&EPA
Air and Radiation
EPA420-B-06-005
June 2006
  United States
  Environmental Protection
  Agency
          Diesel Retrofits:
          Quantifying and
          Using Their Benefits in
          SIPs and Conformity

          Guidance for State and
          Local Air and
          Transportation Agencies

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                                               EPA420-B-06-005
                                                     June 2006
       Diesel Retrofits: Quantifying and
Using Their Benefits in SIPs and Conformity

              Guidance for State and
                   Local Air and
             Transportation Agencies
          Transportation and Regional Programs Division
          Compliance and Innovative Strategies Division
             Office of Transportation and Air Quality


                          and


           Air Quality Strategies and Standards Division
           Office of Air Quality Planning and Standards


             U.S. Environmental Protection Agency

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                                 TABLE OF CONTENTS
CHAPTER 1 Introduction                                                              7

       1.1    What is the purpose of this guidance?	7
       1.2    How can emission reductions from retrofit projects be used to meet SIP and
             conformity needs?	8
       1.3    What vehicles, engines, and equipment does this guidance address?	10
       1.4    What is a retrofit project?	10
       1.5    What are the requirements for using vehicle, engine, or equipment replacements
             in SIPs and conformity?	11
       1.6    How does this guidance relate to the Voluntary Mobile Source Emission
             Reduction Program SIP guidance?	12
       1.7    Can a state require retrofits of highway and nonroad vehicles, engines, or
             equipment?	13
       1.8    How does this guidance relate to existing Clean Air Act requirements?	13
       1.9    Who should I contact for additional information?	14
CHAPTER 2 Quantifying Retrofit Emission Reductions                                  15

       2.1    How do you quantify emission reductions from retrofit projects?	15
       2.2    What is NMIM and why should you use it to quantify emission reductions from
             retrofits?	15
       2.3    What are the uses and limitations of NMIM?	17
       2.4    Can you use NMIM to quantify emission reductions from retrofit projects even if
             you are not using it to generate the local inventory?	18
       2.5    Can you use NMEVI to estimate emission reductions from retrofit projects for uses
             other than SIPs or conformity determinations?	18
       2.6    How do you use NMIM to quantify emission reductions from retrofit projects?	18
       2.7    How do you use NMIM to quantify emission reductions from vehicle, engine, or
             equipment replacements?	22
CHAPTERS Using Emission Reductions in SIPs                                         25

       3.1    What are the basic requirements for using emission reductions in SIPs?	25
       3.2    How can the estimated emission reductions be used for SIP purposes?	28
       3.3    What would a state submit to EPA to meet the requirements for incorporating a
             retrofit project in a SIP?	29
       3.4    Are there any other types of SIPs that could include emission reductions from
             retrofit projects?	29
       3.5    What monitoring and record keeping should occur to document retrofit emission
             reductions?	30

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       3.6    What validation and reconciliation should occur for emission reductions in SIPs
             approved under the VMEP guidance?	30
       3.7    What penalties can EPA impose for not complying with Clean Air Act
             requirements?	31
CHAPTER 4 Using Emission Reductions in Transportation Conformity Determinations	33

       4.1    What is transportation conformity?	33
       4.2    What kinds of retrofit projects can be used in transportation conformity
             determinations?	33
       4.3    How can the emission reductions from highway retrofit projects be included in
             transportation conformity determinations?	34
       4.4    How can the emission reductions from nonroadretrofit projects be included in
             transportation conformity determinations?	35
       4.5    How is EPA streamlining the processes for using the emission reductions from
             nonroad retrofit projects in conformity?	36
       4.6    What is a safety margin?	36
       4.7    When can a safety margin be established in a SIP?	36
       4.8    What are the benefits of establishing a safety margin at the time that an RFP SIP,
             attainment demonstration, or maintenance plan is initially submitted?	37
       4.9    Why should an area start developing a safety margin now?	37
       4.10  What are the features of a safety margin?	38
       4.11  What is a trading mechanism?	38
       4.12  When can a trading mechanism be established in a  SIP?	39
       4.13  Why develop a trading mechanism in advance of an 8-hour ozone or PM2 5 SIP? ...40
       4.14  What would a SIP with a trading mechanism look like?	40
       4.15  What are the features of atrading mechanism?	40
       4.16  Does the public have the opportunity to comment on trading?	41
       4.17  Are there any examples of conformity-related trading mechanisms that were
             quickly approved into the SIP?	42
       4.18  Are there any other ways to establish a trading mechanism for a nonroad retrofit
             project?	42
       4.19  How can I get additional technical assistance in using the emission reductions
             from a nonroad retrofit proj ect in transportation conformity?	43
CHAPTER 5 Using Emission Reductions in General Conformity Determinations	45

       5.1    How can the estimated emission reductions be used for general conformity
             determinations?	45
       5.2    How are retrofit proj ects addressed by the general conformity regulation?	45
       5.3    Is a SIP revision required if a source with a facility-wide emissions budget wants
             to implement a retrofit proj ect at the facility?	46
       5.4    What requirements would potentially limit the use of retrofit proj ects in the
             general conformity program?	46

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       5.5    Why are SIPs required for use of nonroad retrofits in transportation conformity
             but not required for general conformity?	47
APPENDIX A  Establishing and Using a Safety Margin to Allow Emission Reductions
               from Nonroad Retrofits to Be Used in Transportation Conformity
               Determinations	49

       A.I.   What is an example for establishing and using a safety margin?	49
       A.2.   What is the most expeditious process for establishing a safety margin that results
             from a nonroad retrofit project?	50
       A.3   Have any areas included safety margins in their SIPs?	52

       Figure 1: Steps for Developing a Safety Margin	54
APPENDIX B  Establishing and Using a Trading Mechanism to Allow Emission
               Reductions from Nonroad Retrofits to Be Used in Transportation
               Conformity Determinations	55

       B.I.   What is an example for establishing and using a trading mechanism?	55
       B.2.   Does a trading mechanism have to be included in a SIP?	55
       B.3.   What is the most expeditious process for establishing a trading mechanism in
             a SIP, and how long will it take?	56
       B.4.   Has any state adopted a trading mechanism into its SIP this quickly?	58

       Figure 2: Steps for Developing a Trading Rule	60
APPENDIX C  Model Rule for Trading Emission Reductions from Nonroad Retrofit
               Projects for Transportation Conformity 	61

       Part 1: Explanatory Notes for Using the Model Trading Rule 	61
       Part 2: Model Trading Rule	66

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                                        CHAPTER 1

                                    INTRODUCTION
(Note: As used in this document, the terms "we", "us" and "our" refer to the Environmental
Protection Agency (EPA). The terms "you" and "your" refer to a state or local air pollution control
agency or state or local transportation agency or other federal agency, as appropriate.)
1.1    What is the purpose of this guidance?

       Technology is available today to reduce diesel vehicle and engine emissions in a cost-
effective way. The ability to use diesel emission reductions for state implementation plan (SIP) and
conformity purposes gives states and localities additional incentive to implement diesel retrofit
projects. Diesel retrofit technologies reduce pollution from the existing diesel engine fleet by up to
90% for particulate matter, up to 50% for nitrogen oxides, and up to 90% for volatile organic
compounds. Many diesel retrofit projects are being successfully  implemented around the country.
Clean diesel projects already initiated are expected to result in approximately 20,000 tons of
particulate matter reduced over the life of the projects, with estimated public health benefits of about
$5 billion.

       The purpose of this document is to provide guidance on quantifying and using emission
reductions from highway and nonroad diesel vehicles, engines, and equipment that have been
retrofitted with emission reduction technology.  This guidance document describes how to quantify
and use reductions of nitrogen  oxides (NOx), volatile organic compounds (VOC), particulate matter
(both PM2.5 and PMio)1, and carbon monoxide (CO) in 8-hour ozone, PM2.5, PMio, and CO
nonattainment and maintenance areas.  You can use the emission reductions resulting from
implementing a retrofit project in a SIP to help achieve reasonable further progress (RFP),
attainment of a standard, or maintenance of a standard; and in transportation conformity and general
conformity determinations.

       Retrofit projects provide a unique and cost-effective opportunity  for state and local
governments to reduce pollution from highway and nonroad diesel vehicle  and equipment fleets, and
as a result, could assist areas in attaining the 8-hour ozone and PM2.5 national ambient air quality
standards (NAAQS or "standards"). On August 10, 2005, a new transportation bill was signed into
law as the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users, or
SAFETEA-LU. Among other  things, SAFETEA-LU continues to provide  federal funding for
highway retrofits under the existing Congestion Mitigation and Air Quality Improvement Program
(CMAQ), and expands CMAQ eligibility to include nonroad diesel retrofit projects.  SAFETEA-LU
recognizes the importance of nonroad diesel retrofit projects and  other mobile source emission
reduction strategies and, for the first time, directs  states and metropolitan planning organizations
(MPOs) to give priority to funding diesel retrofits and other cost-effective mobile strategies under
       lrThis guidance document was written in regard to the current PM2 5 and PM10 national ambient air quality
standards.  EPA notes that it proposed revisions to the current PM2 5 and PM10 standards on January 17, 2006 (71 FR
2620).

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CMAQ.  The law also notes that states and MPOs continue to have final CMAQ project selection
authority.

       This guidance also fulfills the directive from the Energy Policy Act of 2005 that requires
EPA to provide SIP guidance for retrofit projects under the diesel emission reduction provision and
takes the additional step of providing guidance for crediting retrofits in conformity determinations.
In addition to assisting MPOs and states in evaluating retrofits for CMAQ project selection, we
anticipate that this guidance will also be useful for implementing the National Clean Diesel
Campaign. Like the SAFETEA-LU reauthorization, the diesel emission reduction provision
authorizes additional federal funds for retrofit projects that reduce diesel emissions from existing
engines.

       The SIP and conformity policy elements of this guidance in Chapters 1,  3, 4, and 5 are
applicable to all states. However, the methodology that is described in Chapter 2 specifically targets
states that use EPA's MOBILE and NONROAD models. State and local agencies developing SIPs
and conformity analyses for California should consult with EPA Region 9 for information on the
current version of EMFAC approved for use in California and for information on how to quantify
emission reductions from retrofit projects.

       This guidance is focused on quantifying emission reductions from diesel retrofits for SIP and
conformity purposes and therefore has an intended audience of air quality and transportation
planners. Other audiences can use this guidance for quantifying retrofit reductions for non-SIP or
conformity purposes by reading Chapter 1 for background and referring to Chapter 2's Questions 2.4
through 2.7 of the guidance for quantifying emission reductions.
1.2    How can emission reductions from retrofit projects be used to meet SIP and conformity
       needs?

       EPA's intent in producing this guidance is to facilitate the development of retrofit projects as
a cost-effective way to achieve needed emission reductions while ensuring that these projects meet
SIP and conformity requirements.  This document describes several different options for the use of
emission reductions from retrofit projects to meet both near term and longer term SIP and
conformity needs.

       State and local air and transportation agencies should work together to determine how
reductions from diesel retrofits should be used given local air quality problems. The interagency
consultation process can also be used to identify retrofit projects and CMAQ or other funds to
implement any projects for future SIP or  conformity needs. If those reductions are used in the near
term for conformity, then state  and local agencies should work together to determine what additional
retrofit projects could be implemented to meet other air quality needs.

       Under any of the options highlighted below, it is in the best interests of state and local
agencies to act as quickly as possible to get retrofit projects in place. Retrofit projects will provide
their greatest benefits in the near term, before significant numbers of vehicles,  engines,  and
equipment meeting 2007 highway and 2008 nonroad standards enter the fleet.  In addition, CMAQ

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funding is available now and MPOs and state DOTs are in the process of selecting projects to be
funded through the CMAQ program.

       1.2.1   Highway and nonroad retrofit projects in SIPs

       One option is to use retrofit reductions to help demonstrate RFP, attainment, or maintenance
in upcoming SIP submissions. Highway and nonroad retrofit projects are subject to the same SIP
requirements as any other control measures.  This guidance document provides the necessary
information to include retrofit projects in a SIP2, including a calculation method that ensures that
emission reductions calculated for the retrofit project are consistent with the rest of the SIP.  State
and local agencies have time to include these retrofit projects in the SIPs being developed to meet 8-
hour ozone and PM2.5 standards, but they will want to consider implementing them as soon as
possible to ensure the maximum available reductions from the retrofit projects. General SIP
requirements for retrofit projects are described in Chapter 3 of this document.

       1.2.2   Highway retrofit projects in transportation conformity

       Alternatively, state and local agencies could also use highway retrofit projects to meet
transportation conformity requirements now or in the future with little additional effort beyond what
is required to properly implement the project and quantify the emission reductions.  These
reductions could be incorporated into a transportation conformity determination without
making any change in the SIP. Question 4.3 of this document explains this process.

       1.2.3   Nonroad retrofit projects in transportation conformity

       This document also provides guidance on options for using reductions from nonroad retrofit
projects in transportation conformity determinations (see Chapter 4).  These options require a SIP
revision before they can be implemented. One option, adding a safety margin to the SIP, could be
implemented in the context of the process of developing a new SIP to meet 8-hour ozone or PM2.5
requirements.  SIP safety margins have been implemented and used to meet transportation
conformity requirements many times in the past. We have provided detailed information on how
this option works in Chapter 4 and Appendix A.

       Another option for using the nonroad retrofit reductions in transportation conformity
determinations is to include a trading mechanism in the SIP.  This can be done as a SIP prior to the
completion of an RFP or attainment SIP. We have provided detailed information on how to
implement a trading mechanism as a SIP in Chapter 4 and Appendix B.  To help reduce the time
needed to develop, submit and approve a trading mechanism SIP, we have provided a model trading
rule in Appendix C. States that adopt  this rule without significant revisions could expect an
expedited approval by EPA.
       2 In this guidance, the term "SIP" could mean an initial SIP developed to show PJ7?, attainment, or
maintenance, or a revision to such a SIP.

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       1.2.4  Retrofit projects in general conformity

       Finally, this guidance also provides information on the use of retrofit reductions to meet
general conformity requirements (see Chapter 5).  The use of nonroad retrofit reductions in
general conformity does not require a SIP revision.


1.3    What vehicles, engines, and equipment does this guidance address?

       This guidance focuses on emission reductions from highway and nonroad diesel vehicles,
engines, and equipment,3 and fuels.  New emission standards will affect all 2007 and future model
year on-road heavy-duty highway vehicles and engines.  New emission standards (Tier 4) will phase
in for 2008 and future model year nonroad engines.  Ultra-low sulfur diesel fuel (15 ppm sulfur
content) is required for highway use beginning in October 2006.  For nonroad vehicles, engines, and
equipment, low sulfur diesel fuel (500 ppm sulfur content) is required beginning in 2007, with ultra-
low sulfur diesel fuel required beginning in 2010.  In general, this guidance applies to the retrofit of
vehicles, engines, and equipment manufactured before those standards take effect and that will not
have to comply with EPA's upcoming highway and nonroad regulations. This guidance document
can be used, however, for emission reductions from retrofits of post-2007 and post-2008 vehicles,
engines, and equipment if such activities meet the definition of "retrofit" discussed below.
1.4    What is a retrofit project?

       For the purpose of this guidance only, a "retrofit project" is defined broadly to include any
technology, device, fuel, or system that when applied to an existing diesel engine achieves emission
reductions beyond that currently required by EPA regulations at the time of its certification.
Therefore, for those existing vehicles, engines, or equipment that will not have to comply with
EPA's upcoming 2007 and 2008 standards, any additional emission reduction improvement above
the current regulation of these vehicle, engine, or equipment emission levels is considered a retrofit
project. Retrofit technologies may include, but are not limited to, the following:

       • EPA "verified" emission control technologies (for example, oxidation catalysts and
       particulate matter filters)4
       3 Highway sources include vehicles used on roads for transportation of passengers and freight. These sources
are also sometimes referred to as on-road sources. Nonroad sources include vehicles, engines, and equipment used for
construction, agriculture, nonroad transportation, recreation, and many other purposes. These sources are also
sometimes referred to as off-road sources. Within these broad categories, highway and nonroad sources are further
distinguished by size, weight, use, and/or horsepower.

       4 For a complete list of all EPA verified technologies, consult the list at the following web site:
http://www.epa.gov/otaq/retrofit/retroverifiedlist.htm. Any diesel fuel and/or diesel fuel additive included on EPA's list
of verified technologies is required to be registered in accordance with the regulations at 40 CFR 79, Registration of
Fuels and Fuel Additives.
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       • California's Air Resources Board (CARB) "verified" emission control technologies (see
       paragraph below)

       • EPA certified engines5 as engine replacements (see Question 1.5)
                                                     \6
       EPA signed a Memorandum of Agreement (MOA)  with CARB to coordinate the
verification of diesel retrofit technologies.  This MOA commits the agencies to establish reciprocity
in verification of hardware or device-based retrofits, and further establishes our joint commitment to
cooperate on the evaluation of retrofit technologies.  This agreement commits EPA and CARB to
accept each other's verification of the amount of parti culate matter and NOx reduced by a particular
retrofit technology. Currently, EPA accepts CARB verified technologies, and CARB is working
toward accepting EPA verified technologies. Additionally, as retrofit manufacturers initiate and
conduct in-use testing, both agencies agreed to coordinate this testing so data generated may satisfy
the requirements of both agencies.  This MOA is intended to expedite the verification and
introduction into the market of innovative emission reduction technologies. Additionally, this MOA
should reduce the effort needed for retrofit technology manufacturers to complete verification.

       The verification of diesel technologies is specific to particular types of vehicles, engines, or
equipment as defined in the "applicability" section of the EPA and CARB verified technology lists.
Verified retrofit technologies  can be applied only to the vehicles, engines, or equipment specified in
those lists. For example, a technology that has been verified for highway vehicles will not be
suitable for nonroad vehicles, engines, or equipment unless it is also been verified for such use.
1.5    What are the requirements for using vehicle, engine, or equipment replacements in
       SIPs and conformity?

       In addition to the EPA and CARB verified retrofit technologies, this guidance also applies to
the use of EPA certified engines as engine replacements7, or the early replacement of older vehicles
or equipment (e.g., bulldozers) with cleaner vehicles or equipment.  Emission reductions that result
from vehicle, engine, or equipment replacements that would have occurred through normal attrition
are considered to be the result of normal fleet turnover and are not addressed by this guidance.  Also,
the purchase of new vehicles or equipment to expand a fleet is not covered by the guidance. To be
considered a replacement, the purchase of new vehicles, engines, and equipment would need to be
accompanied by the scrappage of old vehicles, engines, and equipment.

       To be able to use emission reductions from any replacements in a SIP or in a conformity
determination, the following statements would apply:
       5 For a complete list of all EPA certified large highway and nonroad engines, consult the list at the following
web site: http://www.epa.gov/otaq/certdata.htm.

       6 The MOA is at the following web site: http://www.epa.gov/otaq/retrofit/retroverifiedlist.htm.

       7 Engine replacement is sometimes known as an engine "repower;" EPA uses only the term "replacement" in
this guidance.


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    •  The vehicle, engine, or equipment being replaced would be scrapped, or the replaced engine
      would be returned to the original engine manufacturer for remanufacturing to a cleaner
      standard.

    •  The replacement vehicle, engine, or equipment would perform the same function as the
      vehicle, engine, or equipment that is being replaced (e.g.,  an excavator used to dig pipelines
      would be replaced by an excavator that continues to dig pipelines).

    •  The replacement vehicle, engine, or equipment would be of the same type and similar gross
      vehicle weight rating or horsepower as the vehicle, engine, or equipment being replaced (e.g.,
      a 300 horsepower bulldozer is replaced by a bulldozer of similar horsepower).

In addition, when emission reductions are calculated for replacements, note that:

    •  The emission reductions are available only for the remaining useful life of the vehicle, engine,
      or equipment being replaced (e.g., if the vehicle being replaced had a remaining useful life of
      5 years, the additional emission reductions from the new vehicle are only available for SIP or
      conformity purposes under this guidance for 5 years).

    •  The emission reductions are available only for activity (e.g., travel or hours of use) of the
      vehicle, engine, or equipment being replaced within the nonattainment or maintenance area.
      If you replace an  older, less used vehicle or piece of equipment with a piece of new
      equipment, it is likely that the new equipment would be used more than the item it replaces.
      However, emission reductions from the new equipment would need to be calculated based on
      the activity of the old equipment.
1.6    How does this guidance relate to the Voluntary Mobile Source Emission Reduction
       Program SIP guidance?

       In October 1997, EPA issued its "Guidance on Incorporating Voluntary Mobile Source
Emission Reduction Programs in State Implementation Plans (SIPs)" (the VMEP guidance).8  The
purpose of the 1997 VMEP guidance is to support innovative methods in achieving emission
reductions for SIPs. The VMEP guidance applies to SIP emission reduction measures that rely on
voluntary actions of individuals and other parties.

       Many state or federally-funded retrofit projects may not be subject to the VMEP guidance if
they have well-defined requirements to ensure the full implementation of a SIP program. For
example, retrofit projects would not be  subject to the VMEP guidance if a state or local regulation or
ordinance that required retrofit projects was included in the SIP. Another example of a project that
would not be subject to the VMEP guidance would be a state program that is described in the SIP
        This guidance is found at: http://www.epa.gov/otaq/stateresources/policv/pag guidance.htm. EPA notes that
the VMEP guidance is related to SIP measures, rather than transportation or general conformity determinations. Control
measures for conformity determinations must meet the relevant criteria in the transportation and general conformity
regulations.
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that requires state transportation construction contracts to be implemented with retrofitted
construction equipment. Please consult your EPA Region early in the development of a retrofit
project to determine the appropriate use of the VMEP guidance. It is important to note that retrofit
projects that are pre-empted under applicable provisions of Clean Air Act section 209, as discussed
in Question 1.7, may not be included in the SIP.

       Under the VMEP guidance, the amount of emission reductions allowed for voluntary mobile
measures in a SIP is presumptively capped at three percent of the total projected  future year emission
reductions required to attain the applicable air quality standards. EPA acknowledges that some areas
may be able to demonstrate that voluntary measures may achieve credible reductions higher than the
three percent cap. In that case, EPA will re-evaluate that cap on a case-by-case basis and allow the
cap to be exceeded if the cap hinders the implementation of effective voluntary control measures,
subject to notice and comment during SIP approval.  Today's guidance relies on  EPA's 1997 VMEP
guidance for voluntary retrofit projects. Interested parties should refer to that guidance at the time a
specific retrofit project is under development.
1.7    Can a state require retrofits of highway and nonroad vehicles, engines, or equipment?

       It depends. Clean Air Act section 209 sets forth certain restrictions on the abilities of states
and localities to adopt and implement emission standards for certain highway and nonroad vehicles,
engines, and equipment. The effect of Clean Air Act section 209 on a particular state's retrofit
requirements can vary depending on the specific provisions of those retrofit requirements. State and
local agencies should check with EPA before promulgating any state or local regulations or
programs mandating retrofit projects for SIP or conformity purposes.  See Question 1.9 of this
guidance for EPA contact information.
1.8    How does this guidance relate to existing Clean Air Act requirements?

       This document provides guidance to state and local air pollution control agencies,
transportation agencies, MPOs, and the general public on quantifying and using retrofit projects to
reduce highway and nonroad diesel vehicle, engine, and equipment emissions in SIPs and
transportation and general conformity determinations. SIP requirements can be found in Clean Air
Act sections 110(a)(2) and 172(c). Transportation and general conformity requirements can be
found in Clean Air Act section 176(c) and applicable regulations.  This guidance document does not
substitute for those provisions, nor is it a regulation itself. Unless otherwise indicated, it does not
impose binding, enforceable requirements on any party.  Further, it does not assure that EPA will
approve all instances of its application, and thus the guidance may not apply to a particular situation
based upon the circumstances. The EPA and state decision makers retain the discretion to adopt
approaches on a case-by-case basis that differ from this guidance where appropriate and consistent
with the statute and applicable regulations. Any decisions by EPA regarding a particular SIP
demonstration will only be made based on the statute and applicable regulations, and will only be
made following notice and opportunity for public review and comment.
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       Where specific recommendations are provided, you should consider whether or not such
recommendations are appropriate for your particular project or situation. This guidance may be
revised periodically without public notice. EPA welcomes public comments on this document at any
time and will consider those comments in any future revisions of this guidance document.

       Readers of this document are cautioned not to regard statements recommending the use of
certain procedures as either precluding other procedures or information or providing guarantees that
using these procedures will result in actions that are fully approvable.  As noted above, EPA cannot
assure that actions based upon this guidance will be fully approvable in all instances, and all final
SIP actions may only be taken following notice and opportunity for public comment.
1.9    Who should I contact for additional information?

       If this guidance document does not answer a specific question, please contact the appropriate
EPA regional office with responsibility for air quality planning and/or conformity in the area where
the retrofit project is located. A contact list of your EPA Region is available at the following web
address: http://www.epa.gov/epahome/locate2.htm.  In addition, contact information for EPA
regional transportation conformity staff can be found at the following website:
http://www.epa.gov/otaq/stateresources/transconf/contacts.htm.

       For general questions regarding retrofit projects or the application of verified retrofit
technologies for the existing fleet of highway and nonroad vehicles, engines, and equipment, please
contact EPA's National Clean Diesel Campaign at cleandiesel@epa.gov.

       For technical questions regarding the use of the National Mobile Inventory Model (NMIM)
for calculating emission reductions from retrofit projects,  please contact EPA's Office of
Transportation and Air Quality at mobile@epa.gov.

       For general questions concerning the use of emission reductions from retrofit projects in SIPs
or in transportation conformity, please contact Meg Patulski of EPA's Office of Transportation and
Air Quality at (734) 214-4842, patulski.meg@epa.gov:  or Gary Dolce also at EPA's Office of
Transportation and Air Quality at (734) 214-4414, dolce.gary@epa.gov.

       For general questions concerning the use of emission reductions from retrofit projects in
general conformity, please contact Tom Coda of EPA's Office of Air Quality Planning and
Standards at (919) 541-3037, coda.tom@epa.gov.
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                                       CHAPTER 2

                  QUANTIFYING RETROFIT EMISSION REDUCTIONS


2.1    How do you quantify emission reductions from retrofit projects?

       For states other than California, EPA recommends the use of the National Mobile Inventory
Model (NMIM) to estimate emission reductions from retrofit projects for SIPs and for conformity
analyses. NMIM is the recommended method because it estimates the impact of a retrofit project for
highway or nonroad diesel vehicles, engines, or equipment under local conditions.

       This chapter is organized as follows:

       2.2: An explanation of what NMIM is, how it works, and why it is the recommended method
            for calculating emission reductions for retrofits.
       2.3: A discussion of the use of NMIM to generate emissions inventories for SIPs or
            conformity.
       2.4: A discussion of how to use NMIM to calculate emission reductions from retrofit
            projects in areas that are not using NMIM for general inventory preparation.
       2.5: A discussion of the use of NMIM or other methods for estimating retrofit reductions for
            purposes other than SIPs or conformity determinations.
       2.6: A general discussion of NMIM inputs.
       2.7: A discussion of the use of NMIM for retrofit projects that involve replacements.

       EPA is not providing guidance at this time for the quantification of emission reductions from
retrofit projects in California. State and local agencies developing SIPs and conformity analyses for
California should consult with EPA Region 9 for information on the current version of EMFAC
approved for use in California and for information on how to quantify emission reductions from
retrofit projects.
2.2    What is NMIM and why should you use it to quantify emission reductions from
       retrofits?

       Presently, EPA's emissions model for highway vehicles (MOBILE6.2) cannot directly assess
the emissions impacts of retrofit projects, and EPA's emissions model for nonroad equipment
(NONROAD2005) has only limited retrofit modeling capability. However, EPA has recently added
full retrofit modeling capability to the NMIM (current version - NMEVI2005). Because NMIM
provides a graphical user interface for MOBILE6.2 and NONROAD2005, new and past users of
these models may find that NMIM is an easier way to use MOBILE6.2 and NONROAD2005. Input
options and output results from NMIM will be familiar to air quality and transportation agency
professionals who have used MOBILE6.2 and/or NONROAD2005 in the past to create emissions
inventories for use in SIPs or transportation conformity determinations.
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       NMIM is a graphical user interface that contains the MOBILE6.2 and NONROAD2005
models and a database of county-level input information, the National County Database (NCD) (note
cautions about the use of the NCD in Question 2.3). NMIM2005 is capable of producing monthly
inventories by source classification code (SCC) and county for every state, but should not be used
for California, which has its own modeling tools. NMIM was created to simplify the process of
developing county-by-county emissions inventories for multi-county areas, states, or the entire
nation. When using NMIM, users can simply select the year, months, and county or counties they
wish to evaluate. Since NMIM includes county-level information, it will automatically create
MOBILE6.2 input files,  run MOBILE6.2, and multiply the emission factors by vehicle miles
traveled (VMT) to produce highway vehicle emissions inventories for each county for each month.9
NMEVI will also automatically create NONROAD2005 input files, run NONROAD2005, and
produce nonroad equipment emissions inventories for each county for each month. NMIM also
provides a post-processing module that will aggregate the months into an annual inventory and
produce tab-delineated output that can be read into database or spreadsheet software applications.

       The post-processors  in NMEVI include retrofit modules that allow you to specify the details
of a retrofit project.  These retrofit modules take on-road emission factors generated by MOBILE6.2
and nonroad model year inventories generated by NONROAD2005 and apply adjustments to those
emission factors or inventories to reflect the specifics of the retrofit project as described in a user-
generated input file. The resulting emission factors are used to generate emissions estimates for the
retrofit project. For example, if the input file indicates that retrofits were done in 2005 to 1998
model year Class 7 trucks and you want to estimate the emissions of these trucks in 2010, NMIM
will apply the appropriate adjustments to only the emissions of model year 1998 Class 7 trucks in
2010 when generating an emission estimate.

       NMIM is the recommended method for estimating emission reductions for retrofit projects
compared to past spreadsheet-based tools because NMIM applies retrofit benefits to emission factors
or inventories that are generated by MOBILE6.2  and NONROAD2005 under local conditions. The
emissions of retrofit highway and nonroad vehicles, engines, and equipment  are subject to the same
external factors as are the emissions for all other vehicles, engines, and equipment. These external
factors include environmental factors (e.g., temperature, humidity), fleet characteristics (e.g., age
distribution of fleet, distribution of VMT by vehicle class, number and types of nonroad engines or
equipment), activity measures (e.g., speed distributions, distribution of VMT by roadway type,
distribution of hours of operation for nonroad equipment), and fuel characteristics (e.g., sulfur
content, Reid vapor pressure (RVP)). The majority of impacts of these external factors on vehicles,
engines, and equipment meeting past, current, and future emission standards  are incorporated in
EPA's MOBILE6.2 and NONROAD2005 emissions models which are used  to develop emissions
inventories for SIPs and for regional transportation conformity analyses. If the same inputs are used,
NMIM will generate retrofit emission reductions based on the same conditions used to generate the
rest of the inventory used in the SIP or conformity analysis.

       EPA recommends NMIM for assessing the  emission reductions from retrofit projects for SIP
and conformity purposes. However, EPA acknowledges that alternative methods to NMIM are
available and others may be developed.  Alternative approaches will be reviewed by EPA on a case-
       9 "EPA's National Mobile Inventory Model (NMIM), a Consolidated Emissions Modeling System for
MOBILE6 and NONROAD", H. Michaels, et al. U.S. EPA, http://www.epa.gov/otaq/models/nmim/420r05024.pdf.


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by-case basis.  You must provide all relevant technical support documentation, including the
assumptions and other relevant information used to calculate emission reductions and the approach
must use the latest information as required by applicable SIP and conformity requirements.
2.3    What are the uses and limitations of NMIM?

       EPA's current approved model for estimating emissions from highway vehicles for SIP and
conformity purposes in states other than California is MOBILE6.2. NMIM incorporates
MOBILE6.2 along with pre- and post-processors, similar to those that many states have developed
on their own, that simplify the process of inventory preparation. NMEVI is not considered a new
emissions model and does not start a new transportation conformity grace period pursuant to 40 CFR
93.111.  Because NMEVI incorporates MOBILE6.2 and NONROAD2005, it may be used to generate
emissions inventories for SIPs and conformity analyses. The pre- and post-processors in NMIM
may have advantages or disadvantages in various areas or applications compared to pre-existing
methods. Therefore, before using NMIM, state and local air quality and transportation agencies
should work together with EPA and DOT to determine whether NMIM is appropriate given local
conditions and modeling methods and to determine what modifications are needed to the NMIM
database to accurately model local conditions.

       The use of NMIM is not required for SIPs or regional conformity analyses.  Some areas may
choose not to use NMIM simply because it does not provide a significant resource advantage
compared to pre- and post-processing methods already being used. In addition, the use of NMIM
may not be appropriate to generate emissions inventories in all areas.  For example, some areas may
already be using more sophisticated methods for pre- and post-processing input and emissions data
than NMIM can accommodate. In that case, state and local agencies should not use NMIM for
inventory development, but should continue to use the more appropriate modeling already being
conducted in the area.

       States have provided information for the National County Database (NCD) as part of the
National Emissions Inventory  (NET) development process. However, given the NEI cycle, this may
not be the most recent or best available information at the time a state initiates modeling. For SIPs
and regional conformity analyses, state and local agencies should review the information in the NCD
to evaluate whether it includes the latest and best information currently available including latest
planning assumptions where applicable.  Where more current information is available, the database
must be modified to incorporate it to meet regulatory requirements for the use of latest planning
assumptions in SIPs and  conformity determinations.  (EPA encourages states to separately submit
updates to the NCD so that the most accurate database is available for both  national and local
inventory development.)  The NCD works at the county level and will need to be modified to
account for areas containing partial counties, if necessary. The NCD also does not contain VMT
estimates for future years, so any use of NMIM for a future evaluation year will have to include a
projection of future VMT.  The interagency consultation process should be  used to evaluate whether
the use of NMIM is appropriate in a given area, and to evaluate what changes are needed in the
NMEVI database for the area.
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       If you are using NMIM to develop inventories for SIPs or conformity, and have made certain
that the appropriate local conditions have been entered in the NMIM database, entering the
appropriate retrofit inputs as described below will ensure that retrofit reductions are incorporated in
the inventory.  In order to calculate the emission reductions from retrofits, you will have to run
NMEVI twice - a base case without the retrofit project and a control case with the retrofit project and
with all other NMIM inputs unchanged. You would then calculate the difference between these two
inventories to determine the emission reductions from the retrofit project.
2.4    Can you use NMIM to quantify emission reductions from retrofit projects even if you
       are not using it to generate the local inventory?

       Yes, even if NMIM is not being used for inventory development, EPA recommends that you
use it for the calculation of emission reductions for retrofits. Because NMIM uses MOBILE6.2 and
NONROAD to develop estimates of reductions from retrofit projects, emission reductions calculated
using NMIM should be consistent with the rest of the local inventory. When using NMEVI solely to
calculate emission reductions from retrofits, you should first make sure that all NMEVI inputs in the
base case (i.e., the case without the retrofit project in place) are as consistent as possible with the
MOBILE6.2 and NONROAD2005 inputs being used to generate the inventory used in the SIP or
conformity analysis.  You should use those same inputs, along with those needed to describe the
retrofit project, for the control case. Given that some differences in inputs and effects of pre- and
post-processors may result in differences between emissions calculated using NMIM  compared to
other inventory methods, NMIM retrofit reductions should be  calculated as a percentage reduction to
the affected fleet, which can then be converted to mass reduction by multiplying by the total
emissions for the affected fleet derived from the local inventory.
2.5    Can you use NMIM to estimate emission reductions from retrofit projects for uses
other than SIPs or conformity determinations?

       Yes. NMEVI could also be used to evaluate retrofit projects for other purposes, such as the
development of proposals for retrofit projects.  For these purposes, NMIM users could rely more on
default data in NMIM or other more simplified methods for using NMEVI than would otherwise be
necessary for SIP or conformity purposes. Other, more simplified approaches that do not rely on
NMEVI may also be appropriate for non-SIP or conformity uses. You should be aware that these
simplified methods may result in emission reduction estimates that are not completely consistent
with emission reductions calculated for SIP or conformity purposes using more rigorous methods.
Consultation between organizations developing project proposals and state and local air quality and
transportation agencies about appropriate methods and interpretation of results is important to ensure
that retrofit projects are properly evaluated.
2.6    How do you use NMIM to quantify emission reductions from retrofit projects?

       The details of how to use NMIM to estimate the emissions impact of retrofit projects are
described in the NMIM User Guide (available at http://www.epa.gov/otaq/nmim.htm). This part of
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this guidance document summarizes some of the key inputs for NMIM and discusses some of the
issues that users face when developing input data.

       2.6.1   Differences between "fleet specific" and "fleet wide" retrofit projects

       There are two types of retrofit projects that EPA expects to be implemented: "fleet specific"
and "fleet wide." A "fleet specific" retrofit project refers to those projects where a well-defined
group of vehicles or engines are the targets for retrofit. A package delivery company implementing
a retrofit project would be an example of a fleet specific project.  A fleet specific project could
include multiple model years, or multiple vehicle or equipment types. The key defining
characteristic of a fleet specific project is that the actual number of vehicles or engines, as well as
their type, model year, and activity is known.

       A "fleet wide" retrofit project refers to situations where the actual vehicles or engines that
will be affected by the retrofit project are not known in advance.  One example of a fleet wide
retrofit project would be the availability of a low emission diesel fuel that applies to the entire
nonattainment area rather than to specific fleets in the nonattainment area. In this case, the actual
number of vehicles or engines, or their type, model year, or activity is not precisely known.

       There are important differences between fleet specific and fleet wide projects that affect the
kind of information that is needed to run NMEVI. It is assumed that for fleet specific projects the
precise number of vehicles or engines in each model year of each class that are to be retrofit will be
known. In addition, it is assumed that the annual average mileage or hours accumulated by each
model year of each class is also known. In general, retrofit projects that involve the addition of
specific equipment to engines or vehicles, or involve the replacement of engines, vehicles or
equipment, should be modeled as fleet specific projects because the entities involved with this type
of project should be able to keep the records of the vehicles or engines modified or replaced and
their average use.

       In contrast, fleet wide projects are expected to have no precise information  about the
individual vehicles or engines that will be retrofitted.  In this case, the NMIM model assumes that
the average mileage or hours accumulated by retrofit vehicles or engines is the same as for all
vehicles or engines of that model year and vehicle  or engine class. Implementation is expressed as a
fraction of all vehicles or engines of that model year and vehicle class. In general,  retrofit projects
based on fuels available to the general fleet will likely need to be modeled using the fleet wide
approach.

       As discussed in detail in the NMEVI User Guide, the specifics of highway and nonroad
retrofit projects are described in separate input files called the "Onroad Retrofit Parameters File" and
the "Nonroad Retrofit Parameters File." These files are used for both fleet specific and fleet wide
retrofit projects. For highway and nonroad fleet specific projects, additional input  files called the
"Onroad Fleet Information Parameters File" and the "Nonroad Fleet Information Parameters File"
are required.  These files describe in detail  the specific fleets affected by the retrofit project.
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       2.6.2   The retrofit parameters

       The files for highway and nonroad retrofit parameters describe the details of the retrofit
project. These include inputs that specify the pollutants affected by the retrofit project, the vehicle
or engine types affected, the calendar years during which the retrofits occur, the model years of the
vehicles or engines that will be retrofitted, the percentage of the fleet retrofit per year, and the
percentage effectiveness of the retrofit technology applied to the vehicles or engines.  Details on the
use of these inputs are described in the NMEVI User Guide.  Specific guidance on these inputs, where
applicable, is given below.

       2.6.2.1  Pollutants affected by the retrofit project

       While NMIM allows you to enter the entire range of pollutants for which MOBILE6.2  and
NONROAD2005 provide emissions estimates, EPA and CARB have only verified emission
reductions from retrofit technologies for NOx, VOC, CO, PMio,  and PM2.5 emissions.  Therefore,
these are the only inputs that should be used when evaluating the emission reductions of retrofit
projects for SIPs or conformity determinations under this guidance. As discussed in Section 2.6.2.3
below, all pollutants for which the project area is nonattainment or maintenance that are affected by
the retrofit project, including any that increase as a result of the retrofit technology, should be
evaluated for SIP or conformity purposes.

       2.6.2.2  Vehicle or engine types affected

       As discussed in Question 1.3 above, this guidance document only addresses retrofit projects
for diesel highway vehicles and diesel nonroad vehicles, engines, and equipment. NMEVI allows you
to enter the full range of vehicle and engine types included in MOBILE6.2 and NONROAD2005,
but only inputs for diesel vehicles or engines should be used for retrofit emission reductions in SIPs
or conformity determinations.

       2.6.2.3  Percentage effectiveness of the retrofit

       This input is used to describe the effectiveness of the particular vehicle, engine, or equipment
retrofit technologies being used in the retrofit project. As mentioned in Question 1.4 above, EPA
has verified the emission reductions for certain retrofit technologies. A list of these EPA-verified
retrofit technologies and the emission reductions associated with them can be found at
http://www.epa.gov/otaq/retrofit/retroverifiedlist.htm. This web  site also includes a link to retrofit
technologies that have been verified by CARB.  You should use  retrofit reductions from these
verified retrofit technology  lists as inputs for NMIM.

       Note that the emission reductions for each verified technology in the EPA and CARB
verified technology lists are specific to certain categories of vehicles or engines. The emission
reductions in those lists should be applied only to the categories of vehicle or engines for which they
have been specifically verified.

       Some verified retrofit technologies may result in emission reductions for one pollutant  and
emissions increases for another. Any analysis of retrofit projects for SIPs or conformity purposes
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should include all pollutants for which the project area is nonattainment or maintenance that are
affected by the retrofit project, including any that increase as a result of the retrofit technology used.

       For most types of retrofit projects with the exception of replacements (discussed in Question
2.7), the emission reductions for the project are best determined by using two NMIM runs - one with
the percentage effectiveness of the retrofit set to zero (to represent the inventory without the project)
and one with it set to that appropriate level for the technology used (to represent the inventory with
the project).  All other parameters in this section would be set identically to describe the affected
fleet of vehicles or equipment. The difference in emissions between these two runs is the emission
reduction associated with the retrofit project.

       2.6.3  The fleet information parameters

       The files for on-road and nonroad fleet information are used to provide details of specific
fleets of vehicles or engines for which more detailed information is known.  Use these files, along
with the retrofit parameter files described above,  when quantifying the emission reductions from
fleet specific retrofit projects.  For highway vehicles, this file includes inputs for vehicle class, model
year, number of vehicles, and annual VMT per vehicle. For nonroad vehicles, this file includes three
inputs needed to specify the engines in the project - source category classification (SCC) code,
horsepower bin,  and technology type - as well as model year, number of engines, activity in hours
per year, and monthly activity  allocation.

       Details on the use of these inputs are described in the NMTM User Guide. Specific guidance
on these inputs where applicable is given below.  If you are modeling a fleet  specific project, you
should be able to enter detailed information for all of these inputs. Note that these files only
describe characteristics of a fleet of vehicles or engines; they do not describe any details of a retrofit
project. When quantifying the reductions for  a fleet specific retrofit project, the fleet information
parameters files are used to describe the specific fleet, while the retrofit parameter files are used to
describe the retrofit project applied to that fleet. When used without retrofit parameter files, the fleet
information files can be used to simply quantify the emissions for any specific fleet of vehicles or
engines.

       2.6.3.1  Vehicle class or specific engine parameters

       Because this function can be used to quantify the emissions from any specific fleet of
vehicles or engines, there is no restriction on the types of vehicles or engines that can be entered
here.  However, retrofit emission reductions will  be applied only to those vehicles or engines
specified in the retrofit parameters file, which, as described above, should include only diesel
vehicles and engines.

       2.6.3.2   Number of vehicles or  engines

       The number of vehicles or engines entered for the specific fleet should be based on the
calendar year for which emission estimates are being calculated.  When estimating emissions for a
specific fleet in the current year,  this is the current size of the fleet.  However, in future years the
fleet of affected vehicles or engines may become smaller as some vehicles or engines in the fleet are
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scrapped while other newer, non-retrofit vehicles may be added to the fleet. MOBILE6.2 and
NONROAD2005 include the effects of normal attrition when projecting future emissions for the
entire fleet (e.g., both models assume that the number of 1998 model year vehicles or engines
decreases in each future year).  However, these effects are not applied to the number of vehicles or
engines entered in the fleet information file for a specific fleet (e.g., if your input file indicates that
you have twenty 1998 model year vehicles or engines in your retrofit fleet in 2005, NMIM will
assume twenty 1998 model year vehicles or engines in any future year that you model). If you have
reason to believe that some of the vehicles currently in the specific fleet may no longer be in the fleet
by the calendar year that is being evaluated, reduce the input for number of vehicles or engines
appropriately.

       2.6.3.3  VMTor hours of use

       The activity level (VMT or hours of use) entered for the specific fleet should be based on the
activity that actually occurs within the nonattainment or maintenance area that the SIP or conformity
analysis applies to. For example, in the case of a retrofit project applied to a fleet of long-haul
trucks, you must not include VMT that occurs outside the nonattainment or maintenance area.

       The activity level (VMT or hours of use) entered for the specific fleet should be based on the
calendar year for which emission estimates are being calculated. When estimating emissions for a
specific fleet in a current year, this is the current activity level of the fleet. However, in future years,
the activity level of the  affected vehicles or engines in the fleet may change as older vehicles and
engines are often used less than newer ones. MOBILE6.2 includes the effects of decreased activity
with age when projecting future emissions for the entire fleet (e.g., MOBILE6.2 assumes that the
activity of 1998 model year vehicles or engines decreases in each future year). However, these
effects are not applied to the activity levels entered in the fleet information file for a specific fleet
(e.g., if your input file indicates that 1998 model year vehicles are driven 100,000 miles in 2005,
NMEVI will  assume that 1998 model year vehicles are driven 100,000 miles in any future year that
you model). If you have reason to believe that activity levels of vehicles or engines currently in the
specific fleet may be lower by the calendar year that is being evaluated, this lowered activity  should
be accounted for by reducing the input for VMT or hours of use appropriately.

       Specific information on the VMT or hours of use of retrofit vehicles or engines may be
available from maintenance records, user logs, or fuel records. In the absence of this kind of
information, the interagency consultation process  should be used to determine the best available
information to account for activity in the calculation of emission reductions from a retrofit project.
In the absence of better information, agencies could agree to use local average estimates of vehicle
or equipment activity for the class and model year of vehicles or engines included in the retrofit
project.
2.7    How do you use NMIM to quantify emission reductions from vehicle, engine, or
       equipment replacements?

       In general, emission reductions from vehicle, engine, or equipment replacements should be
modeled using the fleet specific approach described in Question 2.6, with some modifications.
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Vehicle, engine, or equipment replacement projects will need to run NMIM twice. NMIM should be
run once as a base case without the replacement data and then again with the control case that
accounts for the new replacement information.  For a retrofit project that uses replacements, the
percentage effectiveness of the retrofit should be set to zero in both the base case (without the
retrofit project) and the control case (with the retrofit project). Instead, the model year of the
vehicles or engines affected are varied in the fleet information parameters. For example, if the
retrofit project involved replacing 2001 model year trucks with 2007 model year trucks, emission
reductions would be calculated as the difference between the following two NMIM runs:

    •  Base case - Engine model year10 set to 2001; all other parameters, including activity, set to
      describe how the model year 2001 trucks are expected to be used in the analysis year; retrofit
      effectiveness set to zero.

    •  Control case - Engine model year set to 2007; all other parameters, including activity, set to
      the same values as in the base case; retrofit effectiveness set to zero.

Note that these reductions should not be used beyond the useful life of the vehicles, engines, or
equipment being replaced. In this example, if the useful life of these trucks is 10 years, emission
reductions could be applied under this guidance for calendar years 2007 through 2011. However,
after 2011, these reductions would be considered part of the normal fleet turnover for these vehicles
and would not be available for use in a SIP or in a conformity determination. See Question 1.5 for
further information.
        1 Engine model year and chassis model year can in some cases be different.


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                                       CHAPTER 3

                        USING EMISSION REDUCTIONS IN SIPS


3.1    What are the basic requirements for using emission reductions in SIPs?

       In order to be approved as a control measure which provides additional emission reductions
in a SIP, a retrofit project would need to be consistent with SIP RFP, attainment, or maintenance
requirements and other requirements of the Clean Air Act, as appropriate. The retrofit project must
provide emission reductions that meet the basic SIP requirements described below. You will notice
information under both "SIP Requirement" and "Specific Recommendations" headings. The "SIP
Requirement" heading refers to requirements under Clean Air Act section 110 concerning SIPs that
are mandatory. The "Specific Recommendations" headings include our recommendations for
implementing a retrofit project. While these recommendations are not binding, they may provide
appropriate safeguards and considerations for a successful retrofit project.

       3.1.1. Quantifiable -

       SIP Requirement: The emission reductions from a retrofit project are quantifiable if they
are measured in a reliable manner and can be replicated (e.g., the assumptions, methods, and results
used to quantify emission reductions can be understood).  Emission reductions must be calculated
for the time period during which the reductions will occur and will be used for SIP purposes.

       Specific Recommendations:

   •  In general, if you are retrofitting certified vehicles, engines, or equipment with verified
      emission control technologies or certified engines, quantifying the emission reductions is
      fairly straightforward.  In these circumstances, you will need to document the emission
      reductions by providing all relevant data to EPA for review.

   •  Chapter 2  of this document provides you with a recommended method for quantifying
      emission reductions. You can use this methodology or you can submit your own
      methodology. If you submit your own, we will review it and make a decision as to the
      appropriateness of its use on a case-by-case basis.  If you choose to use an alternative method,
      we encourage you to engage the applicable EPA Region early.

       3.1.2 Surplus -

       SIP Requirement: Emission reductions are considered "surplus" if they are not otherwise
relied on to meet other applicable air quality attainment or maintenance requirements for that
particular NAAQS pollutant (i.e., there can be no double-counting of emission reductions).  In the
event that the retrofit project is used to meet such air quality related program requirements, they are
no longer surplus and may not be used as additional emission reductions. Emissions from the
vehicles, engines, or equipment to be retrofitted must be in the applicable mobile source emissions
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inventory before the emission reductions from a retrofit project can be used for RFP, attainment or
maintenance in a SIP.

       3.1.3 Federally Enforceable -

       SIP Requirement:  A SIP retrofit project must be enforceable.  Depending on how the
emission reductions are to be used, control measures must be enforceable through a SIP. Where the
emission reductions are part of a rule or regulation for SIP purposes, they are considered federally
enforceable only if they meet all of the following criteria:

    •  They are independently verifiable.
    •  Violations are defined, as appropriate.
    •  You and EPA have the ability to enforce the measure if violations occur.
    •  Those liable for violations can be identified.
    •  Citizens have access to all the emissions-related information obtained from the responsible
      party.
    •  Citizens can file lawsuits against the responsible party for violations.
    •  Violations are practicably enforceable in accordance with EPA guidance on practicable
      enforceability.
    •  A complete schedule to implement and enforce the measure has been adopted by the
      implementing agency or agencies.

       The specific requirements for enforceability vary when submitting a SIP retrofit project as a
mandatory11 or voluntary measure.  If your retrofit project is mandatory, then there is no cap on the
amount of emission reductions that can be claimed as long as such reductions are supported and
meet standard SIP enforceability requirements for mandatory measures and the baseline emissions
are in the inventory.

       If your retrofit control measure is approved under EPA's VMEP guidance, the state is
responsible for assuring that the reductions quantified in the SIP occur.  The state would need to
make an enforceable SIP commitment to monitor, assess, and report on the emission reductions
resulting from the voluntary measure and to remedy any shortfalls from forecasted emission
reductions in a timely manner.  Under the current VMEP guidance, the total of all voluntary mobile
source measures (including retrofit projects) may not exceed three percent of the total reductions
needed to meet any requirements for RFP, attainment, or maintenance.  EPA acknowledges that
some areas may be able to demonstrate that voluntary measures may achieve credible reductions
higher than the three percent cap provided by the VMEP guidance. In that case, EPA will re-
evaluate that cap on a case-by-case basis and allow the cap to be exceeded if the cap hinders the
implementation of effective voluntary  control measures, subject to notice and comment during SIP
approval. If you wish to have a retrofit project approved as a voluntary measure, consult the 1997
VMEP guidance for further information.
       1: As stated in Question 1.7 of this guidance, state and local agencies should check with EPA before
promulgating any state or local regulations or programs mandating retrofit projects, due to potential issues related to
Clean Air Act section 209 requirements.


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       3.1.4  Permanent -

       SIP Requirement: The emission reduction produced by the retrofit project must be
permanent throughout the time period that the reduction is used in the applicable SIP.  The time
period that the emission reductions from retrofit projects are used in the SIP can be no longer than
the useful life of the retrofitted or replaced engine, vehicle, or equipment.

       Specific Recommendations:

   •  Emission reductions can be used from retrofitted vehicles, engines, and equipment that
      operate exclusively within the nonattainment or maintenance area.  Vehicles, engines, and
      equipment that typically operate within a captive area may include, but are not limited to, the
      following:

          o   School buses
          o   Transit buses
          o   Waste haulers
          o   State/local government  owned vehicles and engines (e.g., department of
              transportation)
          o   Nonroad construction and agricultural vehicles,  engines, or equipment

     Some fleets may travel only partially in the nonattainment or maintenance area.  Such fleets
     may be  considered as part of a retrofit project, but the  emission reductions claimed are  limited
     to the activity (and the associated emission reductions) that are expected to occur from  such
     fleets within the nonattainment or maintenance area, as well  as those accounted for in the
     inventory.

     For regulatory or voluntary retrofit projects, you should demonstrate that the retrofitted
     vehicles, engines, or equipment remain in use within the nonattainment  or maintenance area for
     their useful life to the extent emission reductions are claimed.

   •  EPA and CARB provide information  on the durability of the verified retrofit technology
      which  allows you to determine the length of time the technology may perform at its verified
      emission reduction capability. Consequently, you  should select retrofit technologies that are
      verified or certified by EPA, or CARB respectively.  For a list of verified technologies, see
      http://www.epa.gov/otaq/retrofit/retroverifiedli st.htm.

       3.1.5  Adequately Supported -

       SIP Requirement: The state must demonstrate that  it has adequate funding, personnel,
implementation authority, and other resources to implement the retrofit project on schedule.
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      Specific Recommendations:

    •  The state should ensure it has allocated appropriate funds from a reliable funding source.

    •  The state should ensure that the retrofit fleet operators correctly install, operate, and maintain
      the retrofit technology according to the manufacturer's recommendations.

          o   Example: The city transit fleet has 50 buses retrofitted with PM filters.  The state
              should ensure that the fleet operators are properly trained to operate, maintain, and
              detect problems with the PM filters and that ultra-low sulfur diesel fuel is used by all
              buses with filters installed.

    •  The state should assess and verify the status of the retrofitted vehicles, engines, and/or
      equipment and the associated emission reductions, as applicable.


3.2    How can the estimated emission reductions be used for SIP purposes?

       For your RFP, attainment, or maintenance SIP strategy,  you can use emission reductions
which are expected to be generated from the retrofit project by applying the following criteria:

    •  Emission reductions would be calculated on an annual basis in tons per year or tons per
      pollutant season as required in the SIP process for a given pollutant and standard. For
      example, NOx  reductions from retrofit projects would be calculated in an 8-hour ozone SIP
      for tons reduced per day for a typical summer day.  In contrast, PM2.5  reductions would be
      calculated on a tons per year basis for SIP inventories for the annual PM2.5 standard; state and
      local agencies should consult on what typical day is appropriate for SIP inventories for the
      daily PM2.5 standard.  Any calculations would consider factors that may affect emission
      reductions and  their surplus status over time, including changing patterns of operations or use,
      vehicle deterioration factors, equipment useful life, and government emission standards.

    •  Emission reductions would be commensurate with the level of activity from retrofitted
      vehicles, engines, or equipment within a given nonattainment or maintenance area as
      described in Question 3.1.4. For example, if retrofitted vehicles are operated exclusively
      within the nonattainment or maintenance area, the associated reductions from retrofit
      technology would also be assumed to occur within such an area. However, some fleets may
      leave the nonattainment or maintenance area for some portion of their operation. Such fleets
      may be considered as part of a retrofit project, but the emission reductions claimed are limited
      to the activity that is expected to occur from such vehicles within the nonattainment or
      maintenance area, as well as those accounted for in the inventory.
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3.3    What would a state submit to EPA to meet the requirements for incorporating a retrofit
       project in a SIP?

       You would submit to EPA a written document which:

   •  Identifies and describes the retrofit project and its implementation schedule to reduce
      emissions within a specific time period;

   •  Contains estimates of emission reductions attributable to the project, including the
      methodology and other technical support documentation used for your estimates.  EPA
      recommends NMIM for assessing the emission reductions from retrofit projects for SIP
      purposes. However, EPA acknowledges that alternative methods to NMIM are available and
      others may be developed. Alternative approaches will be reviewed by EPA on a case-by-case
      basis. You must provide all relevant technical support documentation, including the
      assumptions and other relevant information used to calculate emission reductions and the
      approach must use the latest information as required by  applicable requirements;

   •  Either contains federally enforceable requirements for you to implement, track, and monitor
      the measure; or if the measure is developed under the VMEP guidance, the state includes an
      enforceable commitment to monitor, assess and  report the resulting emission reductions;

   •  If the measure is developed under the VMEP guidance,  includes an enforceable commitment
      to remedy any SIP emission shortfall in a timely manner in the event that the measure does
      not achieve the estimated emission reductions; and

   •  Meets all other requirements for SIPs under Clean Air Act sections 110 and 172.
3.4    Are there any other types of SIPs that could include emission reductions from retrofit
       projects?

       Yes.  As indicated in Question 3.2, state air quality agencies can include retrofit projects in
RFP SIPs, attainment demonstrations, and maintenance plans.  However, if a state wants to
encourage adoption of retrofit projects prior to developing one of these kinds of SIPs, the state could
create a SIP submission that contains only retrofit projects, which would be relied upon in a future
SIP. The advantage of creating such a SIP submission now is that a state could secure retrofit
projects with adequate federal, state, and/or local funding for a future RFP  SIP, attainment
demonstration, or maintenance plan.

       A state air agency that is interested in creating such a SIP submission specifically for a
retrofit project or projects must consult with MPOs, the state DOT, and any other state or local
transportation agencies in its development. The conformity regulation at 40 CFR 93.105 requires
that consultation occur on the development of SIPs, as well as on the development of transportation
plans, TIPs, and conformity determinations.
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       Note that a SIP submission that contains only retrofit projects would still have to meet the
requirements discussed in Chapter 3.  State or local agencies that are interested this option should
consult their EPA Region as well as the MPOs and others involved in the interagency consultation
process.
3.5   What monitoring and record keeping should occur to document retrofit emission
      reductions?

      3.5.1    What should the state air agency monitor and record?

       Clean Air Act section 110(a)(2)(C) requires that submitted SIPs "include a program to
provide for the enforcement of the measures" that the state adopts to reduce emissions.  A state's
decision about whether a measure needs to be enforced will  depend on the state's knowledge of the
emission reductions achieved by the measure. Therefore, this Clean Air Act requirement for a
program that provides for enforcement makes it necessary for states to monitor measures that they
include in their SIPs, such as diesel retrofits.

       EPA recommends that for each retrofitted vehicle, engine, or piece of equipment generating
emission reductions, the state air agency or another responsible party should monitor and record the
following information, where applicable, for each time period for which an emission reduction is
generated:

   •  Actual use and operation of the retrofitted vehicles/engines/equipment and retrofit technology
   •  Actual use of any required fuel (e.g., ultra-low sulfur diesel fuel)
   •  Proper installation of retrofit technology at proj ect initiation
   •  Proper training of vehicle operators and technicians at project initiation

Monitoring and recording these data is one way to ensure that the statute is met. A state can propose
other methods of monitoring and recording data in its SIP submission, and EPA would consider
whether or not it would be sufficient to meet Clean Air Act requirements.

      3.5.2    How long should the state air agency maintain records?

       Under 28 U.S.C. 2462, the  government has five years to bring an enforcement action or suit
for the failure to implement a measure in a SIP. Based on this statute of limitations, all information
to be monitored and recorded in accordance with this guidance for existing SIP requirements should
be maintained by the state air agency or another responsible party for a period of no less than five
years, or longer where appropriate.
3.6    What validation and reconciliation should occur for emission reductions in SIPs
       approved under the VMEP guidance?

       The SIP submission for a voluntary measure should contain a description of the evaluation
procedures and time frame(s) in which the evaluation of SIP reductions will take place. Once the
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voluntary control measure is in place, emission reductions should be evaluated by you as required to
validate the actual emission reductions.  You should submit the results of your evaluation to EPA in
accordance with the schedule contained in the SIP. If the review indicates that the actual emission
reductions are not consistent with the estimated emission reductions in the SIP, then the amount of
emission reductions in the SIP should be adjusted appropriately or applicable remedial measures
should be taken under the VMEP guidance. See EPA's VMEP guidance for further information
regarding validation and reconciliation requirements for such measures.
3.7    What penalties can EPA impose for not complying with Clean Air Act requirements?

      Use of this guidance does not relieve you of any obligation to comply with all otherwise
applicable Clean Air Act requirements, including those pertaining to the use of emission reductions
in your SIP, such as emission reductions for your attainment demonstration or maintenance plan.
Violations of Clean Air Act requirements are subject to administrative, civil, and/or criminal
enforcement under Clean Air Act section 113, as well as to citizen suits under Clean Air Act section
304. The full range of penalty and injunctive relief options would be available to the federal or state
government (or citizens) bringing the enforcement action.

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                                        CHAPTER 4

                           USING EMISSION REDUCTIONS IN
                TRANSPORTATION CONFORMITY DETERMINATIONS
4.1    What is transportation conformity?

       Transportation conformity is required under Clean Air Act section 176(c) (42 U.S.C.
7506(c)) to ensure that federally supported highway and transit project activities are consistent with
("conform to") the purpose of the SIP. Conformity to the purpose of the SIP means that
transportation activities will not cause new air quality violations, worsen existing violations, or delay
timely attainment of the relevant national ambient air quality standards (NAAQS or "standards").
EPA's transportation conformity rule (40 CFR Parts 51 and 93) establishes the criteria and
procedures for determining whether transportation plans, TIPs or projects conform to the SIP.
Transportation conformity applies to areas that are designated nonattainment, and those redesignated
to attainment after 1990 ("maintenance areas" with SIPs developed under Clean Air Act section
175 A) for transportation-related criteria pollutants.  Some areas that are currently doing
transportation conformity could benefit from retrofit project reductions, including 8-hour ozone,
PM2.5, and PMi0 nonattainment and maintenance areas.

       In urban areas, transportation planning and conformity determinations are the responsibility
of the MPO.  MPOs are responsible for updating and revising the transportation plan and TIP on a
periodic basis, as well as making transportation plan and TIP conformity determinations.  Such
determination includes a regional emissions analysis that shows that the emissions expected from the
area's planned transportation system do not exceed the motor vehicle emissions target ("budgets")
set by the SIP for meeting RFP, attainment, or maintenance requirements. In cases where an area
does not yet have a SIP in place, a different type of emissions test12 is used for conformity. After an
MPO's conformity determination, the U.S. Department of Transportation (DOT) must also
determine conformity of the transportation plan and/or TIP. The interagency consultation process is
required to be used when developing transportation plans, TIPs, conformity determinations, and
SIPs, and the process includes MPOs, state departments of transportation, public transit agencies,
other transportation agencies, state and local air quality agencies, EPA, and DOT (40 CFR 93.105).
4.2    What kinds of retrofit projects can be used in transportation conformity
       determinations?

       MPOs may use emission reductions in transportation conformity determinations that result
from either:

   •   highway vehicle and engine retrofit projects,  or
   •   nonroad vehicle, engine, and equipment retrofit projects.
       12 In areas without SIP budgets, an interim emissions test(s) must be met. These tests are the "baseline year
test" and the "build/no-build test." See 40 CFR 93.119 for more on these requirements.


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       Highway vehicle retrofit projects can be used in transportation conformity determinations,
since transportation conformity includes emissions and reductions from highway sources.
Requirements are discussed in Question 4.3.

       Although the emissions from nonroad sources are separate from highway vehicles in a SIP
inventory, the emission reductions that result from nonroad retrofits can still be applied in
transportation conformity.  When appropriate and desired, the transportation conformity rule allows
options for including reductions from nonroad retrofit projects, such as the retrofitting of highway
construction equipment, in a transportation conformity determination. See Questions 4.4 through the
end of this chapter for further information on options for including the emission reductions from
nonroad retrofit projects in transportation conformity determinations.
4.3    How can the emission reductions from highway retrofit projects be included in
       transportation conformity determinations?

       The transportation conformity rule describes the specific requirements for including emission
reductions from highway retrofit projects in a transportation conformity determination.  If the
emission reductions from the retrofit project have been accounted for in the SIP's motor vehicle
emissions budget, the MPO would also include the emission reductions from the retrofit project, to
the extent it is being implemented, when estimating regional emissions for a conformity
determination.  Including the emission reductions in both the SIP's budget and in a conformity
determination in this way is not "double-counting," but correctly accounting for all the control
measures that are in place.13  States should note that if emission reductions from a nonroad retrofit
project have been used for transportation conformity purposes first, they are no longer available as
surplus emission reductions for purposes of demonstrating RFP, attainment, or maintenance in a SIP.

       To include the emission reductions from retrofit projects in  a regional emissions analysis, the
appropriate jurisdictions must be committed to the measure.14 The appropriate level of commitment
varies according to the requirements outlined in 40 CFR 93.122(a)  which are described as follows:

    •   If the retrofit project does not require a regulatory action to  be implemented and it is included
       in the transportation plan and TIP with sufficient funding and other resources for its full
       implementation, it can be included in a transportation conformity determination.

    •   If the retrofit project requires a regulatory action to be implemented, it can be included in a
       conformity determination if one  of the following has occurred:

           o  The regulatory action for the retrofit project is already adopted by the enforcing
              jurisdiction (e.g., a state has adopted a rule to require such a project);
       13 See 40 CFR93.122(a) for the requirements regarding what must be included when estimating regional
emissions in a conformity determination.

       14 As stated in Question 1.7 of this guidance, state and local agencies should check with EPA before
promulgating any state or local regulations or programs mandating retrofit projects, due to potential issues related to
Clean Air Act section 209 requirements.


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          o   The retrofit project has been included in an approved SIP; or

          o   There is a written commitment to implement the retrofit project in a submitted SIP
              with a motor vehicle emissions budget that EPA has found adequate.15

       If the retrofit project is not included in the transportation plan and TIP or the SIP, and it does
not require a regulatory action to be implemented, then it can be included in the transportation
conformity determination's regional emissions analysis if the determination contains a written
commitment from the appropriate entities to implement the retrofit project.

       Whatever the case, any emission reductions can only be applied in a transportation
conformity determination for the time period or years in which the retrofit project will be
implemented.  Written commitments must come from the agency with the authority to implement the
retrofit project. The latest emissions model and planning assumptions must also be used when
calculating emission reductions, according to 40 CFR93.110 and 93.111.

       You would utilize the interagency consultation process required by 40 CFR 93.105 to discuss
the methods and assumptions used to quantify the reductions from the retrofit project. Chapter 2 of
this document describes how to quantify emission reductions.
4.4    How can the emission reductions from nonroad retrofit projects be included in
       transportation conformity determinations?

       There are two options that may be used to reflect reductions from nonroad retrofit projects in
transportation conformity determinations. The two options are:

   •  apply nonroad retrofit emission reductions as a "safety margin" to the SIP's motor vehicle
      emissions budgets; or

   •  establish a trading mechanism in the SIP to allow emissions to be traded from one emissions
      sector to another.

Both of these options are allowed by the current transportation conformity rule and are completed
through the SIP process with consultation among federal, state, and local air quality and
transportation agencies. An area may decide to pursue one of these options  if it is anticipated that
emission reductions from nonroad retrofit projects may be needed to assure  future transportation
conformity determinations. Note that nonroad retrofit projects that are reflected in a transportation
conformity determination under either option must meet the conformity rule requirements articulated
in Question 4.3, in addition to other  requirements described below.
       15 40 CFR 93.118 describes the process and criteria that EPA considers when determining whether submitted
SIP budgets are appropriate for transportation conformity purposes prior to EPA's SIP approval action.


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4.5   How is EPA streamlining the use of emission reductions from nonroad retrofit projects
      in conformity?

      EPA recognizes the importance of nonroad retrofit projects in reducing emissions and wants
to streamline the process for state and local air and transportation agencies to implement them when
desired. The remainder of Chapter 4 and Appendices A through C include additional information for
including the emission reductions from nonroad retrofit projects in transportation conformity:

      Safety margins. EPA has provided:
   •   questions and answers about safety margins, beginning with Question 4.6;
   •   step-by-step process instructions, including a flowchart, for adopting a safety margin - see
       Appendix A;
   •   an example of how a safety margin is applied - see Appendix A;
   •   a list of areas that have adopted safety margins in the past - see Appendix A;

       Trading mechanisms. EPA has provided:
   •   questions and answers about trading mechanisms, beginning with Question 4.11;
   •   step-by-step process instructions, including a flowchart, for adopting a trading mechanism -
       see Appendix B;
   •   an example of how a trading mechanism would work - see Appendix B;
   •   a model trading rule that interested states could adopt through the SIP - see Appendix C.
4.6   What is a safety margin?

      Section 93.101 of the transportation conformity rule defines a "safety margin" as "the amount
by which the total projected emissions from all sources of a given pollutant are less than the total
emissions that would satisfy the applicable requirement for reasonable further progress, attainment,
or maintenance."  That is, if an area has a safety margin, it has more emission reductions than
necessary to meet the Clean Air Act goal of progress, attainment, or maintenance.  It can meet the
goal with room to spare - a margin of safety.  Safety margins are calculated for a specific year in the
SIP for which a budget is established (e.g., the last year of a maintenance plan).

      The conformity rule allows a safety margin to be allocated to the transportation sector, if the
SIP explicitly states so (see 40 CFR 93.124(a)).  The SIP must state that a specified portion or the
entire safety margin is available to the MPO and DOT for conformity purposes. Therefore, the
nonroad retrofit project that creates the safety margin allows the motor vehicle emissions budget to
increase.
4.7   When can a safety margin be established in a SIP?

      An area may include a safety margin right from the point at which they develop their SIP
submission for RFP, attainment, or maintenance, or it may be developed later as a stand-alone SIP
submission. For example, if an area has more emission reductions from the control measures
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contained in its attainment demonstration than needed to achieve the standard, it could establish a
safety margin in that attainment demonstration.

       An area could also develop a safety margin after the SIP has been established.  For example,
if an area's attainment demonstration contains control measures that are sufficient to attain, then any
other measures that reduce emissions adopted later, such as nonroad retrofit projects, would
potentially create a safety margin. Or, an area that already has a safety margin in its SIP could add
to it by adopting a new nonroad retrofit project.

      Whatever the case, any SIP that incorporates a safely margin must meet all applicable SIP
requirements, including being based on the most recent emissions estimates available at the time the
SIP safety margin is developed. For example, an existing safety margin in a CO maintenance plan
could be increased to account for new retrofit projects in a given year, assuming the existing safety
margin is still applicable. Under this example, EPA's approval would be required before the
increased SIP safety margin could apply for transportation conformity purposes, since revisions to
existing approved SIPs cannot apply until EPA approves them (40 CFR 93.118(e)(l)).


4.8   What are the benefits of establishing a safety margin at the time that an RFP SIP,
      attainment demonstration, or maintenance plan is initially submitted?

       While a safety margin can be developed after a SIP is established, it makes  sense for areas
that are currently developing a SIP to include a safety margin in that SIP, if possible, instead of
adding it later. A safety margin that is included in an initial control strategy SIP (e.g., an RFP SIP or
attainment demonstration) or maintenance plan could be used  for conformity on the effective date of
EPA's adequacy finding. But if a safety margin is developed later, the state would need to revise the
SIP. If EPA has already approved the initial SIP, the revised SIP that includes the safety margin
could not be used in conformity until it is approved, as noted above.  Including a safety margin in a
SIP submission as it is developed saves time and effort throughout the process.
4.9   Why should an area start developing a safety margin now?

      Many areas are currently developing attainment demonstrations for the 8-hour ozone or PM2.5
standards because these SIPs are due in 2007 and 2008, respectively.  Areas that are currently
developing attainment demonstrations or maintenance plans should consider whether they want to
adopt programs to retrofit nonroad vehicles, engines, and equipment and include them in these SIP
submissions, because doing so now can save time and may allow their use in conformity sooner.
The conformity rule requires that consultation occur during the development of a SIP (40 CFR
93.105(a)(l)).  State air agencies should consult with the relevant MPOs, DOT, and other agencies
as appropriate in order to determine whether a safety margin might be needed for conformity.
      Several nonattainment areas have already established safety margins through the SIP process
to assist in making future transportation conformity determinations.  See Appendix A for further
information.
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4.10  What are the features of a safety margin?

      In order for EPA to approve the allocation of a safety margin to a motor vehicle emissions
budget(s), the following SIP and transportation conformity requirements would have to be met:

    •  The entire SIP must continue to demonstrate its Clean Air Act purpose, pursuant to the statute
      and 40 CFR 93.124(a). Before the emissions level of a motor vehicle emissions budget is
      increased, the state air agency would need to determine that there is a safety margin, including
      any surplus emission reductions from any nonroad retrofit projects. The agency would also
      need to ensure that emissions inventories of on-road, nonroad and other sources are consistent
      with the SIP's demonstration.

    •  The calculation for the nonroad retrofit projects and any safety margin would be based on the
      latest information and models available at the time the SIP is developed.  The method for
      calculating a safety margin may vary depending upon whether new air quality modeling is
      performed or if a less rigorous demonstration is adequate (e.g., maintenance areas that are
      establishing a safety margin based on staying below the emissions level(s) for a previous  year
      of clean monitoring data for the maintenance demonstration).

    •  The SIP must clearly allocate the safety margin to the motor vehicle emissions budget(s)  for
      use in transportation conformity determinations, pursuant to 40 CFR 93.124(a);

    •  Nonroad retrofit projects  reflected in a safety margin must be  assured, permanent, and
      enforceable, have adequate funding and resource commitments, and be on schedule; and

    •  The safety margin must meet Clean Air Act section 110(1) and any other applicable SIP
      statutory and regulatory requirements.

See Chapter 3 for more information about including a retrofit project in a SIP. See Appendix A for
more detailed information on establishing and implementing a safety margin.

       EPA notes that the allocation of a safety margin to the on-road transportation sector may
limit that area's ability to allow  future growth in emissions from other source sectors (e.g., stationary
sources).  State and local transportation and air quality agencies and  other affected parties should
always consult on whether a safety  margin is appropriate for transportation conformity in a given
area.
4.11  What is a trading mechanism?

      A trading mechanism is a process established through the SIP that allows emission reductions
achieved in another source sector - such as the nonroad sector - to be used for demonstrating
conformity.  Before emission reductions can be traded from one sector to another, the SIP must
include a trading mechanism to allow the trading to occur.
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      This option is supported by 40 CFR 93.124(b) as well as preamble language.  Section
93.124(b) states:

      "A conformity demonstration shall not trade emissions among budgets which the
applicable implementation plan (or implementation plan submission) allocates for different
pollutants or precursors, or among budgets allocated to motor vehicles and other sources,
unless the implementation plan establishes appropriate mechanisms for such trades."

      In the preamble of the November 24, 1993 transportation conformity rule, EPA stated that
"[t]he state may choose to revise its SIP emissions budgets in order to reallocate emissions among
sources or among pollutants and precursors.  For example, if the SIP is revised to provide for greater
control of stationary source emissions, the State may choose to increase the motor vehicle emissions
budget to allow corresponding growth in motor vehicle emissions (provided the resulting total
emissions are still adequate to provide for attainment/maintenance of the NAAQS..." (58 FR 62196).
EPA believes that this preamble and 40 CFR 93.124(b) clearly allow trading mechanisms to be
established to ensure future transportation conformity determinations, when desired.

      EPA's Economic Incentive Program (EIP) guidance also discusses trading among different
sources.16 The primary  concerns articulated in that guidance are:  1) to ensure that emission
reductions are only used in transportation conformity if they are truly reductions to overall air
quality (i.e., are not offset by  emissions increases in other emission sources); and 2) to ensure that
double-counting does not occur among source categories in the SIP or in transportation conformity.
EPA must approve a SIP that creates a trading mechanism before emission reductions can be traded
for transportation conformity  determinations.
4.12  When can a trading mechanism be established in a SIP?

      A trading mechanism can be established by a state and approved by EPA into the SIP for a
nonattainment or maintenance area at any time.

    •  A trading mechanism that would allow trading of emission reductions from nonroad retrofit
      projects for transportation conformity purposes could be submitted by a state and approved by
      EPA prior to the submission of an area's RFP SIP, attainment demonstration, or maintenance
      plan.

    •  Alternatively,  a state could decide to submit a trading mechanism as part of an RFP SIP,
      attainment demonstration, or maintenance plan for a given area.
       16EPA's January 2001 guidance entitled, "Improving Air Quality with Economic Incentive Programs," provides
additional information on developing and implementing economic incentive based control strategies. This guidance is
available at: http://www.epa.gov/ttncaaal/tl/memoranda/eipfin.pdf. See Appendix 16.10 of the 2001 guidance for
further information regarding the transportation conformity requirements that need to be met by an EIP trading program.


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4.13  Why develop a trading mechanism in advance of an 8-hour ozone or PM^s SIP?

      The advantage of developing a trading mechanism as a stand-alone SIP in advance of an 8-
hour ozone or a PM2.5 SIP is that doing so allows trading to happen sooner than if the trading
mechanism was combined with a larger SIP such as an RFP plan, an attainment demonstration, or a
maintenance plan.  Where developed as a stand-alone SIP, a trading mechanism allows emission
reductions from a nonroad retrofit project to be applied in conformity during the time period before
one of these larger SIPs is submitted and found adequate.  For example, assuming it has a SIP
trading mechanism in place, if an 8-hour ozone area could not pass a NOx budget contained in its 1-
hour ozone attainment demonstration, the area could program funds for a nonroad retrofit project
and apply the emission reductions in an 8-hour conformity determination. EPA believes that a
stand-alone SIP based on the model trading rule provided in this guidance document can be
developed and approved by EPA through parallel processing17 the SIP in as little as eight months.
4.14  What would a SIP with a trading mechanism look like?

      To give areas a head-start and streamline the process, EPA has developed a model trading rule
to use nonroad retrofit reductions in conformity. States that are interested in establishing a trading
mechanism merely need to copy the model rule and fill in the blanks as appropriate (e.g., the state
would insert the appropriate names of state air quality agencies and MPOs), and can adopt it into
their SIPs.  The model rule is found in Appendix C of this guidance document. EPA developed this
model rule in consultation with DOT  and state and local air quality and transportation organizations.
States that adopt the model rule can expect a streamlined SIP approval because the model rule meets
Clean Air Act requirements. The model rule is just one way to write a regulation for a trading
mechanism for conformity.  A state could deviate from this model rule, but the more the state
deviates from the model rule language, the more time it may take for EPA's final SIP action.
4.15  What are the features of a trading mechanism?

      In order for EPA to approve a trading mechanism, the following SIP and transportation
conformity requirements would have to be met:

    •  The entire SIP must continue to demonstrate its Clean Air Act purpose when trades are
      allowed, pursuant to the statute and 40 CFR 93.124(b).  When the trading mechanism is
      developed, the state air agency would need to ensure that trades can occur, while ensuring that
      emissions inventories from all sources continue to be consistent with the SIP's demonstration.

    •  A state regulation must be developed that describes in adequate detail the scope and process
      for making trades so that the trading mechanism can be implemented as intended. Such a
       17 The term "parallel processing" means that EPA, at the request of the state, begins to process a SIP submission
(either to approve it or find its budgets adequate) before the state has finalized it. EPA's process and the state's process
are occurring "in parallel." Specifically, EPA would begin to review the SIP trading mechanism while the state's public
comment period is running, but must wait until the state submits its final SIP trading mechanism before taking a final
SIP action. See Appendices A and B for more detail on how parallel processing works.


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      regulation would also provide that all trades become enforceable through the trading
      mechanism approved into the SIP in the event that reductions are not otherwise enforceable.

   •  Trades must be based on nonroad retrofit projects that result in a net emission reduction,
      which must consider the emissions produced by the vehicles, engines, and equipment and the
      impact of any retrofit technology. Individual trades cannot exceed the net emission
      reductions of a retrofit project.

   •  The trading mechanism  would ensure that individual trades must only be made when surplus
      emission reductions exist. Trading cannot result in "double-counting" of reductions already
      accounted for in the SIP, conformity, new source review offsets, etc.

   •  Reductions can only be taken for years of the regional emissions analysis where reductions
      are achieved.

   •  The trading mechanism  must meet any other applicable SIP and conformity requirements (for
      example, control programs that produce emission reductions relied on in a conformity
      determination must be assured and enforceable, have adequate funding and resource
      commitments, and be on schedule - see 40 CFR 93.122(a)).18

See Appendix B for more information on  implementing a trading mechanism and Appendix C for a
model trading rule that could be incorporated into the SIP.
4.16  Does the public have the opportunity to comment on trading?

      Yes, the public does have the opportunity to comment at two distinct points in the process:

    •  First, the public can comment on the trading mechanism itself at the point when it is
      incorporated into the SIP.  Any time a state prepares a SIP, it must give the public an
      opportunity to comment on it before the final submission is sent to EPA.  In a situation where
      a state adopts a regulation separately from a SIP, the public will also have the opportunity to
      comment on the state's regulation.  In addition, when EPA proposes to approve the SIP in the
      Federal Register, the public again has the opportunity to comment to EPA.  The approval
      process, including these public comment periods, is covered in further detail in Appendix B.

    •  Second, the public has the opportunity to comment on individual trades that employ the SIP
      trading mechanism during the public comment period on a transportation plan or TIP
      conformity determination.  The conformity regulation at 40 CFR 93.105(e) requires that the
      public be given access to technical  and policy information considered in a conformity
      determination at the beginning of the public comment period and prior to taking formal action
      on a plan/TIP conformity determination. If an MPO relies on nonroad retrofit emission
       18 EPA notes that SIPs that establish a trading mechanism are required to meet Clean Air Act section 110(1)
requirements, similar to all other SIPs for other purposes.  However, by definition, the trading mechanisms described in
this guidance document should meet section 110(1) requirements since emissions increases would not occur as a result of
trades for transportation conformity purposes.


                                             41

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      reductions that are the result of a trade, information about that trade would belong in such
      technical and policy information that is made available for public review. Under the model
      trading rule in Appendix C of this document, the MPO would be required to document the
      description of the retrofit project; its enforceability, funding sources, and implementation
      schedule; and details regarding emission reduction calculations.  In addition, the model rule
      would require that the state air agency document its concurrence (e.g., through a letter), which
      the MPO could then reference in its plan/TIP conformity determination. In a state that adopts
      any trading mechanism, all of the information  described above would be made available to the
      public as part of any transportation plan/TIP conformity determination.19
4.17  Are there any examples of conformity-related trading mechanisms that were quickly
      approved into the SIP?

      Yes, there are a couple of areas that adopted another type of trading mechanism for
conformity purposes. The provision of the conformity rule that allows trading among source sectors
also allows trading among  motor vehicle emissions budgets of pollutants and precursors. Both the
San Joaquin Valley and Salt Lake City adopted trading mechanisms that established trading between
budgets for directly-emitted PMio and NOx.20

      Though these trading mechanisms applied to the trading of on-road mobile precursors and
pollutants rather than among source sectors, they have provided EPA with valuable experience in
developing a trading mechanism through the SIP process.  EPA has  applied this experience to the
development of the model trading rule found in Appendix C.  In addition, Salt Lake City's trading
mechanism was needed as soon as it could be approved, so EPA and the State of Utah worked
together to expedite its approval into the SIP. Based on Utah's experience, EPA concludes that a
trading mechanism can be put in place that allows nonroad retrofit projects to be used in
transportation conformity in as little as eight months.
4.18  Are there any other ways to establish a trading mechanism for a nonroad retrofit
      project?

      Yes.  Questions 4.11 through 4.17 and Appendices B and C address establishing a trading
mechanism that, once adopted into a SIP, would allow emission reductions from any nonroad retrofit
project to be traded to the transportation sector. However, another possibility is for a state to adopt a
SIP that allows trading of emission reductions from only a specific project (or projects).  This type of
SIP would look similar to the type of SIP submission described in Question 3.4 in that it would
       19 Note that if a state decides to substantially alter the model rule or create a different one, the trading
mechanism would still need to provide the public with access to information via the conformity determination to meet 40
CFR 93.105(e). EPA would examine any trading mechanism with regard to this point during the SIP process.

       20 These trading mechanisms differed according to the atmospheric conditions in each area.  An interpollutant
trading mechanism must include a scientific rationale, as well as comply with Clean Air Act section 110(1) by showing
that the trading mechanism will not interfere with any applicable Clean Air Act requirement.  See 67 FR 44065 for
EPA's approval of Salt Lake City's trading mechanism; 69 FR 30006 for EPA's approval of San Joaquin Valley's PM10
SIP that includes the trading mechanism.


                                              42

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contain the description of, and emission reductions from, a specific project (or projects). It would
also explicitly state the portion of the retrofit emission reductions that are available to be used in
transportation conformity determinations. The advantage of creating such a SIP submission now is
that a state could secure specific retrofit projects with adequate federal, state, or local funding for a
future conformity determination. Where a SIP specifically states that a certain number of tons of
retrofit reductions are to be preserved for use in future conformity determinations, such reductions
would not be available for use in any other SIP demonstrations such as RFP or attainment
demonstrations.

      State or local agencies that are interested in this option should consult with their EPA Region
as well as the MPOs and others  involved in the interagency consultation process.
4.19  How can I get additional technical assistance in using the emission reductions from a
      nonroad retrofit project in transportation conformity?

      State and local agencies are strongly encouraged to consult early with their respective EPA
Region if they are considering applying a safety margin or developing a trading mechanism in the
SIP for transportation conformity purposes.  EPA is available to provide such technical assistance so
that SIP submissions can be processed efficiently.  See Question 1.9 for more information regarding
EPA contact information.
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               44

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                                        CHAPTER 5

  USING EMISSION REDUCTIONS IN GENERAL CONFORMITY DETERMINATIONS
5.1   How can the estimated emission reductions be used for general conformity
      determinations?

      General conformity applies in nonattainment and maintenance areas to all federal actions or
activities not covered by the transportation conformity program, such as military base expansions or
approval of airport expansion projects. The general conformity regulation (40 CFR 51.850-860 and
93.150-160) prohibits federal agencies from taking, or supporting in any way, actions in areas that
are designated nonattainment or maintenance for any criteria pollutant that interferes with attainment
or maintenance of the NAAQS as planned for in the SIP.  The general conformity regulation applies
to the total foreseeable direct and indirect emissions increases from the action or activity including
both construction and operational emissions.  Indirect emissions can include vehicles servicing a
federal facility or activities supported by federal funds.

      To reduce the regulatory burden on insignificant actions, the regulation establishes a number
of exemptions for categories of actions or activities known to have insignificant emissions increases
or whose emissions fall below certain de minimis levels. The general conformity rule establishes de
minimis emission levels based on the severity of the nonattainment problem.  If the net increase in
total direct and indirect emissions from a federal action is below the de minimis levels,  the federal
agency does not have to make a conformity determination for the action.

       If the net increase in emissions is above the de minimis levels and the project is not otherwise
exempt, the federal agency must determine that the action or activity will conform to the SIP.
Because the general conformity regulation applies to a wide variety of actions or activities, the rule
provides a number of methods for reducing emissions which can be used to demonstrate conformity.
Two methods, mitigation and offsetting of emissions increases, require emission reductions from
sources which may, or may not be directly connected to the federal action or activity.

5.2    How are retrofit projects addressed by the general conformity regulation?

       A voluntary retrofit project would be expected to retrofit an existing fleet of vehicles that are
not considered in transportation conformity determinations. Since such a retrofit project would not
be increasing emissions, the implementation of a retrofit project would not be subject to general
conformity requirements. Additionally, in many cases, a federal action would not be needed to
implement such a project. However, emission reductions generated by diesel retrofit projects could
be used in a  number of ways in general conformity determinations, such as:

   •  Diesel engine retrofits could be used to mitigate or offset emissions increases caused by a
      federal action. For example, the retrofitting of diesel airplane tugs at a military air station
      could be used to mitigate a portion of the emissions increases associated with an expansion
      project at the military base or the retrofitting of package delivery vehicles could be used to
      offset the emissions increases caused by a base expansion.
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    •  The Vision 100-Century of Aviation Reauthorization Act of 2003 (P.L. 108-176), directed the
      FAA to establish a national program to reduce airport ground emissions at commercial service
      airports located in air quality nonattainment and maintenance areas.  The Voluntary Airport
      Low Emissions (VALE) program allows airport sponsors to use certain funds to finance low
      emission vehicles, refueling and recharging stations, gate electrification, and other airport air
      quality improvements (including retrofit projects).  The emission reductions generated by
      these measures are kept by the airport sponsor and may only be used for current or future
      general conformity determinations.  To be used in a general conformity determination,
      emission reductions must be voluntary and cannot otherwise be used to meet other applicable
      air quality attainment and maintenance requirements. Emission reductions must also be
      "permanent" in that they continue to occur at the estimated level throughout the lifetime of the
      vehicles and infrastructure.

       A federal or federally permitted facility which is subject to the general conformity regulation,
such as a military base or a commercial airport, could institute an agreement with a state to operate
the facility within a facility-wide emissions budget. Emission reductions from a fleet retrofitting
project could ensure emissions increases generated by future actions would not exceed the facility-
wide budget and thus would conform to the SIP.  A demonstration that emissions from a new action
do not exceed the facility-wide emissions budget could be used in a general conformity
determination. Although the general conformity regulations currently do not have a specific
provision for facility-wide emission budgets, the regulations do not prohibit it, and several such
budgets have been established for general conformity purposes.21
5.3   Is a SIP revision required if a source with a facility-wide emissions budget wants to
      implement a retrofit project at the facility?

      No, a SIP revision would not be required, if a source with a facility-wide emissions budget
established for general conformity purposes decided to retrofit vehicles or equipment used at the
facility.  The facility's emissions budget would have included emissions of all relevant pollutants
and/or precursors from all sources on the facility including the pre-retrofit emissions from the
vehicles and/or equipment that are included in the retrofit project.  Therefore, the emission
reductions from  a retrofit project can be used to show that the facility remains within its budget
without a SIP revision.


5.4   What requirements would potentially limit the use of retrofit projects in the general
      conformity program?

       Emission reductions used as part of the (1) project design, (2) mitigation measures, (3) offset,
or (4) in future conformity determinations, must be surplus, permanent, quantifiable and enforceable
as described in the General Conformity rule and Chapter 3 of this document.  In addition, the
       21 EPA plans to address the specific details of facility-wide emissions budgets in its upcoming proposed
revisions to the general conformity regulations. Stakeholders will have the opportunity to provide input on facility-wide
emissions budgets during the comment period for the proposed rulemaking.


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emission reductions must be reviewed by EPA, state, tribes and local air quality agencies and the
public as part of the review of the general conformity determination and meet the following criteria:

   •  The retrofit project must be identified and the process for implementation and enforcement
      must be explicitly described.

   •  Prior to determining conformity, the federal agency making the determination must obtain
      written commitments from the appropriate entities (e.g., fleet operator, state or city official,
      private company official or MPO) to implement the retrofit project as a mitigation measure.

   •  The reductions from the retrofit project must be contemporaneous with the project emissions
      increases, specifically, the reductions must occur in the same calendar year as the increases.

   •  The implementing entity/official responsible for implementing the retrofit project and any
      persons or agencies voluntarily committing to mitigation measures must comply with the
      obligations of such commitments.

   •  If the federal action involves licensing, permitting or approving an  action of another
      governmental or private entity, the federal agency must condition its approval action on the
      other entity meeting all mitigation commitments.

   •  If the retrofit project is modified resulting in an increase in emissions, the new mitigation
      measures must continue to support the initial general conformity  determination and must
      undergo public review.
5.5   Why are SIPs required for use of nonroad retrofits in transportation conformity but not
      required for general conformity?

      As discussed in Question 4.3,  emission reductions from on-road retrofit projects may be used
in transportation conformity determinations without a SIP revision. The emission reductions from
on-road retrofit projects may be calculated and applied in each analysis year in an area's conformity
determination.

       With regard to nonroad retrofit projects, a SIP establishing either a trading rule or safety
margin is required in order for emission reductions from such projects to be used in transportation
conformity determinations because nonroad emissions are not included in an area's on-road motor
vehicle emissions budget (40 CFR 93.124(a) and (b)). The SIP provides the authority to use nonroad
emission reductions as part of a demonstration that an area is meeting its on-road emissions budgets.
In contrast, a facility-wide emissions budget established for general conformity purposes would
include emissions from all sources at the facility including the pre-retrofit emissions from the
vehicles and/or equipment that are included the retrofit project. Therefore, the emission reductions
from the retrofit project can be used  to show that the facility remains within its budget without a SIP
revision. By including the VALE program in the Aviation Reauthorization Act (P.L.  108-176),
Congress provided specific authority to establish facility-wide emissions budgets for airports and to
allow emission reductions that are generated now to be used in future general conformity
                                             47

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determinations. Congress did not provide similar authority to use nonroad emission reductions in
transportation conformity determinations.
                                             48

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                                      APPENDIX A

       ESTABLISHING AND USING A SAFETY MARGIN TO ALLOW EMISSION
  REDUCTIONS FROM NONROAD RETROFITS TO BE USED IN TRANSPORTATION
                          CONFORMITY DETERMINATIONS
      This appendix provides detail about how a state could apply the emission reductions from a
nonroad retrofit project or projects in a conformity determination via a safety margin.

A.I   What is an example of establishing and using a safety margin?

      Suppose an 8-hour ozone nonattainment area develops a draft attainment demonstration that
shows the area could emit 400 tons per day of NOx from all sources, and still meet the air quality
standard in 2010.  The area's total NOx SIP inventory for 2009 is:
Nonroad:
On-road:
Stationary sources:
Area sources:
Initial total attainment SIP inventory:
100 tons per day
100 tons per day
100 tons per day
100 tons per day
400 tons per day
If the area submitted this draft SIP without a safety margin, this SIP would have 2009 NOx motor
vehicle emissions budget of 100 tons per day, which is the on-road portion of the 2009 NOx
inventory.

      However, the MPO, in consultation with others, decides to spend some of its CMAQ and
other funding to retrofit nonroad transportation construction equipment.  The MPO consults with the
state air agency, who agrees that the retrofits could be used to create a safety margin, since the area
can demonstrate attainment without these additional reductions The MPO decides to retrofit a
number  of bulldozers, front loaders, and backhoes and estimates that the total emission reductions
from these retrofits will be 5 tons per day in 2009.  The state air agency reviews these calculations
and concurs that these reductions are surplus. Therefore, after consultation,  it adjusts the NOx
inventory in its draft attainment SIP for 2009 to be:

      Nonroad:                           95 tons per day (i.e., 100 minus 5 tons for new retrofit)
      On-road:                           105 tons per day (i.e., 100 plus 5 tons for new retrofit)
      Stationary sources:                 100 tons per day
      Area sources:                       100 tons per day
      Final total attainment SIP inventory:  400 tons per day

      The state submits a final SIP that includes a 5 ton per day safety margin and specifically states
in the SIP that it is allocated to the motor vehicle emissions budget. Therefore, the final budget is
105 tons per day:
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      On-road:                           100 tons per day
      Safety margin:	5 tons per day
      Total available for transportation:     105 tons per day (the final budget)

Once the SIP has been submitted and found adequate by EPA, the MPO uses the new 2009 NOx
budget of 105 tons per day.  This new budget would apply to all conformity determinations for all
analysis years, 2009 and later, for as long as this motor vehicle emission budget is in place without
other future budgets. If the MPO later wanted to fund  additional nonroad retrofit projects and use
the additional reductions for conformity determinations, they would either have to work with the
state to revise the safety margin in the SIP or implement a SIP trading mechanism (as discussed in
Chapter 4 and Appendix B).
A.2   What is the most expeditious process for establishing a safety margin that results from a
       nonroad retrofit project?

      An area that wants to include a safety margin in its SIP from a retrofit project or projects as
quickly as possible would follow the following steps. (See Figure 1 at the end of this appendix for a
flowchart that depicts these steps.) These steps assume that EPA has not yet approved a SIP
submission that establishes budgets that the safety margin amends, that is, the safety margin is
included  in the initial RFP SIP, attainment demonstration, or maintenance plan that the state submits.
Therefore, the budgets that include the  safety margin can be used as soon as EPA finds them
adequate. However, if the area has an approved SIP with a motor vehicle emissions budget and the
state submits a SIP with a safety margin that would change the budget, the revised budget could not
be used until EPA approves the SIP.

   •  Agencies consult and decide on the project. The process would begin with the MPO and
      state air agency discussing the ability to create a safety margin by retrofitting nonroad
      vehicles, engines, and equipment and the scope  of the retrofit project(s) that could contribute
      to  the safety margin.  There may be some areas where a safety margin cannot be created; in
      these cases nonroad retrofit projects may be even more important for the area's SIP.
      Assuming that the nonroad retrofit project is funded at least in part with CMAQ dollars, the
      MPO (or state DOT) would need to determine the timing of the project, number of vehicles,
      engines, or equipment to be retrofitted, and the retrofit technology that would be applied
      because the MPO (or state DOT) determines how CMAQ money is spent. The state air
      agency also must be involved because that agency prepares the SIP.

   •  Agencies quantify the project.  The state air agency, in consultation with the MPO,22 would
      quantify emission reductions from the retrofit project in the year(s) for which the budgets are
      established. (See Chapter 2 of this guidance for further direction in how a retrofit project can
      be quantified.)

   •  State air agency assures SIP criteria are met. The state air agency would determine and
      document that the emission reductions meet all of the criteria necessary for  a SIP to include
       2Note that either the state air agency or the MPO could take the lead role in this step.


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      emission reductions from a project, specifically, that emission reductions are surplus,
      quantifiable, enforceable, permanent, and adequately supported. (See Chapter 3 of this
      guidance for further discussion of these criteria.)

   •  State air agency prepares the safety margin section of the SIP  The state air agency would
      prepare an initial draft of the safety margin section of the SIP; share it with the other parties in
      the interagency consultation process, including the MPO, DOT, and EPA;  and revise it as
      necessary once it receives comments from the other agencies. This step could take anywhere
      from one to three months, depending on the nature of the comments that arise through
      interagency consultation. However, if the nonroad retrofit project is well thought-out and
      accurately quantified in the initial draft, it is likely that fewer issues would have to be resolved
      in the consultation process.  We believe that the state air agency and the MPO could complete
      the first four steps in one to three months.

   •  State requests that EPA parallel process the SIP  The state air agency would send the EPA
      region the proposed SIP and in its transmittal letter, request that EPA use parallel processing
      to approve the revision and find the budgets adequate.

   •  State publishes proposal. The state must publish its proposal in accordance with its own
      state's procedures, which would begin a public comment period. In most cases, a state would
      give the public one month to comment, but depending  on the circumstances, the public
      comment period could be shortened to 15 days.23

   •  EPA begins the adequacy process. Once EPA receives an initial  SIP submission for parallel
      processing, EPA must review it for adequacy, regardless of whether the  safety margin is part
      of a larger SIP demonstration or whether it is a stand-alone submission.  EPA uses the criteria
      in 40 CFR 93.118(e) to judge whether a SIP submission is adequate, and follows the process
      described in 40 CFR 93.118(f). EPA begins the adequacy process by notifying the public that
      we have received a SIP submission and beginning a 30 day public comment period.

   •  State revises its proposal. The state would revise its proposal  as necessary, based on the
      comments it receives during the public comment period. This step may take the state about a
      month. At this point, the state air agency finalizes the  SIP and submits it to EPA for approval
      and completion of the adequacy process.

   •  EPA completes the adequacy process. After the comment period, EPA must inform the
      state of its decision on adequacy and respond to any comments it has received. EPA also
      must publish a notice in the Federal Register.  Usually, EPA completes the adequacy process
      within three months, but can expedite it if necessary to a month and a half.
       23Requirements for public hearings on SIPs can be found at 40 CFR 51.102. Section 51.102(g) allows a state to
shorten its public comment period if it submits a written application to EPA in advance.
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   •  EPA adequacy finding effective. The adequacy finding is effective 15 days from the date
      the Federal Register notice is published. At this point, the MPO can use the motor vehicle
      emissions budgets in the SIP submission for conformity.
A.3    Have any areas included safety margins in their SIPs?

       Yes. Many areas have included safety margins in their SIPs that have been used in
conformity. Below we have listed areas with a safety margin as of the date of this guidance
document, as well as the pollutant and standards and the type of SIP that included the safety margin.
As these safety margins were done prior to the release of this guidance, they have resulted from a
variety of control measures, rather than nonroad retrofit projects. However, the list demonstrates
that safety margins have been done with some frequency in the past, and that many states have
experience with including safety margins in their SIPs.
Area

Hancock and Waldo County, ME
Syracuse, NY
TN portion of the Clarksville-Hopkinsville
Detroit, MI
Grand Rapids, MI
Muskegon, MI
Allegan County, MI
Columbiana County, OH
Cincinnati, OH
Clinton County, OH
Dayton/Springfield, OH
Toledo, OH
Columbus, OH
Greene and Jackson Counties, IN
Evansville, IN
Terre Haute, IN
Muncie, IN
Colorado Springs, CO
Denver, CO
Fort Collins, CO
Greeley, CO
Longmont, CO
Ogden, UT
Provo, UT
Salt Lake City, UT
Salt Lake and Davis Counties, UT
San Diego, CA
Bakersfield, CA
Chico,  CA
Standard

1-hour ozone
CO
8-hour ozone
1-hour ozone
1-hour ozone
1-hour ozone
1-hour ozone
1-hour ozone
1-hour ozone
1-hour ozone
1-hour ozone
1-hour ozone
1-hour ozone
8-hour ozone
8-hour ozone
8-hour ozone
8-hour ozone
CO
CO, 1-hr ozone &PMio
CO
CO
CO
CO
CO
CO
1-hr ozone
1-hr ozone & CO
CO
CO
Type of SIP

maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
maintenance
plan
plan
plan
plan
plan
plan
plan
plan
plan
plan
plan
plan
plan
plan
plan
plan
plan
plan
plans
plan
plan
plan
plan
plan
plan
plan
plans
plan
plan
                                           52

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Fresno, CA                            CO                      maintenance plan
Lake Tahoe North Shore, CA             CO                      maintenance plan
Lake Tahoe South Shore, CA             CO                      maintenance plan
Modesto, CA                           CO                      maintenance plan
Sacramento, CA                        CO                      maintenance plan
San Francisco-Oakland-San Jose, CA      CO                      maintenance plan
Stockton, CA                           CO                      maintenance plan
                                          53

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                          Figure 1: Steps for Developing a Safety Margin
Key:
          State Action
EPA begins
 adequacy
  review
       EPA posts the
      submission on the
    adequacy webpage -
        starts public
      comment period
         (1 month)
        EPA responds to
           comments,
          prepares FR
           notice and
        adequacy finding
              letter
           (1  month)
                I
                                 State air agency, in consultation with the MPO:
                                  1) quantifies retrofit emissions reductions for
                                   SIP budget years;  2) determines amount of
                                 reductions that are available as a safety margin
                                   for conformity; and 3) determines that the
                                  emissions reductions meet SIP requirements
                                 State air agency prepares proposed SIP revision
                                (1 to 3 months to complete all steps to this point)
                                   State air agency requests that EPA parallel
                                       process the proposed SIP revision
>
EPA agrees to /
parallel process
f
'\ EPA does not agree to
\y parallel process
1
>,

                                                                                                 EPA
                                                                                             processes as a
                                                                                               normal SIP
                                                                                               revision (1)
                             State air agency proposes the SIP revision
                             containing the safety margin - starts public
                                        comment period
                                           (1 month)
                             State air agency addresses comments, makes
                               revisions, if necessary (2), finalizes SIP
                             revision, and submits it to EPA for approval
                                            (2 months)
          EPA publishes FR
          notice announcing
         adequacy of budgets
              (15 days)
                                                  Adequacy
                                                   finding
                                                   effective
                                                   (15 days)
(1) EPA would not begin the adequacy process until after state submits final SIP revision for approval. Adds at least 3
months to the process.

(2) Assumes budgets (with safety margins) are not affected by any revisions at the state level.

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                                      APPENDIX B

    ESTABLISHING AND USING A TRADING MECHANISM TO ALLOW EMISSION
  REDUCTIONS FROM NONROAD RETROFITS TO BE USED IN TRANSPORTATION
                          CONFORMITY DETERMINATIONS
      This appendix provides detail about how a state could apply the emission reductions from a
nonroad retrofit project or projects in a conformity determination via a trading mechanism.

B.I   What is an example of establishing and using a trading mechanism?

      Suppose an 8-hour ozone nonattainment area develops a draft attainment demonstration that
shows the area could emit from all sources 400 tons of NOx per day, and still meet the air quality
standard in 2010. The area's total NOx SIP inventory for 2009 is:
      Nonroad:                                100 tons per day
      On-road:                                100 tons per day
      Stationary sources:                        100 tons per day
      Area sources:                            100 tons per day
      Total final attainment SIP NOx inventory:   400 tons per day
      This SIP would have a 2009 NOx motor vehicle emissions budget of 100 tons per day, which
is the on-road portion of the NOx inventory. The area also includes a trading mechanism in its SIP,
and EPA has approved it.

      During the development of the SIP, the MPO implements a nonroad retrofit project that will
reduce NOx by 5 tons per day in 2009 and 2 tons per day in 2015. The state air agency and MPO
concur that these reductions will not be applied to the nonroad inventory used in the SIP,  in order to
use it in a future transportation plan/TIP conformity determination.  The state air agency concurs
through a letter to the MPO that the reductions in 2009 and 2015 are surplus.

      In this case, the on-road motor vehicle emission budget does not change. In subsequent
conformity determinations for 2009, the MPO could offset as much as 5 additional tons of on-road
emissions using the reductions from the nonroad retrofit project in 2009 and as much as 2 tons per in
2015, based on the latest information available for the retrofit project's reductions when
transportation plan/TIP conformity is determined. Retrofit reductions from a trade would be
estimated based on the latest assumptions and emissions model available at the time of a
transportation plan/TIP determination (40 CFR93.110  and 93.111).
B.2   Does a trading mechanism have to be included in a SIP?

      Yes, a state must adopt the trading mechanism (such as the model rule found in Appendix C)
into its SIP. A state may choose to develop this type of trading mechanism either as a stand-alone
SIP or as part of a larger SIP submission.
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      EPA believes that the most expeditious process for developing and approving a trading
mechanism is for a state to use the model trading rule provided in this guidance document in
Appendix C to develop the mechanism as a stand-alone SIP and for EPA to parallel process its
approval.  As discussed below, it is possible that a trading mechanism based on the model rule may
be developed by a state and approved by EPA in as little as eight months if it is submitted as a stand-
alone SIP and if EPA parallel processes its approval. The model rule should be used as the basis for
a state's trading rule whether the state submits its rule as a stand-alone SIP or includes it in an RFP
SIP, attainment demonstration, or maintenance plan to expedite the development, review and
approval of the trading mechanism.
B.3   What is the most expeditious process for establishing a trading mechanism in a SIP, and
       how long will it take?

      Based on EPA's experience, the development and approval of a SIP involving a regulation
such as one that would allow emission reductions from a nonroad retrofit project to be used in
transportation conformity determinations generally takes eight to 24 months. To minimize the time
needed for the state air agency to develop and EPA to review a SIP addressing a trading rule, EPA
developed a model rule that is discussed in detail in Appendix C of this document.  States that want
to minimize the time necessary to adopt a trading mechanism into their SIP should use EPA's model
rule. If a state decides to draft its own trading rule, it will likely take more time to complete the
steps outlined below.

      The  following paragraphs and the flowchart at the end of this appendix (Figure 2) describe a
process that can be used to expedite the approval of a trading rule into a SIP. If a state adopts the
model  trading rule and EPA approves the rule in parallel with the state's adoption of the rule, we
believe that many states could put a trading rule in place for use in transportation conformity
determinations in as little as eight months.24

   •   State prepares proposed SIP. The first step in developing a SIP for a trading rule to allow
       emission reductions from nonroad retrofit projects to be used in transportation conformity
       determinations is for the state air agency to prepare the proposed SIP. To expedite this step,
      the air agency should start with the model trading rule and modify  it only to the extent
      necessary. The air agency would need to fill in the information pertinent to the nonattainment
       and maintenance areas in its state where the rule would apply. It is also likely that  the state
       air agency would have to format the rule so that it conforms to the  state's requirements for
      regulatory text.  The state would also develop language to be included in the preamble of its
      notice  of proposed rulemaking. In drafting its preamble language the state may find it useful
      to incorporate as much relevant language as possible from the explanatory text in Appendix C
      that accompanies the model rule.
       24Some states may be able to further reduce the time needed if state law allows them to establish a SIP trading
mechanism through a memorandum of agreement (MOA) or memorandum of understanding (MOU). EPA believes that
use of an MOA or MOU could save time because an MOA or MOU may require less time for state reviews than a
regulation. However, EPA notes that this route may not be available to all states primarily because individual state law
may not allow MO As or MOUs to be binding on future administrations.


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      Once the air agency has drafted its regulation it would share the draft with the interagency
      consultation partners as required by 40 CFR 93.105(b)(l). The interagency consultation
      partners include representatives of the MPO(s), state and local air quality and transportation
      agencies, and the local or regional offices of EPA, FHWA, and FT A. After the interagency
      consultation partners have reviewed and commented on the draft, the state air agency would
      make any needed revisions.  We believe that a state air agency could accomplish these tasks
      in about two months, or perhaps even less, if it closely follows the model rule in Appendix C.
      However, if a state air agency decided to make significant changes or to ignore the model
      rule, these initial steps could take up to eight months.

   •  State submits proposed SIP to EPA and requests parallel processing. At this point the air
      agency would transmit the SIP to the EPA Region and request in the transmittal letter that the
      submission be parallel processed in order to expedite its incorporation into the SIP.

   •  State proposes trading rule and solicits public comment.  The air agency would also move
      forward with publishing its notice of proposed rulemaking, consistent with the state's
      requirements. Once published, a public comment period would begin.  A typical public
      comment period is 30 days;  however, it may be possible to reduce the comment period to as
      little as 15 days under some circumstances.25 We believe that a state air agency could
      complete these steps in about one month.

   •  EPA reviews proposed trading rule. The EPA Region would begin its formal review of the
      trading rule as soon as it receives the state's SIP submission.  EPA's review and the
      subsequent publication of a notice of proposed rulemaking in the Federal Register would
      occur while the state was accepting public comments on its notice of proposed rulemaking
      and addressing any comments received.  Because the EPA Region would have reviewed the
      draft through the interagency consultation process, the EPA Region should be able to
      complete its review of the submission quickly and prepare its notice of proposed rulemaking.
      We believe that an EPA Region could complete these steps in as little as one month if the
      state's rule closely follows the model rule and if the air agency thoroughly addressed
      comments offered by the Region during the interagency consultation process.  If, however,
      the  submission does not closely follow the model rule or if the Region's comments were not
      thoroughly addressed, these steps could take three months or more.
      EPA proposes approval of the trading rule. The EPA Region would then publish the
      notice of proposed rulemaking in the Federal Register. The publication of the notice would
      start a public comment period. A typical public comment period is 30 days; however, it may
      be possible to reduce the comment period to as little as 15 days under some circumstances.
      The EPA Region could complete these steps in about one month.
       25Requirements for public hearings on SIPs can be found at 40 CFR 51.102. Section 51.102(g) allows a state to
shorten its public comment period if it submits a written application to EPA in advance.


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   •  EPA addresses comments and prepares final approval. At the close of the comment
      period on EPA's notice of proposed rulemaking, the EPA Region would address any
      comments received and could draft the Federal Register notice finalizing the approval of the
      trading rule; however, EPA cannot publish this final rulemaking notice until the state
      completes its rulemaking process and submits the adopted rule to EPA. We believe that the
      EPA Region could respond to any comments and draft the final rulemaking notice in about
      one month.

   •  State prepares final rulemaking package. By this time the state's public comment period
      would have closed. The state air agency would address any comments received and prepare
      its final rulemaking package, making any changes in the rule that are necessary to address any
      comments that are received. These actions would take about one month. It must be noted that
      if the  state needs to make a significant revision to its trading rule, the EPA Region would not
      be able to complete its rulemaking through parallel processing because the state's final rule
      would not be consistent with the rule that EPA had proposed for approval.

   •  State review, if required.  At this point some states may be required to submit the final rule
      for review within the state before submission to EPA for final  approval.  These reviews may
      be carried out by the state legislature, the Governor's office or other body established by the
      state.  The length of these reviews vary greatly.  In most cases these reviews either are not
      required or last less than six months. However, in some states the review can add up to 18
      months to the process,  particularly in cases where review is required by the state legislature
      and the rule is completed just after the end of one legislative session.

   •  State submits adopted rule for EPA approval. After any required state-level review is
      completed, the air agency would address any comments that resulted from this review
      process. The air agency would also complete the state rulemaking process which may involve
      steps such as publishing a final rulemaking notice.  The state would then submit the final SIP
      package to the EPA Region for final approval. We believe that these tasks can be completed
      in about one month.

   •  EPA finalizes approval. The EPA Region would then complete its final rulemaking notice
      and have the notice published in the Federal Register.  This step could take one month or
      perhaps less. EPA's final action would be effective 30 days after publication.  If EPA
      approves the SIP and once EPA's rulemaking action is effective, the MPO(s) may use the
      trading rule in conformity determinations. No further rulemaking by the state or EPA would
      be necessary to allow trades to occur.
B.4   Has any state adopted a trading mechanism into its SIP this quickly?

      Yes.  The following timeline from Utah's experience illustrates how quickly a trading
mechanism can be adopted into a SIP. In this case, the trade was between pollutants rather than
between emissions sectors. The fact that the trading mechanism was critical for the area to
demonstrate conformity meant that all of the involved agencies worked quickly to reach resolution:
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   •  In early January 2002, the MPO for Salt Lake City, Utah, recognized that it would not be able
      to pass the NOx budget in its PMi0 SIP in its next conformity determination that was required
      in July 2002.  The MPO knew that it would be able to easily pass the PMio budget in the SIP.
      Through interagency consultation, it was decided that the state and EPA would work together
      to quickly develop and approve a  SIP trading mechanism that would allow the area to trade
      emission reductions from its PMio budget to its NOx budget as allowed by 40 CFR 93.124(b).

   •  In early January, Utah and EPA began drafting the trading rule and supporting information.
      By early February, the initial language for the trading rule and supporting information had
      been completed. In early March, the regulatory language and supporting information was
      finalized.

   •  On March 15, the  Governor of Utah submitted the proposed trading rule to EPA Region 8 and
      asked that parallel processing be used to approve the rule.

   •  On April 1, the Utah Air Quality Board (UAQB) proposed the trading rule and started a 30-
      day public comment period.

   •  On May 1, EPA Region 8 published a Federal Register notice proposing approval of the
      trading rule that started a 30-day public comment period.

   •  On May 13, the UAQB adopted the trading rule and submitted the adopted rule to EPA
      Region 8 for final  approval.

   •  On July 1, EPA Region 8 published a Federal Register notice approving the trading rule into
      Utah's SIP.

   •  On July 31, EPA's approval became effective and the MPO was then able to use the trading
      rule in its pending conformity determination.

       The entire process from the time  that it was recognized that a trading rule was needed to the
time that EPA's approval of the rule became effective was just under seven months. While the
specifics of the trading rule developed for Salt Lake City are different than a trading mechanism for
nonroad retrofit projects, EPA believes that it would be possible to develop and approve such a
trading mechanism in a similar amount of time.
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                               Figure 2:  Steps for Developing a Trading Rule
  Key:   C
             State Action
                EPA begins
                   review
              EPA completes
                review and
              prepares NPRM
               (1-3 months)
               EPA publishes
               NPRM - starts
              comment period
                 (~1 month)
               EPA addresses
               comments and
               prepares FRM
                 (1 month)
                     V
                    o
                 EPA finalizes
                 and publishes
                     FRM
                   (1 month)
        State air agency prepares proposed SIP
          revision, in consultation with MPO
                   (2 - 8 months)
                                                State air agency requests that EPA parallel
                                                         process the revision
                                            EPA agrees to
   parallel process
EPA does not agree

to parallel process
  State air agency proposes the trading rule - starts public
                   comment period
                     (~1 month)
                                             State air agency addresses comments and revises if
                                                               necessary
                                                               (1 month)
                                          State review process, if necessary (legislature, governor's
                                                                office)
                                           (Typically 0-6 months, but could be up to 18 months)
   State air agency finalizes SIP revision and submits it to
                   EPA for approval
                       (1 month)
V
                        Final SIP
                        approval
                        effective
                        (1 month)
    EPA
processes as a
 normal SIP
 revision (1)
(1) EPA would not propose approval until after the state submits its final SIP revision for approval. Would add at least 3 to 5 months to
the process.

(2) Assumes any changes are minor and would not cause EPA to re-propose approval.

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                                      APPENDIX C

      MODEL RULE FOR TRADING EMISSION REDUCTIONS FROM NONROAD
            RETROFIT PROJECTS FOR TRANSPORTATION CONFORMITY
Introduction

      SAFETEA-LU recognizes the importance of nonroad diesel retrofit projects and other mobile
source emission reduction strategies and, for the first time, directs states and MPOs to give priority
to funding diesel retrofits and other cost-effective mobile strategies under CMAQ. The law also
notes that states and MPOs continue to have final CMAQ project selection authority.

      This model rule establishes a trading mechanism that would allow emission reductions from
nonroad retrofit projects that are eligible to be funded with CMAQ (23 U.S.C. 149(b)) to be used in
transportation conformity.  The model rule is intended to facilitate states' adoption of this type of
trading mechanism into their SIPs. States would need to modify this model rule to account for any
new issues raised by including projects that may not be eligible for CMAQ dollars, as described
further below.

      Once a trading mechanism is adopted by a state into its SIP, the state air agency, MPO, and
other agencies as appropriate would follow its provisions each time the MPO wants to include the
emission reductions from a new nonroad retrofit project (or set of projects) in a transportation
conformity determination.

      Appendix C is divided into two parts that follow a parallel structure. Part 1 provides
background information for state and local agencies to consider for each section of the model trading
rule. Part 2 provides the model rule itself that states can include in their SIPs. EPA developed the
model rule based on existing laws and regulations.
Part 1:  Explanatory Notes for Using Model Trading Rule Language

Section 1. Purpose

      The purpose of the model rule is to establish a trading mechanism that allows certain nonroad
retrofit emission reductions to be used in transportation plan and TIP conformity determinations.

Section 2. Definitions

      Examples of definitions that may be needed are listed, but all of them do not need to be
included if they are defined elsewhere in the state's regulations or if they do not apply (e.g., PMio
does not need to be defined if a state has no PMio nonattainment or maintenance areas).  At a
minimum, the definitions of "CARS," "CMAQ," "EPA," "nonroad retrofit project," and "surplus"
must be included.  If you include a definition for a word or phrase that is defined in the conformity
rule (40 CFR 93.101), your definition must be consistent with the  definition found in that rule.
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Section 3. Applicability

(a)    This model rule could be tailored to establish individual trading mechanisms for more than
       one nonattainment or maintenance area within a state.  Section 3(a) is intended to ensure that
       the exchange of emission reductions occurs within the geographic area that the regional
       emissions analysis covers, rather than between areas covered by separate regional emissions
       analyses.  We believe that this language will cover all possible jurisdictional cases, e.g., where
       there is one MPO in a nonattainment area, an MPO that has a donut area, multiple MPOs in an
                                rj/:
       area, or a multi-state area.

       States can apply this model rule to one or more MPOs,  simply by including the names of the
       MPOs within the model rule. However, states could also list the MPOs to which the model
       rule applies and refer to this list in subsequent sections  of the model rule. A state may want to
       choose this approach to be consistent with other parts of its SIP, or simply because doing so
       avoids repetition of the list in multiple places throughout the trading rule.

(b)    As noted above, the model trading rule is intended to target retrofit projects that are eligible
        for CMAQ dollars. States would need to modify this model rule to account for any new
        issues raised by including projects that may not be eligible for CMAQ dollars.  For example,
        a trading mechanism  could also account  for other retrofit projects that are funded or operated
        by a state or local transportation agency that may not be eligible for CMAQ dollars (e.g.,
        retrofitting diesel mowing tractors that cut vegetation within the rights-of-way of roadway
        facilities).

(c)    This section allows agencies to specify which pollutants and/or precursors are covered by
       their trading rule (e.g.  the rule for an 8-hour ozone area could specify that it applies to NOx,
       VOC, or both).

       This section also states that the rule applies only to trades of the same pollutant or precursor.
       That is, the model trading rule does not provide for trading between pollutants or
       precursors.27'28
        26Please refer to EPA's guidance, Companion Guidance for the July 1, 2004, Final Transportation Conformity
Rule:  Conformity Implementation in Multi-jurisdictional Nonattainment and Maintenance Areas for Existing and New
Air Quality Standards (EPA420-B-04-012, July 2004), for more information regarding how the conformity rule's
requirements for conformity determinations apply in areas that contain more than one MPO, a donut area, parts of more
than one state, or any combination.


        27 If your SIP allows trading between pollutants and/or precursors that will be included in the retrofit trading
rule, you will need to delete the sentence in Section 3(c) that says, "This rule applies only to trades of the same pollutant
or precursor" and add a sentence similar to the following: "This rule does not interfere with [name of state regulation]
which provides for trading between [insertpollutants/precursors]."

        28 If you are interested in allowing inter-pollutant or precursor trading for conformity purposes, you will need to
do so within the SIP. Note that you would need to develop an appropriate trading ratio based on a technical justification
and consider other factors as appropriate.  Please  consult your EPA Region if you intend to add inter-pollutant/precursor
trading to your SIP.


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Section 4. Applying Emission Reductions from Nonroad Retrofit Projects in Transportation
Conformity Determinations

(a)(i)  The interagency consultation process in the transportation conformity (40 CFR 93.105) would
      be followed for each nonroad retrofit trade. This part of the model trading rule would require
      the MPO, state department of transportation, other state and local transportation agencies
      (when appropriate), and the state air agency to consult on trades. Individual states can further
      clarify which agencies should be involved in their consultation process, and make any further
      modifications as appropriate.

(a)(ii) This section  specifies that the MPO and the state air quality agency must agree on the quantity
      of emission reductions from a nonroad retrofit project, or set of projects, that can be used in
      conformity.  The MPO and state air quality agency must work together for a trade to occur
      because each agency is responsible for part of the process.  Though SAFETEA-LU directs
      states and MPOs to give priority to diesel retrofit projects, it specifically states that this
      priority "is not intended to disturb the existing authorities and roles of government agencies in
      making final project selections" (23 U.S.C. 149(f)(3)(B)).  That is,  the state DOTs and MPOs
      decide how to spend the  CMAQ money they receive. On the other hand, the state air agency
      is responsible for determining which emission control programs an area needs to meet its
      Clean Air Act obligations.  The MPO and the state air quality agency must decide together
      how much of the emission reductions from a nonroad retrofit project or set of projects are
      appropriate to use in conformity. These two agencies would make a decision for each project
      or set of projects being considered  for transportation plan and TIP conformity determinations.

      State air quality agencies and MPOs need to  consider the area's air quality needs when
      deciding how much of the emission reductions from a nonroad retrofit project is appropriate
      to use in conformity.  For example, in the time period before a nonattainment area has an
      attainment demonstration, it may be appropriate to reserve some of the emission reductions
      generated by a nonroad retrofit project to help demonstrate attainment.  Or, a state may decide
      to reserve some of the emission reductions for improving air quality, regardless of whether or
      not the attainment demonstration is in place.  The state air agency and MPO could also decide
      that all of the emission reductions from a nonroad retrofit project can be used in the
      conformity determination.  Whatever the  case, the state  air agency would  document its
      concurrence  in a letter to the  MPO, which would describe the surplus reductions that are
      available for transportation conformity.

(b)(i)  In order for emission reductions from a nonroad retrofit project to be estimated, NMIM (or
      other appropriate methods as determined  through interagency consultation) would need the
      number of vehicles/engines/equipment being retrofitted, the vehicle/engine/equipment type
      and class being retrofitted, vehicle/engine/equipment model years,  the retrofit technology
      being applied, the activity level of the vehicles/engines/equipment that are used (e.g., hours of
      usage), and when the retrofits will be implemented.  This section requires an MPO to describe
      the details of the project. While an MPO may not know all of this information with complete
      certainty, it should know enough about the project to make reasonable assumptions.
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(b)(ii) The model rule relies upon the transportation conformity rule's requirements for ensuring that
       emission reductions from retrofit projects have sufficient commitments before they are
       accounted for in a regional emissions analysis. For example, retrofit projects that result from
       a state or local regulation or ordinance could be included in a conformity analysis once such
       a regulation or ordinance is adopted (40 CFR 93.122(a)(3)(i)). Conversely, a retrofit project
       that does not require a regulatory action to be implemented would meet this requirement if it
       is included in the transportation plan and TIP  with sufficient funding and other resources for
       its full implementation.   See Question 4.3 of this guidance for further information on what
       level of commitment is necessary to include retrofit reductions in a transportation conformity
       determination.

       Whatever the case, once an entity (e.g., an owner or operator of nonroad equipment or
       vehicles) provides a commitment for implementing a nonroad retrofit project and the MPO
       relies on it in a conformity determination, it is an enforceable obligation.  That is, under the
       existing provisions of the transportation conformity rule, an entity that makes a written
       commitment is subject to civil action if the entity does not fulfill its commitment.

(b)(iii) - (b)(v) These paragraphs are similar to the conformity rule's requirements for any control
       measures that are relied upon in a conformity determination.

(c)    Emission reductions must be quantified using the latest assumptions available at the start of
      the regional emissions analysis (40 CFR 93.110).  The consultation process would be used to
      evaluate and choose the model(s) and associated methods and assumptions to be used (40
      CFR 93.105(c)(l)(i)).  If the emission reductions are calculated using a method that  relies on
      inputs such as temperature that were also used for developing the budgets in a SIP, these
      factors must be consistent with those used to establish the SIP as required in 40 CFR
      93.122(a)(6).  Quantification methods and information on the efficacy of retrofit technologies
      are addressed in more detail in Chapter 2 of this guidance document.

(d)   This requirement for documentation is similar to the conformity rule's requirements for
     documenting the transportation plan, the TIP, and any control measures that are included in the
     regional emissions analysis of a conformity determination.  The MPO would document in its
     conformity determination that the state air agency has concurred on the traded nonroad retrofit
     emission reductions. This documentation could be completed by referencing the state air
     agency's concurrence letter in the transportation plan/TIP conformity determination.

(e)    In subsequent determinations, the MPO and state air agency would follow the consultation
       procedures in 40 CFR 93.105, but would not have to renegotiate the amount of available
       emission reductions from a nonroad retrofit project that has already been traded for a given
       year of the regional emissions analysis.  However, the MPO must recalculate the emission
       reductions that result from the project in subsequent conformity determinations.  The MPO
       would also cite and/or include the previous air agency concurrence letter in its new
       conformity determination.

       For example, suppose a PM2 5 nonattainment area has a trading mechanism in place, and the
       MPO is determining transportation plan/TIP conformity in the year 2008.  The MPO
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       determines that a new nonroad retrofit project reduces NOx by 5 tons per day in 2009 and 2
       tons per day in 2015. After discussion in the interagency consultation process, the MPO and
       state air agency agree that these reductions are surplus, and the MPO can use some of the
       reductions in the years 2009 and 2015 of the regional emissions analysis for the
       transportation plan/IIP conformity determination. Specifically, in this example, the MPO
       and state air agency agree that the following reductions can be used for conformity purposes:
       3 of the 5 tons per day of NOx reductions for the 2009 conformity analysis year and all 2
       tons per day of NOx reductions for the 2015 conformity analysis year.

       The next time the MPO does plan/TIP conformity, the MPO re-calculates the retrofit
       project's reductions based on the latest models and assumptions, and it is found that the
       project reduces emissions by 6 tons per day in 2009, and 3 tons per day in 2015. In this
       example, the MPO can continue to use up to 3 tons per day of reductions in 2009 and up to 2
       tons of reductions in 2015, based on the previous trade for this nonroad retrofit project.  If
       additional  reductions are needed from this project for any years, then the trading mechanism
       would need to be used to conduct a new trade.

      As with any control measure that an MPO includes in its conformity determination, the MPO
      can only use the emission reductions from the project, or part of the project, that is actually
      occurring.  If the nonroad project's implementation is delayed, the MPO cannot include
      emission reductions from the project until its implementation is assured.

Section 5. Prohibition on Double-Counting

This section is intended to ensure that there is no double-counting of emission reductions that have
already been used in a transportation conformity  determination or in meeting any other Clean Air
Act purpose.  The best way to ensure this is to require that the impact of any trades be accounted for
in any subsequent inventory analyses that are done. For example, if the application of this rule
results in a decrease in the nonroad emissions inventory and an increase in the allowable on-road
emissions, future SIP inventories or regional transportation conformity analyses should reflect those
changes as appropriate.
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Part 2:  Model Trading Rule

Section 1. Purpose

      This rule establishes the procedures that may be used to trade emission reductions from
nonroad retrofit projects, as defined below, to the transportation sector for the purpose of
determining conformity of a transportation plan or transportation improvement program.

Section 2. Definitions

      The following definitions apply to this rule:

•     CARB means the California Air Resources Board.

•     CMAQ means the Congestion Mitigation and Air Quality Improvement Program, as defined in
      title 23, U.S.C.

•     EPA means the U.S. Environmental Protection Agency.

•     Nonroad retrofit project, for the purpose of this  rule, means an undertaking to reduce
      emissions from nonroad vehicles or engines as described by 23 U.S.C. 149(b), below the
      emissions level which is currently required by EPA regulations at the time of vehicle or
      engine certification. For the purposes of this rule, such an undertaking must apply a
      technology verified by EPA, CARB, or other entity recognized by EPA for verifying retrofit
      technology, and be eligible for funding under CMAQ.

•     NOx means oxides of nitrogen.

•     PMw means particulate matter that is less than or equal to  10 microns in diameter.

•     PM2.5 means particulate matter that is less than or equal to 2.5 microns in diameter.

•     Surplus means that emission reductions are not otherwise relied on to meet any Clean Air Act
      air quality related purpose including but not limited to reasonable further progress, attainment,
      maintenance, or requirements adopted to satisfy Clean  Air Act section 110(a)(2)(D).  In  the
      event that a nonroad retrofit project is relied on to meet such an air quality requirement,
      emission reductions are no longer surplus and may not be used in transportation conformity
      determinations.

•     VOC means volatile organic compounds.

Section 3. Applicability

(a)    Geographic applicability: This trading  rule applies to the geographic area covered by the
regional emissions  analysis done for a transportation conformity  determination for a transportation
plan or transportation improvement program in [insert name ofnonattainment or maintenance  area].
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(b)   Project applicability: This trading rule applies to nonroad retrofit projects as defined in
Section 2 of this rule.

(c)   Pollutant applicability:   This trading rule applies to the following pollutants/precursors:
[insert pollutants/precursors; for precursors indicate for which pollutant and standard(s)]. This
rule applies only to trades of the same pollutant or precursor.

Section 4. Applying Emission Reductions from Nonroad Retrofit Projects in Transportation
Conformity Determinations

Before [insert name ofMPO] can include emission reductions from a nonroad retrofit project(s) in a
transportation conformity determination, the steps in paragraphs (a) - (d) must be completed.

(a)    Interagency Consultation.

   (i) [Insert name ofMPO], [insert name of state department of'transportation]', [insert names of
   other state and local transportation agencies, when appropriate] and [insert name of state air
   agency] shall follow consultation procedures in [insert "40 CFR 93.105" or state transportation
   conformity SIP if one has been approved by EPA] throughout the implementation of this rule.

   (ii) [Insert name ofMPO(s)] and [insert name of state air agency] must concur on the amount of
   emission reductions from a nonroad retrofit project(s) that can be used in the transportation
   conformity determination.  [Insert name of state air agency] will document this concurrence in a
   letter to [insert name ofMPO].  Concurrence of [insert name of state air agency] also affirms
   that the emission reductions are surplus and therefore available for the transportation  conformity
   determination.

(b)    Description of the Nonroad Retrofit Proj ect(s).

   (i) [Insert name ofMPO] must fully describe each nonroad retrofit project being relied upon in a
   conformity determination, including the number of vehicles/engines/equipment being retrofitted,
   the vehicle/engine/equipment type and class, vehicle/engine/equipment model years, the retrofit
   technology being applied, the activity level of the vehicles/engines/equipment, and the
   implementation schedule of the nonroad retrofit project.

   (ii) [Insert name ofMPO] must provide assurance that the nonroad retrofit project is enforceable
   by ensuring that any nonroad retrofit project under this rule meets the requirements of 40 CFR
   93.122(a);

   (iii) [Insert name ofMPO] must provide assurance that the nonroad retrofit project has adequate
   funding and resource commitments to ensure that emission reductions from the nonroad retrofit
   project will  occur in the years of the regional emissions analysis when emission reductions will
   be used;

   (iv) [Insert name ofMPO] must provide assurance  that the nonroad retrofit project is on
   schedule and that the retrofitted vehicles, engines, or equipment will remain in use within the
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    nonattainment or maintenance area in the years of the regional emissions analysis when the
    emission reductions will be used; and

    (v) [Insert name ofMPO] must provide assurance that emission reductions will be based only on
    activity that occurs within the geographic area covered by the regional emissions analyses.

(c) Calculation of Emission Reductions. For each year of the regional emissions analysis in which
emission reductions from the nonroad retrofit project(s) will be applied, [insert name ofMPO] and
[insert name of state air agency] must calculate emission reductions from the nonroad retrofit
project(s) using:

    (i) the latest EPA-approved emissions model or other method as determined through the
    interagency consultation process required by 40 CFR 93.105;

    (ii) data and assumptions consistent with requirements for use of latest planning assumptions
    under 40 CFR 93.110, including, but not limited to  current data or future projections of numbers
    and types of nonroad vehicles/engines/equipment being retrofitted, and current data or future
    projections of hours of use for those vehicles/engines/equipment within the nonattainment or
    maintenance area;

    (iii) the latest verified information available regarding the efficacy of the nonroad retrofit project
    as provided by EPA and/or CARB; and

    (iv) ambient temperatures and other relevant factors consistent with those used to establish the
    motor vehicle emissions budgets (if they exist) in the applicable implementation plan, as required
    by 40 CFR 93.122(a)(6), if a method is used that requires such factors as inputs.

Once total emission reductions from the nonroad retrofit project(s) are calculated, [insert name of
MPO] can use no more than the amount of emission reductions determined in Section 4(a)(ii) to be
available for the  conformity determination.

(d) Documentation.  [Insert name ofMPO] must document in the transportation conformity
determination how steps (a) through (c) of this  section have been satisfied, consistent with the
transportation conformity regulations at 40 CFR Parts 51 and 93.

(e) Subsequent conformity determinations. Once emission reductions from a nonroad retrofit
project(s) have been used in a conformity determination, [insert name ofMPO] can include emission
reductions from those projects for the same analysis years in a subsequent conformity determination
without repeating paragraph (a)(ii), provided  [insert name ofMPO] meets all other requirements of
Section 4 of this  rule.

Section 5.   Prohibition on Double-Counting

Once the emission reductions of the nonroad  retrofit project(s) are included in a transportation
conformity determination, those specific reductions are no longer surplus and therefore no longer
available as new reductions for meeting any Clean Air Act air quality related purpose, including but
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not limited to, reasonable further progress, attainment, maintenance, or requirements in Clean Air
Act section 110(a)(2)(D). Any emissions inventory created after a trade must properly account for
the emission impact of the trade.
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