. coast.  This exceeds the cost of any refinery which we project might make
NRLM  fuel.  Thus, it is unlikely that this fuel is going to be shipped by pipeline and put  inland refineries
out of business.

        Finally, BOB projects that 8 refineries will close by 2008 due to the 2007 highway diesel fuel
program, and another 5 refineries by 2010. The first eight refineries were likely projected to shut down at
the start of the 15 ppm highway fuel program in mid-2006, as 2008  was the first year which BOB
evaluated and the regulatory requirements do not change between 2006 and 2008. This is only 2 years
from now.  We  have no indication that any refineries are planning to close in response to this rule. To the

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contrary, the highway pre-compliance reports indicate sufficient highway fuel supply in 2006. (It should
be noted that BOB did not have access to the summary of these reports at the time of their study.) That 8
refineries would close in 2006 (or 2008) while the temporary compliance option is operative is even more
difficult to understand.  Up to 20 percent of all highway fuel can be at the 500 ppm level.  The highway
pre-compliance reports indicate that the vast majority of highway fuel in 2006 is likely to be at 15 ppm.
Thus, credits should be both plentiful and inexpensive. That BOB would project so many refineries to
close even absent this NRLM rule seems to indicate a strong degree of pessimism about the state of the
U.S. refining industry.  Given the absence of any solid evidence that 8-13 refineries will be closing in the
next two years, we also do not accept BOB's projections for refinery closures related to the NRLM rule.

       BOB does not present any financial performance  statistics for the refining industry, nor any pro
forma analyses of refining profits with and without investment to comply with the two rules in support of
their assumptions.  The assumption that refiners will defer investment whenever possible seems
particularly pessimistic. Given the number of refineries located on ocean coastlines, presumably with
access to foreign markets, it is surprising that BOB did not project even more refinery closures with such
pessimistic assumptions. BOB, as part of their refining consulting operations, might have access to
individual refiners financial condition, including their current profitability and their ability to raise
additional capital.  However, the  extent of this information is not presented.  Also, BOB provides no
detail about how such information might have been used to make its closure projections. Therefore, we
cannot evaluate the potential accuracy of the BOB projections. We have to basically conclude that the
projected closures simply represent BOB's  opinion and look outside of the study for information which
might support or refute the projections.

       Another source of information is the status of refiners' plans to comply with the Tier 2 gasoline
sulfur standards. The vast majority of refineries which produce diesel fuel also  produce gasoline. For
these refiners, gasoline  is almost always their main product, both in terms of volume and revenue. With
the exception of three refineries, all U.S. refineries appear to be on track to comply with the Tier 2 sulfur
standards. One refiner, who owns two refineries, has approached EPA for hardship relief with respect to
the Tier 2 standards and highway diesel fuel standards. These two refineries have a combined capacity of
160,000 bbl/day of crude oil. EPA has granted this refiner relief which should allow these refineries to
continue to be  operated. The other refiner, who recently purchased its refinery, approached EPA  for
hardship relief. In the months following the promulgation of the Tier 2 gasoline and highway diesel
sulfur control programs, EPA established a number of alternative compliance plans due to hardship  faced
by these refineries. These actions also are strong evidence of the options available to refiners in
complying with EPA standards. It does not appear that BOB considered these options in developing their
projections of refinery closures.

       Finally, several refiners, namely some "small" refiners and those serving the Geographic  Phase In
Area (GPA) have more time to meet the final Tier 2 standards. Thus, their being on schedule is not as
significant an indication of a willingness and ability to invest as is the case for other refiners. However,
many of these  small and GPA refiners have opted to meet the  15 ppm highway diesel fuel cap in 2006 for
100 percent of their highway diesel fuel production starting  in 2006, in return for a delay in the applicable
Tier 2 gasoline standards. The fact that these refineries are on track to meet the highway diesel fuel
standards in 2006 is again a strong indication of both a willingness and ability to invest in meeting both
the gasoline  and diesel fuel sulfur standards.

       Engineering and Construction Resources

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       We presented a detailed estimated of the level of three types of resources involved in the design
and construction of refining equipment in Section 5.7 of the Draft RIA: front-end engineering, detailed
engineering, and construction workers. Our methodology follows that developed in an analysis of the
U.S. refining industry performed in 2000 by the National Petroleum Council. There, we concluded that
the incremental need for these resources would not create a strain on these resources. One reason for this
is that both the proposed and final NRLM fuel program does not start until a year after the applicability of
the 15 ppm cap on most highway diesel fuel and even longer after the application of the 30 ppm standard
on gasoline (excepting small volumes of gasoline granted deadlines after January 1, 2004).

       None of the commenters provides any detailed comments or critique of this analysis. Therefore,
we have no basis upon which to change our conclusion that the availability of these resources will be
adequate.

       Operational Upsets and Downgrades

               The commenters state that EPA has not given sufficient attention to the effect of potential
operational upsets or downgrades on supply. With respect to operational upsets, by delaying
implementation of the 15 ppm standard for locomotive and marine diesel fuel until 2012 we have
provided two years during which any offspec fuel from any upsets can continue to be sold into this
market without reprocessing. Furthermore, we have extended the time over which refiners can use early
15 ppm NRLM fuel credits from mid-2012 until mid-2014. This gives refiners up to four years to sell
500 ppm fuel to the NRLM market and fine tune their processes to minimize the production of material
exceeding 15 ppm sulfur. The initial years after highway and nonroad are both required to meet 15 ppm
are the years when refiners had the greatest concerns regarding offspec product, and both of these
provisions are aimed at addressing this concern. With respect to downgrades, the final rule allows
downgraded diesel fuel produced during shipment which meets a 500 ppm cap to be sold indefinitely to
the locomotive and marine fuel markets outside of the Northeast/Mid-Atlantic Area. (Inside the
Northeast/Mid-Atlantic Area, the heating oil market is very large and refiners should be able to market
any downgraded distillate there.) As none of the commenters provided any detailed information, nor any
analysis supporting their comments in this area, we consider these comments resolved.

       We discussed potentially allowing refiners to sell a small fraction of their production of
off-specification 15 ppm diesel fuel into the NRLM market without the use of credits for a limited time
with the American Petroleum Institute (API). However, they related that such a provision was
unnecessary and would complicate the program. This input confirms our assessment that the provisions
included in today's rule that described above will be sufficient to provide an outlet for refinery
off-specification 15 ppm diesel fuel.
       4.6.3.2  Lead Time to Ensure Supply

What Commenters Said:

       API, Exxon, and the New York Department of Environmental Conservation commented that
refiners will have adequate time to meet the fuel sulfur standards provided the proposed schedule is not
accelerated. Refiners generally need four years to plan for and implement major changes in fuel
specifications. Therefore, imposing a deadline earlier than the proposed deadline would not be feasible.

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EPA's proposed two-step approach should help to reduce the possibility of additional supply problems.
However, noted the New York Department of Environmental Conservation, allowing for any temporary
exemptions from the fuel standards would complicate implementation.

       Letters:
       ExxonMobil, OAR-2003-0012-0616 p. 19
       New York Public Hearing, A-2001-28, IV-D-05 [API p. 18]
       New York Public Hearing, A-2001-28, IV-D-05 [NY DEC p. 14]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [API p. 42]
       Chicago Public Hearing, A-2001-28, IV-D-06 [API p. 90]

Our Response:

       We are finalizing the lead time that we proposed for this rule (500 ppm NRLM in 2007, 15 ppm
NR in 2010), and are not requiring that LM fuel meet the 15 ppm standard until 2012. We believe that
the time frames being finalized today are sufficient for refiners and others throughout the distribution
system to plan for desulfurization technologies. Our lead time analysis projects that 27-39 months are
typically needed to design and construct a diesel fuel hydrotreater, and 30-39 months are typically needed
to design and construct a diesel fuel hydrotreater. The rule will provide refiners and importers 38 months
before they will have to begin complying with the 500 ppm cap for NRLM diesel fuel and more than six
years before they would have to begin complying with the 15 ppm cap. Therefore, we concur that
refiners will have sufficient time to meet the fuel sulfur standards.
4.7    Fuel Lubricity

       4.7.1    General

What Commenters Said:

       The Alliance commented that we should consider establishing a federally enforceable lubricity
standard. A federally enforceable lubricity standard may help maintain the fungibility of the distillate
pool. ASTM has adopted the HFRR test method for lubricity, but the standard may not adequately
protect advanced LDDVs. EPA should consider adopting the level published in the World Wide Fuel
Charter, of 400 microns wear scar diameter @ 60 degrees C HFRR. Those that were against EPA
establishing a federally enforceable lubricity standard (API, Marathon, ConocoPhillips, and ExxonMobil)
commented that EPA should not set a lubricity standard as part of this rulemaking.  Regulatory
requirements for lubricity would not make sense at this time, especially considering the ongoing
uncertainty and debate regarding what lubricity characteristics may be needed. EPA should maintain its
support for the consensus ASTM process for setting an appropriate lubricity specification for highway
and nonroad diesel.  Progress continues to be made in ASTM on defining an appropriate
lubricity test method and setting a corresponding standard. It is anticipated that this work will be
completed and implemented prior to the start of the highway or NRLM diesel programs. The ASTM
process will allow for agreement on the appropriate specifications.

       Further, the New York Department of Environmental Conservation commented that it is not
necessary to set lubricity standards as part of this rulemaking. Hydroprocessing to reduce sulfur content

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and/or aromatics content can reduce diesel fuel lubricity to unacceptable levels, which can be resolved
through the use of lubricity improving additives. Although industry has not yet reached a consensus on
the optimum test method and test result, these are matters that are best left to the oil refining and diesel
engine manufacturing industries and to consensus standards organizations.

       The National Biodiesel Board commented that a market-based approach to address lubricity
concerns of low sulfur diesel would be the most effective approach.

       Letters:
       Alliance of Automobile Manufacturers, OAR-2003-0012-0792 p. 3
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 20
       Association General Contractors of America, OAR-2003-0012-0791 p. 14
       ConocoPhillips, OAR-2003-0012-0777 p. 5
       ExxonMobil, OAR-2003-0012-0616 p. 20-21
       Marathon Ashland,  OAR-2003-0012-0826, 0827 p. 13
       National Biodiesel Board, OAR-2003-0012-0776 p. 2
       New York  Department of Environmental Conservation, OAR-2003-0012-0786 p.4
       New York  Public Hearing, A-2001-28, IV-D-05 [API p. 21]
       Los Angeles Public  Hearing, A-2001-28, IV-D-07 [API p. 43]
       Chicago Public Hearing, A-2001-28, IV-D-06 [API p. 90]

       DoD commented that the proposed approach for the maintenance of fuel lubricity is problematic.
EPA has  proposed a voluntary approach that would encourage but not require fuel producers and
distributors to monitor and provide fuel with adequate lubricity. This approach requests fuel suppliers to
voluntarily incur additional costs of monitoring end-user data and to formulate and add a lubricity
enhancer to the required fuel. A significant number of suppliers are likely to disregard voluntary
guidelines since there is no tangible benefit to compliance and since costs would be lowered through non-
compliance. In addition, some suppliers may be reluctant to voluntarily test for lubricity since that would
create documentation that could be used in legal actions related to inadequate lubricity.  Military users
will face  an added burden to ensure that both highway and nonroad diesel fuel used in military
applications provides sufficient lubricity.  Engines used in DoD vehicles and equipment are more
vulnerable to lubricity  problems than the same engines operated in commercial vehicles and equipment.
Commenter (Navy) provides additional discussion on this issue, including examples of problems the
military has experienced related to fuel lubricity and recommends that EPA continue to work with
industry to adopt lubricity requirements in the diesel fuel standards and finalize a reasonable standard in
the absence of industry consensus.

       Letters:
       Department of Defense, OAR-2003-0012-0617 p. 1-2

       EMA commented that ASTM's efforts to incorporate a lubricity specification in D-975 are
moving slowly. Therefore, until newer methods prove superior, EMA commented that it believes that we
should set a fuel lubricity standard of 3100 g minimum on the SLBOCLE method or, in the alternative,
450 um maximum on the HFRR method at 60 degrees F.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 9

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       CEMA-CECE and CNH Global commented that fuel lubricity needs to be specified via EN 590
to avoid wear out of the fuel injection system.

       Letters:
       CEMA-CECE, OAR-2003-0012-0598 p. 3
       CNH Global, OAR-2003-0012-0819 p. 3

       The National Barley Growers Association commented that EPA should ensure that lubricity is
maintained in low sulfur fuels. The sulfur standard may necessitate the replacement or retrofit of existing
equipment if lubricity is not adequate, which could be particularly burdensome for the agricultural sector.
[See related discussion under Issue 7.1.]

       Letters:
       National Barley Growers Association, OAR-2003-0012-0639 p. 1

       AGCA and WBRT commented that it is not necessary to set lubricity standards as part of this
rulemaking. Hydroprocessing to reduce sulfur content and/or aromatics content can reduce diesel fuel
lubricity to unacceptable levels, which can be resolved through the use of lubricity improving additives.
Although industry has not yet reached a consensus on the optimum test method and test result, these are
matters that are best left to the oil refining and diesel engine manufacturing industries and to consensus
standards organizations.

       Letters:
       Associated General Contractors of America, OAR-2003-0012-0791 p. 14
       Western Business Roundtable, OAR-2003-0012-0636 p. 4

Our Response:

       This is an issue first for 15 ppm sulfur highway diesel fuel in 2006, which is what the majority of
commenters have focused on. There  is  still plenty of time between now and when the lubricity standard
will be needed for 15 ppm sulfur NR diesel fuel in 2010 and 15 ppm sulfur LM fuel in 2012.  EPA  first
finalized a 15 ppm sulfur diesel fuel standard for highway engines in the 2007 highway rule.  In that rule
EPA stated that we would rely on industry (ASTM) to set a lubricity standard and we  would work with
them to do so. EPA has continued to work with industry through ASTM, and we remain hopeful that
ASTM will reach a consensus on a standard. If, in fact, EPA does need to promulgate a lubricity standard
for  15 ppm sulfur highway diesel fuel, we will also address lubricity for 15 ppm sulfur NRLM diesel fuel
in the same rule.
       4.7.2   Lubricity Issues

What Commenters Said:

       EMA and NMA commented that EPA should continue to evaluate the potential sulfur reduction
impacts on fuel lubricity.  While most of the fuel property changes resulting from desulfurization have a
positive impact on fuel quality, there is the potential for negative effects on fuel lubricity and elastomer

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compatibility.  Lubricity concerns can be mitigated by additization or by blending with higher lubricity
components. EMA noted that given the slow pace of the ASTM effort on this issue, EPA should ensure
that the effects of fuel sulfur reductions on fuel lubricity and elastomer compatibility are properly
accounted for.  Also, NMA recommended that EPA conduct additional research including field work on
the effects of low sulfur fuels and lubricity before the Tier 4 rule is finalized.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 9, 110
       National Mining Association, OAR-2003-0012-0510 p. 2

       The National Biodiesel Board commented that the proposed rule indicates that lubricity additives
may be needed for light-duty and medium-duty engines that use either low or ultra-low sulfur fuel.  EPA
should conduct further research, including field work, on the effects of the low sulfur fuels and lubricity
before the rule is finalized. Without a complete understanding of this issue, operators may confront
significant issues that could impact the ability of their engines to function.

       Letters:
       National Biodiesel Board, OAR-2003-0012-0776 p. 2

Our Response:

       Additives used to increase fuel lubricity properties have been known and available for years.
Manufacturers seem to be most concerned with lubricity in common rail systems (most susceptible to
wear with low  lubricity fuels), which do not exist in current mining applications. With that in mind, if
there is adequate lubricity for common rail systems, existing fuel systems (Pump-line-nozzle, EUI, and
HEUI) should be adequately protected. The first phase of the CRC DPG lubricity work will confirm this,
but all indications from injection system manufacturers in Europe is that they are most concerned with
lubricity for common rail systems. The injection systems that are used on mining equipment are  similar
to those used on-highway and there  are no failure issues using current highway 500 ppm S diesel fuel.
The CRC DPG is planning on testing these older systems in phase  1 of its test programs at 3 different
lubricity levels starting in early 2004.  This will confirm whether or not the proposed ASTM specification
of 520 micron WSD HFRR is adequate to protect the pumps. If it is not adequate, ASTM will adjust the
standard accordingly. If EPA does need to promulgate a diesel fuel lubricity rulemaking for 15 ppm
highway diesel fuel, we will also address lubricity for 15 ppm sulfur NRLM diesel fuel at the same time.

       The elastomer compatibility issues have been historically linked to the reduction in the aromatic
content of diesel fuel.  EPA has no plans to significantly reduce aromatic content at this time. In  addition,
equipment has been redesigned with different materials and replacement parts that have been modified
over the last 10 years to resolve the  compatibility issues.
       4.7.3   Other

What Commenters Said:

       The National Biodiesel Board commented that EPA should support the use of biodiesel as a
lubricity additive. According to an independent U.S. manufacturer of diesel fuel injection equipment,

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biodiesel significantly enhances engine lubricity - even at very low blends of one-half to two percent.  In
fact, blends of one percent biodiesel provide up to a 65 percent increase in lubricity of Number 2 diesel
fuel. By incorporating or blending biodiesel with 15 ppm low sulfur diesel fuel, EPA could alleviate
lubricity concerns otherwise apparent with low sulfur diesel.  No additional labeling requirements related
to sulfur content would be necessary when biodiesel is used as an additive to the 500 ppm and 15 ppm
fuels because biodiesel is virtually free of sulfur. Because biodiesel is a cleaner, renewable product,
whose attributes are consistent with the goals of this proposed rule, EPA should actively support and
promote the use of biodiesel as a renewable lubricity additive in ultra-low sulfur diesel fuel.

        Letters:
        National Biodiesel Board, OAR-2003-0012-0776 p. 2-3

Our Response:

        As we indicated in the NPRM, there are indications that low concentrations of biodiesel would be
sufficient to raise the lubricity of 15ppm diesel fuel to acceptable levels. Whether biodiesel would be
preferable to other available lubricity additives in terms of cost, impacts on sulfur concentration, storage,
and other issues, is a matter best left to the market.
4.8     Cetane and Aromatics

        4.8.1   General

What Commenters Said:

        BP, CHS, ConocoPhillips, and ExxonMobil commented that they support the proposed standards
for cetane and aromatics.  The commenters further stated that EPA should maintain the proposed NRLM
fuel standards that require a minimum cetane index of 40 or an alternative of no more than 35 volume
percent aromatics. These standards are consistent with those for onroad diesel fuel.  Since storage tanks
through the production and distribution system are or will be at a premium, maintaining this consistency
will help provide flexibility to distribute both highway and nonroad fuels and consequently, will help
mitigate the cost of this proposal. Exxon also stated that these standards, however, should not be applied
to locomotive and marine fuels or heating oil since there may be niche markets where these fuels are
distributed on a segregated basis.

        Letters:
        CHS Inc., OAR-2003-0012-0785 p.  3
        ConocoPhillips, OAR-2003-0012-0777 p. 5
        ExxonMobil, OAR-2003-0012-0616 p. 2, 15
        Chicago Public Hearing, A-2001-28, IV-D-06 [BP p. 175]

        EMA commented that it is well documented that the processes that remove sulfur in fuel also will
result in small but important quality improvements in other fuel properties, and EPA should maintain
those improvements by reflecting them in both the certification and in-use fuel specification for nonroad
diesel fuel.
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       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 9, 110

       One commenter, Flint Hills Resources, did not support the proposed standards for cetane and
aromatics. EPA should not implement the cetane index and aromatic requirements in the proposed rule
since the impacts are weak or nonexistent for engines to be used in the future. In addition, the vast
majority of diesel fuel already meets the EPA cetane index/aromatics specification for highway diesel
fuel. There is nothing in the RIA that either demonstrates the benefits or supports such a requirement.
EPA should not set a requirement simply because the ASTM standard has a cetane number specification
for a particular fuel.

       Letters:
       Flint Hills Resources, OAR-2003-0012-0667 p. 5-6

Our Response:

       We agree with those  commenters pointing to the increased distribution efficiency that may be
attained through the extension of the highway diesel fuel standards of 40 cetane  index or 35 volume
percent maximum aromatics to off-highway diesel fuel. We also agree with commenters who point to the
fact that compliance with the sulfur standards adopted today is expected  to result in a small cetane
increase as increases in cetane correlate with decreases in sulfur, leaving little or no further control to
meet the standard. This will also be true for fuels used by locomotive and marine engines.  Thus we
believe that the cetane index and aromatics standards for off-highway fuel will have only a negligible
impact on cost.

       Setting a cetane index/aromatics standard for NRLM fuel is unrelated to the ASTM standard for
cetane number. We agree that the impact of a cetane/aromatics standard on emissions may be small.
However, the advantages will far outweigh any cost.  As described in section IV of the preamble, the
requirement will eliminate the need for refiners and fuel distributors to separately distribute fuels of
different cetane/aromatics specifications. Requiring NRLM diesel fuel to meet this cetane index
specification thus gives fuel distributors  certainty in being able to combine shipments of highway and
NRLM diesel fuels.  Perhaps more importantly, it can also give engine manufacturers (and end-users) the
confidence they need that their fuel will meet the minimum cetane or maximum  aromatics standard
necessary to maintain minimal acceptable engine performance. Given the inherent difficulty in
segregating two otherwise identical fuels were we not to carry over these standards to NRLM, lower
cetane NRLM could easily find its way into highway engines.  If not designed for this lower cetane fuel,
these engines would likely have  driveability problems and elevated emission levels. As locomotive and
marine diesel fuel and nonroad diesel  fuel are expected to be fungibly distributed under the provisions of
the final rule, this argument applies equally to all NRLM.
       4.8.2   Alternatives to the Proposed Cetane and Aromatics Standards

What Commenters Said:

       The Alliance commented that EPA should raise the standards for cetane and/or lower the standard
for aromatics.  ASTM has not indicated a willingness to address the fuel quality needs associated with

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cetane and aromatics. EPA should not wait for ASTM to take action on this issue or for additional state
regulation beyond California and Texas. EPA should act now to raise the cetane number to 55 and cap
total aromatics at 15 percent mass as the next step toward developing clean, nationally fungible, highway
and nonroad diesel fuel.  As an alternative, EPA could establish standards for cetane at 52 and
polynuclear aromatics at 2 percent mass.

       Letters:
       Alliance of Automobile Manufacturers, OAR-2003-0012-0792 p. 3

       Yanmar commented that fuels with a higher cetane number have a greater potential to reduce
emissions.  The cetane number of the fuel available in the U.S. market is very low as compared to Europe
and Japan.  Yanmar also provided data that illustrate the benefits of a higher cetane number and
recommends that EPA require a minimum cetane number of 45 for nonroad fuel to maximize the
effectiveness of the Tier 4 standards.

       Letters:
       Yanmar, OAR-2003-0012-0615, 0813 p. 8

       Yanmar further commented that EPA should use cetane number instead of cetane index. The
cetane index does not represent fuel characteristics; and provided an illustration showing the relationship
between cetane number and cetane index and asserts that the cetane number is more directly related to
emission characteristics.

       Letters:
       Yanmar, OAR-2003-0012-0615, 0813 p. 8

Our Response:

       The primary benefit of extending the highway diesel standards for cetane index/aromatics to
NRLM fuel comes from ensuring the fungibility of otherwise identical fuel batches and ensuring a
minimum acceptable engine performance.  We have not evaluated potential fleet-wide emission
reductions that may be possible through more extensive changes to diesel fuel properties, as such changes
would be outside the scope of this rulemaking.  Should we attempt to address this, we would only do so in
the context  of a rulemaking addressing the cetane level of all highway diesel fuel as well, in order to
maintain fuel fungibility.

       We agree that cetane number is a more direct measure of the combustion characteristics of diesel
fuel than cetane index. However, because cetane number and cetane index are correlated but not
necessarily  identical, and in fact are not correlated at all for fuels containing cetane improver additives, a
change from cetane index to cetane number could more significantly impact the steps refiners must take
to comply.  Such a change would also require a concurrent change to the standard applicable to highway
diesel fuel in order to maintain the full fungibility of otherwise identical batches of diesel fuel.  As a
result we do not believe that cetane index should be replaced with cetane number.
4.9    Geographic Coverage
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       4.9.1   Alaska and Territories

       4.9.1.1  Fuel Sulfur Standards in Alaska

       4.9.1.1.1       On e-Step versus Two-Step Implementation

What Commenters Said:

       The State of Alaska and a refiner (ExxonMobil) commented that they support today's action for a
two-step implementation of the sulfur standard for NRLM diesel fuel in the urban areas of Alaska.25 The
refiner commented that, combined with not allowing Alaska refiners and importers to participate in the
early credits program, a two-step implementation would ensure the availability of low and ultra-low
sulfur NRLM diesel fuel for the equipment that may need it.  (See issue of early credit program below, as
it relates to Alaska.) Another refiner in Alaska, Tesoro, commented that we should implement a one-step
approach requiring 15 ppm NRLM diesel fuel starting in 2010. That refiner commented that, due to the
limited NRLM market, the benefits of introducing 500 ppm NRLM diesel fuel in 2007 would be minimal.
Also, the distribution system in Alaska is not capable of handling another two grades of diesel fuel that
would be required between 2007 and 2010, thus 15 ppm fuel would be  distributed  as NRLM. A third
refiner in Alaska, Petro Star, also opposes an interim 500 ppm sulfur standard for NRLM fuel in Alaska
and commented that we should require refiners in Alaska to produce 15 ppm fuel only when, and to the
extent necessary, that it is needed for changes in engine technology. That refiner indicated that the
demand for highway diesel is small in Alaska and 15 ppm highway diesel can be imported with relatively
small impacts on the Alaska refining industry, but adding nonroad volumes would greatly increase these
impacts.  These impacts would fall particularly heavily on Petro Star, as it is the only Alaska refiner that
does not produce gasoline.

       Letters:
       Alaska Department of Environmental Conservation, OAR-2003-0012-0607 p.  1
       ExxonMobil, OAR-2003-0012-0616 p. 19
       Tesoro, OAR-2003-0012-0662
       Petro Star, OAR-2003-0012-0624 p. 2-4

Our Response:

       Alaska is currently exempt from the 500 ppm sulfur standard for highway  diesel fuel, and we also
considered exempting Alaska from the 500 ppm step of the proposed NRLM standards. However, despite
the current exemption for highway diesel fuel, officials from the state of Alaska have informed us that
some 500 ppm diesel fuel is nevertheless being marketed in many parts of Alaska.  Market forces have
brought the prices for 500 ppm diesel fuel down such that it is now becoming competitive with higher
sulfur, uncontrolled  diesel fuel.  Assuming this trend continues, requiring NRLM diesel fuel to be
produced to  500 ppm beginning June  1, 2007 would not appear to be unduly burdensome. But even if
       25 In its comments, the State indicated it prefers a one-step implementation, but is unclear about whether this
comment refers to the entire state or only to the rural areas. In subsequent phone conversations in November and
December of 2003, the State confirmed this comment refers only to the rural areas, and that the State prefers the FAHS
areas (urban areas) to comply with the nationwide requirements and implementation schedule.

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500 ppm diesel fuel were not generally available in Alaska today, as indicated by Petro Star, our
expectation is that compliance with the highway program will likely result in the transition of all of the
urban area highway diesel fuel distribution system to 15 ppm sulfur beginning in 2006.  Urban here
means areas accessible by the Federal Highway System.

       As Tesoro commented, it could prove very challenging for the distribution system in some of the
areas to segregate a 500 ppm sulfur grade of NRLM from a 15 ppm sulfur grade of highway and an
uncontrolled grade for other purposes. We believe economics would determine whether the distribution
system would handle the new grade of fuel or substitute 15 ppm sulfur diesel fuel for NRLM applications.
In the 2007 to 2010 time frame, the NRLM market in some urban areas might be supplied with 500 ppm
sulfur diesel, and in other areas might be supplied with 15 ppm sulfur diesel. Thus, requiring 500 ppm
diesel fuel (in which  15 ppm diesel fuel could be used as a substitute) for the limited NRLM applications
beginning in 2007 does not appear to create any undue burden on the fuel supply or the distribution
system in urban Alaska.

       Regarding Petro Star's concern about disproportionate impact because it does not produce
gasoline, Petro Star is now uniquely eligible for the small refiner flexibilities offered by the highway and
NRLM rules. Today's action amends  the definition of small refiner to exempt affiliations between  a
refiner owned and controlled by an Alaska Regional or Village  Corporation organized pursuant to the
Alaska Native Claims Settlement Act  (43 U.S.C. §  1601 et seq.). This amendment applies to both
highway  and NRLM  diesel fuel, and is consistent with the definition of a small business by the Small
Business Administration. (See section on small refiner definition, below, for more details.)
Consequently, Petro Star is now eligible for small refiner status. If it applies, as it did for highway fuel,
and its application meets our requirements and receives our approval, Petro Star would be  able to avoid
the NRLM sulfur standard of 500 ppm until June 1, 2010, and would be able to avoid the NR/NRLM 15
ppm sulfur standard until June 1, 2014 with an approved compliance plan.
       4.9.1.1.2       Credit Trading

What Commenters Said:

       ExxonMobil commented that Alaskan refiners and importers should not be allowed to participate
in the early credit program, but should supply only low sulfur diesel for NRLM during the 2007-2010
period and ultra-low sulfur diesel after mid-2010 (for both highway and NR).  The American Petroleum
Institute and another refiner (ConocoPhillips) commented that EPA should allow Alaskan refiners to
participate in the early credit program and to be part of the Credit Trading Area (CTA) 5. The American
Petroleum Institute stated it would not be effective to disallow refiners and importers from using credits
to meet sulfur standards in Alaska, since high sulfur fuel would still be available into the foreseeable
future, as would 500 ppm diesel/fuel oil after June 1, 2010.  ConocoPhillips stated that we are unfairly
treating Alaska by limiting its trading area to the State.  It indicated that no refiner in Alaska would be
able to obtain credits to make 500 ppm sulfur motor vehicle diesel fuel (i.e. the 80/20 rule)  during the
period from 2006 to 2010, as there will be no in-state production of 15 ppm diesel for on-highway use.
The refiner attributes this projection to the high cost of producing very small volumes of 15 ppm diesel.
The refiner also commented we should allow Alaska facilities to use credits generated within their
company at other company facilities. This would provide Alaska facilities with increased flexibility but
would require investment for 15 ppm production capability at other company facilities.

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       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 18
       ConocoPhillips, OAR-2003-0012-0777 p. 7
       ExxonMobil, OAR-2003-0012-0616 p. 19

Our Response:

       The majority of these comments address concerns with the restriction in the highway rule on
credit trading for Alaska.  For these reasons, in the proposal we restricted the aggregation of baselines as
well under the baseline approach for compliance assurance.  For the final rule, we have switched to the
designate and track approach. With this change there is no longer any need under the NRLM program for
any restriction.

       While NRLM credits can be generated and traded nationwide, they are restricted from use in
certain parts of the country under the provisions of this final rule. As discussed in the next comment
below, and in section IV.D. of today's notice, we are avoiding the burden to terminals of adding marker to
heating oil in those areas of the country where demand for heating oil is expected to continue to remain
high after today's final rule.  The NRLM diesel fuel sulfur standards will be enforced based in sulfur level
in these areas, not through the refinery designation and marker provisions.  Consequently, in the area
defined in section IV.D of today's notice comprising most of the Northeast and Mid-Atlantic region of the
country, as well as in the State of Alaska, most of the fuel program's flexibilities, including refiners'
ability to use credits, are not allowed.  Refiners and importers may not use  credits to offset NRLM diesel
fuel with a sulfur content greater than 500 ppm beginning June 1, 2007, or 15 ppm NR beginning June 1,
2010, or 15 ppm LM beginning June 1, 2012, that is produced or imported into the
Northeast/Mid-Atlantic Area or the State of Alaska. However, credits generated in these areas can be
sold to other refiners and/or importers for use outside these areas.
       4.9.1.1.3       Solvent Yellow 124 Marker

What Commenters Said:

       The State and refiners commented that Alaska's unique fuel distribution system is not capable of
accommodating dye and segregation.  The priority of the State and fuel industry is to keep dye out of fuel
stream to prevent contamination of Jet-A and to facilitate movement of the fuel. They indicate the
transition to low and ultra-low sulfur fuels would be more difficult to accomplish if the fuels have to be
dyed and segregated by use.  The comments suggest that implementation of refiner product designations,
labeling of fuel pumps, retailer education, and rapid transition to ULSD would allow for an approach that
does not require the use of dyes or markers.

       Letters:
       Alaska Department of Environmental Conservation, OAR-2003-0012-0607 p. 2
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 18
       Petro Star, OAR-2003-0012-0624 p. 4 (footnote)

Our Response:
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       Although the fuel marker facilitates the enforcement of the NRLM diesel fuel sulfur standards,
for the reasons discussed in today's notice, we decided not to require its use in Alaska.  This is consistent
with our exemption from the red dye requirement for non-highway diesel fuel in Alaska.  As in the
Northeast/Mid-Atlantic Area, the NRLM diesel fuel sulfur standards in Alaska will be enforced based on
the sulfur level, not through the refinery designation and marker provisions. Consequently, in order to
limit the potential sources of fuel not meeting the sulfur standard, constrain the number of end-users who
may legitimately have higher sulfur fuel in their NRLM diesel equipment, and thus maintain the overall
program's enforceability, we are not finalizing the other provisions that allow for higher sulfur fuel to be
produced and/or distributed in Alaska (i.e., credit, refinery gate off-spec allowance, transmix processor, or
downstream off-spec fuel).  In this regard, Alaska is treated in the  same manner as the Northeast.
However, credits generated in these areas can be sold to other refiners and/or importers for use outside
these areas.

       Unlike the situation in the Northeast/Mid-Atlantic Area, we are not prohibiting the production of
high sulfur NRLM diesel fuel by small refiners in Alaska. While such a prohibition does not impact
small refiners in the Northeast/Mid-Atlantic Area, flexibility for small refiners is expected to be important
in Alaska. Thus, we need to preserve the flexibility for high sulfur NRLM diesel fuel  in Alaska for small
refiners along with eliminating the marker. The program must therefore provide another means of
enforcing the NRLM diesel fuel sulfur standards without eliminating a small refiner's ability to produce
and distribute high sulfur NRLM diesel fuel.

       Under today's program we are finalizing a provision that will allow flexibility for small  refiners in
Alaska to delay compliance with the NRLM diesel fuel sulfur standards, provided that the refiner first
obtains approval from the administrator for a compliance plan. The plan must at a minimum show the
following information:
       (1)     How they will segregate their fuel thru to end-users,
       (2)     How they will segregate their fuels from other grades and other refiners' fuels, and
       (3)     All end-users to whom the fuel is sold as well as the fuel volumes.

       End-users who receive the fuel must retain records of all fuel shipments to demonstrate that no
heating oil was used in NRLM diesel equipment.
        4.9.1.1.4       Nonroad Engines Manufactured to Operate on Ultra-low Sulfur Diesel Fuel

What Commenters Said:

        The American Petroleum Institute commented that nonroad engines manufactured to operate on
ultra-low sulfur diesel fuel should be required throughout Alaska to refuel with diesel fuel meeting the 15
ppm sulfur cap.

        Letters:
        American Petroleum Institute, OAR-2003-0012-0804-0808 p.  18

Our Response:

        Today's action requires all nonroad engines in urban Alaska manufactured to operate on ultra-low

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sulfur diesel fuel to be fueled with ultra-low sulfur diesel fuel.  While we will address in a separate rule
the applicability of the sulfur standards as they apply to Alaska's rural areas, prohibitions on the use of
high sulfur (greater than 15 ppm) diesel fuel in any engine manufactured to operate on ultra-low sulfur
diesel fuel applies to rural areas as well as urban.
        4.9.1.2 Provisions for Rural Alaska

        4.9.1.2.1       Applicability of Sulfur Standard

What Commenters Said:

        The State of Alaska commented that the rural areas should be required to meet the nationwide
NRLM requirements, but not until June 2010.  The American Petroleum Institute commented that the
diesel fuel sulfur requirements should not apply in rural areas of Alaska, as we proposed. Also,
ExxonMobil commented that standards should apply for rural and urban areas alike, but that if we do
exclude rural Alaska from the standards, it should also be exempt from the parallel vehicle standards.

        Letters:
        Alaska Department of Environmental Conservation, OAR-2003-0012-0607 p. 1
        American Petroleum Institute, OAR-2003-0012-0804-0808 p. 18
        ExxonMobil, OAR-2003-0012-0616 p. 19

Our Response:

        While these comments are relevant to the proposed rule, we are not finalizing in today's action the
fuel sulfur standards and implementation deadlines for NRLM diesel fuel used in the rural areas of
Alaska. We will raise this issue in a separate rulemaking, with notice and comment, that will address the
requirements for both highway and NRLM diesel fuel in the rural areas.


        4.9.1.2.2       Applicability to North Slope Oil Fields

What Commenters Said:

        One refiner, ConocoPhillips, commented that we should allow the North Slope oil fields to be
classified as rural areas. The refiner based this request  on the remoteness of these oil fields, tightly
controlled access for security reasons, small number of 2007 model year and later highway diesel vehicles
and 2011 model year and later nonroad engines and equipment in the early stages of the highway and
NRLM diesel fuel programs, unique production and distribution infrastructure, and the fact that the
nationwide cost assumptions are not applicable to these unique facilities. The commenter also  suggested
that, as a condition of rural designation for these North Slope oilfields, 500 ppm sulfur diesel fuel should
be required for highway and nonroad vehicles and engines starting in June 2007, and 15 ppm fuel could
be provided on an as-needed basis for the vehicles and engines that need it. This approach would allow
market forces to dictate when it  is feasible to install new desulfurization units.

        Letters:

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       ConocoPhillips, OAR-2003-0012-0777 p. 6-7

Our Response:

       In the proposed rule and today's final rule, we define the areas accessible by the Federal Aid
Highway System, "urban areas", as the geographical areas of Alaska designated by the State of Alaska as
being accessible by the Federal Aid Highway System. We define the rural areas as all other geographical
areas of Alaska.  Consistent with this approach being finalized today, we are taking no action on the
comment that the North Slope Oil fields should be defined as rural areas and defer that decision to the
State of Alaska.  Similarly, we are not taking action on the commenters suggested condition of
designation, and also defer that decision to the  State.


       4.9.1.3  Oth er Modifications to Alaska Provisions

       4.9.1.3.1       Small Refiner Definition

What Commenters Said:

       One refiner commented that Alaska Native Corporations should be exempt from the employee
count requirements of the small refiner exemption, but not the capacity requirements.  Refining
companies owned by Alaska Native Corporations should be allowed to take advantage of small refiner
status even if they do not meet the relevant employee count requirements. The commenter indicated,
however, they should be required to have a crude capacity less than 155,000 bpd to qualify for the small
refiner exemption, since these corporations might acquire additional refining assets that would cause it to
exceed this threshold.

       Letters:
       Tesoro, OAR-2003-0012-0662 p. 7

Our Response:

       Under the Alaska Native Claims Settlement Act (43 U.S.C. 1601-1629), Alaska Native
Corporations were formed to administer land and cash assets provided to the Alaska native people when
Congress extinguished aboriginal land title in Alaska to facilitate construction of the Trans Alaska
Pipeline.  Section (e)(2) of the Alaska Native Claims  Settlement Act states in part that, "[f]or all purposes
of Federal law," direct and indirect subsidiaries of an Alaska Native Corporation are considered to be
owned and controlled by natives and a minority and economically disadvantaged business enterprise.
This Act makes no distinction among subsidiaries based on number of employees or production capacity.

       We proposed, and are finalizing today, a provision that refiners owned and controlled by an
Alaska Regional or Village Corporation organized under the Alaska Native  Claims Settlement Act are
also eligible for small refiner status regardless of number of employees and  crude oil capacity. Such an
exclusion is consistent with our desire to grant  regulatory relief to that part of the industry that is the most
challenged with respect to regulatory compliance. It is also consistent with that of the Small Business
Administration in its definition of small business. We believe that very few refiners, probably only one,
will qualify under this provision.

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       We note, however, that this affiliation exclusion applies only to affiliations between the refiner
and its parent Alaskan Regional or Village Corporation. It does not apply to affiliations between the
refiner and additional refining assets the refiner may acquire. Thus, if the parent corporation acquires
additional refining assets independent of the original refiner (e.g., a new subsidiary of the parent
corporation to be owned and operated independently of the original refiner), the number of employees
and crude capacity of those additional assets of the parent corporation would be excluded from those  of
the original refiner.  But if the original refiner acquires the additional refining assets, the number of
employees and crude capacity of the additional assets must be considered as part of the original refiner.
We believe that this clarification should satisfy the concerns of the commenter.
       4.9.2   American Samoa, Guam, Northern Mariana

       4.9.2.1  Exclusion from Fuel Sulfur Standards and 2011 Nonroad Emission Standards

What Commenters Said:

       The American Petroleum Institute and one refiner commented that the U.S. Pacific island
territories should be excluded from the NRLM diesel rule.  The refiner commented that such an exclusion
is consistent with our prior application of fuel and vehicle standards to these areas and is justified by their
unique situation. API commented it supports the exclusion of the U.S. Pacific Territories due to the
significant economic burden these regulations would place on those territories and the uncertainties
regarding the environmental benefits in these areas.  We received no comment adverse to excluding the
U.S. Pacific island territories.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 18
       ExxonMobil, OAR-2003-0012-0616 p.  19

Our Response:

       These comments are consistent with our proposal and today's action.


       4.9.2.2  Puerto Rico

What Commenters Said:

       The Caribbean  Petroleum Corporation commented that the proposed non-road diesel fuel rule
would result in a major economic burden for Puerto Rico, and that Puerto Rico should be exempt from the
proposed rule.

       Letters:
       Caribbean Petroleum Corporation, OAR-2003-0012-0646 p. 1

Our Response:
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       The commenter based its comment on criteria similar to that which we have relied upon for
excluding the Pacific island territories from the NRLM (and highway) diesel fuel requirements.
However, those criteria do not justify an exclusion for Puerto Rico. For example, the CPC indicated that
Puerto Rico lacks internal petroleum supplies and refining capabilities and relies mostly on fuel imports.
However, Puerto Rico is close to the U.S. mainland, and to South American and Central American
suppliers of fuel to the U.S. mainland, and therefore has ready access to nearby fuel supplies that meet
U.S. requirements. In contrast, the Pacific island territories are remote from Hawaii and the U.S.
mainland. Most of their petroleum products are imported from East rim nations, from which diesel fuel
meeting the new sulfur standard will not necessarily be available.

       The commenter indicated that compliance with the 15 ppm sulfur standard for nonroad (and
highway) diesel fuel would require separate storage and handling facilities for a unique grade of diesel
fuel for nonroad (and highway) purposes.  However, in contrast to the Pacific Island territories, Puerto
Rico has been subject to the nationwide 500 ppm sulfur standard for highway diesel fuel and associated
red dye requirement for non-highway diesel fuel that have been in effect since 1993. Thus, Puerto Rico
currently has to provide separate storage and handling facilities for its highway and non-highway diesel
fuel. Today's rule will require additional segregation for the NR and LM fuels, but no differently for
Puerto Rico than the U.S. mainland and Hawaii. We have no reason to believe that the 15 ppm sulfur
standard for highway and nonroad diesel fuel would have a disproportionate impact on the fuel
distribution system in Puerto Rico compared to that of the U.S. mainland and Hawaii.

       The commenter claims the environmental benefit of the NRLM rule does not justify the cost for
Puerto Rico. However, it did not submit any supporting environmental or cost data. We have no reason
to believe that the costs of the NRLM diesel fuel program in Puerto Rico will be significantly greater than
that of the rest of the U.S. mainland and Hawaii, as discussed above.  We also believe that the important
air quality benefits of today's action for the 4 million people in Puerto Rico should not be significantly
different than those for the rest of the U.S. mainland and Hawaii. Consequently, today's action does not
exempt Puerto Rico from the NRLM fuel requirements.  Furthermore, the fuel will be needed in Puerto
Rico for the engines that will be required there.  Exempting Puerto  Rico from these standards would
result in non-harmonized standards and would result in an isolated market for providing fuel and engines
to meet these  separate standards.
4.10   Other Fuel Standards Issues

       4.10.1  Substantially Similar

What Commenters Said:

       The New York Department of Environmental Conservation commented that we should provide
an interpretation of the "Substantially Similar" requirements of the Clean Air Act for diesel fuel as was
done for gasoline.

       Letters:
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 8

Our Response:

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        Diesel fuel used in nonroad engines is not subject to the "substantially similar" (sub-sim)
provisions of Clean Air Act section 21 l(f). As a result, a formal definition of sub-sim for diesel would
not affect nonroad diesel fuel. For highway diesel fuel, the Agency makes a determination of compliance
with the sub-sim provisions of the Clean Air Act whenever a new fuel completes the fuel and fuel
additive registration process.
        4.10.2  Geographic Issues

What Commenters Said:

        CARB commented that we should consider adopting higher quality diesel fuel standards as
required in the states of Texas and California.  They stated that without nationwide standards, interstate
traffic (construction, marine, and locomotive) could lead to the consumption of fuel purchased outside of
the fuel property control area, which could lead to a reduction in benefits for the area that has adopted the
higher quality fuel standards.

        Two commenters commented that there are specific geographic issues with respect to the western
part of the U.S. that should have been accounted for in the rule. Sinclair commented that, similar to
previous fuel rulemakings, we should take into account the unique fuel, environmental, geographic and
economic considerations that exist in the western U.S. The refiner stated that there are numerous
differences between PADD IV and other areas of the country, including: 1) a minor or nonexistent market
for home heating oil; 2) a limited fuel distribution system due to the vast geographic size of the region; 3)
self-contained refining and fuel supply dynamics wherein little refined product is imported into, or
exported out of the GPA; 4) refiners that are all small (70,000 b/d or less); and 5) a higher level of
compliance with NAAQS than the nation at large. Given these differences, Sinclair believes that we
should maintain the designation of this area as a geographic phase-in area (GPA) in the final rule,  and
strongly urges that NRLM credit trading be limited to the region or PADD  where the refinery is located.
Sinclair is concerned that a company owning a small refinery in PADD IV  as well as large refineries in
other PADD's could find it most economical to generate NRLM diesel fuel sulfur credits at their large
facilities and use them to delay investment at their small PADD IV refinery. In other words, they  stated,
the high cost of regulatory compliance with PADD IV refineries could lead to a disproportionate use (or
dumping) of sulfur credits in area relative to other regions of the country.  Sinclair is concerned that this
will result in refiners with most or all of their refining assets located in PADD IV (such as Sinclair) being
competitively disadvantaged relative to large refiners owning a refinery in PADD IV.  The refiner also
believes that the intended environmental and visibility benefits of low sulfur NRLM diesel fuel in PADD
IV will be delayed longer than other regions. Sinclair believes the more effective solution to this situation
is to  limit credit generation and use to the PADD where the product is manufactured.

        The Oregon Department of Environmental Quality ('Oregon') commented that we should
reevaluate the effect of the proposed exemptions. Oregon stated that our analysis regarding the effect of
the exemptions (i.e. hardship and small refiner exemption)- which indicates that the impact is minor since
it potentially only affects about 20 percent of the nation's fuel supply for nonroad engines- ignores the
fact that the  impact is concentrated in the intermountain western states.  In particular, areas like eastern
Oregon and  Washington are served primarily by refineries allowed until 2014 to fully comply. Oregon
believes that individuals seeking to purchase and use nonroad diesel equipment in these  areas will be
faced with the choice of misfueling, deferring purchase of new equipment,  or paying a premium for the

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low sulfur boutique fuel. Lastly, Oregon commented that our analysis of the exemption also ignores the
recent development of voluntary diesel retrofit programs in Oregon and many other states; and that we
should reevaluate our analysis on this issue in light of these considerations.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 6
       New York  Department of Environmental Conservation, OAR-2003-0012-0786 p. 8
       Oregon Department of Environmental Quality, OAR-2003-0012-0779 p. 1
       Sinclair Oil Corporation, OAR-2003-0012-0704, 0829 p. 3-4

Our Response:

       Adopting higher quality diesel fuel standards of the sort required by California and Texas might
generate additional reductions in regulated pollutants for the current fleet. However, such a fuels program
goes beyond the scope of this rulemaking, which is intended primarily to generate emission reductions
through the application of new standards for nonroad engines, and to lower the sulfur content of diesel
fuel in order to enable the technologies that are expected to be employed to meet those new engine
standards. The fact that interstate traffic effects would be reduced under a nationwide clean diesel fuel
program is not, in itself, a sufficient reason to implement these types of fuels programs.  If we were to
adopt higher quality diesel fuels standards, we would need to conduct a thorough assessment of the
associated costs, benefits, and cost-effectiveness.

       In response to Oregon, we believe that providing special provisions for small refiners are
necessary and appropriate for several reasons, which are discussed in section IV.B of the preamble to
today's rule. Absent specific provisions for small refiners, we would have to consider delaying the
overall program until the burden of the program on many small refiners was diminished, which would
further delay the air quality benefits of the overall program.  Further, temporarily delaying compliance for
small refiners will allow for overall lower costs of improvements in desulfurization technology and would
spread out the demand for construction and engineering resources. This will likely reduce any cost
premiums caused by limited supply.  In response to the misfueling concern regarding small refiner fuel,
we believe that any problems that might occur will be readily solvable through such programs as
designate and track

       In regards to GPA  refiners, we are finalizing provisions (small  refiner, hardship) to provide
flexibility in GPA areas where necessary. However, similar to Puerto Rico, there is no reason to not
require the fuel there as well, since engines sold in these areas will need the fuel.
       4.10.3  Overall Program Approach

What Commenters Said:

       Environmental Defense commented that our approach for monitoring sulfur levels in diesel fuel
should meet certain requirements.  The commenter further stated that a well designed system should be
verifiable, transparent and enforceable both by EPA and the public; maximize environmental and public
health benefits; maintain the benefits and program integrity of the highway diesel program; ensure
adequate supply; allow highway and nonroad diesel to be distributed through the same pipeline; prevent

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windfall credits; and discourage dumping of off-specification fuels into the home heating oil or other
pools.

       Letters:
       Environmental Defense, OAR-2003-0012-0821 p. 16

Our Response:

       The details of the program that we are finalizing today are discussed above in 4.1 through 4.3 and
also in section IV of the preamble; and we believe that the fuel program being finalized today meets the
objectives suggested by the commenter.
       4.10.4  Use of 500 ppm Sulfur Diesel Fuel Produced from Transmix or Segregated Pipeline
       Interface in the NRLM Market

What Commenters Said:

       US Oil is opposed US Oil is opposed to the extension to 2014 allowing transmix and
interface to be sold offroad at a 500 ppm standard.  We believe that this will open the door to "games"
that will be difficult to monitor and that it will affect our market.  There are present capabilities to rerun
interface/transmix that allow the normal product specifications to be  adhered to.

       Letters:
       US Oil, 03/30/04, OAR-2003-0012-0917

Our Response:

       The designate and track and other record-keeping and reporting provisions under today's rule will
ensure that the sale of 500 ppm diesel fuel produced from transmix or segregated pipeline interface into
the NRLM market from 2010 though 2014, and the LM market thereafter does not provide the
opportunity for additional 500 ppm diesel fuel to inappropriately enter the NRLM market upstream of the
terminal. Downstream of the terminal, the fuel marker and Northeast/Mid-Atlantic Area provisions will
accomplish this goal. Pipeline operators have a strong financial incentive to limit the amount of 500 ppm
sulfur diesel fuel that is generated from pipeline interface since the majority of this product would come
from downgraded higher value products such as 15 sulfur diesel fuel and jet fuel.  Pipeline operators and
other parties in the distribution system also have a strong financial incentive to limit the amount of
transmix produced since transmix comes from higher value products and there are substantial costs
associated with reprocessing transmix to make it a useable product. Under today's rule, transmix
processors will be prohibited from using blendstocks that do not originate from reprocessed transmix to
manufacture 500 ppm diesel fuel for sale into the NRLM market from 2010 though 2014, and the LM
market thereafter.

       Requiring such 500 ppm diesel fuel to be returned to the refinery for desulfurization to meet a 15
ppm sulfur standard would result in a significant additional burden to industry and cost to end-users that
we believe is unjustified at this time. In addition, there could be significant logistical constraints to
overcome if all such material was to be returned to the refinery for desulfurization, including: the need to

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for additional storage tanks at terminals and refineries, the need for additional long distance transportation
of the material back upstream to a refinery, and concerns about the ability of refiners to accommodate the
volume of product that would need to be reprocessed.
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5.     ENGINE AND EQUIPMENT COSTS

5.1    General Engine and Equipment Cost Issues

       5.1.1    Generally Supports EPA's Cost Estimates

What Commenters Said:

       MECA commented that the RIA presented a thorough discussion of the costs of DOCs, DPFs and
NOX adsorber technology and the cost estimates are in a reasonable range. MECA also noted generally
that costs can vary depending on the engine and the equipment application and that the cost of emission
control technologies tend to decrease over time as the volume of product needed increases and the
technologies are further optimized to minimize complexity and cost.

       Letters:
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 6

       The Union of Concerned Scientists noted that their analysis shows that even when one accounts
for the system modifications specific to nonroad engines, the overall cost of compliance should be
modest, particularly for engines at 75 hp or higher. Installing state-of-the-art pollution controls that
reduce emissions by over 90 percent will add only 1 to 3 percent to the base equipment cost of these
engines.

       Letters:
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [UCS p. 67]

       CARB commented that cost-effectiveness per pollutant is projected to be even more economical
than for the 2007 on-highway rule with PM rated at $8,700/ton and NMHC + NOX rated at $810/ton.
CARB further stated that regardless of the health assessment methodology used, EPA's nonroad proposal
is cost-effective.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 11-12

       The IBT commented that the estimated cost is reasonable, especially when taking into
consideration the potential health benefits.

       Letters:
       International Brotherhood of Teamsters, OAR-2003-0012-0664 p. 2

Our Response:

       We appreciate the commenters' reviews of EPA's cost analyses for this rulemaking. We
especially appreciate the review of our methodology and comments from the Manufacturers of Emission
Control Association (MECA). MECA and its member companies are in a unique position to predict the
cost of the products they will make in the future. Their positive comments on our cost estimates give us

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additional confidence that our analyses documented in Chapter 6 of the RIA are indeed accurate.

       We appreciate the comment pointing out that costs invariably decrease over time. We have
attempted to account for this phenomena in our cost estimates by applying a learning curve to our near
term cost estimates.

       In general, we agree with these comments, but note that the cost-to-price ratios for some
equipment, even some >75hp, are estimated to be higher than 1-3% as referenced in the comment from
the Union of Concerned Scientists (see Table 6.5-4 of the RIA).
       5.1.2   EPA Has Underestimated the Economic Impacts of the Tier 4 Standards on
               Equipment Costs and Operations

What Commenters Said:

       AEM commented that any significant increase in research and development and capital
investment burden required to redesign products to adopt Tier 4 controls will have to be apportioned
across a relatively low volume of units, since nonroad machines are sold in much fewer numbers than on-
highway trucks. EPA's RIA understates the cost increases that will result from the Tier 4 rule. AEM also
cited a study completed by Euromot that examined the economic implications of Tier 4, which was
aligned with EPA's study on the cost impacts of the 2007 on-highway rule, and indicates that the cost
increases will be higher than EPA projects.

       Letters:
       Association of Equipment Manufacturers  (IV-D-403)p. 11-12

       The American Rental Association commented that while EPA has provided capital cost estimates,
AEM reports results of an analysis by the National Economic Research Associates (NERA) estimating
much higher initial  costs.  NERA found that the cost of nonroad equipment for a Tier 3 standard
compared to the current Tier 2 standard might be as much as $12,000 per unit. Implementing the Tier 4
regulation to reduce NOX by an additional 90 percent is likely to be more expensive.  Schneider Trucks, at
the recent 2007 Clean Diesel Implementation Workshop, reported that implementation of the regulation
for onroad trucks could cost much as $17,000 per unit compared to the EPA estimate of $1,500.  In
addition, the cost is not equal across all engine sizes.  It is likely to cost more to reduce pollution in
smaller engines. ARA also noted that a significant percentage of the nonroad rental fleet is small
equipment that may be very costly to control and EPA should consider allowing more time for industry to
comply to help reduce overall costs. (See additional discussion under issue 3.1.1).

       Letters:
       American Rental Association  (IV-D-493) p.  2-3

       The Committee for European Construction Equipment (CECE) and the European Committee of
Associations of Manufacturers of Agricultural Machinery (CEMA), in joint written comments, felt special
consideration ought to be given for those machines that had to comply with the European noise directive
for outdoor machinery (2000/14/EC) with a stage 2 taking effect in 2006.
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       Letters:
       CEMA-CECE, OAR-2003-0012-0598 p. 3

Our Response:

       With respect to the comment from ARA which references an AEM report which, in turn,
references a NERA cost estimate for the Tier 3 standard that predicts cost increases that might be as much
as an additional $12,000 per unit, we have dealt with this comment and the referenced study within the
context of the Tier2/3 rule. We responded then that many of the costs estimated in the NERA study could
not be substantiated.12 We also argued that, because of the concerns with the NERA report, we were not
prepared to rely on its predicted cost estimates.13  Furthermore, we have not reassessed, reconsidered, or
otherwise reopened the Tier 2/3 rule, so this comment is not relevant to this proceeding.

       As for the ARA comment that references the Schneider Truck estimate of $ 17,000 per unit, we
were unable to find that number in the Schneider presentation made at the 2007 Clean Diesel
Implementation Workshop.14 In this presentation, a price increase associated with the 2007 standards is
shown as $16,000.  However, while this is an estimated price increase ratherthan an estimated cost
increase, as we have estimated, there is no documentation in the presentation that sheds light on the basis
for the estimate.  This contrasts sharply with the extensive documentation of engine and equipment costs
that we have made in Chapter 6 of the RIA. Also, comments from the Manufacturers of Emission Control
Association with respect to our aftertreatment cost estimates suggest that our estimates are reasonable.

       ARA also commented that it would cost more to reduce pollution on smaller engines. The basis
for this comment is not clear. Since costs of exhaust emission control devices will be directly
proportional to the size of the device which, in turn, is directly proportional to the size of the engine, there
is little chance that costs for smaller engines will be higher than for larger engines. If this was the
commenter's point, then we disagree.  If the point of the comment was that, on the basis of a percentage
of the engine/equipment price, the costs  for smaller engines will be greater, we neither agree  nor disagree
because it depends more on the type of equipment than on the size of the equipment.  We acknowledge
this fact in tables showing our cost estimates as a percentage of engine/equipment price (see Table 6.5-4
of the RIA). Our sales weighted cost estimates for engines <75hp range from ~$100 to ~$700, and for
larger engines it ranges from ~$1,000 to $7,000 per piece of equipment (see Table 6.5-2 of the RIA).
This cost increase equates to an estimated increase of 1-3% relative to the new equipment price for some
types of equipment (e.g., construction, industrial, some agricultural) regardless of size, and 5-10% for
other types of equipment (e.g., gensets, pumps) more or less regardless of size. The point here is that, for
equipment consisting of an engine with substantial value added engineering (an agricultural tractor, a
dozer), the cost-to-price ratio is low since the cost of the engine is a small proportion of the cost to
produce the piece of equipment. For equipment consisting of little more than an engine and some basic
sheet metal (i.e., a genset, a pump, a compressor), the cost-to-price ratio is relatively high since the cost of
the engine constitutes a high percentage  of the cost to produce the piece of equipment.  None of this
suggests that the cost of controlling pollution on small engines or equipment is higher than on larger ones.

       The commenter further suggests that EPA allow for more time for smaller engines to comply
given how costly the new standards will be. We do not believe that the costs estimated for the 2008
standards can be considered to be very costly (~$150 to ~$250 per machine, see Tables 6.4-7 through 6.4-
10 of the RIA) and, for those standards that are more costly due to the addition of a CDPF  and associated
hardware, the smaller engines have until the 2012/2013 timeframe to comply. This represents eight to

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nine years prior to compliance, and five to six years additional time beyond the date when on-highway
diesel engines must meet a similar standard.

        Regarding the AEM comment and the Euromot study, AEM did not specify the report from
Euromot to which they were referring, and they did not provide EPA with a copy of the report. We did
receive a study from Euromot and the Engine Manufacturers Association during the development of the
proposal titled "Investigations into the Feasibility of PM Filters for Nonroad Mobile Machinery." This
report is available in the public docket for this rule, Air Docket A-2001-28, item number II-B-12. We
assume this is the report the AEM is referencing.  AEM's comments state that "Euromot did a good study
on the economic implications of Tier 4, which aligned with EPA 's study on the cost implications of the
2007 on-highway rule that deals with the introduction of similar emission control technology.
Comparing the findings of these two reports indicates there is a greater cost increase than what EPA
projected for the nonroad equipment cost increase in the proposal. " Assuming the joint Euromot-EMA
report is the referenced document, we disagree with this comment. The report from Euromot focuses
primarily on the feasibility of applying particulate filters to nonroad diesel  engines and equipment.  The
Euromot-EMA report is 41 pages long, and it contains 1 page plus 1 paragraph discussion on cost.  The
following is a summary of some of our concerns with using any of the cost information contained in the
Euromot-EMA report in EPA's cost analysis:

               the terms "price" and "cost" are used interchangeably.
        •       there are no references for the information which  is presented, but for PM filter cost
               estimates uses the phrase "Costs roughly estimated".
               the specific type of PM filter technology is not discussed (CDPFs or burner-assisted
               filters)
               PM filter precious metal loadings are not specified or discussed
        •       PM filter regeneration methods are not specified or discussed
        •       PM filter substrate material is not specified or discussed
               PM filter dimensions are not specified or discussed

        EPA's engine cost analysis in the RIA for this final rule is more than 90 pages long, and contains
more than a dozen technical references. All of the items identified above as concerns with the Euromot-
EMA report are fully documented in EPA's cost estimate. With no documentation regarding what the
basis for the cost estimates are, or even a basis for determining what costs are being estimated, we
disagree with the commenter that this report is a useful comparison to EPA's Tier 4 estimates, or that this
report provides a basis to claim that EPA has underestimated the costs of Tier 4. Contrary to what the
commenter suggests,  the Euromot-EMA report does not discuss the costs of the highway 2007 rule, so it
is not clear what relevance this comment has to the Tier 4 rule.  Also, the Euromot-EMA report does not
estimate the costs, or include any discussion of, NOx control technology for nonroad diesel engines.
Finally, we should note that the above comments are not intended to be a criticism of the joint EMA-
Euromot report as a whole.  The EMA-Euromot report, which mostly discusses technical issues, does in
fact contain a good discussion of PM filter technologies and the technical challenges of applying PM
filters to nonroad diesel engines.

        The Committee for European Construction Equipment (CECE) and the European Committee of
Associations of Manufacturers of Agricultural Machinery (CEMA), in joint written comments expressed
concern about the impact of the Agency's emissions regulations in the context of European noise
requirements. Given the alignment of emissions standards in  Europe and the United States, it seems clear

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that the European Commission feels the emissions targets may be met when coupled with the noise
requirements. There are no plans to provide special provision s for nonroad diesel engine or  equipment
manufacturers that sell in both markets as those that sell in the  European market will clearly not need
special provisions in the United States to meet the same emissions standards in the context of the
European noise requirements.
       5.1.3   EPA Should Use Today's Equipment Cost as the Baseline of Comparison and Not a
               Tier 3 Level Machine

What Commenters Said:

       AEM commented that the economic impact analysis in the RIA is potentially misleading to the
user groups who make the purchase decision to buy new equipment. The typical new equipment
purchaser will experience the sticker shock from today's price of equipment (Tier 1 and 2) to that of Tier
4. Therefore, a better gauge of the economic impact on the end user would be to use today's equipment
cost as the baseline of comparison and not a Tier 3 level machine.

       Letters:
       Association of Equipment Manufacturers, OAR-2003-0012-0669, 0670 p.  13

Our Response:

       We believe that what the commenter means to say is that we should use today's engines, not Tier
3 engines, as the baseline for developing costs. We strongly disagree.  We have already estimated costs
associated with the Tier2/3 rule and have accounted for those costs in the context of that rule.  Not
including those costs (and the associated technology packages) in our Tier 4 baseline would amount to
double counting. Nor is this a mere accounting exercise. We included those costs  in the Tier2/3 rule
because we estimated that the costs reflected the technological means by which engine and equipment
manufacturers would comply with those rules. As discussed in the RIA and preamble to this Tier 4 rule,
recent 2004 MY certification data supports the accuracy of our technological assessments for engines
under 100 hp (a focus of the comments of a number of equipment manufacturers in this rulemaking).26

       However, if the commenter means to suggest that we use Tier2/3 equipment prices as the baseline
for our cost-to-price ratios, then we agree that Tier 3 would probably provide a better baseline for
comparison than today's equipment prices which we have used in our Economic Impact Analysis (EIA)
contained in Chapter 10 of the RIA. Presumably, the prices for future equipment (i.e., Tier2/3) will be
higher than today's equipment which would, in turn, make our cost-to-price ratios lower.  In this sense,
our Economic Impact Analysis is conservative as it is based on the impact of the Tier 4 program on Tier 1
and Tier 2 equipment prices.  Thus, that analysis overestimates the percent increase in cost (i.e., we get
the numerator correct, but the denominator based on Tier 1  and Tier 2 prices is too small) and therefore
overestimates the market impacts of the Tier 4 program.
       26 Note that it also bears mention that the commenter did not suggest that EPA calculate emissions reductions
from present levels (i.e., ignoring any reductions attributable to the Tier2/3 rule), yet that would be the logical corollary
to what is suggested by the comment.

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       5.1.4   The Nonroad Sector Has Far less Ability to Absorb the Costs of Developing New
               Engine Configurations and Redesigning Equipment

What Commenters Said:

       Ingersoll Rand commented that, unlike on-road engines, many engine models designed for
nonroad equipment are produced in very low volume, which increases the cost of compliance for
manufacturers.  In fact, because of the cost pressures exerted during implementation of EPA's Tier 1 and
2 standards, engine manufacturers have discontinued their offering, without subsequent substitution, of
several small-volume nonroad engine models. In addition, there is a very limited number of engine
manufacturers with no U.S. manufacturers of diesel engines below 40 hp. If a single engine manufacturer
decides to discontinue a certain engine family, the effect is felt throughout a broad range of equipment
manufacturers that use the engine in a variety of applications.

       The Committee for European Construction Equipment (CECE) and the European Committee of
Associations of Manufacturers of Agricultural Machinery (CEMA), in joint written comments stated that
their customer base is comprised of largely small entities  such as small farms and contractors.  Their
sensitivity to price increases created the potential for pre-buy and post-buy concerns.

       Letters:
       Ingersoll-Rand, OAR-2003-0012-0504 p. 8
       CEMA-CECE, OAR-2003-0012-0598 p. 3

Our Response:

       We believe that, if there is a market for a particular engine, engine manufacturers will produce
and sell that engine. The NRT4 rule should have no impact on that basic open market tenet.
Manufacturers that discontinue engine lines do so for many reasons, and the commenter provided no data
to substantiate their claim that the Tier 1 or 2 standards resulted in the elimination of engine product
offerings in the  U.S. The 2004 public engine certification database shows that, in 2004, there are over 40
nonroad engine manufacturers (see www.epa.gov/otaq/certdata.htm). The database also shows that over
15 of those engine manufacturers make engines in the <40hp range.  We do not disagree that an engine
with very low sales might be discontinued if a manufacturer can no longer justify the incremental cost for
maintaining the product line (e.g., research and development costs to improve their product). As
described in our response to comment 5.3.1.4, we do not believe that many if any engines in this power
category  are truly produced in small volumes. However,  we believe that, for every engine line
discontinued by a high-cost manufacturer, provided there is a demand for that engine line or one with
similar characteristics, there will be a new engine line developed by a lower-cost manufacturer with
greater ability to meet customer needs. Further, we believe that it is highly unlikely  that an equipment
manufacturer will be unable to find an engine with the operating characteristics they demand—that engine
may come from a different manufacturer than it does today, but it likely will be provided by a
manufacturer with greater ability to adapt to changes in the market by controlling costs and satisfying
their customers.

       CEMA-CECE provided no data indicating cost or price elasticities. The commenter also
provided only an anecdotal assessment of potential outcomes without addressing actual expected cost

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increases.
5.2    Methodology for Estimating Engine and Equipment Costs

What Commenters Said:

       The Mercatus Center commented that EPA's regulatory cost accounting explicitly rejects basing
cost estimates on the concept of opportunity cost.  However, if EPA seeks to improve society's net wealth,
it should base its perspective on this concept of determining the most highly valued alternative use, from
society's point of view, of the economic resources needed to implement the proposed regulation. EPA
instead, relies on how quickly regulated firms will recover the cost associated with compliance.

       Letters:
       Mercatus Center, OAR-2003-0012-0627, 0828 p. 39-43, 47

Our Response:

       Our regulatory cost accounting is based on assessing the engineering or technical costs associated
with controls that will be incorporated into engines affected by this rule over the time of implementation.
This compliance cost accounting is consistent in approach with other mobile source rules issued by EPA
(e.g., Tier 2 Light-Duty Vehicle, Heavy-Duty Diesel Vehicle) in the recent past, and it is consistent with
the type of cost analysis the Office of Management and Budget (OMB) required Federal Agencies such as
EPA to provide along with the regulation itself.

       EPA does attempt to examine the regulation's effect on society in its regulatory impact analysis
(RIA). In that document, EPA produced a benefits analysis estimating the value from the emission
reductions expected to occur. The results of this benefits analysis  are then compared to the cost to present
some overall conclusions on the effects of this regulation on society such as total net social benefits.  In
addition, EPA also prepared an economic impact analysis that estimates impacts to producers and
consumers  affected by this regulation, and does so from a standard microeconomic framework examining
changes in  consumer and producer surplus.  Such a framework explicitly considers opportunity cost in
estimating impacts. Hence, EPA does examine the opportunity costs of resources used to comply with
this rule and the net effect on society through the benefits and economic impact analyses instead of
analyzing such effects through the compliance costs.

       The commenter asserts that we have used our cost accounting approach to imply that regulated
industries will get some return on their investments in R&D, redesign, and other fixed  costs.  This is not
the case.  EPA does not typically conduct a financial analysis examining the returns on alternative capital
investments from funds expected for use in compliance purposes.  Instead, we examine opportunity costs
as part of analyzing changes in  social welfare in the economic impact analysis and RIA.

       We should note, however, as the commenter acknowledges, that were EPA to adopt the
methodology suggested by the commenter, the cost estimates for our programs would be reduced. Thus,
while such  a change might theoretically lead to our development of a more stringent program
(presumably one reason for not finalizing a more stringent program is higher costs) there is no reason to
believe it would lead  EPA setting a less stringent program than the one being finalized today.

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5.3    Engine-Related Costs

       5.3.1   Engine Fixed Costs

       5.3.1.1  EPA Has Underestimated the Cost of Compliance to Engines Between 75 hp and 100
               hp

What Commenters Said:

       AEM commented that the RIA presumes that all engines above 75 hp are already equipped with
electronic engine controls that were added to comply with the Tier 3 standards. However, there are  some
popular engine models in the 75 to 100 hp (56 to 75 kW) range that will not have full electronic engine
controls or unit fuel injection systems for Tier 3. In order to comply with Tier 4, AEM also noted, these
engines will experience a more significant cost increase than is currently stated in the RIA cost analysis.

       Letters:
       Association of Equipment Manufacturers, OAR-2003-0012-0669, 0670 p. 13

Our Response:

       The commenter does not provide enough information for us to know what engines or what engine
manufacturer(s) intend to sell Tier 3 engines in the 75-100hp range without electronic engine controls.
As discussed in section II.A.5 and section VI. C of the preamble, we believe that engines in the 75-100hp
range will indeed be equipped with electronic engine controls in the Tier 3 timeframe (i.e., the Tier 4
baseline). We believe this based on our own engineering judgement and on conversations with engine
manufacturers.  In fact, we believed this  strongly enough to included costs for electronic controls on 75-
100 hp engines in the Tier2/3 rule.  As pointed out in Chapter 4 of the RIA and section II.A.5 of the
preamble, moreover, 2004 MY certification data, which reflects controls engine manufacturers are using
to comply with Tier 2 rules, already shows substantial migration of electronic engine controls into
engines in this power category (on the order of 20 % of such engines). We believe these data corroborate
our earlier engineering predictions that these technologies will be needed to comply  with the Tier 3 rule,
and make clear that EPA's projection, that electronic fuel systems will be atypical component of the 75-
100 hp engines prior to Tier 4, is reasonable.
       5.3.1.2  EPA Has Underestimated the Cost of Compliance to Engines under 75 hp

What Commenters Said:

       SBA's Office of Advocacy commented that EPA's RIA indicates that for engines below 75 hp,
aftertreatment technology required by the proposed rule will cause per unit costs to rise significantly.
Even under EPA's conservative cost estimates, the costs for engines between 50 and 75 hp will amount to
approximately one quarter of the cost of these engines. There is reason to believe that EPA's cost
estimates for small hp engines/equipment is too low. Other government regulators have devoted
significant time and effort to estimating per unit costs for engines below 75 hp. The European Union
commissioned a study of the feasibility of requiring PM aftertreatment for these small nonroad diesel

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engines.  This study found that the cost of PM aftertreatment would come to $1,800 per engines between
25 and 50 hp and $3,775 per engines between 50 and 100 hp. The same study found that these engine
classes currently had mean costs of $2,000 and $3,500, respectively, and that PM aftertreatment alone
would amount to 75 percent and 92 percent of the per unit cost, respectively. This analysis demonstrates
that the proposed rule is likely to increase dramatically the cost of nonroad diesel equipment produced by
small equipment manufacturers.

       Letters:
       U.S. Small Business Administration Office of Adovocacy, OAR-2003-0012-0815 - 0818 p. 4-5

Our Response:

       We disagree with the commenter (U.S. Small Business Administration- Office of Advocacy, or
SB A Office of Advocacy) that this report is a basis to state the EPA has underestimated the costs of the
Tier 4 standards.

       During the development of our proposal, we reviewed the report referenced by the commenter,
"Feasibility Study on a Third Stage of Emission Limits for Compression Ignition Engines with a Power
Output Between 18 and 560 kW", written by VTT Processes for the European Commission ("the VTT
report").  We disagree  with the commenter that this report is a basis to state the EPA has underestimated
the costs  of the Tier 4 standards. The VTT report is well over 60 pages long, and the cost information
referenced by the commenter is presented in a single table with no references or description of how the
costs were estimated. The cost estimates cited by SBA Office of Advocacy are in Table 9 of the VTT.
The table includes a row labeled "Estimated mean costs of aftertreatment", and it provides 4 values
covering  engines with  a sales weighted power of 27.5kW, 56kW, 102.5kW, and 345kW.  No references
are provided for the cost estimates, and there is no description of what the "aftertreatment" is (i.e., what
type of aftertreatment,  the size, additional hardware if any, etc.). The report does not specify what is the
baseline engine  hardware for the cost estimates. The text indicates the estimates in the table "only include
hardware and engineering costs", but there is no description of the hardware and no description of what
engineering costs are estimated  and what portion of the costs are for engineering vs. hardware. It is well
settled that comments containing no substantive information, but rather mere undocumented assertions,
require no response. See, e.g. Lead Industries Ass.n v.  EPA. 647 F. 2d 1140, 1167 (B.C. Cir. 1980); see
also section 307 (d) (6) (B) of the Act, which requires response only to "significant comments".

       EPA has specified every aspect of our engine and equipment cost estimates in Chapter 6 of the
RIA.  This Chapter, which is devoted only to engine and equipment costs, is more than 90 pages long and
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contains more than a dozen technical references. Chapter 6 of the RIA includes the following types of
information:

               Baseline engine configuration and hardware
       •       Tier 4 control engine technology hardware definition
               Aftertreatment  substrate volume, washcoat precious metal loading, and regeneration
               system specifications and cost estimates
       •       Cost estimates for each element of technology package hardware projected to be used to
               comply with Tier 4
       •       Detailed description of engine volumes used in the  cost estimates
       •       Description of how fixed costs were estimated

       The VTT report contains none of this information. Given the complete lack of description of
what the cost estimate is or how it was derived, the VTT report provides no basis for comparison to
EPA's cost estimates for the nonroad Tier 4 standards.

       We do not disagree with the comment that for some engine  power categories, the costs of the Tier
4 program may be on the order of 25 percent of the cost of the engine in the near term in some cases.
However, as discussed in response to comment 7.2.5, we  disagree with the commenter that this cost
increase cannot be absorbed by  the market.  Please see our response to comment 7.2.5.
       5.5.1.3  EPA Has Underestimated the Fixed Costs for Engines in the Proposed Rule

What Commenters Said:

       AGCA/NAHB commented that because of the diversity in the marketplace, the emissions
reduction solutions (i.e., resolving space issues and maintaining suitable temperature ranges) will have to
be specifically engineered for a large number of equipment designs and uses.  Further, AGCA/NAHB
stated that it is possible that each specific engine could require a complex redesign for each specific
equipment application.

       Cummins also commented that we have underestimated the engine fixed costs, but did not
provide any additional discussion or supporting documentation. Cummins also noted that it would be
willing to share  information with EPA regarding these costs on a confidential basis.

       Letters:
       Associated General Contractors of America/National Association of Home Builders,
       OAR-2003-0012-0791,p. 10
       Cummins, Inc., OAR-2003-0012-0650 p. 9

       Caterpillar and Cummins commented that we did not included costs associated with upgrading
test facilities for transient testing of engines up to 560 kW, or the significant costs for upgrading facilities
to accommodate transient testing of engines over 560 kW.

       Letters:
       Caterpillar, OAR-2003-0012-0812, p. 4

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       Cummins, OAR-2003-0012-0650, p. 6
Our Response:

       We have received confidential comments from Cummins. Based in part on this commenter's
suggestion and confidential data, we have developed a more detailed method for estimating research and
development costs. Applying this new method increased our estimate of research and development costs
for Tier 4 by approximately 50 percent.  These additional fixed costs are discussed in section 6.2.1 of the
RIA.

       As for the comment about each engine requiring a complex redesign for each equipment
application, we disagree with this comment.  For example, today's nonroad equipment uses a wide variety
of radiator sizes and styles. Further, these radiators can be installed in any number of places and any
number of orientations within the piece of equipment provided certain design constraints specified by the
engine manufacturer are met. Engine manufacturers do not develop new engines to accommodate every
possible combination of designs and orientations that may occur in the equipment. We think it will be
similar for nonroad equipment under Tier 4.  Engine manufacturers will specify a choice of one or two
options (e.g., one device with an oval can and one with a round can) per engine model.  Further, the
engine manufacturers will specify the minimum and maximum distance from the engine that the device
can be installed.  This generic design must then be accommodated by the equipment manufacturer in their
design process.  This would leave the equipment manufacturer with a wide variety of possible designs
(device mounted vertically, horizontally, transversely, etc.) within the design constraints specified by the
engine manufacturer. We have accounted for the cost of a large number of equipment redesigns
reflecting the work required to do this.

       As for comments regarding certification costs, we have included costs for transient testing of
engines under 750hp. We have included incremental costs of $4,500  per engine family certification for
this testing on engines under  750hp. We assume that such testing could be done either in-house with,
perhaps, upgrades to existing facilities, or could be contracted out to various test labs around the country.
We believe that $4,500  should cover such certification testing. As for costs to accommodate transient
testing of engines greater than 750hp, we are not including these costs in the final rule since we are not
finalizing requirements  for transient testing of these engines.
       5.3.1.4 EPA's Direct Cost Estimates Implicitly Assume a Relatively Large Manufacturer

What Commenters Said:

       The Mercatus  Center commented that a relatively large firm can spread EPA's "fixed costs" over
thousands more units than a relatively small firm.  For instance, EPA estimates that the industry's total
R&D expenditures for the 25 to 75 hp engine category over 2003 through 2012 would total approximately
$73.3 million (in 2001 dollars) before discounting. If each of the 28 firms must spend approximately the
same amount on R&D to arrive at end results that will earn EPA certification, then each firm—regardless
of relative size—must spend approximately $2.6 million on R&D. For Kubota and its 28.6% market
share, this $2.6 million can be spread over approximately 76,000 units annually (starting in 2007 when
the regulation becomes effective)—or about $34 an engine. A firm with a 1 percent market share can
spread its R&D over approximately 2,600 units—or about $1,000 an engine.

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       Letters:
       Mercatus Center, OAR-2003-0012-0627, 0828 p. 44

       RIA states: "We are projecting that manufacturers would need to do this R&D to sell engines in
Europe, Japan, Australia, and Canada because we expect that similar emission standards would be
required on a similar timeframe for each of these regions or countries. Therefore, we have attempted to
attribute the costs of R&D to the total engine sales for these regions. Since we do not have sales data for
every manufacturer showing what percent of their engines are sold in the US relative to those other
regions, we have used Gross Domestic Product (GDP) as a surrogate of sales. As a result, we have
attributed only a portion of the R&D expenditures to engine sales within the United States. Of the
countries expected to have nonroad emission standards of similar stringency to our proposed standards,
U.S. GDP constitutes 42 percent of the total.  Therefore, we have attributed 42 percent of the R&D costs
to U.S. sales."

       However, the Mercatus Center commented, a firm (such as Kubota) with a 28.6% market share of
the United States market is far more likely to sell engines in other countries than a firm with less than a
1% share of the U.S. market.  Apparently, EPA estimates that total R&D expenditures - worldwide - will
amount to approximately $174.5 million.  (That is - per EPA's attribution method - 42% of $174.5
million produces the $73.3 million mentioned in the first bullet.)  Hence, each of the 28 firms doing R&D
actually must spend approximately $6.2 million worldwide to arrive at results that will pass regulatory
muster. For the relatively small U.S. firm selling only in the United States, the per engine R&D cost
becomes  about $2,380 - compared to Kubota's (approximate) $34 an engine.

       Letters:
       Mercatus Center, OAR-2003-0012-0627, 0828 p. 44-45.

       The North American Equipment Dealers Association and the USA Rice Federation commented
that on page 28361 the Agency states that cost savings will accrue for manufacturers from the onroad
program. As stated before, this is a questionable assumption at best and is made by EPA to put their cost
benefit ratio in the best light.  In comments by the Association of Equipment Manufacturers made on June
12,2003 in Chicago, IL, Damn Drollinger pointed out concerns over the transferability of onroad
technology to all size engines of the nonroad sector.  If these concerns are valid, the commenters noted,
then manufacturers will not accrue savings, and the resulting costs will be invariably passed down to the
producer level.

       Letters:
       North American Equipment Dealers Association, OAR-2003-0012-0647, p. 5
       USA Rice Federation, OAR-2003-0012-0652, p. 4

       The Mercatus Center commented that EPA implicitly Assumed that firm size does not affect
information costs re meeting regulatory requirements. The RIA states that "those manufacturers that sell
engines only into the nonroad market would be able to learn from the R&D efforts already underway for
both the highway rule and for the Tier 2 light-duty rule. This  learning could be done via seminars,
conferences, and contact with highway manufacturers, emission control device manufacturers, and the
independent engine research laboratories conducting relevant R&D." What EPA leaves unsaid, however,
is that manufacturers that sell engines only into the nonroad market tend to be smaller than manufacturers
that sell into both markets.  Smaller firms may be less able to afford sending employees off to "seminars"

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and "conferences" than larger firms.  Hence, while smaller firms would not violate any physical laws by
attempting to learn in the ways suggested by the RIA, they may very well find that their costs of doing so
exceed the costs faced by larger firms.

       Letters:
       Mercatus Center, OAR-2003-0012-0627, 0828 p. 45.

Our Response:

       The R&D expenditures for 25-75 hp engines (the $73.3 million noted by the commenter)
represent engine R&D for two sets of emissions standards—the 2008 standards and the 2013 standards.
These really should be broken down as $28 million for the 2008  standards and $45 million for the 2013
standards. As a result, the full R&D expenditure of $73 million would not need to be recovered at one
time.  Further, the commenter suggests that the full costs—$2.6 million per firm (73 divided by 28
firms)—would be recovered in one year.  For Kubota, as in the commenter's example, this would be $2.6
million recovered on Kubota's 76,000 engines sold, or $34 dollars per engine. This is not correct.
Instead, we would estimate that the firm would recover the costs over five year's worth of sales (ignoring
sales growth this would be 380,000 engines in this Kubota example) or only $7 per  engine.  Similarly, for
the firm with only 1% market share, the costs would be recovered over 13,000 engines (2,600 times 5
years) or $200 per engine.  This recalculation does not address the commenter's point, but it helps clarify
the erroneous characterization of our cost estimates.

       The comments summarized here are concerned with the fixed costs necessary to develop and
apply Tier 4 emission control technologies to engines and how those costs are recovered across product
lines with limited production or sales volumes in the United States. The comments  are based upon two
erroneous assumptions regarding the nature of low volume engine manufacturers. The first assumption is
that low volume engine manufacturers (i.e., those manufacturers that only sell a few hundred to a few
thousand engines  in the United States) have even lower or no sales volume outside of the United States.
Secondly, the commenter assumes that low volume engine manufacturers are inherently small firms with
limited capacity to develop new technology. In fact, neither assumption is valid for the engine
manufacturers currently certifying to the U.S. Tier 1 and Tier 2 emission standards.

       Engine  manufacturers provide estimates of projected U.S. directed production volumes to EPA as
part of the emission certification process. These projections are considered to be confidential business
information and are not disclosed by EPA or the companies to the public.27 In RIA  chapter 6, we describe
an analysis of this data used by EPA to estimate fixed cost for research and development. Using a similar
process, we have specifically looked at the projected U.S. directed production volumes for all engine
manufacturers certifying 2004 model year engines in the power range from 25 to 50 horsepower (the
commenters seem particularly concerned with this issue for the smallest  horsepower categories). In that
power category, three nonroad engine manufacturers serve the market with more than an 80 percent share.
The remainder of the projected U.S. directed production volume in this market are from 18 manufacturers
each with less than 5 percent of this market (most with much less than 1  percent). The commenters have
assumed that some of these 18 manufacturers are likely to be small businesses based in the U.S. without
       27 Emission data and some other engine characteristics provided as part of the certification process are public
available onEPA's website (www.epa.gov/otaq/certdata.htm).

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significant sales volume outside of the U.S. over which to spread development costs. In fact, none of
these manufacturers are small U.S. based companies and all of these companies produce engines in
significant volumes for other world markets.28 Typical of these companies is Isuzu, a large automotive
engine manufacturer. Isuzu sells a limited number of diesel engines in this market, but worldwide sells a
significant number of diesel engines for nonroad and on-highway engines. We appropriately expect that
an engine Isuzu might develop to meet the Tier 4 standards in the U.S. will benefit from developments
made to comply with the Light  Duty Tier 2 program, the Heavy-Duty 2007 program, the European EURO
IV and V highway standards as well as similar standards in Japan.

       The commenter's assumptions and the consequences alluded to in their comments are likely to be
the very reason that the engine market appears the way it does. It is difficult to understand, as the
commenter notes, how a true small volume manufacturer could compete in this market against much
larger companies especially given the high fixed costs necessary to develop new engine products.
Conversely, it makes sense that a large diversified manufacturer might be able to serve a relatively small
market segment at a low cost by adapting a product developed for a separate and much larger market.  A
review of the engine manufacturers certifying engines in the 25-50  horsepower range in the U.S. today
leads us to believe that there are no true small volume engine manufacturers. The analysis suggests that
two kinds of diesel engine manufacturers serve this market. The largest volume of engines come from a
relatively small number of dedicated nonroad diesel engine manufacturers that sell engines in high
volumes.  The remainder of the market is served by manufacturers who can at a relatively low cost adapt
products developed for other nonroad or on-highway markets to the U.S. nonroad market.

       Given these market characteristics, we disagree with commenters suggesting that EPA was wrong
to assume in our cost estimates  that nonroad diesel engine manufacturers will benefit from the learning
and transfer of technologies developed for on-highway engines. One commenter suggests that such
transfer may in fact not occur due to technical issues (i.e., the technology is not applicable to small
nonroad diesel engines) and thus the development cost will be higher.  See response to comments section
3.2 for detailed responses to the question of technology transfer and the general feasibility of the Tier 4
emission standards. Another commenter is apparently concerned that the cost of learning will be
disproportionately high for the hypothetical small volume manufacturer posited in their comment.  As we
describe here, the market is not currently served by manufacturers of the type assumed by the commenter
and thus the comment is not relevant to the estimate of costs for the Tier 4 program. Further, even were
such a company to exist, we find it hard to imagine that it would choose to design new products in a
vacuum.  We believe such a manufacturer would choose to learn from technical publications and other
sources, perhaps even at a higher rate than a larger company for the very reason that such a notional small
company could not afford to develop new technologies (emissions or otherwise) on their own. It is
simply far cheaper and easier to learn from the experience of others documented in technical papers than
it is to recreate the original work that went into the paper.  Assuming, therefore, that this hypothetical
small volume manufacturer is already attending  technical conferences to learn, there is very little
additional cost for them to at the same time learn about emission control advancements especially as those
advancements are commonly integral to advancements in other areas of engine design and performance.

       We therefore disagree with the commenters that EPA has underestimated the costs for research
       28  Two of the 18 companies are U.S. based companies, Cummins Incorporated and John Deere Powersystems.
However, neither of these companies are small volume engine manufacturers as described by the commenters.

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and development related to the Tier 4 program for low volume engine manufacturers.


       5.3.2   Engine Variable Costs

       5.3.2.1  EPA Has Underestimated the Variable Costs for Engines in the Proposed Rule

What Commenters Said:

       Cummins commented that EPA underestimated engine variable costs, but provided no additional
discussion or supporting documentation; however, Cummins noted that it would be willing to share
information with EPA regarding these costs on a confidential basis.

       Letters:
       Cummins, Inc., OAR-2003-0012-0650 p. 9

       Lister Petter commented that the likely costs of aftertreatment systems for smaller engines
remains unclear. The cost of an active self-regenerating PM trap is projected to be about $1,000, which is
a prohibitive cost for engines below 56 kW.

       Letters:
       Lister Petter, OAR-2003-0012-0155 p. 2

Our Response:

       Cummins stated that we had underestimated some of our engine variable costs and provided a
factor by which we had underestimated them. However, no additional information was provided to
substantiate the factor making it impossible to understand why Cummins believed their number to be
more accurate than EPA's engine variable cost estimate and the substantial data underlying EPA's
estimate. Some of our engine variable costs were developed with the aid of external industry experts
under contract to EPA and were peer reviewed by engine manufacturer representatives, while others were
developed by external experts under contract to EPA using input from industry and from the
Manufacturers of Emission Controls Association (MECA) which subsequently served as the basis for
both the NRT4 rule and our 2007 HD  rule.  MECA provided positive comment in response to our NRT4
proposal and stated general agreement with our estimates (see response to  5.1.1 above). Further, a recent
report prepared for MECA shows emission control device cost estimates that are generally consistent with
our cost estimates.15 Lastly, a recent industry presentation at the American Trucking Association Diesel
Summit II showed dramatic decreases  in the level of precious metals used  in NOx adsorbers between
2001 and 2003.16 On a normalized scale, the precious metal content in the NOx adsorbers being
researched by the presenter's company had decreased to 35% of their original levels. This suggests that
the estimated precious metal loadings we have used in generating our cost estimates may be slightly high
and, therefore, our cost estimates may  be slightly high.  Since precious metals account  for 40-50% of our
estimated NOx adsorber costs and 15-25% of our CDPF costs, any future reductions in precious metal
loadings below our estimated loadings could have a significant downward impact on the cost of these
devices in the Tier 4 timeframe.

       Lister Petter suggests that a cost of $1000 is prohibitively expensive for engines <75hp.  Our cost

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estimates are not this high. We have estimated total costs, not just the PM trap, at ~$600 to ~$700 for
engines in the 25-75 hp range where PM traps are expected to be used to comply with the standard.  We
have also analyzed the percentage of such a cost increase relative to the price of equipment. For some
types of equipment, the percentage of cost-to-equipment price is only in the  1-3% range, regardless of
power. For others, the percentage is 5-10%, again regardless of size. The point being that it depends
more on the type of equipment than it does on its size.  See response to 5.1.2 for more on this issue.
       5.3.3   Engine Operating Costs

       5.3.3.1  EPA's Projected Operational Savings from Increased Oil Change Intervals Is
               Overstated

What Commenters Said:

       AED and AEM commented that EPA based its projected maintenance savings on a baseline oil
change interval  of 250 hours, which is no longer the norm.  Due to improvements in design and the
formulation of today's lubricating oils, Tier 2 engines already have a 500 hour oil change interval, which
will be true for Tier 3 engines as well. Even though engine manufacturers specify different oil change
intervals based on the fuel sulfur levels, the use of 500 ppm sulfur fuel is unlikely to have an effect on the
extension of oil change intervals, and certainly not the 31 percent EPA estimates. Additionally, there is
already a significant amount of 500-ppm sulfur diesel fuel being marketed throughout the U.S. in the
nonroad diesel pool today, which would minimize any observed gain in oil change interval.  In fact, there
is evidence to suggest there may be a decrease in recommended oil change intervals once exhaust gas
recirculation (EGR) is implemented.  Therefore, the expected oil change interval extensions (including
the estimated 4 percent with the 2010 introduction of 15 ppm fuel), will have an insignificant effect on
lowering maintenance costs when compared to the added maintenance required for the catalyst
aftertreatment, the loss of fuel efficiency, and increased cost per gallon.

       Letters:
       Associated Equipment Distributors, OAR-2003-0012-0831 p. 3
       Association of Equipment Manufacturers, OAR-2003-0012-0669, 0670 p. 12

       FWEDA, NAEDA, OMEDA, and the USA Rice Federation  commented that manufacturers, not
EPA, should be estimating  any changes to the oil change intervals due to the use of reduced sulfur fuel.
In addition, EPA has not accounted for the fact that reduced intervals and wear will have a sizeable
negative economic impact on dealers who perform service work and replace parts. In this context, EPA
cites the benefits of the rule without adequately considering the costs.

       Letters:
       Far West Equipment  Dealers Association, OAR-2003-0012-0679 p. 5
       North American Equipment Dealers Association, OAR-2003-0012-0647 p. 5
       Ohio-Michigan Equipment Dealers Association, OAR-2003-0012-0747 p. 5
       USA Rice Federation, OAR-2003-0012-0652 p. 5

       FWEDA commented that EPA's estimates for the cost of oil  changes are low.  The current price
for filter changes on a 40 hp farm tractor is often close to $400 and filter changes for larger tractors,

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combines and construction equipment cost even more. There is also a cost associated with transporting
the equipment to a dealership. USA Rice Federation indicates EPA's estimates on page 28445 of the
proposal preamble of "$8.00 to $400.00" are low, and they go on to say if EPA cannot accurately gauge
prices for a basic service, how does the agency expect to evaluate costs of the overall rule.

        Letters:
        Far West Equipment Dealers Association, OAR-2003-0012-0679 p. 5
        North American Equipment Dealers Association, OAR-2003-0012-0647 p. 5
        Ohio-Michigan Equipment Dealers Association, OAR-2003-0012-0747 p. 5
        USA Rice Federation, OAR-2003-0012-0652 p. 5

        ARA commented that the use of low sulfur fuel may not lead to cost savings associated with
reduced oil changes and engine servicing. Oil change frequency and servicing schedules are generally
established based on other factors such as duty cycle and the environment in which the equipment is used.
There is no guarantee that manufacturers will alter their oil change requirements.

        Letters:
        American Rental Association, OAR-2003-0012-0612 p. 3

Our Response:

        Regarding the comments from AED and AEM, we disagree with the comments that the baseline
oil change drain interval EPA used (250 hours), is not appropriate. The commenters present no data to
support their suggestion that engine manufactures have extended the recommended oil change interval for
Tier 2 (yet alone Tier 3, which is still several years away). EPA does not dispute that some engine
companies may have recommended oil drain intervals greater than 250 hours, but it is also likely some
companies have recommended oil drain intervals of less than 250 hours. We choose 250 hours as a value
typical for nonroad diesel applications.  The data used for our analysis is contained in a memorandum to
the docket, "Estimate of the Impact of Low Sulfur Fuel on Oil Change Intervals for Nonroad Diesel
Equipment", EPA Docket A-2001-28, docket item II-A-194. This memo indicates that for John Deere,
250 hours is the typical recommended oil change interval, for Detroit Diesel Corporation values of 150,
250, 300, 450, and 500 hours are recommended, depending on the specific engine series. The memo
indicates that for Caterpillar's current products, high load applications have an oil drain interval of 250
hours, and low load applications 500 hours,  while for older Caterpillar applications the oil drain interval
was between 250 and 400 hours.  After the proposal, EPA contacted John Deere regarding any changes
John Deere was planning for Tier 2 products.  John Deere representatives informed EPA that they have
made no changes for Tier 2 products, and 250 hours remains their baseline recommended oil drain
interval.17  Based on the range of oil drain intervals today, and the absence of data provided by the
commenters, EPA has not changed the baseline oil drain interval in our analysis.

        The commenter's remakes regarding the use of 500 ppm fuel in some nonroad equipment today
appears to imply EPA is "double counting" the benefit of low sulfur fuel. This is not the case.  Our
analysis of the cost savings from low sulfur  fuel is done on a per-gallon basis, and  only includes that fuel
used in nonroad equipment today which is at the uncontrolled level (i.e., sulfur levels >500 ppm).
Therefore, we did not attempt to attribute the benefits of the existing use of 500ppm fuel in some nonroad
equipment today to this rulemaking.
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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

       The commenters' remarks regarding the use of EGR for the potential for a decrease in future oil
change intervals (which is in direct contradiction to the commenters' suggestion that Tier 2 and Tier 3
drain intervals will be extended) is not relevant to the question of how low sulfur fuel will impact oil
drain intervals.  It may be possible that EGR will impact oil drain intervals, but the question relevant to
this discussion is how will the use of low sulfur fuel (with or without EGR) impact oil drain intervals.
Based on available information, the use of low sulfur fuel will allow for longer drain intervals
independent of the use of EGR.

       Regarding the comments from FWEDA, NAEDA, OMEDA, and USA Rice, we agree with the
commenters that engine manufacturers, not EPA, provide end-users with recommended drain intervals.
In part, our analysis relies on the existing recommendations from engine manufacturers.  EPA's analysis
assumes that engine manufacturers will continue to communicate to the end-user accurate information
regarding oil drain intervals and the interdependence between oil drain intervals and fuel sulfur levels.
This occurs today, and EPA sees no reason why engine manufacturers would stop providing such
information to the end-users in the future. Regarding the comment that reduced oil drain intervals will
have a negative impact on dealers who perform such services.  Our cost analysis appropriately takes into
account that the use of low sulfur fuel will reduce costs to society as a whole.  However, it is not
appropriate in the cost analysis to also estimate reduced revenue for equipment dealerships (just as EPA
has not included in the cost estimates the reduced revenue at hospitals for the lower hospital visits due to
the health benefits of this program.) We have also not included the potential impact of less frequent oil
drain interval on equipment dealers and service stations in our economic impact analysis. We believe that
any impact would be a small portion of those industries' total revenue.

       In response to the comment which stated that our oil changes estimates were low, to the extent the
cost of an oil change for a 40hp tractor is $400, then our cost estimate of the savings from the use of low
sulfur fuel is conservative. We performed a sensitivity analysis of our oil change interval extension cost
spreadsheet (found in Chapter 6 of the RIA). If we were to increase the cost of an oil change in all power
ranges to $400 (except for those larger power categories for which we already estimated a cost greater
than $400), then our fleetwide maintenance savings estimate for the program increases from 3.2
cents/gallon to 13 cents/gallon.  However, we have not increased the cost estimate for an oil change based
on the comment received. The $400 estimate appears to EPA to be very large, and to the extent it is
accurate, the oil change estimate for a 40hp tractor may not be representative  of nonroad equipment as a
whole. With respect to the comment from USA Rice that the proposal preamble on page 28445 of the
Federal Register indicates EPA estimated oil change costs to be $8 to $400 and these costs are to low, the
commenter is in error. In fact, 68 FR 28445 states, "We have used  a 35 percent increase in oil change
interval along with costs per oil change interval of $70 through $400 to  arrive at estimated savings
associated with increased oil change intervals."  We would agree with the commenter that an $8 estimate
for an oil change is to low, but EPA made no such estimate.

       Regarding ARA's comment, we disagree with the comment that lower sulfur fuel not lead to cost
savings. As documented by EPA, engine and equipment companies recommend longer oil drain intervals
for equipment operated on low sulfur fuel today (see "Estimate of the Impact of Low Sulfur Fuel on Oil
Change Intervals for Nonroad Diesel Equipment", EPA Docket A-2001-28, docket item II-A-194).  The
commenter presents no data which would indicate  engine and equipment companies existing
recommendations are incorrect, or would be different in the future.  In addition, the  rulemaking record
contains substantial technical information (independent of the nonroad engine and equipment companies
recommendations) which indicates the use of low sulfur fuel will have a benefit for nonroad engines and

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                               Summary and Analysis of Comments
                                                                                    May, 2004

equipment and does have the potential to allow longer oil drain intervals (see section VLB of the
preamble for this final rule, as well as "Estimate of the Impact of Low Sulfur Fuel on Oil Change
Intervals for Nonroad Diesel Equipment", EPA Docket A-2001-28, docket item II-A-194, and also
"Economic Analysis of Vehicle and Engine Changes Made Possible by the Reduction of Diesel Fuel
Sulfur Content", ICF, December 1999, EPA Docket A-2001-28, docket item II-A-75).  Also, to the extent
engine manufacturers who do not currently have recommendations for longer oil drain intervals for
engines  operated on low sulfur fuel (500 ppm S or 15 ppm S), or if end-users are not aware of the
recommendations even when they exist, the use of low sulfur fuel will still have benefits for the
equipment owner. As discussed in the preamble (Section VLB), as well as in the two references cited
above (Air Docket A-2001-28, items II-A-75 and II-A-194), the use of high sulfur fuel results in higher
wear rates of a number of key engine components, including piston rings and cylinder liners. For
example, Figure 3 in Appendix A of "Estimate of the Impact of Low Sulfur Fuel on Oil Change Intervals
for Nonroad Diesel Equipment" indicates that one engine manufacturer predicts that overall engine life
can be extended by nearly 10 percent by reducing fuel sulfur from 3,000 to 1,000 ppm.
       5.3.3.2 EPA Has Underestimated the Operating Costs for Engines in the Proposed Rule

What Commenters Said:

       Cummins commented that EPA underestimated the engine operating costs, but provided no
additional discussion or supporting documentation. The commenter noted that it would be willing to
share information with EPA regarding these costs on a confidential basis.

       Letters:
       Cummins, Inc., OAR-2003-0012-0650 p. 9

Our Response:

       The commenter provided confidential information that suggested a higher fuel economy impact
that the one percent we have used for CDPF/NOx adsorber equipped engines. However, the commenter
provided no test data or technical information supporting their estimate. We continue to believe that our
estimated fuel economy impact is appropriate, (see section 6.2.3.3 of the RIA for more discussion on fuel
economy impacts).  See also, EPA's recent Highway Diesel Progress Review Report 2 summarizing
industry data regarding the impact of advanced diesel emission control technologies on fuel economy
(EDOCKET OAR-2003-0012-0918).

       The commenter also provided confidential statements regarding oil change intervals. We
disagree with these statements (see response to 5.3.3.1).


       5.3.3.3 EPA Has Not Considered the Need to Retrofit Existing Equipment if Only Low Sulfur
              Fuel is Available

What Commenters Said:

       The Idaho Wheat Commission (IWC) commented that EPA should address the possibility that

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                                                     Control of Emissions from Nonroad Diesel Engines
                                                                 Summary and Analysis of Comments
                                                                                       May, 2004

low sulfur fuel would necessitate the retrofit of farm equipment (i.e. if higher sulfur fuels are not available
for use on existing equipment) and should evaluate the resulting economic impact to the agricultural
sector. The commenter (IWC, et. al.) recommended that in light of the potential adverse economic
impacts to farmers, farm equipment should be excluded from the proposed rule.

       Letters:
       Idaho Wheat Commission, et. al., OAR-2003-0012-0645 p. 1

Our Response:

       Although the comment is not fully clear to us, we believe that the commenter is referring to the
lubricity property of high sulfur diesel fuel and is expressing a concern that some sort of retrofit system
would have to be added to protect against damage that may result if lower sulfur (500 ppm or 15 ppm
sulfur) fuel has inadequate lubricity. While we agree that fuel lubricity is an important characteristic, and
that absent adequate measures low sulfur diesel fuel can have poor lubricity characteristics, we  do not
believe that a retrofit technology will be necessary to address this issue. Diesel fuel blenders currently
add lubricity additives to diesel fuel that may have poor lubricity characteristics in order to ensure
appropriate levels of lubricity in diesel fuel.  We believe this practice will be applied broadly to nonroad
diesel fuel in order to address the concern of the commenter. We have estimated the cost associated with
lubricity additives and have included those costs in this program. See our response to 4.7 above.
        5.3.3.4 EPA's Cost Analysis Is Invalid as it Relates to Locomotives

What Commenters Said:

        GE commented that when evaluating the cost impact of implementing a 500 ppm sulfur
requirement, EPA has failed to consider the cost involved in re-optimization of the engine for
performance, reliability and emissions. EPA claims that oil change intervals will be extended to offset the
higher cost of lower sulfur fuels, but assumes that low sulfur fuel would be far less corrosive than current
nonroad diesel fuel. EPA's estimates do not apply in the case of locomotives since locomotive useful
engine oil life is driven by insoluble contamination build up, followed by fuel or water leaks, viscosity
increase and alkalinity. When changing the timing, the insolubles could increase, which could actually
shorten  useful oil life.

        Letters:
        General Electric Transportation Systems,  OAR-2003-0012-0784 p. 6

Our Response:

        We disagree with these comments. It is unclear what the commenter means when saying
locomotive engines will need to be "re-optimized" when run on 500 ppm sulfur fuel. The commenter
says that timing will need to be retarded, but it is unclear why. The commenter suggests that it has
extensive laboratory data regarding the impact of fuel properties on locomotive engines, but no data was
provided or cited in the comments. As discussed in response to comment 5.3.3.1, substantial data exists
which indicates low sulfur fuel does provide a potential for cost savings, including the ability to extend
oil drain intervals.  EPA has this data in the rulemaking record (including at the time of the proposal).

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

Finally, as discussed in response to comment 5.3.3.1, to the extent that an end-user does not lengthen oil
drain intervals when operating on low sulfur fuel, other benefits will likely occur, including an extension
of the engine's operating life.  Please see response to comment 5.3.3.1 for additional discussion.
       5.3.3.5 Other Factors will Cause Equipment Operating Costs to Increase

What Commenters Said:

       AED commented that additional maintenance for catalyst after-treatment, decreased fuel
efficiency, and higher fuel costs will all likely cause equipment operating costs to increase.

       Letters:
       Associated Equipment Distributors, OAR-2003-0012-0831 p. 4

       ARA commented that we did not considered the costs of maintenance and/or replacement of
failed emission controls and associated equipment down time.

       Letters:
       American Rental Association, OAR-2003-0012-0612 pp. 2-3

Our Response:

       We do not disagree with the AED comment and, in fact, have estimated costs associated with
increased maintenance not only for the aftertreatment systems but also the newly required closed-
crankcase ventilation system (newly required for turbocharged engines only).  We have also included
costs associated with fuel economy impacts and for the incrementally higher cost  low sulfur fuel.

       As for the ARA comment, we have included costs associated with increased warranty
expenses for engine manufacturers. These costs include a three percent near-term warranty claim rate and
a one percent long-term warranty claim rate, along with part replacement costs and labor associated with
that replacement (see tables throughout section 6.2 of the RIA). See also our response in section  5.4.2.3.


5.4    Equipment-Related Costs

       5.4.1   EPA's Variable Cost Estimates for Nonroad Equipment Should Be Increased to Be
               Consistent with Industry Practice

What Commenters Said:

       AEM commented that EPA has assumed equipment manufacturers would apply only a 29 percent
mark-up on the variable costs associated with installing new hardware and sheet metal. A survey of
nonroad manufacturers indicates that this value is underestimated, and that it is more common industry
practice to use a variable cost mark-up of 2 to 1 to help cover indirect costs. The estimated range of cost
increases from 2 to 35 percent are closer to the true cost impacts of the Tier 4 regulation and the greatest
change in relative cost impact will be on the smaller equipment less than 100 hp that will experience a

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                 Summary and Analysis of Comments
                                                                                       May, 2004

cost increase from 6 to 35 percent. AEM provided additional discussion on this issue and additional
analysis that incorporates their revised assumptions. AEM also included revisions to Table V.C-1 in the
RIA and presents their revised cost estimates in Table 5-1 of their comment letter. These revisions are
based on an example piece of equipment for each of the five Tier 4 power categories, an assumption that
the 50 hp engine is not already equipped with engine electronics and unit fuel injection (but included the
variable cost for adding cooled EGR to this category), and deleted the maintenance cost savings
associated with increased oil change intervals in determining the Incremental Operating Cost Increases.

       Letters:
       Association of Equipment Manufacturers, OAR-2003-0012-0669, 0670 p. 13-14

Our Response:

       The AEM comments included the following table as a revised version of a table that appeared in
our draft RIA.

                    AEM Projected Equipment Costs Increases of Tier 4 Controls
Type of Machine
Horsepower
Vtodel Year
Displacement
\spiration/Combustion Type
Fixed Costs
Engine Control R&D
Engine Tooling
Engine Certification
Equipment Redesign*
Equipt Add'l Hardware/Labor
Engine Variable Cost
NOx Adsorber
CDPF
CDPF Regeneration System
DOC System
Cooled EGR System
CCV (turbos)
Fuel Injection System
Incremental Engine/Equipt. Cost Near Term
istimated Baseline Equipment Price New
ist. Mfr. Cost [Price / 2.0 = Mfr. Cost]
Projected Equipment Cost Increase
Gen Set
20 HP
2008 MY
1.0 L
N.A. DI

$15
$5
$10
na
$0




$136


$704
$870
$5,000
$2,500
34.80%
Fork Lift
50 HP
2013 MY
2.5 L
N.A. DI

$44
$6
$13
na
$18


$446
$169

$112

$340
$1,148
$15,000
$7,500
15.30%
Backhoe
76 HP
2012 MY
3.9 L
Turbo DI

$27
$15
$11
na
$55

$590
$656
$183


$43

$1,580
$50,000
$25,000
6.32%
Dozer
500 HP
2011 MY
18L
Turbo DI

$195
$74
$29
na
$135

$2,070
$2,771
$324


$71

$5,669
$575,000
$287,500
1.97%
Loader
750 HP
2011 MY
23 L
Turbo DI

$774
$7C
$4£
na
$135

$2,59?
$3,521
$37/


$81

$7,602
$620,OOC
$310,OOC
2.45°/<
                                              5-22

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                 Summary and Analysis of Comments
                                                                                       May, 2004

       The costs shown in this table differ from how EPA estimated the costs in a few key ways:

       •       Fuel injection system costs are included for the 20hp genset while we included no fuel
               injection costs for this power range;
       •       A higher fuel injection system cost than we had estimated due to an assumption that the
               Tier 4 baseline fuel injection system would not be electronic;
       •       Inclusion of cooled EGR costs for the 50hp forklift while we would not have included
               costs for cooled EGR (we include cooled EGR for engines in the 25<=hp<50 range); and,
               No specific line items are included for equipment related costs other than a generalization
               that equipment manufacturers recover their costs via a 2 to  1 markup reflected in the
               price of the equipment.

       AEM makes no argument for why they believe cooled EGR would be required on the 50hp piece
of equipment.  There is a fine line, although an important distinction nonetheless, that must be made clear
with respect to this table.  We have included costs for cooled EGR on engines in the 25 to 50 hp range.
However, the standards in what we refer to as the 25 to 50 hp range are, technically, standards for a 19 to
<37 kW range.  A 50 hp engine would be rated at 37.3 kW and, therefore, would not lie within the 25 to
50 hp range. This explains why our numbers have not included cooled EGR for a  50 hp engine and may
explain why AEM has included that cost for a 50 hp engine.29  We do not agree with AEM's assumption
that the 50hp engine will need to add cooled EGR for reasons explained at length in our technological
feasibility discussion in section 4.1.4 of the RIA. We also disagree with the assertion that the 50 hp
engine will not have electronic fuel injection in the Tier 3 timeframe. An engine of that size lies within
the 50 to 75 hp range and, as we explain in detail in section VI. C of the preamble and in section 4.1.4 of
the RIA,  we believe such engines will indeed have electronic fuel injection systems in the Tier 3
timeframe.  We also do not understand, nor does AEM explain, why an electronic  fuel injection system
would be required for the 20hp engine. Engines in that power range are expected to meet their 2008
standards via engine-out control or, perhaps, through addition of a DOC (and there is ample data in the
record showing that many of these engines are already meeting the 2008 standards and will require no
hardware changes to comply). Neither of these solutions would require electronic  fuel systems. This is
discussed in section 4.1.5 of the  RIA.

       As  for the 2 to 1 markup to cover equipment manufacturer fixed costs, there is insufficient
information provided in the comments to fully understand the basis for this markup.  The commenter
referred to a "survey" but did not provide documentation of that survey which leaves us unable to analyze
its appropriateness.  We have attempted to estimate the costs associated with adding new hardware and
redesigning the many types of equipment. We have provided all the details for how we have come up
with those estimates, including documentation for the basis of the mark ups we have  used.18 We do not
believe it is appropriate to simply assume a 2 to 1 markup to cover costs.
       5.4.2   EPA Should Evaluate the Equipment Cost Increases Within Each Power Category
       29 It is important to note that cooled EGR on a 50 hp engine has already been costed within the context of the Tier 3 rule.
It is equally important to note that, were we to assume a 49 hp engine in the example, we would include cooled EGR in our costs
and have indeed included those costs for all engines in the 25<=hp<50 range.

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                                                   Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                     May, 2004
What Commenters Said:
       AEM commented that the cost impact across the power categories is not a linear relationship.
EPA presents the projected cost increase of Tier 4 as a range from 1 to 3 percent of the value of the
equipment as determined on the very high-priced equipment whose base price is from $50,000 to over
$620,000. AEM further noted that a more realistic portrayal of the cost impact would be to report the
range of cost increase for the base majority of equipment sold, which is the segment from 40 to 100 hp
(30 to 75 kW), where the cost increase is from 6 to 15 percent.

       Letters:
       Association of Equipment Manufacturers, OAR-2003-0012-0669, 0670 p. 14

       AEM also commented that the variable cost of the new emission control components suggested
by Tier 4 could approach the cost of the engine itself for the smaller (and most popular) pieces of
equipment. The operating costs of the new equipment will increase as well due to the reduced fuel
efficiency and the additional maintenance required for the aftertreatment systems.  The Tier 4 standards
could result in the disappearance of certain smaller engines in favor of gasoline-powered replacements.
AEM further recommended that this cost by category analysis be included in the Pilot Study (see
additional discussion under Issue 3.5).

       Letters:
       Association of Equipment Manufacturers, OAR-2003-0012-0669, 0670 p. 14-15

Our Response:

       Our Economic Impact Analysis (EIA) does take a comprehensive look at the cost across
relatively narrow engine power categories (e.g., 50-75 hp) and across a broad range of equipment
applications (see Chapter  10.3 of the RIA). This analysis is more detailed than the level suggested by the
commenter and is similar to the analysis completed at proposal and presented in the Draft RIA. As the
commenter notes, these cost as a percentage of equipment price are non-linear as reflected in Table 6.5-4
of the RIA. We have accounted for the characteristics noted by the commenters in our EIA both at
proposal and now in our final rule documented in the RIA.

       With respect to the comment regarding the costs across power categories, please refer to our
response to 5.1.2.

       With respect to the cost increases resulting in the disappearance  of certain smaller engines in
favor of gasoline powered engines, please refer to our response to 7.2.4.
       5.4.3   EPA Underestimates the Costs Associated with Small Equipment

What Commenters Said:

       SBA Office of Advocacy commented that EPA included a cost for ash maintenance in its RIA,
but that cost estimate does not reflect the inconvenience to small equipment consumers (e.g. lawn and
garden equipment purchasers) of having to periodically remove, clean, and replace a PM filter. EPA

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                 Summary and Analysis of Comments
                                                                                       May, 2004

should recognize these application-specific concerns when considering whether to adopt a regulatory
option including PM aftertreatment for smaller engines and when estimating costs.

       Letters:
       U.S. Small Business Administration Office of Advocacy, OAR-2003-0012-0815 - 0818 p. 7

Our Response:

       We did include costs associated with CDPF maintenance for all engines so equipped. We did not
attempt to include costs associated with inconvenience.  We believe that attempting to estimate costs
based on inconvenience or other lifestyle factors would be very difficult and is outside the purview of
EPA.

       Further, we believe it likely that engines below 175 horsepower can be designed such that PM
filter maintenance to remove ash will be unnecessary. EPA's recent Highway Diesel Progress Review
Report 2 documents two new diesel PM filter designs which in light-duty diesel passenger car
applications are designed to be maintenance free for the life of the vehicle.  This is accomplished by
designing the filter geometry and materials to significantly increase the ash storage volume of the filter.
Such filters can store an engine's lifetime ash emissions while maintaining PM control to the emission
standards and without excessive build up of exhaust backpressure.  Such solutions are equally applicable
to nonroad diesel engines.

       In our cost analysis, we have assumed that ash cleaning maintenance occurs at the minimum
maintenance interval spelled out in EPA regulations (e.g., 3,000 hours for engines <175 hp including the
lawn and garden equipment mentioned in the comment).  More frequent maintenance is generally not
allowed.  By using this interval, while believing it likely that actual maintenance intervals will be longer
(in fact in some cases unnecessary over the life of the vehicle), we have made a conservative estimate of
the potential costs for diesel PM filter ash maintenance.

       Finally, it should be noted that the commenter, SB A Office of Advocacy, included in their
comments a discussion of the Euromot-EMA report "Investigation into the Feasibility of PM Filters for
Nonroad Mobile Machinery", a copy of which is available in EPA Air Docket A-2001-28.  In this report,
EMA/Euromot discuss two types of active PM filter regeneration methods.  One method is similar to the
active back-up regeneration techniques we believe nonroad engine companies will use to comply with the
Tier 4 program and discussed in detail in Chapter 4 of the RIA. That method is based on a variety of
means of providing supplemental heat to the PM filter to increase the exhaust gas temperature to the level
at which PM will oxidize.  The second method discussed in the Euromot-EMA report for active filter
regeneration is the actual removal of the PM filter from the equipment and the subsequent heating of the
filter in a specialized oven.  Such techniques have been used in mining operations in Europe and the U.S.,
where each night the filters are removed, placed in an oven to force regeneration, and than reinstalled in
the equipment the following morning. We want to be clear that this type of filter regeneration is not the
basis for EPA's Tier 4 standards, and, in fact, such a system would likely  not be allowed in the U.S. as a
means to comply with Tier 4 standards, as it requires PM filter maintenance on a very frequent schedule
and would not meet the EPA regulations for minimum PM filter maintenance  intervals.  To the extent the
commenter believes this second type of PM filter maintenance is inconvenient, we would agree, but such
systems are not the basis of EPA's feasibility or cost assessments for the Tier 4 standards.
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                                                  Control of Emissions from Nonroad Diesel Engines
                                                              Summary and Analysis of Comments
                                                                                    May, 2004

5.5    Example Equipment Costs Used for the Analyses

       We did not receive any comments regarding the costs of the example equipment that we used for
our analyses in the proposal.
                                            5-26

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                                                  Control of Emissions from Nonroad Diesel Engines
                                                              Summary and Analysis of Comments
                                                                                   May, 2004
6.     LOW-SULFUR FUEL COSTS
       A summary of the comments received, as well as our response to those comments are located
below. For the full text of comments summarized here, please refer to the public record for this
rulemaking.

6.1    Nonroad, Locomotive and Marine Fuel Volumes

       6.1.1   EPA Should Complete a Comparative Assessment Between the EPA and Baker &
              O'Brien Work to Assure That the Underlying Assumptions and Impacted Volumes
              Are Consistent

What Commenters Said:

       Although there are many similarities, several differences can be observed between the Baker &
O'Brien report and EPA's analysis with respect to a comparison of distillate consumption estimates.
Different fractions were used for the amount of impacted diesel fuel for each end use sector, and EPA
should reconcile these variations prior to a final rulemaking.  With respect to spillover, the two
independent assessments agree fairly well, except that for PADDs 3 and 5, EPA estimates a greater
historic spillover (30 and  58 percent vs. 18 and 42 percent, respectively). EPA's estimate for the impacted
volume is higher for PADD 3 and EPA exempted the supply volumes of small refiners, whereas the Baker
& O'Brien study did not take this into account. In addition, EPA's underestimate of the 15 ppm
production volume of nearly 250 kbpd in 2008 appears to be based on PADD 3 and 4 estimates and is the
basis for all additional calculations of impacted volumes and the amount of desulfurization needed. The
commenter (API) provided additional discussion on these issues and recommended that EPA thoroughly
review the differences between its estimate and that made by  Baker & O'Brien to affirm the accuracy of
the assumptions and analysis in the Draft RIA.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 32-36
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 28-32

Our Response:

       Baker & O'Brien  (BOB) estimated future NRLM fuel consumption using a process which is
broadly analogous to that used by EPA in Section 7.1 of the Draft RIA. BOB first estimates current
NRLM fuel use and then increases this use to reflect an estimate of growth over time. BOB's current fuel
consumption estimate primarily rely on EIA estimates from their Petroleum  Supply Annuals (PSA) and
Fuel Oil and Kerosene Surveys (FOKS), but incorporate numerous assumptions, as well.

       One similarity between the BOB and EPA estimates for the NPRM of historic NRLM fuel use is
that both BOB's and our analyses were based on historic fuel consumption estimates on 2000 data from
EIA's FOKS and PSA reports.  However, for the final rule, we based our estimates on 2001 data from
EIA's PSA, FOKS and the NONROAD emission model. (In  Section 2.2 above, we consider very recent
data from EIA's 2002 FOKS in evaluating current NRLM fuel use.) The inclusion of 2001 data is
generally preferable to estimates based on slightly older data. While this is not likely to cause a large

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                                                    Control of Emissions from Nonroad Diesel Engines
                                                                Summary and Analysis of Comments
                                                                                      May, 2004

difference between BOB's and EPA's projected NRLM fuel use, to the degree that it is important, it is a
reason to prefer the EPA final rule estimate.  If the BOB methodology were preferable for other reasons,
one could potentially update the BOB estimates  using the more recent data., but as will be seen below this
is not the case.

       The next step in estimating current NRLM fuel use is to separate distillate fuel use which is not
covered by the NRLM rule, such as highway diesel fuel use, heating oil use, and diesel fuel used by
stationary diesel engines, from NRLM fuel use.30 As described in detail in Chapter 2 above, EIA's FOKS
does not always separate No.2 fuel oil use from No. 2 diesel fuel use, nor does it clearly separate diesel
fuel use in stationary source diesel engines (fuel not covered by this NRLM rule)  from diesel fuel use in
NRLM equipment (covered by this rule). BOB assumed the fractions of No. 1 and No. 2 distillate fuel in
each of the FOKS economic sectors which was consumed in NRLM diesel engines. A review of BOB's
estimates show many very large differences compared to those made by EPA in Chapter 2.

       For example, BOB assumed that 80% of the fuel use in farm equipment was in diesel engines,
presumably in equipment covered by the NRLM rule.  EPA, on the other hand, used EIA's own
breakdown within FOKS that roughly 98% of farm fuel use was diesel fuel (used in diesel engines) and
that only 2% was fuel oil (used in crop drying, etc.). As BOB provides no rationale for their 80% figure
and EIA's own categorization within FOKS supports EPA's assumption, we see no reason to adjust our
estimate.

       In another case, BOB assumes that no distillate fuel used in the commercial sector is used in
diesel engines, highway or NRLM diesel engines.  As discussed in Chapter 2, clearly the commercial
sector includes low sulfur diesel fuel used in school bus fleets and other public fleets which are exempt
from highway fuel excise tax. While not directly relevant to their estimate of NRLM fuel use, it does
seem to indicate that BOB  did not look closely at the types  of fuel EIA includes in the various economic
sectors.  EIA's FOKS report also explicitly distinguishes between diesel fuel use and fuel oil use in the
commercial sector, with 25% of high sulfur distillate fuel consumed in this sector being  designated as
diesel fuel and 75% as fuel oil. Being a  survey of fuel distributors, this indicates that the fuel purchaser
requested either diesel fuel or fuel oil from the distributor.  BOB did not explain why purchasers would
request diesel fuel when all they needed  was fuel oil.  Also, as indicated in the EPA NONROAD
emissions model, many types of diesel equipment are primarily used in the commercial sector (pressure
washers, gas compressors,  welders, chipper/grinders, generator sets, etc.).  Therefore, zero is clearly  not
the best estimate available  for the percentage of commercial sector fuel used in nonroad equipment.
Given BOB's frequent use of FOKS' estimates in their estimation of NRLM fuel use, we believe that the
FOKS estimate of high sulfur diesel fuel use, which excludes low sulfur diesel fuel use and high sulfur
fuel oil use, is clearly preferable to BOB's assumption of zero use. As described in Chapter 4 above, our
own estimate of nonroad fuel use in the commercial sector is based on the NONROAD emissions model.
In Chapter 4, we compare fuel consumption estimates using both NONROAD and FOKS.

       The next step in projecting the volume of NRLM fuel affected by this rule is to project growth in
NRLM fuel use. BOB stated that they based future growth rates for both fuel consumption and domestic
fuel production on EIA's 2002 Annual Energy Outlook (AEO), because this was the most recent AEO
       30  This discussion will use "diesel fuel" to distillate fuel used or believed to be used in diesel engines and "fuel
oil" to distillate fuel which is used in boilers, turbines, crop drying, etc.

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report available when they began their analysis.31  EIA issued their 2003 AEO during BOB's analysis.
BOB stated that they thought that the fuel usage growth rates from EIA's 2002 report were better than
those in the more recent 2003  report. Therefore, BOB did not attempt to update their analysis.  BOB did
not present any objective reasons to support their preference for EIA's growth rates from 2002. It is
inconsistent for BOB to be willing to use a 2002 EIA estimate, presumably due to EIA's reputation, and
then simply disagree with an updated forecast from the same organization.  It seems that BOB's decision
was simply based on the personal preference of the authors.  Absent any other information, the decision
therefore seems to be quite arbitrary. We decided to update our analysis using EIA's 2003 AEO forecast
when it was released. Therefore, our projected fuel usage growth rates will differ from those used by
Baker and O'Brien. We see no need to reject EIA's 2003 forecast in favor for their 2002 forecast.

        One further difference is that BOB assumed that the production of distillate fuel from domestic
refineries would increase in proportion to crude oil consumption by these refineries. We based our
estimates of future  distillate production directly on EIA's estimates of future distillate production. The
difference is that EIA projects significant growth in the use of heavy fuel oils by domestic refiners.  This
increases distillate production without increasing crude oil consumption.  BOB's estimate of future
growth in distillate production is therefore too low.

        Given these large differences and the lack of any justification for the BOB estimates, it is not
surprising that there would be some difference in the estimates of fuel volumes affected by the NRLM
rule. However, we do not believe that BOB provided sufficient justification to change our methodology.
To the contrary, as described in  Section 7.1 of the Final RIA, we have updated our NRLM fuel supply
and demand estimates considerably from the NPRM. The revised methodology incorporates many  factors
not addressed by BOB, such as the downgrade of 15 ppm diesel fuel and jet fuel during distribution.
Therefore, we  believe that the technical support behind our estimates is much greater than that behind the
BOB estimates.

        There  is a larger issue involved with the projection of current NRLM fuel use - whether to use
FOKS as the primary basis for fuel used in land-based nonroad equipment or to use EPA's NONROAD
emission model outputs. This issue is addressed in Chapter 2 above. There, we decide to continue  using
the NONROAD estimates versus those based on FOKS.  This leads to a much higher estimate of fuel
consumption, both  current and future, than those based on FOKS.  Thus, EPA projects a much higher
nonroad fuel consumption than BOB. This higher fuel volume is fully factored into our  cost estimates,
including the number of refineries which must invest to produce lower sulfur NRLM fuel.  Our analysis
includes a sensitivity analysis  based on base volumes and growth for nonroad fuel based on EIA.
6.2    Refining Costs

       6.2.1   Costs Were Underestimated
       31  AEO is a comprehensive projection of future energy use in the U.S. AEO covers petroleum, coal, natural gas
and other sources of fuel, as well as electricity generation. Its projections are based on historical fuel use, as well as
econometric projections of demand for various fuel-consuming services in the U.S. economy, as well as current and
future energy efficiencies in providing these services.

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What Commenters Said:
       The Michigan Farm Bureau expressed concern about the significant discrepancy between the fuel
cost increase estimates proposed by EPA (5 cents per gallon) and those from experts in the fuel-refining
industry (7-9 cents per gallon). Their concern is magnified by the fact that the industry estimates do not
even include the additional cost to be incurred for storage, segregation, transport, and handling of the
different fuels.

       Letters:
       Michigan Farm Bureau, OAR-2003-0012-0625 p. 2

Our Response:

       It is not clear which cost estimates by industry experts are being referred to by the Michigan Farm
Bureau. In Section 7.2.2.6 of the Draft RIA, we compare our costs to those estimated by Mathpro, who
estimated the cost of nonroad sulfur controls for EMA, with assistance from API. There, we show that
our costs are quite comparable to Mathpro's estimated costs, after considering changes both highway and
NRLM control programs which have occurred since Mathpro performed their studies in 1999 and 2000.
In Section 4.6.3 of this document, we also conduct a detailed analysis of the more recent cost estimates
developed by Baker and O'Brien for API.  Based in part on these evaluations and on the use  of updated
future cost estimates for natural gas and the likely penetration of advanced desulfurization technologies,
our estimate of the cost of 15 ppm NRLM fuel has increased from roughly 5 to 7 cents per gallon.

       We also fully account for any increased costs in distributing NRLM fuel due to this rule in
Section 7.3 of the Final RIA. Detailed comments on these distribution costs are  addressed in Section
6.2.2.
       6.2.1.1  Vendor Cost Estimates

What Commenters Said:

       API and Marathon believe that we significantly understated the costs incurred by refiners to
comply with the proposed rule. API and Marathon noted that in Section 7.2.1.2.4 of the Draft RIA, EPA
points out that there are many reasons why the vendor capital cost estimates should be pessimistic.
However, they stated, none of these points are persuasive and most studies, including the NPC study have
found that vendor quotes are normally low and on unproven technology tend to grow substantially as real
world process requirements become better known.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 37
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 33

Our Response:

       As the commenters point out, we address the pros and cons of using vendor cost estimates
explicitly in the Section 7.2.1.2.4 of the Draft RIA. The commenters point to the NPC study as a basis for

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discounting vendor estimates. However, EPA considered the way NPC used vendor estimates in
developing its own approach to using this information.  The issue is primarily one of uncertainty and
potential downward bias in applying the generic vendor quotes to specific refining situations. We
continue to believe that there are many factors which could lead to higher costs at specific refineries, as
well as many factors which could lead to lower costs. One relevant example of the latter is the general
realization among the refining community, since the vendor quotes were developed, that interstage
strippers will not likely be necessary in most applications to reach 7 ppm sulfur. Yet the cost for these
strippers is included in our estimates. Another example is that the vendor cost estimates are based on the
best catalysts available at the time. However, since the  vendors provided their cost estimates three new
lines of catalysts were announced. Akzo Nobel announced a very high activity catalyst named Nebula.
Criterion and Haldor Topsoe announced new lines of catalysts this year, named Ascent and Brim,
respectively (see Chapter 5 of the RIA). These new catalysts improve the desulfurization reaction rate
compared to previous lines of catalysts resulting in the need for less catalyst volume and smaller reactors
to reach the same sulfur target.  Thus, use of the vendor estimates with appropriate contingency factors
still is appropriate, and may even be  conservative. It should be noted that we have increased our capital
cost contingency factor significantly to better represent  the cost of expanded sulfur processing capacity
(see Section 6.2.1.2).
        6.2.1.2 Capital Cost Contingency Factor

What Commenters Said:

        API and Marathon also noted that in Section 7.2.1.4.1 of the Draft RIA, EPA admits that some
capital costs associated with equipment are not included in the vendor estimates and does not include
general off-site costs, and that we adjusted for this by increasing capital costs by 15 percent and added an
additional 3 percent for start-up. However, they believe, these adjustments are far below acceptable
engineering practices for cost estimation.  They cited a study by the National Petroleum Council, which
used a factor of 40 percent to account for off-site costs,  and a MathPro study, which used a factor of 50
percent. Therefore, the commenters believe that we underestimated the cost of hydrotreating by the
conventional and advanced technologies.

        Letters:
        American Petroleum Institute, OAR-2003-0012-0804-0808 p. 37
        Marathon Ashland, OAR-2003-0012-0826, 0827 p.  33

Our Response:

        As mentioned in API's and NPRA's comments, we increased capital costs by 18% to account for
costs which are not included in either vendor's estimates, nor in the general off-site factors.  One example
would be greater piping costs due to less than optimum  locations of process units, the sulfur plant, etc.
Another example would be intermediate tankage to smooth out variations in the quality of distillate
feedstock prior to hydrotreating, or improved control of the production of light cycle oil and light coker
gas oil. Another example would be expansions of the sulfur plant to handle the additional sulfur removed
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from NRLM fuel, a new sulfur analyzer etc.32 Additionally, there are other capital costs that occur due to
unpredictable events, such as material and product price changes, cost data inaccuracies, errors in
estimation, and other unforseen expenses. In the NPRM, we accounted for these costs, by increasing the
capital costs (after off-sites adjustment) by 18%. As summarized above, API and NPRA suggest that a
much larger factor should have been used.

       We have used a factor of 15% in several past rulemaking analyses, such as those for the Tier 2
gasoline sulfur standards  and the 15 ppm highway diesel fuel cap.19'20 We increased this factor to 18%
when developing NRLM fuel costs in the NPRM to more clearly account for startup costs.

       One factor that differs between the NRLM fuel program and these previous two sulfur control
programs is the amount of sulfur being removed per gallon of fuel. In the previous two programs, both
fuels contained roughly 300-350 ppm sulfur prior to further control. However, NRLM fuel currently
contains 3100 ppm on average.  In all cases, the final sulfur standards required sulfur to be  reduced to 7-
30 ppm. Therefore, on a  per gallon basis, roughly ten times as much sulfur is being removed with the
NRLM program than the  previous two programs. Thus, the per gallon cost of sulfur plant expansions will
be ten times greater.  In addition, published capacities for refineries' process units indicates that some
refineries currently producing high sulfur distillate do not have a sulfur plant. Thus, they would have to
construct a new unit, which is generally more expensive than expanding an existing unit. Therefore, for
the FRM, we considered it reasonable to more explicitly account for the cost of sulfur plant expansions in
estimating the cost for this rule.

       We considered two methods of including the cost of sulfur plant expansions for the FRM.  One
method was to estimate this cost on a refinery specific basis. Sulfur plant costs are subject to economies
of scale like hydrotreaters. Thus, the amortized cost of the  sulfur plant on a per gallon will vary
depending on the volume of NRLM fuel being treated. Also, as  described below in section 7.2.1.3.2, both
sulfur level and the fraction of NRLM diesel fuel not already hydrotreated to 350 ppm sulfur varies
significantly by PADD.  (While these values likely vary further by refinery, but we lack the data to
estimate these values on a refinery specific basis.)  These factors will also affect the cost of sulfur plant
expansions. Finally, a few refiners do not currently have a sulfur plant. Thus, they would actually be
building a new grass-roots plant, rather than expanding an existing plant. Thus, their costs will differ.

       The other method considered was to increase the previous  18% contingency factor to account for
the cost of sulfur plant expansion for a typical refinery and  apply this new contingency factor to all
refiners. While less precise, sulfur plant costs are small compared to that of the new or revamped
desulfurization equipment, particularly for those refineries which already have a sulfur plant (the vast
majority of refineries).  Thus, variations between refiners are a small percentage of total capital costs and
an even smaller percentage of total per gallon costs. Adjusting the capital contingency factor was also
simpler to accomplish.

       Given the relatively small cost of sulfur plant expansions, we decided to  adjust the capital
contingency factor for the FRM to represent the cost of a typical sulfur plant expansion with one
        32 Sulfur is removed from a large number of process streams in a refinery, usually in the form of hydrogen
sulfide. Hydrogen sulfide is a harmful gas.  Thus, refiners convert this gas into elemental sulfur in the refinery's "sulfur
plant".

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                                                                                       May, 2004

improvement.  We developed two sets of contingency factor adjustments, one for refineries with existing
sulfur plants and one for refineries without an existing sulfur plant. This method reflects the factor
having the greatest impact on sulfur plant costs, while still accounting for the sulfur plant costs within the
contingency factor.

       We first estimated the cost of building or expanding sulfur plant capacity associated with
desulfurizing NRLM fuel from current sulfur levels to 500 ppm and from 500 ppm to!5 ppm.  The sulfur
plant cost associated with desulfurizing NRLM fuel from current sulfur levels to 15 ppm was assumed to
be the sum of these two steps. This likely over-estimated sulfur plant costs for the few refineries without
existing sulfur plants, as the per unit capacity cost of the second sulfur plant is very high due its extremely
small size.  These refiners would likely build a single larger sulfur plant for the first step of NRLM sulfur
control to take advantage of the economy of scale.  However, very few refineries fall into this category
and it was easier to apply the modified contingency factors in this way.  We then converted these sulfur
plant costs to a percentage of hydrotreater costs for both conventional and Process Dynamics
technologies. (Both the hydrotreater and sulfur plant costs were estimated on an ISBL basis.  Including
off-sites would have increased both costs by the same factor, so the ratio of the two ISBL costs is the
same as the ratio of the OSBL costs. It was simpler to eliminate the step of including off-site costs in
both cases.)  We then determined the portion of the previous contingency factor which represented the
more modest sulfur plant costs  required by the previous sulfur control programs. The additional sulfur
plant cost required by the NRLM fuel program was then added to the previous contingency factor to
create a new contingency factor which more appropriately considered sulfur plant costs.

       Our estimate of the cost for expanded sulfur processing capacity was based on a typical U.S.
refiner being affected by the NRLM rule.  This hypothetical refiner was assumed to have a crude oil
throughput of 128,000 BPSD and produce 25,000 BPSD of high sulfur distillate. The current sulfur
content of the NRLM diesel fuel was assumed to be that of national average NRLM fuel, or 3100 ppm, as
derived in Section 7.1 of the Final RIA. Its composition is 21.3% LCO, 9.4% cracked stocks with the
remaining balance as straight run distillate, as described in section 7.2.1. of the Final RIA.  We
considered two cases. The first applied to refineries which already have a sulfur plant which can be
debottlenecked (or revamped) to expand capacity.  In this case, the baseline capacity was estimated to be
117 tons  of sulfur per day. As will be seen below, the amount of sulfur removed due to NRLM fuel
controls is roughly 10% of this baseline capacity, so the premise that the existing sulfur plant can be
revamped is reasonable.  The second applied to refineries which do not currently have a sulfur plant and a
new plant would have to be built in order to produce lower sulfur NRLM fuel.

       The sulfur plant is assumed to be comprised of an amine unit, a Claus sulfur recovery unit and a
Scott unit. The capital costs for new units were obtained from Petroleum Refining.21  We adjusted these
costs from 1999 to 2002 dollars using the Chemical Engineering Cost Index22.  The capital cost for
debottlenecking an existing sulfur plant were assumed to be equal to the capital cost of a new unit on a
per sulfur ton processed basis.  In other words, if a 100 ton per day unit cost $10 million, then the per ton
cost would be $100,000. If an additional 10 tons per day of capacity were needed, the expansion would
cost $1 million. For new sulfur plants, the capital costs for units of various capacity were scaled using the
"sixth tenths rule" using a scaling factor of 0.6 According to this rule, the capital cost of a process unit is
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                                                     Control of Emissions from Nonroad Diesel Engines
                                                                  Summary and Analysis of Comments
                                                                                        May, 2004
proportional to the ratio of the unit capacity taken to "six-tenths" power.
                                                                   33
                                             Table 6-1
                     Capital Cost of a Grass Roots 117 Ton per Day Sulfur Plant
                                       (million 2002 dollars)
Amine Unit
Claus Sulfur Recovery Unit
Scott Unit
Total Sulfur Plant Cost
Total Sulfur Plant Cost per ton sulfur
10.5
10.5
7.1
28.2
0.241
        The next step was determining the incremental sulfur plant capacity associated with the NRLM
rule. As mentioned above, we assumed a starting sulfur level of 3100 ppm for NRLM fuel. As described
in Chapter 7.1 of the Final RIA, we project that NRLM fuel meeting a sulfur cap of 500 ppm will average
350 ppm sulfur, while NRLM fuel meeting a sulfur cap of 15 ppm will average 11 ppm sulfur upon sale
to the final purchaser. Assuming a diesel fuel density of 7.1 pounds per gallon, treating one gallon of
diesel fuel from 3100 ppm to 350 ppm will remove 0.0195 pounds of sulfur. Treating one gallon of
diesel fuel from 350 ppm to 7 ppm will remove 0.0024 pounds of sulfur.34  For our hypothetical refinery
producing 25,000 bpsd of NRLM fuel, additional sulfur plant capacity of 9.3 tons per day will be needed
to meet the 500 ppm cap, while another 1.1 tons per day will be needed to meet a 15 ppm cap.  Thus, a
total of 10.4 tons per day would be removed when producing 15 ppm NRLM fuel.  Since the step to 500
ppm removes roughly 90% of the eventual sulfur removed at 15 ppm, it is reasonable to assume that
refiners would only revamp their existing sulfur plant (or build a new plant) once and size it for the full
step to 15 ppm.

        Applying the "six-tenths" rule, a new sulfur plant with a capacity of 10.4 tons per day will cost
$7.9 million.35  Assuming that an existing sulfur plant can be expanded at a cost proportional to the cost
of the current 117 ton per day unit will cost much less, 2.5 million.36 The difference exists because the
construction of smaller units is more expensive per unit capacity than that of larger units. It is generally
much less expensive to expand an existing unit's capacity by debottlenecking the equipment which limits
capacity than to construct a small, grass roots unit.  These figures are summarized in the following table.
        33 Capital cost of a new sulfur plant with X ton per day capacity  = (capital cost of a new sulfur plant with 117
tons per day capacity) * [ (X / 117) A 0.6 ]

        34 We project that refiners will desufurize "15 ppm" diesel fuel to 7 ppm in order to ensure compliance during
distribution. On average, we project that this 7 ppm level will increase to 11 ppm during distribution.

        35 $28.2 million* (10.4/117)°6

        36 $28.2 million* (10.4/117)

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                                                                  Summary and Analysis of Comments
                                                                                         May, 2004
                                             Table 6-2
                 Sulfur Plant Cost for a Hypothetical Refinery (Million 2002 Dollars)

New Sulfur Plant Capital
Debottleneck Sulfur Plant Capital
Uncontrolled Sulfur to
500 ppm
6.2
2.2
500 ppm to 1 5
ppm
1.7
0.3
Uncontrolled Sulfur to 15
ppm
7.9
2.5
        We next determined these sulfur plant costs as a percentage of hydrotreater costs excluding off-
sites.  The following table shows hydrotreater costs for the two technologies and the three sulfur steps.  It
also presents the above sulfur plants costs and the ratio of the sulfur plant to hydrotreater costs in
percentage terms.

                                             Table 6-3
        NRLM Hydrotreater Capital, Sulfur Plant Capital and Capital Cost Contingency Factors


Hydrotreater Cost ($
million)

Sultur Plant Cost
($ million)
Revamp
New
Sultur Plant Cost (% ot Hydrotreater
Cost)
Revamp
New
NRLM fuel Desulfurized from Uncontrolled Sulfur to 500 ppm Standard
Conventional - New
Unit
Process Dynamics -
New Unit
16.8
11.6
2.2
2.2
6.2
6.2
13
18
37
53
NRLM fuel Desulfurized from Uncontrolled Sulfur to 15 ppm Standard
Conventional - New
Unit
Process Dynamics -
New Unit
34.8
23 2
2.5
2.5
7.9
7.9
6
10
22
33
NRLM fuel Desulfurized from SOOppm to 15 ppm Standard
Conventional -
Revamp Unit
Conventional -
NewUnit *
Process Dynamics -
Revamp Unit
18.0
34.8
11.6
0.3
0.3
0.3
1.7
1.7
1.7
2
1
2
9
5
15
   Current highway hydrotreater is used to produce 500 ppm NRLM fuel, but sulfur plant still needs to be expanded.

        As shown in the above table, the cost of the sulfur plant for the step from 500 ppm to 15 ppm
when the refiner already has a sulfur plant is only 2.6%.  This is the situation faced by the vast majority of
refiners who produce highway diesel fuel. In estimating the cost of the  15 ppm cap for highway diesel
fuel, we used a capital cost contingency factor of 15%.  We believe that this factor was sufficiently large
to include the cost of the sulfur plant expansion, as well as other costs. Thus, in determining how to
include a larger sulfur plant cost for this NRLM rule, we assumed that the 18% contingency factor used in
the NPRM analysis already included 2.6% for sulfur plant costs. Thus, we deducted 2.6% from the
percentages in the above table when increasing the contingency factor to represent higher sulfur plant
costs.  The final contingency factors are shown below.
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                                                                 Summary and Analysis of Comments
                                                                                       May, 2004

                                            Table 6-4
         Final Capital Cost Contingency Factors (% of Hydrotreater Costs Including Off-Sites)

Capital Contingency factor tor
Debottleneck Sulfur Plant
Capital Contingency factor tor New
Sulfur Plant
NRLM fuel Desulfurized from Uncontrolled Sulfur to 500 ppm Standard
Conventional - New Unit
Process Dynamics - New Unit
29
34
53
69
NRLM fuel Desulfurized from Uncontrolled Sulfur to 15 ppm Standard
Conventional - New Unit
Process Dynamics - New Unit
22
26
38
49
NRLM fuel Desulfurized from SOOppm to 15 ppm Standard
Conventional - Revamped Unit
Conventional - New Unit *
Process Dvnamies - Revamp Unit
18
17
IS
25
21
31
* Current highway hydrotreater was used to produce 500 ppm NRLM Fuel

       We applied the above contingency factors to each refinery depending on whether or not it had an
existing sulfur plant.  We obtained this information from the 2002 EIA Petroleum Supply Annual.

       The addition of the sulfur plant costs increases our previous capital contingency factor of 18%
significantly in most cases. In some cases, this factor falls within and even exceeds the 40-50% range
suggested by API.  As API offered no further support for the contingency factors used by the National
Petroleum Council and Mathpro, we believe that the more explicit treatment of sulfur plant costs
described above is preferable.

       While the focus of this section is capital cost, in the process of evaluating the capital cost of
sulfur plants, we also reviewed their cost of operation. The fixed operating cost of the additional sulfur
plant work are captured in our analysis due to how we estimate fixed cost as being a percentage  of the
total NRLM capital costs (adjusted for offsite factor, location factor and contingency factor), see section
7.2.1.4.2. However, variable operating cost for sulfur plants are very small. Sulfur plants have low
energy requirements, since they generate excess steam from burning the sour gas feed.  This steam has
economic value and offsets most of the other operating costs.  Thus, there was no need to modify our
contingency factor for operating costs (section 7.2.1.4.5) to better account for the  additional costs of
operating expanded sulfur plant capacity.  While most refiners receive some economic benefit from
selling the extracted sulfur on the open market, the amount of sulfur being removed from crude oil is
approaching or in some places already exceeding the demand for sulfur.  Thus, we did not assume any
market value for the incremental sulfur being produced as a result of the NRLM rule.
        6.2.1.3 Penetration of Advanced Desulfurization Technologies

What Commenters Said:

        EPA uses a technology mix of 60 percent conventional and 40 percent advanced technologies for
2008, which is consistent with the NPC assumptions. However, the NPC study assumed that by this time,
advanced technologies would have  been commercially demonstrated, which is not the case. Advanced
technologies are likely to represent  much less than 40 percent, given that both of the advanced technology
concepts espoused by EPA still have not been demonstrated commercially. It is unlikely that a significant
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                                                                                      May, 2004

number of refineries will risk the uncertainties associated with these advanced technologies.  EPA should
assign a risk factor to the advanced desulfurization technologies to compensate for the unknown additions
to the capital costs. An appropriate risk adjustment in this case would be 40 percent for capital costs and
30 percent for operating costs.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 37
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 33

Our Response:

       One of the most promising new desulfurization technologies is Process Dynamics IsoTherming,
which has already been commercially demonstrated. Process Dynamics, working with Linde Process
Plants for engineering support, built a commercial-sized demonstration unit (5000 barrels per day) at a
refinery in New Mexico and has been operating the equipment since September 2002, demonstrating the
capability to meet 15 ppm since the spring of 2003. Thus, refiners will have 4-5 years of operating data
available on this process before they would have to decide which technology to use to meet the 15 ppm
NR sulfur cap in 2010.  This should be  ample operating experience for essentially all refiners to include
this process in their options for 2010. Based on information received from Process Dynamics, we
estimate that this technology could reduce the cost of meeting the  15 ppm cap for many refiners by about
20 percent. The cost savings for Process Dynamics IsoTherming primarily arises from the smaller reactor
volume required and other avoided capital costs (recycle gas compressor and reactor distributer).  These
lower capital costs also translates into lower fixed and variable operating costs, such as less catalyst.
Refineries which tend toward higher capital costs on a per-barrel basis, such as small refineries, are
particularly benefitted by the Process Dynamics process.  The commercial experience and cost  savings of
the Process Dynamics IsoTherming desulfurization technology makes it a prime contender in the
desulfurization market.

       Given the commercial demonstration of the Process Dynamics technology, we do not believe that
the large risk factors suggested by API  and Marathon are merited. In fact, we have already increased our
cost estimates for the Process Dynamics technology relative to the NPRM. This was done  to reflect
improved cost estimates available from Linde based on the actual commercial operation of the
demonstration unit. The previous estimates were based only on pilot plant data.
       6.2.1.4 Natural Gas and Hydrogen Costs

What Commenters Said:

       In Table 7.2-26, to estimate the hydrogen production cost, a natural gas cost of $2.75/mmBtu was
used. This is no longer valid and the current natural gas price is in the range of $4.50 to $6.00/mmBtu
and is projected by EIA to remain in this range for the foreseeable future. This could increase projected
hydrogen costs by at least 50 percent, which would increase EPA's cost estimates for ultra-low sulfur
diesel by 1 to 1.5 cents  per gallon.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 37

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       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 33

Our Response:

       In the NPRM, future natural gas prices were based on the average natural gas price from  1996 to
2001. Natural gas prices varied widely during this time, and we used this average to dampen out this
price variability. There was also some question concerning whether the substantial increase in natural gas
prices seen since 2000 would continue into the future.

       It now seems clear that natural gas will be in relatively short supply for the foreseeable future and
that higher prices compared to those seen during the 1990's will be typical.  Thus, for the final rule, we
decided to base future natural gas prices on those contained in EIA's 2003 Annual Energy Outlook.  This
natural gas price was $4.15 per mmBtu, representing a 50% increase of that used in the Draft RIA.


       6.2.1.5  Hydrogen Consumption Associated with Desulfurization Technologies

What Commenters Said:

       It is difficult to  estimate the hydrogen consumption for the advanced technologies with any
degree of accuracy although correlations may exist. For a 100 SCFB change in hydrogen consumption,
the operating costs will  change by about 1 cent per gallon. Hydrogen consumption in the range of 360 to
375 SCFB has been referenced for the various technologies both for revamp and grass roots options.
However, if cracked stocks are present in the feed this number will rise into the thousand SCFB range.
EPA has  assumed a low hydrogen consumption value based on the assumption that all non-
desulfurization reactions that use hydrogen can be eliminated. However, in the real world, this optimistic
projection cannot be achieved.

       In addition, EPA has continued to base its design case on average HDS feed  properties, but each
refinery must base its HDS design on the worst possible HDS feed it will have to process. Refiners need
to account for additional HDS capability to ensure that the target sulfur specification is achieved. EPA
has failed to recognize this in its cost estimates.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 37-38
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 33-34

Our Response:

       In the NPRM analysis, we did not assume that all non-desulfurization reactions could be
eliminated. We based our estimates of hydrogen consumption on vendors' estimates which included both
desulfurization and other reactions. Contrary to  API's assertion, most of the hydrogen consumed in
reducing  NRLM fuel sulfur levels from 500 to 15 ppm in our analysis was unrelated  to desulfurization
and due to saturation of aromatic rings and the breaking of these rings.  This is evidenced by the
difference in hydrogen consumption projected for the four blendstock types. For example, the hydrogen
consumption for reducing LCO sulfur levels from 500 to  15 ppm are 4 times greater than those for
straight run, when the volume  of hydrogen needed to actually combine with the sulfur in both of these

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blendstocks is the same.
       We base each refinery's hydrogen consumption on its average blendstock properties. However,
the average hydrogen consumption should in fact be related to the average blendstock properties.  The
desulfurization equipment itself may have to be designed to handle a worse than average blendstock
composition, as the blendstock composition presumably varies seasonally, as well as daily. Thus, our
capital cost estimates should account for this variability, but the hydrogen consumption estimates do not
need to. Lower than average hydrogen consumptions will occur with better than average blendstock
compositions, which will balance higher than average hydrogen consumptions associated with worse than
average compositions.

       Regarding our estimate of capital costs, we assumed that hydrotreaters would only be designed to
operate at 80% of capacity, when they normally operate at 90% of capacity. This provided a 10% safety
factor for variability in blendstock composition.
        6.2.1.6 Technical Feasibility of Producing 7 ppm Diesel Fuel

What Commenters Said:

        The reactions and kinetics of ultra-low sulfur diesel are not as straight-forward as EPA indicates.
The low level of the design target (7 ppm) requires the reactor to perform ideally and continuously and
even under these assumptions, many sulfur species will fail to react with hydrogen. The recalcitrant
sulfur molecules such as the 4,6-DMDBT may be present in such a quantity that the residence time and
catalyst volume required to remove them would not be cost-effective. In addition, the "sulfur floor" or
the lowest level of sulfur that can be achieved cannot be reduced further through increasing the reactor
temperature. There is no commercial desulfurization unit aside from hydrocracking that can produce
ultra-low sulfur diesel on a continuous and economical basis.

        Minimizing problems with flow will depend in part on the internal system, such as the proper
design of distributors and bypass tubes, the choice of optimum mass velocity, and the careful loading of
catalyst. These factors are critical and there is almost no margin for error.  Heat exchanger leaks, process
upsets, and inadvertent refinery sulfur contamination, will immediately result in off-specification fuel.
Reprocessing this off-spec fuel is costly since it will most likely involve backing down of crude and FCC
operational rates.

        Letters:
        American Petroleum Institute, OAR-2003-0012-0804-0808 p. 38
        Marathon Ashland, OAR-2003-0012-0826, 0827 p. 34

Our Response:

        All of the factors mentioned by API and Marathon-Ashland are important to the proper design of
equipment producing 15 ppm highway or NRLM fuel. We have included the cost of improved
distributors, heat exchangers and other ancillary items associated with successful diesel fuel hydrotreating
in our cost estimates. The presence of sterically hindered sulfur molecules such as 4,6-DMDBT  will
certainly factor into each refiner's plans for both the type of desulfurization equipment which they need

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and the volume of 15 ppm diesel fuel which they believe that they can produce economically. For
catalyst type and hydrogen pressure, there can be a "floor" below which sulfur cannot be effectively
reduced.  However, refiners can design their units for a higher hydrogen pressure and take advantage of
more advanced catalysts. By saturating the aromatic rings contained in these sterically hindered
compounds, they can remove the steric hindrance and ease sulfur removal.  For the NPRM, we basically
assumed that all new 15 ppm NRLM fuel produced in response to this rule will be produced using new
desulfurization equipment. Thus, refiners have the flexibility to design this equipment to address the
diesel fuel blendstock compositions which they anticipate producing from their future crude oils.  Under
these conditions, there is no evidence of a "floor" sulfur level.

       API and Marathon-Ashland also fail to note that the advanced Process Dynamics IsoTherming
process has been producing 15 ppm diesel fuel from typical diesel blendstocks since the spring of 2003.
Numerous other refiners have been using their existing hydrotreaters to experiment with catalysts and
operating conditions to determine the combination of factors which will be needed to produce 7 ppm
diesel fuel.
       6.2.2   The Initial Volumes of Ultra-low Sulfur Diesel Will Be the Most Cost-effective to
               Produce

What Commenters Said:

       The initial volumes of 15 ppm highway diesel in 2006 are likely to be produced via revamps of
existing hydrotreaters and tailored feedstock selection to exclude or minimize cracked stocks that are
more difficult to treat.  This implies some inherent reduction in the supply of highway diesel. When the
remainder of the highway and all of the nonroad diesel must also be ultra-low sulfur diesel in 2010, the
cost per barrel for treatment will increase, as those harder to treat fractions are re-introduced into the low-
sulfur diesel pool

       Letters:
       ExxonMobil, OAR-2003-0012-0616 p. 19

Our Response:

       Revamps of existing hydrotreaters to produce 15 ppm fuel can be done in a way that throughput
is reduced, but they can also be done to maintain or even increase production. We base our projection of
future 15 ppm highway diesel fuel production on refiners' own pre-compliance reports, which will reflect
their specific plans to modify or build new hydrotreaters. These pre-compliance reports do not indicate a
reduction in highway diesel fuel supply. However, our analysis in Section 7.2.1.3 of the Final RIA
indicates that these reports show that the projected production of 15 ppm highway diesel fuel in PADDs 4
and 5 could be less than demand. In these areas, we project that a small number of additional refineries
will invest to produce 15 ppm highway diesel fuel. In contrast, there is a much larger over-supply of 15
ppm highway diesel fuel in PADD 3.

       Regarding the relative cost of 15 ppm highway and NRLM fuel, we point out in Section 7.2.2 of
the Final RIA four reasons why the cost of producing 15 ppm diesel fuel under the 2007 highway rule
should be lower than that under this NRLM fuel rule. One of these reasons is that refiners are likely to

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shift hydrocrackate to the highway fuel pool. However, we also point out at least one reason why costs
for 15 ppm NRLM fuel could be lower than 15 ppm highway fuel. That is the use of advanced
desulfurization technology which is already being commercially demonstrated. Overall, our cost
estimates show that the factors tend to offset each other, with the result that we project very similar costs
for 15 ppm highway and NRLM fuel.
6.3    Costs of Distributing Nonroad Diesel Fuel

       6.3.1    Fungible Shipment of 500 ppm Highway and NRLM Fuel

What Commenters Said:

       If EPA provides a method to allow for the fungible shipment of highway and nonroad 500 ppm
diesel, the incremental costs associated with additional storage and delivery would be significantly less.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 39
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 35

Our Response:

       In designing the final NRLM fuel program, we made it a high priority to facilitate the fungible
shipment of 500 ppm highway and NRLM fuel. The designate  and track method now included in the
final rule should eliminate any need to segregate shipments of highway and NRLM fuel meeting the same
sulfur standard.


       6.3.2    Tank Truck Costs

What Commenters Said:

       The assumptions and calculations made by EPA in characterizing costs for bulk plant operators
seem reasonable. However, EPA's assumption that a single tank truck would service a bulk plant is
probably not accurate.  The number is likely to be much greater, which would increase EPA's cost
estimate slightly.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 38
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 34

Our Response:

       We agree that a single truck might not be sufficient to handle all the fuel from a single bulk plant.
Therefore, we have assumed that affected bulk plant operators will demanifold an average of three
delivery trucks so that it can transport multiple products, and have included costs for these steps (see
Section 7.4.1 of the Final RIA).

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       6.3.3   Handling of 15 ppm Fuel Downgraded During Distribution

What Commenters Said:

       Even though it is possible that the investments made to meet the highway diesel requirements will
minimize additional distribution costs, it is likely that some of the pipelines and terminals will need to
build extra capacity to handle downgrades of 15 ppm NRLM or for handling transmix or interface
volumes.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 39
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 35

Our Response:

       As described in the Draft RIA, we agree that the combination of controlling highway and nonroad
fuel to 15 ppm will eliminate the regular shipment of higher sulfur diesel fuel and heating oil from many
pipelines.  Our decision to control L&M fuel to 15 ppm increases this probability, as this action decreases
the volume of distillate not meeting a 15 ppm cap. Our estimates of the volume of 15 ppm fuel needing
to be produced and distributed to the final user reflect this assumption.

       The  absence of high sulfur heating oil in the pipeline will also necessitate segregating the
interface between jet fuel and 15 ppm diesel fuel from those pipelines not carrying heating oil. This
interface will not meet either jet fuel or 15 ppm diesel fuel specifications and, thus, cannot be simply cut
into either batch.  Section 7.1 of the Final RIA  now contains a detailed analysis of the volumes of this
interface produced in each PADD and its disposition to markets allowed to use this fuel. One of the new
components  of the final rule is to allow the use of 500 ppm fuel created in the distribution system in
locomotive and marine diesel engines, outside of the Northeast/Mid-Atlantic Area and Alaska.

       It is  possible that this interface could be stored in tankage previously used to store 500 ppm
NRLM fuel during 2007-2010. However, the additional inventory required to handle demand for 15 ppm
highway and NRLM fuel might require that this tankage be used to supplement previous 15 ppm storage
capacity. Thus, we have assumed that most terminals and transmix processors will have to add storage
tankage for this interface. We also believe that there could be additional trucking costs to distribute this
transmix distillate to the locomotive, marine and heating oil markets. Our analysis of distribution costs in
Section 7.4 of the Final RIA has been modified to include these costs.
6.4    Fuel Marker Costs

       6.4.1   Distribution of Marked Fuel

What Commenters Said:

       EPA's proposed approach for the distribution of marked fuel will be costly for refiners and
consumers.  Refiners must make a large capital investment in order to distribute marked fuel.  Some have

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indicated that the costs may approach $250,000 per facility. Therefore, any terminal that chooses to make
this investment will have a substantial stake in distributing a high sulfur product into the future and may
seek to continue  in that business through aggressive pricing or other marketing schemes to ensure that the
marked product has a role. The commenter (NORA) noted that this could delay their voluntary efforts to
convert the heating oil pool to a 500 ppm fuel.

       Letters:
       National Oilheat Research Alliance, OAR-2003-0012-0840 p. 2

       The National Oilheat Research Alliance commented that the cost of the marker ($0.002) will
translate into a cost of nearly $20 million per year to heating oil  customers. (See additional discussion
below on the variability of the overall cost of a fuel marker system in each PADD).

       Letters:
       National Oilheat Research Alliance, OAR-2003-0012-0840 p.  1

Our Response:

       The final NRLM fuel program includes a number of modifications that dramatically reduce the
cost and burden associated with marking heating oil.  The final rule exempts No. 2 fuel oil sold in most of
the Northeast and Mid-Atlantic states and Alaska from the marker requirement, thereby reducing the
potential marker costs by roughly 90%. In  addition, we do not expect that high sulfur heating oil will be
produced and distributed through pipelines  outside of those serving the Northeast. The only heating oil
sold outside the Northeast, Mid-Atlantic and Alaska will be that marketed directly from refinery racks and
contaminated jet fuel and 15 ppm diesel fuel sold from terminals.  Thus, today's rule minimizes the
number of facilities that will need to install injection equipment for the heating oil marker (see Chapter 7
in the Final RIA). Most of the contaminated 15 ppm and 15 ppm diesel fuel should contain less than 500
ppm sulfur and can be sold to the locomotive, marine or heating oil markets. If it should contain more
than 500 ppm sulfur, it can be sold to the heating oil market. The concerns regarding the potential that
the NRLM rule may inhibit voluntary efforts to reduce heating oil  sulfur to 500 ppm or less pertained to
the installation of marker injection equipment at terminals.  NORA stated that if terminals invested in
such equipment,  they would be motivated to continue selling high  sulfur heating  oil  in order to recoup
their investment. Since today's rule exempts the Northeast and Mid-Atlantic states from the marker
requirement and  we expect there will be only limited volumes of high sulfur heating oil outside of the this
area, we do not expect that today's rule will delay their voluntary efforts to convert the heating oil pool to
a 500 ppm fuel.  To the contrary, we expect that today's rule increase the volume of spillover of low-
sulfur fuels (NRLM fuel meeting the sulfur standards in today's rule and highway diesel fuel) that is used
for heating purposes.

       It should also be noted that we have continued to investigate the cost of the marker itself since
issuance of the NPRM. More recent information indicates that the per gallon cost of the marker will be
dramatically lower than that assumed  in the NPRM. Thus, not only will the volume of heating oil being
marked decrease dramatically, but the cost per gallon for the remaining volume will  decrease, as well.
       6.4.2   Geographic Issues
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What Commenters Said:
       NORA commented that the cost of the proposed marking and credit trading program is
disproportionately high in PADD I. They further stated that limiting the credit trading program to
PADDs II through V will eliminate nearly all costs on the heating oil sector, and may not impose any
limits on the use of the credit trading program. EIA statistics indicate that the costs of the program as
currently proposed are much higher in PADD I, particularly for heating oil consumers. For example, EIA
statistics indicate that in sub-PADD 1A, approximately 2.7 billion gallons of heating oil are consumed
annually and given a marginal cost for the marker of $0.002, this leads to an annual cost to heating oil
consumers of $5.4 million per year. There are approximately 100 terminals in this region that handle
heating oil and assuming a marginal cost of $25,000 per terminal for equipment installation, capital costs
and computer programming, the cost of the marker program would be $2.5 million or $800,000 annually
for the three years of the program. Therefore, the heating oil customer would bear a total cost of $6.2
million per year. Marking the heating oil in this sub-PADD would allow for an ABT program of 156
million gallons resulting in a cost of $0.04 per gallon  for the refiner.  This is a disproportionate cost that
only provides potential flexibility in one market. NORA provided additional discussion on this issue,
EIA data on fuel use within each PADD, and an analysis comparing the costs  in the entire PADD I area
(which are similar to sub-PADD 1A) with the costs in PADDs II through V. Based on these data, this
commenter concludes that EPA should not establish a marking system (and thus no ABT program) in any
PADD where the ratio of heating  fuel to off-road fuels exceeds one, and that by not requiring heating oil
to be marked in PADD 1, the marginal  cost of marking heating oil would be eliminated, reducing the cost
of the rule by nearly $ 11 million per year. (See related discussion under Issue 10.3.6)

       Letters:
       National Oilheat Research Alliance,  OAR-2003-0012-0840 p. 3-5

Our Response:

       The final rule adopts provisions very similar to those outlined in NORA's comments. The  final
NRLM fuel program exempts No. 2 fuel oil sold in most of the Northeast and Mid-Atlantic states and
Alaska from the marker requirement, thereby reducing marker costs by roughly 90%. As discussed in
Section 5.5 of the Final RIA, we designed the program to maximize refiner flexibility, while at the  same
time eliminating the marker requirement for the vast majority of the heating oil market.
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7.     BENEFITS METHOD AND ENVIRONMENTAL IMPACT ANALYSIS

7.1    Benefits Method

       7.1.1   Ozone, CO, and Air Toxics Should Be Considered

What Commenters Said:

       NRDC and STAPPA/ALAPCO commented that EPA would be able to show even higher net
benefits for the rule if we performed additional air quality modeling or quantification of the benefits
associated with reductions in ozone, CO, and air toxics since these benefits are likely to be significant.
Commenter provides no additional discussion or supporting documentation.

       Letters:
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 13
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 8

Our Response:

       We agree that in our economic benefits assessment, we have omitted important benefits
categories from our quantified results, including ozone, CO, and air toxics. However, we included
analysis of health benefits stemming for ozone reductions resulting from the  preliminary  control option
for the proposal for the rule.

       Regarding CO,  modeling of health effects associated with this constituent requires highly
spatially-refined exposure modeling that currently is not supported at the national-scale.  The Agency
agrees with the commentator that inclusion of health benefits resulting from CO reductions would further
increase the net benefits associated with the rule.  Regarding air toxics, it is likely that the
epidemiologically-derived effects estimates for PM25 capture some of the constituent-specific cancer
incidence resulting from individual HAPs contained in diesel exhaust.  It is also likely that if cancer
incidence for individuals HAPs was modeled, the aggregate incidence across HAPs would be lower than
estimates generated using the PM effects estimate, since the latter includes consideration  for interactions
between carcinogens (e.g., synergistic interactions), while modeling of individual HAP-related cancer risk
would not.  There are additional limitations to modeling cancer incidence for individual HAPs, including
the fact that the unit risk factors developed for HAPs are largely based on animal toxicity data which
introduces significant uncertainty into the generation of representative population cancer estimates for
human receptors.


       7.1.2   Uncertainties Associated with the Health Benefits Methodology

       7.7.2.7  Studies Used

What Commenters Said:

       API and Marathon commented that they believe that there are numerous uncertainties associated

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with the methodology used to estimate health benefits.  There are several factors that contribute to the
uncertainty in EPA's health benefits analysis. The vast majority of the estimated benefits (92 percent in
the base estimate) stem from reduced mortality due to a reduction in PM25 concentrations. EPA relies on
studies such as Harvard Six Cities and American Cancer Society (ACS) Studies to establish and quantify
the long term relationship between PM25 and health impacts.  However, according to the White House
Office of Science and Technology Policy the PM2 5 database is poor, and current data do not  support clear
associations. In addition, the studies cited by EPA fail to adequately assess the potential impacts  of
cofactors such as ozone or SO2.  Further illustrating  the inherent uncertainty in EPA's benefit estimates is
the fact that EPA's Health Assessment Document for diesel engine exhaust (EPA 6000/8-90/057F) does
not provide an adequate uncertainty analysis for use in risk assessment and rulemaking.  Given the large
amount of uncertainty surrounding PM25 concentrations and health impacts, it follows that very
significant uncertainty surrounds the benefit estimates as well. This uncertainty should be quantified.
(See related discussion  below and under Issue 7.2)

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 49-50
       Marathon Ashland, OAR-2003-0012-0826,  0827 p. 45-46

Our Response:

       The Agency recognizes that estimates of PM-related health effects are subject to uncertainty
related to different steps of the analytical (modeling) process.  In response to comments from  both the
NAS and the SAB's Health Effects Subcommittee (SAB-HES), as well as various commenters, we have
initiated the development of an integrated strategy to characterize uncertainty in its benefits estimates,
including uncertainty associated with the effects estimates for key endpoints including mortality.  This
approach will consider the entire analytical framework used in quantifying benefits and will focus in on
those elements that contribute most significantly to uncertainty in those estimates. As soon as elements of
this strategy are finalized, we will apply them in order to characterize uncertainty in our benefits
estimates. It is also  important to note that, while the NAS highlighted the need for quantitative
characterization of uncertainty associated with benefits estimates, it also stated that the presence of
uncertainty in benefits estimates should not delay action taken to promote or protect public health.

       Specifically regarding the strength of the association between PM exposure and mortality,
reflecting recommendations from the SAB-HES, we have updated our benefits methodology  to utilize the
Pope 2002 reanalysis of the ACS data.  The Pope 2002 reanalysis incorporates several enhancements that
strengthen conclusions  regarding the association between long term exposure to PM2 5 and mortality and
increases our ability to examine the potential for effects modification  by a range of possible risk factors
including those mentioned by the commenter (e.g., educational status, age, smoking status).  These
enhancements include:  (a) addition of 8 years of follow-up data with an increase in number of deaths, (b)
inclusion of range of dietary covariates in modeling, (c) improvements in treatment of occupational
exposure and (d) refinements in methods used to address potential spatial autocorrelation in ecologic
variables.

       Regarding the specific issue of potential confounding by SO2 and ozone, the HEI reanalysis of the
ACS study data, as well as other studies examining the  SO2 copollutant issue (Samet et al., 2000,  2001)
have suggested that  SO2 might represent a surrogate for ambient PM2  5 concentrations and is likely
associated with sulfate concentrations since it is a precursor. This could partially explain the association

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between SO2 and mortality found in the HEI reanalysis of the ACS study data. As mentioned above, we
have updated our methods for characterizing mortality and are now using the Pope 2002 reanalysis of the
ACS study data.  While this study continues to find and association between SO2 and cardiovascular
mortality, it also finds the strongest association yet between long term PM2 5 exposure and mortality.

       Regarding ozone as a potential copollutant for PM, the SAB-HES in its review of the analytical
framework used in this benefits analysis suggested that, where possible, effects estimates could be based
on relative risk ratios obtained from two-pollutant models (PM and ozone). This allows estimates for the
one constituent to be adjusted for the other (e.g., PM effects estimates to control for ozone impacts).
However, the SAB-HES also notes that PM and ozone are the least spatially correlated  of the criteria
pollutants and therefore, it is not critical that PM effects estimates that control for ozone (and vice versa)
be used in benefits analysis.
        7.1.2.2  Value of a Statistical Life

What Commenters Said:

        API and Marathon commented that EPA's estimates of the value of a statistic life (VSL) adds
another level of uncertainty to the benefit estimates.  EPA's estimate of VSL is based on the mean VSL
estimates from 26 studies that may or may not be appropriate for use with the populations impacted by
this proposed rule. Even though EPA states their preference not to assign monetary value to lives saved,
the sensitivity case does just that. Given the uncertainty associated with the relationship between VSL
and age, and the potential for misunderstanding of the use of this type of analysis, more research is
needed in the derivation of a defensible base estimate for the value of a statistical life. EPA's $6.3 million
VSL estimate does not accurately reflect the risk preferences of the target population and is not
appropriate for use in the valuations of reduced mortality. This is a critical point since this parameter is a
major driver in the benefit estimation in the RIA.

        Letters:
        American Petroleum Institute, OAR-2003-0012-0804-0808 p. 50-51
        Marathon Ashland, OAR-2003-0012-0826, 0827 p. 47

Our Response:

        EPA agrees that there is a large amount of uncertainty in the VSL for application to
environmental policy analysis. However, as noted in the RIA, the SAB Environmental Economics
Advisory Committee has advised that the EPA "continue to use a wage-risk-based VSL as its primary
estimate, including appropriate sensitivity analyses to reflect the uncertainty of these estimates," and that
"the only risk characteristic for which adjustments to the VSL can be made is the timing of the
risk"(EPA-SAB-EEAC-00-013, U.S. EPA, 2000b).

        In response to concerns about the range of estimates included in the VSL distribution, we have
modified the value of life distribution. The mean value of avoiding one statistical death  is now assumed
to be $5.5 million in 1999 dollars.  This represents a central value consistent with the range of values
suggested by recent meta-analyses of the wage-risk VSL literature. The distribution of VSL is
characterized by a confidence interval from $1  to $10 million, based on two meta-analyses of the

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wage-risk VSL literature. The $1 million lower confidence limit represents the lower end of the
interquartile range from the Mrozek and Taylor (2000) meta-analysis. The $10 million upper confidence
limit represents the upper end of the interquartile range from the Viscusi and Aldy (2003) meta-analysis.

        In developing our estimate of the benefits of premature mortality reductions, we have discounted
over the lag period between exposure and premature mortality.  However, in accordance with the SAB
advice, we use the VSL in our primary estimate.  Consistent with the SAB advice and In accordance with
the provisions contained in the FY04 Appropriations bill, we  do not adjust the VSL to reflect any
differences across age groups.
        7.1.2.3 Lag Structure

What Commenters Said:

        Marathon and API commented that our assumed five-year lag structure between premature
mortality and a given change in PM exposure with 25 percent and 16.7 percent of premature deaths
occurring in the first and second years and in each of the remaining three years, respectively, is not
supported by any scientific literature on PM-related mortality.

        Letters:
        American Petroleum Institute, OAR-2003-0012-0804-0808 p. 51
        Marathon Ashland, OAR-2003-0012-0826, 0827 p. 47

Our Response:

        As noted in the RIA Chapter 9, the size of the delay between changes in chronic PM exposures
and changes in mortality rates is an important parameter in the benefits analysis.  The size of such a time
lag is important for the valuation of premature mortality incidences as economic theory suggests benefits
occurring in the future should be discounted relative to benefits occurring today.  Although there is no
specific scientific evidence of the size of a PM effects lag, current scientific literature on adverse health
effects associated with smoking and the difference in the effect size between chronic exposure studies and
daily mortality studies suggest that all incidences of premature mortality reduction associated with a given
incremental change  in PM exposure would not occur in the same year as the exposure reduction. This
literature implies that lags of a few years or longer are plausible.  For our current analysis, based on
previous advice from the SAB (EPA-SAB-COUNCIL-ADV-00-001, 1999), we have assumed a five-year
distributed  lag structure, with 25 percent of premature deaths occurring in the first year, another 25
percent in the second year, and 16.7 percent in each of the remaining three years. To account for the
preferences of individuals for current risk reductions relative  to future risk reductions, we discount the
value of avoided premature mortalities occurring beyond the  analytical year (2020 or 2030) using three
and seven percent discount rates.

        A more recent SAB-HES report confirmed the NAS (2002) conclusion that there is little
justification for the 5-year time course used by EPA in its past assessments, and it suggested that future
assessments more fully and explicitly account for the uncertainty. The SAB-HES suggests that
appropriate lag structures may be developed based on the distribution of cause-specific deaths within the
overall all-cause estimate.

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       The SAB-HES specifically noted understanding mechanisms of damage and developing models
for different cause of death categories may be the key to characterizing more appropriate cessation lag
functions. They note that our current understanding of mechanisms suggests there are likely short-term
(e.g., less than six months for some cardiovascular effects), medium term (e.g., 2-5 years for COPD), and
longer term (e.g., 15 to 25 years for lung cancer). They noted that there is a current lack of direct data to
specify a lag function and recommended that information on the lag function be considered in future
expert elicitations and/or sensitivity analyses. While we are working to develop the underlying data to
support a more appropriate segmented lag structure, for the analysis in Chapter 9 of the RIA we
maintained the 5-year lag structure used in the benefits analysis for the proposed rule.  We have added an
additional sensitivity analysis to Appendix 9C examining the impact of assuming a segmented lag of the
type suggested by the SAB-HES.  The overall impact of moving from the 5-year distributed lag to a
segmented lag is relatively modest, reducing benefits by approximately 8 percent when a three percent
discount rate is used and 22 percent when a seven percent discount rate is used.  The agency is evaluating
techniques for characterizing lag structures and will incorporate new methods as they become available.
        7.1.2.4 Uncertainties in Emission Reduction Impact on Economic Benefits

What Commenters Said:

        API and Marathon commented that to assess the uncertainty in emissions associated with the
proposed rule, EPA arbitrarily assumed a plus or minus five percent change in the amount of emission
reduction produced by the proposed rule. No basis exists to support this assumption. This approach is
representative of how EPA has addressed the uncertainty associated with the benefits estimates and adds
no value to the analysis since it is based on arbitrary assumptions without supporting evidence.

        Letters:
        American Petroleum Institute, OAR-2003-0012-0804-0808 p. 51
        Marathon Ashland, OAR-2003-0012-0826, 0827 p. 48

Our Response:

        We have removed the 5 percent change in emission reduction from the final rule. We have added
a more thorough discussion of uncertainties related to fuel usage in appendix 8A.


        7.1.2.5 Methodology to Compute Benefits Over Time

What Commenters Said:

        API and Marathon commented that the methodology to compute benefits over time is based on
unrealistic and unsupportable assumptions. EPA assumes no interactions between NOX, SO2 and direct
PM in the formation of PM25. The contribution to PM25 of an increase in a particular species depends on
emissions and concentrations of associated species including ammonia and those listed above. These
non-linearities in atmospheric chemistry are not captured in the EPA analysis.  As a result, EPA's benefit
estimates appear to be linear, even though this is unlikely in reality.  EPA also assumes that emission
inventory shares remain constant across years, which is unlikely.

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       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 52
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 48

Our Response:

       The commenter is partially incorrect in the statement that "EPA assumes no interactions between
NOx, SO2, and direct PM in the formation of PM2 5." In order to estimate benefits in years other than
2020 and 2030, it was necessary to interpolate values from 2020 and 2030. We used sophisticated air
quality modeling (using the REMSAD model) to predict changes in ambient PM25 in 2020 and 2030.
This air quality modeling for 2020 and 2030 does incorporate the nonlinear interactions between NOx,
SO2, and direct PM. However, in order to develop the intertemporal scaling factors, we had to make
some  simplifying assumptions. We assumed that the interactions between SO2 and NOx were linear over
time, rather than assuming that there was no interaction. In other words, we assumed that the rate of
change in the sulfate to SO2, nitrate to NOx, and primary PM to direct PM ratios was a linear function of
time.  The rate of change is driven by differences in the baseline emissions between 2020 and 2030 and
by differences in the ratio of NOx to SO2 reductions from the nonroad sector. We verified the
interpolation approach by predicting 2020 benefits using scaling factors for sulfate, nitrate, and direct PM
based on the modeled 2030 benefits. Scaled benefits were within 4 percent of the actual modeled benefits
for 2020. We thus are confident that the nonlinearities in sulfate and nitrate formation are adequately
represented by our scaling factors.
        7.1.2.6 Adjustment Factors for Willingness to Pay

What Commenters Said:

        API and Marathon commented that the factors used to adjust current estimates of willingness to
pay (WTP) for avoidance of adverse health incident are based on an incorrect methodology. EPA uses an
adjustment factor of 1.09, 1.33, 1.29, and 1.79 to adjust for minor health effects, severe/chronic health
effects, premature mortality, and recreational visibility, respectively, from 1990 to 2030. These were
derived  from cross-sectional data. However, income elasticities should be derived from time series data
for use in this manner. The commenters stated that, given this and other concerns associated with the
benefits methodology, EPA should re-estimate benefit streams and net present value estimates based upon
defensible assumptions and an appropriate methodology.

        Letters:
        American Petroleum Institute, OAR-2003-0012-0804-0808 p.  52
        Marathon Ashland, OAR-2003-0012-0826, 0827 p. 48

Our Response:

        The method used to derive income adjustment factors is consistent with advice  from the SAB-
EEAC and reflect modest increases  in WTP over time. Some recent evidence from published meta-
analyses (see Viscusi and Aldy, 2003) suggest that EPA should be using a larger income adjustment
factor for premature mortality.
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        7.1.2.7 Alternative Estimates

What Commenters Said:

        API and Marathon commented that EPA's set of alternative estimates that postulate a short term
daily relationship  between PM25 and premature mortality reduce the base benefit estimates. The Health
Effects Institute has recently reported problems with the statistical methods used to estimate short-term
exposure to air pollution and health effects. Researchers have found that standard  errors associated with
these estimates may be larger than originally reported and that reported health impacts may be biased
upwards.

        Letters:
        American Petroleum Institute, OAR-2003-0012-0804-0808 p. 52
        Marathon Ashland, OAR-2003-0012-0826, 0827 p. 48

Our Response:

        Consistent with the recommendations from the SAB-HES and considering public comment, the
Agency is no longer developing an alternative estimate based on mortality results generated using time-
series study data.  Instead, we are now using a primary estimate based on the Pope 2002 Re-analysis of
the ACS study data, which is a long-term exposure cohort study.
       7.1.3   Public Health Benefits Below the NAAQS

What Commenters Said:

       Marathon and API commented that EPA cannot claim additional public health benefits for ozone
and PM reductions in attainment areas. In the proposed rule, EPA implies that the public health impacts
of emission reductions in attainment areas are counted as benefits, which is a questionable practice.  This
approach is contrary to the CAA, Section 21 l(c), which limits EPA's authority to regulate fuels to
situations where emissions cause, or contribute to air pollution that may reasonably be anticipated to
endanger public health or welfare. The NAAQS levels are set at a point to protect public health with an
adequate margin of safety.  Therefore, the public health benefits in non-transport attainment areas cannot
be used to justify the proposed rule.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 42, 47, 51
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 43-44

Our Response:

       We note that maintenance of the standards is an important reason for EPA's programs, and these
areas are by definition meeting the standards. In addition, because of the uncertainties inherent to
projecting to the future, we considered areas close to the standards (e.g., within 10 percent). There is
ample reason to believe that public welfare effects are occurring at levels below the standards (e.g.,
regional haze).

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        It is unclear if the commenters are referring to the economic benefits assessment in Chapter 9 or
the air quality information in Chapter 2.  Quantified and monetized benefits as reported in the RIA are not
used to justify the proposed rule. However, the commenter's basic comment is flawed.

        EPA conducts its PM benefits analyses to quantify, as completely as possible, estimated changes
in public health outcomes projected to result in the future from the implementation of alternative
strategies to reduce PM air pollution.  These analyses are based on currently available scientific
information, which continues to provide no evidence of a threshold below which it can be assumed with
confidence that no health effects occur.

        In implementing programs to attain the PM NAAQS, emission controls may lead to reductions in
ambient PM2 5 below the standard in some areas in order to reduce ambient levels sufficiently to attain the
standard in other areas, with levels above the standard. An assessment of benefits associated with
changes in  PM25 only above the standard would thus provide only a partial picture of the  projected
benefits of reductions in emissions of pollutants which form PM25.

        While estimated benefits associated with changes in PM25 below the standard (i.e., approaching
the lower end of the range of PM levels observed in the health studies) are more uncertain than those
above the standard, they cannot be rejected as legitimate components of the benefits analysis, which is
intended to provide a "best estimate" of the benefits of projected changes in PM25, rather  than a high- or
low-end estimate.

        In addition, given that the  epidemiological literature has generally not produced risk estimates
based on threshold models, there would be additional uncertainties associated with assuming thresholds
(or any other non-linear concentration-response functions) for the purposes of benefits analysis. In fact,
the EPA Science Advisory Board's Advisory Council  for Clean Air Compliance, which provides advice
and review of EPA's methods for assessing the benefits and costs of the Clean Air Act under Section 812
of the Act,  has advised that there is currently no scientific basis for assuming any specific threshold for
the PM-related health effects considered  in typical benefits analyses (EPA-SAB-Council-ADV-99-012,
1999). Also, the National Research Council, in its own review of EPA's approach to benefits analyses,
has agreed  with this advice. This advice  is supported by the recent literature on health effects of PM
exposure (Daniels et al., 2000; Pope, 2000; Rossi et al., 1999; Schwartz, 2000) which generally finds no
evidence of a non-linear concentration-response relationship and, in particular, no evidence of a distinct
threshold for health effects.  The most recent draft of the EPA Air Quality Criteria for Particulate Matter
(U.S. EPA, 2002) reports only one study, analyzing data from Phoenix, AZ, that reported even limited
evidence suggestive of a possible threshold for PM25 (Smith et al., 2000).

        Thus, it is appropriate and reasonable to include the estimated benefits associated with all
reductions in PM2 5, both above and below the  standard, using non-threshold models, to provide a
comprehensive picture of the estimated public  health impacts associated with projected future controls on
PM precursor emissions.
        7.1.4   Assumptions in the Health Benefits Analysis

        7.1.4.1 Assumptions Should be Revised


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What Commenters Said:
       API and Marathon commented that certain assumptions in the health benefits analysis should be
revised. Based on the CASAC expert opinion against the use of existing diesel exhaust lung cancer
epidemiological data in quantitative risk assessment, EPA should use the draft reference concentration
(RfC) for non-cancer endpoints for any  quantitative health benefit analysis.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 47
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 43-44

Our Response:

       In generating health effects incidence estimates for PM, the Agency used effects estimates based
on epidemiology studies examining exposure to PM as a generic mixture. We did not use
epidemiological studies that examined exposure to diesel exhaust specifically due to concerns about the
transferability of concentration-response functions from worker study populations to the general public.
Regarding the potential use of RfCs for non-cancer endpoints, incidence estimation conducted as part of
cost-benefit analysis typically requires effects estimates that relate exposure to specific health endpoints
(or the probability thereof) so that incidence counts for specific health effects can be generated.
Threshold values such as RfCs typically identify levels of concern and can not be directly translated into
health effects incidence (i.e., cases). This limits their utility in supporting cost-benefit analysis.
        7.1.4.2 Use ofPM and Ozone Health Effects Data

What Commenters Said:

        API and Marathon commented that PM and ozone health effects data should not be used for
quantifying health benefits. The commenters believe that prospective case cohort studies should be used
for determining PM health benefits, if PM is used.

        Letters:
        American Petroleum Institute, OAR-2003-0012-0804-0808 p. 47
        Marathon Ashland, OAR-2003-0012-0826, 0827 p. 43-44

Our Response:

        The epidemiological study used as the basis for one of the key health effects included in the
benefits analysis (the Pope 2002 reanalysis of the ACS study data used to generate mortality estimates in
adults) is a prospective cohort study.


        7.1.4.3 Use of Diesel RfC as a PM Threshold

What Commenters Said:
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       API and Marathon commented that by EPA's own RfC definition, it is not appropriate to assume
no threshold for the non-cancer cardiac and respiratory health effects used to calculate benefits for this
proposed rule. They believe that we should use the current diesel exhaust RfC of 5 ug/m3 as the
threshold for benefits calculations.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 48
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 43-44

Our Response:

       The final EPA Diesel Health Assessment Document follows the CASAC recommendation not to
use the existing diesel exhaust lung cancer epidemiological data to develop a cancer potency for
quantitative estimates of the benefits of controlling diesel exhaust PM. However, CASAC also agreed
that EPA could use these data to calculate a possible range of carcinogenic risk that could be associated
with exposure to diesel PM. This risk range is from 10"3 to 10"5 but could be as low as zero. For non-
cancer effects, the EPA Diesel Health Assessment Document states that the RfC for diesel PM of 5 ug/m3
is based on four well-conducted rat inhalation studies showing adverse pulmonary effects.  There is a
much broader range of studies including numerous studies on humans such as epidemiology studies cited
in the both the rulemaking and the EPA Air Quality Criteria Document for Particulate Matter showing
adverse cardiac and respiratory health  effects for ambient PM of which diesel PM is an important
component. Due to the broader nature of these studies  and the fact that the EPA NAAQS for PM is based
on total PM mass rather than specific components of that mass, it is more appropriate to use that larger
data base to calculate non-cancer benefits for diesel PM. Furthermore, it is not appropriate to use the
diesel RfC based on only four rat  studies examining pulmonary effects to make a conclusion on non-
cancer benefits of controlling diesel PM  at levels below 5 ug/m3. In any case, significant PM benefit from
this rulemaking comes from reducing NOx which reduces the secondary formation of nitrate.  The diesel
RfC, in any event, would not be applied  to nitrate or sulfate.

       In addition, for reasons mentioned earlier,  typically, RfCs can not be used to support benefits
estimates (see response to Question 1 above).
        7.1.4.4 Estimates of Diesel PM Concentrations

What Commenters Said:

        API and Marathon commented that EPA should acknowledge that current, worst-case estimates
of diesel PM are well below EPA's proposed RfC for diesel exhaust, which is 5.0 ug/m3. Worst-case
estimates by California EPA of annual average exposure concentrations to diesel PM from on-road and
off-road diesel engines are 1.5, 1.3, and 1.2 ug/m3, for 1990, 2007, and 2020, respectively.

        Letters:
        American Petroleum Institute, OAR-2003-0012-0804-0808 p. 48
        Marathon Ashland, OAR-2003-0012-0826, 0827 p. 44-45

Our Response:

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       PM resulting from diesel emissions are only one of many anthropogenic and natural sources of
ambient PM25.  Consequently, in considering the potential for health impacts resulting from PM25
exposure (in relation to health benchmarks such as RfCs which are based on thresholds), it is important to
consider the total PM2 5 concentration and not only the fraction  resulting from a specific sources such as
diesel emissions. However, in the context of benefits analysis where we use epidemiological-based
effects estimates (i.e., linear and non-linear concentration-response functions) to translate changes in
population-level exposure into reductions in health effects incidence, the important metric from an
exposure standpoint is the delta or change in exposure and not the absolute levels of PM25.
        7.1.4.5 Epidemiological An alytical Software

What Commenters Said:

        API and Marathon commented that, in light of recently discovered flaws in the analytical
software used in many PM time series studies, calculations of benefits from health endpoints derived from
time series studies should be removed from the RIA.  These studies should not be used in the RIA until
affected data are reanalyzed and peer reviewed to correct the Generalized Additive Models errors in
default "convergence criteria" and the underestimation of standard errors, and until the co-pollutant
effects on PM health effects are reanalyzed.  Given these concerns, they believe that the majority of the
alternative health benefit calculations should not be used since they are based on a broader number of
time series studies than currently included in the base benefit calculations.

        Letters:
        American Petroleum Institute, OAR-2003-0012-0804-0808 p. 48
        Marathon Ashland, OAR-2003-0012-0826, 0827 p. 44-45

Our Response:

        The comment incorrectly identifies the use of default convergence criteria in the S-Plus statistical
package's Generalized Additive Models (GAM) procedures as a "flaw." The use of default criteria is a
decision made be the investigator, and more stringent criteria can be used without modifications to the
base S-Plus statistical software.

        Since the nonroad rule proposal, the Health Effects Institute has published its "Revised Analyses
of Time-Series Studies of Air Pollution and Health."  In it, the HEI special review committee presented
the  results of analyses of an HEI-funded study, the National Morbidity, Mortality, and Air Pollution
Study (NMMAPS), as well as other non-HEI studies that employed the GAM procedure.

        The reanalysis of the NMMAPS study found a decrease in the mean effect of PM-10 on
mortality, from 0.41% per 10 ug/m3, to 0.27% per  10 ug/m3 when using GAM with more stringent
convergence criteria, and 0.21% per 10 ug/m3 when using generalized linear models (GLM) using
parametric approaches.  In all models, the  mean effect of PM-10 on mortality remained statistically
significant. The decreases in the mean effect of PM-10 on hospitalizations due to cardiovascular diseases
and chronic obstructive pulmonary disease were smaller, and a significant association continued to be
present.
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       The HEI committee also reviewed 21 publications containing reanalyses of other time series
studies using the default GAM convergence criteria. Overall, GAM approaches with more restrictive
convergence criteria and GLM approaches using natural splines showed lower PM effect sizes, but
overall, a PM effect was preserved in most studies. In most cases in which reduction did occur, the
reduction was not substantial. Overall, the GAM issue has been largely resolved, and so this comment is
no longer applicable.
7.2    Economic Impact Analysis

What We Proposed:

       We prepared a draft Economic Impact Analysis (EIA) for this rule to estimate the economic
impacts of the proposed control program on producers and consumers of nonroad engines, equipment,
fuel, and related industries. An EIA is prepared to inform decision makers within the Agency about the
potential economic consequences of a regulatory action.  The analysis contains estimates of the social
costs of a regulatory program and explores the distribution of these costs across stakeholders. These
estimated social costs can then be compared with estimated social benefits.  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.37 In this  analysis, social costs are explored in two steps.  In the first step, called the
market analysis, we estimate how prices and quantities of goods directly and indirectly affected by the
emission control program can  be expected to change once the emission control program goes into effect.
The estimated price and quantity changes for engines, equipment, fuel, and goods produced using these
inputs are examined separately.  In the second step, called the economic  welfare analysis, we look at the
total social costs associated with the program  and their distribution across stakeholders.  The analysis is
based on compliance cost estimates and baseline market conditions for prices and quantities of engines,
equipment, and fuel produced  presented earlier in this section.

       The  Nonroad Diesel Economic Impact Model (NDEIM) uses a multi-market analysis framework
that considers interactions between regulated markets and other markets  to estimate how compliance costs
can be expected to ripple through these markets. In the NDEIM, compliance costs are directly borne by
engine manufacturers, equipment manufacturers, and petroleum refiners and fuel distributors. Depending
on market characteristics, some or all of these compliance costs will be passed on through the supply
chain in the form of higher input prices for the application markets (in this case, construction, agriculture,
and manufacturing) which in turn affect prices and  quantities of goods produced in those application
markets.  Producers in the application markets adjust their demand for diesel engines, equipment, and fuel
in response to these input price changes and consumer demand for application market outputs. This
information is passed back to the suppliers of diesel equipment, engines, and fuel in the  form of
purchasing decisions. The NDEIM explicitly models these interactions and estimates behavioral
responses that lead to new equilibrium prices  and output for all sectors and the  resulting distribution of
social costs across the modeled sectors.

       The  market impacts of this rule suggest that the overall economic impact on society is expected to
        ''''EPA Guidelines for Preparing Economic Analyses, EPA 240-R-00-003, September 2000, p 113.

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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 markets) 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 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.

       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 $1,510 million. 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 overtime and are  projected to be about $2,046 million by
2030 and $2,227 million 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 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.

       The present value of total social costs through 2030 is estimated to be about $27.2 billion
($2002).  This present value is calculated using a social discount rate  of 3 percent from 2004 through
2036. We also performed an analysis using an alternative 7 percent social discount rates. Using that
discount  rate, the present value of the social costs through 2036 is estimated to be $13.9 billion ($2002).

       We received comments on our draft analysis from stakeholders representing agricultural interests,
equipment rental and dealer interests, and equipment manufacturers.  The commenters conveyed their
concerns about our general analytic approach and some of the model  assumptions. These comments, and
our responses, are presented below.
       7.2.1   EPA Failed to Perform an Adequate Analysis of Application Market End Users
               That Will Be Affected by the Rule

       7.2.1.1  EPA Did Not Consider the Economic Impacts on End-users in the Agricultural Sector

What Commenters Said:

       EPA received comments from twelve organizations representing farming and ranching interests
(see list below). These commenters expressed concern that EPA did not consider "the economic impacts
to those who will ultimately pay for compliance with the rule through higher fuel and equipment costs,

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namely end consumers, specifically farmers and ranchers." They note that while EPA states in the draft
EIA that compliance costs "will be passed through to the application markets in the form of higher prices
to the consumers of final construction, agricultural, and manufactured goods and services," EPA does not
provide any analysis of what that will mean to those  consumers. They note that EPA justifies its lack of
analysis of the impacts on the application markets by assuming that "nonroad diesel equipment and fuel
expenditures are a relatively small share of total production costs for the products and services that use
this equipment and fuel as inputs." EPA further assumes that the consumers of the regulated products
(e.g., farmers and ranchers) "will continue to purchase these products at these higher costs because there
are no substitutes for nonroad diesel equipment and fuel."

        These farming and ranching interests note that while some industries can absorb the higher costs
for diesel engines, equipment and fuel associated with the rule, this is not the case for the  agricultural
sector. They note that "farmers and ranchers tend to be price takers that sell wholesale commodities."
Because they do not set the prices for their output, "there is a limited ability to pass on increased
regulatory burdens through to customers," and "even small increases in input costs translate into
nonrecoverable lost profits for farmers and ranchers." Farmers have narrow profit margins, and
"additional costs from increased regulatory burdens further erode their already shrinking profit margins."

        These commenters also note that "the general assumption that diesel engine equipment and fuel
account for a minute amount of total production costs for farm and ranch operators is questionable."  For
example, "the University of Nebraska Farm Management guides alone recognize more than 150 different
machinery and equipment costs for Nebraska ag operations."  Several commenters noted that the fuel
requirements alone will have an economic impact in excess of a quarter of a billion dollars per year on the
agricultural sector (7 cents a gallon cost increase, on 4 billion gallons of fuel consumed per year). This
estimate does not include additional infrastructure or upgraded equipment/engine costs.

        These commenters insist that EPA prepare a sector-by-sector analysis of the proposed rule's
impact, specifically on farmers and ranchers. In addition, the USDA should be involved in this analysis
because agricultural producers look to that agency "to perform economic analysis of regulations that
affect their bottom  lines and the prosperity of the national farm economy."

        Letters:
        American Farm Bureau, OAR-2003-0012-0608 p. 2-3
        Idaho Wheat Commission, et. al., OAR-2003-0012-0645 p. 1
        Illinois Farm Bureau, OAR-2003-0012-0673 p. 1-2
        Kansas Farm Bureau, OAR-2003-0012-0825 p. 1-2
        Michigan Farm Bureau, OAR-2003-0012-0625 p. 1-2
        National Association of Wheat Growers, et.  al., OAR-2003-0012-0752 p. 1
        Nebraska Farm Bureau, OAR-2003-0012-0514 p. 1-2
        Tennessee  Farm Bureau, OAR-2003-0012-0629 p. 1-2

Our Response:

        The EIA prepared for this rule was developed by EPA using widely accepted econometric
practices, following the Agency procedures described in "Guidelines for Preparing Economic Analyses"
(EPA 240-R-00-003, September 2000) and in "OAQPS Economic Analysis Resource Document" (April
1999). Copies of both of these documents are available in the docket for this rule.  EPA develops the EIA

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for a particular control program as part of our regulatory development process. EPA is solely responsible
for this rulemaking and we do not believe it is appropriate to delegate this work to other federal
departments or agencies.  It should be noted that other appropriate branches of the federal government are
asked to review and comment on our analysis as part of the inter-agency review process.

       As explained in Chapter 10 of the RIA prepared for this rule, the EIA looks at price and quantity
impacts for engine, equipment, diesel fuel, and goods produced with these inputs (market analysis) and
changes in producer and consumer surplus associated with those market effects (economic welfare
analysis).  The EIA considers 7 engine markets, 42 equipment markets, 8 fuel markets, 3  application
markets, and 2 transportation service markets, for a total of 62 integrated product markets.

       The application markets are the markets associated with the production and consumption of
goods that use the affected diesel engines, equipment, and fuel. The producers in these markets include
farmers, ranchers, construction firms, industrial firms, and mines; consumers include other companies and
households. These three application markets - agriculture, construction, and manufacturing - were
selected because they encompass the majority of the final products and services that incorporate diesel
engines in their production processes and because they represent a manageable number of markets. As
we indicated in the proposed (and also, the final) RIA, the analysis of the economic impacts for these
three application markets  focuses on impacts at the market level: average price and quantity change for
output produced in each of the three markets (market analysis) and the average loss of consumer or
producer surplus (economic welfare analysis). The EIA does not examine economic impacts on particular
groups of application market suppliers (e.g., the profitability of farm production units or manufacturing or
construction firms) or particular groups of consumers (e.g., households and companies that consume
agricultural goods, buildings, or durable or consumer goods). In other words, while the EIA results
indicate that the application markets are expected to bear most of the  burden of the regulatory program
and we apportion the decrease in  application market surplus between application market producers and
application market consumers, the EIA does not allow us to estimate how those social costs will be shared
among specific application market producers and consumers (e.g., farmers and households). In some
cases, application market  producers may be able to pass most if not all of their increased costs to the
ultimate consumers of their products;  in other cases, they may be obliged to absorb a significant portion
of these costs.

       These commenters requested that instead of performing the EIA on at the application market
level, EPA should perform a sector-by-sector analysis of application market consumers and producers
because firms in different submarkets or firms of varying size may not be affected in the same way.
These commenters did not provide any data to support their comments.

       We do not believe a sector-by-sector analysis is called for in this case. This is because the
standards in this emission control program are technical standards that apply to nonroad engines,
equipment, and fuel  regardless of how they are used. The structure of the control program does not in
itself suggest that different sectors will be affected differently by the requirements. The standards will
apply to all engines of a particular power category in the same way, and the impact on prices and
quantities  of engines in that power category are expected to  be the same no matter how the engine is
ultimately used. In addition, the NDEIM incorporates market-level behavioral parameters (supply and
demand elasticity estimates) that were obtained from the literature or were estimated based on well-
accepted econometric methods. Because these are market-level elasticities, they incorporate existing
differences in reactions with the market.  Therefore, differences among firms within a market are reflected

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in the average price and quantity changes for each application market and the average change in consumer
and producer welfare. While there may be differences among the ability of particular firms or firms in a
particular subsector to pass costs along to consumers of their goods, these differences are independent of
this emission control program and are not expected to be affected by it.

       It should also be remembered that diesel engines, equipment, and fuel affected by this control
program represent only a small portion of the total production costs for each of the three application
market sectors (the final users of the engines, equipment and fuel affected by this rule).  Other more
significant production costs include land, labor, other capital, raw materials, insurance, profits, etc. These
other production costs are not affected by this emission control program.  This is important because it
means that this rule directly affects only a small part of total inputs for the relevant markets. Therefore,
this rule is not expected to have a large adverse impact on output and prices of goods produced in the
three application sectors.

       Finally, the results of our EIA suggest that the overall burden on the application market is
expected to be small: 0.1 percent increase in prices, on average, and 0.02 percent decrease in production,
on average.  See RIA Chapter 10 Appendix C. We believe that estimated economic impacts of this size
do not warrant performing a sector-by-sector analysis to investigate whether some subsectors may be
affected disproportionately. Nor does the statutory directive to consider costs in conjunction with engine
standards, fuel standards, and lead time require any such analysis.
        7.2.1.2 EPA Did Not Consider the Economic Impacts on End-users in the Equipment
               Distributor and Rental Sectors

What Commenters Said:

        EPA received comments from three equipment dealer associations.  These comments also raised
the concern that "the agency appears to be skipping over the end users of nonroad equipment - those who
would be forced to accept the costs of this rule."  They note that the nonroad equipment market is narrow
compared to the highway sector, and this rule "would add significant costs to the industry in terms of
wholesale prices to dealers and retail prices to consumers." They said they are disappointed that EPA did
not seek them out when developing the rule.  The dealer associations also note that EPA did not consider
the economic impact of increased oil change intervals on those who do oil changes.

        American Rental Association noted that the equipment rental business is a competitive business,
and that "cost increases are not fully transferred to the customer; the rental dealer will absorb some of
these additional costs thereby affecting the economic performance of his business and the value of the
rental proposition."

        Letters:
        American Rental Association, OAR-2003-0012-0612 p. 3
        Far West Equipment Dealers Association, OAR-2003-0012-0679 p. 3
        North American Equipment Dealers Association, OAR-2003-0012-0647 p. 3-4
        Ohio-Michigan Equipment Dealers Association, OAR-2003-0012-0747 p. 3

Our Response:

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       We respond to the request for sector-by-sector analysis for application market subsectors with
regard to equipment dealers and firms that do oil changes in the response to comment 7.2.1.1, above.

       With regard to equipment rental companies, the commenters suggest that the behavioral
characteristics of this market are sufficiently different from those for original equipment dealers (i.e., the
market demand and supply elasticities are different than those for original equipment dealers) as to
warrant separate analysis. These commenters do not provide supporting data.  Our response to  comment
7.2.1.1 with regard to requests for sector-by-sector analysis also applies here. In addition, even if the
rental and original equipment dealer sectors were different, we do not believe this emission control
program will change the currently existing dynamics of the equipment rental sector.  In general, firms rent
nonroad equipment for specific reasons, for example because they do not have a long-term need for the
equipment or they would not use the equipment intensely enough to justify purchasing it.  While it may
be the case that individual rental firms may be able to pass along more or less of their increased costs to
their customers, this is a function of the characteristics of individual firms. This rule is not expected to
change that dynamic.

       Finally, EPA held public hearings at three locations after publication of the proposed rule. In
addition, there was an extensive comment period, of which these commenters availed themselves. It is
our goal to take into account the concerns of all stakeholders.
        7.2.1.3  EPA Did Not Include in its Analysis Potential Impacts on the Used Equipment Market

What Commenters Said:

        Commenters representing agricultural interests noted that EPA did not include in its analysis
potential impacts on the used equipment market. These commenters did not provide any details as to
what those impacts would be.

        Letters:
        American Farm Bureau, OAR-2003-0012-0608 p. 3
        Kansas Farm Bureau, OAR-2003-0012-0825 p. 2
        Michigan Farm Bureau, OAR-2003-0012-0625 p. 3
        Nebraska Farm Bureau, OAR-2003-0012-0514 p. 2
        Tennessee Farm Bureau, OAR-2003-0012-0629 p. 3

        Commenters representing equipment dealer interests also raised concerns about the impact of the
rule on the used equipment market.  Nonroad equipment often has a long useful life and equipment
produced 30 years ago or more is a large share of the used equipment market. They note that dealers
"have a tremendous financial stake in the used market and so do many end users" but "EPA is mostly
silent on this issue." They note that the used equipment market "could possibly be on the verge of a huge
upswing if this proposed regulation prices new engines and equipment out of the range of most
customers."

        The  dealer associations raise three questions about the impact of the rule on the used equipment
market:
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       (1)     Will used equipment be able to continue running on the new ultra-low sulfur diesel fuel
               of only 15 ppm sulfur?
       (2)     Will EPA suggest a retrofitting requirement?
       (3)     Will this rule affect the sale of used equipment in general?

       Letters:
       Far West Equipment Dealers Association, OAR-2003-0012-0679 p. 3
       North American Equipment Dealers Association, OAR-2003-0012-0647 p. 4
       Ohio-Michigan Equipment Dealers Association, OAR-2003-0012-0747 p. 3

Our Response:

       We respond to the request for sector-by-sector analysis (i.e., used equipment dealers) in the
response to question 7.2.1.1, above.

       To some extent, these comments reflect a misunderstanding about the scope of the new standards.
It is expected that existing equipment will be able to continue running on the new ultra-low sulfur fuel
(there is no technical reason that it cannot) and may even see a decrease in operating costs as a result (see
discussion on operating costs in Chapter 6 of the RIA).  This rule is also not expected to affect the sale of
used equipment, since it has no direct effect on such equipment (there being no retrofit requirement in the
rule). Also, since  the rule is not expected to significantly increase the price of most types of new
equipment (the average price increase across all equipment is expected to be about 2.9 percent in 2013
and 2.5 percent in 2020 and beyond), there is not expected to be a significant increase in demand for used
equipment. See RIA Chapter 10 Appendix B.

       It should be noted that even if the price increases for new equipment were large enough to drive
consumers to purchase used instead of new equipment, the result would be a transfer from new equipment
dealers to used equipment dealers and not an additional cost, and would be among end users in the same
equipment market. As noted above, this model is not designed to assess the distribution of economic
effects at the firm  level of analysis.
       7.2.2   EPA's Treatment of Fixed Costs in its Economic Impact Analysis Is Incorrect

What Commenters Said:

       The New York Department of Environmental Conservation commented that EPA's "statements
regarding Fixed Costs and Total Costs, and their impact on prices" are inaccurate and contrary to
economic principles.  This commenter notes that by not considering fixed costs in the economic analysis,
EPA underestimates total costs, marginal costs, and prices. This is because the marginal cost curve is a
derivative of the total cost curve, which includes fixed costs. While in the long run total costs are not
determined by changes in fixed costs, initially total costs are determined by both fixed and variable costs.
While EPA asserts that because "fixed costs are primarily R&D costs ... and firms in the affected
industries currently allocate costs for these costs," R&D costs matter because they are compliance costs
regardless of when they are incurred. The NY DEC recommends that EPA include R&D in the NDEIM.
They expect that the result will be an increase in the average price of goods and services produced using
engines affected by the rule.

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       Letters:
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 9

Our Response:

       As this commenter notes, the EIA treats the fixed costs expected to be incurred by engine and
equipment manufacturers differently in the market and social costs analyses. In the market analysis,
estimated engine and equipment market impacts (changes in prices and quantities) are based solely on the
expected increase in variable costs associated with the standards. Fixed costs are not included in the
market analysis because in an analysis of competitive markets the industry supply curve is based on its
marginal cost curve and fixed costs are not reflected in changes in the marginal cost curve. In addition,
the fixed costs associated with the rule are primarily R&D costs for design and engineering changes.
Firms in the affected industries currently allocate funds for R&D programs and this rule is not expected to
lead firms to change their R&D budget decisions.  Therefore, changes in fixed costs for engine and
equipment redesign associated with this rule are not likely to affect the prices of engines or equipment.
Fixed costs are included in the social cost analysis, however, as an additional cost to producers. This is
appropriate because  even though firms currently allocated funds to R&D those resources are intended for
other purposes such  as increasing engine power, ease of use, or comfort. These improvements will
therefore be postponed for the length of the rule-related R&D program.  This is a cost to society.
       7.2.3   EPA's Assumption of Perfectly Competitive Markets Is Incorrect

What Commenters Said:

       The Mercatus Center commented that EPA's NDEIM relies on the assumption of perfect
competition. However, this description of the nonroad market does not hold. For example, in its Industry
Characterization, EPA notes that Kubota has a 28.6 percent market share for the 25 to 75 horsepower
category, and the percentage shares for the next eight largest firms decline rapidly. EPA also notes that
nine firms have 88 percent of the market,  and 19 firms share the remaining 12 percent for an average
share of 0.63 percent each.

       The Mercatus Center notes that the reality of this market structure has implications on the
economic analysis. Specifically, EPA assumes that all firms can spread their costs out over a large
number of engines, when it is clear that some cannot.  The analysis also assumes that firms can spread
their costs over all of their production, including engines offered on the global market, when in fact some
small firms do  not compete in the world market. EPA also assumes that small firms will have access to
information so that the size of the firm does not affect information costs when in fact the costs of
obtaining that information may be too high for small firms.

       Letters:
       Mercatus Center, OAR-2003-0012-0627, 0828 p. 43-45

Our Response:

       Mercatus expresses concern that the number of firms that produce engines in the 25 to 75
horsepower range is relatively small, calling into question the assumption of perfect competition in the

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NDEIM. While the commenter is correct in noting the limited number of firms in this subsector, we
believe it is still appropriate to rely on the perfect competition assumption in this analysis.

       It should be noted that the production numbers cited in the industry characterization are for U.S.
production only. The actual total production of many of these  companies can be significantly larger. For
example, in the 25 to 75 hp category, many of the engine companies with small U.S. market share, such
as Lombardini and Lister-Fetter, sell engines in Europe, the Far East, and to other global markets.  The
U.S. share of their production is only one part of their total production.

       Market concentration is measured in a variety of ways by the Department of Justice (DOJ) and
Federal Trade Commission (FTC), including four-firm concentration ratios (CR4) and the Herfindahl-
Hirschman Index (HHI). The CR4 is simply the combined market share  of the four largest sellers in a
given market, a very intuitive concentration measure. The HHI, which is currently used by the DOJ's
Antitrust Division and the FTC, is constructed by summing up the squared market shares, in percentage
terms, of all competitors in the market. According to these agencies' 1997 Horizontal Merger Guidelines,
a market with an HHI under 1,000 is considered "unconcentrated," one with an HHI between 1,000 and
1,800 is "moderately concentrated," and one with a measure over 1,800 is "highly concentrated" (DOJ,
1997).

       The merger guidelines assume that high concentration  offers the  potential for firms to influence
prices through coordinated action on prices.  Still it is possible for highly concentrated markets to behave
competitively if firms are unwilling or unable to coordinate their actions  or if potential entry  can serve to
limit price increases. For diesel engine markets, the following  HHI values were calculated:

               Entire diesel engine market - all hp ranges       885   (unconcentrated)

       •       Small  engines (1 to 70 hp)                     1,202   (moderately concentrated)

       •       Medium engines (71 hp to 600 hp)             1,804   (highly concentrated)

               Large  engines (over 600 hp)                   3,662   (highly concentrated)

       These data suggest that concentration in the small engine market is low enough that an
assumption of competitive behavior is appropriate.

       In the medium range, the high level of concentration is mitigated by substantial competition from
foreign manufacturers, who would be unlikely to coordinate actions with U.S. firms and may have strong
incentives to compete vigorously on price. The over 600 hp engine category would seem to be more
problematic, with Caterpillar selling more than half of the large diesel engines used in U.S.-produced
nonroad equipment. Here too, however, competition from overseas firms may serve to keep the market
competitive.

       The perfect competition assumption relies not only on  the number of firms in a market but also on
other market characteristics.  For example, there are no indications of barriers to entry, the  firms in these
markets are not price setters, and there is no evidence of high levels of strategic behavior in the price and
quantity decisions of the firms.  In addition, the products produced within each market are somewhat
homogeneous in that engines from one firm can be purchased instead of engines from another firm.

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Finally, according to contestable market theory, oligopolies and even monopolies will behave very much
like firms in a competitive market if it is possible to enter particular markets costlessly (i.e., there are no
sunk costs associated with market entry or exit). With regard to the nonroad engine market, production
capacity is not fully utilized.  This means that manufacturers could potentially switch their product line to
compete in another segment of the market without a significant investment.  For all these reasons, the
number of firms in a particular engine submarket does not prevent us from relying on the perfect
competition  assumption for that submarket. This is true of other engine and equipment subsectors as
well.  In addition, changing the assumption of perfect competition based on the limited evidence raised by
the commenter would break with widely accepted economic practice for this type of analysis.38

        The  second part of these comments challenges EPA's assumption that firms will be able to spread
compliance costs over a large number of engines. EPA is not aware of any small firms that sell engines
or equipment in the United States but do not sell them in Europe or Japan. In addition, the program
contains flexibility provisions for small manufacturers that are designed to address compliance difficulties
they may have with respect to information and design costs. It should be noted that most if not all small
firms that operate in the nonroad engine and equipment market provide products for niche markets.
These firms  should be able to pass on more of their costs than companies that provide products for more
competitive markets. This suggests more of a benefit for manufacturers, with users bearing more of the
costs of compliance.
       7.2.4   EPA Did Not Include Substitution Effects in its Economic Analysis

What Commenters Said:

       The Association of Equipment Manufacturers expressed concern that the increased cost of the
rule "will serve to either delay the purchase of next generation nonroad equipment or lead operators to
rebuild their older equipment." They also express concern that, for engines less than 19 kW (25 hp), there
will be substitution to less expensive gasoline-powered equipment.

       Ingersoll-Rand commented that "EPA presumes that customers will absorb the costs of new
machines with new technologies."  They note that their "customers, faced with a purchasing decision that
involves significant expense and uncertain performance, may elect other alternatives such as pre-buying,
delayed buying, rebuilding, extending the life of a current machine, or substituting with different
equipment."

       SB A Office of Advocacy noted that, during the Panel process conducted for this rule, small
business equipment manufacturers expressed concern that the costs of the rule for engines below 75 hp
"would increase the incremental cost of these smaller units to the point where customers would defer
purchases of these units or purchase substitute products such as gasoline-powered equipment" and "to
switch to other types of equipment or not purchase new equipment at all."  They noted that EPA does not
consider substitution effects, and note  that "it is not likely that equipment purchasers would simply ignore
the higher price and continue purchasing equipment at nearly the same rate they always have."
       38See, for example, EPA Guidelines for Preparing Economic Analyses, EPA 240-R-00-003, September 2000, p
126.

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       The New York State Department of Environmental Conservation raised a concern "that the
proposed rule could potentially encourage equipment manufacturers to use smaller engine sizes that
would not result in the desired decreases of emissions."  They also note an additional concern "that the
proposed regulations may drive manufacturers to switch to gasoline engines in pace  of diesel engines,"
especially in low horsepower ranges.

       The Mercatus Center commented that the assumption of no substitution is a  "prime pillar" for
supporting EPA's assumption of zero price elasticity. Yet, users can substitute by retaining their existing
engines for a longer period of time through more intensive maintenance and repair.  The result would be a
decrease in engine sales. This is not considered in EPA's analysis.

       The Tennessee Farm Bureau noted that EPA failed to consider the fact that farmers have become,
and will continue to be, more energy efficient. New technologies and the mechanization of production
have reduced the amount of equipment needed to produce a crop. In addition, this equipment
accumulates less hours of running time because of increased horsepower ratings and no-till farming. This
trend will  continue.

       Letters:
       Association of Equipment Manufacturers, OAR-2003-0012-0669, 0670 p. 14
       Ingersoll-Rand, OAR-2003-0012-0504 p. 9
       U.S. Small Business Administration Office of Advocacy, OAR-2003-0012-0815 - 0818 p. 3
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 6
       Tennessee Farm Bureau, OAR-2003-0012-0629 p. 1

Our Response:

       The NDEIM does not explicitly model alternate production inputs that could serve as substitutes
for new nonroad equipment or nonroad diesel fuel.  In the model, market changes in the final demand for
application goods and services directly correspond to changes in the demand for nonroad equipment and
fuel (i.e., in normalized terms there is a one-to-one correspondence  between the quantity of the  final
goods produced and the quantity of nonroad diesel equipment and fuel used as inputs to that production).
We believe modeling the market in this manner is economically sound and reflects the general experience
for the nonroad market.

       Some commenters have suggested that substitution to alternate means of production other than
new nonroad diesel equipment or nonroad diesel fuel is an economically rational possibility for these
markets.  The list of potential substitutes cited by these commenters include pre-buying, delayed buying,
extending the life of a current machine, and substituting with different (e.g., gasoline-powered)
equipment. For the reasons described below, we conclude that revising the NDEIM to include these
effects would be inappropriate.

       The term "pre-buying" refers to the possibility that the suppliers in the application market could
choose to buy additional unneeded quantities of nonroad equipment prior to the beginning of the Tier 4
program and then use that equipment as an alternate means of production during the time period of the
Tier 4 program, thus avoiding the higher cost for the Tier 4 equipment.  Although such pre-buying may
be economically rational in some very limited situations, its use as a substitute is severely limited.  First,
it should be clear that this form of pre-buying only applies to equipment and not to nonroad diesel fuel.

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The high cost to storing any significant quantity of nonroad diesel fuel prior to Tier 4 makes such pre-
buying unlikely.  For nonroad equipment, the logic behind pre-buying is relatively straightforward and
analogous to the average consumer deciding to buy a new car at the end of the model year in the
anticipation that next year's model will be more expensive. The critical difference is that the nonroad
equipment is bought early and then held idle until it is needed as an input to production. The economic
viability of such strategic purchases are limited by the cost of idle capital and the cost for maintaining
unused equipment. In simple terms, if one assumed that the value of capital tied up in an idle piece of
equipment would have returned 7 percent in some other investment and the cost of equipment were to go
up by 7 percent, it would be economically rational to pre-buy equipment up to one-year earlier than
needed. If the equipment will not be needed as an input to production in the next year, it would be more
rational to invest the money elsewhere and then purchase  the equipment when it is actually needed. In
real terms, the window for which pre-buying can be a rational choice is even more limited due to the cost
of maintaining, storing and insuring equipment that is not being used.  In practice then, such strategic
purchases are limited to a time period of a few months around the start of a new regulation. The NDEIM
is intended to model market reactions in the intermediate run time frame and thus models a period of time
well beyond the scope of the short time period during which any potential pre-buy might be rational. We
therefore have not tried to include pre-buying as a means of substitution in NDEIM.

       "Delayed-buying" refers to the possibility that producers in the application market would defer
purchasing new equipment initially but would eventually  (after a delay period?) buy new equipment. The
economic rationality of such a delay is not clear (i.e., commenters did not state what cheaper substitute
might be used).  However, since in the end it is assumed that the new more expensive equipment  is
purchased, such a substitution method would appear to be inappropriate for an economic model designed
to model the intermediate run time frame.

       In addition, there are many other factors besides a new regulatory program that may affect a
consumer's decision to pre-buy or delay a purchase.  Specifically, manufacturer short-term pricing
promotions or marketing strategies such as rebates, dealer incentives, and advertising can change
consumer behavior.  These effects are not well captured in a general equilibrium model such as the one
used in the NDEIM, the goal of which is to estimate the rule's impact on equilibrium prices and
quantities. Distinguishing these effects would require the use of a sales function, which is beyond the
scope of the NDEIM.

       Extending the life of a current machine is suggested as another alternative to purchasing new
equipment. We believe this would also be a short term phenomenon that is not relevant for the
intermediate time frame of the NDEIM. Based on our meetings with equipment users and suppliers, we
do not believe that extending the life of nonroad equipment will prove to  be an economically rational
substitute to the purchase of new equipment.  Based on our understanding of the nonroad equipment
market, we believe that most users of nonroad equipment already do this to the maximum extent possible.
That is, we believe it is already economically rational to extend the life of nonroad equipment as long as
possible. It is our understanding that new nonroad equipment is only bought when: 1) the existing
equipment can no longer perform its function; or 2) when new demand for production requires additional
means for production; or 3) when new equipment offers a cheaper means of production than existing
equipment. The changes in equipment due to the Tier 4 program will not substantially change these three
primary reasons for purchasing new equipment. Further, were we to discover that extending equipment
life is economically rational (i.e., if it were cheaper to extend equipment life rather than to buy new
equipment), this would lower the cost of nonroad equipment as an input to production and thus would

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reduce the economic impact of the Tier 4 program compared to our estimate. For all of the reasons stated
here, we have decided not to attempt to model an extended equipment life in the NDEIM.

        Finally, commenters suggested that equipment users may choose to substitute with different
equipment or perhaps more generally different inputs to production. These could include the use of
gasoline powered equipment, or the use of additional labor (i.e., the use of a laborer and shovel instead of
a backhoe), or some other unknown substitute. We have specifically considered the possibility of
substitution to gasoline technology. Gasoline engines are an alternative power source for equipment in
the lowest power categories (i.e., below 75 horsepower). Above this size range there are very limited
viable gasoline engine substitutes today, and  we do not believe that such substitutes will arise in the
future. We should also note that there are a number of benefits to diesel engines and some  stakeholders
have argued that there are no acceptable substitutes for diesel powered equipment.39  The fuel economy
advantage of diesel engines compared to gasoline engines dominates the overall operating costs for larger
equipment and makes the application of large gasoline  engines to large nonroad equipment economically
infeasible.40  For smaller nonroad equipment, where the fuel portion of operating costs are not as
important, gasoline and diesel engines are both provided today. The dominant reasons for choosing diesel
engines over the substantially cheaper gasoline engines include better performance from diesel  engines,
lower fuel consumption from diesel engines,  and the ability to use diesel fuel. This latter reason is a
significant advantage for two reasons: diesel  fuel is safer to store and dispense due to its lower volatility
and, hence, greater resistance to accidental ignition, and it is compatible with the fuel needed for larger
equipment at the same worksite.  Thus, the costs for addressing safety  issues with gasoline  fuel storage
and the costs for storing two fuels onsite (gasoline for small engines and diesel for large) acts as a barrier
to entry to the market for gasoline powered equipment.  Where such a barrier doesn't exist, gasoline
engines already enjoy a substantial  economic advantage over diesel. In cases where the more expensive
diesel powered equipment is currently used, an incremental increase in new equipment cost is unlikely to
provide the necessary economic incentives for switching to gasoline based power systems.  In short, we
believe that users who can economically dispense gasoline fuel already choose the substantially cheaper
gasoline technology, while diesel users are already choosing a more expensive technology due to reasons
that will persist independent of today's rulemaking.  The incremental equipment costs are not expected to
be large enough to change these market characteristics.  Therefore, we have not attempted to model the
possibility of substitution to gasoline equipment in NDEIM.
        7.2.5   EPA Failed to Account for the Price Sensitivity of Small Equipment Markets in its
               Economic Analysis

What Commenters Said:

        Ingersoll-Rand commented that "EPA failed to account for the price sensitivity of these markets,
        39 "To date, there is no substitute for diesel power." Associated General Contractors of America,
OAR-2003-0012-0791.

        40 Preamble Table VI.C-1 documents the lifetime operating costs (for fuel and oil only) for a 500 hp bulldozer
as $77,850. If simplistically, we assumed that a gasoline engine would have a 30 percent higher operating cost (in
practice it would likely be higher), the extra operating cost for a gasoline engine would be in excess of $23,000 dwarfing
any additional control cost from the Tier 4 program.

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especially those associated with small engines." Ingersoll-Rand expects that "equipment using small
engines will be severely impacted" because of the high compliance costs for those engines, which "could
exceed the current cost of the engine." They provided an example of the price sensitivity of skid  steer
loaders. While the market has been relatively stable for 20 years, a price reduction of 5 to 7 percent in
1998 resulted in a 20 percent increase in sales. Consequently, they anticipate that their "customers will
react unfavorably to cost increases from  Tier 4, particularly when they will also encounter reduced
durability, increased heat rejection, increased maintenance costs and lower fuel economy."

        The Small Business Administration Office of Advocacy also commented on the price sensitivity
of small equipment markets. They indicated they do not believe the expected engine price increases can
be absorbed by the nonroad diesel equipment market and expressed concern that EPA did not consider
substitution effects (switch to gasoline engines, cut back on diesel equipment by substituting labor,
purchasing used equipment or extending the life of old equipment).  This may be a particular concern for
small equipment manufacturers, since the expected price increase for nonroad diesel engines in the 25 to
75 hp range is about 25 percent.  They noted that "it is not likely that equipment purchasers would simply
ignore the higher price and continue purchasing equipment at nearly the same rate they always have."

        The Mercatus Center commented that EPA assumes that the demand price elasticity for nonroad
diesel engines is not statistically different from zero, that it is totally inelastic. They note that real world
examples of zero price elasticity are virtually nonexistent, even for cocaine or cigarettes. Mercatus  stated
that EPA provides no evidence that its estimated price elasticities are correct.

        Letters:
        Ingersoll-Rand, OAR-2003-0012-0504 p. 9
        U.S. Small Business Administration Office of Advocacy, OAR-2003-0012-0815 - 0818 p. 5
        Mercatus Center, OAR-2003-0012-0627, 0828 p. 46

Our Response:

        With the exception of demand elasticities for the engine, equipment, and diesel fuel markets, the
price demand and supply elasticities used in the NDEIM were obtained from peer-reviewed literature
sources or were estimated using econometric methods. These econometric methods  are well-documented
and are  consistent with generally accepted econometric practice.

        The equipment and engine supply elasticities used in the NDEIM are elastic, meaning that
quantities supplied are expected to be fairly sensitive to price changes.  The supply elasticities for the
fuel, transportation, and application markets are inelastic or unit elastic, meaning that the quantity
supplied/demanded is expected to be fairly insensitive to price changes or will vary one-to-one  with price
changes. The demand elasticities for the application markets are also inelastic.  This is consistent with the
Hicks-Allen derived demand relationship, according to which a low cost-share in production combined
with limited substitution yields inelastic  demand.41  As noted above, diesel engines, equipment, and fuel
        41If the elasticity of demand for a final product is less than the elasticity of substitution between an input and
other inputs to the final product, then the demand for the input is less elastic the smaller its cost share. Hicks, J.R., 1961.
Marshall's Third Rule: A Further Comment.  Oxford Economic Papers 13:262-65. See Note to the Docket from Jean
Marie Revelt dated April 5, 2004 Pocket No. A-2001-28, Document No. IV-B-25).

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represent only a small portion of the total production costs for each of the three application sectors. The
limited ability to substitute for these inputs is discussed in the response to question 7.2.4, above.

       Ingersoll-Rand's comments do not lead us to change our method of estimating the price
sensitivity of these markets.  The data provided by Ingersoll-Rand pertains to the experience of a price
reduction for one type of equipment, Bobcat skid steer loaders. It is not surprising that the price decrease
described led to an increase in sales for the company, given that the sales decrease was for Bobcat skid
steer loaders only and did not apply to skid-steer loaders across the board. However, it is not possible to
conclude anything about the general equipment elasticity for this market segment or the equipment
market as a whole based on the experience of the result of market incentives for one company.42

       The NDEIM is a market-level model that estimates the economic impacts of the  rule on the
engine, equipment, and application markets and the transportation service sector.  It is not a firm-level
analysis and therefore the equipment demand elasticity facing any particular manufacturer may be greater
than the demand elasticity of the market as a whole. 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 are likely to arise.

       SBA Office of Advocacy's concerns about the price sensitivity of small equipment markets, and
especially the impact of substitution, also do not lead us to change our methodology of estimating the
price sensitivity of these markets.  It should be noted that the expected price increase for engines should
not be confused with the expected price increase for equipment. While the expected price increase for
engines 26-50 hp and 51-75 hp is 22 percent and 21 percent, respectively, the expected price increase for
equipment that use those engines is much smaller, ranging from 1.2 percent for industrial equipment 51-
75 hp to 7.9 percent for gensets  51-75 hp.  This range illustrates the relative value of the engine in total
equipment input costs: the expected price increase is larger for gensets because the engine is a larger
share of the total cost of equipment inputs. Equipment price increases of this nature are not expected to
encourage equipment users to substitute labor for diesel equipment. See also our response to comments
about substitution more generally in our answer to comment 7.2.4.

       The inelastic values for  the demand price elasticity questioned by Mercatus are an outcome of the
NDEIM. Specifically, the demand elasticities for the engine, equipment, fuel, and transportation markets
are internally derived as part of the process of running the model.  This is an important feature  of the
NDEIM, which allows it to  link the separate market components of the model and simulate how
compliance costs can be expected to ripple through the affected economic sectors. For example, in the
real world, the quantity of nonroad equipment units produced in a particular period depends on the price
of engines (the engine market) and the demand for equipment (the application markets).  Similarly, the
number of engines produced depends on the demand for engines (the equipment market) which depends
on the demand for equipment (the application markets).  Changes in conditions in one of these  markets
will affect the  others.  By designing the model to derive the engine, equipment, transportation market, and
        42 The Nonroad Diesel Economic Impact Model described in Chapter 10 of the Regulatory Impact Analysis was
prepared for EPA by RTI International. The contractor report containing the model equations and baseline data, is
available in Docket A-2001-28, Document No. II-A-115. The contractor report containing modifications and
enhancements to the model for the final rule is available in electronic docket OAR-2003-0012-1018.

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fuel demand elasticities, the NDEIM simulates these connections between supply and demand among all
the product markets and replicates the economic interactions between producers and consumers. The
inelastic values for the demand elasticities for engines is a function of the inelastic demand for application
market goods and the lack of substitution possibilities in addition to those that are already exercised
today.

       An underlying concern in the above comments is the extent to which the rule will affect the
ability of small equipment manufacturers (i.e., small companies, not companies whose sales volumes are
small) to compete with larger manufacturers. The nonroad equipment category includes a number of very
large equipment manufacturers that control significant market share and have strong distribution channels
that ensure their products are well positioned in the marketplace. Yet, as illustrated in our industry
characterization, there are an even greater number of very small manufacturers that also produce nonroad
equipment and that apparently are able to operate successfully in this market.  In developing this rule, we
have spoken with various equipment manufacturers to understand the nature of the nonroad equipment
market and the conditions that allow such large and small manufacturers to coexist in  a competitive
marketplace.  This information allows us to evaluate whether this rule may be expected to fundamentally
change these market characteristics.

       Generally,  one would not expect that a small firm would be able to compete with a much larger
equipment manufacturer in a high volume nonroad equipment market, such as the market for skid steer
loaders. The larger manufacturer is expected to enjoy benefits due to reduced manufacturing costs from
production efficiencies, reduced inputs from higher purchasing power from suppliers and reduced
distribution costs from a broader product distribution network. Any design or production efficiencies that
an innovative small manufacturer might create in order to compete would likely be quickly copied by its
larger competitors and so would be unlikely to offset the advantages of the large manufacturer.

       If it is assumed that nonroad equipment produced by the large and small manufacturers are of
equal value to the customers in the market (they are homogeneous goods and are equally exchangeable,
such as skid steer loaders), then we it can be assumed that these manufacturers must compete on price
alone. Given the inherent cost advantages assumed to accrue to the larger manufacturer, it is difficult to
imagine that a small manufacturer could  succeed in such a market. Yet, there are a significant number of
small nonroad equipment manufacturers. Consequently, the market must be more complicated than the
simple competitive market described above.

       Through our discussions with small equipment manufacturers, we learned that small equipment
manufacturers do not typically compete directly with large equipment manufacturers.  The nonroad
equipment industry is characterized by innovative companies that identify new product needs not
previously served or not served well by existing nonroad equipment.  The companies develop new
products to serve niche markets, sometimes even creating such markets. In fact, it is not uncommon for
the brand name of the innovative products that create the markets to become synonymous with the
products themselves.  For example, many people today refer to all skid steer loaders as "bobcats" based
on the brand name of the products that first created that market.

       Other companies, including  large equipment manufacturers, may enter the niche market if the
volumes become sufficiently large (that is, the equipment application has broad applicability in the
market).  By that time, the innovator company will have grown with its market to become a much larger
entity.  This is what happened in the skid steer loader market.

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       For most small nonroad equipment segments, however, the markets are small enough that the
relative cost of entry into the market will be a significant barrier to entry for larger companies. A large
equipment manufacturer would have to weigh the low production volumes of the niche markets with the
substantial design costs associated with entering such a market. The  return that a large equipment
manufacturer could hope to realize from entering such a market is likely to be so small as to make entry
unappealing. In addition, the other advantages that a large equipment manufacturer may have, including
a large distribution network and production efficiencies, are unlikely to offset these costs in a market
where only a small number of units are sold a year. In niche markets, a very small equipment
manufacturer with less bureaucracy and lower overhead may be in a better position to respond and
innovate in a market, and may be more able to tailor each unit to meet the particular demands of each
purchaser.  This is certainly the case for rock crushing equipment for highway construction and is likely
to be the case for other small nonroad equipment niche markets as well.  We do not expect this rule to
change the dynamics of these markets since the compliance costs are not high enough to offset the
barriers to entry described above.

       We do not know of any examples of equipment markets in which small nonroad equipment
manufacturers compete directly with much  larger companies offering homogeneous products.43 Without
a specific example to point to, we are left to speculate how such a situation could occur.  One example
may be the market for new home construction.  In this market, large companies compete with much
smaller high cost custom home builders.  Both types of manufacturers provide the same basic output,
homes. However, custom home builders exist and flourish even though their prices may be higher.  This
can occur because custom home manufacturers can compete by offering unique solutions custom tailored
to the needs or desires of their end customers.  Such market differentiation allows them to serve a much
smaller, but potentially lucrative market.  Similar mechanisms could  exist for the nonroad equipment
market as well in that a small manufacturer could provide a very specialized version of more generic
equipment type (e.g., a forklift with spark arresters for refinery applications) and could therefore
differentiate itself enough from the main  market to compete effectively.  Again, we do not expect this rule
to change this kind of product differentiation behavior to the extent it already exists.

       In summary then, our observations  in meeting with small equipment manufacturers and our own
understanding of manufacturing processes lead us to conclude that in general small equipment
manufacturers continue to thrive by identifying and serving narrow market niches. They do not directly
compete with larger companies in these niche markets because of the relatively high cost of entry for
large companies or because the economy of scale benefits to large companies do not apply in these
markets.

       We do not believe that the changes in due to the Tier 4 program will substantially impact the
market characteristics described here.  We are not projecting that nonroad equipment manufacturers will
need to become significantly more sophisticated regarding emission control, we expect the engineering
       43 We should note that we are aware of a number of medium to large nonroad equipment manufacturers that
started as small companies and that now compete on a larger scale.  Melrose, now part of Ingersoll Rand, created the first
skid steer loaders marketed under the Bobcat name.  Today, that market and the former Melrose company have grown
significantly. A number of companies now serve the market including some of the largest manufacturers such as
Caterpillar, John Deere, and Case New Holland. Similar small company market innovation and then growth into a much
larger company can be found throughout the industry including, Vermeer, Charles Machine Works and even one of the
best known names, Caterpillar.

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sophistication will continue to reside with their engine supplier as it does today. We do recognize that the
cost to redesign and develop a new equipment model can be expensive and that these expenses can be
burdensome for a small volume manufacturer. We have addressed this specific issue through our TPEM
program which provides up to seven years for small volume equipment manufacturers to continue to use
existing engine models. Even given the relatively narrow market segments served by these companies, it
is likely that they would have to redesign within the seven year period for reasons other than to
accommodate new Tier 4 complaint engines (i.e., they will have to redesign product to remain
competitive in the market). Thus the TPEM program will allow small manufacturers to align their
redesign to accommodate new emission standards and their redesign to offer new features or functions
into a single redesign event rather than two separate redesigns. This should substantially reduce the cost
and burden for these small volume equipment manufacturers. See Chapter 6 of the Final RIA, Section
6.3.3, for additional discussion.

       Finally, the above discussion does not affect our assumption of perfect competition with regard to
the economic impact analysis (EIA) performed for that rule. Niche products are only a small share of the
total nonroad equipment market.  Because most nonroad equipment is produced and sold in competitive
markets or in markets that behave like competitive markets, and because our EIA is a market-level
analysis, it is appropriate to perform our economic impact analysis based on perfectly competitive
markets.
       7.2.6   Commenter Supports the Conclusions of EPA's Draft Economic Impact Analysis

What Commenters Said:

       Breakthrough Technologies Institute commented that the small predicted increase in nonroad
equipment (1 or 2 percent) will have a minimal impact on the demand for this equipment since the cost of
compliance is relatively small compared to the overall cost of construction. This commenter also noted
that the predicted increase in fuel costs (5 to 9 cents) is minimal and comparable to fluctuations that can
occur on a weekly basis.  In addition, EPA's cost numbers are typically overestimated and do not
generally account for technological innovation.

       Letters:
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665
       Los Angeles Public Hearing
                      A-2001-28, IV-D-07  [BTI p. 160]
       Chicago Public Hearing
                      A-2001-28, IV-D-06  [BTI p. 267]

Our Response:

       We appreciate the commenter's support for our methodology and results.
       7.2.7   Commenter Does Not Support the Conclusions of EPA's Draft Economic Impact
               Analysis
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       The Mercatus Center noted that EPA estimates the rule will result in an average engine price
increase of about $1,000 and that engine sales are expected to fall by only 69 units.  This is because EPA
assumes that firms will be able to pass on virtually all compliance costs to end consumers, with the result
that engine and equipment manufacturers will be virtually unaffected by the rule. Even if it were true that
consumers would end up bearing the entire burden of the rule, there will still be economic costs since
these consumers would have less disposable  income to spend on other goods and services. While these
effects are spread among so many firms and be indistinguishable from "noise," they are still economic
impacts that are not considered in the analysis.

       Mercatus also notes that EPA's analysis estimates a 23 percent increase in new engine prices,
which is dependent on EPA's cost estimates. However, a relatively small firm could not survive if prices
increase by only the average cost increase. The result would be a restructuring of the market as a whole.

       Finally, Mercatus notes that the result of the analysis is that compliance cost exceed total social
costs by a small amount. This result is unlikely because there are indirect market adjustments that "add
social costs that equal or exceed the direct compliance costs associated with environmental regulations"
(emphasis in original). EPA's finding that social costs are less than compliance costs implies that there
are indirect effects of the rule that offset the costs of the rule.  The commenter believes that this is
unlikely.

       Letters:
       Mercatus Center, OAR-2003-0012-0627, 0828 p. 39-47

Our Response:

       The Nonroad Diesel Economic Impact Model (NDEIM) uses a multi-market partial equilibrium
approach to track changes in price and quantity for the modeled product markets. As explained in the
EPA Guidelines for Preparing Economic Analyses, 'partial' equilibrium refers to the fact that the supply
and demand functions are modeled for just one or a few isolated markets and that conditions in other
markets are assumed either to be 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. Multi-market analysis attempts to capture at least some of the interactions between markets. In
this model, the burden to consumers of all goods that use affected engines, equipment, and diesel fuel is
modeled at the application market level and is grouped into three categories: agriculture, manufacturing,
and construction.  The loss of producer and consumer welfare at the application market level was
estimated as part of the EIA, and is expected to be about $1,497 million in 2013  ($620.9 million loss of
producer surplus and $875.7 million loss of consumer surplus). Thus, these economic impacts are
considered in the analysis.

       The NDEIM looks at market-level impacts and not at distributive impacts among firms in a
particular sector or subsector.  While it may be the case that, for a particular small firm, the average price
increase may  not cover the firm's increase in costs, it is also the case that the rule provides compliance
flexibility provisions for small firms that will allow it to spread its costs out over more years and
consequently  more units.  In general, the flexibility provisions were designed to minimize  or even
eliminate the  adverse effects of the compliance costs on small businesses.

       Finally, the results of the NDEIM suggest that total engineering costs exceed compliance costs by

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a small amount.  This is due primarily to the fact that the estimated output quantities for diesel engines,
equipment, and fuel are not identical to those estimated in the engineering cost analysis. The difference is
due to the different methodologies used to estimate these costs.  As noted above, social costs are the value
of goods and services lost by society resulting from a) the use of resources to comply with and implement
a regulation (i.e., compliance costs) and b) reductions in output. Thus, the social cost analysis considers
both price and output (quantity) effects associated with consumer and producer reaction to increased
prices associated with the regulatory compliance costs. The engineering cost analysis, on the other hand,
is based on applying additional technology to comply with the new regulations.  The engine population in
the engineering cost analysis does not adjust to reflect consumer and producer reactions to the compliance
costs. Consequently, the estimated output quantities from the cost analysis are slightly larger than the
estimated output quantities from the social cost analysis.
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8.     ALTERNATIVE PROGRAM OPTIONS

What We Proposed:

       For our Notice of Proposed Rulemaking (NPRM), we investigated a number of alternative
program options involving variations in both the fuel and engine programs. The alternatives we
considered can be categorized according to the structure of their fuel requirements:  whether the 15 ppm
fuel sulfur limit is reached in two steps, like the program we are finalizing today, or in one step. This
section is therefore organized broadly into comments related to the one-step fuels program and comments
related to the two-step fuels program.  Section VII of the preamble provides a more detailed discussion of
the alternatives.


8.1    One-Step Alternatives

       One-step alternatives were those in which the 15 ppm fuel sulfur standard is applied in a single
step. We evaluated three one-step alternatives. Option 1 represented an engine program that was  similar
to that in our proposed program, the primary difference being the generally earlier phase-in dates for the
PM standards. We considered the Option  1 engine program as being the most stringent one-step program
that could be evaluated as even potentially feasible considering cost, lead-time, and other factors.  Option
1 also included a June 2008 start date for the 15 ppm sulfur standard applicable to nonroad diesel fuel and
the 500 ppm sulfur standard applicable to locomotive and marine fuel. We also considered two other
one-step alternatives which differed from Option 1.  Option  Ib differed from Option 1 regarding the
timing of the fuel standards, while Option  la differed from Option 1 in terms of the engine standards.
Options la and  Ib also differed from Option 1 by extending the 15 ppm fuel sulfur limit to locomotive
and marine diesel fuel. Comments on sulfur standards applicable to locomotive and marine fuel are
addressed in Section 8.3  below.

       Since support or opposition concerning a one-step approach is closely tied to  opposition or
support concerning our proposed two-step program,  some comments on this subject are presented in
Section 4.3 in the context of discussion about our proposed program. Therefore, the reader is referred to
Section 4.3 for further discussion of these  issues.

       8.1.1   Supports One-Step Approach

       8.1.1.1  Approach Will Achieve Lower Sulfur Levels Earlier

What Commenters Said:

       Several commenters believe that the one-step approach is favorable because it will achieve lower
sulfur levels earlier that the two-step approach. These commenters believe that the two-step approach
unnecessarily delays the  availability of ultra low sulfur diesel fuel for new engines and retrofits of
existing engines and offers a level of flexibility for refiners that may not be necessary. They further
stated that the 15 ppm sulfur cap should be implemented in one step by 2008, or as soon as possible. The
Pennsylvania Department of Environmental Protection noted that new refining technology and processes
are being developed that will reduce the cost and complexity of reducing sulfur levels in diesel fuel and

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that under no circumstances should the 15 ppm standard be implemented any later than 2010.

       The Alliance also commented that we should implement a one-step approach in 2008 since it is
within the Tier 2 timeframe and can help highway ultra-low sulfur diesel supplies during the  critical
introduction period for Tier 2 vehicles and ease distribution of both fuel segments. They also noted that
significant quantities of ultra low sulfur diesel are expected as early as 2004 for the highway  market with
no decrease in volume. The Alliance does not believe that refiners need six years lead-time to convert the
majority of the distillate pool to 15 ppm,  especially given the flexibility and incentives that will be
provided.

       Some commenters noted that, while they strongly prefer a one-step approach, they would
consider a two-step approach under certain conditions (i.e. provided that the proposed schedule is
maintained and/or the baseline approach to implementing the sulfur phase-in is taken).  NY DEC noted
that if the two-step approach is taken, the proposed implementation timeline should not be delayed.  (See
additional discussion under Issues 4.2 and 4.2.1).

       We also received comments stating that the one-step approach would help states achieve
compliance with the NAAQS.  Further, SCAQMD recommended that EPA phase-in the 15 ppm sulfur
standard earlier, to be consistent with the South Coast Air Quality Management District Rule 431.2. The
City of Houston also noted that given the fact that they are already able to procure ultra-low sulfur fuel, it
is disappointing that EPA proposes to implement the fuel sulfur standard in two phases, both of which
come  too late to help with their 2007  attainment of the 1-hour ozone standard or the continue attainment
of the PM standard.

       The Texas Commission on Environmental Quality (TX CEQ) recommends that the 15 ppm
standard be implemented in one step by 2006 since: 1) several areas in Texas will be facing a 2010 or
2013 attainment date under the proposed 8-hour implementation rule, 2) national availability of this fuel
by 2006 would eliminate the need for additional enforcement of nonroad diesel in Texas and California,
and 3) a one-step approach would help maintain the integrity of highway diesel.  They believe that we
should expedite implementation so that all 8-hour ozone nonattainment areas can fully benefit from the
reductions.

       Letters:
       Alliance of Automobile Manufacturers, OAR-2003-0012-0792 p. 2
       City of Houston - Office of the Mayor, OAR-2003-0012-0630 p. 2-3
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 22-23
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 2
       Pennsylvania Department of Environmental Protection, OAR-2003-0012-0699 p. 3
       Regional Air Pollution Control Agency, OAR-2003-0012-0683 p.  2
       South Coast Air Quality Management District, OAR-2003-0012-0623 p. 3, 6
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 9-10
       Texas Commission on Environmental Quality, OAR-2003-0012-0716, 0717 p.  1
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 2-4
       Wisconsin Department of Natural Resources, OAR-2003-0012-0702, 0703 p. 3
       U.S. Public Interest Research Group, OAR-2003-0012-0780 p. 2
       New York Public Hearing
                     A-2001-28, IV-D-05 [ED p. 151; NRDC p. 35; OTC p. 211; STAPPA/ALAPCO

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                      p. 46; U.S. PIRGp. 189]
       Los Angeles Public Hearing
                      A-2001-28, IV-D-07 [ALA p. 111, ALA-CA p. 174, ALA-LA p. 220; CCA p.
                      143; ED p. 93; SCAQMD p. 117; STAPPA/ALAPCO p. 28; U.S. PIRG p. 179]
       Chicago Public Hearing
                      A-2001-28, IV-D-06 [ALA-Chicago p. 284; CAT p. 157; STAPPA/ALAPCO p.
                      38]

Our Response:

       Factoring in lead-time and stability factors associated with both the fuel standards and engine
standards, we believe that the 2-step program provides the greatest emission reductions achievable as
early as possible.

       There would be earlier NOx emission reductions with the one-step approach due to earlier
introduction of aftertreatment technology enabled by the 15 ppm sulfur diesel fuel. However, the two-
step approach provides earlier PM and SO2 emission benefits due to the earlier adoption of the 500 ppm
sulfur standard, and a 1-step approach in 2008 or earlier could jeopardize the successful implementation
of the highway diesel rule.  Moreover, the costs for achieving the second step (15 ppm) of the two step
approach are likely to be lower than under the one step approach. This is because advanced
desulfurization technologies are much more likely to be  used in 2010 after additional testing and
demonstration, while they may hardly be considered at all if they would have to be installed for 2008.
This cost discrepancy is expected to persist since it is associated with the investment of significant capital
which cannot be modified or replaced without significant additional expense. Additionally, under the two
step program, refiners will be able to use their experience in complying with 15 ppm highway diesel fuel
sulfur standard to better design their nonroad hydrotreaters needed for 2010.
       8.1.1.2  One-Step vs. Phase-In

What Commenters Said:

       Some commenters believe that a one-step approach will be easier to implement than phase-in
options. They are concerned that maintaining diesel fuel with different sulfur levels will increase the risk
of cross-contamination, and believe that we should protect the gains made in the highway rule by holding
all diesel fuels to 15 ppm starting in 2007.  These commenters believe that a one-step approach will
reduce the risk of cross-contamination and that the surest method for protecting emission controls from
sulfur contamination is to hold all diesel fuels, including highway, nonroad, locomotive, marine and
heating oil, to a 15 ppm standard as soon as possible.  (See related discussion under Issue 4.2).

       In addition,  Sunoco noted that in many cases, the planning, engineering and permitting
timeframes may be so long that companies will need to begin detailed analysis and design for the 2010
deadline even before 2007 capital projects  are completed.  They believe that areas with an already
complex product slate will experience even greater risk of contamination and supply disruptions. Sunoco
did not provide any additional information on a recommended implementation date.

       Lastly, ARA believes that we should implement a one-step reduction in sulfur to 15 ppm for all

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diesel fuel prior to the introduction of sulfur sensitive controls on nonroad equipment since the presence
of higher sulfur diesel in the market will create a significant risk to rental business equipment owners.

       Letters:
       American Rental Association, OAR-2003-0012-0612 p. 5
       City of Houston - Office of the Mayor, OAR-2003 -0012-0630 p. 3
       Sunoco, OAR-2003-0012-0509 p. 1
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 3
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [CAT p. 184; UCS p. 69]

Our Response:

       Both misfueling and cross-contamination are, we believe, an insignificant concern given the
provisions of the FRM. We have designed the program to limit the number of grades of distillate in 2007
to the same three that resulted from the highway rule: 15 ppm, 500 ppm, and uncontrolled high sulfur.
This approach minimizes complexity and reduces the chances for contamination. By requiring LM fuel
produced by a refinery or imported to meet a sulfur standard of 15 ppm in 2012, we are also reducing the
number of fuel grades that the distribution system must support compared to our proposal in which LM
fuel would remain at 500 ppm indefinitely. We do not have authority to  control heating oil, and thus
cannot eliminate all sources of potential sulfur contamination. We have also built flexibility into the
program to efficiently deal with contamination when it does occur. Today's rule also provides that 500
ppm diesel fuel produced due to interface mixing or transmix processing can continue to be used in
nonroad equipment until 2014, and in locomotive and marine engines indefinitely, or in heating oil. This
generation of 500 ppm diesel fuel will generally occur at the terminal level of the distribution system.
See also our response to Issue 8.1.1.1.

       Misfueling is principally a concern with 2011 and later model year equipment. As a result,
whether our fuels program was implemented in one step or two  steps, by the time the equipment is in the
market, 15 ppm fuel will be required. We are confident that misfueling in 2011 and later will not be a
significant issue, since the vast majority of distillate fuel available nationwide will be 15 ppm, and when
500 ppm fuel is available, it must be carefully segregated and labeled to avoid confusion. Furthermore,
price differentials should be small enough to limit any incentive for intentional misfueling.  See also our
response to Issue 4.3.2.
       8.1.2   Opposes One-Step Approach

What Commenters Said:

       NPRA believes that a one-step alternative would complicate the process of ultimately achieving
an ultra-low sulfur diesel standard. They commented that imposing a one-step 15 ppm ultra low sulfur
diesel limitation on the heels of the compliance deadline for the highway program would interfere with
three primary objectives of the program: 1) maintaining the benefits and program integrity of the highway
diesel fuel program, 2) achieving the greatest reduction in sulfate PM and SO2 emissions from NRLM
diesel engines as early as practicable, and 3) preserving the volume of the total diesel fuel pool. Further,
NPRA stated that a one-step alternative would not allow for the fungible shipment of highway and
NRLM diesel fuel meeting the identical 500 ppm standard after it leaves the refinery.  (See additional

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                                                                Summary and Analysis of Comments
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discussion under Issue 4.2).
       Letters:
       National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 3-4

Our Response:

       As discussed in our response to Issue 8.1.1.1, we are also concerned that a one-step program
could interfere with implementing the highway diesel program. We further recognize that PM and SO2
benefits can be achieved earlier with the final two-step approach compared to a one-step approach. While
we are not convinced that there would be a supply shortage under a one-step program, we believe that
directionally the 2-step program does help  reduce any remaining concerns.  While we acknowledge that
the design of the final two-step program provides greater opportunity for the continued fungible
distribution of 500 ppm highway fuel during the Temporary Compliance Option, a benefit to refiners that
would not be available under a one-step approach. While we are not relying on this as a basis for
adopting the two-step approach, we recognize it as a consequence.
8.2    Other Two-Step Alternatives

       Two-step alternatives were those in which the nonroad diesel fuel sulfur standard was set first at
500 ppm and then was reduced to 15 ppm. The two-step alternatives varied from the proposed program
in terms of both the timing and levels of the engine standards and the timing of the fuel standards. Option
2a was the same as the proposed program except the 500 ppm fuel standard was introduced a year earlier,
in 2006. Option 2b was the same as the proposed program except the 15 ppm fuel standard was
introduced a year earlier (in 2009) and the trap-based PM standards began earlier for all engines. Option
2c was the same as the proposed program except the 15 ppm fuel standard was introduced a year earlier in
2009 and the trap-based PM standards began earlier for engines 175-750 hp. Option 2d was the same as
the proposed program except the NOx standard was reduced to 0.30 g/bhp-hr for engines 25-75 hp, and
this standard was phased in.  Finally, Option 2e was the  same as the proposed program except there were
no new Tier 4 NOx limits.

       Option 3 was identical to the proposed program, except that it would have exempted mining
equipment over 750 hp from the Tier 4 standards. Option 4 included applying the 15 ppm sulfur limit to
both locomotive and marine diesel fuel in addition to nonroad fuel. Comments on the  15ppm sulfur
standard for fuel used in locomotives and marine fuel are addressed in Section 8.3 below rather than in
this section.

       Options 5a and 5b were identical to the proposed program except with respect to standards for
engines less than 75 hp.  Option 5a was identical to the proposed program except that no new program
requirements would be set in Tier 4 for engines under 75 hp. Instead, Tier 2 standards and testing
requirements for engines under 50 hp,  and Tier 3 standards and testing requirements for 50-75 hp engines,
would continue.  The Option 5b program was identical to the proposed program except that for engines
under 75 hp only the 2008 engine standards would be set, i.e. there would be no additional PM filter-
based standard in 2013 for 25-75 hp engines, and no additional NOx+NMHC standard in 2013 for 25-50
hp engines.
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       Apart from comments on a 15 ppm sulfur standard for locomotive and marine diesel fuel (see
Section 8.3 below), the various alternative two-step programs presented in our proposal were not a focus
of the comments received.  Many stakeholders provided comments on the one-step versus the two-step
fuel program, and these are discussed in Section 4.3 in the context of support or opposition concerning
our proposed two-step fuel program, or in Section 8.1 in the context of opposition or support concerning
the alternative one-step fuel program.  The few comments related to two-step alternatives to our proposed
program are presented below. Our proposal provided a discussion for why we were  not proposing a
program incorporating the various elements exhibited by Options 2a through 5b. With the exception of
Option 4(15 ppm locomotive and marine fuel, discussed in Section 8.3 below),  we have concluded that
these Options should not be finalized, as described in the preamble.
       8.2.1   Option 2b

What Commenters Said:

       The Clean Air Task Force (CATF) urged EPA to adopt Option 2b.  EPA's proposal not to
advance the Tier 4 PM compliance dates by a year as set out in Option 2b appears to be primarily based
on EPA's concern that the PM standards would be decoupled from the NOx standards, resulting in a large
increase in engineering workload for engine and equipment manufacturers.  We offer several responses to
EPA's concern. First, these additional engineering costs have been included in EPA's incremental cost
analysis of Option 2b, and as mentioned above, those costs are far outweighed by the incremental
monetized benefits—by a factor of over 13. Second, we believe that it will be feasible to pull-ahead the
Tier 4 NOx standards by a year as well, so that they will coincide with the Tier 4 PM standards. The key
issue for NOx control is the development of NOx adsorbers for highway engines by 2007.  There is
nothing fundamentally different or unique about applying NOx adsorber technology to nonroad engines
thereafter. Therefore, CATF urged EPA to advance the Tier 4 NOx standards by beginning the 50%
phase-in a year earlier than set forth in the Nonroad Proposal and requiring  100% compliance by the end
of2012.

       Letters:
       Clean Air Task Force, et. al, OAR-2003-0012-0508 p. 13

Our Response:

       This comment is closely related to comments we received on the timeline for program
implementation. Our response to all these comments can be found at Issue 3.1.1.4.  In addition, we
continue to believe that moving the start date of the 15 ppm nonroad standard forward by one year, a
prerequisite for advancing the start date of trap-based PM standards,  is not appropriate. For instance,
moving up the  15 ppm standard for nonroad diesel fuel by one year would make the nonroad diesel fuel
sulfur program more stringent than the highway diesel fuel sulfur program, which does not require 100%
of highway diesel fuel to meet a 15 ppm cap until June 1, 2010.  Some of the synergies obtained by the
proposed program would also be lost.  Also, the three  year interval between the 500 ppm and  15 ppm caps
for NR diesel fuel is roughly equal to the life of a desulfurization catalyst.  Thus, many refiners would be
bringing their 500 ppm desulfurization unit down for catalyst replacement right about the time that the
additional equipment needed to meet the 15 ppm cap would need to be tied in. Implementing the 15 ppm
cap one year earlier would require refiners to either replace their existing catalyst earlier than necessary or

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                                                    Control of Emissions from Nonroad Diesel Engines
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bring the unit down the next year again for another catalyst replacement.  Comments we received on our
proposal have not changed our views on this issue, and thus we are not finalizing Option 2b.
       8.2.2   Option 3

What Commenters Said:

       The Roundtable supports Option 3, based on the unique and customized nature of mining
equipment engines. The Roundtable also requests that EPA provide a specific cost-benefit
analysis of the continued exemption for this sector.

       Letters:
       Western Business Roundtable, OAR-2003-0012-0636 p. 4

Our Response:

       We do not agree with the commenter's suggestion not to apply Tier 4 standards to above-ground
mining equipment (i.e. option 3). We explained at length at proposal why this option was unwarranted at
section 12.6.2.2.7 of the Draft RIA, and briefly summarize that response here. Mining engines have
already been held to be properly subject to regulation under section 213, Engine Manufacturers Ass'n v.
EPA. 88 F. 3d 1075, 1098 (D.C. Cir. 1996), and we  are finding in this rule that further reduction in PM
and NOx emission from these engines is technically feasible at reasonable cost.  These engines emit very
high volumes of PM and NOx, notwithstanding that they are sold in relatively small numbers. We have
taken into account these engines' long design cycle and low annual sales volume in the long lead time
provided in the rule, which includes the ABT and equipment manufacturer flexibility programs.

       We note further, however, that we have made certain changes in the proposed standards for these
engines.  While retaining aftertreatment-based standards for PM for all greater than 750 hp engines, we
are increasing the level of those standards based on technical concerns. We also are deferring a decision
on whether to adopt an aftertreatment-based standard for NOx from greater than 750 hp engines in mobile
machines, which would include aboveground mining equipment.
       8.2.3   Options 5a and 5b

What Commenters Said:

       The SBA Office of Advocacy urges the EPA to adopt either Option 5a or 5b in order to minimize
burdens on small entities pursuant to the RFA and the President's Executive Order 13272. SBA Office of
Advocacy believes that a large number of small manufacturers of equipment will be negatively affected
by aftertreatment requirements for engines below 75 horsepower. Also, SBA Office of Advocacy noted
that EPA is within its statutory discretion in reducing emissions for engines above 75 horsepower alone.
SBA Office of Advocacy believes that the information developed during the exhaustive SBAR Panel
process supports the adoption of the least burdensome alternatives, Options 5a or 5b. SBA Office of
Advocacy noted that these alternatives resulting from the SBAR Panel process described above would
achieve essentially the same emissions reductions as EPA's proposed regulatory approach while imposing

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significantly less regulatory burden upon small entity equipment manufacturers. SBA Office of
Advocacy recommended that EPA adopt Option 5a or 5b because: (1) the incremental benefits of
requiring aftertreatment for smaller engines do not justify the large differences in cost, (2) EPA has not
demonstrated the technical feasibility of aftertreatment technology for nonroad  diesel engines below 75
hp, and (3) small entities will bear an unfair and disproportionate share of the economic costs associated
with this rule.

       Letters:
       U.S. Small Business Administration Office of Advocacy, OAR-2003-0012-0815--0818, p.  10

Our Response:

       See our response to Issue 3.1.4.3 for a detailed response to this comment. As discussed in our
responses to Issue 3.1.4.2 and 3.5.3, we continue to believe that aftertreatment-based PM standards are
feasible for these engines with the lead time provided.  As set out in detail in RIA 4.1.4.3.2.1, there is no
technical reason that the standards cannot be achieved. The ability of a PM filter to trap and eliminate
nearly all of the soot PM in the exhaust is well established and is not a function of engine power.  Due to
their typically lower fuel efficiency, some smaller engines do have a somewhat higher production rate of
sulfate PM, which is not well controlled by a PM filter. However, this is addressed through the virtual
elimination of sulfur in diesel fuel and, for the small residual amounts of sulfur left in the fuel, through
our setting a higher Tier 4 PM standard level for under 75 hp engines compared to larger engines.  We
also explain in detail in the RIA how we expect these engines' exhaust temperature profile can be adapted
to ensure regeneration of PM filters used by these engines, and our cost estimates include the cost of
active regeneration systems for these engines to accomplish this.  We also show that there are no
significant issues regarding feasibility of equipment design or of safety for these engines. For additional
responses to comments on technological feasibility, see Issues 3.1.4.2 and 3.5.3. EPA already responded
to the commenter's assertions that additional PM standards for 0-75 hp engines are not warranted for
reasons of cost or cost effectiveness at sections 12.5.7,  12.5.8, 12.6.2.2.9, and 12.6.2.2.10 of chapter 12 of
the draft RIA.  The commenter chose not to address that response in its public comment.
8.3     15 ppm Standard for Locomotive and Marine Diesel Fuel

        In the NPRM, we requested comment on extending the 15 ppm cap to locomotive and marine
diesel fuel beginning in the 2010-2012 timeframe. The costs and inventory impacts of this alternative
were explored in the context of Option 4 in the NPRM.

        8.3.1   Support for 15 ppm Locomotive and Marine Diesel Fuel in this Rule

        Several commenters believe that we should impose more stringent sulfur standards to diesel fuel
used in marine and locomotive engines in this rulemaking.  They believe that the application of the
proposed fuel standards to marine and locomotive engines will provide a significant benefit to public
health since these engines comprise a significant portion of diesel emissions from the nonroad sector.
STAPPA/ALAPCO added that the 500 ppm sulfur cap is inadequate and that we should adopt a fuel
sulfur standard for locomotive and marine diesel fuel that would require 500 ppm fuel sulfur in 2007 and
15 ppm fuel sulfur by 2010. CATF supports the one-step approach, and suggested that we require ultra-
low sulfur diesel fuel for marine diesel engines and locomotives by 2009 and should include this standard

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                                                   Control of Emissions from Nonroad Diesel Engines
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as part of the final rule.
       In regards to public health concerns, the Sierra Club noted that since many railroad networks pass
through lower income areas in Chicago and elsewhere, reducing emissions from locomotive sources will
be important for ensuring environmental justice. ALA noted that this approach would provide much
needed reductions in nonattainment areas and NRDC added that requiring 15 ppm sulfur levels in
locomotive and marine diesel fuel would cut roughly 1,000 additional tons/year of diesel soot, and
provide additional sulfate PM and SO2 emission reductions with benefits that far outweigh the costs.
Environmental Defense cited to the significant emissions contribution of these sources; locomotive
engines comprise 27 and 10 percent of the nonroad diesel inventory for NOX and PM2.5, respectively; and
marine engines comprise 18 percent of the nonroad inventory for PM2.5.  They added that marine vessels
account for 48 tons per day of NOX emissions in the LA basin and generally are a significant and
undercounted source of air pollutants.  Environmental Defense provided additional discussion on this
issue, noting the significance of the emissions contribution and the quantity of marine fuel consumed. In
addition, they offered supporting documentation: 1) Emissions from Waterborne Commerce Vessels in
United States Continental and Inland Waterways, Environ. Sci.  Technol. 2000, 34, 3254-3260, and 2) In-
Use Marine Diesel Fuel, EPA420-R-99-027 (August  1999). In  support of the application of the fuel
sulfur standard to locomotive fuels, Environmental Defense cited report by the Southwest Research
Institute, "Diesel Fuel Effects on Locomotive Exhaust Emissions," (October 2000, SRI 08.02062).

       MECA and UCS believe that requiring a 15 ppm sulfur fuel for marine and locomotive engines
would open the possibility for the use of advanced emission control technologies that are going to be used
on other categories of nonroad and highway engines and would lead to significant NOX and PM
reductions. UCS also noted that locomotive and marine engines contribute approximately 22 percent of
the PM and almost half of the NOX emissions from nonroad engines.

       The American Trucking Association commented that we should apply the 15 ppm standard to the
marine and locomotive market, provided fuel availability, cost and purity are not negatively impacted.
Further, NRDC and NY DEC specifically commented that requiring 15 ppm sulfur in locomotive and
marine diesel fuel would require minimal additional investment by the oil industry, but would create
significant economies of scale for refiners, would simplify the fuel distribution system and the overall
design of the fuel program, and would minimize the potential for misfueling or supply problems. They
believe that this approach will also make the proposed use of Solvent Yellow 124 or other marking
technology superfluous, thus simplifying the baseline issue and streamlining the regulatory activities of
refiners and EPA.

       Letters:
       American Trucking Association, OAR-2003-0012-0632 p. 6
       Building and Construction Trades Dept, AFL-CIO, OAR-2003-0012-0674 - 0676 p. 2, 4
       California Air Resources Board, OAR-2003-0012-0644 p. 7
       Clean Air Council, OAR-2003-0012-0613 p. 2
       Clean Air Task Force, et. al., OAR-2003-0012-0508 p.  15-16
       Environmental Defense, OAR-2003-0012-0821 p. 11-13, 15-16
       Illinois Lieutenant Governor Pat Quinn, OAR-2003-0012-0781 p. 5
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p.  10
       Massachusetts Department of Environmental Protection, OAR-2003-0012-0641 p. 2
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 14

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       NESCAUM, OAR-2003-0012-0659 p. 11
       New Hampshire House of Representatives, OAR-2003-0012-0126 p. 1
       New York City Office of Environmental Coordination, OAR-2003-0012-0631 p. 2
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 14
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 3
       Oregon Department of Environmental Quality, OAR-2003-0012-0779 p. 2
       Pennsylvania Department of Environmental Protection, OAR-2003-0012-0699 p. 3
       Regional Air Pollution Control Agency, OAR-2003-0012-0683 p. 2
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 11
       San Joaquin Valley Air Pollution Control District, OAR-2003-0012-0695 p. 1-2
       Texas Commission on Environmental Quality, OAR-2003-0012-0716, 0717 p. 1
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 4
       U.S. Public Interest  Research Group, OAR-2003-0012-0780 p. 2
       Western Regional Air Partnership,  OAR-2003-0012-0774, 0775 p. 2
       Wisconsin Department of Natural Resources, OAR-2003-0012-0702, 0703 p. 3
       92,308 Public Citizens
       1,476 Public Citizens
       New York Public Hearing
                     A-2001-28, IV-D-05 [ALA p. 112; ATA p. 169;CARBp. 141; CATF p. 238;
                     ED  p. 152; MECA p. 119; NESCAUM p. 99; NRDC p. 32; NY DEC p. 15; NY
                     PIRGp. 133; OTCp. 214;  STAPPA/ALAPCO p. 47; U.S. PIRGp. 188; W.
                     Harlem EA p. 261]
       Los Angeles Public Hearing
                     A-2001-28, IV-D-07 [ALA- LA p. 220; CARB p. 14; CERA p. 78; CAT p. 184;
                     CBE p. 136; ED p. 93; LAP p. 254; MECA p. 61; NRDC p. 54;
                     STAPPA/ALAPCO p. 29; U.S. PIRGp. 178; UCS p. 68]
       Chicago Public Hearing
                     A-2001-28, IV-D-06 [ALA- Chicago p. 285; CATF p. 261; CAT p. 153; ELPC
                     p. 251; MECA p. 48; NPS p. 214; OEC p. 293; STAPPA/ALAPCO p. 39; Sierra
                     Club p. 167; SACE p. 183; U.S. PIRG p. 12]

Our Response:

       We agree that a 15 ppm sulfur cap for locomotive and marine fuel would provide an important
increase in the long-term PM and SO2 benefits of the rule. As described in Section 4 of the preamble, we
believe that a 15 ppm sulfur standard for fuel used by locomotives and marine engines is technologically
feasible and practical for refiners. We have determined that the full fuel program, including the 15 ppm
sulfur standard for locomotive and marine fuel, is cost-effective, that the monetized benefits of even this
last increment outweigh the costs, and that the costs do not otherwise warrant delaying this second step
for locomotive and marine.  It will also simplify the fuel distribution system and overall design of the fuel
program.

       Thus we are finalizing a 15 ppm standard for locomotive and marine fuel starting June 1, 2012,
along with the nonroad diesel fuel standards starting June 1, 2010. However, given the complete program
that we are finalizing today,  there will still be a need for a fuel marker.  500 ppm sulfur small refiner and
credit fuel will still be in the market until 2014.  Offspec product in the distribution system not meeting a
15 ppm standard will also be permitted for sale to nonroad, locomotive, and marine markets until 2014,

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                                                    Control of Emissions from Nonroad Diesel Engines
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and to the locomotive and marine market after that. Heating oil will remain uncontrolled. A fuel marker
will still be needed to identify fuel produced for heating oil purposes rather than nonroad, locomotive, or
marine markets.  It will also be needed to identify 500 ppm sulfur fuel produced or imported  for the
locomotive and marine market rather than the nonroad market, during 2010 - 2012.  The marker will not
be required in certain Northeast areas as well as Alaska, see section IV of the preamble for more
discussion on this issue.
       8.3.2   Oppose 15 ppm Standard for Locomotive and Marine Diesel Fuel

What Commenters Said:

       A number of commenters believe that we should not impose more stringent fuel sulfur standards
on fuel used for marine and locomotive engines in this rulemaking. They believe that sulfur reductions to
locomotive diesel without the availability and application of the appropriate aftertreatment technology
would provide negligible environmental benefits, and would adversely affect fuel supplies.  API noted
that a reduction in sulfur content to 15 ppm for locomotive and marine fuel without concurrent changes to
engine standards that require the use of aftertreatment would be inconsistent with EPA's recent
fuel/engine systems approach to emission reduction regulations. BP added that additional time will allow
for further advances in hydrotreating technology, hydrotreating catalysts and sulfur removal techniques
that may reduce the overall cost of desulfurization. Some commenters (AAR, API, BP, Marathon, BNSF,
NPRA, Flint) also noted that the marine and locomotive market will provide a valuable outlet for higher
sulfur distillate during upsets and turnarounds, and that tight distillate supplies would be exacerbated by
requiring LM fuel to meet a 15  ppm sulfur standard.

       The Association of American Railroads (AAR) and Burlington Northern Santa Fe Railroad
(BNSF) commented that railroad engines do not currently use technologies that require the use of low
sulfur fuel since the use of these technologies on locomotive engines is not practical.  They add that
locomotive engines are much larger and operate at a much lower engine speed than trucks and
construction equipment, and further, these engines operate in narrow tunnels with little room for
clearance and are often operated with the engines in trailing units that get very little air.  As a result,
emissions reducing engine technology from other engine families cannot always be transferred to
locomotive engines with the same effectiveness. Emissions from the lower speed locomotive engines are
not reduced through the use of low sulfur fuel to the same degree as for other higher speed nonroad
engines. AAR and BNSF believe that due to the technological constraints and the minimal benefits that
would result from the use of low sulfur fuel, we should not require the railroad industry to use 15 ppm
diesel.  They added that treating all diesel fuel users the same would cause the railroad industry to spend
significantly more for fuel with minimal air quality benefits.

       AAR and BNSF also asserted that the railroad industry is a relatively environmentally friendly
form of transport on a ton per mile basis and has already taken action to reduce emissions from
locomotive sources. They noted that the railroad industry has agreed to retrofit engines built after  1972 to
reduce NOX emissions 33 percent from the baseline non-regulated engines. In addition, BNSF and Union
Pacific also have agreed to a fleet average in the SCAQMD, the only such agreement in the country and
would represent a 100 percent scrappage program over a five-year period.  They believe that imposing the
15 ppm standard on locomotive fuel is unnecessary and would lead to minimal environmental benefit.
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       AAR, BNSF, and GE Transportation Systems believe that imposing a standard absent a
technology need would be disproportionately expensive. They added that using such cost-ineffective
methods to reduce emissions from locomotives could exacerbate emissions and pollution overall by
diverting business away from railroads, which are a relatively environmentally friendly mode of transport.
GE also commented that there is no basis for concluding that such low sulfur fuel will be needed to meet
Tier 3 locomotive emissions standards since EPA has not yet issued an ANPRM on these standards, and
that even in the event that Tier 3 standards are adopted, the existing fleet would still not require
aftertreatment and could be adversely affected by the use of low sulfur fuel.

       GE further states that the use of low sulfur fuel (500 ppm or 15 ppm) in the absence of
aftertreatment devices could actually lead to increased PM emissions. They provided additional
discussion on this issue, noting that the testing conducted by SwRI cannot be used to conclude that the
use of low sulfur diesel alone would reduce emissions since these data were based on only two
locomotive types that are not representative of the entire fleet.  (They cited "The Effect of Diesel Fuel
Properties on the Combustion of a Medium Speed Diesel Engine," by Bertrand D. Hsu ad John G.
Hoffman, Jr., presented at the Energy Sources and Technology Conference and Exhibition, Dallas, TX,
February 17-21, 1985 to support this comment.)

       GE also believes that a 500 ppm or 15 ppm sulfur standard for locomotive and marine diesel fuel
is likely to compromise the reliability and performance of the engine, and in particular, will result in leaks
in older locomotives. They noted that this was experienced when low sulfur fuels were introduced in the
on-highway heavy duty truck industry. They stated that composition of higher sulfur fuel causes  seals to
expand over time and when lower sulfur fuel is introduced, the seals will contract leading to fuel leaks,
which results in the locomotive being taken out of service, which could be very damaging to  the railroad
industry. GE provided additional discussion on this issue in their public comments and asserted that there
is insufficient evidence to support the conclusion that locomotive engines can be fueled continuously with
either 500 ppm or 15 ppm diesel fuel. Lastly, GE commented that our statement that reduced sulfur will
actually save money by reducing oil change intervals does not apply to locomotives. (See related
discussion under Issues 5.1 and 9.3.3.)

       Finally, API and Marathon commented that EPA's cost estimates for reducing sulfur  in
locomotive/marine diesel fuel from  500 ppm to 15 ppm  may not be accurate. They believe that EPA has
arbitrarily split the incremental $1.8 billion in fuel costs between PM and SO2.  Since  the PM reductions
under the proposal are more costly than SO2 reductions, a 4 to 1 prorating of the increased fuel costs
might be more appropriate.  This would result in a nearly $160,000/ton cost for PM and a $3,100/ton for
SO2.  Thus, the commenters stated, both incremental costs are at least 15 times larger than those in the
proposal.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 2, 39
       Association of American Railroads, OAR-2003-0012-0700, 0701 p. 1-3
       BP, OAR-2003-0012-0649 p. 1
       Chevron, OAR-2003-0012-0782 p. 1-2
       ConocoPhillips, OAR-2003-0012-0777 p. 2
       ExxonMobil, OAR-2003-0012-0616 p. 2, 9
       Flint Hills Resources, OAR-2003-0012-0667 p. 4-5
       Frontier Oil Corporation, OAR-2003-0012-0621 p. 1

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       General Electric Transportation Systems, OAR-2003-0012-0784 p. 1-8
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 1-2, 35
       National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 3, 13-14
       Tesoro, OAR-2003-0012-0662 p. 1-2
       Western States Air Resources Council, OAR-2003-0012-0711 p. 2
       New York Public Hearing, A-2001-28, IV-D-05 [API p. 19; AARp. 196; NPRA p. 83]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [API p. 41; BNSF p. 210]
       Chicago Public Hearing, A-2001-28, IV-D-06 [API p. 86; BP p. 171; NPRA p. 18]
       1 Public Citizen

Our Response:

       As discussed in the preamble, we believe that extending that 15 ppm sulfur standard to
locomotive and marine (LM) fuel is appropriate based on a full evaluation of the emission reductions
achieved and the associated public health and welfare benefits, technological feasibility, and cost.
Locomotives and marine engines contribute substantially to off-highway PM and SO2 inventories as
described in Section 3 of the RIA. For instance, the annual PM25 emissions inventory from locomotive
and marine engines is approximately 30% as large as the PM25 inventory from nonroad engines.
Likewise the annual SO2 emissions inventory from locomotive and marine engines is approximately 40%
as large as the SO2 inventory from nonroad engines.  Our program for NRLM fuel reduces more than
16,000 tons of PM25 from nonroad engines and more than 6,000 tons of PM25 from locomotive and
marine engines in 2015, in addition to dramatic reductions in SO2 from these engines.  These
environmental benefits are substantial and highlight the value for controlling emissions from these
sources.

       We are finalizing the 15 ppm sulfur standard for locomotive and marine diesel fuel, along with
nonroad diesel fuel, for several reasons.  First, it will  provide important health and welfare benefits from
the additional sulfate PM and sulfur dioxide emission reductions as early as possible.  Second,  it is
technologically feasible, as it is for nonroad diesel fuel. Third, the benefits outweigh the costs  and the
costs do not otherwise warrant delaying this second step for locomotive and marine. Finally, it will
simplify the fuel distribution system and overall design of the fuel program. We are not justifying the  15
ppm standard for LM fuel in this rulemaking on its value  for enabling aftertreatment technologies in
future locomotives. However, as described in  our response to Issue 8.3.3, we plan to publish an
Advanced Notice of Proposed Rulemaking soon describing our plans in this area.  See Section  IV. A of
the preamble for additional discussion of our full justification for the 15 ppm standard for LM fuel.

       The extension of the 15 ppm standard  to LM fuel produces important public health and welfare
value benefits. As shown in Chapter 8.7 of the RIA, the incremental reduction in fuel sulfur content from
500 ppm to 15 ppm in 2015 reduces PM25 by more than 700 tons and SO2 by more than 14,000 tons.
While these reductions are a minor proportion of the reductions generated from the full program
(approximately 53,000 tons PM25 and 297,000 tons SO2 in 2015), the reductions produce significant
benefits which exceed the costs.

       As described in Appendix 5.A, we have legal authority to control the sulfur content of LM fuel
without concurrently setting new engine standards. EPA  will explore the fuel/engine systems approach as
in recent rulemakings as one way to maximize the environmental benefits of a program. However, a fuel-
based standard is also an important approach to protect human health and the environment by reducing

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emissions from mobile source engines and vehicles. For example, the first step to 500 ppm sulfur for LM
is not associated with new engine standards, and achieves important public health and welfare benefits.
The second step to 15 ppm is also appropriate in this case.  We do recognize that a 15 ppm LM standard
may also enable aftertreatment for locomotives. Therefore, as described in our response to Issue 8.3.3,
we plan to publish an Advanced Notice of Proposed Rulemaking soon describing our plans in this area.
However, the 15 ppm standard for LM fuel in this rule is not based on enabling aftertreatment technology
but is justified separately.

        Some commenters argued that additional time is necessary in order to evaluate advanced
hydrotreating technologies for producing 15 ppm locomotive and marine fuel. This rule will provide
refiners and importers with more than eight years before they would have to begin complying with the 15
ppm cap for LM diesel fuel on June 1, 2012. Our lead time analysis, which is presented in the RIA,
projects that 30-39 months are typically needed to design and construct a diesel fuel hydrotreater, perhaps
less if it is a Process Dynamics unit.44 Thus, refiners will have about five years before they would have to
begin detailed design and construction. This lead time is fully sufficient for refiners to plan their
operations.

        Just over three quarters of the refiners likely to produce 500ppm sulfur NRLM diesel fuel in 2007
are already well into their planning for meeting the 15 ppm highway diesel fuel standard, effective June 1,
2006. Based on pre-compliance reports, we know that many refineries will be producing 100% of their
diesel fuel to 15 ppm beginning in 2006, and thus will have demonstrated that maintaining a higher sulfur
grade is not necessary to the successful operation of a refinery. It is likely that these refiners have already
chemically characterized their high sulfur diesel fuel blendstocks, as well as their highway diesel fuel, for
potential desulfurization. They will also have already assessed the various technologies for producing 15
ppm diesel fuel and have a good idea of how to design their 500 ppm sulfur NRLM hydrotreater to be
revampable to meet the 15 ppm NR diesel fuel cap starting in 2010 and the 15 ppm LM diesel fuel cap
starting in 2012.  Additionally, the refiners producing 15 ppm NRLM fuel will be able to take advantage
of the experience gained from the highway refiners, especially those NRLM producers who are able to
defer  complying with the program due to the use of credits or the small refiner provisions.

        In evaluating the appropriateness of applying the 15 ppm sulfur standard to locomotive and
marine fuel, we have projected that refiners would be making use of a combination of conventional and
advanced desulfurization technology. Although it is true that delaying the requirement for 15 ppm LM
fuel beyond 2012  might allow some more advanced desulfurization technologies to be implemented in the
long run, it is also true that setting the standard now allows refiners to coordinate their desulfurization
operations to apply to highway, nonroad, and LM fuel in parallel instead of doing them in series. This
coordination is generally expected to increase efficiency and thus reduce costs.

        Some commenters argued that a 15 ppm sulfur standard for locomotive and marine fuel will
eliminate this portion of the distillate pool as an outlet for high sulfur distillate. We have addressed this
concern through other means. The Northeast/mid-atlantic and Alaska heating oil markets will continue to
provide such an outlet, and today's rule also provides that 500 ppm diesel fuel produced due to
contamination and interface mixing in the distribution system can continue to be used in nonroad,
locomotive, and marine equipment until 2014, and in  locomotive and marine engines after that date
        1 "Highway Diesel Progress Review," USEPA, EPA420-R-02-016, June 2002.

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outside these areas.  In response to concerns about offspec batches produced by refiners, we also
considered allowing refiners to sell a small fraction of their diesel fuel production as 500 ppm without the
use of credits in order to provide additional flexibility for offspec fuel. However, refiners informed us in
discussions that such an option was not helpful. As a result, we are not finalizing such a provision. We
note that refiners are still able to mitigate offspec batches through the use of credits and also have the
option of downgrading offspec product to the heating oil market. These provisions ensure that there will
be a sufficient outlet for refiners of such offspec diesel fuel during the first several years of the 15 ppm
LM program. These provisions also serve to eliminate much of the need for refiners to otherwise
reprocess offspec product, thereby maintaining refinery capacity and preserving overall supply.
Additional discussion of the provisions that will help to ensure adequate supply can be found in Section
IV.A of the preamble.

       When EPA adopted a 15 ppm sulfur standard for highway diesel fuel, we included several
provisions to ensure a smooth transition to 15 ppm sulfur highway fuel. One provision was a temporary
compliance option,  with an averaging, banking and trading component. In a similar manner, the 2012
deadline  for 15 ppm sulfur LM fuel, the last, relatively small segment of diesel fuel, will help ensure that
the entire pool of diesel fuel is smoothly transitioned to the 15 ppm sulfur level over a short period of
time.

       Setting a 2012 deadline for this relatively small remaining segment of regulated diesel fuel will
allow refiners a limited period of additional time to ensure that their production processes are optimized
for production of ultra low sulfur diesel fuel.  During this time period, offspec production generated
during upsets, turnarounds or other production problems can still be marketed by refiners as locomotive
and marine diesel fuel. It will also allow a short period of additional time  for completion of capital
investments and the related scheduling of engineering and construction resources.  In combination this
has the potential to avoid unexpected pressures on fuel supply and to reduce costs somewhat.  In sum,
setting a  2012 deadline for production of this last portion of the pool of ultra low sulfur diesel fuel will
help ensure a smooth transition by the refining industry to producing ultra low sulfur diesel fuel for the
entire pool of regulated diesel fuel. For similar reasons, EPA is extending for two additional years the
time period in which early credits may be used. This affects only the time period in which such credits
can be used, not the generation of such credits.

       GE's assertion that PM emissions from locomotives could increase as a result of using 15 ppm
sulfur fuel is based on theoretical combustion impacts that, if true, would apply to any diesel engine.
However, GE did not present any data to support the  concept that PM emissions would in fact increase,
for locomotives or other nonroad engines. In addition, GE made reference to a study by Hsu and
Hoffman that show decreases in PM emissions when fuel sulfur content was reduced.  We continue to
believe, based on the information available to us, that reductions in sulfur content of diesel fuel will result
in reductions in PM in locomotive engines, in particular through the reduction of sulfate PM.  In addition,
we do not believe that the emission benefits of low sulfur are significantly different for low speed
locomotives than for higher speed nonroad engines. All fuel sulfur reductions manifest as a combination
of sulfate PM and SO2 emission reductions, and the rate of those emission reductions is a function of the
fuel consumption rate. Slower speed engines tend to have lower specific fuel consumption than higher
speed engines, but this potential difference between locomotives and other engines has already been taken
into account in the inventories. Also, the fraction of sulfur which becomes sulfate PM, as opposed to
SO2, should be largely independent of the speed of the engine.  Thus we continue to believe that the PM
benefits of the 15 ppm standard should be essentially the same, on a per gallon basis, for locomotives and

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                                                    Control of Emissions from Nonroad Diesel Engines
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nonroad engines.
       Regarding the concern about seal shrinkage due to the use of 15 ppm fuel, we note that seal
shrinkage is tied most specifically to aromatics levels, not sulfur.  Reductions in sulfur using conventional
desulfurization technologies do often result in some reductions in aromatics, but advanced desulfurization
technologies may have little or no impact on aromatics. Most nonroad engines, including locomotives
manufactured or rebuilt since the introduction of the 500 ppm sulfur standard have been designed to
tolerate lower sulfur levels.  As described in the proposal, we believe that no issues with leaking fuel
pump O-rings would occur with the changes in diesel fuel sulfur levels contained in this final rule because
while we do believe PNA content will be reduced, we are not predicting it will achieve the near-zero level
experienced in California where the leaks cited by the commenter usually occurred. Furthermore, we
note that the issue about seal leakage is not unique to a decision to control locomotive and marine fuel to
15 ppm sulfur.  See our discussion about seal leakage in nonroad engines at Issue 3.10.3, since the seal
leakage issue for nonroad engines is essentially the same as the seal leakage issue for locomotive and
marine engines.

       Given the limitations of the distribution system today, a significant portion of fuel used in
locomotives is produced to the 500 ppm highway standard. In the future this spillover will be 15 ppm
fuel, as acknowledged by representatives from AAR in face-to-face conversations. We estimate that even
without a 15 ppm standard for locomotive and marine fuel, 17% would be 15 ppm anyway. Thus any
concerns about the use of 15 ppm diesel fuel in locomotives with regard to seal leakage would have arisen
even in the absence of a 15 ppm standard for LM fuel.

       Regarding oil change intervals for locomotives, we have estimated the extension of oil-change
intervals realized by 500 ppm  sulfur fuel in 2007 and the additional extension resulting from  15 ppm
sulfur fuel in 2012. These estimates are based on our analysis of publically available information from
nonroad engine manufacturers, and our conclusions regarding average cost reductions from lengthened oil
change intervals recognize that some engines may have higher cost savings while other engines will have
lower cost savings. We estimate that reducing fuel sulfur to 500 ppm will reduce engine wear and oil
degradation to the existing fleet of nonroad diesel engines, as well as locomotive and marine diesel
engines.  Reducing fuel sulfur to 15 ppm will further reduce engine wear and oil degradation.  The types
of benefits expected are shown in Table 6.2-28 in the preamble, and Table 6.2-29 includes our full
analysis of the cost reductions associated with reduced oil change intervals for locomotives.  We did not
receive any comments which questioned our analysis or the factors used in it.

       GE referenced a 1993  study discussing deterioration of insolubles in locomotives, but only
concluded that insolubles could increases if the engine timing was retarded. We do not consider this
comment to be directly germane to the impact of reduced sulfur on oil change intervals, since it mixes
fuel changes with engine calibration changes. Therefore, we  continue to believe that it is appropriate to
estimate increases in  oil change intervals for locomotives when 15 ppm sulfur fuel is introduced.

       In response to API and Marathon's comment regarding the cost effectiveness of reducing fuel
sulfur from 500 ppm  to 15 ppm, we note that because the new fuel and engine emission standards will
reduce emissions of several different pollutants (i.e., NOx, PM, NMHC, and SOx), we have attempted to
allocate the various estimated costs to emission reductions of specific pollutants (this is discussed in more
detail in Chapter 8 of the RIA).  This apportionment of costs by pollutant allows us to calculate the
average cost per ton of emission reduction resulting from this rule. Table 8.1-2 of the RIA summarizes

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the allocations we have used in the final rule.  Deciding how to apportion costs can be difficult even in the
case of technologies that, on the surface, seem to have an obvious split by which their costs should be
attributed. For instance, we have apportioned 100 percent of the cost for CDPF technology to PM even
though CDPFs are expected to reduce NMHC emissions significantly. For fuel-related costs in the
context of evaluating emissions reductions based solely on the fuel control and not on new engine
emission standards, the costs for the reduction of uncontrolled sulfur levels to 15 ppm in a two-step
process have been apportioned one-third to PM and two-thirds to SOx. This is different than the
allocation of costs for the proposed program where we allocated 100 percent of the cost of uncontrolled to
500 ppm to SOx control, but is consistent with how we allocated costs for the 500 ppm to 15 ppm LM
increment in the proposal.

       We believe that our one-third/two-thirds allocation used in the final rule and the proposal's
analysis of the 15ppm LM increment is the most appropriate method. The lower sulfur fuel provides for
substantial PM and SOx reductions, even without new engine standards, and although about 98 percent of
fuel borne sulfur is exhausted as SOx, and only two percent is exhausted as PM, the PM reductions  have
much higher human health benefits relative to SOx reductions. The 33/67 split between PM/SOx that we
have chosen to use throughout the final rule provides the most appropriate balance while recognizing that
there is no single split that is clearly right and others clearly wrong. The 4-to-l prorating of fuel costs
suggested by API assumes that PM reductions resulting from fuel  sulfur reductions are more  costly  than
SOx reductions. We do not believe this is a valid basis for assigning costs to the two pollutants. Since
this assumption presumes a priori that $/ton values for PM are very different from $/ton values for SOx
when reductions in both pollutants come about through a single action, namely reductions in fuel sulfur
content, the assumption appears to assume the answer to the question being asked and thus is not
appropriate.

       Table 8.7-15 in the RIA summarizes the cost-effectiveness estimates  for our full engine + fuel
program, as well as various fuel-only components. The incremental $/ton values for lowering the sulfur
standard from 500 ppm to 15 ppm for LM  fuel are somewhat high compared to other programs
controlling PM or SOx emissions, as shown in Tables VI.D-4 and VI.D-6 of the preamble. However, the
monetized health and welfare benefits of the incremental 15 ppm LM fuel standard exceed the costs. In
addition, it is more appropriate to evaluate the overall fuel program, as that is what is being adopted, and
the $/ton values for the overall fuel program, including the 15 ppm sulfur standard for LM fuel, are  much
lower. The entire body of evidence strongly supports the view that controlling sulfur in NRLM fuel to 15
ppm, through a 2-step process, is quite reasonable  in light of the emissions reductions achieved, taking
costs into consideration.
       8.3.3   Support More Stringent Locomotive and Marine Standards in a Separate
               Rulemaking

What Commenters Said:

       A number of commenters support more stringent emission standards for marine and locomotive
diesel engine, however they believe that this should take place in a separate rulemaking. These
commenters support imposing more stringent standards for these engines because of the significant air
quality benefits.  The Illinois Lt. Governor added that regulating these sources will provide an additional
incentive for developing advanced emission reduction technologies. Further, the San Joaquin Valley Air

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Pollution Control District recommended that as part of the proposed nonroad rule, we  should commit to
an additional rulemaking and timely schedule for implementing locomotive and marine standards. Some
commenters (BP, API, NPRA) noted that the fuel should be regulated through a systems approach.

       EMA commented that we should defer the question of when and whether to require 15 ppm
sulfur fuel for locomotive and marine engines to a future rulemaking. They believe that requiring
locomotive and marine engine users to use 15 ppm commercial fuel when it is not needed to meet
emission requirements creates an economic burden with no environmental benefit. They also stated that
maintenance of the 500 ppm sulfur fuel limit for these engines will help ease the transition to 15 ppm
sulfur fuel. Finally, EMA commented that we should conduct separate  locomotive and marine
rulemakings rather than a single rulemaking covering both applications, noting that beginning discussions
and fact finding on these rules starting in 2004 would be an appropriate timeframe. However, they do not
believe that an ANPRM is a necessary step in this rulemaking process, rather that EPA should work with
EMA on the development of these rules.

       NRDC and UCS further commented that this additional rule should reduce PM emissions by 90
to 95 percent, consider the feasibility of requiring aftertreatment-based NOX standards; and take effect no
later than 2012. They believe that this rule can be justified given the large contribution of these engines
to the PM and NOX inventory and the potential growth in the locomotive and port sectors.  They also cited
the ports of L.A. and Long Beach as examples of why more stringent standards for marine and
locomotive engines are important, as these ports and the nonroad marine and locomotive engines, operate
near homes and schools and provide a significant health risk to the public.

       Along with NRDC, WRAP believes that we should accelerate the schedule for an additional
rulemaking that would address emissions from locomotives and marine diesel engines. They commented
that the program should be proposed by the end of 2003, so that stakeholders may review and comment
on the proposal prior to the fmalization of the Tier 4 rule, and believe that it is unclear why three  years
would be needed to complete this rulemaking. WRAP added that these standards should be promulgated
no later than 2007 so that the benefits of such standards could be included in SIPs for  regional haze
(under section  308), the 8-hour standard, and the PM2.5 standard.

       CATF commented that we should substantially tighten the existing standards for locomotive and
marine engines. They added that the difference between the marine and locomotive standards and the
Tier 4 nonroad standards is more than a full order of magnitude.  Commercial marine  standards are 18 to
27 times the numerical level of the Tier 4 nonroad standards, and locomotive standards are even less
stringent, from 19 to 54 times the numerical level of the Tier 4 standards. They provided additional
discussion on this  issue that compares both Tier 3 and Tier 4 standards versus locomotive and commercial
marine engine emission standards. CATF also noted that the latter are inconsistent with the CAA
mandate of setting standards to provide the greatest possible reductions, and recommends that we require
these engines to comply with Tier 4 standards as soon as possible.

       Lastly, API and Marathon commented that when ultra-low sulfur diesel is needed for new
locomotive and marine engine emission standards, desulfurization costs may ultimately be lower  as more
cost-effective process technologies continue to evolve. API does not support the required use of  15 ppm
fuel in LM engines until EPA determines the need for and establishes emission standards requiring the
application of aftertreatment technologies that need 15 ppm fuel.
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       Letters:
       American Trucking Association, OAR-2003-0012-0632 p. 6
       California Air Resources Board, OAR-2003-0012-0644 p. 7
       Clean Air Task Force, et. al., OAR-2003-0012-0508 p. 16-20
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 8
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 92-93
       Environmental Advocates of NY, OAR-2003-0012-0523 p. 2
       Illinois Lieutenant Governor Pat Quinn, OAR-2003-0012-0781 p. 6
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 10
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 14-16
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 11-12
       San Joaquin Valley Air Pollution Control District, OAR-2003-0012-0695 p. 2
       Texas Commission on Environmental Quality, OAR-2003-0012-0716, 0717 p. 2
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 7
       Western States Air Resources Council, OAR-2003-0012-0711 p. 2
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 14-15
       Western Regional Air Partnership, OAR-2003-0012-0774, 0775 p. 2
       39,736 Public Citizens
       1,159 Public Citizens
       New York Public Hearing
                     A-2001-28, IV-D-05 [ATA, p. 169;  CAT p. 238; MECA p. 119;
                     STAPPA/ALAPCO p. 47]
       Los Angeles Public Hearing
                     A-2001-28, IV-D-07 [ALA p. 220;  CARB p. 14; NRDC p. 54]
       Chicago Public Hearing
                     A-2001-28, IV-D-06 [ALA- Chicago p. 287; CATF p. 262; OEC p. 293]

Our Response:

       We are planning a separate rule to implement new emission standards for locomotive and marine
diesel engines. We plan to publish an Advanced Notice of Proposed Rulemaking soon describing our
plans in this area. The rationale for our decision to finalize the 15 ppm standard for locomotive and
marine fuel in today's final rule is contained in our response to Issue 8.3.2 and in section IV of the
preamble.
8.4.    Other Program Options

       8.4.1.  Extended Use of 500 ppm Diesel Fuel in >750 hp Engines Employed by the Mining
              Industry

What Commenters Said:

       Murphy Oil Corporation requested that EPA consider allowing >750 hp engines employed by the
taconite mining industry to use 500 ppm sulfur nonroad diesel fuel until such a time as the aftertreatment
for these engines which requires 15 ppm sulfur fuel is shown to be viable and economical.  Murphy also
expressed concern regarding the viability of emissions aftertreatment technology for engines over 750 hp

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such as those used in the taconite mining industry. Murphy included a case study on the potential adverse
economic impacts of today's rule on the taconite industry in its comments. Based on this study, Murphy
stated that the emissions benefits from lowering nonroad diesel fuel from 500 ppm to 15 ppm for taconite
mining equipment would not justify the cost.

       Letters:
       Murphy Oil Company, OAR-2003-0012-0212

Our Response:

       Issues related to the aftertreatment-based standards for >750 hp engines are addressed in chapter
3 of this S&A document. The emissions standards in today's rule will require that such engines be
equipped with PM traps after 2014. We deferred finalizing a NOx standard under today's rule for such
engines which would have required the use of NOx aftertreatment equipment. However, we intend to
revisit this issue in a later rulemaking.

       Today's rule provides that 500 ppm diesel fuel may continue to be used in all nonroad engines
manufactured before 2011 until May 31, 2014.  Starting June 1, 2010 when the 15 ppm sulfur standard
for nonroad diesel fuel becomes effective,  500 ppm nonroad diesel fuel may be produced by qualifying
small refiners or through the use of credits, or may be generated from reprocessed transmix or segregated
interface in the distribution system. Thus,  for several years the taconite mines can continue to use 500
ppm nonroad diesel  fuel if their equipment allows it and they can find a supplier. However, after the
refiner flexibility provisions expire the taconite mines, like all  other nonroad diesel fuel consumers must
switch over to the use of 15 ppm diesel fuel. We discontinued the allowance for the use of 500 ppm
diesel fuel in pre model year 2011 nonroad engines after 2014 in order to achieve the intended
environmental benefits of the program. Extending these  refiner flexibilities (and allowing nonroad engine
operators to continue to use higher sulfur fuel) were not necessary to implement the program and would
have reduced the emission benefits. Allowing continued use of higher sulfur fuel would also have
increased concerns regarding the potential  for misfueling of post MY-2011 aftertreatment-equipped
nonroad engines.

       Although the timetable for implementation of the emissions standards for >750 hp engines lags
that for other nonroad engines, we believe  that it would be inappropriate to extend the allowance  for the
continued use of 500 ppm diesel fuel in >750 hp engines beyond the May 31, 2014 implementation date
for the 15 ppm sulfur standard applicable for nonroad diesel fuel used all nonroad diesel engines.
Requiring that all nonroad engines must use 15 ppm diesel fuel after 2014 will ensure attainment of the
full environmental benefit of today's rule and will substantially reduce the chance for misfueling  of
aftertreatment equipped nonroad engines.

       Chapter 2 of the preamble to today's rule discusses the reasons why we are finalizing a national
program rather than  exempting certain areas from today's requirements based on the status of their
attainment with air quality standards. Section 7.2.1. of this S&A discusses why we are not conducting an
analysis of the impacts on sub-sectors of the industries regulated by today's rule, such as the taconite
mining industry.
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9.     REQUIREMENTS FOR ENGINE AND EQUIPMENT MANUFACTURERS

What We Proposed:

       The comments in this section correspond to Section VII of the NPRM. A summary of the
comments received, as well as our response to those comments are located below. For the full text of
comments summarized here, please refer to the public record for this rulemaking.

9.1    Averaging, Banking, and Trading

       9.1.1   General Comments

       9.1.1.1 Commenters Conditionally Support the Proposed ABTProgram

What Commenters Said:

       CAPvB and STAPPA/ALAPCO expressed support for the ABT program provided the generation
of credits is verifiable and enforceable, provided detailed discussion of the proposed ABT program, and
acknowledged their agreement with EPA's approach on a number of ABT program provisions.
STAPPA/ALAPCO specifically noted that traditionally they have had concerns with ABT programs
since: 1) they have not demonstrated significant cost reductions for the mobile source  sector; 2) they have
not been transparent to the public due to confidentiality issues; and 3) the increased flexibility can
increase the complexity of the program, potentially reducing emissions benefits.  STAPPA/ALAPCO also
acknowledged that EPA has taken steps to address these concerns and generally agrees with the approach.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 7-8
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 20-22
       New York Public Hearing, A-2001-28, IV-D-05 [CARB p. 141]

       AGCA commented that it supports the ABT program provided EPA promotes flexibility for
engine and equipment manufacturers and allows affected parties some decision-making role in activities
that are required to meet the standards.

       Letters:
       Associated General Contractors of America, OAR-2003-0012-0791 p. 12

Our Response:

       We agree with the commenters and are adopting an ABT program applicable to the Tier 4
program. We believe the  credits generated under the ABT program will be verifiable  and enforceable.  In
addition, we believe the program is an aspect of the lead time necessary to comply with the standards, and
will provide engine manufacturers with significant flexibility as they strive to meet the Tier 4 standards
for their entire product range.
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        9.1.1.2 Manufacturers Should Be Able to Fully Use the ABT Credits That They Have
               Generated

What Commenters Said:

        DDC and EMA commented that EPA should not retroactively devalue credits that have already
been generated or used. The commenters further stated that the value in a well-crafted ABT program is
the certainty that manufacturers will be able to continue to invest in technologies and rely on reasonable
and cost-effective provisions for generating and using credits in meeting the standards.

        Letters:
        Detroit Diesel Corporation, OAR-2003-0012-0783 p. 5
        Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 34-36, 112

        DDC and EMA commented that EPA has proposed that credits earned by engines certifying to
the previous NOX + NMHC standard (i.e. Tier 2/3) be discounted by 20 percent when used on engines
certifying to the Tier 4 NOX only standards. This violates current Part 89 regulations which allow
undiscounted NOX + NMHC  credits earned for Tier 2 and later engines to be used in subsequent model
years.  EPA indicates that this discount is necessary because of the change from a NOX + NMHC standard
to a NOX only standard. However, even though the "phase-out" engines will likely have very low NMHC
emissions by virtue of having a PM filter, it cannot be characterized as a "windfall."  EPA's concern in
this context is more appropriately resolved by rejecting the phase-in/phase-out concept and simply
adopting interim averaged standards for NOX, NMHC,  CO, and PM.  In this case, the credits earned by
interim engines would be NOx-only and should be transferable to other families on a NOx-only basis
without any concern of a NMHC windfall. [See related discussion under Issue 3.1.1.]

        Letters:
        Detroit Diesel Corporation, OAR-2003-0012-0783 p. 5
        Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 38,  112

        DDC and EMA commented that discounting credits earned by engines certifying to the previous
NOX + NMHC standards cannot be justified by assuming that this approach would provide a net
environmental benefit.  Attempts to restructure ABT for the purpose of providing direct environmental
benefits will undermine the original purpose of the program and will result in a program that
manufacturers have little or no incentive to use. The approach of devaluing credits would be inconsistent
with the CAA since it would undermine the feasibility and cost effectiveness of the proposed standards.

        Letters:
        Detroit Diesel Corporation, OAR-2003-0012-0783 p. 5
        Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 39,  112

        EMA commented that EPA has engaged in an unconstitutional taking by eliminating the life of
averaging, banking and trading credits which were guaranteed by EPA not to expire  in its prior
rulemakings on the Tier 2 and 3 standards. The commenter also stated that EPA has violated the prior
commitment made in its regulations, and has engaged in an illegal, unconstitutional taking of engine
manufacturers' property and other rights.
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       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 109, 112

       CNH Global commented that EPA should not reduce the value of emission credits by setting
arbitrary caps on family emission limits. Emission credits were generated in good faith by accelerating
the introduction of reduced emission engines on the basis that these credits would always be available as
provided in the Statement of Principles that formed the basis of the Tier 2 and Tier 3 regulation.

       Letters:
       CNH Global, OAR-2003-0012-0819 p. 8

       CEMA-CECE commented that as part of the ABT provisions, EPA should allow for more credits
to be carried over from previous years.

       Letters:
       CEMA-CECE, OAR-2003-0012-0598 p. 4

Our Response:

       With respect to the comments disputing our proposal to apply a 20 percent discount factor to
NOx + NMHC Tier 2/3 credits, we note first that no commenter challenged our rationale that a factor of
20 percent reasonably accounts for the NMHC portion of the  credit. Because the mix of NMHC and NOx
emissions will vary from engine family to engine family, there is no exact number to account for NMHC
of all engines.  For this program we believed the 20 percent value was a good estimate and noted in the
proposal that there would be a small benefit to the  environment (i.e., a small discount) by adjusting every
NMHC+NOx credit by 20 percent.  Commenters also did not dispute (and indeed agreed) that use of PM
aftertreatment would necessarily result in low NMHC emissions, so that NMHC reductions for phase-out
engines would just be a by-product of a means of emission control that would be used in any case.
(Indeed, for this reason, calling the 20 percent adjustment a 'discount factor' is something of a misnomer;
it is an allocation of the portion of emission reduction that would occur for phase-out engines in any
event.) Thus, the factual premise of EPA's action  is essentially undisputed.

       We thus continue to believe that allowing  unadjusted credits for these NMHC reductions,
including incidental NMHC reductions, is inappropriate. Use of the ABT program is an aspect of
selecting an appropriate lead time for the Tier 4 standards under section 213(b). Extension of Tier 4 lead
time based on use of credits that are generated incidentally to use of Tier 4 PM control technology would
not be appropriate. This is because  the Tier 4 effective date would be extended for engines using such
engines past "the earliest possible date" on which Tier 4 NOx control could be applied based on a
windfall credit for NMHC reductions that would occur in any case.

       Commenters further argued that EPA's proposal was bad policy because EPA had guaranteed the
future use of credits (in this case, NOx and NMHC credits) generated by Tier 2/3 engines.  The
commenter even asserts that EPA was engaged in an unconstitutional taking of property rights. The
premise to these comments is misplaced. In the first place, when an agency adopts rules, it can always
amend those rules provided it has a  reasoned basis to do so and provides due process in the form of notice
and opportunity for comment (amply provided for in this rulemaking). Second, in any case, this
rulemaking is establishing a new set of engine standards, not revisiting the Tier 2/3 standards.  In

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developing a new rulemaking, we necessarily must evaluate the provisions of previous rules and their
potential impact on the future standards being considered.  This rulemaking is determining the greatest
emission reduction of NOx achievable through application of available technology , as required by
section 213 (a) (3) of the Act, and standards implementing that determination must take effect at the
earliest possible date the control technology can be developed and applied, as required by section 213 (b).
EPA believes that delaying use of engines equipped with NOx aftertreatment through use of credits
generated for NMHC  reductions, and in some cases incidental reductions, is inconsistent with these
mandates. It would postpone available reductions based on reductions (largely incidental) of a different
pollutant.

       The commenter further suggests that credits already generated are being devalued. As EPA
explained at proposal, however, the most likely source of the NMHC potential windfall credit would be a
2011 engine equipped with Tier 3 NOx controls but installing Tier 4 PM controls (i.e., a phase-out
engine).  This is a situation involving prospective (potential) credit generation, not already-generated
credits.  More basically, the only decision EPA made in the Tier 2/3 rule was that credits generated by
Tier 2/3 engines could be used indefinitely to show compliance with the Tier 2/3 rule, not with future
rules. EPA did not, and could not, decide in the Tier 2/3 rulemaking that Tier 2/3 credits could be used to
show compliance with some future standard that had not yet even been adopted.  That is the issue
presented for the first time in this rulemaking.  EPA reasonably proposed that using credits in the form of
NOx + NMHC reduction to show compliance with a NOx-only standard calls for determining how much
of the NOx + NMHC credits represent NOx reductions, and only using that portion for purposes of NOx
credits.  This is additionally supported by the fact that NMHC reductions for phase-out engines are not
'extra' reductions above and beyond what would otherwise occur, and therefore do not represent
reductions that warrant use as a credit.

       Several commenters opposed the various provisions which affect the ability to use previous tier
credits in the Tier 4 timeframe (i.e., discounts applied to NMHC+NOx credits used for NOx
demonstration, restrictions on the use of previous tier credits in the Tier 4 timeframe, and the tight PEL
caps applied to Tier 4 which limit the ability to use credits in an unfettered manner). As explained at
proposal, we believe that these provisions consistently implement a reasonable approach whereby ABT
provisions are used to promote expeditious transition and attainment of new, stringent standards, and are
not used  to unnecessarily continue producing old-technology higher-emitting engines. See 68 FR at
28467. Our approach is wholly in keeping with the technology-forcing nature  of section 213 (a) (3), as
well as consistent with the requirement in section 213 (a) (4) that standards be  appropriate, considering,
among other things, application of available control technology.

       Finally, as to the commenter's suggestion that EPA not adopt the NOx phase-in/phase-out
approach, and instead adopt interim averaged standards, EPA notes that it  is providing the option of
complying with interim,  averaged standards during the phase-in period. See Preamble section II.A.2.b.
However, we are retaining the phase in/phase-out compliance path as well, as it provides a potential
means of encouraging introduction starting in 2011 of very low-NOx engines.
        9.1.1.3 EPA Should Allow for the Transfer of Credits from Tier 3 Engines to Demonstrate
               Tier 4 Compliance, but Only If the 20 Percent Discount Is Applied

What Commenters Said:

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       CARB commented that in addition, the final rule should maintain the 20 percent discount that
would apply to HC+NOX credits generated on the less than 75 hp engines and used for averaging purposes
with the NOX standards for engines greater than 75 hp.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 7-8

Our Response:

       We agree that the 20 percent "discount" for the use of NMHC+NOx credits to demonstrate
compliance with a NOx-only standard is appropriate. For reasons described in more detail in section
III.A. of the preamble for the Tier 4 final rule, we are retaining the 20 percent discount applied to
NMHC+NOx credits used for demonstration of compliance with the Tier 4 NOx-only standards.  (As
noted in the previous response, moreover, we regard the 20 percent adjustment as an appropriate
adjustment to assure that only NOx reductions generate NOx credits. Because the mix of NMHC and
NOx emissions will vary from engine family to engine family, there is no exact number to account for
NMHC of all engines. For this program we believed the 20 percent value was a good estimate and noted
in the proposal that there would be a small benefit to the environment (i.e., a small discount) by adjusting
every NMHC+NOx credit by 20 percent.)
       9.1.1.4 EPA Should Not Allow for the Use of Tier 1 or Tier 2 ABT Credits to Demonstrate Tier
              4 Compliance

What Commenters Said:

       NRDC commented that EPA should restrict the use of Tier 1 and 2 credits in the Tier 4 ABT
program since these credits were generated from engines that are certified to much higher certification
levels than future Tier 4 engines; allowing the use of these earlier credits in the Tier 4 program could
significantly delay the implementation of the final Tier 4 program and its benefits.

       Letters:
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 28

       STAPPA/ALAPCO commented that it supports EPA's proposal to allow for the use of credits
from Tier 4 engines or from engines certified to the previous tier of standards for Tier 4. The commenter
also noted that it supports the proposed provisions for engines between 75 and  175 horsepower which will
allow the use of credits from Tier 2 engines if the manufacturer complies with the 50 percent phase-in
requirement in 2012 and 2013 but not allow the use of credits from Tier 2 engines between 75 and 175 hp
under the reduced phase-in option.

       Letters:
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 21

Our Response:

       We agree in general with the comments that credits from engines certified to much higher

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certification levels than future Tier 4 engines should not be allowed to demonstrate compliance with the
Tier 4 standards. Therefore, as proposed, we are adopting provisions that allow the use only of previous
tier credits to demonstrate compliance with the Tier 4 standards.  This will allow manufacturers to use
Tier 2 credits for engines below 50 horsepower and engines above 750 horsepower (because there are no
"Tier 3" standards for these power categories), and Tier 3 credits for engines between 50 and 750
horsepower.

       The final ABT provisions include two exceptions to this general principle. First, as proposed,
manufacturers will be allowed to use Tier 2 credits in the 75 to 175 horsepower category if they choose
the 50 percent phase-in option for 2012 and 2013 but not if they choose the reduced  (25 percent) phase-in
option. Second, because our 2008 model year Tier 4 standards for engines between  50 and 75
horsepower supplant the current Tier 3 standards (unless a manufacturer opts to delay compliance with
the Tier 4 standards until 2012), manufacturers will be allowed to use credits generated from Tier 2
engines between 50 and 100 horsepower to demonstrate compliance with the Tier 4  standards in the 50 to
75 horsepower power range if they choose to demonstrate compliance with the pull-ahead 2008 Tier 4
standards for 50 to 75 horsepower engines. We believe this is consistent with our provisions to allow the
use of previous  tier credits for demonstration with the Tier 4 standards.  Manufacturers that do not choose
to comply with the 2008 Tier standards for engines between 50 and 75 horsepower and instead comply
with the 2012 Tier 4 standards for such engines will not be allowed to use Tier 2 credits in Tier 4, but
instead will be allowed to use Tier 3 credits as allowed under the standard provisions regarding use of
previous-tier credits  only for Tier 4 compliance demonstration.
       9.7.7.5  EPA Should Adopt a 25 Percent Discount for All ABT Credits to Help Ensure That the
               Program Provides a Net Environmental Benefit

What Commenters Said:

       NRDC commented that EPA should adopt a 25% discount for all ABT credits to help ensure that
the program provides a net environmental benefit, but provided no further discussion or supporting
documentation.

       Letters:
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 28

Our Response:

       We believe the Tier 4 standards are sufficiently stringent to justify allowing manufacturers to
claim full credit for any reductions of emissions below the standards.  In addition, we believe a general
discount applied to all  Tier 4 credits would diminish the incentive  to reduce emissions below the
standards, and also could result in insufficient lead time for complying with the  Tier 4 standards by
reducing the availability of ABT as a means of demonstrating compliance. Therefore, we are not
requiring any general discount of credits earned from Tier 4 engines.
       9.1.1.6 EPA Should Maintain a Requirement for Periodic Reports That Summarize the Use of
               the Proposed ABT Program by Engine and Equipment Manufacturers

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What Commenters Said:
       NRDC recommended that quarterly reports be required, while STAPPA/ALAPCO noted that
EPA should commit to annual reports.

       Letters:
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 28
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 20

Our Response:

       We agree with the commenters that reports on the use of the ABT program should be issued by
EPA. As discussed in the proposal, we intend to issue an annual report summarizing use of the ABT
program by manufacturers. While one of the commenters suggested quarterly reports, we believe annual
reports make the most sense. Under the ABT regulations, engine manufacturers are required to submit an
annual report to EPA regarding their use of the ABT program. These final reports must be submitted no
later than 270 days after the close of the model year and must include the number of credits generated or
required in the previous model year, the number of credits banked by the manufacturer,  and a copy of any
contracts related to the trading of credits.  Since the reports are required on an annual basis, we believe it
makes sense  for EPA to issue a summary report of the information supplied by manufacturers
(summarized in a way that protects the confidentiality of information submitted by individual engine
manufacturers) on an annual basis.
       9.1.2   Family Emission Limit (FEL) Caps

       9.1.2.1 Commenter Supports the Use of FEL Caps in this Rulemaking

What Commenters Said:

       STAPPA/ALAPCO commented that EPA should maintain the proposed FEL caps, since they are
consistent with those set in previous rulemakings.

       Letters:
       STAPPA/ALAPCO , OAR-2003-0012-0507 p. 20-21

       CARB commented that it supports the alternate FEL caps.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 7

Our Response:

       See "Our Response" in the following section (Issue 9.1.2.2) for a response to these FEL cap
comments.
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       9.1.2.2  EPA Should Not Impose FEL Caps since the Zero-sum Requirement of ABT Will
               Ensure That There Are No Adverse Emission Impacts

What Commenters Said:

       CNH Global, DDC, and EMA commented that an ABT program provides engine manufacturers
with important flexibility and ultimately results in lower costs of compliance. From an emissions
inventory perspective, it is irrelevant whether one engine is ten units above the standard or ten engines (of
the same useful life and power level) are one unit above the standard. An especially important use of
ABT is where a manufacturer does not have sufficient resources to complete development of all its engine
families covered by a given Tier change.  In this case, it is often beneficial to earn credits on some
families by producing engines calibrated to achieve emission levels that are below the standards in the
years leading up to the Tier change and use these credits to spread the work load and defer meeting the
new  standards on some engine families.  However, by imposing an arbitrary FEL cap that is less than
(i.e., more stringent than) the previous standard, EPA eliminates the possibility of using this important
strategy and forces manufacturers to conduct two phases of development, thus increasing costs without
providing any environmental benefit. EMA also noted that if FEL caps are imposed, they should  be
established at the level of the previous standards and that it is too early to tell if the alternate FEL  caps
will be sufficient.

       Letters:
       CNH Global, OAR-2003-0012-0819 p. 8
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 5
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 36-38, 112

Our Response:

       For the final rule, EPA is adopting the FEL caps as proposed, with some exceptions for engines
above 750 horsepower where we are adopting different standards than originally proposed and for
phase-in engines between 75 and 750 horsepower where we have adopted an option for manufacturers to
certify to alternative standards during the phase-in period. We continue to believe that it is important to
ensure that technology turns over in a timely manner and that manufacturers do not continue producing
large numbers of high-emitting, old technology engines once the Tier 4 standards become fully effective.
For the Tier 4 standards,  where the standards are being reduced by an order of magnitude, we believe this
goal  to be particularly important, and in keeping with the technology-forcing provisions of section 213(a).
It simply would not be appropriate to have long-term FEL caps that allowed engines to indefinitely have
emissions as high as ten times the level of the standard.  Section III .A. of the preamble contains a
complete description of the Tier 4 FEL caps and a detailed discussion of our rationale for adopting the
FEL caps contained in the final program.

       It should be noted that, in response to the comment above regarding perceived need to carry over
previous tier engines in some circumstances, we are adopting provisions that allow manufacturers to
produce a limited number of 75 to 750 horsepower engines for a limited period of time that are certified
with FELs as high as the level of the standards that applied in the year prior to the new standards.  See 40
CFR 1039.104(g). This will provide flexibility to manufacturers to produce limited number of engines
meeting the previously applicable standards while ensuring that the large majority of engines are certified
at levels near the Tier 4 standards.

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       9.1.3   Averaging Sets

       9.1.3.1  Commenters Support EPA's Proposal to Include All Power Categories in a Single
               Averaging Set

What Commenters Said:

       DDC and EMA commented that since the credit calculations weight the credits by production
volume, power level and useful life, there is no risk of environmental loss from using a single averaging
set. The commenters believe that this approach provides the best opportunity for engine manufacturers to
properly manage resources.

       Letters:
       Detroit  Diesel Corporation, OAR-2003-0012-0783 p. 5
       Engine  Manufacturers Association, OAR-2003-0012-0656, 0657 p. 39, 112

Our Response:

       Our  proposal did include all power categories in a single averaging set. However, a number of
changes have been made to the final Tier 4 program for engines above 750 horsepower that have caused
us to place a restriction on the exchange of Tier 4 credits across the 750 horsepower threshold. Therefore,
all engines below 750 horsepower will be included in one averaging set for the Tier 4 program. All
engines above 750 horsepower will be included in a separate averaging set for Tier 4. We believe this
approach to averaging sets is appropriate for the reasons set out in section III.A. of the preamble.
       9.1.3.2  Commenter Expresses Concern Regarding the Elimination of the Averaging Set
               Restriction

What Commenters Said:

       Yanmar commented that the equation for the emission credit calculation uses the average power
of the engine family and the useful life. Thus, engine families with a larger average power and/or longer
useful life can generate sizeable emission credits. This creates an unfair situation between the
manufacturers with a full line-up and those with a more limited line-up of smaller output engines.
Yanmar also noted that it generally supports the proposal but that EPA should establish a restriction or
barrier at 56 kW to account for the fact that averaging should only be made within the engine families to
which technology transfer from on-highway engines can or cannot easily be made.

       Letters:
       Yanmar, OAR-2003-0012-0615, 0813 p. 7

Our Response:

       We disagree with the commenter that separate averaging sets are needed for engines above and
below 75 horsepower.  For the reasons described in section III.A. of the preamble we are adopting a

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single average set for engines below 750 horsepower in the Tier 4 program.


       9.1.4   Inclusion of Credits from Retrofit of Nonroad Engines

       9.1.4.1 EPA Should Allow for Credit Generation by Retrofitted Nonroad Engines

What Commenters Said:

       EMA commented that a program that would allow for credit generation by retrofitted nonroad
engines would serve to increase engine manufacturers' flexibility in meeting the standards and would also
help minimize costs.  Expanding the ABT program will increase the potential to develop and implement
low-emission technology earlier than would otherwise be required. EMA further commented that EPA
should work with manufacturers to develop such a program but to do so as part of this rulemaking would
be premature.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 39-40, 112

       MECA commented that EPA should allow manufacturers to retrofit diesel particulate filters on
nonroad engines.  The diesel particulate filter retrofit credit program will provide an  important
opportunity to expand the experience and build interest in retrofitting nonroad engines.  This program
could serve as the catalyst for promoting other initiatives to retrofit additional nonroad equipment with
exhaust emission control technology.  However, MECA noted, EPA should ensure that the credits are
fully enforceable and verifiable.

       Letters:
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 11

       WRAP commented that a retrofit program to generate credits that manufacturers can use for
compliance purposes will help reduce emissions from existing nonroad engines, provided the  program
ensures that credits are verifiable, quantifiable, and enforceable. The commenter further stated that the 20
percent discount on retrofit credits will help ensure the program's integrity in this respect, but EPA should
also address other issues and should involve the WRAP in the design and implementation of such a
program.

       Letters:
       Western Regional Air Partnership, OAR-2003-0012-0774, 0775 p. 2

Our Response:

       We are not adopting a retrofit credit program with the Tier 4 final rule. Although we  provided a
detailed explanation of a potential program at proposal (see memorandum referenced at 68 FR 28471,
footnote 299), we believe it is important to more fully consider the details of a nonroad engine retrofit
credit program and work with interested parties in determining whether a viable program can  be
developed. EPA intends to explore the possibility of a voluntary, opt-in nonroad retrofit credit program
through a separate action in the future.

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       9.1.4.2  Commenters Support Retrofit Programs Generally but Express Concern with the Use
               of Retrofit Credits in the Proposed ABT Program

What Commenters Said:

       NRDC, STAPPA/ALAPCO, and the Texas Commission on Environmental Quality commented
that retrofit programs can provide cost-effective emission reductions from the existing nonroad fleet,
which is especially important because of the long useful life of nonroad engines. However, the ABT
program is not the best vehicle for promoting diesel retrofit programs, since it will be difficult to
determine whether the credits are surplus, verifiable, quantifiable and enforceable. The proposal does not
address how retrofits are  used in the real world, and adds new layers of complexity to an already complex
ABT program. Lastly, the commenters stated that there does not appear to be any verifiable way to
estimate how many hours the equipment is being used or the scope of the emission reductions.

       Letters:
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 26-28
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 18
       Texas Commission on Environmental Quality, OAR-2003-0012-0716, 0717 p. 2

       NRDC and STAPPA/ALAPCO further commented that if EPA includes a retrofit program, a
discount of 25 percent should be applied to any ABT retrofit credits that are used to meet nonroad
standards.

       Letters:
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 27-28
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 18

       NESCAUM commented that typically, in a retrofit project, a number of steps are needed to
ensure  emissions reductions are achieved. First, temperature data on machines must be gathered to make
sure that engines are suitable for retrofit. Second, an assessment of machine activity over time must be
completed to ensure that  duty cycles will not change dramatically after retrofit.  Third, actual installation
of the devices must be completed. Finally, oversight to make sure that any required maintenance of the
devices is being carried out is necessary. It remains unclear how EPA will ensure that these elements are
accounted for in a retrofit program that provides credits. Before final promulgation, EPA should make a
clear demonstration that any potential retrofit credit program will actually achieve its desired goal.

       Letters:
       NESCAUM, OAR-2003-0012-0659 p. 10

       CARB commented that EPA should allow  for banking and trading from retrofitted nonroad diesel
engines only if the credit generation is verifiable  and enforceable. If retrofit credits are allowed, the credit
banking program should  limit the number of credits granted to nonroad engines that are already subject to
separate retrofit requirements. EPA's proposal to devalue credits from retrofitted engines by 20 percent
could help ensure a balance between the emissions  reducing potential of a retrofitted engine versus a new
engine  over their respective lifetimes.  In this context, EPA must develop a robust tracking procedure for
all credits, which may require a large amount of resources and expertise to develop and manage. EPA

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should be realistic in its expectations in this regard and should consider all relevant details before
permitting such a wide-ranging ABT program.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 8
       New York Public Hearing, A-2001-28, IV-D-05 [CARB p. 140]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [CARB p. 18]

       Environmental Defense commented that EPA should ensure that any emission reductions
associated with retrofit credits are quantifiable, verifiable, and fungible.  EPA should be rigorous in
designing a sensible program since it will address a variety of different engines functioning in divergent
operating conditions.

       Letters:
       Environmental Defense, OAR-2003-0012-0821 p. 18

Our Response:

       As noted in  "Our Response" to issue 9.1.4.1 above, we are not adopting a retrofit credit program
with the Tier 4 final rule. We believe it is important to more fully consider the  details of a nonroad
engine retrofit credit program and work with interested parties in determining whether a viable program
can be developed. EPA intends to explore the possibility of a voluntary, opt-in nonroad retrofit credit
program through a separate action in the future.
       9.1.4.3  EPA Should Not Allow for Emissions Trading Between New and Old Engines

What Commenters Said:

       The Union of Concerned Scientists commented that there is little information available on the
real-world use and emissions of older diesel equipment, and enforcement of "paper trades" could prove to
be extremely difficult. The infrastructure is insufficient to ensure that trading will not result in an adverse
impact to public health and the environment. Also, allowing for trading between these sources could
slow the development of advanced aftertreatment technologies for nonroad equipment.

       Letters:
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 10
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [UCS p. 71]

       The Ozone Transport Commission (OTC) and a number of public citizens expressed opposition
to trading between new and old engines, noting that allowing credits for retrofits will cause some
problems in terms of being able to keep track of emission reductions. OTC also noted that when older
equipment is retrofitted, it requires careful attention since it may not lead to expected results, and that
before allowing trades between new engines and older retrofitted engines, EPA should carefully evaluate
the potential impact this approach would have on the overall nonroad emissions inventory.

       Letters:

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       New York Public Hearing, A-2001-28, IV-D-05 [OTC p. 213]

Our Response:

       As noted in "Our Response" to issue 9.1.4.1 above, we are not adopting a retrofit credit program
with the Tier 4 final rule.  We believe it is important to more fully consider the details of a nonroad
engine retrofit credit program and work with interested parties in determining whether a viable program
can be developed. EPA intends to explore the possibility of a voluntary, opt-in nonroad retrofit credit
program through a separate action in the future.


       9.1.4.4  EPA Did Not Include in its Analysis Engine Retrofit Requirements and Costs

What Commenters Said:

       Commenters representing agricultural interests noted that EPA did not include engine retrofit
requirements and costs in its analysis of the rule.  One commenter is concerned that the availability of
only ultra-low sulfur diesel fuel would force farmers to retrofit existing equipment, adding millions of
dollars of costs on the agricultural sector and in many cases imposing costs that exceed the value of the
equipment. Another expressed concern over whether old engines will eventually be mandated to be
replaced by newer engines.

       Letters:
       American Farm Bureau Federation, OAR-2003-0012-0608
       Idaho Wheat Commission, et al., OAR-2003-0012-0645
       Illinois Farm Bureau, OAR-2003-0012-0673
       Kansas Farm Bureau, OAR-2003-0012-0825
       Michigan Farm Bureau, OAR-2003-0012-0625
       Nebraska Farm Bureau, OAR-2003-0012-0514
       Tennessee Farm Bureau, OAR-2003-0012-0629

Our Response:

       As noted in "Our Response" to issue 9.1.4.1 above, we are not adopting a retrofit credit program
with the Tier 4 final rule.  We believe it is important to more fully consider the details of a nonroad
engine retrofit credit program and work with interested parties in determining whether a viable program
can be developed. EPA intends to explore the possibility of a voluntary, opt-in nonroad retrofit credit
program through a separate action in the future.


       9.1.4.5  EPA Should Rely on Market Mechanisms to Determine Retrofit Technology

What Commenters Said:

       One commenter felt EPA should rely on the market to determine the appropriate technology
available for achieve PM emissions reductions. The commenter felt imposing a discount and designing a
program which required specific technology would preclude marketplace innovation and felt this seemed

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to be an indication that the Agency was prejudging "the best way to achieve the goal rather than letting"
the " end user find the most cost-effective manner." The commenter further stated that "by limiting
yourself to post-combustion technology you are further reducing the pool of potential  participants."

        Letters:
        Lubrizol, OAR-2003-0012-1019

Our Response:

        As noted in "Our Response" to issue 9.1.4.1 above, we are not adopting a retrofit credit program
with the Tier 4 final rule. We believe it is important to more fully consider the details of a nonroad
engine retrofit credit program and work with interested parties in determining whether a viable program
can be developed.

        9.1.5   ABT Tracking Requirements

        9.1.5.1  Nonroad Engine Manufacturers Should Not Be Penalized for the Difficulty of
               Tracking Engines in the Nonroad Marketplace

What Commenters Said:

        DDC and EMA commented that nonroad engines often are produced in a single location and then
distributed to equipment manufacturers worldwide, who in turn, sell their equipment worldwide through
complex distribution channels.  It is generally very difficult and costly for engine manufacturers to track
the first point of retail sale. However, manufacturers can track a substantial number of these engines and
should be allowed to make reasonable projections without incurring significant penalties that would
negate much of the value of the ABT program simply because they are unable to track their full
production.  EMA specifically recommended that EPA adopt a specific formula for use in projecting the
number of engines to be used in the ABT credit calculation equations and provides a summary and
detailed description of the suggested formula and its variables, which has a built-in penalty associated
with incomplete tracking. This formula will ensure that manufacturers use "due diligence"  in their
tracking efforts and get "fair value" for their credits, and that all counts are projected in the  same manner.

        Letters:
        Detroit Diesel Corporation, OAR-2003-0012-0783 p. 5
        Engine  Manufacturers Association, OAR-2003-0012-0656, 0657 p. 34-36, 112

Our Response:

        EPA has issued guidance setting  out one potential means of estimating credits generated by on-
highway heavy-duty engines. EPA recognizes that the nonroad diesel market is complex and that various
types  of estimation methodologies may be appropriate for determining (in the language of the rule) when
a manufacturer has conducted an adequate level of tracking to the point of first retail sale - i.e. to the point
where the engine in the equipment is introduced for commercial use.  EPA plans to issue additional
guidance on this issue for nonroad engines,  taking into account that the nonroad diesel engine market
lacks the direct, integrated supply chain associated with the on-highway heavy-duty diesel engine market,
and the more dispersed nonroad diesel distribution network has the potential to limit the effectiveness of

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credit tracking mechanisms commonly used for on-highway diesel engines.


       9.1.6   Other ABT Issues

       9.1.6.1 The ABT Provisions Should Be Expanded to Include CO Standards

What Commenters Said:

       DDC and EMA commented that traditionally, CO emissions from diesel engines have been well
below applicable standards. However, with full aftertreatment, new engine technologies and the higher
costs of introducing new products, ABT will most likely be necessary not only for PM and NOX + NMHC
standards but also for CO standards.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 6
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 39, 112

Our Response:

       In the Tier 4 proposal, we proposed minor changes in CO standards for some engines solely for
the purpose of helping to consolidate power categories and improving administrative efficiency.
However, manufacturers objected to these proposed changes, citing technological feasibility concerns,
and a lack of parity with highway diesel and nonroad spark-ignition engines.  Because we proposed the
CO standard changes for the sake of simplifying and consolidating power categories, we have withdrawn
this aspect of the proposal.  We do note, however, that we are applying new certification tests to all
pollutants covered by the rule, the result being that Tier 4 engines will have to certify to CO standards
measured by the transient test (including a cold start component), and the NTE. However, as shown in
RIA chapter 4  (see, e.g., RIA 4.1.1.2 and note F), we believe that application of Tier 4 technologies will
lead to a reduction in CO emissions over the Tier 3 baseline. See also Response to Comment 3.2.5. We
thus believe the CO standards will be readily achievable under the transient test and the NTE. Moreover,
we believe that there will not be any associated costs: the CO standards can be met without any further
technological improvements (i.e., improvements other than those already necessary to meet the Tier 4
standards) and these tests will already be used for certification.  Since CO standards measured by the new
certification tests are achievable without cost, there is no basis for allowing ABT because no  additional
lead time is needed.


       9.1.6.2 EPA Should Incorporate Hearing Provisions as Part of the ABT Provisions

What Commenters Said:

       EMA commented that the ABT provisions in 1039.701 do not include any hearing provisions,
and do not make reference  to the hearing provisions contained in 1068.601.  Hearing provisions should be
included, consistent with the provisions in 89.212. Merely imposing the hearing provisions contained in
40 CFR 86.1853-01 is not acceptable, since this section does not contain any information on how a public
hearing is requested, the Administrative procedures for a public hearing, and the hearing procedures.

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       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 107, 112

Our Response:

       We agree that hearing provisions should be included in the ABT provisions of 40 Part 1039.701
as exist in the current ABT regulations in 40 Part 89.212. The hearing provisions were inadvertently left
out of the proposed regulations.  The final ABT regulations of 40 Part 1039 have been revised to include
hearing provisions.
       9.1.6.3  EPA Should Allow Credits to Be Granted under the ABT Program for Electric Drive
               Technologies

What Commenters Said:

       EPRI commented that EPA should consider amending the proposed rule to reward electric drive
mobile technologies for contributing to overall emissions reductions.  Forklifts, industrial tow tractors,
sweepers, scrubbers, varnishers, airport bag tugs and belt loaders are nonroad vehicles rated at 25 hp or
greater and have electric drive products that should be included in the proposed ABT flexibility
mechanism or some other flexibility mechanism.  In addition, there are smaller electric drive nonroad
technologies that are available, including golf carts, burden and personnel carriers, turf trucks and
lawnmowers. EPA should consider granting surplus emission credits to these sources since it would be
cost effective (i.e. providing emission reductions at zero dollars per ton).

       Letters:
       Electric Power Research Institute, OAR-2003-0012-0772 p. 1

Our Response:

       Section 213 requires EPA to develop standards that result in emission reductions from nonroad
engines.  The Clean Air Act defines a nonroad engine as "... an internal combustion engine (including
the fuel system) that is not used in a motor vehicle or a vehicle used solely for competition . . ."  Because
electric motors are not internal combustion engines, any reductions from those engines would not be from
a nonroad engine, and, conversely, a nonroad engine using credits generated by something other than a
nonroad engine would not be reducing its emissions. We consequently do not see how this commenter's
proposal  is  consistent with the language of section 213.
9.2    Original Equipment Manufacturer (OEM) Transition Provisions

       9.2.1   General Flexibility Provisions

       9.2.1.1  Commenters Support the Proposed Flexibility Provisions

What Commenters Said:
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       CARB, AGCA, and John Deere commented that they support the proposed flexibility provisions.
CARB specifically commented that the equipment flexibility provisions are reasonable, but it is important
not to lose ground on emission reductions by 2010.

       Letters:
       Associated General Contractors of America, OAR-2003-0012-0791 p.  10, 12
       California Air Resources Board, OAR-2003-0012-0644 p. 8
       New York Public Hearing, A-2001-28, IV-D-05 [Deere p. 56]

Our Response:

       We agree with the commenters and are adopting flexibility provisions for equipment
manufacturers as part of the Tier 4 program as an aspect of providing appropriate lead time for equipment
manufacturers.
       9.2.1.2 Instead of the Flexibility Program, EPA Should Specify a Made Available Date

What Commenters Said:

       Ingersoll-Rand commented that the equipment manufacturers will need additional flexibility
beyond what is currently proposed, since implementation of the proposed rule will require a significant
degree of coordination between engine and equipment manufacturers. The highly integrated design
approach between the engine and the equipment is likely to lead to delays in the transition to Tier 4. The
TPEM is inadequate since EPA has not provided tangible relief to equipment manufacturers beyond what
is already available under the current rule.  EPA should modify the proposed rule to include provisions
that provide a definitive period of lead time for incorporation of diesel engines into nonroad equipment.
These modifications should include mandated lead time for equipment manufacturers.  In the absence of
sufficient lead-time, equipment manufacturers cannot know in advance the compliance status for each of
their equipment models.  To address this issue, the rule should specify a "made available" date before
which each engine supplier must provide technical and performance specifications, complete drawings,
and a final compliant engine to EPA and the open market. The performance specifications should include
details on engine configuration, heat rejection, noise, fuel consumption, torque, and vibration.  For a non-
vertically integrated equipment manufacturer, "lead time" should begin when an engine supplier delivers
this information.  After the "made available" date, equipment manufacturers should be provided a
minimum of 18 months of lead time to incorporate the new engines into nonroad equipment, which is
essential  for the redesign, performance testing and production of equipment that accommodates the new
engines.  This alternative is consistent with the explicit provisions of the CAA because it will achieve full
compliance with the proposed  standards at a reduced cost and with less market interference. Ingersoll-
Rand also recommended that non-integrated equipment manufacturers receive one early compliance
credit for early Tier 4 engine use.

       Letters:
       Ingersoll-Rand, OAR-2003-0012-0504 p. 14-16
       New York Public Hearing, A-2001-28, IV-D-05 [IRp. 226]

Our Response:

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       We disagree with Ingersoll Rand's premise that Tier 4 will create a situation where expanded
equipment maker lead time is the norm rather than the exception so that the rule must provide a drastic
expansion of equipment manufacturer lead time.  We believe that the lead time provided for equipment
makers in this rule is adequate, and that the equipment maker flexibilities we are adopting provide a
reasonable and targeted safety valve to deal with isolated problems.  There is no across-the-board problem
necessitating a drastic expansion of equipment-manufacturer lead time, or a drastic expansion of
equipment manufacturer flexibilities.  See section III.B.2 of the preamble and additional information
placed in the docket for this rule. (See "Tier 4 Nonroad Diesel Equipment Flexibility Provisions," memo
from Byron Bunker, Philip Carlson, and Cleophas Jackson., (EPA) to Docket OAR-2003-0012.)

       One reason we do not believe that a drastic increase of equipment manufacturer lead time is
warranted is because we do not see that the design and engineering challenges facing equipment
manufacturers will be significantly more extreme than in the Tier 2/3 rule.  Beyond making generalized
assertions of extreme challenges posed by the rule, the commenter was largely unspecific about the type
of engineering problems an equipment manufacturer could face; their public comments do refer without
specifics to issues related to engine configuration, heat rejection, noise, fuel consumption, torque and
vibration.  In later letters to EPA, and in face-to-face meetings with agency personnel, the commenter also
expressed concern regarding the potential for "late hits", situations where engine makers change a critical
design element at a late stage in the development process, affording equipment manufacturers inadequate
opportunity to make necessary design changes. After careful evaluation, we in fact believe that Tier 4
engineering challenges are likely to be more predictable and less likely to necessitate late changes in the
equipment design process. The Tier 2/3 rule has led to (or is expected to lead to) redesign to
accommodate new aftercooling,  large radiators, large fans, and different engine configurations.  Late
changes in these components could necessitate fundamental equipment redesign. In Tier 4, redesigns will
be necessary to accommodate PM filters, NOx adsorbers, and DOCs. Although redesign efforts to
accommodate these aftertreatment components may be comparable to Tier 2/3 in terms of engineering
time and effort, and amount of sheet metal needed, the size and shape of the catalyst technology will be
well defined (due among other things to utilization in highway applications) well before start of
production (we expect approximately 24 months  before  production, based on our discussions with engine
and equipment manufacturers). Moreover, while late fine tuning of the engine  or catalyst design will
change emission characteristics, it will not change the size and shape of the catalysts, the things
equipment manufacturers need to accommodate.  EPA is thus reasonably confident that equipment
manufacturers will be able to receive the necessary design information well in advance (we estimate about
24 months) so that they can begin their design efforts with ample lead time.

       We have a number of specific reasons for rejecting the commenter's suggestion of a made
available date.  First, it is in both parties' interest for new engines and new equipment applications  to
reach the market expeditiously, so  engine makers and equipment manufacturers usually adopt concurrent
engineering programs whereby the new equipment design process occurs simultaneous to the new engine
development process. Having EPA establish an arbitrary made available date insinuates EPA into this
process in ways that are both unnecessary and counterproductive. We recognize that in some instances
with small volume equipment manufacturers, the extent of early design involvement may differ. We have
seen no instance where the small volume flexibilities are incapable of addressing this.  We prefer to allow
existing market mechanisms to function smoothly without arbitrary government directive. We also
believe that the 18-month lead time following a made available date entails a mandated 18-month period
(at least) with no return on investment to engine suppliers (i.e. the period between when the Tier 4 engine
would be produced and when it could lawfully be sold), which would increase the engine cost, and

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discourage design changes (since such changes would entail more investment with delayed return on that
investment). The ultimate result would be a costlier rule and  less environmental benefit due to the delay
in introducing Tier 4 engines.  Even were EPA to put forth such a regulation, it is not clear that it could be
enforced or that it would help the situation. It would only be natural for an engine manufacturer to
continue to improve their products even after the predefined "made available date" and that equipment
manufacturers would want to use this improved product even  if it meant they had to make last minute
changes to the equipment design. For EPA to preclude engine manufacturers from changing their product
designs over the period between the certification date and the  equipment manufacturer date would be both
unusual and counterproductive to our goal of seeing the best possible products available in the market.

       We do, however, believe that there could be individualized situations where extreme technical or
engineering hardship could necessitate further lead time for equipment manufacturers. We are adopting a
provision to provide for a case-by-case  expansion of lead time (in the form of increased percent of
production allowance or small volume allowance) to deal with these situations. See additional responses
in this section of the S & A document.  Ingersoll-Rand has informed EPA, by letter, that this provision
satisfies all of the concerns expressed in their comments and follow-up meetings regarding adequacy of
lead time for equipment manufacturers to meet Tier 4 standards.
       9.2.1.3  EPA Should Reduce or Eliminate the Number of Flexibility Options for Engines less
               than 25 hp

What Commenters Said:

       CARB commented that engines less than 25 hp will not require the flexibilities that the greater
than 25 hp engines may need because they are not required to meet the more challenging aftertreatment-
based standards. In fact, CARB noted, many of the less than 25 hp engines already meet the Tier 4
standards proposed by EPA.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 8

Our Response:

       We disagree with the commenter that flexibilities are not needed for engines below 25
horsepower. While it is true that the Tier 4 standards for engines below 25 horsepower are not
aftertreatment-based, we believe there will be changes in engines design for many of those engines in
response to the Tier 4 standards. As engine designs change, there is the potential for impacts on
equipment design as well.  Therefore, we believe providing equipment manufacturer flexibility for
engines below 25 horsepower is appropriate and we are including most of the flexibilities for engines
below 25 horsepower as we are for the other power categories.
       9.2.1.4 The Proposed Allowances Do Not Provide Adequate Flexibility for Manufacturers of
               Engines Greater than 750 hp

What Commenters Said:

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       EMA commented that expanded flexibility is very important to ensure the feasibility of the
standards for engines greater than 750 hp. EPA should ensure that there is sufficient flexibility in the rule
so that all of these larger engines would not need to have aftertreatment devices by the implementation
date.  The industry should have more time to develop and apply the appropriate technology. Allowing for
only 80 percent of one year's production to be deferred is simply not adequate to provide the necessary
flexibility and lead time for this category. EMA also commented that the small volume allowance also
needs to be expanded.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 23-24

Our Response:

       The Tier 4 standards being adopted today for engines above 750 horsepower have been revised
from the proposal. We believe that these revisions have appropriately accommodated concerns for the
most difficult to design applications (i.e., NOx adsorbers for engines in mobile applications), so that
additional equipment flexibilities for engines above 750 horsepower are not warranted. We are adopting
most of the flexibilities for engines above 750 horsepower as we are for the other power categories.
       9.2.1.5  EPA Should Allow Trading of Flexibilities Across Power Categories

What Commenters Said:

       Ingersoll-Rand commented that EPA should allow for allowances under the flexibility program to
be traded across horsepower categories using proper weighting factors. In addition, EMA commented
that, to make the Tier 4 standards feasible, EPA should allow equipment flexibility credits from the
TPEM program to be exchanged by and between the two power categories that EPA currently has
proposed for the 50 to  175 horsepower range.

       Letters:
       Engine  Manufacturers Association, OAR-2003-0012-0656, 0657 p. 10
       Ingersoll-Rand, OAR-2003-0012-0504 p. 16

Our Response:

       EPA proposed flexibility allowances based on the view that the introduction of the Tier 4
standards in each power category could trigger the need for implementation flexibility for the equipment
manufacturers using those engines.  Expanding the exemption allowance  in any power category by letting
a manufacturer use exemptions it did not need in another power category would run contrary to this
approach, and could create competitive inequities between companies that produce equipment over a
broad range of the power categories versus companies that produce equipment in a limited power range.
Perhaps more importantly, allowing such use across power categories could potentially provide more lead
time than necessary. For these reasons, we are not adopting provisions to allow equipment manufacturers
to trade their flexibilities across power categories in the Tier 4 program. We do note, however, that by
having fewer categories in this rule as compared to Tier 2/3, we are effectively expanding the
opportunities to use the flexibilities under the percent of production allowance, since there is a wider

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range of engines within each power category compared to Tier 2/3. (As noted elsewhere in this
document, we are adopting an incentive program for equipment manufacturers to encourage the use of
early Tier 4 engines that will provide extra allowances under the percent of production allowance and
small volume allowance options.  Under some limited circumstances, manufacturers will be allowed to
transfer these extra allowances earned for early Tier 4 engine introduction across two power categories.
Because these extra allowances are being earned for early introduction of Tier 4 engines, we believe some
extra flexibility with those allowances should be allowed.)

        With regard to the comment on the need to target the ability to trade allowances in the power
categories encompassing the 50 to 175 horsepower engines to ensure  feasibility of the Tier 4 standards,
we believe the Tier 4 standards being adopted today are feasible (as discussed in section II.B. of the
preamble for the final rule) and changes to the flexibility provisions are not necessary to ensure the
feasibility of those standards.
       9.2.1.6 Early Compliance Credits Should Be Granted for Each Certified Engine That aNon-
               vertically Integrated Equipment Manufacturer Incorporates into Equipment Prior to
               the Applicable Compliance Date

What Commenters Said:

       Ingersoll-Rand commented that under this approach, each early compliance credit should be valid
for the use of a previous-tier engine for 18 months after the certification date applicable to that engine.
Early compliance credits could be used across product lines and hp categories, and proper weighting
factors will be  used when credits are exchanged across hp categories. Adoption of a credit-based system
for early compliance by equipment manufacturers is appropriate given EPA's decision to provide
numerous compliance alternatives to engine manufacturers, including ABT programs.

       Letters:
       Ingersoll-Rand, OAR-2003-0012-0504 p. 16

Our Response:

       We agree with the thrust of this comment. The final rule therefore includes a provision whereby
equipment manufacturers can receive additional flexibility allowances for early use of Tier 4 compliant
engines.  The details of this provision are set out in section III.B.2.e. of the preamble to the final rule and
in 40 CFR 1039.627.
       9.2.1.7 Early Use of Tier 4 Flexibilities in the Tier 2/3 Timeframe

What Commenters Said:

       CARB commented that, regarding the use of Tier 4 flexibilities in the Tier 2/3 timeframe, the
proposed 10 percent limitation would amount to a fraction of a ton lost in HC+NOX benefits in 2010.
This restriction should be maintained provided the effect on existing emissions regulations remains
negligible.  In addition, CARB stated, EPA should discount any equipment flexibility used retroactively

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to further discourage abuse of this practice and ensure a proportionately larger and quicker roll-out of Tier
4 compliant equipment.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 8

Our Response:

       We believe the provisions to allow equipment manufacturers to use a limited number of their Tier
4 flexibilities early will have a negligible effect on Tier 2/Tier 3 compliance because we have
significantly limited the number of Tier 4 allowances a manufacturer could use early. Therefore, we are
retaining the provisions as proposed. In response to the comment on discounting the use of early Tier 4
credits, we are not adopting such a discount. The intent of allowing manufacturers to use the Tier 4
flexibilities early was to allow them to carry over the few remaining equipment models that might not
have been redesigned at the end of the seven year Tier 2/Tier 3 flexibility period until Tier 4 begins (see
68 FR at 28474), and not requiring a possible double redesign in a short period of time. Because we have
placed a relatively low cap (10 percent) on the amount an equipment manufacturer could use early from
Tier 4, we do not believe that manufacturers will be able to abuse the program and therefore should not
have to discount the number of Tier 4 flexibilities used early.  We also believe that allowing earlier use of
Tier 4 flexibilities will result in earlier introduction of Tier 4 engines, id., and so believe that for this
additional reason a discounting of such early use is not appropriate.
        9.2.1.8 EPA Should Revise the Flexibility Allowances for Nonroad Equipment Meeting the
               Existing Tier 2/Tier 3 Standards

What Commenters Said:

        DDC and EMA commented that the seven year period associated with the Tier 2/3 equipment
flexibility program should be extended as necessary to eliminate the gap between the expiration of the
Tier 2/3 flexibility program and the implementation of the Tier 4 standards.  In addition, they noted,
manufacturers  should be allowed to continue using their Tier 2/Tier 3 flexibilities during this extended
period.

        Letters:
        Detroit Diesel Corporation, OAR-2003-0012-0783 p. 5
        Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 28-29

        Ingersoll-Rand commented that EPA should provide additional flexibility allowances for nonroad
equipment meeting the existing Tier 3 standards.  Replenishing the allowances is necessary and
reasonable because of the difficulties that equipment manufacturers will face when Tier 3 takes effect in
2006. In certain power categories, Ingersoll-Rand has used most or all of the 80 percent of production
allowances during implementation of Tier 2, and other manufacturers likely face a similar situation. This
situation provides little or no flexibility allowances to address lead time issues when Tier 3 standards take
effect.  Therefore, noted Ingersoll-Rand, EPA should provide additional allowances for Tier 3 by fully
replenishing the 80 percent allowance for each power category.
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       Letters:
       Ingersoll-Rand, OAR-2003-0012-0504 p. 18

Our Response:

       Because this rule covers compliance with the Tier 4 program only, we do not believe it is
appropriate to make changes to the existing Tier 2/Tier 3 flexibility program. EPA did not reopen any
substantive feature of the Tier 2/3 rule for comment, and is not reconsidering this aspect of the Tier 2/3
program. These comments thus are not appropriate for this Tier 4 rulemaking.  (We do note, however,
that the rule provides for some early use of Tier 4 flexibilities, which would allow their use for a limited
number of Tier 2/3 engines (see 68 FR at 28474 and section III.B.2.d of the final preamble, as well as the
previous response), thus avoiding the type of gap about which EMA expressed concern.)
       9.2.1.9  EPA Should Clarify Who Is Eligible to Use the Flexibility Provisions

What Commenters Said:

       EMA and CNH Global commented that Section 1039.625 of the proposed rule limits the
requirements for an equipment manufacturer to apply for flexibility "only if you have the primary
responsibility for designing and manufacturing the equipment and install the engine in the equipment."
Section 89.102 of the current regulation states the requirements for flexibility but does not provide a
definition for equipment manufacturer. The proposed Tier 4 definition would exclude contracted
manufacturer volume from inclusion in a flexibility plan even if the manufacturer is providing its own
engines.  EPA should address issues regarding variations associated with equipment manufacturing in the
proposed rule, which could entail allowing equipment manufacturers that sell and service nonroad
equipment to sub-contract manufacturing to other companies.

       Letters:
       CNH Global, OAR-2003-0012-0819 p. 7-8
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 31

Our Response:

       We recognize that there are many different types of relationships between equipment
manufacturers.  However, we believe it is important to establish firm criteria for determining eligibility to
use the equipment manufacturer allowances. We are concerned that the change to the equipment
manufacturer definition suggested by the commenters would allow entities that have little or no
involvement in the actual design, manufacture and assembly of equipment (e.g., companies that only
import equipment) to claim they contracted with an equipment manufacturer to produce equipment for
them and therefore claim allowances.  This is the exact situation we are attempting to prevent with the
changes to the eligibility requirements for the  allowances.  Therefore, we are retaining the requirement
that only those nonroad equipment manufacturers that install engines and have primary responsibility for
designing, and manufacturing equipment will qualify for the allowances or other relief provided under the
Tier 4 transition provisions. However, we are revising the provisions regarding which engines an
equipment manufacturer may include in its total count of U.S.-directed equipment production, which in
turn affects the number of allowances an equipment manufacturer may claim. Under today's action, an

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equipment manufacturer may include equipment produced by other manufacturers under license to them
for which they had primary design responsibility. This should allow cover the type of situation described
by the commenters while preventing an import-only entity from claiming they are an equipment
manufacturer and thereby gaining access to the allowances.
       9.2.1.10Commenter questions whether engine manufacturers will produce engines for the Tier
               4 flexibility program and whether small businesses will be able to take advantage of the
              program.

What Commenters Said:

       The SBA Office  of Advocacy noted that during the SBREFA process, some small equipment
manufacturers commented that although EPA would allow some equipment to be sold which would not
require new emissions controls, these manufacturers believed that engine manufacturers would neither
produce nor sell such engines. SBA Office of Advocacy also commented that EPA has not shown that
substantial numbers of (small) businesses have taken advantage of previous small business flexibilities, or
that small businesses would be able to take advantage of the flexibilities under this rule

       Letters:
       U.S. Small Business Administration Office of Advocacy, OAR-2003-0012-0815 - 0818 p. 11-12

Our Response:

       The flexibility program adopted for Tier 4 will  allow engine manufacturers to produce engines
that do not meet the Tier 4 standards if an equipment manufacturer requests such engines for the
flexibility program, similar to the current Tier 2/3 flexibility program. The experience with the current
Tier 2/3 program leads us to believe that engine manufacturers will indeed produce such engines. Based
on information provided  by engine manufacturers to EPA under the requirements of the current Tier 2/3
flexibility program, engine manufacturers have sold substantial numbers of exempted engines to
significant numbers of equipment manufacturers. For example, in the 300 to 600 horsepower category,
we estimate that nearly 20 percent of the annual engine  sales were exempted engines in the first year of
the Tier 2/3 flexibility program. Those  engines were sold to nearly  150 different equipment companies,
many of which are  small equipment manufacturers. To the extent that an engine manufacturer has a
customer with a need, and it is possible  for them to meet that need under the regulations, we believe that
engine manufacturers will do everything possible to maintain their customer base. There has been no
indication given by engine manufacturers that they intend to discontinue their practice of providing
previous tier engines under the Tier 4 flexibility program. In fact, engine manufacturers have supported
provisions that will allow them the ability to produce engines meeting the previous tier standards under
the Averaging, Banking and Trading (ABT) program. Their support for this provision, leads us to believe
that they are intending to produce some engines meeting the previous tier of standards without regard for
the terms of the flexibility program.

       In addition, the nonroad diesel engine and equipment market is an international market. This
point has been made both by EPA and by many of the engine and equipment manufacturers who
commented on the proposal. Nonroad diesel and engine manufacturers sell their products around the
globe.  As such, even today engine and  equipment manufacturers sell products into markets which have

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emission requirements for nonroad engines (such as the U.S., Europe, and Japan) as well as countries
which do not have emission standards.  We have spoken with a number of engine manufacturers who
today produce a combination of nonroad diesel engines which meet no emission standards, Tier 1
standards, and Tier 2 standards for the same basic engine platform. For some of the highway heavy-duty
engine manufacturers, in addition to producing Tier 0, Tier 1, and Tier 2 nonroad diesel engines, they also
produce on the same production line engines which comply with the 1998 and the 2004 U.S. highway
heavy-duty emission standards. Based on current practices, and the fact that the nonroad diesel market is
a global market, we expect many engine companies to continue to sell Tier 3 types of engines in the Tier
4 time-frame.

       Finally, we expect that those engine manufacturers which do not intend to continue to sell
engines outside of markets which have Tier 4 or Tier 4-like emission standards would be able to remove
the PM and NOx aftertreatment hardware from their Tier 4 certified engines and, with minimal effort, be
able demonstrate compliance with the  Tier 3  standards  in order to supply equipment customers with
engines under the flexibility program.
       9.2.2   Percent of Production Allowance

       9.2.2.1  Commenter Generally Supports the Percent of Production Provisions

What Commenters Said:

       EMA commented that it generally supports the proposed provisions regarding the Percent-of-
Production allowance, but did not provides any additional discussion.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 111

Our Response:

       We agree with the commenter and are retaining the percent of production allowance under the
Tier 4 flexibility program. We also are allowing for the potential expansion of this allowance on a case-
by-case basis under the technical hardship allowance adopted in this final rule, as explained in the
following response and elsewhere in the administrative record.


       9.2.2.2  EPA Should Expand the Percent of Production Allowances

What Commenters Said:

       Ingersoll-Rand commented that if EPA does not establish 18 months of lead-time after an engine
"made available" date as recommended by Ingersoll-Rand [see additional discussion on lead-time under
Issue 9.2.1.2.], modifications should be made to the percent of production allowances. Ingersoll-Rand
believes that EPA should increase the level of flexibility to make it proportionate to the difficulty of the
proposed rule.  Specifically, the commenter stated that EPA should expand the percent of production
allowances from 80 percent to 150 percent. In discussions with Ingersoll-Rand, the company revised

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their request to apply the expanded percent of production allowances to non-integrated equipment only
(i.e., equipment in which the equipment is not also made by the manufacturer of the engine).  By written
communication, the company also indicated that no increase in the percent of production allowance was
needed for the less than 25 horsepower category, and that an increase to 120 percent (rather than 150
percent) would be appropriate for the 25 to 75 horsepower category.  In addition, the use of the percent
of production allowances should be based on total production volume of all machines, rather than limiting
the use of allowances to equipment within EPA's selected power categories.

       Letters:
       Ingersoll-Rand, OAR-2003-0012-0504 p. 16
       Ingersoll-Rand, OAR-2003-0936, p. 2
       Ingersoll-Rand, OAR-2003-0937, p. 2

Our Response:

       Although we disagree with Ingersoll Rand's comments that expanded flexibility will be needed
across the board by all non-integrated equipment manufacturers, we agree that there could be
circumstances of extreme technical or engineering difficulties which justify additional exemption through
an increase in the percent of production allowance.  We have adopted such a provision in the final rule. It
is modeled after the hardship provision in existing regulations in that it requires a showing of technical or
engineering difficulty which is extreme and unexpected, and against the occurrence of which the
equipment manufacturer exercised reasonable precaution.  However, unlike the  existing economic
hardship flexibility, there is  no requirement to demonstrate extreme economic harm (and information
regarding  cost would be irrelevant to an application under the technical hardship provision). Rather, we
are requiring that the equipment manufacturer applicant provide information documenting that an extreme
and unavoidable technical/engineering challenge has arisen.  To evaluate an  application, the rule requires
that the applicant supply information relating to the design process for the equipment in question. The
information would have to address the normal business relationship between the equipment manufacturer
and engine supplier, the extreme technical or engineering problems that have arisen and why they are not
immediately solvable, information or products received from the engine supplier (i.e. drawings,
specifications, prototype engines) and when received, why the design process has worked for other
equipment but not for the item in question, and the equipment manufacturer's efforts to find other
compliant engines. These information submittal requirements are drawn in part from Ingersoll's
comments, where they mentioned this type of information as needed for equipment manufacturers to
successfully design equipment for compliant engines, and also from EPA's own study of and discussions
with equipment manufacturing industry members.  EPA also would reserve the right to request other
relevant information, and also to cross-check any information received in the application with other
entities (notably engine suppliers) to verify its accuracy.

       If an application is granted, EPA could expand the existing percent of production allowance from
80 percent per power category by as much as an additional 70 percent (so that there could be a maximum
150 percent of production allowance per power category). This program would only apply to the power
categories between 25 and 750 horsepower. However, to justify granting additional lead time in the form
of expanded percent of production, we would require that the applicant demonstrate there is a reasonable
likelihood it will utilize the existing 80 percent provided under the percent of production allowance for
the power category in the first two years of the  seven year flexibility period (since if that allowance has
not been used, there is no need for additional lead time). We would also require that this

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technical/engineering hardship allowance expire 24 months after the start of the seven year flexibility
period. This is because we believe that any technical or engineering problems should be solvable in the
first 24 months after the Tier 4 standards take effect.  Ingersoll-Rand has in fact notified EPA, by letter,
that this technical hardship case-by-case flexibility provision satisfies all of its concerns regarding
adequacy of equipment manufacturer lead time to meet the Tier 4 standards.

       In response to the comment that allowances should be based on total production volume of all
machines, rather than limiting the use of allowances to equipment within EPA's selected power
categories, we disagree that such an approach is appropriate. The flexibility allowances are based on the
view that the introduction of the Tier 4 standards in each power category could trigger the need for
implementation flexibility for the equipment manufacturers using those engines and that the need for the
flexibilities is generally the same in all power categories. Expanding the exemption by letting a
manufacturer increase its exemptions in one power category where they have small sales because they
have large sales in another power category would run contrary to this approach, and could create
significant competitive inequities between companies, and  provide  more lead time than necessary,
contrary to the command of section 213(b). Therefore, we  are not adopting provisions that would allow
equipment manufacturers to calculate the amount of allowance provided under the flexibilities based on
total sales across all power categories. Instead, as proposed, the final program provides allowances in
each Tier 4 power category based on a manufacturer's total sales in that power category.
       9.2.3   Small-Volume Allowance

       9.2.3.1  Commenters Support EPA's Proposed Small-volume Allowance Program, but Offer
               Suggestions for Improvement

What Commenters Said:

       A number of commenters stated that EPA should implement the proposed small-volume
allowance program that allows up to 700 units to be exempted over seven years, however, the program
should be implemented without the single engine family restriction. Even though eliminating the single
family restriction would allow for more exemptions within a power category, there are significantly fewer
power categories under the Tier 4 rule than under the Tier 2/3 (a reduction from 9 categories to 5).
Therefore, EPA's concerns regarding a proliferation of exemptions have been addressed. One commenter
(ARTBA) noted that the maximum number of 700 exemptions should be retained.

       Letters:
       American Road and Transportation Builders Association, OAR-2003-0012-0633 p. 2
       Association of Equipment Manufacturers, OAR-2003-0012-0669, 0670 p. 8-9
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 5
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657  p. 30, 111
       Ingersoll-Rand, OAR-2003-0012-0504 p. 17

       EMA offered the suggestion that if EPA does not implement the small-volume allowance
program without the single family restriction, then the program should provide manufacturers with an
option to choose either the proposed or the alternative program.  The commenter believes that this
approach would preserve a competitive balance.

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       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 30, 111

       CNH Global commented that it supports the proposed variation to the small-volume allowance
since it would balance the allowance with total engine production by power category. This is very
important for individual product lines as the current program allows a small-volume manufacturer to
capture a significant market share with lower cost and higher emitting engines than for a manufacturer
that must use percent-of-production allowance.

       Letters:
       CNH Global, OAR-2003-0012-0819 p. 8

Our Response:

       With the Tier 4 final program we are adopting both the proposed small volume allowance (which
allows a manufacturer to exempt up to  700 units over 7 years in any power category, with a maximum of
200 in any given year, provided the engines are limited to one engine family in each  power category) as
well as the alternative small volume allowance discussed in the proposal (which allows manufacturers to
exempt fewer engines over 7 years, but without the one engine family restriction noted for the other
option). Equipment manufacturers wishing to use the small volume allowance will be able to choose
between the two options.

       We are not eliminating the one engine family restriction from the 700 unit small volume
allowance option as suggested by commenters because it would result in a significant increase in the
number of engines eligible to be exempted to levels which we believe are not needed to provide adequate
lead time for the Tier 4 program. Based on sales information for small businesses, we estimated that the
alternative small-volume allowance program (which includes the lower caps and allows manufacturers to
exempt more than one engine family) would keep the total number of engines eligible for the allowance at
roughly the same overall level as the current 700-unit program. Giving equipment manufacturers the
ability to choose between the two small volume allowance options is not expected to significantly impact
the number of engines likely to be exempted under the small-volume allowance.
       9.2.3.2 Commenter Recommends That EPA Establish Safeguards to Prevent Inappropriate
              Use of Small Volume Allowances by Separate Legal Entities That Are under the Same
              Ownership

What Commenters Said:

       EMA commented that EPA should establish safeguards to prevent inappropriate use of small
volume allowances by separate legal entities that are under the same ownership, but provided no
additional discussion or information.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 31

Our Response:

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       We believe our regulations have safeguards to prevent inappropriate use of the small volume
allowances by separate legal entities. As under the existing program, all entities under the control of a
common entity, and that meet the regulatory definition of a nonroad vehicle or nonroad equipment
manufacturer, must be considered together for the purpose  of applying exemption allowances. The
regulations specifically require an equipment manufacturer to  include equipment from any parent or
subsidiary companies and equipment from any other companies which they licence to produce equipment
for them. The requirement to include all of these entities in the count will not only provide certain
benefits for the purpose of pooling exemptions, but will also preclude the abuse of the small-volume
allowances that would exist if companies could treat each operating unit as a separate equipment
manufacturer.
       9.2.3.3 Proposed Small Volume Allowance Regulatory Language Should Be Revised to Be
              Consistent with the Percent of Production Regulatory Language

What Commenters Said:

       DDC and EMA commented that the proposed regulatory language describing the small volume
allowance places the exemption limit on the number of equipment units produced within the power
category.  To be consistent with the percent of production allowance, the limit should apply not to the
total number of units produced, but to the number of U.S.-directed units produced.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 5
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 30

Our Response:

       We agree with the commenters that the limit on the number of engines produced under the small
volume allowance should only apply to U.S.-directed units.  Section 1039.625(b)(2) of the regulations has
been revised accordingly.
       9.2.4   Hardship Relief Provision

       9.2.4.1  Commenter Supports the Hardship Relief Provision

What Commenters Said:

       EMA commented that it generally supports the hardship relief provision, but provided no
additional discussion or supporting documentation.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 30, 111

Our Response:
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       We agree with the comment and are retaining the hardship relief provisions as proposed in the
Tier 4 final program. (In addition, we are adopting a technical hardship flexibility provision, discussed in
earlier responses, in response to comments.)
       9.2.4.2  EPA Should Allow for Hardship Relief When Events That Are Beyond the Control of
               the Equipment Manufacturer Prevent the Timely Introduction of Tier 4 Machines, and
               Should Not Necessarily Require a Showing of Undue Economic Hardship

What Commenters Said:

       Ingersoll-Rand commented that in order to obtain hardship relief from EPA, an equipment
manufacturer must submit an application before the earliest date of potential noncompliance. The
eligibility for hardship relief should not require a demonstration of severe economic hardship, a term
which is not defined in the regulation but connotes a high threshold of economic harm.  EPA should make
hardship relief available if any engine manufacturer currently supplying engines to an equipment
manufacturer fails to provide a new certifiable prototype engine with written specifications and
performance data at least 18 months prior to the applicable Tier 4 compliance date.

       Letters:
       Ingersoll-Rand, OAR-2003-0012-0504 p. 17-18
       New York Public Hearing, A-2001-28, IV-D-05 [IRp. 227]

Our Response:

       As described earlier in "Our Response" to issue 9.2.1.2.,we disagree with Ingersoll Rand's
premise that Tier 4 will create a situation where expanded equipment maker lead time is the norm rather
than the exception so that the rule must provide a drastic expansion of equipment manufacturer lead time.
However, we agree with the commenter that there may be circumstances where  additional lead time is
needed for equipment manufacturers due to extreme technical or engineering circumstances that the
equipment manufacturer could not control and took reasonable precautions to prevent. We further agree
that, if these circumstances arise, it is appropriate, as an element of providing  sufficient lead time, for
there to be further flexibility to use noncompliant engines without having to make a showing of extreme
economic hardship.  We have consequently adopted an additional flexibility for technical or engineering
hardship in the final rule. Details are provided in section III.B.2.b of the preamble, and in other comment
responses in this document.
       9.2.4.3  The Hardship Provisions Should Be Extremely Limited

What Commenters Said:

       The Clean Air Council commented that economic hardship proposal is hard to justify. If a
manufacturer or refiner is unable to meet standards that all its counterparts are subject to, then perhaps it
should not play a role in the industry.  If EPA includes a hardship provision, it should be limited to a year
or less of compliance flexibility.
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       Letters:
       Clean Air Council, OAR-2003-0012-0613 p. 2

Our Response:

       We continue to believe that there may be circumstances in which hardship relief is appropriate
under the Tier 4 program. Given the criterial that an equipment manufacturer must demonstrate before
being considered for hardship relief, we expect that the hardship relief provisions will be rarely used.
This expectation has been supported by our initial experience with the Tier 2 standards in which only one
equipment manufacturer has applied under the hardship relief provisions (and the request was
subsequently denied).  Therefore, we are retaining the hardship relief in the final Tier 4 program.
       9.2.5   Existing Inventory Allowance

       9.2.5.1  Commenter Supports the Provisions That Allow Manufacturers to Use Existing
               Inventories of Older Engines and Permit the Sale of Replacement Engines

What Commenters Said:

       EMA commented that these are necessary provisions to account for the routine and unavoidable
lag between engine build and machine assembly, and are a normal consequence of transitioning to a new
set of standards.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 30-31,  111

Our Response:

       We agree with the comments and are adopting the existing inventory allowance as proposed.


       9.2.6   Notification, Reporting, and Labeling Requirements

       9.2.6.1  Commenter Supports the Notification and Reporting Requirements in the Context of
               the Tier 4 Transition Provisions

What Commenters Said:

       EMA commented that it supports the proposed notification and reporting requirements. The
commenter further noted that, proposed under the transition provisions, equipment manufacturers and
importers should provide EPA with estimates of the number of non-Tier 4 engines to be used in each
power category and annual reports detailing the number of exempt engines bought and sold under the
flexibility provisions.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 31

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Our Response:
       We agree with the comments and are adopting the notification and reporting requirements as
proposed.
       9.2.6.2 EPA Should Eliminate the Labeling Requirements for Equipment Affected by the
              Transition Program for equipment Manufacturers (TPEM)

What Commenters Said:

       DDC and EMA commented that EPA should not impose a requirement to label equipment that
contain engines built under the Transition Program for Equipment Manufacturers (TPEM).  Under the
Tier 1 and 2 rules, TPEM engines already are installed in nonroad equipment, yet there is no additional
labeling required by equipment manufacturers.  There is nothing in the proposed Tier 4 rule that would
necessitate a different approach.  Requiring equipment manufacturers to label already-labeled engines is
burdensome, costly, and unnecessary.  If EPA can justify a TPEM labeling requirement for equipment
manufacturers, then the requirement should be applicable only to Tier 4 engines and should not be applied
retroactively to Tier 3 or earlier transitional engines. DDC and EMA also commented that EPA should
allow manufacturers to include any other additional information on the label.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 7
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 82-83

Our Response:

       We believe these new labeling requirements will allow EPA to easily identify the exempted
equipment, verify which equipment manufacturers are using these exceptions, and more easily monitor
compliance with the transition provisions.  Labeling of the equipment should also help U.S. Customs to
quickly identify equipment being imported using the exemptions for equipment manufacturers. For these
reasons, we are adopting the labeling requirement for engines sold under the Tier 4 flexibility program.

       With regard to the comment on whether these labeling requirements should also apply to the
current Tier 2/Tier 3 transition program,  we are not adopting new labeling requirements for equipment
manufacturers for the current Tier 2/3 program. Although we requested comment on this issue, we do not
believe it is appropriate to make changes to the existing Tier 2/3 flexibility program since this rule covers
compliance with newly adopted Tier 4 program only.

       With regard to the comment on including other information on the equipment label, the labeling
requirements finalized in 40 CFR Part 1039 allow manufacturers to include additional information on the
label provided they have received prior approval from EPA.
       9.2.6.3 EPA Should Revise the Labeling Requirements for Engines Affected by the Transition
              Program for Equipment Manufacturers (TPEM)
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What Commenters Said:
       DDC and EMA commented that EPA's proposed requirement for the labeling of transitional
engines is unclear and could lead to significant confusion. The Section 1039.135 label states that the
engine conforms to the current model year standards, so adding a label that states that the engine is
exempt from the current standards will only confuse customers.  Engines produced under the TPEM
program are not certified to the current standards and as a result,  the certification compliance statement
required by Section 1039.135 cannot be made without putting manufacturers at significant risk. Also, it
will not be possible to label a transitional engine with an engine family name since TPEM engines are not
part of a currently-certified family.  The commenters also suggested that EPA should require a TPEM
label that only includes the heading "Emission Control Information," the corporate name and trademark
of the manufacturer, and the statement recommended in Section  1039.625(j); and this provision should
only apply to Tier 4 engines and not to Tier 3 or earlier transitional engines.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 7
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 83-84

Our Response:

       We agree with the comments that the proposed requirements for labels placed on flexibility
engines could lead to confusion and problems because the flexibility engines are not certified to the Tier 4
standards which normally would apply in the absence of the flexibility provisions. In response to these
comments, we have revised the labeling requirements for flexibility engines. Under Section 1039.135 of
the final Tier 4 regulations, the label on the flexibility engines will no longer need to include a statement
that the engine conforms to the current model year standards or a reference to an engine family name.

       With regard to the comment on whether these labeling requirements should also apply to the
current Tier 2/Tier 3 transition program, we are  not adopting new labeling requirements for equipment
manufacturers for the current Tier 2/3 program.  Although we requested comment on this issue, we do not
believe it is appropriate to make changes to the existing Tier 2/3  flexibility program since this rule covers
compliance with newly adopted Tier 4 program only.
       9.2.6.4 EPA Should Eliminate the Notification Requirement for Equipment Manufacturers
               Who Plan to Use the Transition Provisions since it Creates an Unnecessary Burden
               and Provides Minimal Benefit

What Commenters Said:

       Ingersoll-Rand commented that if EPA must retain the notification requirement, EPA should
clarify that such projections are non-binding, good faith estimates of production volumes that can be
adjusted up or down to meet market conditions. The commenter also stated that EPA should include a
specific provision that acknowledges that data submitted with a notification of intent to use the transition
provisions qualifies as confidential business information.

       Letters:

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       Ingersoll-Rand, OAR-2003-0012-0504 p. 19

Our Response:

       We disagree with the commenter that the notification requirement is unnecessary and continue to
believe the new notification requirements will greatly enhance our ability to ensure compliance with the
flexibility provisions. Given the limited information that must be provided by equipment manufacturers,
we do not expect that the notifications will require any significant effort to pull the information together
and submit to EPA. With regard to comment on confidentiality, a manufacturer can always request that
some or all of the information supplied in the notification be treated as confidential business information
as provided in 40 CFR Part 2, Subpart B. If such a claim is made, the information covered by the
confidentiality claim will be disclosed by the Administrator only to the extent allowed under the
provisions of 40 CFR Part 2, Subpart B.


       9.2.7   Foreign Manufacturers and Importers

       9.2.7.1  Commenter Supports the Flexibility Provisions for Equipment Produced by Foreign
               Manufacturers

What Commenters Said:

       EMA commented that it supports the flexibility provisions for equipment produced by foreign
manufacturers, since foreign manufacturers that comply with the Tier 4 compliance provisions would be
able to use the same transition flexibilities as domestic manufacturers, while importers that have little
involvement with the manufacturing and assembling process would not.  EPA should ensure that foreign
manufacturers are required to comply with the same regulatory provisions as  domestic manufacturers.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 31, 111

Our Response:

       We agree with the comments and are adopting requirements that would apply specifically to
foreign equipment manufacturers and equipment importers.

       We have made one change to the bonding requirements that apply to  foreign equipment
manufacturers choosing to participate in the Tier 4 flexibility program. We have eliminated the option to
pay the bond amount directly to the U.S. Treasury. Based on experience with the bonding requirements
for foreign gasoline refiners, no regulated entity has chosen to pay the bond directly to the U.S. Treasury.
They have opted to obtain a bond through a third-party surety agent. We believe it will be the same
situation for this program  and therefore we are dropping the option to pay the bond directly to the U.S.
Treasury.  We do not believe an equipment manufacturer would choose to pay the full bond amount to the
U.S. Treasure for a period of up to 12 years (the seven-year flexibility period plus an additional five years
during which we could still consider enforcement violations), but would  opt to obtain a bond at lower cost
through a third-party surety agent.  Therefore, dropping the option should not impact the ability of foreign
equipment manufacturers to comply with the bonding requirements if they choose to participate in the

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Tier 4 flexibility program.
       9.2.7.2  Flexibility Provisions for Foreign Equipment Manufacturers Should Not Apply to U.S.
               Based Companies with Offshore Manufacturing Facilities

What Commenters Said:

       Ingersoll-Rand commented EPA should clarify that the flexibility provisions for foreign
equipment manufacturers should not apply to U.S. based equipment manufacturering companies with
offshore manufacturing facilities (as defined in 40 CFR 1039.801), including its affiliated companies and
divisions, when the manufacturer is headquartered or incorporated in the U.S.

       Letters:
       Ingersoll-Rand, OAR-2003-0012-0504 p.  19

Our Response:

       The purpose of the provisions for foreign equipment manufacturers is to ensure that all equipment
manufacturers are subject to enforcement under our regulations, regardless of where the company is
headquartered or where the equipment is manufactured. While we recognize that a company that is
headquartered or incorporated in the U.S. would be easier to enforce against in the case of noncompliance
with the flexibility provisions, we believe it is important that all companies importing equipment to the
U.S. comply with the requirements for foreign equipment manufacturers.  Neither the notification
requirements described earlier for foreign equipment manufacturers nor the bonding requirements should
cause any burden for companies with significant presence in this country. We would expect that only
those companies with limited presence or no presence in this country will be impacted to any measurable
degree because of the requirements placed on foreign equipment manufacturers. Therefore, for the Tier 4
program, all manufacturers that produce equipment outside of the United States that is eventually sold in
the United States will have to comply with all requirements for foreign equipment manufacturers.
       9.2.7.3  Flexibility Provisions Provide an Advantage to US. Manufacturers

What Commenters Said:

       CEMA/CECE commented that EPA's flexibility provisions appear to provide an advantage to
U.S. manufacturers. The commenter did not provide additional discussion on this issue or details on the
flexibility provisions to which they are referring.

       Letters:
       CEMA/CECE, OAR-2003-0012-0598 p. 4

Our Response:

       The flexibility provisions adopted for the Tier 4 program (i.e., the percent of production
allowance, the small volume allowance, and the hardship relief provisions) are available to all

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manufacturers whether they are U.S. manufacturers or foreign manufacturers, so we do not believe that
these provisions provide an advantage to U.S. manufacturers.  With regard to the other requirements that
apply under the Tier 4 flexibility program, we have adopted special provisions that apply to foreign
equipment manufacturers. While these requirements may place additional requirements on some
manufacturers, we believe they are necessary to ensure that all equipment manufacturers are subject to
enforcement under our regulations, regardless of where the company is headquartered or where the
equipment is manufactured.  In addition, they will ensure that we have the ability to recover monetary
penalties from a manufacturer determined to be in violation of the program requirements which may not
be possible without the additional requirements for foreign manufacturers.
9.3    Small Business Provisions

       9.3.1   General

What Commenters Said:

       The Clean Air Council commented that any additional lead time granted to small manufacturers
should be extremely limited- EPA should only provide at most a single year of additional time for small
manufacturers.

       SB A Office of Advocacy commented that EPA's small business flexibilities for small engine and
equipment manufacturers, as well as small refiners, are insufficient on their own to appropriately
minimize the regulatory burdens on small entities. During the statutory SBAR Panel, Small Entity
Representatives informed EPA, Advocacy, and OIRA that the flexibilities EPA considered there and
subsequently included in the proposed rule, would not result in reduced regulatory burden. Equipment
manufacturers noted that even if the regulations allow for some noncompliant equipment to be sold, they
would not produce or sell such equipment.  Even though EPA has allowed for delayed compliance, the
manufacturers will ultimately need to comply. EPA has not shown that a substantial number of small
businesses have taken advantage of previous  small business flexibilities or that they would take  advantage
of, or benefit from, the flexibilities in the proposed rule.

       Letters:
       Clean Air Council, OAR-2003-0012-0613 p. 2
       U.S. Small Business Administration Office of Advocacy, OAR-2003-0012-0815 - 0818 p.  11-12

Our Response:

       We do not agree with the statement that lead time for small manufacturers should  be 'extremely
limited.'  While we do agree that small entities will ultimately need to comply with the standards, these
entities have an inherent degree of hardship in that they generally do not have the personnel, financial, or
engineering resources that larger manufacturers do, and so may need additional lead time. Thus, they will
face a significant burden in complying with new standards absent some regulatory flexibility.  For some
applications/horsepower categories, this may mean a year of lead time; however, for other categories,
more may be necessary to provide adequate and appropriate lead time.

       In regard to the comments from Advocacy, some small business equipment manufacturers

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informed us that they had not taken advantage of the current small business flexibilities due to the fact
that the provisions were difficult to understand (although we did not receive any comments from small
business equipment manufacturers during the public comment period stating that the proposed provisions
would not be helpful) and some manufacturers found that they were still able to comply without the use
of the provisions.  To address these comments, we are finalizing additional transition provisions- the
alternative small volume option- which we believe will provide  more flexibility to small businesses in
complying with the new standards, and provide appropriate lead time where needed, and these options
were developed using sales information from small businesses.  We also will be issuing a Small Entity
Compliance Guide which will help to explain the flexibility provisions. The guide will be available
within 60 days of the effective publication date of this rulemaking, and will be available on the Office of
Transportation and Air Quality website.

       During the SBREFA process, some small business equipment manufacturers informed us that the
regulations would provide an additional burden due to the fact that the company also sells equipment to
other countries which will not require more stringent standards.  These manufacturers were concerned
that these customers would not want to purchase new Tier 4 compliant equipment. As explained in
section III.B.2.g, under the existing inventory allowance available to all equipment manufacturers,
equipment manufacturers are allowed to continue to use engines built before the effective date of new
standards. Thus, small business equipment manufacturers can continue to use their current
engine/equipment configuration, within limits, and  avoid out-of-cycle equipment redesign until the
allowances are exhausted or the time limit passes.  Further, as discussed above in 9.2.1.10, based on the
experience with the current Tier 2/3 program, we believe that engine manufacturers will produce such
engines.

       Advocacy's assertions notwithstanding, small business  engine manufacturers did not provide any
comments during the SBREFA process, nor during the public comment period, stating that the transition
provisions were insufficient. In fact, we received comments from one small engine manufacturer (see
comment in 9.3.2.1, below) stating that these provisions are both necessary and sufficient for compliance
with today's standards.  Similarly, we received comments from  small refiners during both the SBREFA
process and the public comment period that the proposed provisions were sufficient and would be
beneficial to small refiners.  Expanding these allowances, as Advocacy urges, would thus simply be
providing more lead time than necessary, contrary to the lead time forcing section 213 (b).

       More information on the provisions that are being finalized for small entities can be found in
sections III.C (provisions for small business engine and equipment manufacturers) and IV.B (provisions
for small refiners, terminal operators, etc.), as well as section X.C of the preamble to today's rule.
       9.3.2   Small Engine Manufacturers

       9.3.2.1  Supports the Proposed Provisions for Small Engine Manufacturers

What Commenters Said:

       Lister Fetter commented that it supports the proposed provisions for small business engine
manufacturers.  Small manufacturers do not receive the same attention from potential suppliers of the
critical technologies for Tier 4 emissions control and fuel injection systems. Lister Fetter notes that to

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date, they have not been able to attract a manufacturer to work with them in a co-development mode,
which precludes their ability to complete effective development work on the necessary technologies as
early as the larger engine manufacturers. This commenter adds that the three-year delay is consistent with
their estimates and experience regarding how long it may take for the necessary technologies to be
available to them. Lister Fetter also commented that smaller [engine] companies will be dependent on the
technologies and product systems developed by the  aftertreatment and fuel injection system
manufacturers. In addition, these companies may be particularly vulnerable in the event that a supply
monopoly develops in the aftertreatment market.

       Letters:
       Lister Fetter, OAR-2003-0012-0155 p. 2

Our Response:

       We agree with the commenter, and therefore we are finalizing the transition (and hardship)
provisions that we proposed for small business engine manufacturers. While we believe that emissions
from nonroad engines have a significant effect on emissions, we believe that offering transition provisions
to small business engine manufacturers will have a negligible effect on air quality and the emissions
inventory; and these provisions will provide needed lead time for these manufacturers.
       9.3.3   Small Business Equipment Manufacturers

What Commenters Said:

       The SB A Office of Advocacy commented during the interagency review process that EPA should
not adopt an aftertreatment-based standard for PM for 25-50 hp engines.

Our Response:

       Please see the response to issue 3.1.4.4 for a complete discussion of this issue.


9.4    Encouraging Innovative Technologies

       9.4.1   Credit for Early or Very Low Emission Engines

       9.4.1.1  EPA Should Adopt the Early Incentives Program

What Commenters Said:

       Environmental Defense, MECA, and STAPPA/ALAPCO commented that EPA should ensure
that any early reduction credits are fully enforceable and verifiable. STAPPA/ALAPCO also added that
EPA should ensure that any early engine credits earned for a diesel-fueled engine are predicated on the
assurance by the manufacturer that the engine would be fueled with less than  15 ppm sulfur fuel. EPA
should be rigorous in designing a sensible program since it will address a variety of different engines
functioning in divergent operating conditions.

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       Letters:
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 11
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 19
       Environmental Defense, OAR-2003-0012-0821 p. 18

       STAPPA/ALAPCO also commented that as an additional incentive to introduce clean engines
and vehicles early, EPA is proposing a provision that would give manufacturers an early introduction
credit equal to two engines during or after the phase-in years. Due to the extremely low emission levels
to which these Blue Sky series engines and vehicles would need to certify, the double engine count as a
basis for this early introduction credit is appropriate.

       Letters:
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 19-20

       SCAQMD commented that EPA should examine incentive program options for manufacturers
who voluntarily introduce the new engines sooner, exceed the required standards, or accelerate the engine
replacement in any "extreme" or "severe" nonattainment areas such as the South Coast Air Basin. In
order to encourage development and commercialization of new and more advanced control technologies
for nonroad engines, SCAQMD commented that EPA should also establish optional standards in its
proposed rulemaking based on compliance with voluntary and more stringent standards. These standards
would facilitate emission credit generation opportunities and generate surplus emission reductions.

       Letters:
       South Coast Air Quality Management District, OAR-2003-0012-0623 p. 7

       9.4.1.2  EPA Should Not Adopt the Early Incentive Program

What Commenters Said:

       EMA commented that EPA's proposal to allow manufacturers to be able to have one "early"
engine offset of 1.5 or 2.0 Tier 4 engines should be eliminated. The motivation behind this complex
provision and the method in which it is intended to be used is unclear.  An incentive to encourage
manufacturers to introduce low emission technology early is already provided through the ABT program.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 39

Our Response (to  9.4.1.1-9.4.1.2):

       We continue to believe that there is a significant environmental benefit from early introduction of
engines complying early with Tier 4 aftertreatment-based standards, both in the form of earlier emission
reductions, and in the value of early introduction of the technology, which facilitates development and use
of the aftertreatment in other nonroad applications. Like the ABT program, EPA has structured this
incentive program so that credits are verifiable and enforceable.

       We are finalizing the incentive program, although we are modifying it by allowing equipment
manufacturers to be eligible and to have a right of first refusal to any offsets which are generated.  We

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believe that the program properly ensures that the early emission reductions occur, without creating
unmanageable burdens for manufacturers. We agree with EMA that the ABT program already provides
some incentive, but, as explained above, there are important benefits in the early introduction of
aftertreatment technology, and we feel some additional incentive is justified to encourage such early
introduction.
       9.4.2  Extending the Existing Blue Sky Program

       9.4.2.1 EPA Should Extend the Existing Blue Sky Program

What Commenters Said:

       MECA expressed support for extending the Blue Sky Program, but provided no additional
discussion or supporting documentation.

       Letters:
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 11


       9.42.2 EPA Should Not Extend the Existing Blue Sky Program

What Commenters Said:

       Environmental Defense and STAPPA/ALAPCO commented that the levels set for the existing
Blue Sky program are not stringent enough to warrant their continuance into the Tier 4 years. The
incentives focus should shift to advanced technologies and the existing Blue Skies program contributes
little to this and should be terminated once the Tier 4 standards are introduced. Environmental Defense
added that a revised Blue Sky Series engine program that would achieve reductions below Tier 4 levels
could be appropriate.

       Letters:
       Environmental Defense, OAR-2003-0012-0821 p. 18
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 19-20

Our Response (for 9.4.2.1 - 9.4.2.2):

       Given the very low emission levels being adopted in Tier 4, we believe that the Blue Sky Series
program in 40 CFR Part 89, which does not encourage engines emitting at such low emission levels,
should not be extended. We also note that section 1039.104 (a) for early introduction of engines certified
to Tier 4 or more stringent levels creates the incentives some of the commenters desired.


       9.4.3  EPA Should Establish More Stringent Optional Standards to Facilitate Credit
              Generation

What Commenters Said:

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       SCAQMD commented that in order to encourage development and commercialization of new and
more advanced control technologies for nonroad engines, EPA should also establish optional standards in
its proposed rulemaking based on compliance with voluntary and more stringent standards. These
standards would facilitate emission credit generation opportunities and generate surplus emission
reductions.

       Letters:
       South Coast Air Quality Management District, OAR-2003-0012-0623 p. 7

Our Response:

       We believe that the ABT provisions and early incentive programs will be sufficient for the
purpose of encouraging the early use of the advanced emission controls.
9.5    Test Procedures

       9.5.1   Transient Test

       9.5.1.1 Supports Transient Testing

What Commenters Said:

       A number of commenters stated that they support transient testing, and noted that the proposed
transient emissions test is necessary to ensure that the targeted emission reductions are achieved in use.
NESCAUM noted that test data, including data from a NESCAUM nonroad emissions testing and pilot
retrofit project at Salem Harbor and at EPA's Ann Arbor lab in 1998, demonstrate the need for a transient
test cycle for nonroad diesel engines.  And added that the NESCAUM results showed that PM emissions
on a steady-state cycle are as much as 30 percent lower than PM emissions on a more representative,
transient cycle and that without the development of a transient test cycle, nonroad diesel emissions could
be substantially under-estimated. The commenters recommended, however, that testing on the NRTC
cycle for engines under 75 hp be required prior to the proposed date of 2013, with some commenters
(CATF, STAPPA/ALAPCO)  specifically recommending a deadline of 2008 (or as soon as Tier 4
requirements are introduced for a given engine category). STAPPA/ALAPCO added that the overriding
principle should be how well the test reflects actual vehicle  or engine operation and that five years is more
than adequate time to purchase engines and become knowledgeable regarding transient tests.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 10
       Clean Air Task Force, et. al.,  OAR-2003-0012-0508 p. 21-22
       NESCAUM, OAR-2003-0012-0659 p. 7
       Pennsylvania Department of Environmental Protection, OAR-2003-0012-0699 p. 4
       STAPPA/ALAPCO, OAR-2003-0012-0507 p.  13
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 8
       New York Public Hearing, A-2001-28, IV-D-05 [CARB p. 144; NESCAUM p. 99]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [CARB p. 19]
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        The New York Department of Environmental Conservation commented that for any regulation to
be truly strong it must follow stringent test procedures and enforcement policies designed to ensure
compliance and applicability. While NTE partially meets these standards, certification testing procedures
must emulate in-use operation and use fuels that are representative of in-use fuels. To that end, transient
testing is as necessary as steady testing for all but a very small number of applications.

        Letters:
        New York Public Hearing, A-2001-28, IV-D-05 [NY DEC p. 13]

        NRDC commented that by capturing more transient emissions over much of the typical nonroad
engine operating range, the NRTC will help ensure effective control of all regulated pollutants.

        Letters:
        Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 28-29

Our Response:

        The Agency shares the concerns expressed for the inability of steady-state testing alone to
adequately capture the full range of emissions which a particular piece of nonroad equipment might
experience in-use. EPA further agrees that transient testing  is necessary in this mobile source segment to
ensure a high degree of control of in-use engine emissions.  However, we do note that the concerns we
voiced in earlier rules regarding the need for a transient cycle to assure control of PM emissions are less
significant for the aftertreatment-based PM standards45.  This is because, as explained in chapter 4.1.2 of
the RIA, the PM traps on which the standard is predicated will function equally effectively across all
engine operating features in controlling the soot and SOF portion of PM emissions (assuming proper
regeneration, of course). The interim 2008 standards for PM, however, are not predicated on use of
aftertreatment, and some commenters urged that EPA accelerate the timetable for applying the transient
test so it applies from the inception of these standards. Although an intriguing possibility (see section
III.F of the preamble to the final rule), EPA believes that it is better not to  divert finite resources into
accelerated transient testing of smaller engines, but rather direct those resources primarily at complying
with the aftertreatment-based standards (which will result in the bulk of the environmental benefits from
the nonroad standards).  Id. We consequently are not requiring transient testing for 25-75 hp engines
until they are required to meet an aftertreatment-based PM standard, and not requiring under 25 hp
engines to certify using transient testing until 2013. Additionally, given the control strategies expected to
be utilized for NOx control, the transient test will help to ensure that the appropriate control algorithm
constraints are applied.
        9.5.1.2 Conditionally Supports the Transient Testing Requirements

What Commenters Said:

        EMA commented that the proposed implementation schedule for a transient cycle for engines <
        45 The NESCAUM comment referring to 30 % difference in PM emissions from nonroad engines when
measured under steady state and transient conditions did not involve engines using PM traps for PM control.

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560 kW is appropriate provided EPA sets definitive interim Tier 4 average standards.  However, if EPA
elects to proceed with the phase-out/phase-in approach for NOx, the transient cycle should only be
applicable to testing for PM emissions and not NOX, HC and CO for phase-out engine  families since the
application of the transient test cycle and standards could result in the need to redevelop the NOX/HC/CO
emission control systems used for Tier 3 compliance. The NRTC should not apply to  any power category
until 2011 at the earliest.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 55

       Euromot commented that the NRTC is not yet sufficiently adapted to be used  on hydraulic
dynamometers. EPA should allow for any potential amendments to the NRTC resulting from the GRPE
"Nonroad Motor Machinery (NRMM)" subgroup activities in this respect.  Euromot also stated that EPA's
estimate of the cold start portion of engines used in nonroad applications at 4 percent is too high.  Given
such low numbers, the resulting burden for testing is unreasonably high in terms of cost and test
equipment capacity. The commenter believes that EPA should eliminate this requirement.

       Letters:
       Euromot, OAR-2003-0012-0822, 0823 p.  10

Our Response:

       EPA is adopting the proposed phase-in/phase-out approach for NOx (as one compliance
alternative). We are addressing the applicability of the NRTC during the phase-in/phase-out period as
follows.  Under the final regulations, only engines that met all of the new requirements,  including
transient testing, NTE, and the lower Tier 4 PEL caps will qualify as phase-in engines. Manufacturers
producing these phase-in engines can produce a corresponding number of phase-out engines. These
engines can be certified in one of two ways, with respect to their gaseous pollutant emissions. If the
engine is certified to the  identical level and PEL as it was certified to under the Tier 3  requirements, then
the engine will not be required to certify with the transient test (or NTE), the reason being that it is still
essentially a Tier 3 engine with respect to gaseous pollutants. If the engines are certified to a changed
level for gaseous emissions, the engines will be required to certify using the transient (and NTE) tests.
Transient testing (and NTE testing) would always  be required for certification with the PM standard for
these engines, since the PM aftertreatment-based standard applies uniformly to phase-in and phase-out
engines.

       EPA has conducted testing for engines < 560 kW operating on an eddy current dynamometer
using the NRTC. Likewise, some European engine manufacturers, notably, Deutz (see RIA Table 4.2-
11), have run the same sort of test cycles. With tuning of the dynamometers, for effective transient
control, acceptable emission runs have been seen using the NRTC. With upgrading of control systems
and a refined  strategy for fitting the hydraulic dynamometer to the NRTC, hydraulic dynamometers may
be used quite  usefully to run smaller to mid-size engines over this transient cycle. Significantly larger
engines may require full upgrades to eddy current  dynamometers, at a minimum, to successfully run the
NRTC. EPA is participating in the United Nations Working Party on Pollution and Energy Nonroad
Mobile Machines (GRPE NRMM) workgroup process with many of these same manufacturers who have
run the NRTC in its developmental phases and we will consider the outcome of discussions held within
this group in future actions, as appropriate.

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       9.5.1.3  EPA Should Not Delay the Application of the NRTC to Engines under 75 Hp

       NRDC commented that the proposed deadlines for the introduction of the NRTC for engines
above 75 hp are appropriate. However, delaying the application of the NRTC to engines under 75 hp to
2013 risks several years of unnecessarily high in-use emissions in off-cycle conditions. EPA should
reconsider this proposed delay and should impose the test requirements in 2008 for these engines.

       Letters:
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 29

Our Response:

       Even though we are requiring that NRTC testing start when PM aftertreatment-based standards
take effect, one  should not infer that the NRTC is directed solely at (or even primarily at) PM control.  In
fact, we believe that advanced NOx emission controls may be even more sensitive to transient operation
than PM filters. It is, however, our intent that the control of emissions during transient operation be an
integral part of Tier 4 engine design considerations. We have therefore chosen to apply the transient test
requirement starting with the PM filter-based Tier 4 PM standards as these standards precede or
accompany the earliest Tier 4 NOx or NMHC standards in all power categories except engines over 750
hp.

       However, we do not believe it appropriate to mandate compliance in 2008 with the transient test
for the engines under 75 hp which are also subject to PM standards in 2008. We recognize that transient
emission testing, though routine in highway engine programs, involves a fair amount of laboratory
equipment and new expertise in the nonroad engine certification process. As  with the transfer of
advanced emission control technology itself, we believe that the transient test requirement should be
implemented first for larger displacement engines. These engines are more likely to be made by
manufacturers who provide engines to the on-highway market and therefore have had prior on-highway
engine development and certification experience.  We do not believe that the smaller engines should be
the power categories first charged with implementing the new transient test, as early as 2008, especially
because manufacturers of these engines do not generally make highway engines and are neither as
experienced nor as well-equipped as their larger engine manufacturer counterparts at conducting transient
cycle testing. To encourage earlier transient emission control in these engines, though, EPA will allow
manufacturers of engines below 25 hp to submit data describing emission levels for their engines over the
appropriate certification transient duty cycle beginning in model year 2008. We extend this option as
well to manufacturers of 25-75 hp engines, subject to those engines meeting the Tier 4 transitional PM
standard in 2008.  Should a manufacturer choose to submit data in the 2008-2011 timeframe, prior to
required certification data submissions, that transient data will not be used for compliance enforcement.
       9.5.1.4 Supports Use of the Constant Speed Variable Load (CSVL) Test

What Commenters Said:

       NRDC and STAPPA/ALAPCO commented that EPA should maintain the provision that allows
for engine manufacturers to certify constant-speed engines using the CSVL in lieu of the NRTC. The

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CSVL should be allowed as an alternative provided manufacturers that choose this approach certify that
such engines would be used in constant-speed applications.  The commenters offered the suggestion that
EPA develop an oversight process to ensure that such engines are used only in this manner.

       CARB also commented that the it supports the use of the CSVL test, but provided no additional
discussion or supporting documentation.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 10
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 29
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 13

Our Response:

       The Agency has decided not adopt the proposed CSVL transient duty cycle in this rulemaking
(see section below for further discussion on this topic). EPA nonetheless still believes that a transient
emission test cycle is appropriate for many, if not all, constant-speed nonroad engines.  Instead, the
Agency will work with nonroad engine manufacturers and the EMA to develop a more appropriate test
cycle(s) for all constant-speed engines which is (are) more representative of the variety of constant-speed
applications. EPA hopes to complete this process in time for its 2007 Technology Review.

       In the event that the Agency ultimately adopts one or more constant-speed cycle for this engine
segment, we will revisit engine labeling and use requirements as appropriate.
       9.5.1.5 The CSVL Should Not Apply to Constant-Speed Engines

What Commenters said:

       Cummins commented that the proposed constant-speed and variable-load procedure should be
revised to be more representative of the majority of applications. Cummins also noted a willingess to
work with EPA to develop a more appropriate test cycle for constant-speed engines.

       Letters:
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [Cummins p. 36]

       EMA and Euromot commented that EPA's corrected version of its "Arc Welder High Torque-
Transient" cycle for testing constant-speed engines is inappropriate.  This duty cycle is not representative
of the use of the majority of constant-speed nonroad engines. While the transient tests for highway and
variable-speed nonroad engines were based on duty cycles from multiple applications, the constant-speed
transient test that is being considered was based solely upon the operation of a single, relatively small,
naturally-aspirated arc welder engine, which has a very different operation and test cycle than the typical
portable generator sets. The larger turbochargers used on many generator engines do not conform to the
operational characteristics required by the proposed transient test and it is inappropriate to derive a
constant-speed test cycle from a naturally-aspirated engine, since turbocharged engines will have
difficulty conforming with the test requirements. In addition, the majority of the arc welder engines are
actually variable-speed engines certified on the Cl, 8-mode, steady-state test cycle, which should

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continue into the future since variable speed engines can more readily meet the severe needs of an arc
welder as compared to specialized generator-drive engines. The commenters provided additional
discussion on this issue and cited the following concerns regarding data based on arc welders: 1) the
average load factor is much too low; 2) the frequency of the transient is much too high; 3) the
amplitudes of the transients are too great, which leads to load application swings that are inconsistent with
generator set functions;  and 4) the rates of transient load increase and response are much too fast due to
repetitive, sharp applications.  The commenters also provided additional discussion on these and other
issues related to the cost and feasibility of developing the transient test, and the emission contribution of
the nonroad constant speed engine (see additional discussion below).

        Letters:
        Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 55-58
        Euromot, OAR-2003-0012-0822, 0823 p. 10

        DDC and EMA commented that there is inadequate justification for any transient certification
testing of constant-speed engines. Nonroad constant-speed engines are narrowly focused on providing
higher power capability at a single speed, while meeting the emission requirements. Larger, less-
responsive turbochargers are used in enabling these engines to achieve the requisite higher brake mean
effective pressure (BMEP). These engines are not designed to have the ability to react to the sharp
transients experienced in many other applications. Having to meet emission requirements under operating
conditions for which the engines are not inherently designed adds a level of unjustified complexity that
makes both meeting the emission requirements and  achieving needed performance levels much more
difficult and costly.

        Letters:
        Detroit Diesel Corporation, OAR-2003-0012-0783 p. 3
        Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 57-58

        EMA commented that the emissions contribution from nonroad constant-speed engines is
insignificant. The nonroad engines and vehicles that are considered "light commercial equipment"
represent only 0.8 to 0.9 percent of PM emissions, which is due in part, to the fact that portable generator
sets are only operated when emergencies occur. EMA believes that requiring these engines to be tested
and comply with the standards under an inappropriate test cycle will be costly and burdensome, and will
compromise engine performance.

        Letters:
        Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 58

        EMA commented that, for some engine manufacturers, as much as 90 percent of their nonroad-
certified generator-set engines are actually used in stationary applications. An inappropriate test cycle for
nonroad constant-speed engines, such as the proposed arc welder cycle, would compromise engine
performance and would carry  over to other generator set applications.  This could contribute to a
reduction in the voluntary use of nonroad certified engines in stationary applications, which could then
negatively impact local air quality.

        Letters:
        Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 58

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       EMA commented that aftertreatment requirements for PM negate the need for a transient test.
Ensuring adequate control of engine-out PM emissions during transient engine operation has been the
driving force behind the development and application of the transient test. However, PM filters
successfully remove over 90 percent of the PM and are equally effective under transient and steady-state
operating conditions. Therefore, steady-state testing of PM filter equipped engines is adequate to ensure
PM control under all operating conditions. The in-use PM difference between engines with PM filters
certified on the D2 steady-state test versus a transient test would not be measurable.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 58-59

       Yanmar commented that the CSVL test is not representative of constant speed engines since it
contains harsh fluctuations of load and the engine speed response is too high.  The commenter provided
data and an illustration comparing the duty cycle of CSVL and the general load pattern of constant speed
engines to show that this test is not representative.

       Letters:
       Yanmar, OAR-2003-0012-0615, 0813 p. 7

       EMA commented that any concerns regarding transient-load PM from aftertreated constant-speed
engines should be adequately addressed with the expected NTE limits that would apply to the transient-
load conditions for those engines.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 59

       EMA commented that a unique test for constant-speed engines would amount to an unjustified
break from the significant level of harmonization between the U.S. and Europe.  The European
Commission has not seen the need for a unique transient-load test for constant-speed engines.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 59

Our Response:

       While the proposed CSVL cycle may not have been able to accommodate the particular operating
parameters required to run every constant-speed engine, it is a fairly robust cycle for many types of
constant-speed equipment and applications. However, as outlined in the Preamble, section  III.F.3 and
RIA chapter 4.2.7, EPA will not adopt  its proposed CSVL cycle. Instead, the  Agency will work with
nonroad engine manufacturers and the EMA to develop a more appropriate test cycle(s) for all constant-
speed engines which is  (are) more representative of the variety of constant-speed applications. EPA
hopes to complete this process in time for its 2007 Technology Review.  The European Commission, by
contrast, has endorsed EPA's proposed CSVL cycle as a unique transient-load test for constant-speed
engines. We will maintain efforts to harmonize any new nonroad constant-speed duty cycles between
Europe and the US.

       As the RIA for this  rulemaking notes, gensets comprise slightly over half the of the CSVL

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equipment population. The balance of the constant-speed equipment units come from more than ten
application categories, ranging from pumps and light plants to cement mixers and shredders, and exhibit a
range of transient load operation under limited speed changes.  One issue we intend to investigate further
is the possibility of a separate test cycle for generator sets.

        As explained in section III.F.2 of the preamble, we are promulgating an immediate requirement
of NTE testing for constant speed-variable load engines, which will provide some control in transient
operation. However, as noted, our main plan for an appropriate test cycle for these engines is to develop
a cycle in time for the 2007 Technology Review.
       9.5.7.6 EPA Should Not Apply the NRTC Test to Engines below 37 kW

What Commenters Said:

       Yanmar stated that there was general agreement on September 13, 2000 during the process of
developing the NRTC to only apply it to engines between 37 and 560 kW. The commenter provided a
copy of the "Terms of Reference" from this meeting as supporting documentation and reiterated its
concern that the NRTC should not apply to these smaller engines. Further, Yanmar commented, CFR
89.410 allows the 8-mode test cycle to be used on variable speed engines below 19 kW as the exclusive
testing mode for certification.  Current applicability of the steady state cycle as the exclusive test cycle
should not be changed.

       Letters:
       Yanmar, OAR-2003-0012-0615, 0813 p. 6, 7

Our Response:

       As set out in the preamble, EPA is not aware of any technical reason that these smallest engines
should not be subject to the NRTC test  (along with steady state testing). Indeed, since these engines will
not be subject to aftertreatment based PM standards, it is especially important to have a transient test
cycle, since a) these engines indisputably have applications that are transient in nature, and b) the engine-
out and DOC-based control on which the standard is based are significantly more operating mode-
dependent than PM-filters. Thus, the original reason EPA developed the transient test cycle - inability of
steady state nonroad steady state certification tests to capture a broad area of real world transient
operating characteristics with consequent lack of assurance  of PM control in use (see 63 FR at 56984) -
remains true for these engines. Moreover, our data indicate that the 2008 PM standards for these engines
using the NRTC are feasible. To date, EPA has received no engine data to show that these engines cannot
run the NRTC, and we have in fact tested small engines over the NRTC with good results (see Section
4.2.8.2.2 of the RIA). Indeed, Yanmar  has submitted data to the GRPE on NRMM (nonroad mobile
machinery) on one of its own small engines which was run to good effect over the NRTC test cycle
(memorandum-Cleophas Jackson to EPA Air Docket A-2001-28, II-B-170 "JRC December 5, 2001,
Report on Cycle Performance."). Finally, the commenter is mistaken that EPA representatives stated at
any time that the Agency would not adopt a transient test duty cycle for these engines. At the conference
to which the commenter refers, (09-13-2000 meeting, Ann Arbor), EPA representatives only said that
there would be no further discussion of the issue at that meeting.
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       9.5.1.7 EPA Should Eliminate the Transient Testing Requirements for Engines Greater than
               560kW(750hp)

What Commenters Said:

       EMA commented that the proposed transient NRTC (or machine NRTC) is not representative of
nonroad engine operation in large machines that use engines of more than a few hundred kilowatts. This
test cycle has an average speed of 67 percent and average torque of only 39 percent. Data from a sample
of large bulldozers and wheel loaders with engines greater than 560 kW show both an average speed and
an average load of greater than 80 percent. The load and speed cycle for these large engines is much less
transient than the proposed machine NRTC and it is unlikely that a large engine could ever respond as
fast as shown for the machine NRTC due to the turbocharger lag with highly-boosted engines and the
slower response of the large, high inertia turbochargers.

       Generally, nonroad engines greater than 560kW are not representative of typical on-highway
engines. The power range of this single category is over nine times larger than the entire power range for
on-highway engines.  Multi-stage turbocharging with dual exhaust is common for these larger nonroad
engines. The exhaust flow for these engines may be up to 8 times higher than an average on-highway
engine. By contrast, on-highway engines are typically in-line four or six cylinder engines with single-
stage turbocharging with one exhaust pipe as the norm, unless split solely for cosmetic purposes.

       The currently used ISO steady state test is much more representative of large engine operation in
large machines than the proposed machine NRTC.  In addition, building transient cells for engines greater
than 560 kW would not make economic or technical sense since the number of engines is small and
running a transient test with full dilution capability would require a significant test cell development
program. No manufacturer or regulatory agency has built such a test cell and there is no established
protocol that can be  followed. Engine manufacturers' resources should be devoted to meeting the
stringent standards proposed, and not in building cost-prohibitive test facilities  and processes that will
provide minimal, if any, environmental benefit.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 17, 23, 53-54, 111
       DDC,  OAR-2003-0012-0783 p. 4

       Cummins and Komatsu commented that transient testing for both constant-speed and variable-
speed engines  should be limited to engines less than 750 hp. These large engines were not considered
during the development and testing of the proposed cycle.  To expand CVS test capability to over 3,000
kW, an excessive level of investment would be required.  Cummins specifically noted that even with
limited transient testing to engines less than or equal to 560 kW, it will be necessary to invest heavily to
expand its existing CVS testing capability up to 560 kW for engines that fall outside the on-highway
power range and that this investment will be approximately $3 to $4 million to  upgrade only three test
cells in one facility.  The commenter also noted its willingness to work with EPA to establish whether an
alternative to the complex and costly transient test might be suitable for measuring emissions from
engines greater than 750 hp and recommends that EPA simply carry over the existing steady-state and
smoke tests required in 40 CFR Part 89 and rely on the proposed NTE requirements to ensure that
emissions are controlled during transient operation. Komatsu added that the excessive costs are not

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justified given the small production volume of these larger engines. The commenter further noted that its
annual production volume for the U.S. over-560 kW market is approximately 10 units annually, or just
0.3 percent of the total U.S. sales volume and recommends that modal testing be used for this engine
category, which should be sufficient since large engines often have operating cycles that do not reflect
transient operation.

        Letters:
        Cummins, Inc., OAR-2003-0012-0650 p. 5-6
        Komatsu, OAR-2003-0012-0455 - 0457 p. 1-2
        Los Angeles Public Hearing, A-2001-28, IV-D-07 [Cummins p. 36]

        Caterpillar and Euromot commented that the systems to conduct transient testing on engines over
750 hp have not been developed and are expected to be extreme in both cost and size with very little
benefit to the overall goal of reducing emissions. Current test cells only have the capability to test
engines up to 600 hp and would need to be redesigned and developed to handle any power levels above
their current limits.  It is unknown how much additional capacity  could effectively be added to current
cells, but it is known that transient test cells for engines above 750 hp cannot be built in a cost-effective
manner. Caterpillar provided additional discussion and details on the feasibility, space requirements, and
cost of certifying an engine up to 3,500 hp, and concluded that a reasonable starting estimate for a cell of
the required capacity is $20 million based on its Technical Center experience.  The commenter also  added
that designing a dynamometer required to provide the load for a transient test has never been attempted
and the  cost would be in the range of $1.6 million, which would rise to approximately $3 million when
test cell modifications are made to accept such a large dynamometer.

        Letters:
        Caterpillar, Inc., OAR-2003-0012-0812 p. 2-3
        Euromot, OAR-2003-0012-0822, 0823  p. 10

Our Response:

        At this time, the Agency is not adopting a transient emission testing requirement for engines
560kW and over.  EPA sees the significant burden an additional transient duty cycle test would put  on
these very large displacement engine manufacturers. New transient test requirements could require
manufacturers to create new or expanded testing facilities to house, prepare and run transient tests on
these larger engines.  Absent transient testing, these engines will be required to certify to both steady-state
testing and NTE requirements. The combination of steady-state and NTE testing is expected to
effectively cover the range of operation that these engines might encounter in-use. For NTE,
manufacturers of >750 hp engines will have to submit data and/or an analysis at certification that
demonstrates that their engines meet the Tier 4 NTE requirements.  This may involve equipping engines
with diesel particulate filters having either active or passive back-up control systems. However, the
Agency will not require manufacturers to use partial-flow sampling systems (PFSS) to determine PM
emissions from their engines for certification. Manufacturers may choose to submit PM  data to the
Agency using PFSS as an alternative test method, if that manufacturer can demonstrate test equivalency.

        Were transient testing an additional requirement of this class of engines, the exceptional costs of
that testing on such a large scale might far outweigh the relatively small additional savings in emissions to
be found over a transient duty cycle. Engines in this power category are found in a relatively small

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proportion of the nonroad equipment population and units equipped with these engines have likewise
been noted to contribute a small proportion of total diesel nonroad engine emissions.  Many of these
larger-displacement engines operate predominately in a constant-speed fashion with few transient
excursions, as with electric power generation sets, which make up a significant percent of these  larger
engines.  Many of these constant-speed engines, too, operate on an intermittent or stand-by only basis.
       9.5.1.8  EPA Should Adopt the Partial Flow Dilution System an Option for Transient and
               Steady State Testing

       Euromot and Lister Fetter commented that the sole use of CVS (Constant Volume System) full
flow dilution systems for emission measurements preferred by EPA could be costly and burdensome.
Euromot specifically recommended in this context, that EPA maintain its proposal to adopt ISO Standards
8178-1 and ISO 8178-11 by reference.

       Letters:
       Euromot, OAR-2003-0012-0822, 0823 p. 11
       Lister Fetter, OAR-2003-0012-0155 p. 1

       Komatsu commented that the current PM measurement technique specified in 40 CFR Part 89
refers to the California test procedures, which in turn refer to the ISO 8178-1 procedures that allow use of
a partial dilution tunnel. However, the test procedure for Tier 4 (see Section 1065.115) refers to 40 CFR
Section 86.1310, which is based on the full dilution approach. This change in measurement procedure
will require yet another huge investment for large engines greater than 560 kW. EPA should continue to
allow the partial dilution tunnel approach.

       Letters:
       Komatsu, OAR-2003-0012-0455 - 0457 p. 2

Our Response:

       We will continue to allow engine manufacturers to certify using partial flow sampling techniques
and bag/batch raw gas sampling for steady state operation. Should a manufacturer certifying to EPA
standards using transient certification duty cycles which to certify using partial flow sampling techniques,
that will be allowed under the provisions of 40 CFR §1065.12.
       9.5.2   Cold-Start Testing

       9.5.2.1  Supports Use of Cold-Start Testing

What Commenters Said:

       CARB, NRDC, and STAPPA/ALAPCO commented that given that future Tier 4 engines will use
catalytic devices for the first time, cold-start testing is critical. EPA's proposed weighting of the cold-start
emission test (1/10 of the total) is reasonable.  Additionally, the commenters noted, the European
Commission felt that a cold start with a weighting of 10% (1/10 of the total) was appropriate and

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provided its technical defense of the weighting.
       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 10
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 29
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 13

       A number of additional commenters stated that they support cold-start testing, but provided no
additional discussion or supporting documentation.

       Letters:
       Environmental Defense, OAR-2003-0012-0821 p. 10
       NESCAUM, OAR-2003-0012-0659 p. 7
       Pennsylvania Department of Environmental Protection, OAR-2003-0012-0699 p. 4
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 8
       New York Public Hearing, A-2001-28, IV-D-05  [CARB p. 144; NRDC p. 31]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [CARB p. 19]
       European Commission, OAR-2003-0012-0934

Our Response:

       EPA agrees with the commenters that cold-start testing will be a valuable addition to the nonroad
engine transient emissions testing requirements. Unlike steady-state tests, which always start with hot-
stabilized engine operation,  transient tests come closer to simulating actual in-use operation, in which
engines may start operating  after an extended soak period, i.e., cold-start. With this new transient test and
manufacturers' expected use of catalytic devices to meet Tier 4 emission standards, it is imperative to
address cold-start emissions in the  measurement procedure.  EPA's test procedure will require
measurement of both cold-start and hot-start emissions over the transient duty cycle, much like that for
highway  diesel engines.  Also, we  intend to apply a cold-start requirement when we adopt a transient duty
cycle specifically for engines certified only for constant-speed operation. We believe a 5-percent
weighting of cold-start emissions addresses the need to design engines to minimize emissions under cold-
start operation.  Manufacturers will be able to take steps to minimize the testing burden by taking
advantage of provisions that allow for forced cooling to reduce total testing time.
       9.5.2.2  Does Not Support Cold-Start Testing

What Commenters Said:

       DDC and EMA commented that cold-start testing doubles the amount of testing that must be
done for certification and auditing, and also increases the amount of development testing, without any
demonstrated need or emissions benefit. In addition, it necessitates that the engine/aftertreatment system
be equilibrated with the test cell room temperature before initiating the cold-start test, which can take
several hours during which the test cell cannot be used.  As a result, this requirement will be burdensome
and costly by reducing operating efficiency of test facilities and extending the time for testing programs.
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       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 3
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 61-62

       DDC and EMA also commented that EPA has failed to account for cold-start emissions in the
feasibility analysis and in setting the proposed emission standards.  For example, in the 75 to 560 kW
power categories, EPA assumes NOX aftertreatment systems that are approximately 90 percent efficient
will be applied to engines meeting the Tier 3 NOX standard. EPA acknowledges that 90 percent is likely
to be the peak efficiency, which will be reduced at lower temperatures. However, the cold-start
requirement evaluates emission performance before the NOX adsorber has reached its peak efficiency.
EPA should not set standards based on the assumption of aftertreatment systems operating at or near peak
efficiency, while at the same time, requiring manufacturers to meet the standards under cold-start test
conditions that cause the aftertreatment system to be below its effective operating temperature.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 3
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 62

       DDC and EMA commented that a prescribed warm-up operating sequence to bring the
aftertreatment systems up to normal operating temperature in a standardized way in combination with
elimination of the cold-soak requirement, as in Part 1048, would be preferable.  However, they stated,
EPA should consider a more flexible approach that would allow the manufacturer to use any  convenient
operating  sequence for warm-up with reliance on catalyst temperature measurements to determine when
the catalyst is adequately warmed up.  Under this approach, the test procedure would include a warmup
segment in which the engine would be operated  in any manner until all of the catalysts reach their "light
off temperatures, at which point the transient test cycle and emissions measurements would  commence
after 30 seconds at idle.  To avoid excessive warm-up operations, EPA could  add a provision requiring
that if the  aftertreatment system does not achieve the "light-off after 10 minutes at rated speed and 50
percent load operation then the emission testing  would begin after the aftertreatment system had warmed
up to the catalyst temperature that is achieved after the catalyst has stabilized at room temperature and
then warmed-up through operation of the engine for 10 minutes at rated speed and 50 percent load.  Also,
as part of the certification process, manufacturers would report all AECDs that would be active during
engine warm-up, which could be evaluated to determine if they are defeat devices.  This approach
provides parity with the way nonroad SI engines are treated and avoids the burdensome and inefficient
cold-start  requirements.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 62-63

       EMA noted that as justification for the cold-start testing provisions, EPA used data from 40
pieces of nonroad equipment operating over an "average" workday. EPA should provide information on
how it determined an "average" workday and how the subset (13 pieces of equipment, none of which used
aftertreatment) were selected from the available  data set of 40. Power categories of the engines in the
sample were not disclosed and it remains unclear whether the 13-engine sample reflects all of the power
categories covered by the proposed  rule.

       Letters:

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       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 60

       EMA also commented that the 10 minutes and 1 hour time period used to define cold-start
operation appear to have been chosen arbitrarily and not to have been based on actual warm-up and cool
down time periods. Only the smallest of engines will cool off to ambient temperature within an hour's
time.  Engines in most power categories will take several hours to cool off to  ambient temperature.  EMA
also noted that its cool down data based on engines in the 6 to  19 liter size range indicate that engine
coolant has only cooled down about 25 percent of the way to the ambient temperature one hour after a
shutdown and that to cool down fully requires over 8 hours.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 60

       EMA commented that EPA determined that the "cold-start1 NOX emissions for the different pieces
of equipment ranged from 1.8 to 9.7 percent with an overall average of 4.4 percent. However, EPA then
chose to weight cold-start emissions by  10 percent. EPA should provide an explanation for how the 4.4
percent average translates to a 10 percent cold-start weighting. (See additional discussion above
regarding the appropriateness of the cold-start testing provisions in light of this discrepancy).

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 60-61

       DDC and EMA commented that the 10 percent cold-start weighting factor is excessive.  EPA's
own analysis based on NOX percentages indicates a factor of 4.4 percent, not  10 percent as EPA has
proposed.  An improved analysis of these data using a more realistic assumption would show that the
percent of cold operation is much lower. EPA states that emissions during the cold-start operation were
generally greater than during "warmer" operation.  However, this statement is contradicted by the data
presented in the RIA (Table 4.2-15).  EPA concludes that 4.4 percent of the NOX emissions were
generated under the presumed cold-start conditions, but on a time basis, the data from the 13-engine test
sample show that the engines were presumed to be operating in cold-start mode 4.1 percent of the time.
The small difference between 4.1 and 4.4 percent suggests that the NOX emission rate during cold starting
is essentially the same as after the engine is warmed up and does not appear to support EPA's assertion
that emissions were appreciably higher during cold start.  (See related comment below regarding the need
for  further explanation on this issue).

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 3
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 62

       EMA commented that EPA made a technical error when it included measured NOX emissions in
the  analysis to determine the weighting factor. The relevant parameter for determining  the weighting
factor is not the fraction  of emissions produced during cold start, but the percentage of operating time that
the  engine spends during warm-up.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 61
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       EMA commented that In analyzing its database, EPA should base its definition of cold start on a
functional parameter such as temperature difference between engine coolant and ambient instead of
arbitrary time parameters. This would show that the fraction of cold operation time would be much less
than 4.1 percent. Even though the requisite temperature data may not be available to complete this
analysis, EPA's analysis should certainly be redone using the more realistic assumption that cold-start
operation only occurs on start-up after a shut down of more than 4 hours, which may in fact show that
there is no need for cold-start testing.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 61

       Euromot commented that EPA's estimate of the cold-start portion of engines used in nonroad
applications at 4 percent is too high.  Given such low numbers, the resulting burden for testing is
unreasonably high in terms of cost and test equipment capacity.  Euromot believes that EPA should
eliminate this requirement.

       Letters:
       Euromot, OAR-2003-0012-0822, 0823 p.  10

       EMA commented that engines in the greater than 560 kW power category may require a natural
"soak back" time as long as 24 hours in order to meet the cool down requirements of Part 86. On very
large engines, temperatures may be unequal along the length of the engine making it difficult to bring the
entire engine within the cool-down specifications of Part 86. In addition, true cold starts occur
infrequently and warm-up is a very small percentage of total operating time. In many cases, larger
engines are equipped with internal heater systems that maintain coolant and oil temperature at elevated
temperatures even during extended shutdowns.  Thus, cold-start tests are particularly inappropriate and
problematic for these larger engines.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 63-64

       Komatsu commented that cold-start testing should not be required for engines greater than 560
kW. Preparing for a cold-start test requires a long stabilization period, especially for large engines.
Large nonroad machines may not be operated under frequent start-stop conditions.  Cold-start testing
would be least suitable for engines used in large mining machines, which are operated 20 to 24 hours per
day in 2 to 3 shifts, with no cool down or shut down period.

       Letters:
       Komatsu, OAR-2003-0012-0455 - 0457 p. 3

Our Response:

       The following sections respond to the various comments related to cold-start testing, first for
engines below 560 kW, then for the larger engines.

       The need for cold-start testing
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       Nonroad diesel engines typically operate in the field by starting and warming to a point of
stabilized hot operation at least once in a workday.  As described in Section 4.2.9 of the Final Regulatory
Impact Analysis, measurements have shown that engines have higher emissions during cold-start
operation than after warm-up.  We have observed that certain test engines, which generally had engine-
based emission-control technologies for meeting Tier 2 or Tier 3 standards (without aftertreatment), had
elevated emission levels for about 10 minutes after starting from a cold condition.  The extent and
duration of increased cold-start emissions will likely be affected by changing technology for meeting Tier
4 standards, but there is no reason to believe that this effect will lessen. The concern is especially
pronounced with respect to catalytic devices used for NOx control, because many require heating to a
"light-off or peak-efficiency temperature to begin working. NOx  adsorbers, the aftertreatment
technology on whose performance many of the NOx standards in this rule are based, are an example. (In
contrast, particulate traps generally work with equal effectiveness under cold-start conditions.)  EPA's
highway engine and vehicle programs, which increasingly involve  such catalytic devices, seek to ensure
that these emissions are both considered  and controlled to the greatest degree achievable by specifying a
test procedure that first measures emissions with a cold engine, then repeats the test after the engine is
warmed up, weighting the emission results from the two tests for a composite emission measurement.
Unlike steady-state tests, which always start with hot-stabilized engine  operation, transient tests come
closer to  simulating actual in-use operation, in which engines may start operating after only a short
cooldown (hot-start) or after an extended soak (cold-start).  The new transient test (NRTC) and
manufacturers' expected use of catalytic devices to meet Tier 4 emission standards make it imperative to
address cold-start emissions in the measurement procedure. We therefore believe it is necessary to adopt
a test procedure that requires measurement of both cold-start and hot-start emissions for engines that are
subject to testing over a transient duty cycle, much like for highway diesel engines. We further believe
that commenters are mistaken in implying that the cold-start testing adds unnecessary costs without
commensurate environmental benefit. We have determined that the overall costs of the rule are
reasonable, and specifically included the costs of cold-start testing in that assessment.

       Weighting factor

       Several comments centered around the analytical approach we used to establish the extent to
which cold-start measurements would be weighted in the composite emission measurement. We agree
with several of the objections raised.  In particular, we believe it is  not appropriate to calculate a
weighting factor based on the overall contribution of NOx emissions during cold operation, since the
extent to which cold start emissions should be weighted logically turns  on the duration the engine is
operating under cold start conditions. We also understand the concern implicit in the comments that the
data underlying our analysis was insufficient to support the proposed weighting factor. Engines operate
in many different types of equipment, each with varying operating  characteristics.  An ideal assessment
would require data collection from  a wide range of engines to evaluate how frequently cold-start
conditions occur. Finally, we agree that  the engine downtime that constitutes a long enough soak period
to establish cold-start conditions for analytical purposes should be consistent with the soak period
specified in the test procedure to prepare for the cold-start test.  For example, defining a cold-start as
operation following a one-hour soak would correspond with a requirement to soak the engines for as little
as one hour before starting the  cold-start test, which, as commenters pointed out, would be
unrepresentative of and inadequate for many larger nonroad diesel  engines.

       It is important to point out, however, that we disagree with one aspect of manufacturers'
recommended approach to determining a cold-start weighting factor.  While manufacturers aim for

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calculating a precise average value, this is not consistent with our general approach for adopting test
procedures. Test procedures should be designed to ensure effective emission control under the wide
range of ambient conditions and operating characteristics that occur in use. Designing a test to simulate
average conditions would (by definition) leave engines unable to control emissions under many real
conditions that are more severe than average.

        Given the need to take a different approach to establishing a cold-start weighting factor, we are
taking the approach of adopting a weighting factor in this final rule based (as one commenter urged) on a
simple assessment of typical engine operation. We intend to revisit this issue in the future to more
carefully evaluate actual in-use operation for defining an appropriate weighting factor.

        As described further below, we believe it is appropriate to require a fully stabilized cold-start for
laboratory testing, rather than changing the test procedure to conform with the one-hour soak period
embedded in the analysis supporting the proposed rule. This ensures that the test procedure evaluates
conditions at which emissions from cold-start testing  will be highest.  Accordingly, we believe it is
appropriate to define a cold-start weighting  factor based on the frequency of an engine starting operation
after an extended time of not operating. As manufacturers point out, a full cooldown for many engines
may require eight hours of down time. As such, the analytical exercise simplifies to an evaluation of an
engine's total daily operating time, since there is generally a cold-start after eight hours of down time
only at the start of a workday. We are basing our final weighting factor on seven hours of operation per
day. We believe this value can be properly  characterized as typical. This generally equates to  3-4 hours
of operation in the morning, followed by a lunch break and 3-4 additional hours of operation in the
afternoon. Seven hours of operation per day would correspond with a cold-start weighting factor of 5
percent (similar to the weighting factor of 4.4% recommended in a number of the comments).  This
calculation results from dividing the cold-start measurement portion (20 minutes) by total daily operation
(420 minutes).

        We believe this 5-percent weighting is based  on a reasonable  assessment of typical in-use
operation (and thus disagree with the commenter suggesting that even a 4-percent weighting factor would
be too high) and ensures that manufacturers will design their engines to control emissions under cold-start
operation.  This is true without regard to whether typical cold-start operation is actually higher or lower
than 5 percent. Given the low levels of the Tier 4 standards, manufacturers will optimize their engines to
minimize cold-start operation (and  thus reduce emissions) to the greatest extent possible.

        Test burden

        As pointed out by the commenters, cooling an engine down takes several hours. Testing engines
after they have fully cooled down ensures that an engine's emission-control system will be adequately
tested to ensure proper operation from the initial operation following engine starting. We realize that
focusing on a full cooldown for cold-start operation requires that we calculate a smaller cold-start
weighting factor, as described above. We nevertheless believe it is more important to properly simulate
cold-start operation in the test procedure,  since this captures the type of operation that involves the
greatest need for cold-start emission control. Shortening this soak period to measure cold-start emissions
from an engine that has not fully cooled off would undermine the objective of cold-start testing.  While a
full overnight soak to prepare engines for a cold-start transient test could indeed be burdensome, the
proposal included provisions that would allow manufacturers to  substantially shorten this time  by
accelerating the engine cooling using laboratory techniques  (external fans, special cooling devices, etc.)

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and we have adopted these provisions in the final rule. The estimated costs for testing related to meeting
the Tier 4 emission standards take into account the lab time necessary to conduct testing with the cold-
start provisions in the final rule.

       Alternative approach

       Engine manufacturers recommended an alternative approach to addressing cold-start
testing—using the  "warm-start" procedure we adopted for nonroad spark-ignition engines, but with
changes that would allow aftertreatment devices enough time to fully warm up. We believe these changes
would undermine the whole purpose of cold-start testing.  Instead of defining a clear target for
minimizing cold-start emissions, the alternative test conditions suggested by manufacturers would make
the test procedure incapable of addressing the need to control emissions under the situations where
control could be most important.

       Moreover, the "warm-start" we adopted in the earlier rule is tailored to the specific characteristics
of spark-ignition engines and their emission-control technologies. Spark-ignition engines generally use
three-way catalysts, which have a warm-up time that is well understood.  Limiting the warm-up period to
three minutes and requiring manufacturers to describe how they reach closed-loop operation as early as
possible during those three minutes is an appropriate way of addressing the primary variable that affects
cold-start emissions from spark-ignition engines. In contrast, diesel engines typically have higher engine
efficiency, higher thermal  mass, and run at leaner air/fuel ratios. The combined effect of these differences
is that it may take much longer to reach a stabilized operating condition such that emission-control
systems are fully functioning. There  are steps manufacturers can take to speed up a diesel  engine's ability
to  control emissions after startup, but we will only expect them to take these steps if testing starts with a
cold engine. We have therefore concluded that the warm-up procedures in 40 CFR part 1048 would not
provide a sufficient incentive to reduce cold-start emissions for diesel engines and are  opting instead to
base cold-start testing on the proposed approach.

       Feasibility

       See Section 4.1  of the Final RIA for a discussion of our basis for believing that the Tier 4
emissions standards are  feasible for engines when operating over the transient test with the test
procedures, including cold-start weighting factor, described above. See particularly "How effective are
NOx adsorbers for cold-start emissions" in RIA Section 4.1.2.3. In general, we believe that
manufacturers can  take steps to accelerate the warm-up of aftertreatment devices and reduce the time
needed to start controlling emissions effectively. We therefore believe that cold-start testing is necessary
and that controlling these emissions is an aspect of ensuring that emissions are  controlled to the greatest
degree achievable.  We also disagree  with the argument that the NOx standard  is not feasible because
NOx adsorbers are 90 percent efficient and NOx adsorbers cannot operate at 90 percent efficiency during
cold-start testing, thus pulling the overall efficiency below 90 percent.  NOx adsorbers generally have an
average efficiency  of 90 percent. We fully expect performance above 95 percent during portions of the
transient test unaffected by cold-start concerns  to balance out the cold-start portion so that the NOx
standards are achievable.

       Engines over 560 kW
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       We are not finalizing a requirement to test engines over 560 kW using transient testing
procedures.  Since cold-start testing occurs only in the context of the transient test, issues related to
implementation of cold-start testing requirements for these engines do not apply. We remain concerned
that these larger engines have emission-control systems that function effectively during cold-start
conditions. Absent a test procedure to measure cold-start emissions, we are relying on the prohibition of
defeat devices to prevent manufacturers from designing or producing their engines in a way that would
compromise emission control during operation following a cold-start condition. If in-use testing shows
that cold-start emissions are more problematic that we currently understand, we would expect to pursue a
more effective means of addressing emission controls for cold operation.
       9.5.3   Control of Smoke

       9.5.3.1  Commenter Supports EPA's Proposed Smoke Test Requirements

What Commenters Said:

       STAPPA/ALAPCO commented that the current smoke test procedure from Part 86, Subpart I
does not provide data comparable to the most practical in-use smoke test procedure, a snap-idle
acceleration test with measured opacity. Data from an ISO 8178-9, which EPA has proposed to use in
this rule,  can provide the desired link.  EPA should maintain the proposed smoke test procedures in the
final rule, but should carry out the necessary testing to establish the desired link.

       Letters:
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 14

       NESCAUM commented that the proposed smoke procedure is superior to the on-highway
procedure it supercedes, since it is specific to nonroad engines. It will also contribute to harmonization of
nonroad engine certification between the U.S. and Europe, which is important since many nonroad engine
manufacturers develop and market a singular "worldwide" product.

       Letters:
       NESCAUM, OAR-2003-0012-0659 p. 7

       NRDC commented that, in addition to the improved smoke testing procedures, EPA should
develop guidance for states that wish to develop  improved I&M programs for highway and nonroad
engines.  A critical omission from the nation's oversight of diesel engines is the continuing reliance on
opacity-based I&M programs in those states that have I&M program for heavy duty vehicles and the
complete absence of any state I&M programs for nonroad diesel engines.

       Letters:
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 29-30

       The Pennsylvania Department of Environmental Protection commented that it supports EPA's
proposed smoke test requirements, but provided  no additional discussion or supporting documentation.

       Letters:

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       Pennsylvania Department of Environmental Protection, OAR-2003-0012-0699 p. 4

Our Response:

       As we see in-use testing methods continue to develop, it is becoming clearer that the best way to
evaluate whether in-use diesel engines have high smoke or PM emission levels is to use PM-measurement
technologies for testing in the field.  In the long term, we are depending on the Tier 4 PM standards, with
verification of control under an  in-use testing program, to adequately address both smoke and PM
emissions from nonroad diesel engines. As result, we believe it is best to continue to rely on the
established smoke testing procedures, rather than pursuing the proposed approach. To control smoke
emissions, we are therefore requiring that the current smoke standards and procedures will continue to
apply.  By keeping the existing  smoke testing standards and procedures, we fully address all the
additional technical concerns raised by commenters.

       We have resolved the inconsistent language in the proposed regulatory and preamble text by
saying for the final rule that engines that are exempt from smoke requirements are exempt from the
standards, not only from the testing and data-submission requirements.


       9.5.3.2 EPA's Proposal to Replace the Federal Smoke Procedure Should Not Be Finalized

What Commenters Said:

       DDC commented that EPA should eliminate smoke requirements for Tier 4 engines.  Moreover,
DDC and EMA commented that proposal to replace the present Federal Smoke Procedure with the ISO
8178 Part 9 nonroad smoke procedure, with revised numerical limits, should not be  finalized. The ISO
smoke procedure is problematic for many reasons including the following:   1) the ISO test was designed
to be a test that could be correlated to field inspection, but since then, in-use measurement systems (e.g.
ROVER, SPOT, and PEMS) have been developed, 2) ISO was developed under the false assumption that
the  anticipated amendment to 97/68 would include smoke, 3) there has been no concerted effort to
develop smoke correlation on a  variety of engines and no round-robin testing to prove out the proposed
ISO procedure.  The ISO procedure should be adopted as an acceptable alternate or optional procedure
but not as the sole allowable test.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 6
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 67-69

       EMA and Komatsu commented that the ISO smoke procedure is intended to be run with the
dynamometer decoupled from the  engine to perform the free acceleration test (FAT). Because the
dynamometer is decoupled, engines would need to be started with the use of an electric or air starter,
neither of which are commonly  supplied with the test engine.  The tests also require the engine to be
preconditioned at rated power prior to initiation of the FAT. A FAT on an engine over 560 kW is
completely unrepresentative of the way these engines are operated in use. In addition, the issue of
choosing the appropriate flywheel for the FAT test can become an important and complex issue that is
better off avoided given the marginal benefit of a smoke test. EPA should allow manufacturers to use the
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current smoke test procedures, which are not influenced by flywheel inertia, so that multiple testing can
be avoided.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 68-69
       Komatsu, OAR-2003-0012-0455 - 0457 p. 3-4

       CNH Global commented that, since the new smoke requirement based on ISO-8178-9 does not
apply for PM limits below 0.07 g/kW-hr, it will only be in force for a limited amount of time for most
engine models.  CNH also noted that with the inevitable teething problems and related costs, it is not
justified and as a result, the European Union is not pursuing it.

       Letters:
       CNH Global, OAR-2003-0012-0819 p. 9

       Komatsu commented that in Section 1039.235(g), engine manufacturers are not required to
provide smoke emission data in the application for a certificate of conformity for engines having a PM
certification level or PEL less than 0.07 g/kW-hr.  However, there is no statement that such engines are
exempt from smoke testing.  The last sentence in this section should be modified to state explicitly that
engines with PM emissions below the 0.07 g/kW-hr standard are "exempt" from smoke testing, as stated
in the proposed preamble at Section VII.F.3.

       Letters:
       Komatsu, OAR-2003-0012-0455 - 0457 p. 3-4

       EMA commented that even though EPA states that a FAT limit of 20 percent opacity is being
proposed, a standard of 22 percent opacity is given in section 1039.105.  It is also unclear when the
proposed standard is to take effect and what engines are covered. The proposed regulations do not
indicate if the standard applies to interim or final Tier 4 engines, phase-out engines, or engines using the
split family option. While the preamble indicates EPA's intent to exempt single-cylinder engines and
engines with a PM level of less than 0.05 g/hp-hr from the smoke requirements, no such exemptions were
included in the proposed regulatory language.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 68-69

Our Response:

       As we see in-use testing methods continue to develop, it is becoming clearer that the best way to
evaluate whether in-use diesel engines have high smoke or PM emission levels is to use PM-measurement
technologies for testing in the field. In the long term, we are depending on the Tier 4 PM standards, with
verification of control  under an in-use testing program, to adequately address both smoke and PM
emissions from nonroad diesel engines.  As result, we believe it is best to continue to rely on the
established smoke testing procedures, rather than pursuing the proposed  approach. To control smoke
emissions, we are therefore requiring that the current smoke standards and procedures will continue to
apply. By keeping the existing smoke testing standards and procedures,  we fully address all the
additional technical concerns raised by commenters.

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       We have resolved the inconsistent language in the proposed regulatory and preamble text by
saying for the final rule that engines that are exempt from smoke requirements are exempt from the
standards, not only from the testing and data-submission requirements.
       9.5.4  TRU Cycle

       9.5.4.1 Supports the Proposed TRU Test Cycle

What Commenters Said:

       EMA commented that EPA's proposed new test cycle for TRUs is more representative of
refrigeration unit operation than the current nonroad cycle.  TRUs have a unique operating cycle since
they do not operate at low idle, high idle, peak torque or rated power. The proposed TRU test cycle
reflects these facts a provides an accurate assessment of the emissions from these units, and EMA stated
that it supports the proposed TRU test cycle.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 25, 111

       NRDC and NESCAUM commented that they support the proposed TRU test cycle, and believe
that it will help improve the certification process.

       Letters:
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 28
       NESCAUM, OAR-2003-0012-0659 p. 7

       Ingersoll-Rand commented that it supports the proposed TRU test cycle, but provided no
additional discussion or supporting documentation.

       Letters:
       Ingersoll-Rand, OAR-2003-0012-0504 p.  19

       CARB, STAPPA/ALAPCO, and UCS commented that they strongly support the use of this
optional cycle but raise the concern that the proposal contains some usage restrictions that may
inadvertently exclude most TRU engines from qualifying to use the cycle. EPA should reconsider the
restrictions in paragraphs (d)(2), (e)(2), and (e)(3) of section 1039.645 to include allowances such as a
transitional period of operation between modes that is characteristic of TRU engine operation and to
increase the tolerance for fluctuations in engine speed and load while in any given test mode.  EPA should
work with CARB, which developed the cycle, to address these concerns.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 10-11
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 14
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 8
       New York Public Hearing, A-2001-28, IV-D-05 [CARB p. 143]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [CARB p. 19]

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Our Response:
       EPA agrees that its TRU cycle can be more representative of transport refrigeration unit operation
than the current nonroad steady-state 8-mode duty cycle and has taken pains to craft the definition of a
TRU engine in such a way as to limit the cycle's broad application to the constant-speed engine category.
EPA has however included allowances for engine parameter "drift" from an engine's operation in mode
and has increased the tolerance for fluctuations in engine speed (less than 2 % on a second-by-second
basis) and load (10% over an hour's operation) while in any given test mode.
       9.5.4.2 EPA Should Strengthen the Procedures for the Optional Steady-state Transportation
              Refrigeration  Unit (TRU) Test Cycle

What Commenters Said:

       The New York Department of Environmental Conservation commented that truck refrigeration
units are of particular concern since they are frequently co-located in large numbers in and around
metropolitan areas, and they amount to a significant local air pollution source. In response, NY DEC has
developed a specific test procedure for these engines.

       Letters:
       New York Public Hearing, A-2001-28, IV-D-05  [NY DEC p. 13]

       CARB commented that the proposal excluded most transportation refrigeration unit (TRU)
engines from the testing procedures. EPA should refine the portion of the proposal that addresses the
optional steady-state TRU test cycle, which currently includes four modes to match real work conditions.
The commenter noted that they have been collecting data on this issue that may be helpful to EPA in
developing a more refined proposal that would encompass all TRUs.

       Letters:
       New York Public Hearing, A-2001-28, IV-D-05  [CARB p. 143]
       Los Angeles Public Hearing, A-2001-28, IV-D-07  [CARB p. 19]

Our Response:

       EPA has worked with both Cal-EPA ARB and TRU engine manufacturers in making changes to
the TRU engine parameter and variability-in-mode limits that EPA had proposed for in its TRU
equipment regulations. The Agency does  not believe that its TRU cycle is exclusive of engines from any
sector which may operate in the real world as mobile transport refrigeration units.
       9.5.4.3 EPA Should Modify Section 103 9.64 5 (e) (2) to Account for TRU Equipment

What Commenters Said:

       Thermo King commented that in Section 1039.645(e)(2), the statement "Engine operates in any
mode not covered by the test cycle described in this section, except for negligible transitional operation

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between two allowable modes" would exclude all TRU equipment manufactured by Thermo King and
Carrier because TRU equipment has a slowly varying load dependent on the temperature of the
evaporator and the condenser. A possible change to the observed torques would be to add a tolerance
band within which the refrigeration equipment could operate. The commenter suggested specific
tolerance bands based on its measurements of actual TRU equipment as follows: MODE 1: Maximum
test speed, 75 percent + 20 percent/-12.5 percent observed torque; MODE 2:  Maximum test speed, 50
percent +/- 12.5 percent observed torque; MODE 3: Intermediate test speed, 75 percent +/-12.5 percent
observed torque; and MODE 4:  50 percent + 12.5 percent/-20 percent observed torque. This commenter
also provides additional data measurements that show the hp range of their equipment.

       Letters:
       Thermo King Corp., OAR-2003-0012-0406 p. 1

Our Response:

       EPA recognizes that a minimal amount of time is necessary to transition between modes and has
modified the "negligible transitional operation" definitions applicable to Sections 1039.645(e)(2) and (3)
of its TRU regulations to be more representative  of the operation of TRUs in-use. These sections now
allow for a drift, or "drop-off, of less than 2% in ten minutes or less than 15% in engine load over the
course of one hour after achieving a particular operating mode.  Further, engine speed and load cannot
vary by more than 2% on a second-by-second basis. These changes should address the variability TRU
manufacturers have told EPA is inherent in the operation of their engines.
       9.5.4.4  There Is No Need to Require a Special Governor for TRU Engines

What Commenters Said:

       Yanmar commented that EPA is proposing that the engine sold in a configuration that allows for
the engine to operate in any mode not covered by the TRU test cycle is not a TRU engine (see Section
1039.645(e)(3)). This provision attempts to avoid cases where certified TRU engines can be installed into
equipment other than a TRU. However, TRU engines are required to have a long maintenance interval
for lube oil and in order to meet this requirement, the oil sump for the TRU engines is shaped very
differently and has an increased lube oil volume as compared to general nonroad engines. Therefore, it is
impossible to install a TRU engine into  any equipment other than a TRU. Yanmar provided an
illustration comparing the configuration of a TRU engine to a general nonroad engine.

       Letters:
       Yanmar, OAR-2003-0012-0615, 0813 p. 8

Our Response:

       The governor point raised by this commenter relates to the part of the definition of a TRU engine
under these regulations, defining  the engine type by its limited operation. The point raised by this
commenter simply reinforces the definition as adopted by noting further constraints to the operation of a
TRU engine in-use. This section, 1039.645(e)(3) will remain but EPA has modified the section to more
accurately describe and limit the allowable excursions available to a TRU engine in-use. These sections

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now allow for a drift, or "drop-off, of less than 2% in ten minutes or less than 15% in engine load over
the course of one hour after achieving a particular operating mode. Further, engine speed and load cannot
vary by more than 2% on a second-by-second basis.

       As an additional way of ensuring that TRU certification is limited to those engines for which it is
warranted, we are adding a requirement that any TRU-certified engine must meet appropriate NTE
standards for any in-use operation. This is limited neither to later model years nor to any particular range
of engine speeds and loads.  If TRU engine operation is limited as much as manufacturers have described,
the resulting "NTE zone" should be practically limited to a narrow range of speeds and loads very close
to those points represented by the specified duty cycle and can therefore be applied immediately (i.e.,
starting in 2008) as a certification test.
       9.5.5   Other Test Procedure Issues

       9.5.5.1  Generally Supports the Proposed Certification Test Procedures Changes

What Commenters Said:

       NRDC commented that the proposed certification test procedures will improve testing precision,
especially with regards to sampling methods.

       Letters:
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 28

       MECA commented that the proposed emission test procedures will reflect real world emission
performance.

       Letters:
       Manufacturers of Emission Controls Association, OAR-2003-0012-0810, 0811 p. 11

Our Response:

       We agree with these comments and are finalizing the proposed changes to the test procedures.


       9.5.5.2  Testing and Measurement Standards Should Be Aligned Internationally

What Commenters Said:

       Euromot commented that it would be burdensome  to test engines in the United States to SAE or
ASTM standards and also test engines in Europe and Japan according to ISO standards. EPA should
investigate options for ensuring that testing standards are consistent.

       Letters:
       Chicago Public Hearing, A-2001-28, IV-D-06 [Euromot p. 236]
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        EMA and CNH commented that EPA's proposal to conduct steady-state tests with all emissions
related engine control variables in the maximum NOx-producing condition which would be encountered
for a 30-second or longer averaging period at a given test point would be inconsistent with international
standards. This requirement is not included in the ISO 8178 Part 1 or Part 4 test procedures or in the
Japanese JMLIT test procedures for the NRMM.  The steady state test requires variable emissions related
settings to be set at maximum, which is not in line with ISO-8178 parts 1 and 4 and should be deleted
from the requirements.

        Letters:
        Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 64
        CNH Global, OAR-2003-0012-0819 p. 9

        EMA commented that EPA should not abandon efforts to date on the development of
improvements to the test procedures and simply adopt all of ISO 8178-1 or 8178-11 by reference. Those
ISO procedures are not final and are in the DIS (Draft International Standard) stage. ISO representatives
have indicated that they will try to include the EPA/EMA agreed-upon changes prior to the finalization of
the standard to facilitate harmonization.  EPA should use this opportunity to work with industry and other
regulatory agencies to ensure globally-aligned yet internally harmonized steady-state test procedures.

        Letters:
        Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 65

        CNH Global commented that although there can be valid reasons  for different test cycles between
on-road and non-road and between U.S. and EU, in the context of the proposed rule there are no
justifiable reasons for having different emissions measurement, sampling and calibration procedures. The
PM and gaseous emissions measurement methods and calibrations as well as partial flow tunnels  for
particulate measurement on the transient cycle, should be aligned between the U.S. and the EU. These
and other issues such as NTE, all ambient condition tests, in-use testing and after-treatment regeneration
factors are developed with EPA's participation and direction within the new non-road GRPE group, which
has a clear mandate to develop such items under globally aligned regulations.

        Letters:
        CNH Global, OAR-2003-0012-0819 p. 9-10

        Lister Petter commented that it supports EPA's proposal to adopt the test procedure improvements
as specified  in ISO 8178-1 and ISO DIS 8178-11 to achieve a universal test standard and thereby improve
accuracy and alignment with European and Japanese emission standards.

        Letters:
        Lister Petter, OAR-2003-0012-0155 p. 1

Our Response:

        We have tried to harmonize our nonroad CI test procedures with international test procedures, as
well as our highway test procedures (see 9.5.5.3).  However, as EMA pointed out in its comment  above,
the ISO procedures are  not yet final.  We proposed to adopt ISO standards for certain test procedures and
some ISO standards are incorporated by reference, where appropriate. In addition, we have held regular

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test procedure meetings with industry to discuss how to include ISO procedures in the Part 1065 test
procedures. We believe that Part 1065 should be the basis for any globally harmonized test procedure.
Part 1065 builds on the  sound procedures in Parts 86 and  89 and ISO; it also integrates field testing; it
scales across a large range of engine categories  and emissions standards; and it is based on SI.

       It is also important to note that we allow for other test methods in 1065.10.  Thus, even though
some international procedures are not specifically included, they are not explicitly excluded for all cases.
Manufacturers wishing to use these others procedures may ask for our approval to use them.

       The comments described above by EMA and CNH are incorrect.  The procedures mentioned are
described in 40 CFR 86.1360-2007 and do not apply to nonroad.

       We disagree with the CNH's comment that the NTE tests, ambient condition limits, in-use testing
and after-treatment regeneration factors should be developed internationally. See 9.5.5.12 for more
details.
       9.5.5.3  The Test Procedures and Methods Between the On-highway and Nonroad Rules
               Should Be Harmonized

What Commenters Said:

       EMA commented that although the test cycles could be different for on-highway and nonroad
engines, the test procedures and methods should be common between the two. EPA should allow
sufficient time for the development of Part 1065 where the common test procedures would be established,
and should devote additional Agency resources towards this harmonization effort.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 64-65

Our Response:

       We agree with the manufacturers' goal. In developing the procedures described in part 1065, we
intended specify procedure that would allow manufacturers to use a single set of equipment for testing
both highway and nonroad engines.  We will continue to work with manufacturers and other interested
parties to optimize the two procedures.
       9.5.5.4 EPA Should Propose Changes to (and Evaluate the Capability of) Testing
              Measurement Procedures to Accommodate the New Standards, Transient Test, and
              NTE Requirements

What Commenters Said:

       DDC and EMA commented that unless the measurement methods are substantially improved, it
will not be possible for engine manufacturers to develop and certify engines at the levels proposed. The
current federal test procedures and the associated measurement equipment (FTP) were never designed to

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provide reliable and accurate measurements at extremely low emission levels, and could result in a
situation where the variability associated with lab measurements is 50 percent or more than the standard
for Tier 4 engines.  EMA noted that testing data from heavy-duty on-highway engines demonstrates this
variability and refers EPA to the EMA Statement of the 2007 Rule, p. 33-35 for a detailed discussion of
the measurement variability data. Manufacturers must be able to reliably resolve the impact of design
changes that affect emissions on the order of 10 percent of the standard.  An inability to measure the
impact of design changes necessitates a large number of tests and increases the  risk of incorrect decisions
during the development process. In addition, a high variability precludes the establishment of
deterioration factors without a large number of tests.  Substantially improved test procedures and
equipment must be developed, with sufficient lead time to allow manufacturers to upgrade their facilities,
if the proposed standards are to be finalized and implemented.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 3
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 52

       EMA commented that the measurement concerns pertaining to the FTP will be exacerbated by the
proposed addition of the new transient tests and the NTE requirements, which essentially require
manufacturers to make accurate measurements averaged over a period as short as 30 seconds, when
current measurement capability is not adequate to accurately and reliably measure composite average
emissions over the  much longer steady-state and transient test cycles. Technologically feasible emission
standards cannot be determined without accurate and  reliable test procedures and measurement methods.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 52-53

Our Response:

       We have incorporated into the nonroad test procedures the improvements made to the highway
test procedures to increase accuracy and repeatability. We will continue to work with manufacturers to
improve these test procedures. We have also made revisions to the DF requirements to address the low
emission levels.
       9.5.5.5 EPA Should Approve Nonroad Engine Testing Procedure for Steady-state Modes That
               Allows for the Continuous Measurement of Emissions

What Commenters Said:

       EMA commented that EPA should approve testing procedures under which discrete steady-state
test points are not run individually but run as a cycle with the engine transiting from one mode to the next
within 20 seconds. Under this approach, the measurement of emissions is not discontinued between
modes. A single filter collected over the pseudo-transient cycle would be the way to record PM
measurements, but this is only appropriate where full dilution systems are required for the cycle
measurements.  The current steady-state tests are appropriate for constant speed engines and engines >
750 hp.  This test can use partial dilution systems for measuring PM. Accordingly, the use of partial
dilution systems with discrete measurements at a given speed and load must be allowed.

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       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 64

Our Response:

       We are adopting "ramped modal" versions of EPA's nonroad steady-state duty cycles in the Tier
4 final regulations as an alternative to testing using the 8-mode, 5-mode, 6-mode, marine and TRU cycles,
in particular ; however, ramped modal cycles (RMCs) could be constructed for any of EPA's steady-state
certification test cycles. The RMCs are quite similar to the test procedure urged in this comment, and
EPA worked with the commenter in developing these optional test cycles. The cycles and the background
on their development are described in detail in the Preamble, Chapter 3 (F)(4) Test Procedures, and in
RIA Chapter 4.3.1 for this rulemaking.
       9.5.5.6 EPA Should Use the Maximum Vector Speed with a 5 Percent Tolerance as the "Rated
               Speed" Used for the Steady-state Test Modes and the 100 Percent Speed for Purposes
               of De-normalizing the Transient Cycle

What Commenters Said:

       DDC, EMA, and Euromot commented that EPA only allows for a +/- 2 percent tolerance in the
context of the vector approach. However, an increased tolerance is necessary and appropriate for the
following reasons: 1) the tolerance has little impact on emissions, 2) the tolerance will allow the
manufacturer to set the power and speed at the nominal level and still have an adequate margin between
rated speed and governor break speed (in order to avoid issues associated with governor instability and
power variation), and 3) the tolerance will allow the vector approach to be consistent with the approach
being considered by ISO.  In addition, a 5 percent tolerance would allow a single certification test to
satisfy both EPA and EU test procedures. DDC specifically noted that the maximum test speed should
continue to be the manufacturer's rated speed.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 6
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 65
       Euromot, OAR-2003-0012-0822, 0823 p. 10

       EMA commented that EPA proposes to apply the existing definition of maximum test speed (in
Part 1065) to nonroad CI engines, but this definition is no longer aligned with the rated speed definition
that is currently used and will continue to be used by ISO.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 64

Our Response:

       We are changing the existing definition of maximum test speed in part 1065 in this rulemaking.
It will apply to Tier 4 nonroad CI engines along with all other part  1065 provisions. However, we will

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consider revisions to the application of the maximum test speed requirements in a separate rulemaking
related to part 1065.
       9.5.5.7 In Lieu of Engine Testing, EPA Should Consider Using the Rated Power as Specified
              by the Manufacturer to Define Maximum Engine Power

What Commenters Said:

       DDC and EMA commented that even though there is no definitive method of how a nonroad
engine manufacturer is to define power, the manufacturer-defined approach has proven to be superior to
using test results. However, EPA could define maximum engine power using engine testing provided
that: 1) the definition does not lead to testing inconsistencies between EPA, EU, and ISO test procedures,
2) the definition does not create confusion with customers, and 3) there is adequate tolerance included in
the definition such that it can be a nominal  value defined by the manufacturer rather than one that can
only be determined through testing. EPA's definition needs to allow for reasonable production variation,
an adequate margin for setting governor breakaway, and a modest power "bulge." Otherwise production
variability could lead to different engines of the same rating being in different power categories. In
addition, EPA's proposal requires that maximum power be the maximum that occurs anywhere on the
torque curve, which is unlikely to occur at "rated speed." In order to address these concerns, EPA should
adopt a requirement that the  maximum engine power be the rated power as specified by the manufacturer,
provided that the maximum engine power is within 10 percent of the highest power measured during the
power-map of the engine that is used to de-normalize the transient test.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 6
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 65-66

       CNH commented that there should be no doubt as to exactly what the power definition is when
related to emissions measurement.  They added that the ISO-14396 power standard is used (uncorrected)
for emissions measurement, which  is based on ISO-8178; and the ISO-14396 is used (corrected) for
emissions decal declaration,  establishing the different emissions power categories, sales and advertising
literature, European Power Certification, and ABT Calculation. The ISO-14396 evolved in parallel with
ISO-8178 and is customized for non-road engine emissions declaration. This power standard is now
being converted into an ECE Regulation under the GRPE mandate for a globally aligned power
definition. This will ensure that all manufacturers have a common power declaration. CNH noted that if
future concerns arise regarding governor curve shapes on electronically controlled engines or on the
power bulge, then limits should be  set on the allowable variation from the manufacturers declaration and
that any new revised proposals should go through the new GRPE World Forum for aligned regulations.

       Letters:
       CNH Global, OAR-2003-0012-0819 p. 9

       EMA commented that if manufacturers determine that the specified maximum engine power is
outside of the normal production range, we should allow the manufacturers to amend the application for
certification  or change the settings of the engines being produced.
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       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0938

Our Response:

       The definition of "maximum engine power" does not affect test procedures in any way. It is only
relevant with respect to determining the power category in which an engine family belongs and to the
calculation of ABT credits. Therefore, how we define it will not create testing inconsistencies.

       We are not adopting EMA's recommendation because it would still allow manufacturers to
arbitrarily determine how the standards apply within a 20 percent power window. We agree with
manufacturers, however, that "maximum engine power"  should not be specified solely by testing. Our
goal is for the definition to not rely on manufacturer's discretion and to ensure that the resulting maximum
engine power value be representative of production engines. Therefore, the definition being finalized
specifies that the maximum engine power is the highest power level on the nominal power curve.  (The
nominal power curve is the manufacturer's best preproduction projection of the power/speed relationship
of production engines for a given engine model.) The approach being finalized allows for reasonable
production variability. It will also allow for "power bulges" during engine lugging because we specify
that engines be mapped with increasing power rather than lugging power down. Thus, it is allowable for
engines to have higher power on the lug curve than on increasing power map.

       There is no reason that the final definition should cause confusion for customers, since we do not
require that manufacturers inform the customers of the EPA-defined maximum engine power.

       The CNH comment regarding ISO-14396 is not relevant to this issue, since it relates to the
measurement of power, rather the regulatory definition of the maximum power.

       We agree with EMA's comment that we should allow the manufacturer to amend the  application
for  certification or change the settings of the engines being produced if it is determined that the specified
maximum engine power is outside of the normal production range.
       9.5.5.8 EPA Should Give Manufacturers the Option of Defining the Mode 1 Power to Be the
              Engine Power Specified on the Manufacturer's Data Sheet

What Commenters Said:

       EMA commented that the emissions regulations for nonroad variable-speed engines call for Mode
1 as the maximum power at rated speed, which makes sense because these engines are typically matched
to machines that can use this full power.  However, engines used in constant-speed applications have very
strict requirements on operating frequency, and serious damage can  occur if the engine speed drops by
more than a few percent.  The actual amount of governing power available to the generator set will vary
by engine manufacturer and may be above the engine power specified on the manufacturer's data sheet.
Therefore, running Mode 1 of the  steady-state D-2 cycle at the maximum fuel flow setting amounts to
running the engine at a condition at which the engine cannot run under steady-state conditions.

       Letters:

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       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 67

Our Response:

       Section 1065.10 allows us to modify test procedures to make them more representative of in-use
operation. If the Mode  1 power cannot be run, we will allow manufacturers to test at a different power
level.
       9.5.5.9  The Proposed Test Methods Do Not Adequately Address NMHC Measurements,
               Particularly for Natural Gas and Diesel Fueled Engines

What Commenters Said:

       EMA commented that natural gas fueled engines are expected to have large amounts of methane
relative to total hydrocarbon (THC), so a method is needed to measure the NMHC.  However, there could
be significant variability associated with subtracting methane (CH4) from THC to calculate NMHC as the
level of methane increases. The current or proposed changed to Part 1065 do not address NMHC for SI
engines and better measurement methods are needed, especially for natural gas (NG).  A direct
measurement of NMHC using a NMHC analyzer would eliminate the error associated with subtracting
two large numbers. It would be reasonable to combine current on-highway test procedures and allow for
an unheated HC bag sample measurement, which would allow for a more accurate and direct
measurement of NMHC.  The commenter provided additional discussion regarding the potential
challenges associated with this approach.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 69-70

       EMA commented that for diesel fueled engines, an unheated HC bag sample is not likely to be
appropriate for measuring the NMHC due to the presence of other heavy HC species.  A heated NMHC
bag sample would solve this problem, but it is not currently available, so methane would need to be
measured separately on a dry basis.  Drying the sample avoids costly requirements associated with
dehumidifying the dilution air, diluting the methane bag sample, or keeping the sample above the dew
point.  EPA should allow for the flame ionization detector (FID) to be equipped with a methane cutter as
a more cost effective method to measure the methane in the bag sample. Running two continuous FID
(one for THC and one for methane using a non-methane cutter) should also be considered.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 70

Our Response:

       We believe that the specified NMHC test procedure, which is the same procedure we finalized for
heavy-duty on-highway diesel engines (66 Fed. Reg. 5001 January 18, 2001), is adequate for the Tier 4
program. The HDDE NMHC levels are similar to those proposed in this rule.  The test procedure
specifies the use of a gas  chromatograph (GC)  for determining CH4 via bag sampling and a heated flame
ionization detector (HFID)  for determining total hydrocarbons (THC) via a continuous sampling.  This

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test procedure is already used successfully at the most stringent light-duty gasoline hydrocarbon standard,
which is significantly lower than the NMHC standard proposed for this rule.

       We believe that the fraction of CH4 in THC from non-road diesel engines is not an issue because
light-duty THC emissions can be upwards of 90 % CH4, which is higher than what we expect from non-
road diesel engines.

       This procedure already allows for the use of an unheated bag for CH4 sampling, which can be
dried as one commenter describes.

       While we are not aware of any direct NMHC analyzer, we did propose to allow for the use of
alternate systems according to 86.1307-2007 if such an analyzer was used to demonstrate equivalence.
The same is true for the use of a non-methane cutter. We intend to  propose additional changes to  Part
1065 (Test Procedures) in an upcoming NPRM. In this future NPRM we will consider allowing the use
of a non-methane cutter.
       9.5.5. lOThe Proposed Provisions Regarding the Generation and Use of Deterioration Factors
               (DF) Are Problematic and Unnecessary and Should Be Eliminated or Revised

What Commenters Said:

       DDC and EMA commented that in some cases there is confusion about when additive and
multiplicative DFs are to be used. The form of the DF for each pollutant depends on the use and type of
aftertreatment. The DFs for PM, HC and CO would all be additive if a catalyzed PM filter were used,
since this type of aftertreatment controls HC and CO along with PM.  However, if an oxidation catalyst
were used in conjunction with a catalyzed PM filter, it is unclear whether the CO and HC DFs would be
additive or multiplicative.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 3
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p.  88

       EMA commented that DFs are generally developed through service  accumulation and testing,
which is time consuming and costly.  EPA only allows for the test results to  be extrapolated to full useful
life only after the testing has established an increasing trend in emissions results, which cannot be
presumed since experience has shown that diesel engine emissions are frequently stable or decrease with
age. Given the extremely low levels of the Tier 4 emission standards and the inherent variability in the
measurement of these emissions, such testing programs will often  result in DFs that are not realistic or
representative of the true emission deterioration, which is exacerbated when the test results are
extrapolated to full useful life and/or when multiplicative DFs are  used.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p.  88

       EMA commented that testing variability can cause the emissions at the high-hour test point to be
higher or lower than at the low-hour test point even if there is no real  "deterioration." This variability can

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be 10 percent or more of the Tier 4 standards and if the test results are extrapolated, the test variability
component of the DF can account for a large part of the standard. The alternatives that could reduce this
variability (such as using less extrapolation and running service accumulation closer to the full use life or
running more emission tests at each service accumulation test interval), are costly and time-consuming.

        Letters:
        Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 89

        EMA commented that the combination of test variability, near-zero measured emissions, and
multiplicative DFs is problematic, since as the low-hour emission test results approach zero (as is the case
for PM, HC and CO emissions on a PM filter equipped engine), the resulting multiplicative DFs become
very unstable.  Very large DFs can be generated due to even small amounts of test variability between the
low-hour and high-hour test points and high degrees of extrapolation exacerbate this problem.

        Letters:
        Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 89

        EMA commented that the use of multiplicative DF in cases where measured emissions are zero or
negative creates mathematical anomalies. For example, if the measured emissions at the low-hour point
are zero, the divide-by-zero situation and the multiplicative DF will be indeterminate, and if the low-hour
measured emissions are negative and the high-hour emissions are positive, the result will be a negative
DF.  In addition, if the measured low-hour emissions are negative and the measured high-hour emissions
are more negative, the DF will be a positive value greater than one.

        Letters:
        Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 89

        Lastly, EMA stated that since EPA has announced its intent to promulgate an in-use
manufacturer-run testing program for nonroad engines, the need for DFs is greatly reduced if not
eliminated entirely.  The DF requirements should be removed from the proposal.  If DF provisions are to
be included, the requirements to use multiplicative DFs must be eliminated and EPA should work with
EMA to develop a workable approach for DFs.

        Letters:
        Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 89

Our Response:

       We continue to believe that DFs based on engine testing are an essential part of our overall
compliance program. It is not sufficient to rely on an in-use testing program that would not catch
durability problems before the excess emissions occur. It is clearly preferable to have manufacturers
demonstrate before production that their emission controls will be durable. Nevertheless, we agree that
this burden should be minimized to the extent possible. Therefore, as described in §1039.245, we allow
extensive use of "carryover" information from other engine families. We also allow the use of
engineering analysis, instead of engine testing, in many other cases.
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       With respect to the arithmetic nature of the DF, we agree with manufacturers that additive DF are
generally appropriate, and have modified the regulations accordingly.
       9.5.5.11 EPA Should Modify the Proposed Criteria for Test Engine Selection at Section
               1039.235(b) to Be More Specific

What Commenters Said:

       EMA commented that the term "highest fueling rate" should specify "highest volume of fuel
injected per combustion cycle."  EMA also commented that the engine selection criteria for test engine
selection, such as "good engineering judgment" confuses the definition and opens the door for
unproductive and subjective controversy.

       DDC commented that the highest fueling rate per combustion cycle should be the  sole criterion
for determining the parent engine for an engine family.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 91
       DDC, OAR-2003-0012-0783  p. 8

Our Response:

       We agree that the regulations  should state "highest volume of fuel  injected per combustion cycle"
instead of "highest fueling rate" when specifying the default test engine.  However, we disagree that this
should be the only criteria. The purpose of certification is to show that all  of the engines in an engine
family comply with the standards. Under EMA's approach, if a manufacturer knew that the engine with
highest volume of fuel injected per combustion cycle was not the highest emitter, it would still claim to
show compliance using emission data that was lower than some other engines in the family.  This is not
appropriate.  In order to show that all engines in the family comply, the manufacturer should submit the
highest emission rates.  However, the  proposed regulations do not require that manufacturers go to great
lengths to find the highest emitter. Rather, they specify that manufacturers should not test the default
engine if "good engineering judgment indicates that a different configuration is more likely to exceed (or
has emissions nearer to) an applicable emission standard."  Manufacturers provided no rationale for why
they should be allowed to test an engine for certification that they know is  not the worst case.

       It is worth clarifying, though,  that we expect that it will be appropriate for manufacturers to test
the default engine in most cases.  Based on our current understanding of the emissions performance of
diesel engines, we expect that engines highest volume  of fuel injected per combustion cycle will generally
have the highest emissions.  Moreover, since engine families are supposed  to be groups of engine with
similar emissions, there should not be  large differences in brake-specific emission rates in most cases.
Nevertheless, it is possible that advanced emission controls may respond differently, and that in some
cases it may become clear that the engine highest volume of fuel injected per combustion cycle is not the
worst case engine.
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       9.5.5.12EPA Should Participate Actively in the GRPE Off-Cycle Working Group, and Should
              Align Their Regulations with the Resulting Recommendations

What Commenters Said:

       DDC and EMA commented that EPA seeks to clarify that both the transient test cycle and the
NTE "test procedures" are included within the defeat device regulations under which an operational
AECD will not be considered a defeat device. EPA also proposes to require more detailed information
regarding any AECDs necessary to protect the engine or equipment from damage or accident (see
proposed section 89.115(d)(2)).  With respect to AECDs, EPA should participate in the GRPE Off-Cycle
Working Group, which will provide greater certainty and harmonization with respect to these issues.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 8
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 101

       CEMA-CECE commented that the efforts of the working group on nonroad mobile machinery
(NRMM) set up by GRPE within the UN-ECE, which entail the development of a global technical
regulation, is an indispensable preliminary activity for achieving alignment of applicable test procedures.

       Letters:
       CEMA-CECE, OAR-2003-0012-0598 p. 5

Our Response:

       We recognize that the GRPE process represents an opportunity for global harmonization.
However,  the timetable for addressing the specific concern of the commenter is not consistent with the
timing for finalizing this rulemaking.  The Agency remains confident that the NTE procedures, as
finalized, remain a valuable tool for potential incorporation into Global Technical Regulation. Once the
process for including the Agency's thinking on NTE reaches a point for potential adoption or
consideration in GRPE, the Agency remains ready to provide technical details for moving the process
forward.
9.6    NTE Requirements

       9.6.1  Commenters Support the Proposed NTE Requirements

What Commenters Said:

       CARB, NESCAUM, NRDC, and the New York Department of Environmental Conservation
commented that they support the proposed NTE requirements.

       Letters:
       New York Public Hearing
                     A-2001-28, IV-D-05 [NESCAUM p. 99; NRDC p. 31; NY DEC p. 12]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [CARB p. 19]

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Our Response:
       We agree that NTE provisions are an important part of our compliance program.  We are
requiring compliance with the NTE in the first year that aftertreatment-based standards take effect (see
preamble Table III.J-1). However, we are not requiring compliance with the NTE for under 25 hp
engines until 2013, and not requiring compliance with the NTE for the interim PM standard for 25-75 hp
engines.  The reason is that we believe engine makers' finite resources are better directed toward
compliance with the stringent aftertreatment-based standards rather than being diverted excessively to
developing NTE strategies for the interim PM standard or the PM standards for the smallest engines.
       9.6.2   Commenter Conditionally Supports the Proposed NTE Requirements

What Commenters Said:

       Yanmar commented that the proposed NTE requirements may be acceptable provided that they
are not too burdensome on the manufacturing industry.  If adopted, Yanmar believes, the NTE
requirements should only apply to engines with full electronic management systems. These requirements
should not apply to mechanically controlled engines, since the emission characteristics for these engines
are not controlled freely.

       Letters:
       Yanmar, OAR-2003-0012-0615, 0813 p. 7

Our Response:

       We disagree that the NTE should only apply to electronically controlled engines. As described in
the RIA, we have determined that the NTE standards are feasible for all nonroad CI engines.


       9.6.3   Commenter Supports the Alternative NTE Methodology

What Commenters Said:

       CARB commented that EPA should adopt the alternative NTE methodology rather than the
primary methodology. Even though both strategies would be useful for evaluating in-use compliance, the
alternative approach has the potential to be more robust for nonroad applications. The alternative
proposal uses "work performed" instead of "running time" as the basis for determining whether or not
emissions have exceeded the NTE standard. Among other benefits, this would enable emissions
performance to be evaluated during nearly all ranges of engine operation rather than only those ranges
encountered within limited NTE zones. In addition, full range NTE operation would eliminate the need
to measure real-time torque and would allow exhaust flow to be inferred rather than measured, which will
simplify OBD.  The alternative NTE procedure would provide many more opportunities on average for
determining emissions compliance in the field.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 9

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       9.6.4   Commenters Conditionally Support the Alternative NTE Methodology

What Commenters Said:

       CARB, STAPPA/ALAPCO., and UCS commented that the alternative NTE approach would be
an acceptable alternative to the proposed NTE requirements, provided that the work interval truly reflects
typical actual operation in use. The alternative NTE methodology can be used to evaluate compliance for
nearly all ranges of engine operations, rather than just those conditions encountered within a predefined
operating zone. However, adoption of the NTE standards should not be delayed to allow for the
implementation of this alternative approach, since any delay in NTE will make the Tier 4 standards less
enforceable.

       Letters:
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 17
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 9
       New York Public  Hearing, A-2001-28, IV-D-05  [CARB p. 143]

       9.6.5   EPA Should Not Finalize the Alternate NTE and Should Instead, Carry over the
               Recently  Clarified On-highway NTE Requirements as Modified for Nonroad
               Engines

What Commenters Said:

       DDC and EMA commented that EPA has failed to provide adequate notice relating to the
alternate NTE. The preamble discussion that set out and requests comment on the alternate NTE is very
brief and simply refers the reader to Section 4.3 of the RIA, which includes a longer discussion but does
not provide any specifics or actual test data regarding how an engine manufacturer would run a
certification test to ensure  compliance with the alternate NTE, how the alternate NTE compares in terms
of relative stringency with the on-highway NTE requirements, or how EPA assessed and proved the
technical feasibility of the alternate NTE. In addition, EPA's supplements to the docket do not address
these issues.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 6
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 40-41, 112

       Cummins, DDC, EMA, and Euromot commented that the alternate NTE is inherently more
stringent than the on-highway-based NTE.  This is inconsistent with the basic premise of the Tier 4 rule
that nonroad engine technologies are derivative from on-highway technologies and that emission control
requirements need to be proven in the on-highway sector before being applied to nonroad engines.  It is
also inconsistent with Sections 213(a) and (d) of the CAA (i.e. in promulgating standards for nonroad
engines, EPA "shall first consider standards equivalent in stringency" to the on-highway standards). The
alternate NTE would apply to all nonroad engine operations, including extended idle and low power
operations, which are inherently high in terms of work-based emissions. The on-highway NTE Zone
excludes such operations.  Including low speed-load and idle operations in the alternate NTE essentially
requires nonroad engine emissions resulting from operation falling within this zone to be lower than on-
highway engines and the use of longer NTE averaging times do not resolve this issue.  In addition, since

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the alternate NTE calculation method would use an engine family's average brake-specific fuel
consumption (BSFC), nonroad engine NTE emissions will be higher in operating modes where actual
BSFC is lower than the average BSFC.  The commenters provided significant additional discussion on
this issue, including a detailed description of the on-highway NTE requirements and how they compare to
the alternate NTE.

       Letters:
       Cummins, Inc., OAR-2003-0012-0650 p. 6-7
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 6
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 41-43, 112
       Euromot, OAR-2003-0012-0822, 0823 p. 9

       DDC, EMA, and Euromot commented that EPA has not established the technical feasibility of the
alternate NTE. Even though the RIA presents the emissions test data in support of the alternate NTE,
EPA has not provided any actual emissions data.  Instead, EPA describes the process of optimizing the
alternate NTE so that it would achieve a level  of compliance similar to the on-highway NTE
requirements. EPA uses a reverse engineering (or trial and error) process by predetermining that the on-
highway NTE multiples (1.25 and  1.5) should be retained and then assessing longer or shorter averaging
periods to see which period over which length of emissions data would yield results most closely aligned
with the on-highway NTE methodology. The  alternate NTE was established through a seemingly
rudimentary trial-and-error method to align results using just a few data sets, none of which involved a
Tier 2 or 3 nonroad engine, a Tier 4 prototype, or a engine equipped with any type of emissions
aftertreatment system.  Instead,  EPA used a "NOX adsorber model" as a substitute for an actual prototype
Tier 4 engine.  In addition, the limited data sets were derived from the operation of only two bulldozers,
one excavator and one haul truck, which represent only four out of the literally thousands of nonroad
engine applications and duty cycles. This limited data should not be used to form the basis of a new
emission standard and cannot establish the feasibility of the alternate NTE.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 6
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 43-44, 112
       Euromot, OAR-2003-0012-0822, 0823 p. 9

       DDC and EMA commented that there is no proper test method for the alternate NTE. EPA's
description of the procedure for compliance testing in the RIA is more conspicuous for what it does not
specify than for what it does. For example, EPA does not provide a specification regarding what type of
engine test data should be "merged" to make up a minimum 6-hour data set.  There are a number of
additional questions that need to be answered in this context, regarding the duty cycle, emission data
(steady state, in-zone, etc.), uniformity of "merging"  practices, and other related issues. The number of
unanswered questions illustrates that there is no real test procedure for the alternate NTE and thus, no way
for manufacturers to assure that its engines are in compliance.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 6
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 44-45, 112
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       Caterpillar and NRDC commented that there is an urgent need for an effective NTE program as
soon as possible and the basic highway approach is a workable option for the nonroad program.  The
alternate NTE will not address the disconnect between certification and real world emissions. The work
interval may not accurately reflect the typical actual operation of the engine or equipment. One
commenter (Caterpillar) added that having different protocols in both the highway and nonroad segments
will not allow for test techniques to be transferred and would make engine development more difficult
thus disallowing the effective transfer of technology from the on-highway sector to the nonroad sector.
EPA should work with industry to develop the details for the final NTE test protocol since the on-
highway NTE may need some adjustments to allow for its application to the nonroad sector.

       Letters:
       Caterpillar, Inc., OAR-2003-0012-0812 p. 1-2
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 32

       Euromot commented that the alternative approach would require in-use testing or running the
engine through specific NTE cycles before being able to make a compliance state. This is not acceptable
to engine manufacturers, since there is a high risk of non-compliance in cases where the in-use operation
of a specific machine is different from the testing NTE cycle.

       Letters:
       Euromot, OAR-2003-0012-0822, 0823 p. 9

Our Response (for 9.6.3 - 9.6.5):

       We are finalizing NTE based on the highway approach and are not adopting the alternative NTE
approach. We believe that this is appropriate given the degree to which nonroad CI engines are derived
from highway engines. Nevertheless, we believe that the alternative approach has some advantages and
we may reconsider it in the future (with appropriate notice and opportunity for comment).
       9.6.6   EPA Should Not Include NTE Requirements in the Proposed Rule

What Commenters Said:

       ARA commented that engine and equipment manufacturers should be given time to evaluate the
potential impact on equipment performance of various nonroad packages. A more appropriate time to
establish the NTE standards is when EPA proposes rules covering OBD and in-use testing.  EPA should
work with industry representatives to ensure that the standards do not compromise engine performance.

       Letters:
       American Rental Association, OAR-2003-0012-0612 p. 4

Our Response:

       We disagree with this comment. We have determined the NTE standards to be technologically
feasible. The NTE requirements supplement the other nonroad standards and test requirements and
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should be considered together with them.  The NTE is, in fact, a critical element of assuring that the
standards result in the greatest achievable emission reduction when these engines are in actual operation
       9.6.7   EPA should modify the proposed NTE deficiency provisions

What Commenters Said:

       DDC and EMA commented that EPA proposes that the NTE deficiency provisions become
available when the Tier 4 interim standards take effect, but with stringent limitations on the number of
deficiencies. However, the need for deficiencies will be increasing at the same time that the number of
allowed deficiencies is reduced. EPA should allow for unlimited deficiencies during the first two years of
the interim and fully phased-in Tier 4 standards for each power category, and the allowable number of
deficiencies should be reduced to three during the remaining years that the interim and final Tier 4
standards are in effect. In addition, the 7-year limit on the use of deficiencies should be eliminated since
EPA retains the authority to grant or refuse deficiency requests.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 6
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 46, 112

       DDC and EMA also commented that EPA should remove the provisions that approves
deficiencies on an engine model/power rating basis, or should clarify that if the same deficiency type is
used on several power ratings in an engine family, this would be counted as one deficiency. Otherwise,
manufacturers will be forced to limit family size to no more than three power ratings.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 6
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 46, 112

       STAPPA/ALAPCO and UCS commented that the NTE deficiency provisions would allow EPA
to accept a nonroad diesel engine as compliant with the NTE standards even though some specific
requirements are not fully met.  There is a need for flexibility, but EPA should limit these flexibility
provisions to no more than three model years. One commenter (STAPPA) added that EPA should clarify
in the final rule that an application for a deficiency for failure to meet the FTP or transient standard will
not be considered.

       Letters:
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 16-17
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 9

       CARB commented that EPA should clarify exactly what constitutes an allowable deficiency
before proceeding with the allowance.  Deficiencies should be defined, at least in part, as bounded sub-
regions of the NTE zone where, under normal engine operation, NTE evaluations are unreliable due to a
high incidence of false failures or where the NTE evaluation fails to detect emission in exceedance of the
NTE standard. Sub-regions should not overlap or constitute more than five percent of the total NTE zone.
This would allow 20 or more sub-regions where deficiencies can be applied, which is necessary to

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prevent abuse of the provision where several deficiencies might mean exemption from the entire NTE
requirement.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 9

       CARB commented that allowing for an unlimited number of deficiencies for the first three years
after NTE is introduced, opens the door for abuse which could effectively give manufacturers a three year
reprieve from having to comply with the requirements. EPA should either reduce the number of
deficiencies during this period to ten, which would ensure at least 50 percent NTE capability, or should
set a higher NTE threshold for the  introductory years without a deficiency allowance.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 9

       Lastly, CARB stated that allowing three deficiencies through the seventh model year of
production will not be a useful tool for enforcing compliance with the standards until the 2018-2020
timeframes depending on the hp category.  EPA should require fully compliant NTE systems by 2015 at
the latest.

       Letters:
       California Air Resources Board, OAR-2003-0012-0644 p. 9-10

Our Response:

       We generally disagree with the comments suggesting that we fundamentally change the
deficiency provisions. The proposed provisions were based directly on the highway provisions. We are
finalizing the proposed provisions  with only  minor changes.

       The deficiencies will be allowed for  a limited time because we anticipate manufacturers will need
them as they introduce the new technologies. The commenters provided no information that showed that
they will not be needed.  We do not believe that we could at this time limit the nature of what constitutes
a deficiency. By their very nature, deficiencies are artifacts of the design process and cannot be
anticipated in a specific manner. It is important to note that all deficiencies will be subject to EPA
approval.

       We disagree with manufacturers that the deficiencies should be unlimited.  We believe that the
limits, which are consistent with the highway program, provide an important incentive for manufacturers
to optimize their designs as soon as possible. We do agree with the manufacturers, however, that the
regulations should clarify that we will not count as separate deficiencies those that are the same type, as
long as they apply similarly to different power ratings within a family.
       9.6.8   EPA Should Clarify the NTE Implementation Schedule

What Commenters Said:
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       Comparing the preamble with the regulatory provisions shows some discrepancies regarding the
implementation of the proposed NTE requirements. For (1) engines in the < 19 kW power category, (2)
engines in the 19 to 37 kW power category, and (3) engines in the 37 to 56 kW power category that are
using the 2008 transitional PM standard, the preamble indicates that the NTE requirement begins in 2013,
while the regulatory provisions indicate an implementation date of 2008. In addition, for engines in the
power categories above 130 kW, the preamble indicates that the NTE requirement begins in 2011 (while
the Tier 3 standards are still in effect and one year before the interim Tier 4 standards take effect).  EMA
also recommended that EPA clarify the schedule and follow the precedent set by the NTE requirement for
marine engines, which apply two to three years after the base emission standards take effect.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 46-48, 112
       DDC, OAR-2003-0012-0783 p.  6

Our Response:

       EPA has clarified the NTE implementation schedule in the final regulations, and tried to assure
that the preamble description is in accord with the regulatory text.
       9.6.9   EPA Should Adjust the NTE Multiplier Threshold

What Commenters Said:

       DDC and EMA commented that he nonroad NTE multiplier values of 1.25 and 1.5 are essentially
identical to the on-highway values.  Similarly, the numerical values of the NOX and NOX + NMHC
thresholds used for determining which multiplier to use are also identical to the on-highway requirements.
However, when these threshold values are considered in relation to the levels of the applicable standards,
the proposed NTE multiplier threshold functions in a way that is more stringent for nonroad engines.
Even though a similar percentage emission reduction is required for nonroad engines in 2011, the
numerical emission standards are somewhat different. The proposed NTE multiplier thresholds need to
be adjusted to achieve parity between the nonroad and on-highway categories. The threshold for the
nonroad multiplier actually should be set 25 percent above the standard of 2.0 g/kW-hr, rather than at the
identical on-highway levels. The result is that 130 to 560 kW nonroad engines certified to a NOX standard
or PEL less than 2.5 g/kW-hr should be able to use the 1.5 multiplier. This same approach should be used
for each power category with a split-family standard, including the PM standard for engines greater than
560 kW.

       Letters:
       Detroit Diesel Corporation,  OAR-2003-0012-0783 p. 6
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 48-49, 112

Our Response:

       We agree that the NOx threshold should be changed to 2.5 g/kW-hr.  See section III.J of the
preamble for discussion of this change.
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       9.6.10  EPA Should Add Special Provisions to Describe the NTE Zone Applicable to
               Constant Speed Engines

What Commenters Said:

       DDC and EMA commented that in the proposed regulatory language at section 1039.515, the
NTE "procedures" described for on-highway engines at 86.1370-2007 are made applicable to nonroad
engines and are to be used to determine whether the NTE standards in section 1039.101(c) are met.
However, the NTE zone described in 86.1370-2007 is intended to apply to variable speed engines and
cannot logically be applied to constant speed engines. The NTE zone applicable to constant speed
engines should be limited to a small speed range (+/- 1 percent) around the nominal constant operating
speed since these engines are typically used for electrical power generation and operate only  in a very
narrow speed range.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 6
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p.  49, 112

Our Response:

       We are not revising the NTE regulations for constant speed engines. We believe that the
provisions allowing manufacturers to ask to exclude operation outside of the normal operation are
sufficient to address  manufacturer concerns. Section 86.1370(b)(6)(i) states, "the manufacturer may
identify particular engine . . . combinations and may petition the Administrator at certification to exclude
operating points from the Not- to-Exceed Control  Area .  . . if the manufacturer can demonstrate that the
engine is not capable of operating at such points".
       9.6.11  EPA Should Add Provisions That Would Exempt Engines During Start-up or
               Engines with Exhaust Emission Control Devices from the NTE Requirements

What Commenters Said:

       DDC and EMA commented that even though the preamble discussion (68 FR 28368) reflects the
intent of exempting EGR engines from NTE requirements during cold operating conditions by
referencing paragraph 86.1370-2007(f), the proposed regulatory language does not contain any provisions
that would allow for this exemption. EPA should correct this oversight.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 6
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 49-50, 112

Our Response:

       Section 1039.101(e)(6) also provides specifically that NTE standards do not apply during cold
operating conditions specified in 40 CFR 86.1370-2007(f) for engines equipped with EGR
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       9.6.12  EPA Should Clarify the Procedures That Are Used to Determine Conformance with
               the NTE Provisions

What Commenters Said:

       EMA commented that it is assumed that the same procedures used to determine conformance
with the standards given at section 1039.101(c) should also be used to determine conformance with the
NTE standards given at section 1039.102(d)(l).  The regulatory language at 1039.515 should be modified
to reflect this.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 50, 112

Our Response:

       Section 1039.102(g)(l) clearly references the provisions of §1039.101(e), which apply in their
entirety with respect to the procedures used to determine conformance with the standards.
9.7    Certification Fuel

       9.7.1   The Emission Test Fuel Specifications Applicable to Nonroad, Locomotive and
               Marine Engines Should Be Limited to No More than 500 ppm Sulfur Content

What Commenters Said:

       DDC and EMA commented that he test fuel specification applicable to all 2007 and later model
engines should be no more than 500 ppm, since maximum sulfur content of certification test fuel should
be no greater than that specified by EPA for commercial use. In addition, the emission test fuel
specifications for engines certifying to Tier 2 or 3 standards should allow for the use of a test fuel with a
maximum sulfur content of 500 ppm (even in the absence of sulfur-sensitive aftertreatment), since the
phase-in of the Tier 3 nonroad standards begins in 2006 and the Tier 2 locomotive and marine standards
take effect in 2005 and 2004, respectively. These engines will operate on fuel with a sulfur level of no
more than 500 ppm. This specification should also apply to engines that do not use a sulfur-sensitive
aftertreatment if the engine manufacturer agrees to provide engine labels and owner's manual notices
indicating that fuel with a sulfur content below 500 ppm is recommended. In addition, locomotives
remanufactured and newly certified to Tier 0 standards in 2005 or later years should be certified on fuel
with 500 ppm maximum sulfur, which would allow manufacturers to use one  certification test fuel.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 4
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 91-92

Our Response:

       We are adopting provisions in the final rule to allow testing with 500  ppm maximum sulfur test
fuel in model years before 2008. See section III.D of the preamble. Adopting this test fuel specification

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for all testing in model year 2007 would be inappropriate as this fuel will not be generally distributed
until well into the 2007 calendar year. We will address the issue of locomotive and marine certification
fuel in a separate rulemaking that also addresses emission standards.
       9.7.2   EPA Should Allow for the Use of Low Sulfur Certification Fuel Prior to 2007 MY
               for On-highway Engines and Vehicles That Employ Sulfur Sensitive Technology

What Commenters Said:

       Isuzu commented that as EPA has acknowledged, the use of low sulfur fuel would encourage the
introduction of low emission diesel technologies. The benefits of these technologies would be even
greater in the on-highway sector, where diesel engines and vehicles are used in high volumes.

       Letters:
       Isuzu,  OAR-2003-0012-0809 p. 1

Our Response:

       We are not changing the highway engine certification requirements in this rulemaking. We may
consider this issue in a future rulemaking upon showing that there is a practical need to do so.
       9.7.3   EPA Should Ensure That Certification Fuel Is Representative of In-use Fuel

What Commenters Said:

       The New York Department of Environmental Conservation commented that fuels used in
certification and compliance testing must be representative of typical in-use fuels to ensure that
anticipated emissions reductions will be achieved.  Engines should not be certified on 15 ppm sulfur
diesel fuel starting in MY2008, since this is at least 2 years before it can be assured that comparable fuel
will be used in the field (except in cases of early introduction of aftertreatment equipped engines that
must use ULSD). This engine certification loophole is unlikely to increase total refinery production of 15
ppm sulfur diesel fuel. In addition, at the national level it makes no difference whether the ULSD
production above the levels consumed by MY2007 (and later) highway diesel engines is consumed by
existing engines.

       Letters:
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 4

       The New York Department of Environmental Conservation commented that unless EPA proposes
to adopt a low aromatics content requirement, the minimum aromatics content for certification fuel must
be increased to a value closer to the norm for No.2 diesel fuel.  There are some NOx and PM benefits to a
very low diesel fuel aromatics level, but the 10 volume percent aromatics content minimum is too low.
EPA should establish this  level at approximately 20 volume percent.

       Letters:

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       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 4

       CNH Global commented that the reference fuel for emissions tests needs to be the same for the
U.S. and the EU.  This includes increasing the US cetane number.

       Letters:
       CNH Global, OAR-2003-0012-0819 p. 9-10

Our Response:

       We believe that our certification fuels will be sufficiently representative of fuels being used in the
field. It would not be appropriate to base our standards on international test fuels that are not
representative of U.S. fuels. However, §1065.10(c)(2) would allow the use of test data based on
international fuel specifications,  provided the data are equivalent to data using the EPA test fuel.  Testing
on 15 ppm maximum sulfur test  fuel before model year 2011 is only allowed in special cases for which
little environmental impact or a net environmental gain is expected due to the early introduction of clean
engines.

       We believe that 10 percent will represent the approximate minimum value of aromatics content of
ultra low sulur fuels in the future. We also believe that advanced low-NOx engines will not be
significantly affected by the aromatic content of test fuel.
9.8    General Compliance Provisions

       Except as noted, all the comments addressed in this section were from the Engine Manufacturers
Association (OAR-2003-0012-0656, 0657; p. 101 - 106).

       9.8.1   Stationary and Competition Engine Requirements

What Commenters Said:

       It is unreasonable to comply with the new requirements for stationary or competition engines in
§§ 1068.310 and 1068.320 in the same time frame that manufacturers are developing engines that meet
Tier 4 emission standards.

Our Response:

       We proposed a new requirement to add engine labels to imported engines that are not subject to
standards because they are stationary or used solely for competition.  In the final rule we are including the
proposed requirement and extending it to domestically produced engines. Manufacturers have reported
that they are already doing this with their engines today. Also, we have adopted this same labeling
requirement for all such spark-ignition engines in a previous rulemaking (67 FR 68242, November 8,
2002).  While we generally do not impose  requirements for these excluded engines under a program for
nonroad engines, we believe it is necessary to require labels as a condition of the exclusion. This is
especially important considering that loose engines are often shipped for eventual installation in an
excluded application. Until the engine is installed in an application that is clearly excluded, it could

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easily be diverted for use in an application that is in fact subject to nonroad emission standards. To allow
adequate time for all companies, we are allowing until January 1, 2006 to meet the labeling requirements.
        9.8.2   Definition of "Good Engineering Judgement"

What Commenters Said:

        The proposed §1068.5 does not define good engineering judgment, which leads to subjective
rather than objective analysis. This section should either be eliminated or should be made inapplicable to
nonroad diesel engines. Manufacturers need to have a clear indication of what the standards for
comparison and judgment will be. EMA also noted that in Section 1068(e), the reference to Subpart F
should be Subpart G.

Our Response:

        We understand EMA's concern about the use of good engineering judgment. However, we
believe it is necessary to rely on the use of good engineering judgment in many cases. In developing
these regulations, we sought to balance the sometimes competing goals of maximizing manufacturer
flexibility, minimizing testing and administrative burdens, ensuring good in-use control of emissions, and
anticipating how new technologies will fit into the regulations.  To the extent that we could, we drafted
the regulations with specific provisions to accomplish these goals.  Nevertheless, in some cases it is not
possible to explicitly define how to handle every possible scenario, without relying on the application of
good engineering judgment.

        Consider as an example the issue of how to select the test engine. In order to ensure good in-use
control, we need to have confidence in the manufacturer's demonstration during certification that all
engines in the family comply with the applicable standards. Thus, the manufacturer should submit the
emission test data for the highest emitting. However, if we required this explicitly, then the
manufacturing would have the burdensome task of testing each engine to make sure that its test data
represented the worst case.  We could specify how to select a single test engine based on objective criteria
developed from our current understanding of emission controls, but advanced emission controls may
respond differently. Therefore, the regulations rely to some degree on the manufacturer using good
engineering judgment to select the appropriate test engine.

        Past experience in other source categories, such as  light-duty vehicles, indicates that
manufacturers and EPA generally share a common understanding of what represents good engineering
judgment. Simply speaking good engineering judgment is the application of the principles of science and
engineering to a set of facts.  To the extent that there are disagreements, we will generally only require
prospective changes. As specified in §1068.5(c)(l), we will not suspend, revoke, or void a certificate of
conformity, unless we determine that a manufacturer deliberately used incorrect information, overlooked
important information, did not decide in good faith, or made a decision that was not rational.

        We have corrected the reference to  Subpart G.


        9.8.3   Confidentiality

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       9.8.3.1  Confidentiality Provisions

What Commenters Said:

       Section 1068.10 should be replaced with the existing, more detailed confidentiality provisions
contained in 89.7, which provide greater detail to nonroad engine manufacturers.

Our Response:

       After reviewing §§ 1068.10 and 89.7, we concluded that the new section is equivalent to the old
section. We communicated this to the manufacturers and heard no objection.


       9.8.3.2  Confidential Business Information

What Commenters Said:

       Any confidential business information that is gathered by EPA under Sections 1068.20 (entering
facilities), 1068.27 (testing using production engines), 1068.110 (engines in service), 1068.201
(exemption request), 1068.401 (selective enforcement audits), 1068.501 (engine defects), or 1068.601
(hearing provisions), should be subject to the provisions of Section  1068.10, as revised according to
EMA's recommendation.

Our Response:

       We believe the proposed provisions in § 1068.10 do not limit manufacturer's ability to claim
information obtained from any of the referenced sources as confidential. To make this clearer, we are
adding an explanatory note to the equivalent provisions in §1039.810, which apply specifically to
nonroad diesel engines. We intend to propose this same language for §1068.10 in the future. We are not
finalizing this new language in § 1068.10 at this time, because other affected manufacturers have not had
opportunity to comment on this.
       In proposed section 1068.20 EPA should include a provision which requires the Agency to give
24 hours  prior written or oral notification. If EPA's notification is less than 24 hours, EPA's ability to
enter the  facility should be subject to approval of a manufacturer's representative. This approach would
be consistent with the current nonroad regulation at Section 89.129(g).

Our Response:

       The existing reference in §89.129(g) says that short-notice EPA inspections must be approved in
writing by EPA's Assistant Administrator for Enforcement, not engine manufacturers. Rather than
prescribing our internal practices by regulation, we believe it is appropriate to continue to pursue this
policy by way of internal policy guidance.  We are therefore not changing the regulations to address  this
concern.
       9.8.4   Audit Requirements
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What Commenters Said:
       Section 1068.27 is anew section which requires manufacturers, at EPA's request, to make a
reasonable number of production engines available for a reasonable time to test or inspect them for
compliance. However, Part 1068 already allows for SEA testing and section 1039.401 imposes an in-use
testing requirement, so this section imposes additional audit requirements on a manufacturer that are
redundant and unnecessary.

Our Response:

       This provides another tool  for EPA oversight of manufacturers' compliance and is nearly
identical to the existing provision in §89.125.
       9.8.5   Identical Terms

What Commenters Said:

       With respect to section 1068.30, identical terms in sections 1068 and 1039 should be defined in
the same manner (e.g. engine manufacturer, ultimate purchaser, United States).

Our Response:

       To the extent possible, we have used the same definitions in part 1039, 1065, and 1068; however,
there are cases in which we cannot use the same definitions in all parts.  For example, in part 1068 we
define "engine manufacturer" to mean the manufacturer that is subject to the certification requirements of
the standard-setting part. This definition includes equipment manufacturers for equipment regulated
under equipment-based standards. On the other hand, in part 1039, the term needs to distinguish the
manufacturer of the engine from the manufacturer of the equipment because they are subject to different
requirements. We agree, however, that the definitions of "ultimate purchaser" and "United States" should
be the same.
       9.8.6   Exemption Provisions

       9.8.6.1  General

What Commenters Said:

       The exemption provisions under Section 1068.201(d) are redundant and unnecessary.  This
requirement contains language which differs from the current regulatory requirement in Part 89.  This
requirement should be eliminated because specific exemption provisions in 1068 already contain similar
language which imposes these additional requirements on manufacturers.

Our Response:
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       Clean Air Act section 208 clearly authorizes the type of information collection specified in
§1068.201(d) to adequately oversee our exemption provisions, so we are keeping the language as
proposed.
       9.8.6.2  Display Exemptions

       EPA should retain the language in section 89.907 regarding display exemptions. Section
1068.220(a) would require manufacturers to request a display exemption from EPA. Engine
manufacturers should not have to request a display exemption from EPA.  Such an exemption should be
granted automatically, and the engine will contain an appropriate label showing it is a display engine.
Also, Section 1068.220(c) requires prior approval from EPA if the display engine is to operate while on
display. However, the existing section 89.907 indicates that "...operation incident and necessary to the
display purpose..." is allowed.

Our Response:

       We agree that manufacturers should not need to request our approval to produce or import display
engines. However, we believe it is appropriate for these engines to be handled under the separate
provisions of the manufacturer-owned exemption, which involve minimal administrative requirements.
The display exemption is intended for other commercial interests, for which we believe the proposed
restrictions are appropriate.
       9.8.6.3  Competition Exemptions

What Commenters Said:

       Section 1068.235(c) would impose a requirement on the owner of an engine that is exempt due to
its use in competition, to advise a new owner in writing that the engine is to be used solely for
competition. This is unnecessary since Section 1039.620(f) already requires that an engine used solely
for competition must be permanently labeled.

Our Response:

       The provision in §1068.235(c) exempts individuals from the tampering prohibition if they modify
a certified engine to be used solely for competition. These engines have no permanent label identifying
them as competition products. The corresponding requirement engines in §1068.235(a) addresses new
engines produced by the manufacturer under a competition exemption. We have modified the regulatory
language to clarify these distinctions.
       9.8.6.4 Replacement Engines

What Commenters Said:




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        Section 1068.240(b)(3) allows a replacement engine to be used only if "no engine certified to the
current emission requirements is available with the appropriate physical or performance characteristics for
the piece of equipment." This is burdensome and contradicts the approach that EPA has allowed with
respect to nonroad CI engines for many years.  Under Part 89 (see section 89.1003(b)(7)(i)), a nonroad
engine manufacturer is required only to determine that no engine built by itself, or by the manufacturer of
the engine being replaced, and certified to the provisions of the section, is available. This language
should replace the proposed language in section 1068.240(b)(3) for land-based nonroad engines.
Manufacturers simply do not have the resources to be intimately familiar with the entire product line of
all CI engine manufacturers to be able to determine that no certified engine with the appropriate physical
or performance characteristics is available for the repower. One manufacturer pointed out in subsequent
discussions that their current production of replacement engines produced under §89.1003(b) is well
below 1 percent of their total production.

Our Response:

        We are concerned that ever-tightening emission standards will increase the incentive for users to
request exempt replacement engines to avoid purchasing compliant engines. However, we agree in
principle that the previous framework in §89.1003(b) places an appropriate and reasonable expectation on
manufacturers to ensure that compliant engines are in fact not available with the necessary physical or
performance characteristics.  To address our remaining concerns about leaving a loophole that would
allow users to circumvent the regulations,  we note that we may ask manufacturers to report to us annually
how many exempt replacement engines they have produced.  As we learn more about how this exemption
works out in practice, we can address any problems that surface.
       9.8.7   Importing Engines

       9.8.7.1  Requirements

What Commenters Said:

       Section 1068.315(f)(2)(i) and (ii) contain requirements that differ from section 89.61 l(c)(3).
Section 1068.315(f)(2)(i) should be removed from the proposed rule in order to eliminate the requirement
that the engine has to be owned for one year.  Also, section 1068.315(f)(2)(ii) should be amended to
allow the engine to be sold, leased, donated, traded or otherwise transferred after one year, rather than
five years.

Our Response:

       The provisions in §89.61 l(c)(3) are ambiguous with respect to the two issues EMA raises.  Part
89 requires that these engines be owned by the importer and not be imported for resale, which implies that
the engines are supposed to be for private use. Requiring that the engine be owned before importation
clarifies this and prevents dealers and other commercial importers from circumventing certification for
engines that are owned on a very short-term basis. We believe that this period can be shortened to six
months to be more flexible without compromising the effectiveness of these controls.
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       Also, §89.61 l(c)(3) has no provision for selling the exempted engine after importation, so
specifying a five-year period after which the engine may be sold is in fact a liberalization of the current
program. We believe the five-year period is an appropriate restriction to allow normal business practices
without creating a problem with engines that are imported under this exemption to circumvent the
regulations.
       9.8.7.2 Display Engines

What Commenters Said:

       Section 1068.325(c) differs from the current requirement at section 89.61 l(c), which allows an
exempt engine to be permanently admitted into the U.S. if it meets the requirements of the section.
Display engines should be included under section 1068.320 (imported engines with a permanent
exemption), because there may be circumstances where a display engine needs to remain in the U.S.
permanently.

Our Response:

       Note, as described above, that we would expect manufacturers to import display engines under
the manufacturer-owned exemption, which allows for permanent admission. The provisions of
§1068.325(c) relate to engines imported under the display exemption. In contrast, §89.611(c) allows for
permanent admission of certain engines, but display engines are not covered by this provision. We
believe the proposed provisions set appropriate restrictions on these exemptions. In particular, display
engines imported for the commercial interests of companies other than engine manufacturers should not
be granted permanent admission.
       9.8.7.3  Engines Imported Under Diplomatic or Military Exemptions

What Commenters Said:

       Section 1068.325(e) differs from the current requirement at section 89.61 l(d), which allows an
engine imported under a diplomatic or military exemption to be permanently admitted into the U.S. if it
meets the requirements of the section. Diplomatic/military engines should be included under section
1068.320 (imported engines with a permanent exemption), because there may be circumstances where a
diplomatic or military engine needs to remain in the U.S. permanently.

Our Response:

       The provisions of §89.61 l(d) specify that diplomatic or military engines may be imported
without bond, but do not provide for permanent admission.  Under part 89, an imported diplomatic or
military engine may never be finally admitted into the United States. Part 1068 should continue this
policy.


       9.8.8   Hearing Provisions

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What Commenters Said:
       The hearing provisions referenced in 40 CFR Section 86.1853-01 should be similar to section
89.127 which stipulates how a hearing is requested. These provisions cannot be applied to Selective
Enforcement Audit (SEA) cases.  Currently, at section 89.512, 513 and 514, specific provisions exist
which outline how a public hearing is requested, the Administrative procedures for a public hearing, and
the hearing procedures. Section 40 CFR 86.1853-01 does not contain any of this information and only
outlines how a certification hearing is to be conducted. Manufacturers currently have an opportunity for a
public hearing in the case of an SEA, but the language in proposed section 1068.601 would eliminate this
right and would impose a hearing requirement that is inherently different than what is currently allowed,
does not necessarily apply to an SEA case, and is unclear. In the case of SEA's, EPA should incorporate
the hearing provisions at 89.512, 513 and 514 into 1068.601.

Our Response:

       The provisions of 40 CFR 89.127 generally give manufacturers instructions in asking for a
hearing. We have incorporated those changes into the regulations at §1039.820 for all cases where a
manufacturer would request a hearing under the provisions of part 1039.

       Regarding the hearing procedures for situations involving SEA and ABT, we disagree with  the
comment suggesting that the procedures specified in §1068.601 cannot be applied. While the hearing
procedures in §1068.601 are somewhat different than those specified in 40 CFR part 89, we believe they
are fair and reasonable. With the  objective of harmonizing hearing procedures for all engine categories in
the future, we intend later to revisit the issues raised in the comments. We may at that time conclude that
the approach recommended by EMA is appropriate.
       9.8.9   Separate Shipment of Aftertreatment Devices

What Commenters Said:

       EMA had several comments related to the draft regulatory language that would allow
manufacturers to ship engines without aftertreatment devices that would be needed for the engines to be
in their certified configuration.  (1) EMA suggested that it would be sufficient to include the cost of the
aftertreatment devices in the cost of the engine, and that this would remove the need to have a contractual
agreement with the equipment manufacturer. Also, this costing requirement should apply only when if
there is no contractual agreement. Also, the agreement between engine and equipment manufacturers
should not necessarily be a contractual agreement. (2) Manufacturers should be able to specify parameters
for aftertreatment, rather than arranging for shipment of specific components. The proposed limitation
would prevent market competition between component suppliers and introduce logistical issues. (3) It is
unreasonable to audit every affected equipment manufacturer annually. Also, such an audit should only
involve confirmation of part numbers for equipment manufacturers buying more than 50 engines per year.
(4) A temporary label should not be required, since  it adds cost without adding any value. (5) The
regulations should not repeat that manufacturers' are liable for in-use compliance.

Our Response:

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       We disagree with EMA's assertion that either a costing arrangement or a contractual agreement
alone would meet the need to ensure compliance with the regulations. The agreement must be in place
and must be contractual, since there is a need to legally obligate the equipment manufacturer to fulfill the
assigned role.  Also, it is important to include the cost of aftertreatment in the cost of the engine, for
example, as a way of preventing the incentive for equipment manufacturers to forego what could be seen
as an unnecessary expense.

       The application for certification requires a description of the emission-control system, including
part numbers of any emission-related components, further engine manufacturers must warrant that
emission componentry, including aftertreatment will last for the useful life of the engine and that the
engine will meet standards for its useful life. Aftertreatment can be complex and involve a wide range of
technical issues, such as substrate choice and design, heat management, packaging. It is not appropriate
to expect equipment manufacturers to obtain proper and durable aftertreatment devices by following
performance or design criteria supplied by the engine manufacturer.

       We do not agree that the "separate shipment provisions" would prevent market competition
between component suppliers and introduce logistical issues as EMA asserts.  There will still be
competition between component suppliers to supply aftertreatment devices for nonroad engines under a
system that requires contractual agreements and requires the cost of aftertreatment to be included in the
price of the engine. While EMA didn't identify specific logistical issues, we believe allowing engine
manufacturers to ship aftertreatment systems with the engines or arrange  for shipment directly to the
equipment manufacturer actually solves many logistical issues and provides an opportunity to avoid the
costs and logistical problems of handling the aftertreatment systems at the engine plant and reshipping
them to the equipment manufacturer.

       We agree that annual audits of each affected equipment manufacturer would be overly
burdensome.  We have therefore modified this provision to require regular audits such that an engine
manufacturer would generally select each equipment manufacturer once over a four-year period. The
scope of the audit is appropriately broad to ensure that equipment manufacturers are meeting their
contractual obligations to assemble the engines  and equipment consistently with the engine's certified
configuration.  Also, we have included a threshold of 50 engines per year, but we apply this to an engine
manufacturer's total production under this provision.  If a manufacturer sells fewer than 50 engines per
year involving separate aftertreatment shipment, no auditing is required.

       We believe that a temporary label or tag is an important step in ensuring that engines are fully
assembled with aftertreatment devices before being installed in equipment. This would apply especially
to those cases where an engine would for any reason be in the possession of someone who could mistake
the engine as a completed product that was in its certified configuration.  Since the engine manufacturer
applies the permanent emission control information label, the temporary label makes clear that the engine
is not complete yet.

       Given the risks involved in shipping complete engines that are not yet in their certified
configuration, we believe it is appropriate to spell out clearly the extent of liability for engine and
equipment manufacturers under this provision.
9.9    Defect Reporting

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       9.9.1   General Concerns
       Except as noted in the text below, all the comments related to defect reporting were from the
Engine Manufacturers Association (OAR-2003-0012-0656, 0657; p. 72 - 78).

       9.9.1.1 Complete Engine Components

What Commenters Said:

       Part 1068, Subparagraphs 501(a)(l) and (b)(l) indicate that a possible or actual emission-related
defect for any part of the engine would result in the complete engine being classified as having a possible
or actual emission-related defect. Disparate issues relating to different parts on the engine would be
combined in making the determination of whether the defect investigation and reporting thresholds are
met with respect to "complete engine components."  This could lead to the illogical result that the
thresholds will be exceeded for virtually all "complete engine components."

Our Response:

       Identifying complete engines as components for tracking purposes means that shipping a
replacement engine or recording a warranty claim that cannot be attributed to a specific engine
component or assembly should be considered a possible defect under the provisions of §1068.501(b)(l).
When nothing more is known than that the engine was warranted, the engine is counted towards the
investigation threshold. Specifically, connecting rods and similar components are not on the list of
emission-related components, so if investigation shows that connecting rods, or similar components are
defective, an engine containing them will not be counted toward the reporting threshold. Warranty
claims, parts shipments, hotline complaints, etc that relate to an emissions-related part shall be considered
as "possible" defects only for the purpose of determining whether an investigation should be initiated.
The investigation  can be as focused as needed to determine if, in fact, an actual defect exists. Also, high
emissions are to be counted as a potential defective engine for triggering an investigation. As discussed
above if an investigation is required, a more specific cause may be counted as a defect for reporting
purposes.
        9.9.1.2 Definition for Emission-Related Defect

What Commenters Said:

        The definition for "emission-related defect" should be restricted to include only defects that
degrade emission performance.  In defining the thresholds for conducting a defect investigation (Part
1068, Section 501(e)), EPA sets the thresholds based on the "number of engines that may have the
defect." However, this term is not defined and to clarify the intent, it should be replaced with the phrase
"number of engines with the possible defect" (Note that Part 1068, Subparagraph 501(b)(l) defines a
"possible defect"). Also, the requirements of the defect reporting proposal apply to all emission-related
components. Under this very  broad definition, the number of components that could be considered
emission-related would be very large, which is burdensome with respect to tracking, investigation, and
reporting, and unnecessary since many of these components are only tangentially related to emissions.

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Our Response:
       We agree that the regulatory text should refer to "the number of engines with the possible defect."
We have redefined the scope of the defect-reporting requirements so that it involves the same components
that are covered by the warranty requirements applicable to new engines.  This avoids unnecessary
confusion related to whether a part is covered by one or the other or both requirements.  We believe any
defect in one of these components should count toward the investigation and defect-reporting thresholds,
rather than trying to differentiate which defects would increase emissions.  If a part is an emission-related
component that is already subject to warranty requirement, it is already identified as affecting emissions,
so it would not be appropriate to ignore defects that someone may judge to be somehow unrelated to
emission control.
        9.9.1.3 Defect Reporting Thresholds

What Commenters Said:

        The language defining the defect reporting thresholds (Part 1068, Section 501(f)) indicates that
the thresholds are based on possible defects.  Since the defect reporting thresholds are numerically less
than the defect investigation thresholds, defect reporting would be required when those very low
thresholds were met and before any screening of possible defects, which is counter to the preamble
discussion that seems to suggest a two-step process where a possible defect is initially investigated, then
only included in defect reporting after it is verified as an actual emission-related defect.  Subparagraphs
501(d)(3) and (4)  refers to "engines that may have the defect," which adds to the confusion about whether
the defect report is required before  or after the conclusion of the defect investigation.  These paragraphs
should refer to "engines that have (not "may have") the defect."

        The defect investigation and reporting thresholds are based on engine family sales. However,
total family sales are typically not known until the end of the model year. As a result, the threshold
values  and the exceedances of those values cannot be determined until after the end of the model year,
which could be inconsistent with EPA's intent.

        Special defect investigation and reporting thresholds are given for "a catalytic converter (or other
aftertreatment device)." However,  in subparagraph 1039.240(c), "particulate traps" are distinguished
from other aftertreatment technologies for the purpose of defining deterioration factors.  EPA should
clarify whether this distinction will be defined for these thresholds.

Our Response:

        We agree that the text should refer to "engines that have the defect." This clarifies that the intent
of the proposed requirements was to investigate when the number of unscreened possible defects exceeds
a relatively high threshold and to report when the number of confirmed defects exceeds a smaller
threshold.

        This approach allows us to tailor thresholds to family size.  In fact, the only constraint introduced
by a percentage approach is that manufacturers will generally not be able to determine that an
investigation or a defect report is necessary before the end of the model year. Since most defects occur

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after engines have been in service for several months, we do not consider this a significant problem.
Manufacturers must report to EPA their sales volumes for each engine family within 30 days after the end
of the model year (see 89.125(b) and 1039.250(a)).

Our Response:

       Aftertreatment is a defined term in §1068.30, so this should not be unclear.  However, the
approach we are taking in the final rule removes the observed distinction for aftertreatment components.
       9.9.1.4 Defect Reporting an d Recall Provisions

What Commenters Said:

       The defect reporting and recall provisions in Part 1068, Subpart F, were developed for large
nonroad SI engines and recreational SI engines, which EPA now proposes to apply to nonroad CI engines
of all sizes without making any changes to the overall structure of the regulations and only small changes
to the specific requirements. CI engines differ from nonroad and recreational SI engines in a number of
ways, including design, usage, life, production volumes, distribution and service channels, and
commercial relationships between the engine manufacturers, equipment manufacturers and end users.
Therefore, it should not be assumed that these requirements can be successfully applied to nonroad diesel
engines.

Our Response:

       The new defect-reporting provisions currently apply only to Large SI engines and recreational
vehicles, but they were designed for the whole range of highway and nonroad engine categories, as
evidenced by the threshold values for engines over 560 kW. We have nevertheless made adjustments to
the  proposed defect-reporting requirements.  Reflecting our original intent to adopt a uniform program for
all categories, these changes apply equally to the other engine and vehicle categories already subject to
the  original defect-reporting requirements in 40 CFR 1068.501.
       9.9.1.5 Warranty Claims

What Commenters Said:

       The proposal requires manufacturers to track warranty claims for emission-related components
and to classify each such claim as a possible defect, which is inefficient and burdensome for
manufacturers. Warranty claims are submitted for a number of reasons that may not be indicative of an
emission defect.  Even though these claims could be an indicator of emission defects it is very imprecise
and would substantially overestimate the number of components having a defect that is associated with
potential in-use emissions.  EPA should not include specific requirements for warranty tracking or impose
specific warranty claim thresholds for defect investigations and reporting.

Our Response:
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       We believe the concern expressed in this comment supports the proposed approach of setting up
separate thresholds for investigating a relatively large number of possible defects, then requiring reports
for a relatively small number of confirmed defects.
       9.9.1.6 Tracking

What Commenters Said:

       Under the proposal, manufacturers must track shipments of emission-related parts and for each
part shipped, "other than for normally scheduled maintenance during the useful life of the engine," the
component must be classified as having a possible defect. EPA should clarify that replacement parts
shipped from manufacturing to warehousing locations are not included and should recognize that dealers,
distributors and other service centers routinely maintain stocks of replacements parts. Making the
assumption that there is a defective part for each replacement part shipped to a servicing location is
erroneous and would overestimate the number of potentially defective parts.  The final rule should not
include specific requirements for tracking part shipments and should not impose specific thresholds for
defect investigations and reporting based on part shipments.

       The Motorcycle Industry Council (OAR-2003-0012-0685, p. 1-3) expressed similar concerns,
recommending that EPA eliminate the requirement to track and count shipments of parts as an indicator
of a possible defect. They emphasized that this  requirement is very burdensome, since manufacturers do
not currently use parts tracking systems that record the level of detail necessary to implement the rule. In
many cases, it is impossible to link a specific part to any particular engine family.  In addition, this
requirement adds little value as an indicator of a possible defect since customers purchase spare and
replacement parts for many reasons that are unrelated to defects. EPA should revise its regulations to
accept  only warranty claims, hotline complaints, and similar information from dealers as an indication of
a potential defect, which would be consistent with the approach taken under the TREAD Act (49 CFR
579.23(c)). The comments from the Motorcycle Industry Council included additional discussion on this
issue and specifically recommends that the phrase "parts shipments" and paragraph (ii) be removed from
Section 1068.501(b)(l).

       Subparagraph 501(a)(4) allows manufacturers to use alternate methods for tracking defects.  Even
though this appears to  provide some flexibility,  subparagraph 501(b)(l) requires manufacturers to track
warranty claims, part shipments and "any other information." Thus, any other information source that a
manufacturer might propose to use as an alternate tracking method is "other information" and is already
required to be used under the base program.  This undermines the apparent flexibility offered  by
subparagraph 501(a)(4).

Our Response:

       After pursuing a variety of alternatives to clarify the proposed requirement to track parts
shipments, we have concluded that there is not a workable approach to define a numerical approach to
active tracking parts shipments and compare volumes to a specific threshold. For parts that have
scheduled maintenance, the  shipment volumes would be so great that it would be unrealistic to use that
information to  find defects.  Some parts may be used in a large number of legitimately noncompliant
engines, such as those  used in stationary applications, exported to other countries, or produced before

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emission standards started.  Also, parts shipments would be based on calendar-year data, since shipped
parts are not tied to specific model years. This would make the parts-shipment data incompatible with the
warranty information, which is based on model-year information. As a result, we are eliminating the
requirement to set up a numerical parts-tracking system. We have included in the final rule a more
general requirement to investigate a possible defect if parts shipments substantially exceed normal or
expected levels.

        The proposed approach to allow alternate methods is not specifically related to finding alternate
information sources.  We continue to believe that some manufacturers may have a unique situation with
their product mix, their marketing arrangement, or their relationship with the distributors or suppliers that
would lead to a different approach to tracking possible defects that would be as  effective as the global
approach identified in the regulations.
        9.9.2   Specific Concerns Related to Investigation and Defect-Reporting Thresholds

        9.9.2.1 General

What Commenters Said:

        With respect to the investigation of defects, the proposed rule does not provide any criteria that
are to be used to determine if a "possible defect" is an "actual defect." Typically, the information
available from warranty and part shipment records is insufficient to determine if each claim or shipment is
associated with an actual emission defect and it will be difficult to assess whether the records are "double
counting" the number of parts replaced. As a result, many investigations will prove to be inconclusive.

        Paragraph 1068.501(g) states that for the purposes of determining whether the defect
investigation threshold has been met, any corrected defects are to be counted before they reach the
ultimate purchaser, except for purposes of determining if the reporting threshold has been met.  The
reason for this distinction is unclear.  Defects that are in fact corrected before an engine enters commerce
should not be counted for any purpose since a corrected defect is no longer a defect. Manufacturers'
internal quality control procedures are designed to find and correct problems prior to entry into commerce
and problems identified  in this manner should not contribute to thresholds used for reporting or
investigation.

        Paragraph 1068.501(h) requires the submission of a report with all the information required in a
defect report even if the  threshold for defect reporting is not met following completion of an
investigation.  This provision renders the reporting thresholds meaningless and should be removed.

Our Response:

        Before a manufacturer starts an investigation, it is clear that possible defects will often never be
identifiable as actual defects. Where it is clear that a possible defect that contributes to reaching the
investigation threshold is an actual defect, it should be counted as a defect for evaluating whether the
manufacturer exceeds the defect-reporting threshold for that component.  Otherwise, we require only that
manufacturers start to differentiate between possible and actual defects after an investigation begins. The
whole purpose of the investigation is to make this differentiation, so we don't believe this is a problem

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after the manufacturer exceeds the investigation threshold. This is especially true for warranty claims.

       These corrected defects should not be counted only if the quality procedures that led to correcting
the defect apply equally to all production engines.  If partial or statistical sampling led to a corrected
defect, then there is no assurance that other engines have been shipped with the defect.  The proposed
approach is therefore appropriate, though if the manufacturer makes corrections as part of a routine 100-
percent quality check, this is simply a part of normal production procedures and it qualifies as neither a
possible nor an actual defect.

       The proposed requirement to send investigation reports specifies generally that the information
should be the same as that of a final defect report, with two primary differences. First, we allow
manufacturers to omit any information that is not relevant to a finding that the number of defects does not
exceed the defect-reporting threshold. Second, the principle objective of the defect report is to report that
the number of defects exceeds the applicable threshold, which may lead to remedial action. There is no
provision for remedial action following an investigation report showing that the number of defects do not
(yet) exceed the applicable threshold.
        9.9.2.2 Additional Comments on Reporting, Tracking, and Investigations

What Commenters Said:

        The proposed approach for defect reporting is impractical and overly burdensome for nonroad
diesel engines.  The approach currently used for highway, nonroad and marine diesel engines is
preferable. EPA has not provided information suggesting that the identification, reporting and  correction
of defects is inadequate under the existing approach and in addition, has not demonstrated that the new
defect reporting scheme is necessary. The proposed thresholds are much too low and will trigger
unnecessary defect investigations and reporting. If specific thresholds are used for nonroad diesel
engines, EPA should consider the small size of engine families, the long useful lives and warranty
periods, the wide variety of operational conditions, and the tracking methods and the tendency  of these
methods to overestimate actual defects. EPA should also consider the fact that most nonroad engine
manufacturers do not maintain any type of database for tracking or distinguishing among warranty claims
or shipments of part replacements and thus, no system upon which a defect reporting program can be
based.  Detroit Diesel joined the Engine Manufacturers Association in expressing these comments.

        The elements of a reasonable defect reporting program should include the following thresholds
and requirements. First, the number of potential defects that trigger reporting should be the same for
nonroad engines with or without aftertreatment systems (reducing the threshold by 50 percent for
aftertreatment systems is unnecessary).  Second, the minimum threshold for the initiation of any
investigation should be 50 possible defects.  Manufacturers could use warranty data bases quarterly to
assess whether the threshold has been met, after which the manufacturer could monitor and investigate
any further warranty claims and submit a defect report to EPA for those that are determined to be actual
emission-related defects.  For larger engine families greater than  1,250 units, the threshold could be
scaled up using the 4 percent calculation method. EMA provided additional discussion  on their proposed
approach including a graphic of the relevant screening thresholds as the engine family sales volumes
increase.
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       Duplicative programs are inherently unreasonable and unjustified.  In that regard, EPA must take
into account the manufacturer-run in-use testing program that EPA is proposing. EPA should ensure that
there is no duplication between any finalized defect reporting and in-use testing requirements. Otherwise,
both programs will fail to satisfy the mandated criteria for reasonable regulations.

       In discussions following the end of the comment period for the proposal, engine manufacturers
provided additional feedback regarding an appropriate defect-reporting scheme.  They generally reiterated
the recommendation in the written comments, with a few adjustments:
               They noted that their comments apply equally to engines above 560 kW; they did not
               support smaller thresholds for those engines.
       •       Requirements to track information from warranty claims, dealers, field-service personnel,
               hotline complaints, or engine diagnostic systems were reasonable, as long as the
               corresponding thresholds were appropriate.
               A requirement to monitor parts shipments was reasonable, as long as there is no
               quantitative assessment or applicable thresholds.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 4
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 76-78

Our Response:

       In the preamble to the proposed rule, we described the basis for the new approach to defect-
reporting. In summary, we believe that the old approach under 40 CFR parts 89 and 85 was inadequate
for two main reasons.  First, there was  no obligation for manufacturers to look for information related to
defects. We believe this is not appropriate, especially considering that manufacturers have a natural
incentive to find and correct defective components in their engines.  Second, the old approach set a
defect-reporting threshold of 25 units, which did differentiate between very large and very small engine
families.  This leads to an excessive number of reports from large engine families, while significant
defects from smaller families go unreported.

       The anticipated program to require in-use testing of nonroad engines will be a focused effort to
measure emissions from a small number of engines to evaluate whether engines' emission-control
systems are working according to design. Defect-reporting requirements are aimed at broad information
across the engine family that may provide insight  regarding the reliability of specific engine components.
We therefore do not believe these two programs will pose duplicative requirements.

       We have considered a wide range of alternative approaches in establishing the appropriate
thresholds for investigations and defect reports. In general, we believe we have found an approach that
allows us to reconcile our interest in having thresholds that identify significant defects (possible and
actual) with the manufacturers' concern about triggering the thresholds too frequently.  The final rule
includes several aspects that affirm the manufacturers' comments, including the following:
       •       Parts shipments are not subject to the threshold requirements, as described above.
               The same thresholds apply to aftertreatment and all other emission-related components.
       •       Defect-reporting should be based on a nominal failure rate of 2 percent.

       The final rule includes the thresholds described in Table 9.9-1. These values are an outgrowth of

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our current programs that generally specify a defect-reporting threshold of 25 units.  For engine families
with sales of 1,250, this same threshold would apply.  Many families have higher sales volumes than this
and would have a correspondingly increased defect-reporting threshold based on 2 percent of total sales.
Many families also have smaller sales volumes that would have correspondingly decreased defect-
reporting threshold (also based on 2 percent of sales). We believe this is appropriate, since the thresholds
still reflect a level of defects that is substantial and warrants further attention, and possibly remedial
action. This is especially true for high-power engines, which are typically used with higher operating
hours and load factors, and are monitored much more closely for defects.  Fixed thresholds apply for very
small families, as shown in Table 9.9-1.  This allows for a higher percentage defect rate to address the fact
that an infrequent defect should not be reported, even if it does represent a relatively high percentage
occurrence.

       The same approach applies to the investigation threshold, except that the threshold is based on a
rate of 10 percent of total sales. This is higher than the 4 percent rate recommend by manufacturers, but
we feel this is appropriate as a way of focusing manufacturers' efforts on  finding likely defects and
avoiding an excessive paperwork burden.

                                           Table 9.9-1
                   Investigation and Defect-reporting Thresholds for the Final Rule
Engine Size
< 750 hp
> 750 hp
Investigation
Threshold
less than 500: 50
500-50,000: 10%
50,000+: 5,000
less than 250: 25
9SO+- in%
Defect-reporting Threshold
less than 1,000: 20
1,000-50,000: 2%
50,000+: 1,000
less than 150: 10
150-750: 15
7SO+- 9 %
9.10    Engine Labeling

        It is important to note before addressing the individual comments in this section that we have
agreed to pursue an effort to conduct a comprehensive review of certification labeling requirements in the
near future.  This effort will likely address labeling requirements for all our nonroad programs.  The
positions we are taking in this final rule reflect our agreement with several of the comments raised in this
rulemaking. For issues where we are choosing to depart from the manufacturers' recommendations, we
give a rationale for adopting the positions included in this final rule. Since we are open to further
consideration of these issues, the decisions and rationale in this section should not be interpreted as our
final position; however, any further consideration of these issues will need to address the concerns we
express in our responses to the comments in this section.

        Except as noted in the text below, all the comments related to certification labeling were from the
Engine Manufacturers Association (OAR-2003-0012-0656, 0657; p. 79 - 82) and from Detroit Diesel
Corporation (OAR-2003-0012-0783, p. 7).

        9.10.1  Labeling Requirements for Certified Engines
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        9.10.1.1One-Piece versus Two-Piece Labels

What Commenters Said:

        Section 1039.135(b)(l) states that the label is to be "attached in one piece  so it is not removable
without being destroyed or defaced."  However, this implies that the label can only consist of one part,
which may be problematic if EPA retains all of the proposed labeling requirements.  There is a limited
amount of space on emission labels today and a limited number of locations on the engine which can
accommodate the label and comply with all of the requirements. Manufacturers should be able to use
multi-piece labels. CNH Global supported this concern.

Our Response:

        There are three principal advantages to one-piece labels. First, enforcement efforts, generally by
EPA or Customs inspectors, are typically much more straightforward if all the label information is
together in one location. Second, one-part labels reduce the risk of counterfeit labels, since the
manufacturer would not want to repeat information on both labels, including some information that may
be helpful in preventing counterfeiting efforts. Third, manufacturers have expressed a concern that
maintaining large numbers of unique labels is becoming overly burdensome.

        While these factors lead us to strongly prefer one-part labels, we are aware that some small
engines may simply be unable to accommodate the need to include all the prescribed information on a
one-piece label. The final regulation therefore adopts a general requirement to use one-part labels and
includes a separate provision to allow manufacturers of engines below 19 kW use  a two-part label where
necessary.  In addition to the clear space constraints for engines below 19 kW, there is the added
consideration that it would not be difficult to find both parts of a divided label on an engine of that size.
        9.10.1.2Lettering Requirements

What Commenters Said:

        The requirement in Section 1039.135(b)(4) states that the label be written in block letter in
English." This may be problematic for manufacturers that do not use block lettering on their labels. In
this context, EPA should retain the language of Section 89.110(a)(4).  It should be sufficient to require the
label to be "legible" as stated in Section 1039.135(b).

Our Response:

        We agree that it is appropriate to require that labels be legible, but we should not require block
lettering specifically.


        9.10. l.SInformation Required for Labels

What Commenters Said:
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       The new heading proposed in Section 1039.135(c)(l) is preferred since it more accurately
represents the information being conveyed by the label.

       The proposed requirement at Section 1039.135(c)(l) for manufacturers to include the
manufacturer's full corporate name and trademark could be problematic.  Engine manufacturers
commonly manufacture engines for customers that require a "branded" engine, which bears the customer's
name.  Because the certificate holder's identity is indicated in the EPA engine family name, EPA should
allow the engine customer's name and trademark (or no corporate trademark) to appear on the label.

Our Response:

       We will continue to refer to the label as the emission control information label, as proposed.

       We believe it is appropriate to allow manufacturers to produce engines with another company's
band name on the emission label, with certain conditions. This provision depends primarily on the
certificate-holding manufacturer having a contractual agreement with the other company to make sure the
other company meets emission-related warranty obligations and reports this information to the certificate
holder. The engine manufacturer must also describe the plan for utilizing this provision in the application
for certification. In addition, it is important to note that applying a different company's trademark to the
emission control information label in no way changes the certifying manufacturer's responsibility to meet
all the applicable regulations.
        9.10.1.3.1      Emission Control System

What Commenters Said:

        The requirement in Section 1039.135(c)(3) identifies the emission control system with names and
abbreviations consistent with SAE J1930. However, having the proposed information on the label is
unnecessary and would take up too much space on the label.  The emission control system is already
identified on the application for certification and, if necessary, can be determined from an alternative
source, such as the owner's manual. The proposed rule contains language at Section 1039.135(e) that
gives manufacturers the option to include this information in the owner's manual. In addition, SAE J1930
is limited to light-duty gasoline and diesel vehicles and heavy-duty gasoline  vehicles.

        EPA should eliminate the requirement in Section 1039.135(c)(4), since the proposed rule contains
language at Section  1039.135(e) to allow for both the fuel and lubricant information to be listed in the
owner's manual if there is insufficient room on the emission label.

Our Response:

        We believe it is important for operators or EPA inspectors to be able to identify the primary
emission-control components from the emission control information label. This allows for quick
verification that the engine is still in its certified configuration. This is generally limited to three-letter
abbreviations of the a small number of basic emission-control features—such as diesel particulate filters
(DPF), smoke-puff limiters (SPL), or multi-port electronic fuel injection (MFI). We therefore expect this
to add very little to the size of the label.

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       We believe that information related to fuels and lubricants may also be important to have readily
available. On the other hand, including this information is not as important to us as keeping a one-part
label, so the regulation allows the manufacturer to omit this information from the label if there is not
enough room for it and the information is included in the owners manual.
        9.10.1.3.2      New Language

What Commenters Said:

        The proposed language under Section 1039.135(c)(6) differs significantly from the current
certification statement.  First, the requirement to spell out "US Environmental Protection Agency" does
not add any value and takes up additional space on the label. Second, this section is inconsistent with the
descriptor used in the certification statements for other engine applications, which use the words
"conforms to," rather than the word "meets." Given these concerns, the compliance statement should
remain as it is today in Section 89.110(b)(10) to ensure consistency with the compliance  statements used
in other applications.

Our Response:

        Abbreviating the agency name to U.S. EPA is appropriate.

        Regarding the choice of words to characterize how the engine meets applicable requirements, we
believe language on the label should match that from the underlying certification statement to make sure
there is no difference in meaning that could cause confusion. In both of these cases, the regulations now
call for manufacturers to state that the engine "comply with" the applicable requirements.


        9.10.1.3.3      Model Year

What Commenters Said:

        Continuing to identify the model year in the certification statement is unnecessary, especially
since manufacturers will be required to indicate on the label the emission standards with which the engine
complies and since the model year can be identified by alternative means. This requirement also creates a
burden associated with updating labels on an annual basis.

        Section 1039.135(c)(8) requires manufacturers to "include EPA's standardized designation for the
engine family (and subfamily, where applicable)." Manufacturers should have the option to either include
the first "year" character of family name, or to not include this character at all when indicating the engine
family name, which would eliminate the need to annually update labels.

Our Response:

        We believe the engine should be clearly labeled with the appropriate model year, to help with
both EPA's general enforcement efforts and U.S. Customs enforcement at importation.
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       Engine families are covered by certificates issued on an annual basis.  Accordingly, the engine
family designation includes the character showing the model year to allow us to match up an individual
engine to its unique certified configuration. It is crucial for EPA enforcement to be able to  do this easily
and quickly, which would not be possible if these labels lacked any identification of the engine's model
year, as suggested in the comment.  Additionally, we receive numerous requests from individuals and
businesses for the certificate and certification information for a particular engine. The requestor need to
be able to identify the model year of the engine through the engine family name so we can provide the
certificate and accompanying information for the engine. Finally, we have learned from U.S. Customs
staff that inspectors will compare the model year identified on the emission control information label to
the condition and appearance of the equipment being imported in an effort to uncover possible counterfeit
labels (e.g., a newer model year label on an older piece of equipment).  As a result, we believe the
advantages of maintaining labels that indicate the applicable model year provide advantages that
outweigh the small incremental cost of updating labels.
       9.10.1.3.4      Power Category

What Commenters Said:

       Section 1039.135(c)(7) requires manufacturers to "state the emission standards to which the
engines are certified, or the FELs if you certify the engine using the ABT provisions of subpart H of this
part." The requirement to list applicable FELs is acceptable.  However, the requirement to list the
specific emission standards to which the engine family is certified is not acceptable.  EMA opposes a
requirement to list specific numeric limits, but supports language that would require specification of the
certification tier and power category if the model year requirement in Section 1039.135(c)(6) is
eliminated.

       The requirement for maximum power or advertised power for all  applications in Section
1039.135(c)(9) should be eliminated.  The engine rating can be obtained by use of alternative means, such
as a reader, which will confirm if a certified rating has been downloaded in the engine control module
(ECM). However, if this requirement is retained, a manufacturer should have the option to state the
engine's maximum power or advertised power at rpm, in English units (hp) or metric units (kW), on the
emission control information label.

Our Response:

       We agree that a label sufficiently identifies an engine if it lists the engine family name, the model
year, the  applicable tier of standards, and the power range that identifies which standards apply.
Accordingly, we don't believe the label needs to have engine-specific power ratings or numeric values of
the applicable standards. As noted in the comment, this does not apply to engines that are certified to a
Family Emission Limit under the emission-credit program.

       One exception applies for engines between 37 and 56 kW certified under the Option #1 or Option
#2 standards from 2008 through 2012 model years. These engines may meet different PM standards,
depending on the option manufacturers choose,  so it is important for these engines to have the  appropriate
PM standard on the engine's emission control information label.
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        9.10.1.3.5     Displacement

What Commenters Said:

        EPA should eliminate the requirement to state the engine's displacement in Section
1039.135(c)(9). This information is unnecessary on the label since  it is already incorporated into the
family name and is readily available elsewhere.

Our Response:

        We agree that the displacement information embedded in the family name is sufficient for those
families whose engines all have the same total displacement and per-cylinder displacement.  However, for
those families that can't be captured by a single displacement value, it is very helpful for EPA's oversight
of regulated engines to be able to identify the specific engine configuration within the engine family.


        9.10.1.3.6     Useful Life

What Commenters Said:

        The requirement in Section 1039.135(c)(10) to state the  engine's useful life should be removed.
It is unnecessary since this information can be found elsewhere.  Customers will be more likely to consult
sources  such as the engine's warranty booklet and regulatory authorities can find this information in the
application for certification.

Our Response:

        Since there is a clearly established default value for useful life, we agree that useful life
information is not needed on the label, except in those cases where manufacturers certify their engines to
a shorter or longer useful life than the default value, as allowed by the regulations.
        9.10.1.3.7     Fuel Information

What Commenters Said:

        The proposed Section 1039.135(f) should not include a requirement to label the engine with a
fuel information label if this information can be found elsewhere. It is unclear whether this information is
intended to be printed on a separate label or the emission control information label.  This information
could be considered to be redundant given the fuel information requirement under Section
1039.135(c)(4).  Having to label both the engine and the equipment (at the fuel inlet) with a fuel-specific
label is overly burdensome and it makes more sense to simply require that the equipment, not the engine,
have a fuel-specific label.

        The New York DEC (OAR-2003-0012-0786, p. 5) noted that EPA  specifies the content of fuel
pump labels for various distillate fuels in §§80.570-80.574.  These sections use the phrase "non-highway
diesel fuel" ratherthan "nonroad diesel fuel." The nomenclature of distillate fuels is already quite
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complicated, and we see no benefit to this change.  EPA should retain the historical nomenclature
"nonroad diesel fuel" for all purposes, including pump label language.

Our Response:

       We believe it is generally beneficial for operators or EPA inspectors to be able to identify any
relevant fuel information from the emission control information label. This allows for quick verification
that the engine is operating consistently with its certified configuration.  On the other hand, including this
information is not as important to us as keeping a one-part label, so the regulation allows the
manufacturer to omit this information from the label if there is not enough room for it and the information
is included in the owners manual.

       We have revised the separate discussions of the two fuel-related labeling requirements to clarify
how they relate to each other.  We continue to treat sulfur-related information separately,  since this
information is too important to be omitted from the engine, either because it is in the owner's manual or
on the equipment.
        9.10.1.3.8     Duplicate Labels

What Commenters Said:

        The requirement for duplicate labels under Section 1039.135(h) should be eliminated, since it
places a significant burden on engine manufacturers in the form of additional costs and record-keeping
requirements and  opens the opportunity to the fraudulent use of labels. EPA should not include
provisions that 1)  require the engine manufacturer to notify the OEM that a duplicate label is required if
the engine label is obscured; 2) require the OEM to request a duplicate label from the engine
manufacturer if the engine label is obscured; and 3) require the engine manufacturer to provide a
duplicate label upon request, unless EPA absolves the engine manufacturer of any liability associated
with the misuse of labels. Manufacturers noted that it would be difficult to keep a paper record of every
request  for a duplicate label from equipment manufacturers, pointing out that it would be much better
simply to require a written documentation of each request (including documentation generated by the
engine manufacturer).

Our Response:

        We understand that duplicate labels will  require a certain amount of effort and expense for engine
manufacturers. This requirement is, however, already part of the current regulatory requirement under 40
CFR 89.110. We  believe the revised regulation is an appropriate application of the principle embodied in
the current regulation. Specifically, we believe the prescribed recordkeeping steps are necessary and
sufficient to address concerns related to fraudulent labels. We have modified the proposed provisions to
allow manufacturers to generate their own written documentation of incoming  requests for duplicate
labels.
        9.10.1.3.9      Other
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What Commenters Said:
       EPA should eliminate the labeling requirements in proposed Section 1039.135(c)(l 1) and (12),
since this information is more appropriately found in an alternative source (e.g. an owner's manual) and
does not belong on the emission label.

       The requirement in Section 1039.135(c)(13) to label constant-speed engines should be removed
since the Original Equipment Manufacturer (OEM) and the customer know what type of engine they are
purchasing and since this information can be found by searching the unit history.

       For Section 1039.135(c)(14), EPA should consider alternative language similar to Section
86.095-35, which is more broadly written to allow the engine manufacturer to include other information
as necessary. However, some modifications to Section 86.095-35 will be required to broaden the
references to "state regulations" and "other regulations."  Commenter (EMA) notes that they are willing to
work with EPA to develop appropriate language for this provision.

Our Response:

       We agree that it is not appropriate to require tune-up or maintenance information on the label.
We have therefore changed the labeling provisions to  allow manufacturers to ensure that the engine will
be properly maintained and used, without requiring any specific information.

       It is important that engine labels identify engines that have been certified only for constant-speed
operation.  This serves as an important communication to equipment manufacturers installing engines and
rebuilders,  especially those who do out-of-frame rebuilds. Labeling each engine as "constant-speed" is
important to prevent inappropriate installation or recalibration.

       The final rule includes language allowing manufacturers to add label language  to identify other
applicable emission standards and any recommended maintenance or use.
       9.10.2  Other Labeling Issues

       All the comments related to these other labeling issues were from the Engine Manufacturers
Association (OAR-2003-0012-0656, 0657; p. 84 - 85).

       9.10.2.1 Guam, American Samoa, and Northern Mariana Islands

What Commenters Said:

       The labeling requirements of 40 CFR 89.110 are inappropriate and unnecessary for engines sold
in Guam, American Samoa, and the Northern Mariana Islands, and should be eliminated.  It does not
make sense to require the label to state that the engine conforms to the current model year standards and
then to state that it is exempt from the current standards.  Also, engines produced to comply with the Tier
3 standards will not be certified and as a result, the compliance statement in 89.110 cannot apply. In
addition, it will not be possible to provide engine family name information.  EPA should require a special
label for engines sold in these  areas that only includes the heading "Emission Control Information," the

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corporate name and trademark of the manufacturer, and the statement recommended in Section 1039.625.
The same situation applies to engines produced under the exemption for the Transition Program for
Equipment Manufacturer Flexibility.

Our Response:

       We agree that these engines, while subject to the Tier 3 emission standards, are not part of a
certified emission family.  We have therefore modified the final rule to exclude the information specified
in the comment. Other items from the certification label, such as manufacturing date and fuel-related
information, is still relevant and must therefore be included on the label.
       9.10.2.2Unique Labels

What Commenters Said:

       Sections 1068.210(e), 215(c) and 220(e) specify three unique label requirements associated with
the different exemption provisions. The requirement to create unique labels for each exemption would be
costly and burdensome for the engine and equipment manufacturers. EPA should require a label for
exempt engines that includes the heading "Emission Control Information," the corporate name and
trademark of the manufacturer, engine displacement and model year, and the following statement: "This
engine is exempt under 40 CFR 1068.210,  1068.215, or 1068.220 from emission standards and related
requirements."

Our Response:

       We agree that there is no need for manufacturers to differentiate engine labels for engines that are
exempted as manufacturer-owned engines or as test engines. The display exemption is generally not
intended for manufacturers, since they would more easily be able to exempt such engines under the
manufacturer-owned engine exemption.  We therefore are specifying a separate labeling provision for
display engines.
       9.10.2.3Engine Family Requirement

What Commenters Said:

       The proposed requirement to list "engine family" is inappropriate because exempt engines can
never be part of an engine family, precisely because they are exempt.

Our Response:

       We include the requirement for "engine family identification (as applicable)".  This allows
manufacturers to omit this information if it does not apply.  However, manufacturers sometimes wish to
convert an exempted engine's status by including it under an existing certified engine family. The
provision as described would allow manufacturers to anticipate this development without imposing an
inappropriate requirement.

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       9.10.2.4Hardship Labeling Requirements

What Commenters Said:

       Sections 1068.245(f), 250(k) and 255(b) specify three unique label requirements associated with
the hardship provisions.  The requirement to create unique labels for each of these provisions would be
costly and burdensome for the engine and equipment manufacturers. EPA should require a label that
includes the heading "Emission Control Information," the corporate name and trademark of the
manufacturer, engine displacement and model year, and the following statement: "This engine is exempt
under 40 CFR 1068.245, 1068.250, or 1068.255 from emission standards and related requirements."

Our Response:

       We expect our economic hardship approvals to be quite rare (given that there has been but one
application for such an exemption to  date), so we would anticipate no cost saving with the suggested
simplification of hardship labels.
       9.10.2.5Imported Engin es

What Commenters Said:

       EPA should remove the proposed language under Section 1068.320 that would require imported
engines with permanent exemptions to be labeled as such. Engine manufacturers export engines to a
variety of OEMs throughout the world and it is almost impossible for an engine manufacturer to predict
where the equipment is going to be operating after the engine is installed.  EPA already proposes to
require labeling for certified engines, TPEM engines, replacement engines and exempt engines.  To
require an additional label in this case, will only lead to confusion and will be unduly burdensome to
manufacturers.

       EPA should revise the provisions that apply to imported engines with permanent exemptions to
avoid confusion associated with dual labeling.  An engine manufacturer can build a stationary engine for
an OEM that is  located in a country that has different standards. This OEM-produced equipment will
contain a stationary engine with an export label on it as required in Section 1068.230, but would also
require the label specified in Section 1068.320 if the same piece of equipment were to be permanently
imported into the U.S. An engine manufacturer will not know in advance whether both labels are
required. Applying both labels could lead to confusion in other countries where the dual-labeled engines
are being exported.  Rather than imposing this burdensome and costly requirement, EPA should update
the Customs Form to protect against the importation of engines that are not certified or properly exempt.

Our Response:

       Except  for stationary installations, manufacturers should generally know before shipping engines
that they need to be labeled for the specific exemptions cited. The issues raised in the comment therefore
apply only to stationary engines. In those cases, the labeling requirements should not be problematic,
because exported engines do not need permanent labels. If a distributor or engine manufacturer would

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import a nonconforming engine back into the United States as stationary engine, the export label could
simply be removed.
       9.10.2.6Replacement Engin es

What Commenters Said:

       EPA should revise the current nonroad replacement engine label requirements to tie the
replacement engine to the manufacture date of the engine being replaced. The proposed language at
Section 1068.240 ties the replacement engine to the build date of the nonroad equipment. However,
nonroad equipment may have engines that were built in years prior to the year the equipment was built,
due to engines being used which were in the OEM's inventory (as allowed under Section 89.1003(b)(4)).
In addition, engine manufacturers have the ability to determine the manufacture date of engines they
produce but may not necessarily be able to determine the manufacture date of the equipment, thus making
it much more difficult to determine what type of engines can be manufactured for replacement purposes.
EPA should revise the current nonroad replacement engine label requirements by adopting the following
labeling language: "This engine does not comply with current Federal nonroad emission requirements.
Sale or installation of this engine for any purpose other than as a replacement engine in a nonroad
application in accordance  with 40 CFR 1068.240 is a violation of Federal law subject to civil penalty."
This provision should also be amended to include a section that allows manufacturers the option of
applying to EPA for approval to use alternate label language that may be more accurate for the engine
produced.

Our Response:

       We agree that the label language for replacement engines should refer to the original build date of
the replaced engine. Also, §1068.201(c) already allows us to approve alternate label language for any
exemptions under Subpart C of Part 1068.
       9.10.2.7Other

What Commenters Said:

       EPA should add a provision to Section 1039.230 that will allow manufacturers to include any
other information on the emission control label that they deem appropriate.

Our Response:

       The labeling requirements related to exported engines intentionally do not prevent a manufacturer
from adding any other relevant information.


9.11   In-Use Compliance Margin
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       9.11.1  EPA Should Modify the Proposed In-use Compliance Margin Provision to Ensure
               That it Is Beneficial and Useful to Nonroad Engine Manufacturers

       EMA commented that the effective dates for the NOX and PM compliance margins or "add-ons"
for engines in the 56 to 130 kW power range should be extended one additional year to apply from 2012
to 2016, rather than 2012 to 2015.  Manufacturers of these engines are allowed to meet the final Tier 4
standards either in January 2014 or October 2014. For those that choose the October 2014 option, the in-
use add-ons will only be available for 1.25 years following the model phase-in.  Therefore, it is necessary
to extend the period for add-ons to 2016, or at a minimum, October 2015, for this category.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 32, 111

       DDC and EMA commented that the proposed threshold for allowing add-ons is set to be less than
2.0 g/kW-hr, compared to a split family standard of 2.0 g/kW-hr, for engines 130-560 kW. Therefore,
nonroad engines certifying the split family or interim NOX standards would not be eligible for the in-use
add-on. The commenters recommended that the nonroad add-on threshold be set at 8 percent above the
standard to be consistent with the on-highway rule, which for engines in the 130-560 kW power range
would be 2.2 g/kW-hr. DDC specifically recommended that the three levels of NOX add-ons should be
0.16, 0.25, and 0.34 g/kWh.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 5
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 33, 111

       DDC and EMA also commented that EPA should allow add-on values at three different periods
during the engine's useful life, instead of the two currently proposed.  In the 2007 on-highway rule,
different add-on values were set at three different periods during the engine's useful life.  This  same
approach should be used for nonroad engines. To set equivalent thresholds for nonroad engines, add-ons
should be set for less than 2,000 hours, 2,001 to 3,400 hours, and 3,401  to 8,000 hours.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 5
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 33, 111

       EMA commented that the 2011/2014 nonroad NOX standards are approximately 25 percent higher
than the 2007/2010 on-highway standards. Similar percentage reductions are made from the previous
Tier emission levels, but the starting point for nonroad engines is higher than for on-highway engines.
Because of this higher starting point, an equivalent unexpected deterioration of an aftertreatment device
on a nonroad engine would result in a greater absolute increase in emissions. Therefore, the NOX add-ons
should be adjusted by approximately 25 percent.  EMA also noted that they are not recommending any
changes to the PM add-on schedule that EPA has proposed and provided a table summarizing suggested
changes for nonroad engine NOX add-ons.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 33-34
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Our Response:
       As discussed in Section III.E of the preamble to this final rule, we continue to believe that
allowing adjustments is appropriate. However, as also described there, we are revising them slightly from
the proposed adjustments in response to these comments.
9.12   In-Use Testing

       9.12.1 EPA Should Propose as Soon as Possible, Strong In-use Controls for Diesel Vehicles
              and Engines

What Commenters Said:

       A number of commenters stated that EPA should develop requirements for on-board diagnostics
and manufacturer run in-use testing programs to ensure that the emission standards are met throughout the
useful life of the engines. The in-use testing program should involve both federal and state regulatory
agencies to ensure an orderly transition to inspection and maintenance programs. Some commenters
(CATF, NRDC, STAPPA/ALAPCO) recommended that EPA commit to a rulemaking on this issue as
part of the current rulemaking and should adopt these program in advance of the effective date of the Tier
4 standards.  Some commenters (CATF, et. al.) noted that EPA has not provided any justification for its
decision to not include OBD requirements in the proposed rule.

       Letters:
       Clean Air Task Force, et. al., OAR-2003-0012-0508 p. 22
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 32-33
       Pennsylvania Department of Environmental Protection, OAR-2003-0012-0699 p. 4
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 17
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 9-10
       New York Public Hearing, A-2001-28, IV-D-05 [CATF p.  235]

       NESCAUM commented that EPA should commit to a manufacturer-run, in-use testing program
and OBD requirements as part of the current rulemaking. The implementation of smoke opacity  I/M
programs for the current fleet, on-board diagnostics, and alternative compliance programs for future
nonroad equipment should all be addressed in the near term to ensure in-use compliance. Regarding the
first component, several states have expressed an interest in extending the emissions benefits of the
highway diesel smoke  enforcement programs to the nonroad diesel sector. In this context, the lack of an
in-use smoke testing procedure and associated federal guidance for nonroad sources has hampered state
efforts to develop adequate smoke enforcement programs. EPA should add language in the final rule
expressing its intent to develop I/M guidance covering nonroad-specific, in-use smoke test procedures
and associated opacity cutpoints for the current fleet in the near future. Second, EPA should provide a
specific timetable for developing OBD requirements for nonroad equipment, which should  be
implemented in advance of the standards to maximize their effectiveness. Finally, NESCAUM stated,
EPA should  focus on in-use compliance for the new fleets that will be emitting at very low  concentrations
since accurate in-use compliance will not be possible for these engines with the equipment that is
currently available. EPA should plan to provide the framework for guidance for advanced emissions
sampling techniques for future nonroad equipment.

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       Letters:
       NESCAUM, OAR-2003-0012-0659 p. 9-10
       9.12.2  Further Review Is Necessary in Order to Develop Adequate In-use Testing and On-
               board Diagnostics Provisions

What Commenters Said:

       Caterpillar commented that in developing a plan for in-use testing and on-board diagnostics, EPA
should first review the entire engine testing program including the certification program to avoid testing
duplication and to ensure the most reliable and cost-effective emissions compliance program.

       Letters:
       New York Public Hearing, A-2001-28, IV-D-05 [Caterpillar p. 76]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [Caterpillar p. 84]
       Chicago Public Hearing, A-2001-28, IV-D-06 [Caterpillar p. 62]

       EMA noted that as part of the on-highway NTE settlement, EPA has committed to engage in a
consultation process with EMA to develop an outline to serve as the basis for an NPRM for a
manufacturer-run in-use testing program applicable to nonroad diesel engines and vehicles. However,
this process has not yet begun. Before engine manufacturers can finalize their comments on issues related
to in-use compliance, EPA and manufacturers must work together to establish the parameters of a
manufacturer-run in-use nonroad test program.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 71, 111

       9.12.3  EPA Should Ensure That States Do Not Use In-use Testing as a Mechanism to
               Impose Fees on Equipment Owners

What Commenters Said:

       ARA commented that EPA should ensure that states do not use in-use testing as a mechanism to
impose fees on equipment owners.  Further, ARA stated, to help avoid this, EPA  must develop a
meaningful and extensive manufacturers' in-use test program that will generate  sufficient data to prove
that the emissions controls  are durable over the useful life of the engine.

       Letters:
       American Rental Association, OAR-2003-0012-0612 p.  4

Our Response (to 9.12.1 - 9.12.3):

       We plan to begin a rulemaking next year to establish a manufacturer in-use testing program for
nonroad diesel engines. We will consider the need for OBD requirements after we complete the OBD
regulations for heavy-duty  diesel highway engines.
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9.13   Other Engine and Equipment Manufacturer Issues

       9.13.1  EPA Should Modify the Proposed Engine Family Definition at Section 1039.230

What Commenters Said:

       DDC and EMA commented that the proposed engine family definition at section 1039.230 should
be modified.  They commented that engine bore and stroke should have an allowed tolerance of 15
percent variation in displacement to allow for engine models with minor variations in this regard.

       The commenters further stated that the "number of cylinders (engines with aftertreatment devices
only)" should be removed from the engine family definition criteria, since it will increase the number of
engine families and the certification cost and will not benefit the environment. Lastly, the commenters
stated that even though differing numbers of cylinders may require different sizes of aftertreatment,
engines with the same number of cylinders may require varying aftertreatment due to various rated speeds
and loads.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 8
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p.  90-91, 112

       Euromot commented that EPA should allow engines with different cylinder numbers to be in the
same engine family. We proposed  using the number of cylinders as a criterion to define an engine family
for aftertreatment systems. However, Euromot commented, allowing for engines with different cylinder
numbers in one family would reduce the burden associated with certification; in this case, the engine
manufacturer has to test the more unfavorable combination (Lowest ratio of catalyst volume to engine
swept volume).

       Letters:
       Euromot, OAR-2003-0012-0822,  0823 p. 6

Our Response:

       We agree that manufacturers should be allowed to group together engines with similar emission
characteristics but different numbers of cylinders in the same  engine family.
       9.13.2  EPA Should Establish Non-conformance Penalties (NCPs) as Part of the Tier 4
               Rulemaking

What Commenters Said:

       DDC and EMA commented that EPA's proposed new standards and requirements will be
technology-forcing and almost certainly will result in the inability of some engine manufacturers and/or
some engine families to comply with the standards.  The availability of NCPs is critical to the nonroad
engine and equipment marketplace. NCPs provide a temporary alternative, permitting manufacturers to
continue to sell their engines or equipment if they are initially unable to comply with the new strict

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standards. These manufacturers would otherwise be forced out of the marketplace. The amount of the
penalty and the degree to which the non-conforming engine family may not exceed the applicable
standard must be established well in advance of the implementation date. The best means to assure the
use and application of consistent cost data is by establishing the NCPs at the time the underlying
standards are established.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 8
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 90

       The New York Department of Environmental Conservation commented that EPA Should
establish non-conformance penalties (NCPs) as part of the Tier 4 rulemaking, but did not provide  any
additional discussion or supporting documentation.

       Letters:
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 8

Our Response:

       We are not establishing NCPs for the new standards at this time. At this time, we cannot
conclude that NCPs will be needed. While we believe that substantial work will be required to meet the
new standards, we currently have no information indicating that a technological laggard is likely to exist.
Recognizing that it may have been difficult for manufacturers to comment at this early stage of
development, when implementation of these standards is still many years away, it may be appropriate to
reconsider NCPs in a future action.
       9.13.3  EPA Should Provide Manufacturers with Additional Flexibility with Respect to
               Meeting the Installation Instruction Requirements

What Commenters Said:

       DDC and EMA commented that engine manufacturers should be allowed to meet the need for
providing installation instructions to equipment manufacturers in different ways. For example, the engine
manufacturer could provide written instructions with each engine shipped, written instructions that cover
all the engines of a certain model sold to an equipment manufacturer, or a website reference that includes
the applicable instructions.

       Letters:
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 8
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 87

       EMA also commented that the provision that requires engine manufacturers to inform OEMs that
the exhaust system must be designed to allow exhaust samples to be obtained can only be achieved if
specific information can be provided describing the exhaust sampling requirements, which may differ
depending on the design of the exhaust measurement system used for in-use testing. In this context, EPA
should work with EMA to develop written guidance that can be provided to OEMs.

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       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 87

Our Response:

       We agree that engine manufacturers should have the flexibility to use different means of
providing installation instructions to equipment manufacturers, subject to EPA approval during the
certification process.
       9.13.4  The Equipment Manufacturer Should Be Responsible for Following the Engine
               Manufacturer's Installation Instructions

What Commenters Said:

       EMA commented that the proposed section 1068.105 should remain as part of the final rule.
Engine manufacturers should not be responsible for auditing the equipment manufacturers processes and
should not have any liability associated with an equipment manufacturer's failure to follow the engine
manufacturers installation instructions.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 88

Our Response:

       We are not changing the installation requirements in §1068.105(b).
       9.13.5  EPA Should Not Require the Aftertreatment System to Be Shipped from the Engine
               Manufacturer's Facility with the Engine

What Commenters Said:

       CNH Global, DDC, and EMA commented that engines and aftertreatment systems are often
assembled in different manufacturing facilities. In some cases, assembly of nonroad equipment may be
completed in different manufacturing facilities with engine and exhaust system installation done in
separate locations.  In this case, a requirement to ship the aftertreatment system with the engine would
involve extra time and expense for repackaging and reshipping, and would increase the potential for loss
or damage to the aftertreatment system. The engine manufacturer should sell the engine and associated
aftertreatment as a unit, but should be provided with some  flexibility regarding the shipping method.

       Letters:
       CNH Global, OAR-2003-0012-0819 p. 5
       Detroit Diesel Corporation, OAR-2003-0012-0783 p. 8
       Engine Manufacturers Association,  OAR-2003-0012-0656, 0657 p. 87
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       Ingersoll-Rand commented that the Tier 4 standards may provide engine manufacturers with an
opportunity to specify a particular aftertreatment device, or they may require equipment manufacturers to
buy the specified device with the engine. EPA should include provisions in the rule that ensure
equipment manufacturers will have the option of purchasing emission control systems on their own,
subject to operating parameters that would be specified by the engine manufacturers.

       Letters:
       Ingersoll-Rand OAR-2003-0012-0504 p. 19

Our Response:

       We agree that engine manufacturers need to have the flexibility to ship engines and aftertreatment
devices separately.  We have added regulatory provisions to allow this with appropriate controls to ensure
that this flexibility is not abused. For example, we require the engine manufacturer to identify the
specific part, include the cost of the part with the cost of the engine, and arrange for shipment directly to
the equipment manufacturer. It would not be appropriate to allow equipment manufacturers to specify
aftertreatment devices, since neither EPA nor engine manufacturers would have sufficient assurance that
the fully assembled engine would be in its certified configuration.
       9.13.6  EPA Should Maintain the Proposed Provisions That Would Limit the Use of
               Auxiliary Emission Control Devices and Defeat Devices

What Commenters Said:

       Environmental Defense, NRDC, STAPPA/ALAPCO, and UCS commented that EPA's proposed
clarifications of the existing nonroad diesel engine regulations regarding defeat devices in light of the
proposed additional emission test requirements and the certification reporting requirements with respect
to the description of AECDs should be maintained in the final rule and should be applied to the current
Tier 2 and Tier 3 programs.  It is critical that EPA ensure that companies do not use the "engine
protection" AECD claim to cover anything that could be termed a defeat device. AECDs have begun to
be much more common with the Tier 2 standards, and this trend is likely to continue, with Tier 4 engines
relying on sophisticated technologies that may employ very complex AECDs. Thoroughly disclosing the
presence and purpose of AECDs is essential in allowing EPA to evaluate the AECD and determine
whether it represents a defeat device.

       Letters:
       Environmental Defense, OAR-2003-0012-0821 p.  10-11
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 29-30
       STAPPA/ALAPCO, OAR-2003-0012-0507 p. 16
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 9-10

Our Response:

       We agree.
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       9.13.7  Users of Nonroad Engines and Equipment Will Most Likely Operate Their Engines
               for Longer Periods than EPA Projects

What Commenters Said:

       NRDC and UCS commented that EPA's current useful life projections are underestimated. In the
highway diesel world, engine makers openly promote their "million-mile engines" despite EPA's 435,000
mile useful life. It is reasonable to assume that such a discrepancy also exists in the nonroad diesel world.
EPA should analyze real world operating patterns, in order to ensure that its useful life assumption is
accurate. One commenter (UCS) recommended increasing the regulatory useful life to 15 years or 14,000
hours.  NRDC acknowledged that its belief that nonroad engines operate for longer periods than EPA's
current useful life is based on somewhat on anecdotal evidence.

       Letters:
       Natural Resources Defense Council, et. al., OAR-2003-0012-0661, 0665 p. 32
       Union of Concerned Scientists, OAR-2003-0012-0830 p. 8

Our Response:

       We agree with the commenters that it is important that useful life accurately reflect actual usage
rates. Given our best estimates of nonroad engine fuel consumption and engine populations, we believe
that our useful life values are, at least on average, sufficiently long. Nevertheless, we recognize that there
may be certain applications in which they are not long enough. We will reconsider our useful life values
in the future if we determine that they are not appropriate. However, at this time we do not have
sufficient data to justify any changes.
       9.13.8  EPA Should Clarify the Requirements That Apply to Rebuilt Engines

What Commenters Said:

       The Alaska Department of Environmental Conservation commented that rebuilt engines are
common in Alaska. EPA should clarify the definition of rebuilt engines and where the line is drawn
between fixing, modifying and completely rebuilding. EPA should also clarify whether the rules regulate
rebuilds by individual owners or fleets, or only by larger engine manufacturer rebuild facilities.

       Letters:
       Alaska Department of Environmental Conservation, OAR-2003-0012-0607 p. 3

Our Response:

       We believe the  rebuilding engine provisions in §1068.120 are clear.  In that section, we state:

               The term "rebuilding" refers to a rebuild of an engine or engine system,
               including a major overhaul in  which you replace the engine's pistons or
               power assemblies or make other changes that significantly increase the
               service  life of the engine.  It also includes replacing  or rebuilding an

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               engine's turbocharger or aftercooler or the engine's  systems for fuel
               metering or electronic control so that it significantly increases the service
               life of the engine. For these provisions, rebuilding may or may not involve
               removing the engine from the equipment.

       We further state "rebuilding does not normally include scheduled emission-related maintenance
or unscheduled maintenance that occurs commonly within the useful life period.

       With respect to applicability, the regulations state that the requirement to rebuild engines to their
certified configuration applies "to anyone rebuilding an engine subject to this part, but the recordkeeping
requirements .  . . apply only to businesses."
       9.13.9  EPA Should Not Require Measurement and Submission of CO2 Emissions

What Commenters Said:

       EMA objected to the need to measure and report CO2 emissions along with that from regulated
pollutants.  This was seen as especially problematic for those cases where the measurement method did
not otherwise require CO2 measurements.

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657

Our Response:

       We agree that manufacturers should not report CO2 emissions if they are not collecting that data
as part of their emission testing. However, if they are measuring CO2 emissions as part of the overall
effort to quantify emissions of other regulated pollutants, we believe it is appropriate to include this
information in the application for certification. Seeing the CO2 data will allow us to perform calculations
to verify the validity of other reported emission data.


       9.13.10 EPA Should Allow Multiple Cylinder Arrangements in a Single Engine Family

What Commenters Said:

       Euromot recommended that EPA allow engines with different numbers of cylinders in a single
engine family to reduce the burden of certification.

       Letters:
       Euromot, OAR-2003-0012-0822, 0823

Our Response:

       We believe it is appropriate to specify cylinder count as a basic descriptor for distinguishing
engine families, since engines with different cylinder arrangements could very well have different

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emission-control characteristics. However, the regulations allow the flexibility for manufacturers to
group different engines into the same engine family if they are able to show that the different engines will
have the same emission characteristics throughout the useful life.
        9.13.11 Shorter Useful Life Values

What Commenters Said:

        Engine manufacturers suggested that it was unnecessary to put useful life values on the emission
control information label.  Commenters did not specifically comment on the provisions related to
establishing shorter useful life values.

Our Response:

        We proposed to revise the provisions from 40 CFR 89.104 related to shorter useful life values.
We are finalizing these provisions as proposed. However, recent experiences related to this type of
provision from other programs has led us to  consider that a different approach may be necessary. We
anticipate making any changes to these provisions together for the various programs that would be
affected to maintain appropriate consistency across programs.
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10.    REFINERY & FUEL DISTRIBUTION ISSUES

What We Proposed:

       The comments in this section correspond to Sections IV and VIII of the NPRM, and focus on
issues dealing with the proposed NRLM fuel requirements and refinery and fuel distribution issues (see
Sections IV and V of the FRM). A summary of the comments received, as well as our response to those
comments are located below. For the full text of comments summarized here, please refer to the public
record for this rulemaking.


10.1   Fuel Markers

       10.1.1   General Comments on Marking Provisions

       10.1. LlRequest for Working Group on Marker Issues

What Commenters Said:

       Octel-Starreon commented that EPA should form a multi-disciplinary working group to help
develop and implement a fuel marking system. In developing the  fuel marker system, EPA could follow
a process similar to that used for the 1992-1994 introduction of fiscal marker Red 164.  EPA should allow
a reasonable amount of time for the working group to develop their conclusions. This type of process
would lead to a greater degree of consultation with all stakeholders.

       Letters:
       Octel-Starreon LLC, OAR-2003-0012-0642 p. 7

       ExxonMobil commented that a consensus process involving pipeline operators, refiners,
marketers, and aviation fuel experts could be used to review and recommend the best marking system.
Providing additional time for review may allow for candidate marker systems to be field tested in pipeline
distribution systems to determine the effect on pipeline operations and to identify  any unmarked product
contamination issues. Therefore, Exxon stated, EPA should consider delaying the final selection of the
specific marker system and dosage requirements until 2005 or 2006.

       Letters:
       ExxonMobil, OAR-2003-0012-0616 p. 16-17

Our Response:

       We are confident that the notice and comment process has been sufficient to select an appropriate
marker for use  under today's final rule. We received  extensive  comment on the proposal and as discussed
in sections IV and V.E of the preamble, we have had extensive discussions with the  marker industry,
refiners, fuel distributors, the FAA, IRS, ASTM and others to provide input in choosing the marker and
its use for the final rule. In the end we have decided to stay with the proposed marker, but have
significantly reduced the amount of fuel that will need to be marked in response to many of the concerns

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raised. The yellow marker is in fact the same marker Europe adopted after following their own process
for selecting a marker. A more in depth discussion of the rationale for our decision is contained in
sections IV and V.E of the preamble and in Chapter 5 of the RIA. Also as discussed in the preamble, if
subsequent work by the FAA, IRS, and others yields a more appropriate marker that is also acceptable if
it contaminates in jet fuel, then we remain open to revising our marker provisions in the future.
       10.1.1.2Concerns with Marker Provisions

What Commenters Said:

       We received comments from a number of commenters which stated that our proposed fuel marker
provisions would complicate enforcement. These commenters all believed that we should reconsider the
portion of the proposal that would establish a marker that distinguishes between heating oil and
on/offroad fuel, that is not visible to the naked eye.  Further, the commenters stated that the use of a
marker that cannot be detected through a sight glass or the drawing of a sample from a fuel tank would
open a regulatory loophole that could lead to evasion both of environmental standards and of federal
excise tax laws and could complicate enforcement with both EPA and IRS regulations.

       AOPL noted that EPA proposed that heating oil be marked with Solvent Yellow 124 during the
first phase of the program, and proposed that in the second phase, Solvent Yellow 124 would no longer
be used to mark heating oil but would be used to mark 500 ppm LM. The switching of mandated
markers, stated AOPL, from one product to another has the potential to create confusion and difficulties
with tank utilization, which in turn increases the risk that errors will be made by downstream parties when
segregating one product from the next during the transition period.

       Environmental Defense reiterates their position that if EPA implements the fuel sulfur standard in
one-step, the issues associated with markers, labeling, and misfueling would be far less complicated.

       Letters:
       Air Transport Association, OAR-2003-0012-0755 p. 1-3
       Association of Oil Pipelines, OAR-2003-0012-0609 p. 19-20
       Colonial Pipeline Company, OAR-2003-0012-0694 p. 3
       Environmental Defense, OAR-2003-0012-0821 p. 17
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 9
       National Association of Convenience Stores/Society of Independent Gasoline
                      Marketers of America, OAR-2003-0012-0635 p. 4-5
       New England Fuel Institute, OAR-2003-0012-0712, 0713 p. 3
       Chicago Public Hearing, A-2001-28, IV-D-06 [NACS/SIGMA p. 246]

Our Response:

       In the process of developing the NPRM, refiners recommended the use of a marker as an
effective means of restricting the sale of heating oil into the NRLM market. As discussed  in section IV.D
and V.E. of the preamble, we remain convinced that it is an appropriate and effective means of
accomplishing this objective. We have also modified the provisions  in the final  rule in a way that
addresses many of the concerns raised. We are no longer requiring that the marker be added to

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locomotive and marine diesel fuel after 2012.  The commenters concern regarding use of the same marker
in two different fuel grades. The Northeast/Mid-Atlantic Area provisions in today's rule also exempts
those areas of the country which use the large majority of heating oil.

       The marker finalized today will not provide visual evidence of its presence, the marker will only
be added at the terminal at the same point where red dye is also added. In other words, the yellow marker
should never be in fuel if red dye is not also present.  As a result, it will not interfere with current field
tests to detect contamination of jet fuels such as the "white bucket test".

       Although Solvent Yellow #124 may impart a slight orange  tint to red-dyed diesel fuel, this will
not complicate the identification of the presence of the IRS red dye. Even so, as identified in the
comments, the implementation of today's marker requirement for heating oil may be in conflict with IRS
regulations at CFR 48.4082-l(b), which state that no dye other than the IRS-specified red dye must be
present in untaxed diesel fuel.  We have already begun discussions  with IRS staff on this issue to
determine what measures may be necessary to clarify that the addition of Solvent Yellow #124 to heating
oil would not be in violation of IRS regulations. Through those discussions with the IRS, we have
confirmed that the presence of Solvent Yellow #124 will not interfere with enforcement of their red dye
requirement.  The IRS has related that they are investigating a family of markers for potential use in
addition to red dye under their diesel tax program which might be compatible with jet fuel. The IRS
stated that the use of one of these markers as required under today's rule  might result in a reduced burden
on industry. Given the changes to our program in today's final rule, the marker provisions will not
impose a significant burden. However, if the IRS program were to  develop alternate markers that would
be compatible with jet fuel we could consider amending today's final rule to adopt one such marker in
place of SY-124.
       10.1.2  Use of Solvent Yellow 124

       10.1.2.1General

What Commenters Said:

       AOPL and Octel-Starreon commented that the use of Solvent Yellow 124 will complicate
enforcement since it must be measured using a laboratory procedure with hydrochloric acid, which will
require additional equipment and training and will generate a small amount of hazardous waste.  The
commenters stated that a proven real-time online method to detect this marker does not exist and to make
a cut between batches is a challenge in timing, equipment placement and power for the remote laboratory.
API added that without visual evidence, the distribution system downstream of the yellow dye injection
may be forced to test unmarked fuels, primarily jet fuel, to ensure that the product is free of yellow dye.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 13-14
       Association of Oil Pipelines, OAR-2003-0012-0609 p. 18, 19-20
       Octel-Starreon, OAR-2003-0012-0642 p. 1
       New York Public Hearing, A-2001-28, IV-D-05 [AOPL p. 182-183]

Our Response:

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        The marker that we require under today's rule must be different from the red dye currently
required by IRS and EPA and not interfere with the identification of red dye in distillate fuels.  However,
while the marker being finalized today will not provide visible evidence of its presence, if the marker is
added at the terminal (as allowed by today's final rule) it will only be present when red dye is also
present. The fact that heating oil and LM diesel fuel will be dyed red pursuant to IRS requirements
before it leaves the terminal will enable jet fuel distributors to continue to use the "white bucket test" to
detect the contamination of jet fuel with marked fuel.46 Today's rule also contains a stand-alone
requirement that fuel which is required to contain the marker must also contain visible evidence of red
dye.

        While visible dyes are most common, inexpensive, and easily detected, we believe that using a
second visible dye in addition to that required by IRS for non-highway fuel would raise concerns
regarding potential interferences with the IRS red dye.

        While a marker with a simpler field test would be advantageous, there are many factors that go
into the selection of a marker, as discussed in section IV and V.E of the preamble.  On balance  the
advantages of yellow  124 outweigh the disadvantages raised in comment.  The testing burden on industry
itself should be minimal under the provisions of the final rule.  Given the changes in where the  marker is
added and the significantly reduced scope of fuel that will need to be marked, we anticipate little if any
need for industry to conduct field  testing.

        We continue to believe that such safety concerns are manageable here in the U.S. just as they are
in Europe and that the small amount of waste generated through the process of identifying the presence of
solvent yellow  124 can be handled along with other similar waste generated by the company conducting
the test, and that the associated effort and costs will be negligible.

        See also our response to Issue 10.1.1.2.
        10.1.2.2Contamination Issues

What Commenters Said:

        AOPL commented that there are several products handled in the pipeline transportation network
that must not contain any unapproved additives, including Solvent Yellow 124. For example, aviation
kerosene is distributed by numerous pipeline companies, and is critical to the supply chain of the nation's
major airports and airlines. Since there is no means to detect the presence of Solvent Yellow 124 in
aviation kerosene or any other product, there is a great deal of concern that these products could be
delivered for use without the detection of this marker.  The delivery of contaminated products could have
an extremely detrimental impact on the airline industry including possible shutdown of a major airport if
significant volumes of jet fuel were found to contain this additive after delivery into the tanks.
        46To test for contamination, jet fuel marketers typically fill a white five gallon bucket with jet fuel. The
presence of a pink tinge to the light straw colored jet fuel indicates that the fuel has been contaminated with red dyed
fuel.

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        Letters:
        Association of Oil Pipelines, OAR-2003-0012-0609 p. 18-19
        New York Public Hearing, A-2001-28, IV-D-05 [AOPL p. 183]

        A number of commenters commented that EPA's proposed selection of Solvent Yellow 124 may
be premature.  These commenters believed that EPA did not allowed the aviation community adequate
time to evaluate the effects of Solvent Yellow 124 in jet fuel. The CRC Aviation Fuel Committee
recently agreed to initiate a program to study the effects of Solvent Yellow 124 in jet fuel but
acknowledged that EPA would need to provide additional time for study. The aviation community is
extremely concerned about the  possibility that jet fuel could be contaminated with Solvent Yellow  124.
Detection of this additive is not within the current protocols for aviation fuel quality control, and it
remains unclear whether detection limits by known test methods would prevent effects on aviation
equipment.  There has been previous contamination of jet fuel with red dye as required by the IRS in off-
road fuel. This has been a frequent problem and years of intensive effort were required to determine the
effects of trace contamination of red dye in jet fuel. Aviation turbines are expected to go thousands of
hours before maintenance is required and trace levels of red dye have been shown to significantly reduce
this interval. The same may be true of Solvent Yellow  124 and additional time is needed to evaluate its
potential effect. ASTM provided additional documentation on the impact of dyes in aviation fuel
including test results from GE and other related  bulletins and emergency procedures (in the event that
aviation fuel is contaminated) from Boeing, GE, Pratt & Whitney and Rolls Royce.  ASTM further stated
that EPA should delay implementation of the yellow dye requirement until the air transport industry and
the FAA analyze the potential impact of the Solvent Yellow 124 dye marker on safety and operations.

        Letters:
        ASTM International, OAR-2003-0012-0601 p.  1, Art. A, B, C, D, E
        Air Transport Association, OAR-2003-0012-0755 p. 1-3
        Department of Defense, OAR-2003-0012-0617 p. 4-5
        ExxonMobil, OAR-2003-0012-0616 p.  16
        Federal Aviation Administration, OAR-2003-0012-0682 p. 1-2
        New York Public Hearing, A-2001-28, IV-D-05 [1 public citizen (CP Henry)  p. 137]

        Chevron and ConocoPhillips commented that Solvent Yellow #124 has similar chemistry to the
red dye used in non-road fuels today, so it would be expected to similarly contribute to deposit buildup in
jet engine fuel nozzles. In addition, Solvent Yellow #124, unlike Red Dye #26, would not be visible in
jet fuel at the concentrations expected to result from contamination, and it requires a complex, expensive
laboratory test to detect its presence. Lastly, the commenters stated that EPA should work closely with
the industry to identify a more acceptable dye or marker for heating fuel.

        Letters:
        Chevron, OAR-2003-0012-0782 p. 2-3
        ConocoPhillips, OAR-2003-0012-0777  p. 3

        AOPL and Williams Energy Partners commented that fuel marked with Solvent Yellow 124 may
mix with other fuel products, causing contamination.  The inadvertent marking of fuels with Solvent
Yellow 124 is  a concern, particularly for the reprocessed distillate market.  Transmix facilities often
located in close proximity to a pipeline are critical to the separation of the gasoline and distillate
Transmix produced by pipelines into marketable products.  Before the addition of the  Solvent Yellow 124

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marker, separated distillate would normally meet the specifications necessary to be sold into the nonroad
locomotive and marine or heating oil market. However, the marker could taint the entire distillate batch
so that while the sulfur content of the reprocessed distillate may be less than 500 ppm, it could only be
sold into the more limited heating oil market between 2007 and 2010 and into the LM market after 2010.
The commenters further noted that this unintended consequence should be resolved before the rule is
finalized.

        Letters:
        Association of Oil Pipelines, OAR-2003-0012-0609 p. 19
        Williams Energy Partners, OAR-2003-0012-0626 p. 3
        Chicago Public Hearing, A-2001-28, IV-D-06 [AOPL p. 108]

        The Air Transport Association commented that the yellow dye proposal, if approved, will pose a
contamination risk and a potential safety risk. The use of red dye has led to contamination of multiple
batches of jet fuel received at airports around the country, which has cause disruption of operations and
significant expense to the airlines as they had to flush their tanks and systems of the contaminated fuel.
The contamination risk with yellow dye may be even greater than with red dye since a significant portion
of jet fuel is straw colored making the dye difficult to detect visually.

        Letters:
        Air Transport Association, OAR-2003-0012-0755 p. 2-3

        Chevron and ConocoPhillips commented that if EPA decides that Solvent Yellow #124 will be
the marker used in heating fuel, the point of addition of the marker should be moved from the refinery to
terminals to keep this marker out of multi-product pipelines and reduce the risk that it will find its way
into other products.

        Letters:
        Chevron, OAR-2003-0012-0782 p. 2-3
        ConocoPhillips, OAR-2003-0012-0777 p. 3

        Wyoming Refining commented that in certain pipelines, Solvent Yellow 124 is  unlikely to cause
contamination. The commenter further noted that there is little opportunity for Solvent Yellow 124 from
heating oil to contaminate their jet fuel since their common carrier pipeline currently does not carry
heating oil.

        Letters:
        Wyoming Refining Company,  OAR-2003-0012-0651 p. 4-5

Our Response:

        It is true that there is very little data on the effects of Solvent Yellow 124 on airplane engines, and
that additional data would be useful. For instance, the contention that Solvent Yellow 124 would lead to
deposits in fuel injection nozzles is not directly supported by data, though some might infer such
problems based on experience with the red dye already used in nonroad fuel. Therefore, ASTM is
expected to continue to work with CRC and the FAA in an effort to identify fuel markers that would be
compatible for use in jet fuel. We will  seriously consider initiating a review of the use of Solvent Yellow

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#124 under toady's rule based on the findings of the CRC and the FAA, ongoing experience with the use
of Solvent Yellow #124 in Europe, and future input from ASTM, IRS or other concerned parties.

       However, despite the lack of data on the effects of Solvent Yellow #124 on airplane engines, we
believe that concerns related to potential jet fuel contamination have been sufficiently addressed for us to
finalize the selection of Solvent Yellow #124 as the required marker in today's rule. In particular, two
changes to the provisions in our proposal related to the use of the marker should eliminate most of the
potential sources of jet fuel contamination.  We have replaced the proposed baseline approach with a
designate-and-track approach that will be applied to high sulfur NRLM diesel fuel and heating oil. The
designate-and-track approach allowed us to change the required point of marker addition from the
refinery to the terminal.  Adding the marker at the terminal rather than at the refinery gate will virtually
eliminate the contamination concerns  of Solvent Yellow #124 in jet fuel. This is supported by the fact
that ASTM withdrew its request for a postponement in the regulation after we discussed with them our
plans for the final rule (Letter from ASTM to EPA, January 19, 2004, OAR-2003-0012-0842).

       In response to the concerns that the use of the marker would limit availability for the reprocessed
distillate market, we also believe that this problem has been solved through the decision to finalize that
the marker be added at the terminal. This means that the feed material that transmix processors receive
from pipelines will not contain the marker.  Hence, they will not typically need to cope with transmix
containing the marker, and today's marker requirement is not expected to significantly alter their
operations. There is little opportunity for marker contamination of fuels not required to contain the
marker to occur at the terminal and further downstream.  In the rare instances where this might occur, the
fuel contaminated would likely also be a distillate fuel, and thus could be sold into the heating oil market
without need for reprocessing.
        10.1.2.SPotential Issues and Problems

What Commenters Said:

        A number of commenters stated that many questions such as detection limits, fouling,
compatibility with the current red dye are still unanswered, and adequate time to work through all of these
issues by the end of the comment period is not available. The current use of hydrochloric acid in the
yellow dye test method raises serious health concerns for field operators, and the ability to run this
method may be restricted to laboratories with very limited or no field testing.  API provided additional
discussion and a detailed table summarizing the advantages and disadvantages of various fuel markers
that are currently available and recommends that EPA continue to study and evaluate markers to make a
final selection based on testing and impact concerns.  API also attached documents related to the
European  Union's selection of Yellow Solvent 124, which provides some information that could help
EPA's overall evaluation of this product.

        Letters:
        American Petroleum Institute, OAR-2003-0012-0804-0808 p. 15
        Association of Oil Pipelines, OAR-2003-0012-0609 p. 18-20
        Colonial Pipeline Company, OAR-2003-0012-0694 p. 4
        ConocoPhillips, OAR-2003-0012-0777 p. 3
        Marathon Ashland, OAR-2003-0012-0826, 0827 p. 9-10

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       National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 23-24

       DoD commented that EPA should address several questions and potential problems regarding the
use of Solvent Yellow 124 before allowing for its use as a fuel marker.  EPA should provide  additional
information on what tests were used to determine the level of dye sufficient to color the product, whether
numerous colors of heating oils were used or the number of the European Union.  The EU uses this
marker in gas oil and two grades of kerosene that are clear in color.  The gas oil has a red dye and the
yellow then makes it orange. The kerosenes are water white so the marker makes them yellow. In
contrast, American heating oils run a full range of colors, being mostly darker in color. EPA should
assess all the potential problems with yellow dye and should refrain  from identifying it as a required
marker until industry has an opportunity to recommend a marker that will not adversely impact aviation
hardware.

       Letters:
       Department of Defense, OAR-2003-0012-0617 p. 4-5

       UCM believes that its color additive effect to  Solvent Red 164 should be thoroughly analyzed to
ensure no interference with the Solvent Red 164 dosage level.

       Letters:
       United Color Manufacturing, Inc., OAR-2003-0012-0501 p. 2

       UCM commented that EPA should examine issues regarding the use of Solvent Yellow 124 prior
to implementation of the rule. They stated that the phase out of the patent coverage for Solvent Yellow
124 as well as any related supply and distribution issues should be confirmed by us prior to rule
implementation so that no impediments are placed on other producers that hope to compete.  UCM
believes that given the projected date for marking, there appears to be sufficient time to address these
issues.

       Letters:
       United Color Manufacturing, Inc., OAR-2003-0012-0501 p. 2

Our Response:

       We evaluated many issues in the process of selecting Solvent Yellow  124 as the marker for use
under today's rule, and determined that on balance its advantages outweighed its disadvantages in
comparison to the alternatives.  The primary reasons for our choice of Solvent Yellow 124 include:

       1)      There is considerable data and experience with it which indicates there are no significant
               issues with its use.
       2)      It is compatible with the existing red dye.
       3)      Test methods exist to quantify its concentration, even if diluted by a factor of 50 to 1.
       4)      It is reasonably inexpensive.
       5)      It can be produced and provided by a number of sources.

However, as previously stated, we intend to continue to evaluate the use of Solvent Yellow 124 under
today's rule, and we may review this usage based on research and input from CRC, FAA, IRS, Europe,

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                                                     Control of Emissions from Nonroad Diesel Engines
                                                                 Summary and Analysis of Comments
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and ASTM.
        Regarding concerns about the coloration of diesel fuel caused by Solvent Yellow 124, we note
that our decision to use Solvent Yellow #124 was largely based on studies and findings from the EU's use
of the marker. Studies have shown that Solvent Yellow 124 does not impart a strong color to diesel fuel
when used at a concentration of 6 mg/1. Most often it is reportedly nearly invisible in distillate fuel given
that the slight yellow color imparted is similar to the natural color of many distillate fuels.47 This is not a
disadvantage for our purposes, since we are not relying on visual inspection to determine its presence.
See the response to 10.1.2.1 and 10.1.2.2 regarding potential heightened jet fuel contamination concerns
because SY-124 can not be  reliably detected by visual means alone.

        Despite its name, we are using it as a chemical marker rather than as a visual dye. In the presence
of red dye, Solvent Yellow  #124 can impart a slight orange  tinge to the fuel. However, it does not
interfere with the visual identification of the presence of red dye, or the quantification of the
concentration of red dye in  distillate fuel.  Through our discussions with the IRS, we have confirmed that
the presence of SY-124 in diesel fuel at 6 mg/1 will not interfere with enforcement of their red dye
requirement.48 Although, SY-124 may impart a slight orange tint to  red-dyed diesel fuel, this will not
complicate the identification of the presence of the IRS red  dye. In fact, IRS has determined that the
presence of SY-124 may even enhance enforcement of their fuel tax program.49 The comment regarding
potential heath and safety associated with the marker test procedure are addressed in section 10.1.2.4.
        10.1.2.4Health and Safety

What Commenters Said:

        ExxonMobil, IFTOA, and NEFI commented that current experience and testing is insufficient to
confirm that the use of Solvent Yellow 124 is safe and appropriate for use in home heating oil. The
commenters noted that we concluded that this marker will not harm residential heating equipment, based
on Europe's experience with the same marker, but they raised concerns with this, commenting that
Europe's experience is extremely limited (i.e. only one heating season).  They concluded that a lack of
evidence of the safety and efficacy of Solvent Yellow 124, the use of this marker should not be required
in the final rule.  NEFI also added that the use of this marker will lead to further increases in the cost of
home heating oil.

        Letters:
        ExxonMobil, OAR-2003-0012-0616 p. 16
        Independent Fuel Terminal Operators Association, OAR-2003-0012-0671, 0672 p. 3
        New England Fuel Institute, OAR-2003-0012-0712, 0713 p. 3
        47The color of distillate fuel can range from near water white to a dark blackish brown but is most frequently
straw colored.

        48Phone conversation between  Carl Dalton, IRS and Rick Stiff, IRS, and Jeff Herzog and Paul Machiele, EPA,
February 19,2004.

        49ibid

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       Octel-Starreon commented that we should further investigate the public health risk impact and
market availability of Solvent Yellow 124, as well as potential alternatives.  The commenter added that
the chemical reagent based detection method requires the use of expensive, toxic, and hazardous
chemicals and the proposal does not identify an alternative instrumental method. Octel-Starreon added
that before introducing Solvent Yellow 124 into the system, EPA should work with industry and other
groups to ensure that the use of this marker and the detection method will not adversely affect public
health. The commenter also suggested that a multi-disciplinary working group be formed to select and
implement the fuel marking system, which could be similar to the 1992-1994 introduction of the fiscal
marker red 164.

       Letters:
       Octel-Starreon, OAR-2003-0012-0642 p. 1-2
       New York Public Hearing, A-2001-28, IV-D-05 [Octel-Starreon p. 200]

       A number of commenters (API, AOPL, Colonial, ConocoPhillips) believed that the current use of
hydrochloric acid in the yellow dye test method raises serious health concerns for field operators, and the
ability to run this method may be restricted to laboratories with very limited or no field testing.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 15
       Association of Oil Pipelines, OAR-2003-0012-0609 p.  18-20
       Colonial Pipeline Company, OAR-2003-0012-0694 p. 4
       ConocoPhillips, OAR-2003-0012-0777 p. 3
       Marathon Ashland,  OAR-2003-0012-0826, 0827 p. 9-10
       National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 23-24

Our Response:

       Commenters provided no data or information to support assertions that SY-124 provided any
safety concern.  Furthermore, no evidence was provided that the hazardous chemicals and hazardous
waste from the testing posed unreasonable safety risks.  Test methods like these are not uncommon in the
industry today.  Furthermore, as discussed above, we anticipate little need for industry to perform the
chemical testing under the provisions of the final rule. For those parties that do need to conduct testing
for the marker, the European experience regarding testing for SY-124 and the significant lead-time before
the implementation of today's marker requirement should ensure the ready availability of field test
equipment to test for SY-124.50

       Based on the European experience with Solvent Yellow 124, we do not expect that there would
be concerns regarding the compatibility of Solvent Yellow 124  in the U.S. fuel distribution system.  Our
evaluation of the process conducted by the EU in selecting Solvent Yellow 124 for use in the EU
convinced us that this was also the most appropriate marker to propose for use in under today's
       50Memorandum to the docket entitled "Use of a Visible Spectrometer Based Test Method in Detecting the
Presence and Determining the Concentration of Solvent Yellow 124 in Diesel Fuel"

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program.51  The EU's experience with the use of solvent yellow 124, and the evaluation process it
underwent prior to selection by the EU, provides strong support regarding the compatibility of SY 124 in
the U.S. fuel distribution system, and for use in motor vehicle engines and other equipment such as in
residential furnaces.

       We believe that concerns regarding the potential health impacts from the use of Solvent Yellow
#124 do not present sufficient cause to delay finalization of the requirement for its use under today's rule.
The EU intends to review the use of Solvent yellow 124 after December 2005, but may undertake the
review earlier if any health and safety or environmental concerns about its use  are raised, and we  intend to
keep abreast of such activities. In addition, we may initiate our own review of the use of solvent yellow
124 depending on the European Union's findings, or other relevant information.

       There will be nearly four years of accumulated field experience with the use of Solvent Yellow
#124 in Europe at the time of the review by the EU and nearly 5 years by the implementation of the
marker requirement under today's rule.  This will provide ample time for any potential unidentified issues
with Solvent Yellow #124 to be identified, and for us to choose a different marker if warranted.

       See also our response to Issue 10.1.2.3 for a discussion of the reasons that we chose Solvent
Yellow 124 over the alternatives.
        10.1.2.5Availability

What Commenters Said:

        Octel-Starreon commented that Solvent Yellow 124 is not readily available in the market.  Even
though there are a number of manufacturers that can make the dye, it is protected by U.S. patent 4904765.
This BASF patent has caused a tremendous amount of problems in Europe. EPA should address issues
that may arise due to BASF's exclusive position in distributing this fuel marker. In addition, Octel-
Starreon commented that we should ensure that a dye is selected that is free from patent restrictions and
has been successfully used for regulated fuel marking purposes, such as Leucoquinizarin (CAS number
17648-03-2).

        Letters:
        Octel-Starreon, OAR-2003-0012-0642 p.  1-2
        New York Public Hearing, A-2001-28, IV-D-05 [Octel-Starreon p. 198-200]

Our Response:

        The patent situation for SY-124 is not a significant issue with respect to its selection for use under
today's program.  While BASF holds the patent, the additive is able to be produced by a number of
       51 The European Union marker legislation, 2001/574/EC, document C(2001) 1728, was published in the
European Council Official Journal, L203 28.072001.  Opinion on Selection of a Community-wide Mineral Oils Marking
System, ("Euromarker"), European Union Scientific Committee for Toxicity, Ecotoxicity and the Environment plenary
meeting, September 28, 1999.

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different companies under licensing agreements with BASF. Even more importantly, the proprietary
rights related to Solvent Yellow #124 expire several months after the implementation of the marker
requirements finalized in today's rule. Therefore, we do not expect that the current proprietary rights
regarding Solvent Yellow #124 are a significant concern.52
        10.1.2.6Alternatives to Solvent Yellow 124

What Commenters Said:

        Isotag commented that EPA should consider alternatives to Solvent Yellow 124, since there are
alternatives to Solvent Yellow 124 that are more cost-effective, easier to use and field test, and pose less
of a threat to jet fuel via contamination. According to the proposed rule, the marker system will cost 0.16
to 0.20 cents per gallon, which is high for any marker program.  An Isotag marker program would cost
approximately 0.005 to 0.01 cents per gallon, which would vary depending on the detection/dilution limit
specifications.  With respect to field testing, current tests in Europe for Solvent Yellow 124 requires the
addition of acidic chemical to identify presence, which create hazardous waste. Isotag marker systems do
not require any additional chemical or additives and when complete, the fuel can be reintroduced to the
tank it was extracted from.  In addition, Isotag tests are not subjective and only require a light handheld
instrument that provides quantitative results in 1 to 2 seconds. With respect to jet fuel contamination,
Isotag markers have passed initial tests intended to screen out potential negative contaminants.  Isotag
provided additional information and supporting documentation regarding available technologies in a
paper entitled "Invisible Fuel  Marking Systems: Alternatives to Color Dyes?"

        Letters:
        Isotag, OAR-2003-0012-0666, 0824 p. 1,  Art. 1-14

        United Color Manufacturing commented that it produces a number of products that are candidates
for marking heating oil under the Unimark name.  One product is colorless in nature and has been used
over fifteen years in fuel applications including diesel fuel in various parts of the world. Patent coverage
is not an issue and its presence can also be determined through a simple qualitative field test and a
quantitative lab test. It has the added advantage of being able to be prepared from raw materials produced
domestically and this eliminates possible  import supply problems. Alternates are available which also
offer little or no color in appearance.

        Letters:
        United Color Manufacturing, Inc., OAR-2003-0012-0501 p. 2

        ExxonMobil commented that there are a number of alternative marking mechanisms that could be
considered but additional time may be necessary to ensure that the selected marker is the proper choice.
Non-radioactive isotopic molecular markers are available that are more  likely to avoid aviation fuel
contamination concerns.  However, such markers are more expensive, and cannot be read as readily in the
field.
         The patent and related information for Solvent Yellow 124 is available from the patent office website at:
http://patft.uspto.gov/netacgi/nph-Parser?Sectl=PTOl&Sect2=HITOFF&d=PALL&p=l&u=/netahtml/srchnum.htm&r=l&f=G&l=50&sl=49047
65.WKU.&OS=PN/4904765&RS=PN/4904765

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       Letters:
       ExxonMobil, OAR-2003-0012-0616 p. 16-17

Our Response:

       There are a number of alternative dyes and markers that could be used instead of Solvent Yellow
124. Visible dyes are most common, are inexpensive, and are easily detected. However, using a second
dye in addition to the red dye required by IRS in all non-highway fuel for segregation of heating oil (or
500 ppm sulfur LM diesel fuel produced by refiners or importers from 2010 through 2012) based on
visual identification raises certain challenges. The marker that we require must be different from the red
dye currently required by IRS and EPA and not interfere with the identification of red dye in distillate
fuels. Invisible markers are beginning to see more use in branded fuels and are somewhat more expensive
than visible markers.  Such markers are detected either by the addition of a chemical reagent or by their
fluorescence when subjected to near-infra-red or ultraviolet light. Some chemical-based detection
methods are suitable for use in the field. Others must be conducted in the laboratory due to the
complexity of the detection process or concerns regarding the toxicity of the reagents used to reveal the
presence of the marker.  Near-infra-red and ultra-violet flourescent markers can be easily detected in the
field using a small device and after brief training of the operator.  There are also more exotic markers
available such as those based on immunoassay, and isotopic or molecular enhancement. Such markers
typically need to be detected by laboratory analysis.

       We met and corresponded with numerous and diverse parties to evaluate the concerns expressed
regarding the use of SY-124, and to determine whether it might be more appropriate to specify a different
marker. These parties include IRS,  FAA, ASTM, CRC, various marker/dye manufacturers, European
distributors of fuels containing the Euromarker, marker suppliers, and members of all segments in the
U.S. fuel distribution system.  In particular, Isotag markers may look promising in some respects, but they
also raised a number of unknowns, including patent issues. On balance, we determined that the
advantages of Solvent Yellow 124 outweighed its disadvantages in comparison to the alternatives.  In
addition to the considerable amount of data and experience with it which indicates there are no significant
issues with its use, it is also compatible with the existing red dye, is reasonably inexpensive, and can be
produced and provided by a number of sources. Finally, test methods exist to quantify its concentration,
even if diluted by a factor of 50 to 1.

       Since the proposal we have obtained more accurate information which indicates that the current
cost of bulk quantities of Solvent Yellow 124 is approximately 0.03 cents per gallon of treated fuel (see
Section VI of the preamble). Based on conversations with various marker manufacturers, this cost is
comparable to, or less than, other fuel markers.

       As stated above, we will seriously consider evaluating other markers for use in place of Solvent
Yellow 124 based on future input from CRC, ASTM, IRS,  FAA, and other interested parties, as well as
the European experience with the use of SY-124.
       10.1.2.7Other

What Commenters Said:


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        Countrymark and Wyoming Refining commented that certain provisions associated with the use
of Solvent Yellow 124 should be clarified.  Countrymark commented that, in regards to the provisions
associated with the use of Solvent Yellow 124, we should clarify whether: 1) the yellow dye will be
sufficiently visible in cases where a product has been previously dyed red and is subsequently
downgraded to heating oil; 2) all product sold as heating oil requires the addition of yellow dye (i.e. can
product dyed red be sold as heating oil?); and 3) the regulation allows for flexibility to inject yellow dye
at either the refinery or a particular terminal. Also, Wyoming Refining commented that the definition of
"V-marked" in the proposed Section 80.534(b)(3) should be clarified since proposed section 80.510(c) as
referenced in the definition, does not mention Solvent Yellow 124.

        Letters:
        Countrymark Cooperative, OAR-2003-0012-0602 p. 2
        Wyoming Refining Company, OAR-2003-0012-0651 p. 5

        UCM commented that CFR Section 48.4082-l(b) specifically states that Solvent Red 164 and no
other dye, will be used in untaxed diesel- the implication is that Solvent Yellow 124 would be in violation
of the IRS regulation.

        Letters:
        United Color Manufacturing,  Inc., OAR-2003-0012-0501 p. 2

Our Response:

        The yellow marker may be somewhat visible in red-dyed diesel fuel (as it may impart a slight
orange tint to this fuel), but it is  largely undetectable by the naked eye. Though the marker being
finalized today is not intended to provide visual evidence of its presence, the marker will only be added at
the terminal at the same point where red dye is also added. In other words, yellow marker should never
be in fuel if red dye is not also present. As a result, the "white bucket test" which is currently used to
detect contamination of jet fuel with red dyed fuel, will also reveal contamination of jet fuel with fuel
containing SY-124.

        With the exception of the Northeast/Mid-Atlantic Area and Alaska (see Chapter IV.D of the
preamble for more discussion on this), all fuel designated as heating oil (beginning 2007)
and 500 ppm diesel fuel produced at a refinery or imported (from 2010 through 2012) will be required to
have the Solvent Yellow 124 fuel marker prior to delivery at end-use (i.e. as it leaves the terminal).
However, fuel not designated as heating oil may still be sold into heating oil applications and does not
need to contain the marker.  Locomotive and marine diesel fuel generated from segregated interface or
produced from transmix is not required to contain the marker.

        The program that we are finalizing today allows addition of the marker at the refinery gate, but
we do not anticipate this practice occurring except for over the refinery rack. Rather, we anticipate that
the marker will be injected at the terminal.

        Regarding Wyoming Refming's comment that proposed  section 80.510(c) does not mention
Solvent Yellow 124, we note that this particular provision has become moot since we have replaced the
baseline approach with the designate-and-track approach.
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       Through our discussions with the IRS, we have confirmed that the presence of Solvent Yellow
#124 will not interfere with enforcement of the red dye requirement.  Also, the fact that the marker may
impart an orange tint to dyed diesel fuel will not complicate the identification of the presence of the IRS
red dye (see Section 10.1.2.5). However, as noted by UCM's comments, the implementation of today's
marker requirement may arguably be in conflict with IRS regulations at CFR 48.4082-l(b), which state
that no dye other than the IRS-specified red dye must be present in untaxed diesel fuel. IRS  is evaluating
what actions might be necessary to clarify that the addition of SY-124 to heating oil would not violate
IRS regulations.

       See also our response to Issue 10.1.1.2.
10.2   Fuel Sulfur Testing and Sampling Requirements

       10.2.1  Testing Requirements

       10.2.1.1 Supports a Performance-based Test Method Approach, but Provides Suggestions for
               Improvement

What Commenters Said:

       API, AOPL, BP, Exxon, Marathon, NPRA, and Tesoro commented that industry has long
advocated a performance-based approach toward qualification of test methods and EPA's proposed
approach should be maintained to allow regulated parties to adopt a performance based test method
approach for diesel fuel subject to the 15 ppm and 500 ppm sulfur standards. ASTM recently evaluated
four sulfur test methods to determine their repeatability and reproducibility. This involved an evaluation
of the reproducibility of the test methods between different labs, which is particularly important for
refinery certification and EPA enforcement purposes.  Each of the four methods has its own level of
repeatability, which differed between each of the labs, and the industry is currently working to identify
testing improvements to reduce uncertainty and increase precision. NPRA and BP provided three
recommendations regarding the sulfur test methods: 1) EPA's lab should use the most accurate and
precise testing method available, 2) EPA's lab should use the ASTM cross check program so that any bias
can be reduced or eliminated, and 3) EPA should establish a downstream enforcement allowance that is
consistent with the level of precision of the lab methods in use. API also recommended that EPA
participate in the ASTM Interlaboratory Crosscheck Program set to commence on January 1, 2004. BP
expressed support for EPA's use of the official repeatability to be published in the ASTM Round Robin
Research Report for ASTM D 3120 ~ i.e.,  1.33 ppm ~ as the basis for the performance-based test method
criteria and also expresses support for ASTM D 6299-02, "Standard Practice for Applying Statistical
Quality Assurance Techniques to Evaluate Analytical Measurement System Performance" since it is
important that a laboratory have quality control procedures in place to demonstrate that an approved test
method remains in control.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 9-12
       Association of Oil Pipelines, OAR-2003-0012-0609 p. 22
       BP, OAR-2003-0012-0649 p. 5-6
       ExxonMobil, OAR-2003-0012-0616 p. 3, 9-10

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       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 13-16
       National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 22
       Tesoro, OAR-2003-0012-0662 p. 2
       New York Public Hearing, A-2001-28, IV-D-05 [API p. 21; NPRA p. 84]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [API p. 44]
       Chicago Public Hearing, A-2001-28, IV-D-06 [API p. 88; BP p. 172-174; NPRA p. 20]

       API, Flint Hills Resources, Marathon, and NPRA commented that EPA's proposed approach with
respect to the requirements for precision of the chosen test method(s) and the proposed "20 repeat sulfur
tests over a minimum of 4 days" requirement, are reasonable. FHR noted that the 20 results must be a
series of test with a sequential record of the analyses and no omissions and requested that EPA clarify
what constitutes a "series of test."

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p.  10
       Flint Hills Resources, OAR-2003-0012-0667 p. 8
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 14
       National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 18-19

       API, BP, Marathon, and NPRA commented that EPA's proposed performance-based test method
approach for accuracy is reasonable. However, it appears that the accepted reference value (ARV) of the
standards does not account for any uncertainty, which would be in conflict with the fact that all
commercially available standards have an uncertainty associated with the certified value. EPA should
address how it has taken into account the matter of uncertainty in the certified value or ARV for the
standard material and should also address the associated question of what maximum value in the
uncertainty associated with the ARV is allowable for the accuracy criterion being proposed by EPA.
Information on the maximum value is important for laboratories as they make decisions on which
standard materials to purchase  for the purpose of qualifying the test method per the accuracy criterion.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p.  10-11
       BP, OAR-2003-0012-0649 p. 5
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 14-15
       National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 19-20

       API, Marathon, and NPRA commented that EPA's proposed requirements for the submittal of
information necessary for approval of the VCSB test methods are reasonable but should also include the
dates on which each piece of data were obtained. In addition, fuel samples used for precision and
accuracy demonstrations  should be retained for the length of EPA's review period (i.e. 90 days). These
requirements, the commenters stated, should also apply to non-VCSB methods.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p.  11
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 15
       National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 20-21

       API, Marathon, and NPRA commented that EPA's approval for non-VCSB test methods should

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not automatically lapse after 5 years with no option for reconsideration and renewal. Five years
experience with the method "certifying" diesel batches for sulfur concentration suggests that the method
is accurate, precise and robust.  A five year period is a reasonable amount of time for an instrument
vendor to obtain approval from a consensus body of a new and/or improved test method. However, for
refiners, it is possible that they may not wish to share the method with others  in the industry if the method
provides a competitive advantage that exceeds the income resulting from the licensing of the instrument
technology.  EPA should allow for a process whereby a laboratory having an approved non-VCSB test
method could apply for re-approval at the end of the first, five year period.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 11
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 15
       National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 20-21

       API, Marathon, and NPRA further commented that the proposed quality assurance procedure
requirements specified in 80.585(d) are reasonable. However, the required retention period for samples
of tested batches of diesel fuel should be specified (e.g. 30 days), rather than the more  vague statement of
"at least as long as the period between quality control material or check standard testing occasions."

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 11-12
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 15-16
       National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 21-22

       Flint Hills Resources commented that EPA should name a designated sulfur method for both the
15 ppm and 500 ppm diesel fuel and should allow for the performance based approach to serve  as the
alternative. Under this scenario, the rule would provide simplicity and consistency by treating both fuel
types the same and eliminate the need to correlate to a designated method for 500 ppm fuel as detailed in
Section 80.580(ii)(A). This approach provides additional flexibility by giving an alternative to  those who
do not wish to participate in the performance-based test program for 15 ppm diesel fuel.

       Letters:
       Flint Hills Resources, OAR-2003-0012-0667 p. 8

       Wyoming Refining Company commented that EPA should maintain proposed Sections 80.584
and 50.585 that allow a refiner to certify any method for analyzing on and off road diesel sulfur if that
method passes a prescribed precision and accuracy demonstration performed by the laboratory or refiner.
EPA should adopt the same approach for Tier 2 gasoline  sulfur analyses.

       Letters:
       Wyoming Refining Company, OAR-2003-0012-0651 p. 4

       Sunoco commented that a performance based test method should be maintained, but without the
proposal to require "non-standard" or proprietary test methods to receive industry acceptance within five
years; the only criterion governing use of such methodologies should be whether the method satisfies
EPA's performance requirements.
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       Letters:
       Sunoco, OAR-2003-0012-0509 p. 2

       The New York Department of Environmental Conservation commented that accurate and
repeatable sulfur test methods are necessary to ensure that the environmental benefits of the on-highway
and nonroad diesel rules are attained in the field, and to protect the investments of owners of
aftertreatment equipped diesel engines. EPA has chosen not to designate any test method for sulfur
concentration in ultra low sulfur diesel fuel, instead detailing the performance standards that any test
method must meet. However, even though the proposed performance based approach has its merits, it is
better suited to the evaluation of alternatives to an EPA designated sulfur test method than as a substitute.
EPA should designate one or more test methods that are known to meet the proposed performance
standard, and should use the performance standard to evaluate alternative methods that are proposed in
the future.

       Letters:
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 5

Our Response:

       Regarding the NPRA and BP recommendations for sulfur test methods, we will take these
recommendations under advisement as we go  forward. Generally, we will take the necessary steps to best
ensure the enforcement of our standards.  Also, we have been and are actively working with ASTM in the
Interlaboratory Crosscheck Program including ways to improve its usefulness. We anticipate that the
reproducibility of sulfur test methods is likely to improve to two ppm (consistent with our 2 ppm
downstream tolerance) or even less by the time the 15 ppm sulfur standard for highway diesel fuel is
implemented - four years before implementation date of the 15 ppm standard for NR diesel fuel.  With
the 2 ppm downstream tolerance provision finalized in today's rule, we anticipate that refiners will be
able to produce diesel fuel with an average sulfur level of approximately 7-8 ppm and some
contamination could occur throughout the distribution system, without fear of causing a downstream
violation due solely to test variability. As test methods improve in the  future, we will reevaluate whether
two ppm is the appropriate allowance for purposes of this compliance provision.

       For the final rule, we are specifying that the precision of a given sulfur test method under the
performance-based approach must be demonstrated by a laboratory facility by performing 20 repeat tests
over 20 days on samples taken from a homogeneous supply of a commercially available diesel fuel.
Based on the comments we received on this issue, we are also clarifying that the test results must be a
sequential record of the analyses with no omissions.

       The performance-based approach to establishing the accuracy of a test method includes the use of
an Accepted Reference Value (ARV) which, as some commenters point out, will include some inherent
uncertainty. However, we are requiring the ARV to be based on gravimetric methods with the intention
of minimizing that uncertainty. As a result, the uncertainty in the ARV is expected to be considerably
lower than the uncertainty in the sulfur test method whose accuracy is being evaluated.  In addition,
parties entering into the process for approving sulfur test methods will  have an incentive to use those
standard reference materials with the lowest possible uncertainty, and this will place competitive pressure
on suppliers of such materials to meet increased demand for precise ARVs.  We therefore continue to
believe that the  accuracy criteria of 0.54ppm and 7.26ppm for 15ppm and 500ppm standard diesel fuel,
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respectively, are sufficiently wide to account for uncertainty inherent in ARVs.

       As described in the preamble, while we proposed a 30 day sample retention period, commenters
stated that the sample retention period for fuel samples that are used for precision and accuracy
demonstrations should be equivalent to the length of EPA's review period (i.e., 90 days). We agree with
the commenters and are thus finalizing a 90 day sample retention period in today's rule. This sample
retention requirement also applies to non-VCSB methods.

       We did not explicitly require the date of every measurement to be included when parties submit
their reports to the EPA containing their showing of precision and accuracy for a specific test method.
Due to the concern that parties requesting approval for a specific test method could manipulate the
process and reduce overall uncertainty by, for instance, taking nineteen measurements on day one and a
single measurement on day twenty, we have created an additional requirement that the 20 measurements
must be taken in such a way that no fewer than 24 hours have elapsed between individual measurements.
The proposed criterion that the measurements must be taken over a period of 20 days has been dropped in
favor of this more robust provision guaranteeing an even distribution of measurements over time. In
order to verify that this is indeed happening, we are also requiring that reports to the EPA requesting
approval  for a sulfur test method also include the date of every measurement.

       As described in the preamble, federal government and EPA policy is to use standards developed
by voluntary consensus bodies when available. Such standards foster consistency in regulatory
requirements, take advantage of the collective industry wisdom and wide-spread technical evaluation
required before a test method is approved by a consensus body, and take advantage of the ongoing
oversight and evaluation of a test method by the  consensus body that results from wide-spread use of an
approved method e.g., the ongoing round-robin type analysis and typical annual updating of the method
by the consensus body. These goals are not met where the Agency allows use of a non-consensus body
test method in perpetuity. Nevertheless, EPA believes it is appropriate to allow limited use of a
proprietary test method for a limited time, even though the significant advantages of consensus test
methods are absent,  because EPA can evaluate the initial quality of a method and a company may have
invested significant resources in developing a method. However, if after a reasonable time a test method
fails to gain consensus body approval, EPA believes approval of the method should be withdrawn
because of the  absence of ongoing consensus oversight.  Accordingly, a non-VCSB method will cease to
be qualified five years from the date of its original approval by EPA in the absence of VCSB approval.

       As described in the proposal, the highway diesel fuel rule announced the Agency's intention to
adopt a performance-based test method approach in the future, as well as our intention to continue
working with the industry to develop and improve sulfur test methods. We deem the performance-based
approach to sulfur test method approval to be a more robust mechanism for ensuring that the standards are
being met than simply establishing a designated test method.  Today's action adopts such a performance-
based test method approach for both highway and NRLM diesel fuel subject to the 15 ppm and 500 ppm
sulfur standards. In  addition, the current approach for measuring the sulfur content of diesel fuel subject
to the 500 ppm sulfur standard, i.e., using the designated sulfur test method or one of the alternative test
methods with correlation will remain applicable. We are not extending the performance-based approach
to Tier 2  gasoline sulfur in today's final rule because this parameter will be addressed as part of a later
rulemaking applying the approach to several parameters.
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       10.2.1.2EPA Should Provide a Mechanism for Refineries to Obtain a Diesel In-line Blending
               Waiver

What Commenters Said:

       API, ConocoPhillips, Marathon, and NPRA commented that in Section 80.581, EPA has
proposed requiring test results prior to shipment for diesel subject to the  15 ppm standards.  Currently,
there are refineries that in-line blend diesel to the distribution system just as they do with gasoline.  EPA
should provide a mechanism for these refineries to obtain a diesel in-line blending waiver through a
process similar to that for gasoline, which is outlined in 40 CFR 80.65.  This would prevent refineries in
this situation from having to build additional tankage to contain the diesel product while obtaining the test
results.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 21
       ConocoPhillips, OAR-2003-0012-0777 p. 5
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 16
       National Petrochemical & Refiners Association,  OAR-2003-0012-0814 p. 22-23

Our Response:

       We have determined that it is  appropriate to establish criteria for obtaining a waiver for in-line
blending.  As described in the preamble, the criteria will  ensure that the 15ppm standard will not be
compromised by the in-line blending system.  See section V.D of the preamble for more information.
       10.2.1.3EPA Should Support the Development of a Reliable Field Test

What Commenters Said:

       AOPL commented that pipelines need a reliable and durable field test, which has not yet been
developed. Pipelines need to be able to determine quickly and in a very low-tech manner, whether a
batch or tank is on spec or off spec. In the case of 15 ppm diesel fuel, the pipeline would not need to
know the exact sulfur level, only that the tested batch is below the maximum sulfur level allowed. AOPL
further stated that without this type of test, pipelines may need to halt deliveries and delay movements
until laboratory results can be obtained, which is a multi-day process.

       Letters:
       Association of Oil Pipelines, OAR-2003-0012-0609 p. 22-23

Our Response:

       The liability provisions applicable to parties downstream of the refinery may indeed necessitate
an independent evaluation of the sulfur content of diesel fuel that they hold or transport. However, this is
an issue that industry is best positioned to resolve, as it is specific to the particular needs of various
companies.  It is our understanding that this is first and foremost a highway program issue beginning in
2006. As such, whether a new sulfur field test method is developed, or whether some other procedures

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are developed to provide assurance that the applicable sulfur standards are being met, we believe that this
issue will be resolved well before the 15ppm standard for NRLM takes effect.
10.3   Compliance

       10.3.1  Special Fuel Provisions and Exemptions

       10.3.1.IFuel Used in Military Vehicles

What Commenters Said:

       DoD commented that we should reconsider our determination that JP-8/JP-5 falls within the
definition of diesel fuel under the existing fuel regulations. EPA has proposed to treat distillates used in
military applications in the same manner as they are treated under the recent highway diesel rule.
However, previously, in 1995, EPA had determined that the use of JP-8 in military vehicles was not a
violation of the then-existing fuel regulations.  DoD must use the exemptions allowed in 40 CFR 89.908
and 40 CFR 1068.25 to exempt tactical nonroad engines that would otherwise have to meet the Tier 4
emission standards, which solves the problem of being able to use the single battlefield fuel JP-8 when
deployed overseas. DoD has directed that rapid deployment land forces convert to use of JP-8 at U.S.
home bases as well to support the DoD requirement for a single battlefield fuel, which avoids the time,
cost, and maintenance problems associated with switching fuels. JP-8 had not been previously classified
in 1995 as a diesel fuel  on the basis of its physical characteristics and pattern of use (see letter from Mary
Smith, Director Field Operations and Support Division to Ms. Sherri Goodman, Deputy Under Secretary
of Defense (Environmental Security), dated May 1, 1995) and these same conditions still apply today.
Therefore, EPA should reconsider its determination that JP-8 and JP-5 fall within the definition of diesel
fuel and should reinstate the 1995 definition.

       Letters:
       Department of Defense, OAR-2003-0012-0617 p. 5-6

       Environmental  Defense commented that we should not provide any exemptions from the 15 ppm
standard for special fuels.

       Letters:
       Department of Defense, OAR-2003-0012-0617 p. 6-7
       Environmental  Defense, OAR-2003-0012-0821 p. 17

       DoD commented that the proposed rule may have an adverse impact on the quality and
availability of military fuels, especially the aviation fuels JP-5 and JP-8. Given the potential reduction in
refining capacity generally and in the number of refineries that produce military-specific fuels, some
military fuel requirements may be marginalized out of the market.  It is already difficult to obtain a
sufficient supply of military JP-5  fuel that meets the flash point requirement for shipboard safety and the
proposed rule may force some refiners to stop manufacturing this unique fuel, which would reduce
supply, increase cost, and adversely impact readiness.

       DoD also stated that increased hydroprocessing severity and other refinery process modifications

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necessary to meet the standard will impact chemical and physical characteristics in the current
specifications. DoD and the industry have experienced an increase in jet fuel thermal stability problems,
especially on the west coast. DoD is increasingly seeing a decline in jet fuel stability, which may be
exacerbated by the proposed rule.

       Letters:
       Department of Defense, OAR-2003-0012-0617 p. 2-3

       DoD commented that refiners currently blending more than 10 percent light cycle oil (LCO) into
their 500 ppm  diesel may shift some LCO into off-highway distillate fuels, such as marine and
locomotive fuels, which would adversely affect the quality of the fuels used by the military, such as the
Naval Distillate fuel (F-76). DoD has already experienced quality problems with LCO component
streams that were not adequately hydrotreated, causing a highly unstable finished product. EPA should
evaluate the impacts of the proposed diesel changes on kerosene distilled products and should develop
solutions to ensure the needed refining capacity for national security.

       Letters:
       Department of Defense, OAR-2003-0012-0617 p. 2-3

       Lastly, DoD stated that the proposed rule may adversely affect the pipeline system to the point
where it is unable to accommodate the transportation of military fuels.  DoD relies on pipeline shipments
as the most cost-effective and viable means of transporting its fuels. The reduced flexibility of the
distribution system, especially during the transition period from 500 ppm to 15 ppm sulfur diesel fuels,
may present a  problem with respect to the shipment of specialty fuels or segregated shipments of fuel
through pipelines that require  separate tankage, such as DoD fuels (F-76, JP-5, and JP-8), which are not
fungible. EPA should fully evaluate the impact of the proposed rule on the distribution system and
should work with the appropriate regulatory authorities to ensure that open pipelines access to all users is
maintained throughout the transition to ultra-low sulfur fuels.

       Letters:
       Department of Defense, OAR-2003-0012-0617 p. 3-4

Our Response:

       As discussed in section IV.A.l of the preamble to the final rule, the sulfur standards in today's
rule generally  cover all the diesel fuel that is intended for use in or used in NRLM applications that is not
already covered by the standards for highway diesel fuel. For the purposes of this preamble, this fuel is
defined primarily by the type of engine which it is used to power:  land-based nonroad, locomotive, and
marine diesel engines. Section IV.A.l also describes several types of petroleum distillate that are not
covered by the sulfur standards promulgated today, including jet fuel and heating oil, provided they are
not used in NRLM engines. The following paragraphs discuss several provisions and exemptions for
NRLM fuel that will apply in  special circumstances.

       We believe that it is inappropriate to adopt the approach suggested by DoD. First, military fuels
are  readily used for non-military applications.  We are aware of a number of cases of the misuse of
aviation turbine fuel in highway engines in the past. Hence, the potential for misuse of JP-8 or similar
fuels in nonroad equipment where no national security exemption or need exists. Second, finalizing the

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provisions as proposed would apply the NRLM fuel standards to military applications where it is possible
to achieve the environmental benefit without compromising national security needs.

       Under today's rule, NRLM diesel fuel used in military applications is treated in the same manner
as under the recent highway diesel rule. Refiners are not required to produce these fuels to the NRLM
standards. However, at the same time, their use is limited only to certain military applications. NRLM
diesel fuel is defined so that JP-5, JP-8, F76, and any other military fuel that is used or intended for use in
NRLM diesel engines or equipment is initially subject to all of the requirements applicable to NRLM
diesel fuel. However, today's rule also exempts these military fuels from the diesel fuel sulfur content
and other requirements in certain circumstances.  First, these fuels are exempt if they are used in tactical
military motor vehicles or nonroad engines, or equipment that have a national security exemption from
the vehicle or engine emissions standards. Due to national  security considerations, EPA's existing
regulations allow the military to request and receive national security exemptions (NSE) for their motor
vehicles and NRLM diesel engines and equipment from emissions regulations if the operational
requirements for such vehicles, engines, or equipment warrant such an exemption. This final rule does
not change these provisions.  Fuel used in these applications is exempt. Second, these fuels are also
exempt if they are used in tactical military vehicles, engines, or equipment that  are not covered by a
national security exemption but, for national security reasons(such as the need to be ready for immediate
deployment overseas), these vehicles, engines, and equipment need to be fueled on the same fuel  as
vehicles,  engines, or equipment with a national security exemption. Use of JP-5, JP-8, F76, or any other
fuel not meeting NRLM diesel fuel standards in a motor vehicle or NRLM diesel engine or equipment
other than the those described above is prohibited under today's rule.

       EPA and the Department of Defense have developed a process to address the tactical vehicles,
engines, and equipment covered by the diesel fuel exemption and are discussing whether changes to it
might be  appropriate.  Based on data provided by the Department of Defense to date in the context of
implementing a similar exemption provision in the highway program, EPA believes that providing an
exemption for military fuel used in tactical nonroad engines and equipment will not have any significant
environmental impact.

       DoD cited a 1995 letter from EPA which stated that there was insufficient reason to conclude that
JP-8 is commonly and commercially known as diesel fuel under the then applicable definition of motor
vehicle diesel fuel.  Since the time of this letter, EPA has become aware of a substantial number of cases
of the misuse of aviation turbine fuel in highway engines. The potential for misuse of JP-8 or similar
fuels in NRLM  equipment where no national security exemption exists would remain. To ensure that
NRLM equipment is properly fueled with low sulfur fuel, the definition of NRLM diesel fuel has been
written to encompass all diesel or other distillate fuels used or intended for use in NRLM engines, which
would include JP-8 and JP-5. Furthermore, the provisions in today's rule allow vehicles, engines, and
equipment to be fueled with military specification fuels that are exempt from the sulfur standards when
needed for national security.  We believe that this provides DoD with the needed flexibility to meet its
goals of keeping vehicles, engines, and equipment ready for quick deployment overseas.
       10.3.1.2Aviation Fuels

What Commenters Said:


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        The New York Department of Environmental Conservation commented that EPA should
promulgate aviation fuel sulfur standards.

        Letters:
        New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 8

Our Response:

        Sulfur standards for aviation fuel are outside the scope of today's final rule.  In addition, there are
procedural and practical reasons why EPA has not established a more stringent sulfur requirement for jet
fuel in the past. The procedural reason is that while the Clean Air Act requires EPA to determine the
aircraft emissions that endanger public health and welfare, EPA is not the regulatory setting Agency for
aircraft fuel. In fact, the Federal Aviation Administration (FAA), rather than EPA, has the authority to
prescribe standards for aircraft fuel to control or eliminate aircraft emissions (49 U.S.C. section 44714).
Furthermore, to meet the currently proposed emission standards or those standards expected to be adopted
in the near future, reductions in aircraft fuel sulfur content are not necessary. To control aircraft
emissions in the future, EPA plans to consult with FAA on such matters.

        The practical reason concerns the relatively low sulfur levels of jet fuel today. Currently, ASTM
limits the sulfur content of jet fuel to 0.3 percent, which is consistent with the test fuel specifications in
EPA and FAA regulations for aircraft engine emission standards (40 CFR, part 87 and 14 CFR, part 34
respectively). However, the in-use sulfur levels are actually significantly lower than the current standard.
According to the 1999 report issued by the Intergovernmental Panel on Climate Change (IPCC), entitled,
Aviation and the Global Atmosphere, the average sulfur content of jet fuel around the world likely ranges
from 0.04 to 0.06 mass percent.  Data obtained on jet fuel sulfur levels here in the U.S. shows that jet fuel
averages about 0.055 mass percent. When compared to the current sulfur levels of high sulfur diesel fuel
pool (~0.3 percent), jet fuel sulfur levels are almost an order-of-magnitude lower. Thus, sulfur control of
jet fuel would achieve only  a fraction of the sulfate reductions of controlling today's high sulfur distillate.
        10.3.1.3Labeling

What Commenters Said:

        The Department of Defense commented that the national security exemption at 40 CFR 89.908,
94.908 and 40 CFR 1068.225 should be modified to include a labeling requirement for national security
exempt engines. They stated that the national security exemptions for nonroad engines associated with
military combat do not have  labeling requirements, which may lead to confusion regarding the exempt
status of engines in service, and therefore EPA should add a provision with an appropriate labeling
requirement. DoD also recommended specific regulatory language that should be incorporated into the
proposed rule to address this issue.

        Letters:
        Department of Defense, OAR-2003-0012-0617 p. 6-7

Our Response:
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       We agree with DoD that adding labels to these sections is appropriate, and have incorporated the
suggested language.
       10.3.2  Technological or Logistical Considerations

       10.3.2.1Number of Fuel Grades and Contamination Issues

What Commenters Said:

       AOPL commented that the proposed nonroad rule will increase the number of fuel grades that
require separation in the distribution system, which will increase operational challenges for refiners and
inefficiencies in the market. The proposed rule creates a new set of refined product qualities and
necessitates new segregation and sequencing decisions for the refined petroleum distribution system. The
new rule will create distinct categories of distillate fuels and diesel, reaching as many as five in the mid-
2007 to mid-2010 time period.  The effect is to require additional segregations in product shipping and
distribution and the movement of smaller product batches. After the phase-in, the highway rule would
have required two products, highway and nonroad diesel/distillate heating oil.  However, the proposed
rule now requires segregation for four products, which will introduce operational challenges and
inefficiencies while providing no environmental benefit.  EPA  should add flexibility back into the rule by
eliminating limitations on fungibility that do not provide any environmental benefit. For example, the
need to separate dyed 500 ppm NRLM and the small refiner NRLM during the 2007 - 2010 time period is
unclear. In addition, pre-2011 engines may use 500 ppm nonroad fuel from small refiners as well as early
credit fungible NRLM 500 ppm fuel prior to mid-2010, but EPA's policy prevents the use of NRLM fuels
for these unchanged engines.

       Letters:
       New York Public Hearing, A-2001-28, IV-D-05 [AOPL p. 177]

       The Texas Commission on Environmental Quality and CHS commented that EPA should
evaluate enforcement issues as it relates to fuel contamination.  Delivery trucks that carry and discharge
all of the 500 ppm diesel, then refill with 15ppm, are most likely to experience some contamination. Any
requirement that truck tanks be "cleaned" is impractical, burdensome, and too costly. EPA should study
this issue and establish acceptable contamination and adulteration standards. Further, the Texas
Commission on Environmental Quality commented that EPA should clarify how it intends to ensure that
pipeline fungibility will not adversely affect sulfur content in nonroad diesel given that pipelines are
commonly shared with jet fuel or kerosene that have a maximum sulfur content of 3,000 ppm.

       Letters:
       CHS Inc., OAR-2003-0012-0785 p. 5
       Texas Commission on Environmental Quality, OAR-2003-0012-0716, 0717 p. 1

       The Associated General Contractors of America commented that EPA should allow off-spec
highway diesel fuel to be co-mingled with 500 ppm nonroad diesel for sale to the nonroad segment. This
approach would preserve efficiencies in the refined product transport and storage system, thereby helping
to keep costs down, while providing a superior fuel to the off-highway market at a reasonable cost.
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        Letters:
        Associated General Contractors of America, OAR-2003-0012-0791 p. 13-14

Our Response:

        EPA has significantly revised the provisions on downstream distribution from the proposal. The
designate-and-track provisions adopted in the final rule are designed to maximize the fungible distribution
of diesel fuel and distillates while ensuring high confidence in the ability of the fuel program to provide
fuel with the appropriate sulfur level. Under the designate and track provisions of the final rule,
refiners/importers must identify whether their diesel fuel is highway, NR, or LM and the applicable sulfur
level. The fuel marker will be  added at the terminal instead of at the refinery gate as proposed.  As a
result, highway and NRLM diesel fuels meeting the same sulfur specification may then be mixed, as
NRLM diesel fuel need not be  dyed at the refinery gate. With these changes from the proposal, the fuel
distribution system will be simplified, as there will not be a need to separate as many grades of fuel as
under the proposal. A list of all possible product segregations is shown in Chapter 5.5.1.2 of the RIA.
However,  in most areas of the country, we anticipate that only a subset of these fuels will be carried
separately.

        In regards to the comments on fuel contamination, we note that we expect to enforce the liability
scheme  of the NRLM diesel sulfur rule in the same manner that we have enforced similar liability
schemes in our prior fuels regulations. As in other fuels programs, we will attempt to identify the party
most responsible for causing the violation, recognizing that that party should primarily be liable for
penalties for the violation. Regulated parties are subject to prohibitions which are typical in EPA fuels
regulations,  such as prohibitions on selling or distributing fuel that does not comply with the applicable
standard, and causing others to commit prohibited acts. Liability will also arise under the NRLM diesel
rule for  prohibited acts specific to the diesel sulfur control program, such as introducing nonroad diesel
fuel not meeting the 15 ppm sulfur standard  into model year 2011  or later nonroad equipment.

        However, due to the need to prepare for compliance with the highway diesel program, we
anticipate that issues related to limiting sulfur contamination during the distribution of 15 ppm NR and
LM diesel fuel will be resolved well in advance of the 2010 implementation date for 15 ppm sulfur
standard for NR fuel. We expect that the mitigation strategies implemented for all sulfur contamination
issues associated with the highway diesel 15 ppm standard can be  extended to sulfur contamination issues
associated with the nonroad 15 ppm standard.  This will be true for all points in the distribution system,
including delivery trucks. We  are not aware of any additional issues that might be raised unique to
nonroad fuel. If anything we anticipate limiting contamination will become easier.  We expect that 15
ppm nonroad diesel fuel will be distributed in fungible batches with 15 ppm highway diesel fuel up to the
point when it leaves the terminal and nonroad diesel fuel must be dyed per IRS  requirements.  The
resulting larger batch sizes as a percentage of the total 15  ppm diesel throughput may make it somewhat
easier to limit sulfur contamination and could reduce losses to product downgrade during transportation
by pipeline.  We also expect that the projected absence of high-sulfur diesel fuel and heating oil in many
pipeline systems will lessen the opportunity  for sulfur contamination.  As a result, if anything the
opportunity for contamination  should decline with  the expansion of the 15 ppm pool to include NRLM in
addition to highway diesel fuel.

        Because of the extreme sulfur sensitivity of the expected engine emission control systems of Tier
4 compliant  nonroad diesel engines, it is imperative that the distribution system segregate nonroad diesel

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fuel subject to the 15 ppm sulfur standard from higher sulfur distillate products, such as 500 ppm diesel
fuel produced by small refiners or through the use of credits, heating oil, and jet fuel. If a fuel meeting
the ultra-low sulfur standards is mixed or contaminated with a higher sulfur fuel, it must be downgraded
to the higher sulfur product and new documentation (e.g., PTD, label) must be created to reflect the
downgrade. We do not believe that tank truck compartments will need to be cleaned before being used to
transport 15 ppm diesel fuel.  We did project that existing procedures to ensure that a tank  compartment
in completely drained would need to be observed prior to its use to transport 15 ppm diesel fuel. See
section 5.5. regarding limiting sulfur contamination during the distribution of diesel fuel subject to a 15
ppm sulfur standard.
       Finally, regarding the comment from the Associated General Contractors of America, we do
allow downgraded product to be commingled with 500 ppm fuel under the provisions of the final rule.
See section IV of the preamble and Chapter 5.5 of the RIA for more information on downstream
provisions.
       10.3.2.2An ti-Downgrading Provisions

What Commenters Said:

       A number of commenters stated that EPA should not implement the proposed downgrade
limitation  for nonroad diesel fuel. Section 80.527 of the proposed rule limits the volume of diesel fuel
that can be reclassified from the 15 ppm on-highway pool to nonroad, locomotive and marine. The rule
would force any 15 ppm downgrades greater than the 20 percent allowed under the highway diesel rule
out of the nonroad market. The only option for downgraded fuel in excess of this amount is to sell it for
stationary use such as heating oil. These downgrade limitations erode the flexibility of the logistical
network at a time when additional flexibility is necessary. Since the stationary source market for
downgraded fuel is small, EPA is effectively mandating the reprocessing of any low sulfur diesel
downgrades greater than 20 percent.

       AOPL noted that EPA should reconsider this provision since: 1) downgraded fuel in the off-road
market will not  affect demand for on-road low sulfur diesel, 2) there is no environmental benefit that
would result from this restriction, and 3) the market impacts of this restriction may prevent the smooth
transition to a lower sulfur content fuel.  AOPL also described why heating oil is generally an unsuitable
outlet for downgraded 15 ppm fuel and the various adverse effects that could occur to the distribution
system as a whole as a result of this provision. Similarly, API objected to this provision on the basis that
1) it significantly changes the stringency of the highway diesel regulation, 2) has no impact on highway
15 ppm volumes, 3) overly limits the spillover of highway diesel into nonroad diesel markets, and 4)
would force nonroad diesel terminal customers to pay highway diesel taxes. Exxon specifically
recommended that EPA: 1) remove the downgrade limitation or retain only highway low sulfur diesel as
the downgrade destination limitation, and 2) adopt the broadest possible interpretation of the "custody and
title holder" language so that ultra-low sulfur diesel's unique low sulfur properties, even if slightly
contaminated, can continue to meet a viable vehicle usage. The commenters provided additional
discussion on this  issue and recommended that EPA eliminate the provision.

       Letters:

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       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 12
       Association of Oil Pipelines, OAR-2003-0012-0609 p. 12-17
       Citgo Petroleum Corporation,  OAR-2003-0012-0707 p. 8
       Colonial Pipeline Company, OAR-2003-0012-0694 p. 3
       ConocoPhillips, OAR-2003-0012-0777 p. 3
       ExxonMobil, OAR-2003-0012-0616 p. 23
       Flint Hills Resources, OAR-2003-0012-0667 p. 6
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 8
       National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 7, 15-17
       Tesoro, OAR-2003-0012-0662 p. 7
       Williams Energy Partners, OAR-2003-0012-0626 p. 1-2
       Chicago Public Hearing, A-2001-28, IV-D-06 [AOPL p. 103-108]

Our Response:

       The designate and track provisions being finalized today will allow 500 ppm highway and 500
ppm NRLM to be tracked separately. This will enable the anti-downgrading requirements to only apply
to the downgrading of 15 ppm highway diesel fuel to 500 ppm highway fuel, as originally required in the
2007 highway final rule. The designate and track provisions also provide clarity on implementation of
the anti-downgrading provisions, such as who the responsible parties are, and specifically how
compliance can be calculated.  See section IV.D of the preamble to today's rule for a complete discussion
of the provisions of this program.
       10.3.2.3Timing (for Enforcement)

What Commenters Said:

       AOPL commented that EPA should reconsider the enforcement timing under the proposed rule.
Section 80.610 of the proposed rule lists acts that are prohibited as of June 1, 2007 and June 1, 2010,
depending on the provision.  However, under the provisions of Section 80.511, the per gallon standards of
section 80.510 apply on August 15, 2007 and September 1, 2010, respectively, at downstream locations
other than retail outlets or wholesale producer-consumer facilities. This mismatch could create the
possibility for a violation before a downstream party is subject to the rule.

       Letters:
       Association of Oil Pipelines, OAR-2003-0012-0609 p. 24
       New York Public Hearing, A-2001-28, IV-D-05 [AOPL p. 180]

       AOPL also commented that under section 80.527, the measurement of downgrade volumes
begins on June 1, 2007 under the proposed rule, while a downstream party such as a pipeline is not
subject to the requirements to segregate the different products until August 15, 2007. This would appear
to be an error in the drafting of the proposed rule. EPA has recognized the necessity to saturate the
transportation and distribution system with the new product before imposing the rule downstream by
codifying the latter downstream date, which the compliance section of the rule appears to undercut.
Imposing the  downgrade limitation during the critical transition period would be burdensome and has no
environmental benefit.

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       Letters:
       Association of Oil Pipelines, OAR-2003-0012-0609 p. 24
       New York Public Hearing, A-2001-28, IV-D-05 [AOPL p. 181]

       Williams Energy Partners and AOPL commented that there is a compliance and enforcement
issue associated with the calculation of the 20 percent annual limitation.  This calculation begins on June
1, 2006 and June 1, 2007, before the per gallon sulfur limitations apply to downstream parties.
Enforcement provisions under the rules should not apply to downstream parties until the date the rules
become applicable to them.

       Letters:
       Williams Energy Partners, OAR-2003-0012-0626 p. 3
       Chicago Public Hearing, A-2001-28, IV-D-06 [AOPL p. 107]

Our Response:

       Commenters have correctly identified an error in the proposal. For the final rule, we have shifted
the start date for compliance with the anti-downgrading provisions to October 1, 2006. This allows for
the blending-down of storage tanks in the distribution system at the start of the highway program as we
had originally intended.  In addition, the prohibited acts in §80.610 generally refer back to the provisions
that establish a standard or other requirement. It is not a violation of a prohibited act under §80.610 with
respect to such standards or requirements unless the person has not met the applicable standards or
requirements, and this  cannot occur until after the implementation of the standard or requirement.  For
example, downstream parties are not in violation of the standards in §80.511 until after the applicable
dates in §80.511, therefore there is no violation of a prohibited act in §80.610 based on these standards
until after the applicable  date in §80.511.
       10.3.2.4Diesel Fuel Treated as Blendstock (DTAB)

What Commenters Said:

       IFTOA commented that it supports EPA's proposal to allow off-spec 15 ppm diesel fuel to be
considered "diesel treated as blendstock".  Allowing for DTAB fuel to be blended with lower sulfur diesel
fuel to meet the nonroad or highway standard would provide essential flexibility for refiners and would
promote the availability of low-sulfur diesel fuel. This approach has worked very well as part of EPA's
reformulated gasoline program.

       Letters:
       Independent Fuel Terminal Operators Association, OAR-2003-0012-0671, 0672 p. 4-5

Our Response:

       We are finalizing provisions that allow for the suggested use of DTAB.  Under today's program,
a situation could arise for importers where fuel that was expected to comply with the 15 ppm NRLM
standard is found to be slightly higher in sulfur than the standard. Rather than require the importer to
account for and report such fuel as 500 ppm fuel, we are allowing that the importer to designate the non-

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complying fuel as blendstock - "diesel fuel treated as blendstock" or DTAB - rather than as NRLM
diesel fuel.  In its capacity as a refiner, the party can then blend this DTAB fuel with lower sulfur diesel
fuel, or other blendstocks, to cause the sulfur level of the combined product to meet the 15 ppm NRLM
sulfur standard prior to delivery to another entity. The same situation exists with respect to compliance
with the 15 ppm highway standard, however no provision was made in the 2007 highway final rule for
this. Thus, we are also finalizing the DTAB provisions in this final rule for application to  15 ppm
highway diesel fuel. More discussion on the DTAB provisions is located in section V.B.3 of the
preamble.
       10.3.3  Recordkeeping and Reporting Requirements

       10.3.3.1General Comments

What Commenters Said:

       API commented that it supports our proposed recordkeeping and reporting requirements. API
also commented that it applauds EPA's effort to define a compliance monitoring and reporting mechanism
that will allow for the fungible shipment and storage of undyed 500 ppm sulfur highway and nonroad
diesel fuel. Such a mechanism would reduce the impacts of this rule on the distribution system, and
consequently help address concerns about adequate deliverability of diesel fuel to local areas. EPA
should maintain the strong product transfer documentation and labeling requirements for different diesel
fuels that will be in the market from 2006 through 2014.

       ExxonMobil commented that the annual reporting requirements for highway and nonroad diesel
are inconsistent. The highway rule requires annual compliance reports by the end of February for the
preceding calendar year. The nonroad rule requires annual compliance reporting by the end of August for
the preceding June 1 through May 31 period. This inconsistency will unduly complicate reporting and
determination. Compliance reports would be more valuable if both the highway and nonroad reports
were consolidated and reported on a common time frame, particularly if highway and non-highway
baselines are going to be involved in the compliance scheme.

       Letters:
       ExxonMobil, OAR-2003-0012-0616 p. 24
       New York Public Hearing, A-2001-28, IV-D-05 [API p. 19]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [API p. 42]
       Chicago Public Hearing, A-2001-28, IV-D-06 [API p. 90]

Our Response:

       Today's program includes requirements similar to those that were in the NPRM. However we are
requiring that each custodian in the distribution chain must keep track of the fuels they receive and the
fuels they deliver, as part of the designate-and-track program discussed in the preamble. Records and
reports are required that permit the tracking of fuel, and allow ready enforcement of the various
restrictions under which fuel can be redesignated. While the designate  and track requirements are slightly
more stringent than requirements that are currently in place, feedback from parties in all segments of the
fuel distribution system has shown that these requirements are in line with information that is already kept

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as part of normal business practice. Therefore, only modest upgrades would be needed for most
recordkeeping procedures.

       We also concur that both highway and nonroad fuel compliance reports should be consolidated
and reported on a common time frame. We have taken steps in this final rule to harmonize compliance
periods and reporting timing for the two programs.
       10.3.3.2Product Transfer Documents (PTDs)

What Commenters Said:

       The Alaska Department of Environmental Conservation commented that EPA should simplify the
language of product transfer documents for Alaska-bound fuel. As with pump labels, product transfer
documents should reflect appropriate source use of fuel with different sulfur levels depending on the date.

       Letters:
       Alaska Department of Environmental Conservation, OAR-2003-0012-0607 p. 3

       FHR commented that the PTD statements specified in Section 80.590 should be revised for use
on Bills of Lading (BOLs). The required text should be simplified and shortened.  Most BOLs have
limited capability for printing notes and other text. The length of the notes specified in this section could
require the printing of a second sheet to the BOL. The notes should be shortened so that drivers and
others in the distribution chain are more apt to read and understand them.  The commenter also provided
additional discussion on this issue and recommended specific revisions to this section.

       Letters:
       Flint Hills Resources, OAR-2003-0012-0667 p. 7

       FHR commented that the PTD text for title transfer is unnecessary.  The proposed rule  requires
specific verbiage and information on a PTD whenever there is a change of custody or title, which is
beyond normal business needs.  Such information on a PTD at change of custody may be  necessary to
ensure that only complying product is delivered. However, this information is not needed for the change
of title PTD. When the change of title information is conveyed via EDI, the data is handled electronically
and even if a person views the data and recognizes noncomplying material, they are generally not in a
position to remove the product from commerce. EPA should remove the PTD requirements for "Change
of Title" since they serve no purpose and are burdensome.

       Letters:
       Flint Hills Resources, OAR-2003-0012-0667 p. 7-8

Our Response:

       The language required for the product transfer documents has been chosen on the basis of the
need to ensure  full compliance with the standards. We believe it would unduly complicate the
recordkeeping and reporting process to have multiple versions of product transfer documents such as the
Alaska DEC suggested, and that a simpler version of PTDs intended to keep Bills of Lading to  a single

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page would necessarily leave out information that we deem critical to the successful tracking of fuel
batches. In addition, while we recognize that the requirements may add an additional burden for some
parties in the fuel distribution system, PTD requirements for "changes of title" are necessary in the event
of a change of custody or title, in which the receiver of the fuel would like to redesignate the fuel, and are
also needed for EPA to track potential liability for standards violations.  Under our fuels regs, distributors
who don't have custody but do take title are potentially liable. Therefore, the product transfer document
language and requirements for "change of title" will be finalized as proposed.
       10.3.3.3Aromatics Reporting Requirements

What Commenters Said:

       Some commenters commented that the reporting of aromatics should not be required if the refiner
is complying with the cetane index requirement (or vice versa).  Under Section 80.510(a) and (b), EPA
requires compliance with a minimum cetane index of 40 or a maximum aromatic content of 35 volume
percent. However, Section 80.599 in the proposed rule would require batch reporting for those using the
baseline approach and (e)(5) would require reporting of the cetane and aromatics content of the fuel.  The
reporting requirement should be cetane or aromatics, not both.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p.  13
       ConocoPhillips, OAR-2003-0012-0777 p. 5
       ExxonMobil, OAR-2003-0012-0616 p. 15
       Flint Hills Resources, OAR-2003-0012-0667 p. 9
       Marathon Ashland,  OAR-2003-0012-0826, 0827 p. 9
       National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 23

Our Response:

       We agree that the batch reporting of cetane index or aromatics levels for off-highway diesel fuel
is not necessary. The regulations regarding a minimum cetane index of 40 or a maximum aromatics
content of 35 volume percent for highway diesel fuel do not include any batch reporting requirements.
We see no need to impose such batch reporting requirements on off-highway fuel at this time.  However,
we will continue to require that producers of off-highway diesel fuel keep records of the cetane index
and/or aromatics levels of each batch.
       10.3.4  Downstream Compliance Issues

       10.3.4.1 Down stream Marker Usage

What Commenters Said:

       We received comments from several stakeholders that we should allow for the downstream use of
a marker.  These commenters believed that we should revise the requirement for markers that would
distinguish heating oil and locomotive/marine diesel from other distillates, to allow for the marker to be

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added downstream of the truck rack, which would be similar to the current nonroad IRS dye
requirements. This would allow the introduction of the marker anywhere upstream of that point.  Even
though downstream injection may result in a greater capital investment by the industry, marker injection
at the end of the distribution system would reduce the impact on the system as well as concerns related to
aviation kerosene.  This approach would allow industry to determine the best solution for marker
injection and would minimize downstream issues. In addition, API added that using dye in nonroad
diesel at the refinery would limit refiners' flexibility with respect to the distribution of fuel batches.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 14-15
       Colonial Pipeline Company, OAR-2003-0012-0694 p. 5
       ExxonMobil, OAR-2003-0012-0616 p. 16
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 9-10
       New York Public Hearing, A-2001-28, IV-D-05 [API p.  23]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [API p. 42]
       Chicago Public Hearing, A-2001-28, IV-D-06 [API p. 90]

       FHR and NPRA commented that lacking visual evidence, the distribution system will be  required
to perform frequent testing, especially on aviation fuel which has strict standards prohibiting most any
additive in the fuel. Addition of the marker downstream of the terminal will minimize, if not eliminate,
potential contamination of aviation kerosene.

       Letters:
       Flint Hills Resources, OAR-2003-0012-0667 p. 6-7
       National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 23

Our Response:

       As part of the designate-and-track provisions adopted in the final rule, today's program will not
require that the marker be added until the fuel reaches the terminal, rather than at the refinery gate as we
proposed in the NPRM.  Further, the marker will now only be present when red dye is also present,
thereby mitigating the jet fuel contamination concern.  The cost of shifting the location of marker addition
to the terminal has been significantly minimized by structuring the final rule such that marker is no  longer
required in much of the Northeast and mid-Atlantic (i.e. the Northeast/Mid-Atlantic Area) as discussed in
section IV.D.  of the preamble.
       10.3.4.2Use of Static Dissipator Additives (SDAs)

What Commenters Said:

       A few commenters stated that EPA should allow for the downstream use of static dissipator
additives (SDAs), in a manner that minimizes the contribution to fuel sulfur content and the possibility of
electrostatic hazards. SDAs prevent the possibility of electrostatic ignition during tank truck loading. An
electrostatic charge accumulates in the fuel through the process of pumping, filtration, and movement
through the piping and this phenomenon cannot be completely eliminated through proper grounding and
bonding. Since electrostatic charging cannot be reasonably controlled and since the elimination of

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flammable vapors is impractical, SDAs are necessary to prevent charge accumulation by increasing the
conductivity of fuel to greater than or equal to 50 pS/m. These additives are particularly important in low
sulfur fuels since the base fuel conductivity is generally lower leading to electrostatic hazards that are 30
times higher as compared to standard higher sulfur fuels. EPA should allow for the downstream addition
of SDAs for several reasons. First, addition at the refinery is impractical because pipelines do not permit
SDA in fuels, and because pipeline adsorption, the loss in conductivity during transport, and temperature
extremes contribute to a higher level of uncertainty regarding the amount of SDA required. Second,
equipment is available to control the SDA addition rate more precisely downstream. Third, it is relatively
easy for terminal operators to measure SDA usage versus fuel volume to assure excessive quantities are
not used.  The controlled downstream use of SDA is possible without a re-measurement of sulfur since
the most likely sulfur contribution attributable to the terminal addition of SDA would be small, ranging
between 0.02 and 0.05 ppm.

        Letters:
        Sunoco, OAR-2003-0012-0509 p. 1-14
        Williams Energy Partners, OAR-2003-0012-0626 p. 3-4
        New York Public Hearing
                      A-2001-28, IV-D-05 [1 public citizen (CP Henry) p. 216-220; Octel-Starreon p.
                      199]

        API and Marathon commented that EPA should not require test results to confirm compliance
with the sulfur standard following the addition of SDAs. Since lowering the sulfur in diesel fuel reduces
its conductivity, the use of static dissipator additives (SDA), which have sulfur contents exceeding 15
ppm, is necessary.  Section 80.613(a)(l)(vi) of the proposed regulations provides that in order to establish
a defense to a presumptive violation, test results must be obtained subsequent to the blending of the
additive into the fuel. However, Section  80.521(b) provides that a diesel fuel additive may have a sulfur
content exceeding 15 ppm provided that, among other  things, the additive is used in a quantity less than 1
percent by volume. The requirement under Section 80.613(a)(l)(vi) is overly burdensome and
unnecessary.  Adequate enforcement of diesel sulfur content can be achieved through records that show
SDA use against fuel volume through the terminal. EPA has taken this approach in other circumstances
and it should be allowed under the proposed rule.

        Letters:
        American Petroleum Institute, OAR-2003-0012-0804-0808 p. 21-22
        Marathon Ashland, OAR-2003-0012-0826, 0827 p. 17

        AOPL and Williams Energy Partners commented that the dosage rate of SDAs is typically very
low and the overall impact on the final sulfur level of the diesel fuel is insignificant.  Given the minimal
impact, EPA should simplify the requirements for establishing a defense under Section 80.613(a)(l)(iv)
for the addition of SDA. Williams specifically added that the proposed rule is contradictory with regards
to the need to test for sulfur as a result of blending additives that contain sulfur in excess of 15 ppm and
that EPA should reconcile the language in Section VIII(C)(5) as compared to Section VIII(G)(c).  This
commenter recommended that EPA:  1) establish the operating philosophy provided in Section VIII(C)(5)
as the method by which compliance diesel fuel is maintained in the distribution system; 2) eliminate the
provisions for testing as an element of an affirmative defense; and 3) allow for documentation that the
additive was not blended at a concentration greater than the manufacturer's maximum treat rate as well as
a statement of the sulfur concentration on the PTD as sufficient documentation for compliance.  Williams

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also added that the act of blending additives should not compromise refiners' entitlement to the 2 ppm
adjustment factor.

        Letters:
        Association of Oil Pipelines, OAR-2003-0012-0609 p. 21
        Williams Energy Partners, OAR-2003-0012-0626 p. 4

        Environmental Defense commented that the use of any additives should not cause fuel to exceed
the 15 ppm standard. Environmental Defense also stated that it supports the liability provisions for
additive manufacturers and distributors, and parties that blend additives in diesel fuel.

        Letters:
        Environmental Defense, OAR-2003-0012-0821 p. 17
Our Response:

        Static dissipater (S-D) additives are necessary in certain batches of fuel that do not have adequate
static dissipating qualities to prevent a static discharge from occurring during the transfer of fuel into a
storage tank (which might cause an explosion). Therefore, it is essential that today's rule is structured in
such a way so as to not impede the use of S-D additives. The need for S-D additives in some fuel batches
meeting a 15 ppm sulfur specification was confirmed by a fleet operator that is currently using ultra low
sulfur diesel (ULSD) fuel.53  This party related that they had received batches of ULSD with a
conductivity ranging from 0.002 - 0.005 pS/m, whereas authoritative sources recommend a minimum
conductivity of >50 pS/m.54

        Feedback from registered S-D additives manufacturers has shown that there are no fully-effective
S-D additives available that have a sulfur content below 15 ppm. We were further informed that sulfur is
an essential component in S-D additives, and that it is currently unclear how to formulate a S-D additive
that would have a sulfur content below 15 ppm (and their reformulation to meet a 15 ppm sulfur cap will
likely be a lengthy undertaking). Finally, we were informed that these additives cannot be added at the
refinery due to issues associated with its transport by pipeline. Because of this input, we now recognize
that S-D additives are in a unique category with respect to the ability to comply with a 15 ppm sulfur cap.

        Today's rule includes special affirmative defense provisions to reduce the sulfur testing burden
associated with the use of S-D additives that have a sulfur content greater than 15 ppm due to the lack of
S-D additives meeting a 15 ppm sulfur specification, the unique difficulty  in reformulating them to meet a
15 ppm standard, and the fact that they are essential to the safety of the fuel distribution system.  We are
finalizing provisions for blenders of S-D additives similar to the approach  suggested by commenters.  The
provisions do not require testing of MVNRLM at the terminal after additization.  More detail about this
approach and the modifications  that we are finalizing can be found in section V.C.5 of the preamble.
        53 Phone conversation between Curtis Cummings, Fed-Ex Freight, and Jeff Herzog, EPA, April 13, 2004.

        54 This party added S-D additive to remedy the low conductivity of the fuel.

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       These provisions may only be used for S-D additives which have the potential to raise the sulfur
content of the finished fuel by no more than 0.050 ppm when used at their maximum recommended
treatment level. Based on the input from additive manufacturers noted above, this will allow the use of S-
D additives that are fully effective for this purpose. The use of S-D additives that might have a higher
contribution to the sulfur content of the finished fuel, therefore, is unnecessary.  Under no circumstances
may an additive blender cause the sulfur level of any  batch of finished fuel to exceed the 15 ppm sulfur
cap. Blenders of S-D additives must meet all other requirements for distributors of 15 ppm diesel fuel.
Regardless of the cause of a violation of the 15 ppm sulfur standard, any party that had custody of off-
specification fuel is potentially liable and responsible for their affirmative defense elements.

       We are also amending the highway diesel regulation so that the provisions finalized today
regarding the use of S-D additives with a sulfur content above 15 ppm in NRLM diesel fuel also apply  to
the use of such additives in highway diesel fuel subject to a 15 ppm sulfur standard.  The special
provisions for S-D additives finalized in today's rule  will ensure that the unique challenges regarding the
manufacture and use of such additives do not present a barrier to their continued use.

       Finally, in response to the comment that additives should not cause any fuel to exceed the
standard, we note that the additive provisions are designed to implement the requirement that any given
batch of additized fuel must still meet its applicable standard.  No parties in the fuel  distribution system
will be allowed to introduce an additive into a fuel that would cause the fuel to exceed its applicable
sulfur standard. The S-D provisions don't allow the additized product to have a sulfur content greater
than 15 ppm.
        10.3.4.3Testing and Sampling Methods

What Commenters Said:

        ConocoPhillips commented that EPA should recognize that testing and sampling methods have
inherent variability that must be recognized in downstream enforcement actions.  The adjustment for
downstream standards proposed by the agency for 15 ppm product, i.e. 2 ppm, does not fully recognize
the limitations of current or future sampling and testing systems under the context of liability provisions
set forth in the Agency's rules.  A testing tolerance or adjusted downstream standard of 5 to 7 ppm more
appropriately represents the degree of accuracy that can be expected in this area.  Absent this adjustment,
the refining industry will need to produce ultra-low sulfur diesel at sulfur levels one-third to one-half of
the standard to ensure compliance. Designing and operating to these stringent levels would be costly and
difficult and could increase the risk of non-compliance, thus having an adverse impact on the distribution
system.

        Letters:
        ConocoPhillips, OAR-2003-0012-0777 p. 5

Our Response:

        We are finalizing the two ppm adjustment in today's rule.  We believe that the reproducibility of
sulfur test methods will improve to two ppm (or even less) by the time the 15 ppm sulfur standard for
highway diesel fuel is implemented - which is four years before implementation date of the 15 ppm

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standard for NR diesel fuel. However, we do plan to reevaluate whether two ppm is the appropriate
allowance as test methods improve in the future.  Further discussion can be found in section V.D.2 of the
preamble.
       10.3.4.4Downstream Transition Schedule

What Commenters Said:

       ConocoPhillips commented that EPA should propose the same downstream transition schedule
for the step down to 500 ppm fuel as is used for the step down to 15 ppm fuel. The downstream transition
schedule should remain the same for both steps since the actual transition at terminals and retail facilities
to achieve the 15 ppm level will be as difficult as the first transition step to 500 ppm. Allowing a slightly
longer timeline will be beneficial to the terminals and retail outlets.

       Letters:
       ConocoPhillips, OAR-2003-0012-0777 p. 2

Our Response:

       To allow adequate time for tank turnover for downstream parties, we are finalizing that terminal
operators will be allowed until August 1, 2010, wholesale purchaser-consumer facilities (including bulk
plants) and retail outlets will be allowed until October 1, 2010, and all other downstream parties will be
allowed until December 1, 2012 for final compliance with the 500 ppm NRLM standards. Similarly, we
are finalizing a provision allowing all distributors up to and including terminal operators until August 1,
2014, wholesale purchaser-consumer facilities (including bulk plants) and retail outlets until October 1,
2014, and all other downstream parties until December 1, 2014 for final compliance with the 15ppm NR
sulfur standard. Given the long transition time from 2007 to 2010 for 500ppm fuel, and from  2010 to
2014 for 15ppm fuel, there should be ample opportunity for fuel distributors to transition their systems.
        10.3.5  Transmix Operator Compliance Issues

        10.3.5.1 Treatment of Transmix Processors

What Commenters Said:

        ExxonMobil, Kinder Morgan, API, and AOPL commented that transmix processors should be
treated differently from refiners. The volume of transmix is likely to increase as low sulfur diesel is
introduced.  Transmix processors must be free to process transmix or nonblendable interface volumes into
a marketable product without incurring the increased cost and lost production capability that would result
from having to return incremental transmix and interface volumes to refineries for processing. These
processors will be performing an important and growing service and their potential throughput should not
be limited.

        Letters:
        ExxonMobil, OAR-2003-0012-0616 p. 22

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       Kinder Morgan, OAR-2003-0012-0603 p. 1-2
       New York Public Hearing, A-2001-28, IV-D-05 [API p. 22]
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [API p. 45]
       Chicago Public Hearing, A-2001-28, IV-D-06 [API p. 89; AOPL p. 99]

       API and Marathon commented that if a transmix processor wants to bring in "blendstocks" to
blend in with the diesel produced from processing the transmix, they would be classified as a refiner and
subject to the associated restrictions. There should be some provision to allow this on a limited basis,
perhaps by applying a percentage limitation on production including blendstocks.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 20
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 12

       AOPL, ExxonMobil, Williams, and NPRA commented that the transmix processor is part of the
downstream distribution process and therefore, should not be treated as small refiners or subject to any
baseline volume  limitations. Pipelines do not have the ability to hold large amounts of transmix in
existing tankage  and will need fully functional transmix processors to properly handle and dispose of
transmix in order to avoid tank lock-outs and other distribution problems. EPA should revise its proposal
to allow transmix processors to sell its separated distillate into any market, provided the applicable
product specifications are met.  In this context, one commenter (NPRA) cites specifically to the volume
restrictions under Sections 80.522(a), 80.554(a), and 80.554(b).  [See related discussion under Issue 4.4.]

       Letters:
       Association of Oil Pipelines, OAR-2003-0012-0609 p. 21-22
       ExxonMobil, OAR-2003-0012-0616 p. 22
       National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 17-18
       Williams Energy Partners, OAR-2003-0012-0626 p. 2-3

       Flint Hills Resources commented that EPA should clarify that Section 80.513 only applies to the
transmix processing facility and not to all facilities of that refiner.

       Letters:
       Flint Hills Resources, OAR-2003-0012-0667 p. 8

       ConocoPhillips commented that EPA should modify the proposed provisions that apply to
transmix processors. In the proposed rule, Section 80.513 outlines some flexibility provisions for
transmix processors. Part (d) of this section creates some confusion since it appears to limit the flexibility
options only to volumes produced from previously certified diesel (PCD) and does not mention transmix
volumes  (gasoline/diesel mixtures), which may be a mixture of gasoline and other non-PCD distillate
such as jet or kerosene.   This differentiation should be removed or clarified to allow maximum flexibility
and continued  handling of common gasoline distillate mixtures resulting from transport needs.

       Letters:
       ConocoPhillips, OAR-2003-0012-0777 p. 5

       ConocoPhillips further commented that the current transmix blending guidance, contained in the

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question and answer document for the reformulated and conventional gasoline regulation, is old, needs to
be updated and is more restrictive than necessary. For example, the current guidance limits transmix
blending to terminals that historically blended transmix prior to 1994. Many terminals have seen
significant technology upgrades over the past 10 years and would be capable of blending transmix in a
way that was protective of product quality. There have also been changes in pipeline capacities, logistics,
etc. that may have impacted the logistics at a particular terminal. EPA should review and update
guidance for transmix blenders and should not limit the increased flexibility just to transmix processors.
The commenter noted that it would like to discuss a QA approach for transmix blending at terminal
locations.

        Letters:
        ConocoPhillips, OAR-2003-0012-0777 p. 6

        Some commenters stated that the small refiner baseline process and the 105 percent limitation
should not apply to facilities that process only transmix.  Under the proposed rule, transmix processors
can elect to be treated as small refiners and will be allowed to produce the same diesel fuels as small
refiners and it appears that the small refiner baseline process and the  105 percent limitation on baseline
volumes would also apply to transmix processors. The proposed requirement for transmix processors to
meet the 80/20 requirements for volumes that exceed 105 percent of a baseline volume should be
eliminated. Several studies have suggested that there will be increased volumes of transmix and
interfacial mix generated through the transportation systems to ensure the integrity of the low sulfur
product is protected. Since transmix volumes have the potential to increase significantly under both the
highway and nonroad diesel rules, the 105 percent limitation is unreasonable and would significantly
impact the ability of the distribution system to properly handle and dispose of transmix.

        Letters:
        American Petroleum Institute,  OAR-2003-0012-0804-0808 p. 20
        ConocoPhillips, OAR-2003-0012-0777 p. 5
        ExxonMobil, OAR-2003-0012-0616 p.  22
        Kinder Morgan, OAR-2003-0012-0603 p. 2
        Marathon Ashland, OAR-2003-0012-0826, 0827 p. 12
        Williams Energy Partners, OAR-2003-0012-0626 p. 2-3

Our Response:

        As discussed in section IV.B.3 of the preamble, we recognize the potential disproportionate
burden on transmix processors.  Today's final rule removes the restriction on the volume of highway or
NRLM diesel fuel they produce from transmix, by typical operational practices involving separation of
transmix.  However, we are limiting the flexibility to volumes that are reprocessed. Transmix processors
cannot produce diesel fuel by combining blendstocks and avoid compliance. The special provisions for
transmix processors only apply to the diesel fuel they produce by distillation or other refinery processes.
These provisions do not apply to diesel fuel produced by blending or to diesel fuel produced by facilities
other than the transmix processing facility. In addition, we are extending this flexibility to compliance
with the highway diesel sulfur program for the same reasons. Thus transmix processors may choose to
continue to produce all of their highway diesel fuel to the 500 ppm sulfur standard until 2010. They may
further choose to continue to produce all of their NRLM  as high sulfur fuel until June 1, 2010, all of their
NRLM to the 500 ppm standard until June  1, 2014, and all of their locomotive and marine diesel fuel to a

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500 ppm limit indefinitely.
       In regards to the comments about the 105% volume limitation, we have determined that this
proposed provision would have unduly impacted the ability of transmix processors to produce complying
fuel. We have therefore eliminated this limitation in the final rule.

       This rulemaking does not deal with the issue of blending transmix into gasoline. We will take the
comments on blending transmix into gasoline under advisement in our other actions.
       10.3.6  Other Compliance Issues

       10.3.6.1Credits

       10.3.6.1.1      Credit Generation

What Commenters Said:

       API, ExxonMobil, and Marathon commented that they generally support the proposed credit
generation and use provisions, but provide suggestions for improvement. The proposed start date for
generating early nonroad diesel credits is unnecessary.  By limiting refiners' ability to generate credits to
the period from June 1, 2009 to May 31, 2010, EPA would discourage the early introduction of 15 ppm
nonroad diesel.  Each refinery should have the option of deciding if ultra-low sulfur diesel production
above the mandated 80 percent for highway ultra-low sulfur diesel is credited toward the highway credit
program or the nonroad credits program, after June 1, 2009. API agreed that production that exceeds the
requirements of the highway program  TCO should not be allowed to generate credits for both the
highway and the nonroad programs and so a refiner or importer would need to specify such credits as
either highway or nonroad credits.

       Letters:
       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 17
       ExxonMobil, OAR-2003-0012-0616 p. 17
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 11

       Clean Air Task Force commented that EPA should not allow for additional refiner compliance
flexibility. Any alternative program that would give  additional flexibility to refiners should not be
considered since it would compromise the integrity and benefits of the nonroad rule. Providing additional
flexibility could also lead to shortages in the supply of 15 ppm nonroad diesel fuel.

       Letters:
       Chicago Public Hearing, A-2001-28, IV-D-06 [Clean Air Task Force p. 260]

       API and Marathon commented that we should maintain the provision that allows for the
generation of credits for the early production of 500 ppm or 15 ppm fuel prior to the compliance
deadlines.

       Letters:

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       American Petroleum Institute, OAR-2003-0012-0804-0808 p. 16
       Marathon Ashland, OAR-2003-0012-0826, 0827 p. 11
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [API p. 43]
Our Response:

       The credit provisions are designed to preserve the integrity and the air quality benefits of the
program. These provisions will provide implementation flexibility by facilitating a somewhat smoother
transition at the start of the program in 2007 and again in 2010 with the second step to 15 ppm sulfur.
Some refineries/import facilities may use the provision to comply early, others on time, and others a little
later.  Facilitating a smooth transition helps to ensure the environmental benefits of the program. In
addition, we believe that the credit provisions are incentives that will help to encourage early compliance
and they may also facilitate some of the environmental benefits of the program being achieved earlier
than otherwise required.  The requirements concerning sampling and testing, and the enforcement
provisions, ensure the integrity of the credit program.

       At the same time, in order to preserve the environmental benefits and integrity of the NRLM
program, any early credits must result from new actions taken in response to compliance with the NRLM
standards. Merely shifting designations from the 15 ppm highway fuel that refiners are producing in the
2007-2008 timeframe to  a 15 ppm NR designation in 2009 would not provide any additional
environmental benefits.  These "windfall" credits would undermine the intended environmental benefits
of the program, and  if sufficient in number could interfere with the intended production of 15 ppm NR
fuel in 2010 for the 2011 model year nonroad engines. Hence we are limiting the generation of 500 ppm
credits to diesel fuel produced after June 1, 2006, and for 15 ppm credits to diesel fuel credits produced
after June 1,2009.
        10.3.6.1.2      Credit for Biodiesel

What Commenters Said:

        The National Biodiesel Board commented that the use of biodiesel should be incorporated into
the credit program as another way to generate credits. Biodiesel's emissions benefits, lubricity
characteristics and positive health effects uniquely position it to help refiners comply with the proposed
rule. Use of biodiesel to generate credits would offer immediate benefits to air quality and would help
meet the stated goals of the proposed rule by increasing air quality, reducing sulfur content and
substantially benefit public health and welfare and the environment.  EPA should define eligible entities
broadly enough so as to allow the manufacture of biodiesel as an eligible generator of credits that could
be banked or traded under the program. The commenter also noted that they are willing to work with
EPA to further define equitable credit or reward opportunities for eligible low-sulfur diesel fuels
including biodiesel.

        Letters:
        National Biodiesel Board, OAR-2003-0012-0776 p. 2-3

Our Response:

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       The process of removing sulfur from diesel fuel typically has the undesirable side effect of also
reducing the fuel's inherent ability to lubricate fuel system components in diesel engines. This lubricity is
easily restored through the use of additives, and we anticipate a widespread need for such additives under
the proposed program. Biodiesel fuel is known to have excellent lubricity characteristics, and so will
benefit from this new additive market.  Whether biodiesel would be preferable to other available lubricity
additives in terms of cost, impacts on sulfur concentration, storage, and other issues, is a matter best left
to the market.  Biodiesel might also be one strategy refiners might use to meet the 15 ppm sulfur
standards early, due to biodiesel's inherently low sulfur levels. In such cases it would  simply be the
overall sulfur level of the blend, regardless of the concentration of biodiesel, which determined the
eligibility for and amount of sulfur credits.
        10.3.6.1.3     Credit Trading by PADD

What Commenters Said:

        Sinclair Oil Corporation commented that EPA should limit NRLM credit trading to the region or
PADD where the  refinery is located. A company owning a small refinery in PADD IV as well as large
refineries in other PADDs would, in many cases, find it most economical to generate NRLM diesel fuel
sulfur credits at their large facilities and use them to delay investment at their small PADD IV refinery.
In other words, the high cost of regulatory compliance with PADD IV refineries could lead to a
disproportionate use (or dumping) of sulfur credits in the Rocky Mountain region relative to other regions
of the country.  If this occurred, it would delay environmental and visibility benefits of low sulfur NRLM
diesel fuel in PADD IV and refiners (such as Sinclair) with most or all of their refining assets located in
PADD IV will be competitively disadvantaged relative to large refiners owning a refinery in PADD IV.
Therefore, EPA should limit credit generation and use to the PADD where the product is manufactured.

        Letters:
        Sinclair Oil Corporation, OAR-2003-0012-0704, 0829 p. 3-4

        API, BP,  ExxonMobil, and Marathon commented that credit trading should not be limited to the
region or PADD where the refinery is located.  Credit trading  should be national in scope.  In order for a
credit trading program to provide real world flexibility to refiners, there must be a sufficient volume of
credits traded on an annual basis to ensure that market equilibrium between supply and demand is
achieved.  The Highway Diesel rule's PADD restricted credit trading program fails to meet this objective
and is unlikely to  be effective in encouraging the creation and use of highway diesel credits for 500 ppm
sulfur diesel fuel.  Placing PADD restrictions on nonroad diesel credits would make this program even
more inflexible than the highway program, given the expected smaller volume of credits and the single
year timeframe for credit generation for high sulfur and 500 ppm NRLM credits. In addition, since there
will be a smaller volume of nonroad diesel credits, having a national scope to this program is unlikely to
adversely affect the supply of 15 ppm diesel.

        Letters:
        American Petroleum Institute, OAR-2003-0012-0804-0808 p. 16-17
        BP, OAR-2003-0012-0649 p. 4-5
        ExxonMobil, OAR-2003-0012-0616 p. 18
        Marathon Ashland, OAR-2003-0012-0826, 0827 p. 11

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        Sunoco and Valero commented that EPA should consider allowing for a broader trading program
since much of the national diesel market is based on fungible supply distribution between the PADD
regions. Trading should be allowed between PADDs.  Valero specifically noted that significant volumes
of highway diesel (over 50 percent in 2002), are produced and exported from PADD III into other regions
and that substantial flexibility in the diesel supply system will be lost if the excess credits generated in
PADD III are not available to other PADD regions, especially PADD I. Valero further recommended that
at a minimum, the transfer of credits between PADD I and PADD III should be allowed.

        Letters:
        Sunoco, OAR-2003-0012-0509 p. 2
        Valero Energy Corporation, OAR-2003-0012-0628 p. 2

        CHS commented that EPA should establish a procedure to allow refiners, especially small
refiners, to petition EPA for permission to sell credits outside their PADDs or CTAs. The limitation of
refiners from selling credits outside credit trading areas (CTA) may be detrimental to many small and
single refinery refiners. EPA should provide additional flexibility to encourage the national
desulfurization effort while protecting fuel supplies. Providing for additional flexibility in this context
would help small refiners manage their costs of compliance and remain economically viable.

        Letters:
        CHS Inc., OAR-2003-0012-0785 p. 3

        The National Oilheat Research Alliance (NORA) commented that EPA should limit the credit
trading program to PADDs II through V.  The cost of imposing a credit trading program and marking
system in PADD I is disproportionately high.  EIA data indicate that the ratio of heating fuels to off-road
fuels in this PADD is 3.57 to 1.0.  Thus, the number of gallons paying for the credit program is much
higher than the potential gallons using the program. EPA should not implement a marking program or
ABT program in any PADD where the  ratio of heating fuels to off-road fuels exceeds  1.0. In addition to
the cost savings, many small refiners are in  PADD I and serve limited local markets, thus the elimination
of PADD I from the ABT program would not have an adverse effect on the distribution system. NORA
provided additional discussion on the cost-related benefits to refiners and consumers of eliminating
PADD I from the trading program and cites additional benefits to the environment since the elimination
of the marker would encourage the use  of lower sulfur heating oil. NORA also noted that marking the
credit gallons could be a reasonable alternative and that they could support an alternative approach that
imposes the  cost of the flexibility on those who actually benefit from it. (See related discussion on cost
under Issue 6.4.4 and related discussion on encouraging the use  of lower sulfur heating oil under Issue
4.3.2).

        Letters:
        National Oilheat Research Alliance, OAR-2003-0012-0840 p. 3-5

Our Response:

        With any ABT program, there are always entities better positioned to take advantage of the
flexibility than others. However, the advantages of these programs in enabling early environmental
benefits at a lower cost typically offset  any  competitive disadvantages. In the highway rule we were
compelled to limit credit trading to certain regions of the country (CTAs) to ensure nationwide

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availability of 15 ppm fuel for the vehicles that would need it. This is not an issue for this final rule.
Therefore, we are finalizing the provisions to allow for nationwide credit trading in this rule.

       However, as discussed in the preamble, we are precluding the use of credits in the Northeast/Mid-
Atlantic Area and Alaska, along with restrictions on other program flexibilities as a reasonable restriction
to facilitate removing the large burden that heating oil marker provisions would impose on those areas.
Consequently, while credits can be generated in these areas and traded nationwide, they cannot be sold
for use in these areas.
        10.3.6.1.4     Caps on Credit Use

What Commenters Said:

        Murphy commented EPA should not impose a 25 percent restriction on a refinery's non-highway
baseline beginning June 1, 2008. The rationale for allowing small refiner relief may also apply to other
refineries that do not qualify as approved small refiners.  Further, Murphy stated that there is no economic
or environmental justification for limiting the ability of refiners to use the full flexibility provided by the
nonroad diesel credit trading system, and it would be unfair to do so.

        Letters:
        Murphy Oil, OAR-2003-0012-0212 p. 3

Our Response:

        Although we took comment on such restrictions, we did not include them in our proposed
regulations.  The information we have received in response to the proposal has not altered our original
views.  Therefore, we have elected not to finalize any such restrictions on the use of credits.
        10.3.6.2Labeling

What Commenters Said:

        API, ExxonMobil, and Marathon commented that they support the proposed pump labeling
provisions. It will be important for retailers to clearly indicate to the consumer what fuels are available
for highway and nonroad use. The pump labeling requirements are complex but necessary, and can be
adopted into weights and measures guidelines and laws.

        Letters:
        American Petroleum Institute, OAR-2003-0012-0804-0808 p. 21
        ExxonMobil, OAR-2003-0012-0616 p. 22
        Marathon Ashland, OAR-2003-0012-0826, 0827 p. 13

        The Alaska Department of Environmental Conservation commented that EPA should clarify the
labeling provisions. The label required under Section 80.590(a)(5)(v)(A) to identify fuel exceeding 500
ppm is confusing  because the label calls the fuel "nonroad...diesel fuel" but then states the fuel is "Not for

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use in nonroad engines." At this point in the regulatory timeline, it seems that high sulfur fuel can be
used in nonroad equipment only in emergencies, hardships, and small refiner exemptions.

       Letters:
       Alaska Department of Environmental Conservation, OAR-2003-0012-0607 p. 3

       The Alaska Department of Environmental Conservation also commented that the labeling
provisions outlined in the proposed rule will not work well in Alaska.  Labels should reflect that Alaskan
fuel is dye free and should describe 15 ppm fuel as appropriate for all diesel sources at any time.  Alaska
labels should describe appropriate sulfur levels in fuel by use and source type depending on the date. The
labels should be fuel specific and good for all 2007 and later dates. EPA's proposed labeling provisions
are problematic for Alaska since they are designed to change in 2007, 2010 and in 2014.

       Letters:
       Alaska Department of Environmental Conservation, OAR-2003-0012-0607 p. 3

Our Response:

       Fuel pump labeling provisions are critical  for the successful implementation of the engine
standards in the final  rule to help avoid misfueling. Given the complexity of the program finalized with
the multiple grades of fuel at different timeframes, the pump labels also tend to be complex in that they
must change with time. Nevertheless, we have made every attempt to make them as appropriate and
understandable as possible for their intended purpose.

       The pump labeling provisions finalized in today's rule should work well in Alaska. The label for
15 ppm highway diesel fuel states that it recommended for use in all diesel vehicles and engines.  We do
not believe that it is necessary for the pump label to indicate that the fuel is dye free since this is not
pertinent to the use restrictions associated with the engine and fuel standards in today's rule.  We believe
that it is necessary for the labels to change with the implementation dates of the various stages of the
engine and fuel sulfur standards in today's rule. It would be too confusing to the end-user to have
temporary-dependent restrictions contained on a single fuel label that would be good for 2007 and later
dates. We believe that this would contribute to increased instances of misfueling. We also allow for
changes to the labels as necessary to reflect Alaska's non-dye status as provided in part §69.52.
       10.3.6.3Reg Issues

       10.3.6.3.1      Prohibitions on Certain Sales of Heating Oil

What Commenters Said:

       NPRA commented that EPA should allow for the sale of heating oil for nonroad use at some
point following promulgation of the rule. The proposed prohibition regulations at Section 80.610(a)(4)
and (5) do not include a start date. For some period of time after promulgation, it should be legal to sell,
offer for sale, etc. heating oil for use in nonroad, locomotive or marine engines and locomotive and
marine diesel fuel for use in nonroad engines.
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        Letters:
        National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 24

Our Response:

        The omission of a start date in the proposal for the cited regulatory prohibitions was an error.
The final rule includes a start date.
        10.3.6.3.2      Regulatory Provisions Deemed Superfluous or Illegal

        FHR commented that section 80.610 (Cause another party to violate) is unnecessary.  This would
either be a duplication of a violation under other parts of the section or an unreasonable expectation that
those performing otherwise legal activities are somehow responsible for the actions of others.

        Letters:
        Flint Hills Resources, OAR-2003-0012-0667 p. 9

        FHR also commented that EPA does not have the authority to promulgate Section 80.612(a)(5)
on Parent Corporation.

        Letters:
        Flint Hills Resources, OAR-2003-0012-0667 p. 9

Our Response:

        It has always been the Agency's intention that parties in the fuel distribution system that cause
another party to violate a standard would be held liable for such actions. The proposed provision at
80.610(e) is not intended to be duplicative, but rather to clarify liability that may not be clear from other
regulatory provisions. The regulatory language in our proposal was in fact included in previous final
rules. See section V.H of the preamble for more discussion.

        Regarding Section 80.612(a)(5) on Parent Corporation, EPA does have authority to impose
vicarious or presumed liability, if we provide reasonable opportunity to rebut such presumptions.  Our
regulations contain appropriate affirmative defenses that a parent corporation may employ. The
regulations have been finalized as proposed.
        10.3.6.4Fuel Mixing Provisions

What Commenters Said:

        The Alaska Department of Environmental Conservation commented that it supports the proposed
fuel mixing provisions. The provisions in Section 69.52(c)(l) - (3) allow Alaska to mix vehicle and off-
road fuels if both meet sulfur/cetane/aromatic requirements for the on-road fuel. Most distributors prefer
not to segregate, which implies that 15 ppm sulfur diesel is likely to be the predominant fuel imported.
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       Letters:
       Alaska Department of Environmental Conservation, OAR-2003-0012-0607 p. 3

Our Response:

       We agree with Alaska's comments and as such, we will be finalizing this provision in today's
action.
       10.3.6. STest Movements and Early Distribution Will Be Critical to Successful Rule
               Implementation

What Commenters Said:

       AOPL commented that pipelines need experience moving the more sensitive products that will be
created as a result of the proposed nonroad rule before they can determine the specifications they will
require their shippers to meet. EPA should encourage refiners and importers to tender 15 ppm diesel for
test movements  on pipelines. Without this experience, the possibility of contamination and supply
disruptions at the time of rule implementation is high. Even though EPA offers early credit to refiners for
production of 15 ppm sulfur diesel to be used with specialized engines, most of the markets able to use 15
ppm sulfur diesel in specialized fleets are not pipeline accessible. EPA should develop a different
mechanism, perhaps a more flexible credit program, to encourage this necessary testing of the distribution
system to ensure a smooth transition in 2006 and 2007.

       Letters:
       Association of Oil Pipelines, OAR-2003-0012-0609 p. 23-24

Our Response:

       In the context of this final rule, pipelines will not need test movements of 15 ppm NRLM fuel
since they will have already had experience with 15 ppm highway diesel fuel.  Thus this issue is not
directly relevant for this final rule.
10.4   Other Refiner Issues

What Commenters Said:

       West Harlem Environmental action commented that it is important to ensure that the process of
reducing sulfur in diesels does not create an excuse to increase toxic emissions at oil refineries where
diesel is produced.

       Letters:
       New York Public Hearing, A-2001-28, IV-D-05 [W. Harlem Environmental Action p. 262]

Our Response:
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       The process of desulfurizing diesel fuel will impact refinery operations in a way that could impact
emissions (e.g. more process heaters).  However, refiners will need to take this into account in the design
of their desulfurization units such that they still comply with their applicable refinery emission limits.
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11.     ADMINISTRATIVE AND PROCEDURAL REQUIREMENTS (UMRAA, APA, PRA, etc.)

What We Proposed:

       The comments in this section correspond to Section IX of the NPRM, and therefore deal with
administrative and procedural rulemaking requirements.  Further, this section deals mainly with
comments surrounding EPA's Small Business Regulatory Enforcement Fairness Act (SBREFA) process,
as we did not receive comments on our other administrative and procedural requirements. A summary of
the comments received, as well as our responses to those comments are located below. Please note that
this section deals only with comments on the general SBREFA process.  Comments on specific aspects of
the provisions proposed for small engine/equipment manufacturers and small refiners/fuel marketers can
be found in chapters 9 and 4, respectively, of this Summary and Analysis document. For the full text of
comments summarized here, please refer to the public record for this rulemaking.


11.1   SBREFA

       11.1.1  SBREFA Process

What Commenters Said:

       Some small refiners commented that the SBREFA process in this rulemaking was very effective.
These refiners believe that the recommendations of the SBREFA panel outlined a fair and reasonable
approach.  Further, the ad-hoc coalition of small refiners commented that the SBREFA panel reviewing
the impact of nonroad diesel alternatives on small business refiners was well informed and comprehensive
in its approach. They also stated that "at this stage of fuel desulfurization regulation, the flexibilities that
might be available to small business are greatly limited by engine technology, constraints imposed by the
distribution system and issues of market supply and demand. In  spite of those severe limitations, small
refiners believe that the SBREFA panel recommendations outlined a fair and reasonable approach."

       Letters:
       Countrymark Cooperative, Inc., OAR-2003-0012-0602 p. 2
       New York Public Hearing, A-2001-28, IV-D-05 [Gary-Williams p. 66]
       Small Refiners Coalition, OAR-2003-0012-0754 p. 1-2

Our Response:

       We appreciate and agree with the comments provided by these small refiners.


       11.1.2  Regulatory Flexibility Act

What Commenters Said:

       The Small Business Administration's Office of Advocacy (SBA Office of Advocacy) commented
that EPA possesses regulatory discretion under the CAA to comply with the requirements of the

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Regulatory Flexibility Act. They cited Section 213(a)(3) and (a)(4) as authorizing EPA to regulate
nonroad diesel NOX and PM emissions respectively.  However, they stated, this is unlike (a)(3) which
directs that EPA "shall" promulgate regulations for NOX, (a)(4) states that EPA "may promulgate  ... such
regulations as the Administrator deems appropriate." Further, they added, in this context, EPA possesses
the statutory discretion to apply emissions standards that minimize negative economic impacts on small
businesses, and therefore, should adopt one of the less burdensome alternatives, options 5a or 5b, as
recommended by the one Panel member (SBA Office of Advocacy).

       SBA Office of Advocacy also commented that we should exclude smaller engines from further
regulation in order to comply with the Regulatory Flexibility Act. They believe that we did not
demonstrate that regulation of small engine classes is necessary, stating that the incremental benefits of
regulating engines below 75 hp do not justify the costs imposed on small businesses and that we have not
demonstrated that engines below 75 hp contribute significant amounts of PM emissions to the national
pollution inventory. SBA Office of Advocacy further stated that we indirectly provided PM emissions
reduction data for the various options for only a few of the 25 years the RIA covers. SBA Office of
Advocacy provided additional discussion on  this issue  (see attachments to their public comments),
including tables that compare the costs, cost savings, and emission reductions of the proposed rule and
recommends that EPA minimize small business impacts by adopting a final regulatory option that does
not include a requirement for PM aftertreatment on engines below 75 hp.

       SBA Office of Advocacy suggested that we address  significant alternatives which would have the
effect of minimizing the  regulatory burden on small entities.  They stated that during the SBREFA Panel
process two regulatory alternatives were identified that SBA Office of Advocacy believed would
significantly reduce small equipment manufacturer burdens - options 5a and 5b, both of which would
exempt engines below 75 hp from aftertreatment requirements.  SBA Office of Advocacy believes that
EPA should minimize small entity burdens by adopting either Option 5a or 5b. They further stated that
the information developed during the exhaustive SBAR Panel process supports the adoption of these
alternatives since the incremental benefits of requiring  aftertreatment for smaller engines do not justify
the large differences in cost, since EPA has not demonstrated the technical  feasibility of aftertreatment
technology for nonroad diesel engines below 75 hp, and since small entities will bear an unfair and
disproportionate share of the economic costs if standards are imposed on these smaller engines. SBA
Office of Advocacy believes that EPA should adopt either Option 5a or 5b  in order to minimize burdens
on small  entities pursuant to the RFA and the President's Executive Order 13272.

       Letters:
       U.S. Small Business Administration  Office of Advocacy,  OAR-2003-0012-0815 - 0818 p. 9-11

Our Response:

       In response to SBA Office of Advocacy's comments regarding the Regulatory Flexibility Act, we
believe that the standards which we are finalizing today are appropriate and that the regulatory
alternatives (or, transition provisions)  which  we are adopting will decrease  the burdens on small entities
consistent with the requirements of the Clean Air Act.  Further, the feedback that we have received from
small entities has shown  that these entities generally believe  that the transition provisions being finalized
(which provisions go largely unmentioned in the comment) provide adequate lead time for the standards,
and help to assure the reasonableness of the cost of the standards.
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       In response to SBA Office of Advocacy's comments regarding engines of 75 hp and lower, we
are not adopting standards based on performance of NOx aftertreatment technologies for engines under
75 hp.  The commenter raised two issues regarding the aftertreatment-based standards for PM for these
engines: whether the standards are feasible, and whether the emissions reductions attributable to those
standards are inappropriate in light of the costs to be incurred.  We are responding to these comments in
chapter 3 of this Summary and Analysis, and we  discuss the feasibility of the PM standards for these
engines in Chapter 4 of the RIA, in sections 4.1.4.3.2.1 and 4.1.5.3. Additionally, we address the issue of
the costs associated with this category of engines in section 5.3.2 of the Summary and Analysis of
Comments, as well as in preamble section VI. C.  We summarize some of these responses below.

       In sum, for the reasons stated in Chapter  4 of the RIA, we do not believe that there are any
significant issues presented regarding technical feasibility of the standard.  Nor have engine
manufacturers themselves raised any such claims. Regarding the commenter's assertion that the costs of
PM control for these engines is disproportionate to the PM emission reductions from these controls, see
response to comment 3.1.4.3 in the Summary and Analysis of Comments, and EPA's detailed response to
this issue presented in the proposal at sections 12.5.7, 12.5.8, 12.6.2.2.9, and 12.6.2.2.10 of draft RIA
chapter 12, where we conclude (and reiterate here) that not only are the costs of PM control for these
engines reasonable, but that the commenter's preferred alternative of no additional PM standards for these
engines is legally impermissible.  For unknown reasons, the  commenter did not address any of this
analysis in its comments. The costs presented by SBA Office of Advocacy also do not reflect any savings
that are expected to occur because of the engine ABT program, the equipment manufacturer transition
program (TPEM), or the 3 year program delay provided specifically to small volume engine companies,
as discussed in the preamble section III .C.

       While we have referenced the relevant analysis and responses to comment which support our
decision to  finalize the 2013 aftertreatment-based PM standards for engines in the 25-75 hp category
above, we present here a brief summary of the rationale for our decision. The 2013 PM standards for
engines in the 25-75 hp are clearly appropriate under the Clean Air Act, and, given the provisions of the
Act (Section 213(a)(4)) and the available information, for EPA to do anything other than finalize these
standards would be inappropriate. As discussed in the rulemaking  record, we have based these
conclusions on a number of factors, including but not limited to:

               diesel particulate matter from these engines  results in a number  of health and welfare
               concerns for the public (in particular for the 25-75  hp engines, which are generally used
               in smaller equipment where the operator is close to the engines' exhaust);

       •       the standards are clearly technically feasible in the 2013 time frame;

               EPA's detailed cost estimate and economic impact analysis indicates that the costs are
               reasonable, and does not show that any adverse impacts will occur for small (or other)
               businesses;

       •       the monetized benefits of control are far greater than the costs;

       •       as noted, the program includes a  number of flexibilities for small volume engine and
               equipment companies, including  an engine averaging, banking and trading program, three
               potential additional years of lead time for small volume engine companies and equipment

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               companies using those engines (which allows them to delay the 2013 PM standard until
               2016), technical and economic hardship provisions for equipment companies (including
               small business equipment companies), replacement engine provisions for small
               equipment companies, and a temporary program for equipment manufactures (TPEM)
               which would allow small equipment companies to delay the introduction of the 2013 Tier
               4 engines in some of their equipment for seven years (until 2020).

       The commenter also urged that there be no new PM standards for engines under 25 hp. These
comments were less focused (and raised no issues as to technical feasibility), but again essentially rested
on the commenter's belief that the costs of such controls made PM standards for them inappropriate.
Again, we disagree. See responses in draft RIA chapter 12 noted above. In addition, as discussed in
Chapter 4 of the RIA, specifically section 4.1.5, we believe that the Tier 4 standards are feasible and the
additional potential cost impact will not be as significant as some commenters may believe. A  summary
of the model year 2002 certification data for engines under 25hp is presented in Table 4. l-20n of this
section of the RIA.  The data are also shown in graphical form in Figure 4.1-20.  These data indicate that
some engine families already meet the Tier 4 PM standard (and the 2008 NMHC+NOx standard,
unchanged from Tier 2).  The current data indicate that approximately 28% of the engine families are
already at or below the Tier 4 PM standard, while meeting the 2008 NMHC+NOx standard.  These data
reflect a range of certification test cycles, and include both IDI and DI engines. Many of the engine
families are certified well below the Tier 4 standard while meeting the 2008 NMHC+NOx level, even
without availability of low sulfur (500 ppm) diesel fuel. Specifically,  15 percent of the engine  families
are more than 20 percent below the Tier 4 PM standard. An additional 15 percent of the engine families
already meeting 2008 NMHC+NOx standards will require no more than a 30 percent PM reduction to
meet the  2008 PM standards.

       We also disagree with some of the commenter's legal analysis. The Regulatory Flexibility Act,
of course, cannot override requirements of substantive law, in this case, section 213 (a) (4) of the  Clean
Air Act.  5 U.S.C. section 606. Section 213 (a) (4) requires EPA to promulgate standards for a number of
pollutants, including PM, which are "appropriate" considering costs, noise, safety, and energy factors
associated with available technology. Thus, although EPA has some discretion in applying this provision
(as the commenter points out), exercise of any such discretion cannot be arbitrary (Clean Air Act  section
307 (d) (9)), and cannot result in standards which are inappropriate, after considering the requisite
statutory factors. It is EPA's judgment not only that the standards for PM we are adopting for 75 hp
engines are appropriate, but that standards that are not based on use of aftertreatment would be
inappropriate within the meaning of section 213 (a) (4). Similarly, the Tier 4 PM standards for 0-25  hp
engines are appropriate, and failure to adopt Tier  4 standards for these engines would be inappropriate,
given these standards'  feasibility at reasonable cost.

       EPA also notes that we have taken into account the comments provided to us from small  entities
both during the SBREFA process and the public comment period, and we have also had discussions with
engine and equipment manufacturers throughout the rule's development process.  Accordingly, we
believe that the provisions being finalized today address the concerns of these manufacturers (especially
small business manufacturers) and will reduce the regulatory burden on small entities consistent with the
substantive requirements of the Clean Air Act. In this regard, we reemphasize that as an aspect of
providing adequate lead time, we have provided significant flexibilities to both engine makers and
equipment manufacturers.  It appears that the commenter did not take these flexibilities into account  in
making its comment. During the SBREFA process, some small business equipment manufacturers

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commented that they did not quite understand the provisions and/or that they were able to produce
equipment without using the flexibilities and still comply with the regulations.  We will be issuing a
Small Entity Compliance Guide following the promulgation of this rule, which will help to  clarify
questions and problems that may arise for small business engine and equipment manufacturers.
11.2   Other Administrative and Procedural Requirement Issues

       11.2.1  Clean Air Act

What Commenters Said:

       EMA believes that EPA failed to provide due process of law under the CAA by failing to provide
details or justification for many of its proposed requirements and programs within a reasonable
timeframe. EMA further stated that EPA failed to do this for many key aspects of the NPRM, such as the
alternate NTE provisions; and as a result, interested parties were prevented from commenting in a
meaningful way.  EMA cited CAA Section 307(d)(3); Ass'n of Nat'l Advertisers, Inc. v. F.T.C., 627 F.2d
1151, 1165-66 (D.C. Cir. 1979); Portland Cement Ass'n v. Ruckelshaus, 486 F.2d 375, 393 (D.C. Cir.
1973); and Global Van Lines v. ICC, 714 F.2d 1290 (5th Cir. 1983) as supporting documentation.

       EMA also commented that EPA must establish a rational connection between the facts and the
proposed requirements, and that our failure to do so will result in a rule that is arbitrary and capricious
and in violation of CAA Section 307(d)(9)(A). EMA believes that there are numerous aspects to the rule
that need to be deleted or revised, because they lack an adequate basis in fact or in the underlying data.
EMA referred to its  comments on specific sections of the proposed rule and adds that we must address
each of those issues  in order to provide a rational basis for the final rule. EMA also cited the following as
supporting documentation for this rationale: Motor Vehicle Manufacturers Ass'n v. State Farm Mutual
Automobile Ins. Co., 463 U.S. 29, 43 (1983) (citing Burlington Truck Lines, Inc. v. United States, 371
U.S. 156,  168 (1962)); Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 413-14 (1971);
Petroleum Communications, Inc. v. Federal Communications Commission, 22 F.3d 1164,  1172 (D.C. Cir.
1994); State Farm, supra, 463  U.S. at 43; and Central Arizona Water Conserv. Dist. v. EPA, 990 F.2d
1531, 1542 (9th Cir. 1993) (quoting State Farm, supra).

       Letters:
       Engine Manufacturers Association, OAR-2003-0012-0656,  0657 p. 107-109

Our Response:

       Although EPA agrees that the commenter has accurately summarized these general legal
principles, EPA disagrees that it provided inadequate notice for any  of the provisions of the final rule, and
further disagrees that any of the provisions lack rational support in the administrative record. With regard
to adequacy of notice, moreover, EPA notes that it spent many hours in pre- and post-proposal meetings
with this commenter, discussing essentially every point in its voluminous comments  (including the
alternative NTE, mentioned in this comment). EPA thus believes that it provided ample process. (EPA
also notes that it is not adopting the alternative NTE in the final rule, so disputes regarding this provision
are moot in any case.)
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       11.2.2  Public Hearings

What Commenters Said:

       The American, Kansas, and Tennessee Farm Bureaus commented that EPA did not take farming
concerns seriously, "evident by the lack of having a public hearing in a rural area."

       Letters:
       American Farm Bureau Federation, OAR-2003-0012-0608 p. 3
       Kansas Farm Bureau, OAR-2003-0012-0825 p. 2
       Tennessee Farm Bureau, OAR-2003-0012-0629 p. 2
       (others repeated a similar concern)

Our Response:

       The commenters are mistaken that EPA does not regard their concerns seriously (see, e.g., the
separate analysis of impacts on agricultural application markets and agricultural producers and consumers
found in Appendix C to chapter 10 of the RIA). While only one public hearing is held for the majority of
EPA rules, we held public hearings in New York, Chicago, and Los Angeles in order to provide an
opportunity for people in different regions of the country to provide oral comments. Moreover, the
commenters may incorrectly believe that oral testimony at hearings carries special significance in the
regulatory process. Many commenters availed themselves of the comment opportunities we afforded.
We received over 180,000 written comments from the entire range of interested stakeholders, including
farmers.  As evidenced by the rulemaking documents, we seriously reviewed and addressed all comments
of any significance.
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12.    OTHER ISSUES

What We Proposed:

       The items raised in the following comments were not specifically proposed in the NPRM, and
therefore have no general corresponding NPRM section.

12.1   Relationship to Other Mobile Source Sectors

       12.1.1  Highway Diesel Rule

What Commenters Said:

       API believes that the implementation of the highway diesel rule should have been timed to
coincide more appropriately with the actual need for this fuel by new aftertreatment equipment vehicles.
API commented that although many of the common-sense approaches EPA has proposed for the nonroad
rule should help to mitigate additional adverse market impacts, API is concerned about the highway
diesel rule and look forward to working with EPA and other stakeholders to achieve shared goal of a
smooth implementation.

       NRDC stated in their comments that the nonroad rule should not be used by EPA as a means to
weaken or slow the implementation schedule for the highway diesel rule.  NRDC also states that this issue
has been  resolved in the regulatory process, in the courts, and in the court of public opinion, and EPA
should move ahead with implementation of the rule. Further, NRDC and others (ALA, Wisconsin DNR)
commented that nothing in the nonroad diesel rule should weaken or undermine the highway rule or limit
the supply of diesel. The commenters believe that if the nonroad rule maintains a two-step approach for
the fuel sulfur standard, it is critical that EPA ensure an adequate supply of diesel fuel for both the
highway  and nonroad applications.

       The American Trucking Association commented that it will be a challenge to phase-in 15 ppm
highway  diesel fuel in 2006 followed by the reduction of sulfur in nonroad diesel fuel to 500 ppm and 15
ppm in 2007 and 2010,  respectively. The  commenter stated that during this transition, EPA should work
with U.S. Department of Energy to ensure that adequate supplies of both onroad and nonroad fuel are
available, affordable, and in compliance with all applicable standards. The American Trucking
Association also expressed  concern that 15 ppm on-road diesel fuel may become contaminated and
recommends that EPA take every effort to preserve the integrity of the on-road fuel supply.

       Refiners are currently engineering systems to reduce highway diesel to 15 ppm sulfur by the mid-
2006 deadline.  API believes that it will be an additional challenge for refiners to significantly lower the
sulfur level of nonroad diesel from as much as 5,000 ppm to 500 ppm only one year after this
comprehensive change in refining and distribution operations.

       Several commenters stated that the highway and nonroad fuel programs must be structured in
such a way that refiners or importers cannot circumvent the 15 ppm limit in the highway rule simply by
producing excess 500 ppm fuel and labeling it nonroad fuel, since the nonroad rule will require nonroad
diesel to contain 500 ppm as of mid-2007.

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        One commenter (NPRA) expressed its concern with the supply impacts associated with the
highway rule for a number of reasons. NPRA believes that the adverse effect of the highway rule on
overall fuel supplies could be exacerbated by the nonroad rule. The commenter offered four points
regarding this concern.  First, short-term supply disruptions often follow the introduction of new fuels
regulations.  Implementation of the 1993 highway diesel (500 ppm) sulfur regulation led to supply
disruptions for several months, and the CARB diesel program led to supply disruptions that lasted for
more than a year. Supply disruptions may persist because the large capital investments and the time
required to make significant refinery modifications do not permit quick increases in supply. Second, the
U.S. refining industry may be reluctant to invest in desulfurization capacity following a prolonged period
of low rates of return on capital investments, which compete with other investment needs such as NSR
settlements.  Third, average capacity utilization rates at U.S. refineries have increased over the past few
years, but the industry's ability to increase domestic production has been exceeded by the growing
demand for transportation fuels.  Finally, NPRA stated that a significant portion of the nonroad diesel
market uses low sulfur diesel today, which must continue to be produced to balance overall diesel demand
and since ultra-low sulfur diesel will have lower energy content, slightly more must be supplied to
provide the same transportation benefits as today's low sulfur diesel. Given these concerns, NPRA
believes that the nonroad diesel sulfur regulation should include practical implementation requirements to
mitigate any negative supply impacts.

        NPRA also commented that the highway rule should be changed to allow a larger (10 or 15
percent) Temporary Compliance Option credit deficit carryover from the 2006 to 2007 compliance
period, instead of the current cap of 5 percent. They believe that this would  allow for more production
and imports of low sulfur diesel in 2006, would contribute to additional  diesel supplies, and would
minimize short-term supply disruptions.

        Letters:
        American Trucking Association, OAR-2003-0012-0632 p. 3-4
        Clean Air Task Force, et. al, OAR-2003-0012-0508 p. 20
        Oregon Department of Environmental Quality, OAR-2003-0012-0779 p. 2
        Pennsylvania Department of Environmental Protection, OAR-2003-0012-0699 p. 4
        National Petrochemical & Refiners Association, OAR-2003-0012-0814 p. 6-7
        Natural Resources Defense Council, et. al.,  OAR-2003-0012-0661, 0665 p. 34
        Wisconsin Department of Natural Resources, OAR-2003-0012-0702, 0703 p. 3
        STAPPA/ALAPCO, OAR-2003-0012-0507 p. 22
        U.S. Public Interest Research Group, OAR-2003-0012-0780 p. 2
        New York Public Hearing
                      A-2001-28, IV-D-05 [ALA p. Ill; API p.  18-20;  ATA p. 168; NRDC p. 34]

Our Response:

        Comments on the highway diesel rule are beyond the scope of today's rulemaking; however, we
do not foresee implementation problems with the highway rule in relation to the promulgation of the
nonroad rule, and have kept a close eye on the highway implementation process to assure that it is not
jeopardized.  As explained in detail in chapter II.A of the preamble, the lead times we have adopted for
the engine standards are strongly influenced by the need to provide adequate time for the orderly
implementation of these technologies in on-highway engines followed by orderly migration of the
technologies to nonroad engines. In addition, the choice of a two-step fuel program for the nonroad rule

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is designed to assure that supplies of on-highway diesel fuel not be disrupted. See, e.g., 68 FR at 28463
and 28464 and draft RIA chapter 12.6.2.1.3.

       This rulemaking is not being used as an attempt to sabotage the highway rule, and we do not
believe that the provisions being finalized today will result in undermining the highway rule.  As stated in
the preamble, we are finalizing a two-step approach today; we will continue to work with members of the
fuel industry, and other stakeholders, to ensure adequate supplies of fuel and a smooth implementation
transition period.

       We have provided a response to comments regarding the phase-in of highway diesel fuel in 2006
and the subsequent reductions in nonroad diesel fuel sulfur in 2007 and 2010 in section 4 of this
Summary and Analysis of Comments.  Refiners have already begun investigating systems to reduce the
sulfur in highway diesel fuel and we believe that these technologies will proven out with sufficient time
for refiners to begin desulfurization projects for nonroad diesel fuel.  We believe that the designate and
track approach that we are finalizing in today's program will eliminate the opportunity for
refiners/importers to circumvent the highway diesel standards, minimize concerns about contamination,
and will help to preserve the integrity of all fuels in the distribution system.
12.2   Alternative Fuels/Technology

What We Proposed:

       The comments in this section do not necessarily correspond to the specific discussion of the
alternative program options evaluated in Section VI of the NPRM, but they do relate to alternative fuel-
based approaches to reducing emissions from diesel engines. A summary of the comments received, as
well as our response to those comments are located below. For the full text of comments summarized
here, please refer to the public record for this rulemaking.

What Commenters Said:

       The New York Department of Environmental Conservation believes that EPA should promote
programs to facilitate the electrification of those applications where connection to the electric grid is
feasible,  such as TRUs at loading docks, which could provide significant emissions reductions,
particularly in highly impacted local areas.

       We received several comments stating that EPA should consider promoting the use of biodiesel
or vegetable oils. Biodiesel, a renewable fuel made from agricultural resources including soybean oil and
other vegetable oils, animal fat, and recycled cooking oils, is a diesel fuel additive or substitute.
Commenters believe that this alternative fuel could complement the goals and intent of the  proposed low
sulfur diesel fuel standard. Further, Griffin Industries and the National Biodiesel Board state that
biodiesel's healthy emissions attributes, ultra low sulfate levels, and lubricity characteristics, could play a
role in helping meet the standards set out by the proposed rule.  B20 (20% biodiesel blended with 80%
conventional diesel fuel) is capable of reducing total hydrocarbons, CO, and PM by up to 30%, 20%, and
15%, respectively.  Even though NOX emissions could be slightly reduced or increased, increases in NOX
can be effectively eliminated with the use of normal mechanical remediation techniques.  Biodiesel is also
capable of improving the effectiveness and durability of new aftertreatment devices for NOX reduction.

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Biodiesel can also help meet national goals for the net reduction of atmospheric carbon. As a renewable
fuel derived from organic materials, biodiesel and blends of biodiesel reduce the net amount of carbon
dioxide in the biosphere.  Biodiesel production and use, in comparison to petroleum diesel, produces
78.5% less CO2 emissions. In addition, Biodiesel can be used immediately and seamlessly as a clean-
burning, no-sulfur alternative fuel or lubricity additive.  In addition, use of biodiesel contributes to a
longer equipment life, lower maintenance costs and less equipment downtime.  Griffin also adds that
extensive and credible engine emission test data incorporating biodiesel is readily available.

       California Earth Corps commented that there is currently a plentiful supply of vegetable oils,
which hopefully can ultimately be used as fuel in lieu of other conventional fuels such as diesel. And
further, that this approach would reduce particulates and avoid the landfilling of these products.

       Some commenters believe that we should evaluate incentives and opportunities for the increased
use of biodiesel. These commenters stated that the  use of biodiesel can be used to reduce sulfur levels
and also to help engine lubricity; and increased usage could help address environmental issues and would
also help grow the demand and use of agricultural crops, which could in turn help add to the economic
viability of farmers if the price farmers receive for their crop increases as a result of the proposal.  One
commenter (Griffin) stated that passage of a comprehensive energy bill in 2003 will aid implementation
of changes to diesel fuel used in off road applications through establishment of excise tax and blenders
credits for biodiesel and that these economic considerations will allow markets for biodiesel to be more
clearly defined economically and will lead to market size expansion.  This commenter adds that the use of
biodiesel will reduce  our dependence on foreign oil and is the first and only alternative fuel to have
successfully completed Tier 1  and 2 health effects testing.

       The Oregon Wheat Growers League believes that the proposed rule is an excellent opportunity
for EPA to examine the use of alternative fuels such as bio-fuels and bio-lubricants. These fuels are
biodegradable and environmentally friendly. They also believe that, in the context of the proposed rule,
the regulatory process is flawed since EPA failed to evaluate  such a possibility.

       Letters:
       American Farm Bureau, OAR-2003-0012-0608 p. 3
       Griffin Industries, OAR-2003-0012-0119 p. 1
       Illinois Farm Bureau, OAR-2003-0012-0673 p. 2
       Kansas Farm Bureau,  OAR-2003-0012-0825 p. 2
       Michigan Farm Bureau, OAR-2003-0012-0625 p. 2
       National Association of Wheat Growers, et. al, OAR-2003-0012-0752 p. 2
       National Biodiesel Board, OAR-2003-0012-0776 p. 2
       Nebraska Farm Bureau, OAR-2003-0012-0514 p. 2
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 8
       Oregon Wheat Growers League, OAR-2003-0012-0593 p. 2
       Tennessee Farm Bureau, OAR-2003-0012-0629 p. 2
       Los Angeles  Public Hearing, A-2001-28, IV-D-07 [CEC p. 208]

Our Response:

       There are a variety of efforts underway to promote the use of alternative technologies such as
those mentioned. In the context of today's action setting new standards for nonroad diesel engines and

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off-highway diesel sulfur, however, alternative emission reduction strategies such as biodiesel, bio-based
lubricants, or electric vehicles would be unlikely to enable the widespread use of the technologies
required to meet the new standards. Even so, we recognize that use biodiesel might mitigate  some of the
lubricity concerns associated with ultra-low sulfur diesel fuel. Other potential benefits of biodiesel, such
as reductions in emissions of certain pollutants or reductions in fossil fuel consumption, may be a factor
in its use in specific circumstances.
12.3   Harmonization

What Commenters Said:

       Many commenters believed that global alignment of nonroad emission standards would avoid
unnecessary complexity and redundancy and would provide the most cost-effective emission reductions.
They believe that EPA should recognize the international nature of the nonroad engine industry and
should work with the European Union and Japan to facilitate the implementation of compatible nonroad
standards; and stated that harmonization is not only the most cost-effective and efficient emissions
reduction strategy, but it enables manufacturers to apply emissions reduction technologies across a wide
range of product configurations, ensuring more efficient emissions reductions. These commenters all
expressed the concern that if the U.S. emission standards are not aligned with other major nations,
manufacturers may be forced to duplicate the development of engines to marginally different emission
standards and test cycles.

       MECA commented that EPA should harmonize the standards if possible, but should ensure that
the emissions are based on the CAA mandate that those standards achieve the greatest possible emission
reductions based on technological feasibility.

       CNH Global added that EPA's Tier 4 regulation  should be aligned with the European
Commission Stage 3B regulation, since  this  is  an essential requirement for achieving regulatory
harmonization with  Japan, Latin America, China, and India. Another commenter (AEM) noted that it is
important that other regulations that will impact emission reductions such as the European Noise
Directive, which is in place now and will become more stringent in a couple years, be taken into
consideration. AEM provided additional discussion on this issue including a list of the following major
areas of the proposed rule that will require alignment: the cutpoint of 75  hp (as opposed to 100 hp); the
lack of an EU NOX requirement or regulations  for engines below 25 hp; the inconsistency between the
Tier 2/3 EU PM limit in 2007 and the U.S. PM limit in 2008 for engines between 25 and 50 hp; EPA's
reliance on compliance flexibility provisions, which are not recognized options in other regions of the
world;  emission testing procedures; and the introduction date for low sulfur diesel for the nonroad market.
Ingersoll-Rand noted that this issue is particularly important in the context of the proposed rule, given the
global nature of the  nonroad rule  and includes  a list of specific differences that should be resolved
between Tier 4 and EC's recent proposal.

       CNH noted  that provisions  such as ABT, the 80% flexibility, phase-ins, and early introduction
incentives make alignment very difficult. One of the main problems, they state, is a lack of understanding
outside the U.S. of the proposed 25  percent and 50 percent NOX after-treatment phase-in.  They stated that
EPA should clarify the averaging that is allowed by stating its equivalent NOX level.
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       EMA also added that in Europe, amendments to NRMM Directive 97/68/EC establish participate
trap forcing standards only for engines over 37 kW. They state that if the disparity remains between EPA
and EC regulation, engine and equipment manufacturers would have to design and introduce PM traps for
a very limited market.  EMA believes that EPA should use the technology review to harmonize standards
for these smaller nonroad diesel engines so that engine and equipment manufacturers can focus their
efforts on developing cost-effective emission control solutions and benefit from using the revenues and
cost-spreading opportunities afforded by a worldwide market.

       AEM believes that the lack of alignment between U.S. standards for nonroad equipment and
those of other countries may have an adverse effect on the used equipment market. They add that U.S.
nonroad machines equipped with advanced catalyst controls may find their way to Mexico and other
countries that may not have low sulfur content diesel fuel, and these engines will have performance issues
and additional warranty liability for the OEM if the emission control systems are irreversibly damaged by
the prolonged use of high sulfur fuel.  They suggest that EPA clarify what measures will be taken to
evaluate and control the numbers of these machines returning into the U.S. used equipment market.
Furthermore, the lack of alignment will discount the value of used equipment, since there will be fewer
outlets for the sale of these used machines outside of the U.S.

       The  Clean Air Council stated that, in the future, EPA should consider following the European
Union's lead in calling for the use of sulfur-free diesel fuel in nonroad vehicles.

       Lastly, CEMA-CECE believes that EPA should provide an expert to help the EU review the
proposal in detail, clarify portions of the rule that may be unclear, and resolve any other outstanding
issues.

       Letters:
       American Road and Transportation Builders Association, OAR-2003-0012-0633 p. 2
       American Trucking Association, OAR-2003-0012-0632 p. 6
       Association of Equipment Manufacturers, OAR-2003-0012-0669, 0670 p. 6-7
       CEMA-CECE, OAR-2003-0012-0598 p. 3-4
       CNH Global, OAR-2003-0012-0819 p. 6
       Caterpillar, Inc.,  OAR-2003-0012-0812 p.  2
       Clean Air Council, OAR-2003-0012-0613  p. 3
       Cummins, Inc., OAR-2003-0012-0650 p. 8
       Engine Manufacturers Association, OAR-2003-0012-0656, 0657 p. 25
       Ingersoll-Rand, OAR-2003-0012-0504 p. 7, 13
       Komatsu, OAR-2003-0012-0455 -  0457 p. 4-5
       Kubota, OAR-2003-0012-0620 p. 1-2
       National Mining Association, OAR-2003-0012-0510 p. 2
       Western Business Roundtable, OAR-2003-0012-0636 p. 4-5
       New York Public Hearing
                     A-2001-28, IV-D-05 [Caterpillar p. 76; Deere p. 52; DTP p.  161; EMA p. 102;
                     IRp. 227]
       Los Angeles Public Hearing
                     A-2001-28, IV-D-07 [Cummins p. 35; EMA p. 155]
       Chicago Public Hearing
                     A-2001-28, IV-D-06 [AEM p. 225; Caterpillar p. 60; CNH p. 65; EMA p. 31;

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                      Euromotp. 231]

Our Response:

       We agree that international harmonization of emissions limits and test procedures leads to an
opportunity for a more efficient design process, and that the lower costs and other efficiencies that could
result from such a process are relevant in assessing both standard-setting and lead time under section 213.
Nonetheless, the critical issues remain determining the greatest emissions reductions feasible and the
appropriateness of standards considering technology availability and other factors. See CAA section 213
(a) (3) and (4).  We have, however, worked to effectively align emission limit values in the three major
markets to which commenters have expressed the most interest. See preamble section II.A.8. We have
initiated and continue to maintain a direct dialogue with government and industry representatives in
Europe and Japan. Both Japan and Europe have Tier 3 / Stage III standards that closely match EPA's
Tier 3 program.

       The concerns raised by commenters regarding long-term standards focus on standards for the
smallest of nonroad diesel engines (under 37 kW) and the largest nonroad diesel engines (over 560 kW).
In addition, commenters expressed a desire to have long-term PM and NOx emissions aligned. Both
Japan and Europe have deferred action on the long-term standards for nonroad diesel NOx emissions in
the under 37 kW range; however, Europe has set long-term standards for particulate matter above 37 kW
which match EPA's approach. Both Europe and Japan have articulated a strong desire to address the need
for stringent long-term emissions standards.55 56  Long-term emission standards in the 56 to 560 kW
power range in Europe and the United States are completely aligned for NOx and PM.  This addresses
many of the concerns raised by commenters regarding European Union (EU) / EPA alignment.  The
GRPE NRMM working group continues to provide an adequate forum for industry and government
entities to share technical concerns and regulatory  information related to testing challenges and
technology.

       We understand the commenters' concerns  regarding the impact of global alignment on the cost-
effectiveness of design changes.  We have worked with other governments to achieve alignment. There
remain additional future opportunities for complete alignment of standards.  One commenter, the
Association of Equipment Manufacturers (AEM) broached concerns related to European Noise
regulations in the context of emission regulation alignment. Given the alignment achieved with the
European Union, we  suspect the technical challenges that may exist in Europe will be faced universally
by manufacturers that choose to participate in that market. Given the move to long-term, near-zero
emissions standards,  many of the challenges that existed with older technology may be lessened with
effective implementation  of the control strategies needed to meet these standards. We do not expect our
rulemaking to adversely impact the design process manufacturers will use to  meet the noise regulations in
Europe.

       To provide clarity for all manufacturers  on the alternative NOx standard to which they may
certify during the phase-in years, we describe those alternative standards in the preamble  section
         Future Policy for Motor Vehicle Emission Reduction (Seventh Report); July 2003; page 5 and Future Policy for Motor Vehicle
Emission Reduction (Sixth Report); June 2003; Appendix; page 33

        56European Directive 97/68/EC and European Directive 2004/26/EC

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III.A.2.b, and have specifically defined them in § 1039.102 (e).

       Lastly, with respect to equipment exported for use in markets which lack the appropriate fuel for
the emissions control strategies expected to be employed for Tier 4, we will continue to monitor this
issue. If we determine that such exported engines are being reimported with degraded emission controls,
we will take appropriate steps, such as requiring engines exported to such markets to have their U.S.
certification label removed prior to export to prevent the potential for those engines, once tampered with,
to be imported at a later date into the United  States. The extended misfueling that could result from an
engine not being properly fueled is comparable to tampering with the emissions control systems for that
certified product.57
12.4   Other Programs and Regulations

       12.4.1  Regulations

What Commenters Said:

       The New York DEC believes that EPA should revisit Category 3 Marine regulations, and set
tighter standards for both the emissions standards and fuel sulfur.  Further, they also state that EPA should
promulgate aircraft exhaust emissions standards as well.

       Letters:
       New York Department of Environmental Conservation, OAR-2003-0012-0786 p. 8

Our Response:

       We have committed to a 2007 rulemaking schedule to take action on the next round of emissions
standards for Category 3 Marine applications. We are also investigating Sulfur Emission Control Areas
(SECAs) for coasts.

       In regards to aircraft standards, we note that promulgating aircraft exhaust emissions standards is
beyond the scope of this rulemaking. However, there currently are proposed emission standards for
aircraft, and EPA plans to continue to evaluate controlling aircraft emissions in the future.


       12.4.2  Mitigation Fee Program

What Commenters Said:

       SCAQMD suggested that EPA consider implementation of a mitigation fee program in the
rulemaking. They state that this concept has already been incorporated in the 2003 AQMP as a control
measure for EPA to consider implementing.  We could develop such an option where fees would be paid
into a fund in lieu of a more stringent standard or a more accelerated compliance schedule if such
       "§1068.101 (b)(l)

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standard or compliance schedule are deemed impossible.  The revenues would be used by local districts to
implement emission reduction projects and achieve equivalent reductions.

        Letters:
        South Coast Air Quality Management District, OAR-2003-0012-0623 p. 3, 6-7

Our Response:

        The recommendation suggested by the commenter is outside the scope of this rulemaking.  EPA
would also note that it would raise serious legal issues concerning standard setting under section 213 of
the Act and use of funds under the miscellaneous Receipts Act.
12.5   Miscellaneous

       12.5.1  Use of Shore Power

What Commenters Said:

       California Earth Corps commented that we should also consider promoting and facilitating the
use of shore power by ships to reduce emissions in the port areas.

       Letters:
       Los Angeles Public Hearing, A-2001-28, IV-D-07 [CEC p. 208]

Our Response:

       Under section 213 the Clean Air Act, EPA's authority is limited to setting emission standards for
new nonroad engines and vehicles and related compliance requirements.  However, several port areas,
including those in Southern California, are exploring the feasibility of providing infrastructure to permit
ships to use shore-side power while they are in port.  The experience of these ports will be very valuable
in helping other ports evaluate this option for their marine emission reduction plans. EPA will continue
to follow these developments.


       12.5.2  ARTBA Petition

What Commenters Said:

       ARTBA commented that EPA should act on their petition that applies to the provisions for
nonroad vehicles under Section 209(e) of the CAA. ARTBA filed a petition with EPA on July 12, 2002
asking  EPA to amend its rules implementing the preemption provisions of the CAA, Section 209(e),
applicable to nonroad vehicles.  This petition requested that EPA amend 40 CFR 85.1603 and the
interpretative rule published at 40 CFR Part 89, Appendix A to clarify that Section 209(e) preempts state
and local emission control requirements that impose in-use and operational controls or fleetwide
purchase, sale, or use standards on nonroad vehicles. They add that with the implementation  of a new
nationwide standard, it should be made clear that state and local standards are not permissible.

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       Letters:
       American Road and Transportation Builders Association, OAR-2003-0012-0633 p. 2

Our Response:

       We are still reviewing the issues raised in the ARTBA petition. These issues are not related to
the specific regulatory changes that are the subject of this rulemaking and we have not examined these
issues in the context of this action.
       12.5.3  Involvement of a Neutral Party to Provide an Objective Evaluation of the Rule's
               Impact

What Commenters Said:

       The National Mining Association commented that EPA should facilitate the involvement of a
neutral party that could identify gaps in research and provide an objective evaluation of the rule's impact
to industry. NMA noted that the National Institute of Occupational Safety and Health (NIOSH) has been
the neutral party involved in the MSHA underground diesel rule, and has conducted the testing and
evaluation of systems including costs and the cause and effects of emission controls on engine
maintenance, efficiency and daily use in actual mining conditions. NMA stated that it believes that we
should identify a neutral  group that can function in a similar role as NIOSH has with the MSHA
underground diesel rule.

       Letters:
       National Mining Association, OAR-2003-0012-0510 p. 2

Our Response:

       We appreciate the commenter's concern, but this issue is beyond the scope of this rulemaking.


       12.5.4  End-user Requirements

What Commenters Said:

       ExxonMobil supports the proposed end-user requirements specified in the preamble.

       Letters:
       ExxonMobil, OAR-2003-0012-0616 p. 23

Our Response:

       We agree that it is important to have requirements for end-user to ensure proper implementation
of the fuel controls of today's program.
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References
2.       David W. Montgomery, et. al., Charles River Associates and Raymond Orry, et. al., Baker and O'Brien, "An Assessment
        of the Potential Impacts of Proposed Environmental Regulations on U.S. Supply of Diesel Fuel," Prepared for API, March
        2000.

3.       Energy Information Administration, Department of Energy, "The Transition to Ultra-Low Sulfur Diesel Fuel: Effects on
        Price and Supply, May 2001.

4.       FitchRatings, Special Report, "What a Smell of Sulfur!" Impact of the Low Sulfur Regulations on the U.S.
        Refining Sector, Julyl 2003.

5.       Muse, Stancil and Co., "Alternate Markets for Highway Diesel Fuel Components," Prepared for Southwest
        Research Institute, Under Contract to U.S. EPA, September 2000.

6.       David Harrison, Jr.  and Randall Lutter, National Economic Research Associates, "Potential Impact of
        Environmental Regulations on Diesel Fuel Prices," Prepared for the Alliance of Automobile Manufacturers,
        December 2000.

7.       Mathpro, Inc., "Prospects for Supply of Ultra Low Sulfur Diesel Fuel in the Transition Period (2006-2007), An
        Analysis of Technical and Economic Driving Forces for Investment in ULSD Capacity in the U.S. Refining
        Sector," Prepared for the Alliance of Automobile Manufacturers and the Engine Manufacturers Association,
        February 26, 2002.

8.       "Summary and Analysis of the 2003 Highway Diesel Fuel Pre-Compliance Reports", EPA, October 2003.

9.       National Petroleum Council, "The U.S. Refining Industry: Assuring the Adequacy and Affordability of Cleaner
        Fuels, June 2000.

10.      State of Illinois, "Illinois EPA Urges Enforcement Action Against Premcor Blue  Island Refinery For Catalyst
        Releases," June 20, 2000, Contact: Dennis McMurray, (217) 785-1871

11.      Hardship provisions for: 1) Tier 2 gasoline standards (40 CFR 80.270), 2) 2007 highway diesel fuel program
        (40 CFR 80.560).

12.      Letter to Mr. Emmett Barker, President, Equipment Manufacturers Institute, from Chester France, Director,
        Engine Programs and Compliance Division, EPA, February 26, 1998, EDOCKET OAR-2003-0012-0957.

13.      "Summary and Analysis of Comments: Control of Emissions fromNonroad Diesel Engines" U.S. EPA, August
        1998, pages 74-76,  EDOCKET OAR-2003-0012-0958.

14.      See our website at www.epa.gov/otaq/diesel.htmffengineworkshops which contains a link to the presentation
        made by Steve Duley of Schneider Trucks.

15.      "Manufacturers of Emission Control Association Report on Agreed-Upon Procedures," March 23, 2004,
        EDOCKET OAR-2003-0012-0928.

16.      "International Truck Presentation 2004 Diesel Summit II", presented by Patrick Charbonneau," slides 15 and
        17, EDOCKET OAR-2003-0012-0929.

17.      "Information from John Deere regarding Oil Change Intervals for Nonroad Uncontrolled, Tier 1, and Tier 2
        Engines," memorandum from William Charmley to Air Docket A-2001-28, March 17, 2004, Docket Item IV-E-
        41.

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18.      "Update of EPA's Motor Vehicle Emission Control Equipment Retail Price Equivalent (RPE) Calculation
        Formula," Jack Faucett Associates, Report No. JACKFAU-85-322-3, September 1985, Public Docket No. A-
        2001-28, Docket Item II-A-74.

19.      Regulatory Impact Analysis: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur
        Control Requirements, Assessment and Standards Division, Office of Transportation and Air Quality, U.S.
        EPA, EPA420-R-00-026, December 2000.

20.      Regulatory Impact Analysis - Control of Air Pollution From Motor Vehicles: Tier 2 Motor Vehicle Emission
        Standards and Gasoline Sulfur Control Requirements, Engine Programs and Compliance Division, Office of
        Mobile Sources, U.S. EPA, EPA420-R-99-023, December 1999.

21.      Petroleum Refining Technology and Economics, Fourth Edition 2001, Handwerk, Glenn E., Gary, James H.,
        page 363, Table 18.1.
77
        Chemical Engineering, February 2003, page 88- Chemical Engineering Plant Cost Index.

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