vvEPA
Office of Transportation EPA420-S-05-901
United States and Air Quality November 2005
Environmental Protection
Agency
Small Business Advocacy
Review Panel (SBRFA) Letter
from Panel to the EPA
Administrator
Summary Report
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EPA420-S-05-901
November 2005
to the
Office of Policy, Economics and Innovation
U.S. Environmental Protection Agency
Office of Transportation and Air Quality
U.S. Environmental Protection Agency
U.S. Office of Management and Budget
U.S. Small Business Administration
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The Honorable Stephen L. Johnson
Administrator
U.S. Environmental Protection Agency
Ariel Rios Building
1200 Pennsylvania Avenue, N.W.
Washington, D.C. 20460
Dear Mr. Johnson:
Enclosed for your consideration is the Report of the Small Business Advocacy Review
Panel (SBAR Panel or the Panel) convened for the proposed rulemaking on the Control of
Hazardous Air Pollutants from Mobile Sources (or Mobile Source Air Toxics (MSAT) proposed
rulemaking) that the U.S. Environmental Protection Agency (EPA or the Agency) is currently
developing.
On September 7, 2005, EPA's Small Business Advocacy Chairperson (SBAC) convened
this Panel under Section 609(b) of the Regulatory Flexibility Act (RFA) as amended by the Small
Business Regulatory Enforcement Fairness Act (SBREFA) of 1996. In addition to the Chair, the
Panel consisted of the Director of EPA's Assessment and Standards Division within the Office of
Transportation and Air Quality, the Chief Counsel for Advocacy of the Small Business
Administration, and the Administrator of the Office of Information and Regulatory Affairs within
the Office of Management and Budget.
The Panel's findings and discussion are based on the information available during the
term of the Panel. EPA is continuing to conduct analyses relevant to the proposed rule, and
additional information maybe developed or obtained during the remainder of the rule
development process and from public comment on the proposed rule. Any options the Panel
identifies for reducing the rule's regulatory impact on small entities may require further analysis
and/or data collection to ensure that the options are practicable, enforceable, environmentally
sound, and consistent with the Clean Air Act, primarily sections 202(1) and 183(e).
Small Entities That Mav Be Subject to the Proposed Regulation
Highway Light-Duty Vehicles
In addition to the major vehicle manufacturers, three distinct categories of businesses
relating to highway light-duty vehicles would be covered by the new vehicle standards: small
volume manufacturers (SVMs), independent commercial importers (ICIs), and alternative fuel
vehicle converters. SVMs are companies that sell less than 15,000 vehicles per year, as defined
in past EPA regulations, and this status allows vehicle models to be certified under a slightly
simpler certification process. Independent commercial importers are companies that hold a
Certificate (or certificates) of Conformity permitting them to alter imported vehicles to meet U.S.
emission standards. Alternative fuel vehicle converters are businesses that convert gasoline or
diesel vehicles to operate on alternative fuel, and converters must seek a certificate for all of their
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vehicle models. Based on a preliminary assessment, EPA identified about 14 SVMs, 10
alternative fuel vehicle converters, and 10 Ids. Of these, EPA believes 5 SVMs, 6 converters,
and all 10 ICIs would meet the small-entity criteria as defined by SB A (no major vehicle
manufacturers meet the small-entity criteria). EPA estimates that these small entities comprise
about 0.02 percent of the total light-duty vehicle sales in the U.S. for the year 2004.
Gasoline Fuel Industry
EPA's current assessment is that 15 refiners meet SB As criterion of having 1,500
employees or less. It should be noted that because of the dynamics in the refining industry (i.e.,
mergers and acquisitions) and decisions by some refiners to enter or leave the gasoline market,
the actual number of refiners that ultimately qualify for small refiner status under an MS AT
program could be much different than these initial estimates. Current data further indicates that
these refiners produce about 2.5 percent of the total gasoline pool and their contribution to
mobile source benzene emissions is roughly 5 percent.
Portable Gasoline Containers
EPA conducted a preliminary industry profile to identify the manufacturers of portable
gasoline containers (gas cans) - 98 percent are plastic containers and 2 percent are metal gas
cans. Using this industry profile, EPA identified 4 domestic manufacturers and 1 foreign
manufacturer. Of these 4 U.S. manufacturers, 3 meet the SB A definition of a small entity. One
small business accounted for over 50 percent of the U.S. sales in 2002, and the other small
entities comprised about 10 percent of U.S. sales.
Summary of Small Entity Outreach
Before beginning the formal SBREFA process, EPA actively engaged in talking to
entities that would potentially be affected by the upcoming rulemaking. EPA was able to identify
the small entities within the highway light-duty vehicles S VM, ICI, and converter sectors, using
information from EPA certification databases and non-governmental sales and employment
databases. After identifying these entities for the vehicle sector, EPA then began talking to these
businesses to locate potential SERs to participate in SBREFA. For portable gasoline container
manufacturers, EPA participated in a series of workshops held by the California Air Resources
Board and established initial industry contacts. EPA then held several meetings and conference
calls with individual manufacturers and with the manufacturers as a group to discuss their
products and EPA's upcoming proposal. For gasoline refiners, based on information from past
rulemakings, EPA began well in advance of the SBREFA process conducting phone conferences
and face-to-face meetings with small fuel refiners that produce gasoline. This led to the selection
of a set of potential SERs that represent a cross-section of small refiners.
EPA provided each business with EPA/SBAC fact sheets on the SBREFA process and
background information on and the rulemaking process and the upcoming MS AT rule itself.
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Once potential SERs were identified, EPA began having more discussions to better understand
the needs of the small entities in more detail.
Outreach meetings were held with the potential SERs on July 19, 2005 and September 27,
2005 (gasoline refiners) and September 29, 2005 (light-duty vehicles and portable gasoline
containers). On July 19,2005 EPA held three separate 1.5 hour meetings with groups of
potential SERs representing the highway light-duty vehicle industry, gasoline refiners, and
portable gasoline container manufacturing' industry. Eleven potential SERs participated in the
meetings in total. These outreach meetings were held to provide the industry representatives
with information on the SBREFA process and the role of a SER, and to solicit feedback from the
potential SERs on the upcoming rulemaking. EPA held additional outreach meetings on
September 27, 2005 with the gasoline refining SERs and on September 29, 2005 with the light-
duty vehicles and portable gasoline container SERs. A total of 11 SERs participated in the
meetings either in person or by telephone, providing their input to the Panel on the material
presented in the SER outreach packet. Following each of the outreach meetings, comments were
received from the SERs. A summary and full text of these comments can be found in the Panel
report.
Regulatory Approaches
For VOC and toxics control from light-duty vehicles (beyond the Tier 2 requirements),
EPA is exploring the alignment of EPA evaporative emission standards with California
low-emission vehicle (LEV) H standards and new cold temperature exhaust (VOC) emission
standards. Despite numerical differences in evaporative emission standards, EPA and California
programs essentially result in a comparable level of stringency today, due to differences in test
requirements. Thus, harmonizing with California's LEV-n evaporative emission standards
would streamline certification requirements and would be an anti-backsliding measure, which
would add certainty that manufacturers would retain their current approach for producing the
same level of evaporative system hardware nationwide, hi addition, data suggests that VOC
exhaust emissions (which include toxic organics) from vehicles are significantly higher under
cold temperatures (20°F) than under normal testing temperatures (75°F). EPA is currently
contemplating a cold temperature VOC standard in the range of 2 to 3 times the 75°F VOC "bin
5" exhaust standard (or a potential proposed standard of 0.2 to 0.3 grams/mile). This emission
level can be achieved through calibration alone, and it would not force new emissions control
hardware beyond that which manufacturers would be installing normally to reach full Tier 2
compliance. EPA is currently evaluating a program for highway light-duty vehicles that could
become effective in 2009 for the evaporative emissions standards and 2010 for the cold VOC
standards (with a possible 4-year phase-in period for the cold VOC standards).
From a fuel standpoint EPA is focused on controlling benzene emissions. Benzene
emissions can be addressed through both the fuel benzene content and the fuel aromatics content.
Exhaust benzene emissions are linked more strongly to fuel benzene content than any other fuel
parameter. Fuel aromatics are also a significant precursor to benzene emissions, however, the
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reduction of aromatics to achieve the same effect as a fuel benzene reduction is much more costly
because of the deep impact on octane and volume. Therefore, EPA believes that fuel benzene
control is the most effective approach. A detailed approach for timing and stringency of the fuel
requirements has not yet been decided, however, EPA is considering implementation dates in the
2010 to 2012 timeframe.
For gas cans, there are currently not federal emission control requirements. California
has a program for controlling fuel container emissions. EPA is considering performance-based
requirements, which are similar to those of California, that lead to the sale of redesigned fuel
containers nationwide. The bulk of evaporative emissions come from consumers not properly
closing containers. Also, fuel will permeate through the walls of the container, contributing to
overall evaporative emissions losses. Based on the use of automatically closing cans and
permeation control, EPA is considering proposing a diurnal evaporative emissions standard of
0.3 grams/gallon/day. EPA expects that the manufacturers will need a few years of lead time
after the standards are finalized in order to finalize their designs, certify products, and ramp up
production to a national scale, and therefore EPA is considering a start date of 2009.
Panel Findings and Discussion
The Panel assessed each of the issues raised in the outreach meetings and in written
comments by the SERs. For small entities within the light-duty vehicle sector, the Panel's key
discussions centered on the identification of flexibilities which would reduce the burden on small
entities to comply with the new standards. For small gasoline refiners, the discussions focused
on the level of a benzene standard and the compliance costs associated with the standard, and
how to mitigate its impact on small refiners. For small portable gasoline container
manufacturers, the Panel discussion focused on current state programs and finding flexibility
options that would help gas can manufacturers in their transition to eventual compliance with a
new national program. The Panel also discussed regulatory approaches and agreed to request
comment in the proposed rulemaking on such issues.
Projected Reporting. Recordkeeping. and Other Compliance Requirements of the Proposed Rule
At this point in the process, EPA has not yet fully defined a program of reporting, record
keeping requirements, or compliance assurance for the engine and equipment entities that may be
subject to the proposed rule. For highway light-duty vehicles, EPA expects to propose to
continue the reporting, recordkeeping, and compliance requirements prescribed for this category
in 40 CFR 86. Key among these are certification requirements and provisions related to
reporting of production, emissions information, flexibility use, etc. For any fuel control program,
EPA must have assurance that fuel produced by refiners meets the applicable standard, and that
the fuel continues to meet the standard as it passes downstream through the distribution system to
the ultimate end user. EPA expects that recordkeeping, reporting and compliance provisions of
the proposed rule will be fairly consistent with those in place today for other fuel programs. For
example, reporting would likely involve requiring that refiners submit pre-compliance reports
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updating EPA on their plans to meet the MSAT standards. For gas cans, there currently are not
federal emission control requirements, and thus, EPA is still developing reporting and record
keeping requirements for gas can manufacturers that would be subject to the proposed standards.
EPA is considering requirements that would be similar to those in the California program (e.g.,
emissions testing, data submittal).
Other Relevant Federal Rules Which May Duplicate. Overlap, or Conflict With the Proposed
Rule
The Panel is aware of a few other current or proposed Federal rules that are related to the
upcoming proposed rule. The primary federal rules that are related to the proposed MSAT rule
under consideration are the first MSAT rule (Federal Register Vol. 66, p. 17230, March 29,
2001), the Tier 2 Vehicle/Gasoline Sulfur rulemaking (Federal Register Vol. 65, p. 6698,
February 10, 2000), the fuel sulfur rules for highway diesel (Federal Register Vol. 66, p. 5002,
January 18, 2001) and nonroad diesel (Federal Register Vol. 69, p. 38958, June 29, 2004), and
the Cold Temperature Carbon Monoxide Rulemaking (Federal Register Vol. 57, p. 31888, July
17, 1992).
hi addition, the Evaporative Emissions Streamlining Direct Final Rulemaking is expected
to be published by the end of this year. For gas cans, OSHA has safety regulations for gasoline
containers used in workplace settings. Cans meeting OSHA requirements, commonly called
safety cans, are exempt from the California program, and we are planning to exempt them from
the EPA program.
Section 1501 of the Energy Policy Act of 2005 requires the Agency to implement a
Renewable Fuels Standard (RFS) program. Beginning in 2006, this program will require
increasing volumes of renewable fuel to be used in gasoline, until a total of 7.5 billion gallons is
required in 2012. The most prevalent renewable fuel is expected to be ethanol. There are a wide
variety of potential impacts of ethanol blending on MSAT emissions that will be evaluated as
part of the RFS rulemaking process, hi general, as ethanol use increases, other sources of octane
in gasoline can decrease. Depending on these changes, the impact on benzene emissions will
vary. The specific effects of ethanol on benzene will be addressed in the Regulatory Impact
Analysis (RIA) to this rule and in future rulemakings, such as the RFS rule.
Regulatory Alternatives
The Panel considered a wide range of options and regulatory alternatives for providing
small businesses with flexibility in complying with the MSAT standards. As part of this process,
the Panel requested and received comment on many ideas that were suggested by both the Panel
members and the SERs. Taking into consideration the comments received on these ideas, as well
as additional business and technical information gathered from and about potentially affected
small entities, the Panel summarizes the major options below. The complete set of
recommendations can be found in section 9 of the full Panel Report.
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Major Panel Recommendations
Small Light-Duty Vehicle Manufacturers
Regulatory Flexibility Options for Small Light-Duty Vehicle Manufacturers
For certification purposes (and for the sake of simplicity for Panel discussions regarding
flexibility options), SVMs include Ids and alternative fuel vehicle converters since they sell less
than 15,000 vehicles per year. Similar to the flexibility provisions implemented in the Tier 2 rule,
the Panel recommends that we allow SVMs (includes all vehicle small entities that would be
affected by this rule, which are the majority of SVMs) the following flexibility options for meeting
cold temperature VOC standards and evaporative emission standards:
For cold VOC standards, the Panel recommends that SVMs simply comply with the
standards with 100 percent of their vehicles during the last year of the 4 year phase-in
period. For example, if the standard for light-duty vehicles and light light-duty trucks (0 to
6,000 pounds GVWR) begins in 2010 and ends in 2013 (25%, 50%, 75%, 100% phase-in
over 4 years), the SVM provision would be 100 percent in 2013. If the standard for heavy
light-duty trucks and medium-duty passenger vehicles (greater than 6,000 pounds GVWR)
starts in 2012 (25%, 50%, 75%, 100% phase-in over 4 years), the SVM provision would be
100 percent in 2015.
In regard to evaporative emission standards, the Panel recommends that since the
evaporative emissions standards will not have phase-in years, we allow SVMs to simply
comply with standards during the third year of the program (we have implemented similar
provisions in past rulemakings). For a 2009 start date for light-duty vehicles and light
light-duty trucks, SVMs would need to meet the evaporative emission standards in 2011.
For a 2010 implementation date for heavy light-duty trucks and medium-duty passenger
vehicles, SVMs would need to comply in 2012.
Hardship Flexibility Provisions for Small Light-Duty Vehicle Manufacturers
In addition, the Panel recommends that hardship flexibility provisions be extended to SVMs
for the cold temperature VOC and evaporative emission standards. These provisions are:
SVMs would be allowed to apply (EPA would need to review and approve application) for
up to an additional 2 years to meet the 100 percent phase-in requirements for cold VOC and
the delayed requirement for evaporative emissions. Appeals for such hardship relief must be
made in writing, must be submitted before the earliest date of noncompliance, must include
evidence that the noncompliance will occur despite the manufacturer's best efforts to
comply, and must include evidence that severe economic hardship will be faced by the
company if the relief is not granted.
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Small Gasoline Refiners
Regulatory Flexibility Options for Small Gasoline Refiners
The Panel recommends that EPA propose certain provisions to encourage early compliance
with lower sulfur standards. The Panel recommends that EPA propose that small refiners be
afforded the following flexibility options to help mitigate the impacts on small refiners:
Delay in Standards- The Panel recommends that a four-year delay period be
proposed for small refiners. A four-year delay would be needed in order to allow for
a review of the ABT program, as discussed below, to occur one year after
implementation but still three years prior to the small refiner compliance deadline. It
was noted by the small refiners that three years are generally needed for small
refiners to obtain financing and perform engineering and construction. The Panel is
also in support of allowing for refinery expansion within the delay option, and
recommends that refinery expansion be provided for in the rule.
Early ABT Credits- The Panel recommends that early credit generation be afforded
to small refiners that take some steps to meet the benzene requirement prior to the
effective date of the standard. Depending on the start date of the program, and
coupled with the four-year delay option, a small refiner could have a total credit
generation period of five to seven years. The Panel is also in support of allowing
refiners (small, as well as non-small, refiners) to generate credits for any reductions
to their benzene emissions levels, rather than credits only for meeting the benzene
standard that is set by the rule.
The Panel supports and recommends a review of the credit trading program and
small refiner flexibility options one year after the general program starts. Such a
review could take into account the number of early credits generated, as well as the
number of credits generated and sold during the first year of the program. Further, a
review after the first year of the program would still provide small refiners with the
three years that it was suggested would be needed for these refiners to obtain
financing and perform engineering and construction for benzene reduction
equipment. Should the review conclude that changes to either the program or the
small refiner provisions are necessary, the Panel recommends that EPA also consider
some of the suggestions provided by the small refiners (their comments are located in
Appendix E of the Final Panel Report), such as:
» the general MS AT program should require pre-compliance reporting (similar
to EPA's highway and nonroad diesel rules);
» following the review, EPA should revisit the small refiner provisions if it is
found that the credit trading market does not exist, or if credits are only
available at a cost that would not allow small refiners to purchase credits for
compliance;
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» the review should offer ways either to help the credit market, or help small
refiners gain access to credits (e.g., EPA could 'create' credits to introduce to
the market, EPA could impose additional requirements to encourage trading
with small refiners, etc.).
In addition, the Panel recommends that EPA consider in this rulemaking establishing
an additional hardship provision to assist those small refiners that cannot comply
with the MS AT with a viable credit market. (This suggested hardship provision was
also suggested by the small refiners in their comments, located in Appendix E,
below). This hardship provision would address concerns that, for some small
refineries, compliance may be technically feasible only through the purchase of
credits and it may not be economically feasible to purchase those credits. This
flexibility would be provided to a small refiner on a case-by-case basis following the
review and based on a summary, by the refiner, of technical or financial infeasibility
(or some other type of similar situation that would render its compliance with the
standard difficult). This hardship provision might include further delays and/or a
slightly relaxed standard on an individual refinery basis for a duration of two years;
in addition, provision might allow the refinery to request, and EPA grant, multiple
extensions of the flexibility until the refinery's material situation changes. The panel
understands that EPA may need to modify or rescind this provision, should it be
implemented, based on the results of the program review.
Hardship Flexibility Provisions for Small Gasoline Refiners
EPA has stated that it does intend to propose the extreme unforeseen circumstances hardship
and extreme hardship provisions (for all gasoline refiners and importers), similar to those in prior
EPA fuels programs. A hardship based on extreme unforeseen circumstances is intended to provide
short term relief due to unanticipated circumstances beyond the control of the refiner, such as a
natural disaster or a refinery fire; an extreme hardship is intended to provide short-term relief based
on extreme circumstances (e.g., extreme financial problems, extreme operational or technical
problems, etc.) that impose extreme hardship and thus significantly affect a refiner's ability to
comply with the program requirements by the applicable dates. The Panel agrees with the proposal
of such provisions and recommends that EPA include them in the MS AT rulemaking.
Small Portable Gasoline Container Manufacturers
Regulatory Flexibility Options for Small Portable Gasoline Container Manufacturers
Since nearly all gas can manufacturers are small entities and they account for about 60
percent of sales, the Panel plans to extend the flexibility options to all gas can manufacturers.
Moreover, implementation of the program would be much simpler by doing so. The recommended
flexibilities are the following:
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Design Certification- The Panel recommends that EPA propose to permit gas can
manufacturers to use design certification in lieu of running any or all of the durability aging
cycles. Manufacturers could demonstrate the durability of their gas cans based in part on
emissions test data from designs using the same permeation barriers and materials. Under a
design-based certification program a manufacturer would provide evidence in the application
for certification that their container would meet the applicable standards based on its design
(e.g., use of a particular permeation barrier). The manufacturer would submit adequate
engineering and other information about its individual design such that EPA could determine
that the emissions performance of their individual design would not be negatively impacted
by slosh, UV exposure, and/or pressure cycling (whichever tests the manufacturer is
proposing to not run prior to emissions testing).
Broaden Certification Families- This approach would relax the criteria used to determine
what constitutes a certification family. It would allow small businesses to limit their
certification families (and therefore their certification testing burden), rather than testing all
of the various size containers in a manufacturer's product line. Some small entities may be
able to put all of their various size containers into a single certification family.
Manufacturers would then certify their containers using the "worst case" configuration
within the family. To be grouped together, containers would need to be manufactured using
the same materials and processes even though they are of different sizes.
Additional Lead-time- Since it may take additional time for the gas can SERs to gather
information to fully evaluate whether or not additional lead-time is needed beyond the 2009
start date, the Panel recommends that EPA discuss lead-time in the proposal and request
comments on the need for additional lead-time to allow manufacturers to ramp up to a
nationwide program.
Product Sell-through- As with past rulemakings for other source sectors, the Panel
recommends that EPA propose to allow normal sell through of gas cans as long as
manufacturers do not create stockpiles of noncomplying gas cans prior to the start of the
program.
Small Portable Gasoline Container Manufacturers Hardship Flexibility Provisions
The Panel recommends that EPA propose two types of hardship programs for small gas can
manufacturers. These provisions are:
Allow small manufacturers to petition EPA for limited additional lead-time to comply with
the standards. A manufacturer would have to make the case that it has taken all possible
business, technical, and economic steps to comply but the burden of compliance costs or
would have a significant adverse effect on the company's solvency. Hardship relief could
include requirements for interim emission reductions. The length of the hardship relief
would be established during the initial review and would likely need to be reviewed annually
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thereafter.
Permit small manufacturers to apply for hardship relief if circumstances outside their control
cause the failure to comply (i.e. supply contract broken by parts supplier) and if failure to
sell the subject containers would have a major impact on the company's solvency. The terms
and timeframe of the relief would depend on the specific circumstances of the company and
the situation involved. As part of its application, a company would be required to provide a
compliance plan detailing when and how it would achieve compliance with the standards
under both types of hardship relief.
Sincerely,
i-
! A 1.,/VT^L-:-'
Alexander Gnstofaru /
Small BtiMiiebs Advocjfcy Chair
Ol'fici.1 of Policy, I'Von6mics and Innovation
i i
U.S. Iim']ronm€iitaf\r|ro!cclion Agency
^y
is ,vr: Sullivan7"
Chief Counsel for Advocacy
Office of Advocacy
U.S. Small Business Administration
John p. Guilium
Adnikikirator
Office of in formation .tiki R^
Affairs
U.S. Office of Management and Budget
NOV -8 2005
Sester J. France
Director
Assessment and Standards Division
Office of Air and Radiation
U.S. Environmental Protection Agency
Enclosure
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