A *"**"* Ji
        Air and Radiation                  EPA420-R-04-006
                               April 2004
United States
Environmental Protection
Agency
        Response to Comments:

        Motor Vehicle and Engine
        Compliance Program
        Fees for: Light-Duty Vehicles;
        Light-Duty Trucks;
        Heavy-Duty Vehicles and
        Engines; Nonroad
        Engines and Motorcycles

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                                              EPA420-R-04-006
                                                   April 2004
                      to

                                       for:
Light-Duty             Light-Duty Trucks;
           Certification and Compliance Division
          Office of Transportation and Air Quality
           U.S. Environmental Protection Agency

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                        Table of Contents
I.    Introduction
II.   List of Commenters and Abbreviations
III.       Comments and Responses
     SECTION 1:  Legal Authority
          1.1.   Authority to Assess Nonroad Fees
          1.2.   Authority to Recover Anticipated Costs for
                Proposed Programs
          1.3.   Authority to Collect Fees for Manufacturers
          1.4.   Other Authority Issues

     SECTION 2:  Assessment of Costs
          2.1.   Costs Apportioned to Industries
          2.2.   Costs Unrelated to the MVECP
          2.3.   Costs for In-use Programs
          2.4.   Costs Too High for Industry

     SECTION 3:  Cost Study
          3.1.   Number of Engine Families
          3.2.   Heavy-duty Highway and Nonroad Compression-
                ignition Compliance               Activities
          3.3.   General Cost Study Comments

     SECTION 4:  Automatic Adjustment of Fees

     SECTION 5:  Effective Date and Application of New Fees

     SECTION 6:  Reduced Fees
          6.1.   Reduced Fee of One Percent Aggregate Retail Price
          6.2.   Retroactive Payment Under Reduced Fee Program
          6.3.   Year End Report
          6.4.   ICI Owner-Imported Vehicles (Not for Resale)
          6.5   $300 Minimum Fee Payment
     SECTION 7:  ICI Issues
          7.1.   Fee Provisions Specific to ICIs
          7.2.   ICI Vehicles Imported for Resale
          7.3.   Modification and Test Cars
          7.4.   ICI Licensing
          7.5.   ICIs and SBREFA

     SECTION 8:  Other Topics
          8.1.   EPA Services
          8.2.   Fee Payment Timing
          8.3.   Running Changes and Carryovers

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8.4.   Refunds Less than $500 and Final Fee Payments
      Less than $500
8.5.   $300 Minimum Fee Payment
8.6.   Reduced Costs for California-only
8.7   Fee Payment Suggestions

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I.  Introduction

       On August 7, 2002, EPA published in the Federal Register
(67 FR 51402)  a Notice of Proposed Rulemaking (NPRM) titled the
Motor Vehicle and Engine Compliance Program Fees for: Light-Duty
Vehicles; Light-Duty Trucks; Heavy-Duty Vehicles and Engines;
Nonroad Engines and Motorcycles.  A public hearing on the proposal
was held in Ann Arbor, Michigan on September 19, 2002.  The
proposal announced the opportunity for written public comment
until October 19, 2002.  EPA received comments before and after
the close of the comment period.  All comments were fully
addressed to the extent possible.

     Complete transcripts of the public hearing and the full text
of each comment letter, along with supporting information used in
developing the regulation, are found in Docket No. OAR-2002-0023
(this docket was originally referenced as A-2001-09).  The docket
is available for public viewing at the following address: EPA
Docket Center (EPA/DC), Public Reading Room, Room B102, EPA West
Building, 1301 Constitution Avenue, NW, Washington, D.C.  An
electronic version of the public docket is available through EPA's
electronic public docket and comment system, EPA Dockets.  You may
use EPA Dockets at http://www.epa.gov/edocket/ to view public
comments, access the index listing of the contents of the official
public docket, and to access those documents in the public docket
that are available electronically.  Once in the system, select
"search," then key in the appropriate docket identification
number.

     EPA received  several comments.  A copy of each comment
letter is included in the rulemaking docket.  All of the comments
have been carefully considered, and where determined to be
appropriate, changes have been made to the final regulations.

     This document summarizes the written and oral comments
submitted at the public hearing and delivered to EPA during and
after the comment period.

     This document is divided into eight sections.  Each section
comprises issues which address the section heading or topic.

     EPA published in the Notice of Proposed Rule Making (NPRM)
fees that reflected our projected test plans for the regulated
industries.  In the time between the NPRM and the FRM, EPA has
gathered additional information about the programs and tests that
it plans to conduct and is in a better position to project its

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compliance programs for 2004 and beyond than it was at the time of
that the NPRM was written. As a result of an internal reassessment
of testing capabilities and requisite levels of appropriate
compliance oversight,  along with comments received,  EPA made
several adjustments which have resulted in a change in costs of
certificates for several industry categories.   The changes are
described in detail in the preamble to the final rule, section
III, What Are the Changes Made to the Proposed Cost Analysis?  The
issues are discussed more fully in the sections 2 and 3 below.
The changes are also reflected in several new worksheets based on
"Appendix C" which was attached to the "Motor Vehicle and Engine
Compliance Program Cost Analysis" document.  Thus several new
worksheets have been generated from those originally found in
Appendix C and EPA also provides an additional description of the
changes to these worksheets.  The new worksheets and description
are available in the docket for this rule and are called "Updated
Cost Analysis."

II.  List of Commenters and Abbreviations
     Below is a list of commenters that submitted substantive
comments to the notice of proposed rulemaking.  It is not a
complete list of the commenters.  All commenters and comments
submitted are available in the above-mentioned docket.
Commenters
Alliance of Automobile Manufacturers
Association of International Automobile
Manufacturers
Briggs and Stratton
Echo Incorporated
Engine Manufacturers Association*
Motorcycle Industry Council
Mercury Marine*
Outdoor Power Equipment Institute
Sierra Research
Vehicle Services Consulting, Inc.*
Abbreviati
ons
Alliance
A I AM

Echo
EMA
MIC

OPEI
SR
VSC

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Organization presented oral testimony at the public hearing

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III.      Comments and Responses

Section 1:  Legal Authority

     1.1  Authority to Assess Nonroad Fees

What We Proposed:
     We proposed an update to our existing Motor Vehicle and
Engine Compliance Program  (MVECP) fees regulations under which we
assess fees for highway vehicle and engine's certification and
compliance activities.  We also proposed the collection of fees
for nonroad engines certification and compliance activities which
we have regulated since our initial fees rulemaking.  The "nonroad
engine category" includes: nonroad compression engines, marine
spark-ignition outboard/personal-water-craft, locomotive, small
spark-ignition, recreational vehicles (including, but not limited
to, snowmobiles, off-road motorcycles and all terrain vehicles),
recreational marine and compression-ignition engines, large spark-
ignition engines (over 19 kilowatts (kW))  and marine spark-
ignition/inboard- sterndrive engines.

     Our proposal examined: the Independent Offices Appropriation
Act (IOAA),  several provisions of the Clean Air Act  (CAA or Act),
the Office of Management and Budget's (OMB's) Circular No. A-25,
and various court decisions including Engine Manufacturers
Association v. EPA, 20 F.3d 1177  (B.C. Cir. 1994) which considered
the Environmental Protection Agency's (EPA's or Agency's) initial
fees rulemaking.

     We explained that section 217 of the CAA authorizes the
collection of fees for our new nonroad vehicle and engine
certification and compliance activities.  Section 217 allows the
Agency to "recover reasonable costs" associated with: new vehicle
or engine certification activities conducted under section 206(a)
of the CAA,  new vehicle or engine compliance monitoring and
testing under section 206(b) of the CAA (including such activities
as selective enforcement audits  (SEA)  and production line testing
(PLT)),  and in-use vehicle or engine compliance monitoring and
testing under section 207(c) of the CAA.    We also explained that
section 213 creates a statutory enforcement program which
generally mirrors that which Congress created for the regulation
of new highway vehicles and engines.  We noted that EPA's nonroad
standards created under section 213 are subject to the same
requirements  (e.g., sections 206, 207, 208, and 209) and
implemented in the same manner (including certification, SEA, and
in-use testing) and under the same sections  (as those referenced

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in section 217)  as regulations for new highway vehicles and
engines under section 202 (with modifications to the implementing
nonroad regulations as the Administrator deems appropriate).   We
then concluded that because the text of section 217 does not
specify either highway or nonroad engines and vehicles, and
because the certification and compliance activities related to
both are pursuant to sections 206 and 207,  we believed collecting
fees for new nonroad vehicles and engines'  certification and
compliance activities under section 217 were appropriate as an
additional compliance requirement.

     We also stated that the IOAA creates additional and
independent authority for EPA to collect fees due to the same
special and unique benefits that manufacturers of both new highway
and nonroad vehicle and engine manufacturers receive from EPA
under the certification and compliance program.

     What Commenters Said:

     We received several comments that questioned our authority to
assess and collect fees for our nonroad certification and
compliance program activities.  EMA argued that the IOAA neither
overrides nor provides the EPA with expanded fee assessment
authority since section 217 specifically sets out the Agency's
authority to assess fees and also incorporates the  IOAA by
reference.  EMA also argued that Congress would not have enacted
the specific provisions of section 217 if the IOAA was still
intended to apply to EPA's mobile source certification and
compliance activities.

     In addition, EMA argued that since section 217 is entitled:
"Motor Vehicle Compliance Program Fees," Congress could not have
intended that this section would authorize fees' assessment for
nonroad compliance activities.  The commenter further noted the
distinction drawn between motor vehicle and nonroad vehicle in
sections 216(2)  and (11) and the omission of nonroad vehicle  and
engine in section 217 even though both sections 213 and 217 were
promulgated as part of the 1990 Amendments.  EMA also pointed out
that section 213(d) specifically subjects the nonroad standards to
sections 206, 207, 208 and 209 but fails to incorporate or even
mention section 217.

     The Motorcycle Industry Council questioned the applicability
of section 217 to off-road motorcycles and all-terrain vehicles
(ATVs)  and further urged the Agency not to assess fees until

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clarification of the Agency's authority and issuance of applicable
emission standards for these categories.

     Another commenter argued that EPA does not have the authority
under section 213 to assess fees for nonroad engines and
therefore,  lacked authority to assess fees for lawn and garden
engines.  This commenter also considered our discussion of our
authority to assess fees for non- road engines and vehicles as
"tortured."

Our Response:

     EPA disagrees with these comments.  EPA confirms its view
that section 217 authorizes the Agency to recover all reasonable
costs associated with certification and compliance activities for
nonroad vehicles and engines, including nonroad equipment. EPA
also believes that action taken under section 217 is to be
consistent with the IOAA.  We also believe that even if section
217 does not extend to nonroad vehicles and engines, then the IOAA
separately provides the Agency with authority to assess and
recover fees for nonroad and engine certification and compliance,
and section 217 does not limit or override the IOAA.

     A plain reading of section 217 indicates that EPA may recover
the costs associated with all of its vehicle and engine
certification and compliance programs conducted under sections 206
and 207 of the Act.  Under section 217, the Agency may recover the
reasonable costs associated with "new vehicle or engine
certification" under section 206(a),  "new vehicle or engine
compliance monitoring and testing" under section 206(b),  and "in-
use vehicle or engine compliance monitoring and testing"  under
section 207(c). 42 U.S.C.  7522(a).   Under section 213(d),  the
standards for new nonroad vehicles and engines are subject to all
the applicable requirements of sections 206 through 209.   The
provisions of sections 206(a),  206(b) and 207(c)  are therefore
applicable to emissions standards for nonroad engines.  Here, the
nonroad certification and compliance activities for which EPA is
adopting fees are actions taken pursuant to these specific
provisions.  These nonroad costs are clearly costs for "new
vehicle or engine certification" under section 206(a), "new
vehicle or engine compliance monitoring and testing" under section
206(b),  and "in-use vehicle or engine compliance monitoring and
testing" under section 207 (c) .

     Section 217 expressly allows for recovery of costs associated
with "vehicle or engine" certification and compliance, and nonroad

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vehicles and engines are clearly "vehicles" and "engines."  CAA
section 216(10),  (11).   The text of section 217 does not limit
its scope to  "motor vehicle or engine" certification and
compliance programs.  Congress was clearly aware that the terms
motor vehicle or engine are different from the terms nonroad
vehicle or engine,  and in section 217 chose to use the more
general terms "vehicle" and "engine" to identify the scope of
authority under section 217.  Congress defined motor vehicles and
engines distinct from nonroad vehicles and engines,  but subjected
them both to sections 206(a),  206(b) and 207(c),  as well as other
provisions in Title II.   Congress authorized the same fundamental
certification and compliance framework for both nonroad and motor
vehicle programs,  and used language in section 217 that would then
allow EPA to collect fees for its certification and compliance
costs for both motor vehicles and engines and nonroad vehicles and
engines.  Congress likely would have expressly employed the term
"motor vehicle or engine,"1  instead of   "vehicle"  or "engine,"  had
it intended to limit the reach of section 217 to motor vehicle or
engine certification and compliance activity.  There also is no
specific provision in section 217 that can be read as precluding
EPA from assessing fees for nonroad engines and vehicles.
Collecting fees to recover the certification and compliance costs
associated with nonroad engines and vehicles therefore is within
the plain meaning of the language Congress used in section 217.

     Moreover, there is nothing in the legislative history for
section 217 to support the commenters'  narrow reading.  Rather,
legislative history only evinces an intent for the Agency to
"recover the costs associated with operating"  compliance and
certification programs.  [H.R. 101-490, May 1990,  1990
U.S.C.C.A.N. 3355].  The terms used here are general in nature and
reasonably indicate an intention to recover such certification and
compliance costs.   There is no indication in this text that
Congress intended to recover only some of these costs, those
associated with motor vehicles and engines.  Congress likely would
have at least identified or mentioned the limitation of section
217 to motor vehicles and engines and the inapplicability to
nonroad vehicles and engines in this legislative history.

     If, as the commenter suggests, EPA were to subject all
nonroad engines and vehicles to the same applicable requirements
  1 See, for example, section 218: "[t]he Administrator shall
promulgate regulations applicable to motor vehicle engines and
nonroad engines..." 42 USC  7553 (emphasis added).

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as on-highway vehicles and engines except for fees assessment,
this narrow reading of section 217 would not comport with the
stated congressional intent that we "recover the costs associated
with operating" our certification and compliance programs. [H.R.
101-490,  May 1990,  1990 U.S.C.C.A.N 3355].  EPA's interpretation
avoids this result and, consistent with the intent of section 217
and the IOAA,  provides a reasonable mechanism to equitably collect
fees for specific private benefits provided by the agency.

     Commenters argue that Congress adopted both sections 213 and
217 in the 1990 amendments, but failed to specifically identify
nonroad certification and compliance costs in section 217, and
failed to reference section 217 in section 213(d),  both indicating
that Congress did not intend to include nonroad engines and
vehicles in section 217's authority to collect fees.  As noted
above, this fails to account for the plain meaning of the language
employed in section 217 and 213(d).   In section 213(d),  Congress
specifically stated that nonroad engines and vehicles would be
subject to the certification and compliance requirements of
section 206 and 207, along with other provisions unrelated to
fees.  Congress also stated in section 217 that EPA could collect
fees for costs related to engine and vehicles subject to these
specific certification and compliance provisions in sections 206
and 207.   Congress did not need to specifically mention nonroad
engines and vehicles in section 217, and did not need to
specifically mention section 217 in section 213(d)  to authorize
the collection of nonroad related fees, as the language it did use
leads directly to that result.  Similarly, Congress did not need
to specifically mention motor vehicles or engines in the text of
section 217 to authorize collection of fees for motor vehicle and
engine certification and compliance costs under sections 206 and
207.  The reference to section 206(a),  206(b) and 207(c) brings in
both motor vehicle and nonroad related costs.

     Clearly Congress could have made such specific references,
but it instead used broader language in section 217 and a specific
tie into actions under sections 206 and 207, where the plain
meaning then covers both nonroad and motor vehicles and engines.
It did not need to specifically refer to nonroad engines and
vehicles to include them in section 217.  The lack of specific
references cited by commenters does not detract from the plain
meaning of these provisions, and does not lead to the implication
drawn by commenters.   The plain text of section 217, read in
combination with section 213(d),  indicates that Congress intended
to authorize collection of fees for both nonroad and motor
vehicles and engines.  There is no indication in the text of

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either section 217 or section 213(d) that Congress intended to
limit section 217 to motor vehicles.  This is not a tortured
interpretation, but a reasonable reading of the language used by
Congress.

     The Agency also disagrees with the contention that the title
of section 217 - "Motor Vehicle Compliance Program Fees"-
indicates that Congress did not intend to authorize assessment of
fees for nonroad vehicles and engines.  "Headings and titles are
not meant to take the place of the detailed provisions of the
statutory text; nor are they necessarily designed to be a
reference guide or a synopsis."  Thistlethwaite v. Dowty Woodville
Polymer, Ltd., 110 F.3d 861, 866  (2d Cir. 1997) (Internal
quotation marks and alterations omitted), rather,  "[a]bsent a
clearly expressed legislative intention to the contrary,
[statutory]  language must ordinarily be regarded as conclusive."
Consumer Product Safety Commission 447 U.S. 108, 100 S. Ct.  2055
(1980).  Here, both the plain language of section 217 and it's
legislative history indicate an intention to authorize collection
of fees for all of the new vehicle and engine certification and
compliance actions undertaken by EPA under section 206(a),   (c) and
207(c).  They provide no indication of an intention to limit such
authority to motor vehicles and engines.  In these circumstances,
the use of the term "motor vehicle" in the heading of section 217
does not support rejecting a conclusion based on the language
actually used by Congress.

     Regardless of whether section 217 authorizes the collection
of fees for costs related to nonroad engines and vehicles,   the
IOAA does authorize EPA to assess and recover fees associated with
implementing the nonroad engines and vehicles certification and
compliance programs.   The plain language of the IOAA allows
Agencies to charge and recoup reasonable costs for services that
confer specific benefits upon identifiable beneficiaries2.   It
authorizes federal agencies to "impose a fee only for a service
that confers a specific benefit upon an identifiable beneficiary."
Engine Manufacturers Association  (EMA) v. EPA, 20 F.3d 1177, 1180
(D.C. Cir. 1994).  That case indicates that the certification and
compliance actions for which EPA is collecting fees do in fact
  2  "It  is  the  sense  of  Congress  that  each  service  or  thing  of
value provided by an agency  (except a mixed-ownership Government
corporation) to a person  (except a person on official business of
the United States Government) is to be self-sustaining to the
extent possible." 31 U.S.C.  9701(a).

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confer a specific private benefit.   "In a regulated industry a
certificate of approval  [such as a certificate of conformity]  is
deemed a benefit specific to the recipient." Id.

     There is nothing in the text of the IOAA that indicates the
IOAA does not apply to collection of nonroad related costs,
assuming section 217 does not authorize such fees.  The question
then is whether section 217 itself limits the scope of the IOAA
with respect to nonroad certification and compliance costs that
are otherwise outside the scope of section 217.

     Nothing in the text of section 217 indicates that it limits
the IOAA in areas not covered by section 217.  The introductory
text of section 217 refers to the IOAA, stating that EPA's action
under section 217 is to be "consistent with" the IOAA.  The clear
meaning of that phrase is that EPA is to apply the criteria of the
IOAA in promulgating fees under section 217.  It indicates an
intention that action taken under section 217 is to be consistent
with the IOAA.  It does not indicate that Congress intended to
deviate from, limit, or override the IOAA in areas outside the
scope of section 217.

     It seems quite unlikely that Congress would limit the reach
of the IOAA in such an oblique fashion in section 217.  If
Congress intended to amend or overrule the IOAA through section
217, Congress likely would have used language indicating that
intent.  Instead Congress just generally provided that section 217
is to be read  "consistent" with the IOAA.  See, Chisom v. Roemer,
501 U.S. 380, 111 S.Ct. 2354  (1991).   Such an important
limitation likely would be clearly discernable from the Act and
the legislative history of section 217, and it is not.

     The enactment of section 217 even though the IOAA was already
in existence does not indicate otherwise.  Section 217 serves
several valid functions, none of which is related to or indicate
an intention to limit or overrule the IOAA for areas not covered
by section 217.  For example, section 217 creates the fees fund
and specifies that fees collected are to be deposited in a special
account at the United States Treasury.  It also resolves any doubt
that a certification and compliance program can be basis for fees.
The reference to the IOAA in section 217 is best read in this
context.  Moreover,  reading section 217 as overriding the
provisions of the IOAA would amount to a repeal by implication
which is generally disfavored.
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     Commenter's argument would mean that EPA is precluded from
recovering the costs associated with the nonroad vehicle or engine
certification and compliance program under either the IOAA or
section 217.  This narrow reading of section 217, as overriding
the IOAA,  would result in our conferring the specific benefits of
our certification and compliance program on non- road engine
manufacturers without the authority to recover associated costs
for providing this service.  Such an interpretation would be
inconsistent with the overall purpose of the IOAA - that agencies
be "self-sustaining" by charging fees to recover costs associated
with rendering services to identifiable beneficiaries.
Commenter's interpretation also does not have any clearly limited
boundaries.  The interpretation begs the question of the extent to
which section 217 limits the IOAA for areas outside the scope of
the IOAA.   Is it limited to nonroad certification and compliance
activities?  Is it limited to other activities under Title II of
the Act?  Does it extend to all other EPA actions under the Act?
The lack of a clear boundary to the limits of IOAA authority under
Commenter's interpretation indicates it is neither a likely nor
reasonable interpretation of Congressional intent underlying
section 217.

     EPA believes the best interpretation of section 217 and the
IOAA is to read them as acting in harmony and in conjunction with
each other.  For areas covered by section 217, EPA's actions under
that section are to be consistent with the IOAA.  For areas not
covered by section 217, the IOAA continues to be in effect as
before section 217 was adopted.  This will appropriately ensure
that fees' assessment for all of the Agencies programs will be
adequately addressed.

     Since a nonroad engine manufacturer, similar to the on-
highway engine manufacturer, "obtains a benefit from the entire
[EPA]  compliance program," we believe we may recover the
reasonable costs of compliance testing, by a fee that does not
exceed the value of the benefit derived by the manufacturer, under
the IOAA.   See, EMA, 20 F.3d at 1181 (D.C. Cir. 1994).   Thus, we
believe that if section 217 is inapplicable, and we do not believe
so, the IOAA would provide authority to assess fees for nonroad
engines and vehicles.

     In light of the foregoing, we disagree with the commenters'
narrow interpretation of section 217.  Accordingly, we believe
that it is reasonable to read section 217 as providing the
requisite authority to collect fees associated with nonroad
certification and compliance activities.  EPA also believes it is

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reasonable to read the IOAA as providing independent authority for
assessment of fees for nonroad engine compliance and certification
activities, if section 217 does not authorize such assessment.
EPA believes today's action is appropriate under either section
217 or the IOAA.

     Similarly,  with regard to comments asserting our lack of
fees' assessment authority for other nonroad engines such as off-
road motorcycles,  ATVs and lawn and garden engines, we believe as
discussed above that both section 217 and the IOAA provide us with
the requisite authority to "recover the reasonable costs"
associated with the certification and compliance programs for
these nonroad engines.

     We also do not believe it necessary to further "clarify" our
authority to collect nonroad fees.  We set forth the basis for our
authority within the NPRM and today's action confirms that
authority.  We separately address the suggestion to defer fees'
collection until issuance of the off-road motorcycles and ATVs
emission standards in section 1.2. below.

     1.2  Authority to Recover Anticipated Costs for Proposed
Programs

     What We Proposed:

     EPA published new fees for all industries in the fees rule
NPRM, Table III.D-1, 67 FR 51410.  EPA updated fees for light-duty
vehicles, motorcycles and heavy-duty highway engines and vehicles
that were covered by EPA's original fees rulemaking.  The new fees
for these industries are determined considering inflationary
costs,  additional costs associated with programmatic decisions,
and some future costs known at the time of the proposal that were
also known to be necessary to maintain an effective MVECP.

     We also proposed fees for certain certification request types
in the nonroad industry based on the fact that EPA has had
emission regulations in place, prior to the fees proposal,
covering such nonroad industries and thus an on-going compliance
program exists for these industries.  These industries include
nonroad  (NR)  compression-ignition (CI),  marine spark-ignition  (SI)
outboard/personal water craft, small nonroad SI, and locomotives.
Some of these industries have had emissions programs in place
since the 1996 model year.
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     In addition, we proposed fees for certain nonroad industries
(marine CI > 37kW) where EPA had finalized the applicable emission
regulations for that industry prior to the fees proposal but the
compliance programs had not yet been implemented.  Such industries
would only pay a fee for certification at the time of their
initial applications for certification.

     Similarly, EPA also proposed fees for certain nonroad
industries (large nonroad SI > 19kW,  recreational marine > 37kW,
and recreational vehicles (off-road motorcycles  (MC),  ATVs,
snowmobiles,  etc)) for which emission regulations had been
proposed at the time of the fees proposal (August 7,  2002)  but for
which no emission regulations had yet been finalized.

     Lastly,  for a certain nonroad industry  (marine SI
inboard/sterndrive) we proposed fees although the emission
regulation and proposal was just under development at the time of
the fees proposal.

     We explained that for those regulatory programs with proposed
but not yet finalized emissions standards and regulatory programs
with yet to be proposed emissions standards,  the associated fees
would only apply after the applicable regulations became effective
or in other words, at the time a manufacturer requests
certification  (67 FR at 51408).  We also explained that we knew
enough of the Agency's anticipated costs for these programs.  Id.
We further explained that we did not believe our fees proposal for
these programs would prejudge the outcome of those ongoing
rulemakings.  Id.  We also indicated we were considering where to
finalize fees for those programs with no emissions standards. [67
FR at 51410]

     To determine our projected costs, we explained that the
Agency conducted an in-depth analysis of the costs incurred in
operating the MVECP (67 FR at 51409).   We also set forth in
greater detail all of our associated direct and indirect costs in
the Cost Analysis Document,  which is included in the docket of
this rulemaking.

     For many of the certification request types in the "Other"
fee category, which primarily consists of nonroad groups,  EPA
projected its cost based on a minimum level of effort needed to
effectively review and process certification applications and some
limited testing.  It should be noted that EPA also recognized that
many of the emission regulations for these industries include the
authority to conduct other MVECP type activities beyond

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certification but EPA chose to not charge for such activities as
none are yet envisioned by the Agency.

     What Commenters Said:

     EMA maintains that it is improper for EPA to quantify fees
for anticipated nonroad certification and compliance programs that
have not been implemented and in some cases not even proposed.
EMA asserts that section 217 only authorizes the Agency to
"recover" the actual costs that it incurs for administering
established certification and compliance programs - "[T]he
Administrator may ...  recover ..."   EMA provides what it feels to
be the plain meaning of "recover" which is "to get back."  EMA
contends that for the industry categories noted above, there are
no such actual costs for the Agency to tally and then seek to
recover or get back.  There is no proper basis for the Agency to
merely anticipate expenses that will be incurred in the future.
EMA maintains that EPA should not impose fees for nonroad
categories that were not finalized before the NPRM,  nor should
EPA include fees associated with nonroad rulemakings that have not
yet been finalized and published.

     Additionally, EMA believes it is unlawful and improper to
establish fees for programs that have not even been proposed as it
presupposes the outcome of such rulemakings and so undermines and
trivializes the administrative rulemaking process.  Without
knowledge of the final outcome of the predicate rulemaking the
public cannot participate meaningfully in the rulemaking. EMA
urges EPA to wait for the underlying regulatory measures to be
finalized and implemented before charging manufacturers for
anticipated costs.

     The Alliance and the Association of International Automobile
Manufacturers (AIAM) state that EPA incorrectly bases its costs on
"budget requests" and "plans" rather than actual "expenditures."
It is inappropriate to base costs on projections. EPA should
account for "actual expenditures" or where costs have occurred.
In addition, EPA must account for each employee who works on MVECP
activities and subtract out time not spent on such activities.

     The Motorcycle Industry Council asserts that the compliance
fees should not include   anticipated or projected costs, future
plans and services.  The commenter further states that only when
actual costs are determined should a fair fee be established and
the costs recovered.  The Council further requested that the
Agency defer finalizing fees for off-road motorcycles and ATVs

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until the Agency finalizes the applicable emissions requirements
and at that time,  issue the applicable fees or a "separate but
concurrent fee rule."

      The Outdoor Power Equipment Institute (OPEI)  supports EMA's
comment stating that EPA lacks the statutory authority to recover
anticipated costs for proposed programs prior to their adoption as
final regulations.

     Our Response:

     As stated above, we believe section 217 authorizes the Agency
to recover reasonable costs associated with vehicle and engine
certification and compliance activities.  We also believe that the
IOAA authorizes the Agency to recover fees.  We believe it is
appropriate to recover all costs which EPA will incur to provide
the necessary MVECP services to a manufacturer during the course
of certification and in-use compliance activities.   For several
reasons EPA also believes it is appropriate to collect such fees
prior to issuing certificates.  EPA disagrees with EMA's
suggestion that the language in section 217 authorizing EPA to
establish fees "to recover" all reasonable costs means that EPA
should "tally" its costs and then "get back" such costs.  EMA does
not suggest that EPA change its current regulatory practice of
collecting fees in advance of granting a certificate.  As such,
EMA tacitly recognizes that EPA is indeed projecting the actual
future costs associated with certification and in-use activities
at the time it is adopting the fees rule and when it collects the
fee with the application for a certificate.  EPA believes it may
project actual costs as long as the fee payers are on adequate
notice through rulemaking of what those projected costs are and
that EPA has a reasonable basis for deciding that such projections
will be accurate.   EPA's fees rule is designed to recover or get
back its expected actual costs.

     We believe this practice is consistent with the guidance
provided by OMB Circular No. A-25, which states under its "General
Policy" section 6(a)(2)(c) that when determining the amount of
user charges to assess that "User charges will be collected in
advance of, or simultaneously with,  the rendering of services
unless appropriations and authority are provided in advance to
allow reimbursable services."  In this instance, EPA does not
believe that section 217 of the CAA limits EPA's authority such
that EPA could only seek reimbursement of past expenses.  In
addition, EPA's continued practice of collecting fees in advance
is the most appropriate method and provides applicants with the

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best information regarding the fees that are owed at time of
certification.

     As noted above and within the proposal, EPA has based its
costs on actual 2001 budget expenditures and then evaluated what
the same levels of effort would cost in 2003 or later.  EPA is in
fact no longer "projecting" what its lab modernization costs will
be and whether it will receive necessary appropriation for the
upgrades.  We have received a budget allocation in fiscal year
(FY) 2003 and plan to fully fund the test cell upgrades to make
them compliance testing ready.  To some extent EPA recognizes that
it continues to project some of its actual costs.  However, EPA
anticipates that it will receive the necessary budget for fiscal
year 2004 (during which time this new fees rule will now become
effective)  and will spend the actual amount associated with its
"expanded programs."  Some of these expanded programs include new
certification activities which EPA must perform in order to grant
certificates to newly regulated industries. In addition EPA will
also be conducting some new certification confirmatory and in-use
testing for the heavy-duty industry.  These costs and EPA's
expected level of activities are further discussed in sections 2
and 3.  EPA's budget request to Congress includes the budget for
these new testing levels and EPA continues to believe this
expected level of activity of cost and activity is reasonable.

     The Agency has finalized rules for certain nonroad categories
that were proposed but not finalized at the time this fees rule
was proposed.  With the one exception noted below, we also no
longer are "projecting" what our compliance activities will be for
many of the nonroad industries included in the "Other" category as
the rules regulating emissions for those industries have been
finalized and our expected compliance activities will be
implemented.

     We agree with commenters that we should not finalize fees at
this time for nonroad categories that were not proposed at the
time that the fees rule NPRM was published.  Although EPA also
proposed fees for the marine SI inboard/sterndrive industry, based
on what we anticipated to be a modest compliance program, we agree
with EMA that it is premature to require fees at this time.  EPA
believes that the cost study and analysis are proper for this
industry but we choose to wait until the actual emission
regulation for this industry is proposed, to provide ample
opportunity for comment on potential fees.  We anticipate
finalizing fees for that industry in the final emission
regulation.   Therefore, in EPA's revised worksheet #2, in the

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"Other" column,  we have reduced the total cost of compliance
activities by $20,645 to reflect that the marine SI category will
not be covered by this regulation.  The fees associated with the
remaining regulated industries in the "Other" column remain almost
the same - $826  per certificate.  This change is reflected in
section 85.2405  of the regulations, item 14 of the fees table,
which indicates  the fees for marine engines, excluding inboard and
sterndrive engines.

     As EPA has  maintained throughout this rulemaking, we believe
it is appropriate to recover all costs which EPA will incur to
provide the necessary MVECP services to a manufacturer for
certification and in-use.  For several reasons EPA also believes
it is appropriate to collect such fees prior to issuing
certificates.  We also believe that when any significant budget
changes occur that affect allocations of resources dedicated to
any MVECP activity,  or regulatory changes that affect MVECP
activities, or EPA evaluations of the compliance rates and
associated environmental impacts change, then it is likely
appropriate for EPA to reexamine its updated MVECP activities and
determine whether any changes in costs have occurred.

     We believe  it is appropriate within this rule to require fees
for those industries that are in fact required to meet EPA's
emission standards in order to receive certificates of conformity.
EPA proposed fees for certain nonroad industries where the
compliance date  of the emission standards had not yet occurred
(meaning no applications for certification had been submitted),
and we believe that such manufacturers had adequate notice of the
regulatory emission requirements they would be required to meet in
the future and how EPA intended to impose a fee related to EPA's
services.  Based on the regulatory structure of the emissions
program for these industries, EPA also had a reasonable basis for
deciding that the projected costs are accurate.  As noted in the
proposal, EPA intends to only conduct a modest MVECP program for
these industries.

     In addition, we also believe it is appropriate to require
fees for those industries that are newly regulated since EPA
issued the fees  proposal.  At the time of the fees proposal such
industries (large nonroad SI > 19kW, recreational marine > 37kW,
and recreational vehicles)   were on notice of the emission
requirements they would likely face (including the requirement of
certification)  due to existence of NPRMs for such industries prior
to the fees proposal.  Based on the regulatory structure of the
emissions program for these industries,  EPA also had a reasonable

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basis for deciding that the projected costs are accurate. The
final emission regulations have since become effective for these
industries and EPA anticipates no changes in its modest
projections of the compliance activities and costs associated with
these newly regulated industries.

     1.3  Authority to Collect Fees for Manufacturers

     What We Proposed:

     Currently, EPA requires all manufacturers to pay fees for
certification applications. We proposed the continuation of the
fees' requirement.  We defined "manufacturer" as "all entities or
individuals requesting certification, including, but not limited
to, Original Equipment Manufacturers (OEMs),  Independent
Commercial Importers  (ICIs), and vehicle or engine converters."
[67 FR 51403] .

What Commenters Said:

Section 1.3.1.  Vehicle Services Consulting (VSC) argues that
section 217 does not grant the Agency authority to assess fees for
"used vehicles," because it references "new vehicles" and not "new
motor vehicles," as defined in section 216.  VSC further contends
that it is unclear whether  all ICI motor vehicle importations are
subject to "certification" and hence to certification fees.

     VSC notes that the Agency's certification assessment fees
authority may derive from sections 203(b) (2), 206(a) , 216(1) and
217, and argues that section 203(b)(2)  does not require
"certification" for ICI vehicles but instead that such vehicles be
"brought into conformity with the standards."  VSC also asserts
that in some instances, such as where there is no "resale," an ICI
may not be a "manufacturer," as contemplated by section 216, and
therefore should not be subject to fees.

     Our Response:

     As noted in EPA's response in section 1.1 above, EPA believes
that it is appropriate to recover the costs incurred when it
provides unique and special benefits identified with a private
entity as opposed to the general public.  Similarly,  EPA also
believes that the costs EPA incurs to ensure that vehicles
imported in to the United States meet the requirements of the
Clean Air Act and regulations thereunder should also be recovered
both under the authority of section 217 of the CAA and the IOAA.

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Because EPA is also guided by section 213(d) when it has
implemented emission regulations for nonroad engines and vehicles
and the enforcement scheme under section 206, 207 and 208 that are
noted in section 213(d),  we have also applied the definition of
"new" in the same manner to the nonroad sector and thus believe
the requirements for certification of all imported nonroad
vehicles is the same as for motor vehicles and engines.   Thus the
definition of "new" found at 40 CFR  89.2, etc. is similar to
that at Section 216(3).

     Under section 217,  EPA is authorized to assess fees for "new
vehicle" or "engine" certification and compliance activities
pursuant to section 206(a),  206(b)  and 207(c).   In section 216(3),
Congress defined "a new motor vehicle," as meaning "with respect
to imported vehicles or engines, ... a motor vehicle and engine,
respectively,  manufactured after [September 25, 1987]."  42 U.S.C.
 7550(3).3 (Emphasis  added).   Sections 206(a),  206(b)  and 207(c)
are applicable to "new motor vehicles" and "engines," and as noted
above to nonroad as well.   Thus, contrary to VSC's contention,
imported vehicles and engines are subject to the provisions of
sections 206(a),  206(b) and 207(c)  and therefore, fees' assessment
under section 217.   As set forth at 40 CFR 85.1503(a), any
"...nonconforming vehicle or engine offered for importation into
the United States must be imported by an ICI who is a current
holder of a valid certificate of conformity  ...."  Section
85.1502(a)(3)  defines a certificate of conformity as that document
issued by EPA under section 206(a)  of the Act.

     In addition, Congress defined a "manufacturer," in section
216(1),  as "any person engaged in.   .  . .  importing [new motor or
nonroad] vehicles or  [new motor or nonroad] engines for sale, or
who acts for and is under the control of any such person in
connection with the distribution of [such] vehicles or engines .   .
. "  42 U.S.C.   7550(1).   Thus, an ICI is a  "manufacturer,"  to
the extent it imports and is involved in the "distribution" of
imported vehicles in the United States.  Also,  EPA has
historically considered ICIs as manufacturers under section
216(1).   Consequently, we have also historically considered ICIs
eligible to make certification applications. (See for example,  52
FR 36136,  36142).   Further, this definition contains no exclusion
of "used vehicles" or vehicles that are not for resale.
  3 For example, a 1995 motor vehicle imported in 2003 by an ICI
(for resale or on behalf of current owner) is a "new motor
vehicle."

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Legislative history also indicates that Congress intended Title II
to apply to all imported vehicles "whether or not new and whether
or not imported for sale or resale." 1970 U.S.C.C.A.N. 5356, 5368.
 Because these new imported vehicles and engines are covered by
certificates then the vehicles are also subject to the other
protections and requirements provided by the CAA including
warranty and recall,  selective enforcement audits, etc. and in
this way EPA insures that such vehicles and engines do in fact
conform with the requirements of the Act as required under section
203(b).

     Legislative history of section 217 also indicates that the
Agency is to "recover the costs associated with operating"
compliance and certification programs from "foreign and domestic
manufacturers." (H.R. 101-490, May 1990, 1990 U.S.C.C.A.N. 3355).
Clearly, Congress would have expressly limited the reach of
section 217 had it intended that imported but used vehicles not be
subject to the fee requirement.  However, there is no apparent
intention to limit either our certification and compliance program
or our fees' authority.  As previously stated in section 1.1.
above, section 217 authorizes EPA to recover the costs of its
certification and compliance program activities from
manufacturers. See also, EMA, 20 F.3d 1177 (D.C. Cir 1994).
Therefore, we believe we are authorized to recoup the costs
associated with imported vehicles and engine certification
activities from Ids.  Thus, the Agency disagrees with the
contention that section 217 does not grant EPA authority to assess
fees for certification and other compliance activities that goes
with the importation of "used vehicles."  Further, we believe that
VSC's reading of section 217 would result in imported vehicles and
engines being subject to the certification and compliance
requirements under section 206(a),  206(b) and 207(c) but not
certification fees.  Allowing such a reading would not comport
with Congressional directive that EPA recover the costs of
compliance and certification activities.

     VSC also argues that it is unclear whether imported vehicles
are subject to the certification requirements and therefore
certification fees. Section 203(a)  bars the importation of motor
vehicles or engines into the United States unless covered by a
certificate of conformity issued by EPA.  "[T]he importation into
the United States, of any new motor or new motor vehicle engine,
manufactured after the effective date of regulations under this
part which are applicable to such vehicle or engine unless such
vehicle or engine is covered by a certificate of conformity  [is
prohibited]." 42 U.S.C.  7522(a) (emphasis added).   This section

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expressly prohibits the importation of vehicles unless covered by
a certificate of conformity.  There is no other limitation on this
prohibition that can be discerned in section 203(a).

     In addition,  section 206(a)(3)(A) states,  in pertinent part,
that in the case of an imported vehicle or engine, "[a]
certificate of conformity may be issued only if the Administrator
determines that [a]  person has established .  .  . that any emission
control device, system, or element of design installed on or
incorporated in such a vehicle conforms to the applicable
requirements of [section 202]." 42 U.S.C.  7525(a)(3)(A).   This
section authorizes the Agency to issue a certificate of conformity
for only imported vehicles or engines that comply with the
applicable standards prescribed under section 202.  In this
section, the requirement for coverage by a certificate of
conformity for imported vehicles is also readily apparent.    There
is no other specific provision in the Act that can be read as
precluding EPA from issuing a certificate of conformity for
imported vehicles and engines.   Rather, the relevant provisions
indicate that imported vehicles and engines must be covered by a
certificate of conformity.  Also,  as previously stated above, EPA
has always considered ICIs as manufacturers and therefore,
eligible to make certification applications.

     In addition,  "[t]he 1970 amendments made the requirements of
Title II applicable to any imported vehicle or engine (whether or
not new and whether or not imported for sale or resale)  if the
vehicle or engine was subject to the standards when manufactured
(or would have been so subject had it been manufactured for
importation)." 1970 U.S.C.C.A.N.  5356, 5368 (emphasis added).
Therefore, all imported vehicles,  "whether or not new, or imported
for sale or resale" must meet Title requirements which includes
coverage by a certificate of conformity and fees'  assessment.

     Thus, even though VSC argues that applicability of the
certification requirements to imported vehicles is unclear, both
sections 203 and 206 explicitly require coverage by a certificate
of conformity of imported vehicles and engines.  We believe this
requirement is clearly discernable from the plain text of these
provisions.  Also, the coverage by a certificate of conformity
requirement is intended to ensure that imported vehicles meet
federal emissions standards.  VSC's contention would mean that an
imported vehicle,  as compared to vehicles manufactured in the
United States, need not meet emissions standards prior to
introduction into commerce and during the useful life of the
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vehicle.  This would not be consistent with the statutory
objective to address and control mobile source emissions.

     VSC further argues that section 203(b) only requires that
vehicles be "brought into conformity with the standards," and does
not authorize EPA to require certification for ICI vehicles.
Section 203(b) grants EPA discretion to allow importation of
nonconforming vehicles.  "[T]he Secretary of the Treasury and the
Administrator may .  .   . provide for deferring final determination
as to admission and authorizing the delivery of a  [new motor
vehicle or new motor vehicle engine offered for importation into
the United States in violation of the applicable standards]  .  .  .
upon such terms and conditions ... to insure that any such
vehicle or engine will be brought into conformity with the
standards.  .   . ." 42 U.S.C.  7522(b)(emphasis added).  This section
merely allows for our deferment of the final determination as to
admission of an imported vehicle pending the vehicle being brought
into conformity with applicable emissions standards.  Bringing an
uncertified vehicle into conformity with standards includes an ICI
applying for and receiving a certificate of conformity pursuant to
section 206.   Therefore, this section also does not lend support
to VSC's contention that an issuance of a certificate of
conformity to an ICI is not required for used vehicles or imported
vehicles that are not for resale.

Section 1.3.2.  The Motorcycle Industry Counsel (MIC) contends
that there is nothing in the CAA,  its legislative history, or in
EPA regulations to show that the MVECP benefits motorcycle
manufacturers.  MIC also contends that the "benefits"
manufacturers derive from EPA's certification and compliance
program, if any,  is not unlike a tariff or tax, in other words one
must pay in order to play, or receive a certificate.

     Our Response:

     EPA disagrees with this comment.  As stated in section 1.1.
above,  section 217 authorizes the Agency to collect fees
associated with our certification and compliance activities.  As
also earlier mentioned, EMA indicates that the certification and
compliance activities for which EPA is collecting fees do confer a
specific private benefit to on-highway vehicle and engine
manufacturers.  Because "the  [Agency's]  Compliance Program confers
a specific, private benefit upon the manufacturers, EPA can
lawfully recoup . .  .  the reasonable costs of the program." EMA,
20 F. 3d at 1180.
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     As also previously mentioned in section 1.1. above,
governmental agencies are authorized by the IOAA, to recover costs
whenever an identifiable recipient derives a benefit from services
rendered by the Agency.  "A certificate of approval is deemed a
benefit specific to the recipient." Id.    Thus, MIC is wrong in
asserting that our certification and compliance activities do not
confer benefits on manufacturers and as a result that we have no
authority to collect fees for such activities.

     Further,  contrary to MIC's contention, fees assessed and
recovered by a governmental agency under the IOAA, is neither a
tax nor a tariff.  "It would be such a sharp break with our
traditions to conclude that Congress had bestowed on a federal
agency the taxing power that we read the [IOAA] narrowly as
authorizing not a 'tax' but a 'fee.'" National Cable Television
Association, Inc.,  v. U.S., 415 U.S. 336,  341, 94 S.Ct. 1146,
1149.

Section 1.3.3. EMA considers the Agency's in-use testing for
"older model engines that are no longer produced or sold,"
improper and "gold-plating," since manufacturers do not derive any
benefits from such engines.

     Our Response:

     EPA disagrees with this comment.  Our emission standards
apply over the useful life of the engine.  Our compliance
programs, which include certification, selective enforcement
audits and in-use testing,  seek to ensure that the emission
requirements are met over the life of the engine.
"[M]anufacturer[s] benefit[] from second and third stage
compliance testing because, .  .  .  such testing is integral to the
regulatory scheme under which each engine or vehicle model must be
recertified annually." EMA, 20 F.3d  at 1181.  Consequently, EPA
believes that manufacturers benefit from the in-use testing
requirements of the Agency's MVECP.   "[S]elective enforcement
audits and in-use compliance testing are   . .  . services that the
EPA renders to each manufacturer in order for the manufacturer to
comply with the Clean Air Act [and]  it follows that the
manufacturer obtains a benefit from the entire compliance program
not just from the annual certification." Id. at 1180.   This
service applies whether or not the manufacturer retools an engine
model and produces a different engine for future model years.

     Although EMA specifically mentioned a benefit for on-highway
vehicles, the reasoning used would also lend itself to nonroad

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vehicles and engines. Thus, similar to highway vehicles, nonroad
vehicles and engine manufacturers also derive a benefit for the
latter phases of our certification and compliance programs.

     1.4. Other Authority Issues

     What We Proposed:

Section 1.4.1. EPA's current fees regulation at 40 CFR 86.903-93
states in part that "[n]othing in this subpart shall be construed
to limit the Administrator's authority to require manufacturer or
confirmatory testing as provided in the Clean Air Act, including
authority to require manufacturer in-use testing as provide in
section 208 of the Clean Air Act."   In the proposal to today's
rule the same language can be found at 40 CFR 85.2401(d).

     What Commenters Said:

     EMA states that the Act does not authorize EPA to compel
manufacturers to conduct in-use testing and therefore that
proposed 85.2401(d) is superfluous and should be deleted.

     Our Response:

      We believe the existing language in section 208(a) of the
CAA gives EPA the authority to reasonably require certain things
in order for EPA to determine whether a manufacturer or other
person has acted or is acting in compliance with Part A and Part C
of Title II of the CAA, and regulations issued thereunder.  We
also believe that nothing in today's rulemaking in any manner
affects EPA's authority under section 208(a) or other authority
found elsewhere within the CAA.  For this reason EPA chooses to
keep the language in 85.2401(d) for the final rule.

 What We Proposed:

Section 1.4.2. We proposed recovery of all costs incurred by the
Agency in conducting the MVECP.  These costs included labor,
operating and program costs.   (See, section III of the NPRM, (67
FR 51409) and the Cost Analysis Document, section III.A.).

     What Commenters Said:

     MIC asserts that EPA may recover only the reasonable amount
to cover the appropriate portion of reasonable costs of the
services that benefit manufacturers.  It then describes as too

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liberal EPA's interpretation of the associated costs that can be
collected for our certification and compliance activities.  MIC
also states that the acquisition of real property, laboratory
facilities or equipment are cost items that are more appropriately
handled by the Congressional budget process and scrutiny.

     Our Response:

     Under section 217,  EPA is "to recover all reasonable costs
to the Administrator associated with  [the MVECP]."   42 U.S.C. 
7552(a) (emphasis added).   In addition, the IOAA authorizes
"[t]he head of each agency ... to establish[] the charge for a
service or thing of value provided by the agency  .  .  . based on
the costs to the government,  value to the recipient, public policy
or interest served and other relevant facts."  31 U.S.C. 
9701(b).

     We believe these provisions authorize us to recover the
reasonable costs that are associated with our activities for the
certification and compliance requirements mentioned in section
217(a).  Further, in EMA,  the court found that "EPA must calculate
the cost basis for the fee by allocating its direct and indirect
expenses to the smallest practical units of service."  EMA, 20 F.3d
at 1181.   We consider our labor, operating and program costs that
are associated with these requirements as recoverable costs. Thus,
the costs of real property and laboratory equipment are
recoverable to the extent they are associated with the services
EPA provides to manufacturers as part of the certification and
compliance program.

      Further, OMB Circular No. A-25  (Circular),  which was issued
pursuant to the IOAA, provides guidance on fees assessment for
services rendered by Agencies.  It directs Agencies to ensure that
fees are sufficient to recover the "full cost" to the Government
of providing services to identifiable beneficiaries.  It explains
"full cost" as including all direct and indirect costs.  It also
includes physical overhead, materials and supplies,  utilities,
rents or imputed rents on land, buildings, and equipment as
indirect costs.  (Circular at p. 4).  Therefore,  we believe the
costs of acquiring real property,  laboratory facilities or
equipment that are associated with the MVECP are recoverable
costs.

Section 2: Assessment of Costs

     2.1 Costs Apportioned to Industries

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     What We Proposed:

     Our proposed fees were based on past and projected actual
costs of providing certification and compliance services to the
various mobile source manufacturers and industries.  We grouped
these various manufacturers and industries into fee categories and
we explained that separation of industries into groups with other
similar industries was in order to ensure that each category pays
fees only for the services that it receives.4  We  also explained
that EPA conducted a cost analysis to determine the various
compliance activities associated with each fee category and
associated annual costs for each certification request type.  We
set forth our analyses in the Motor Vehicle and Engine Compliance
Program Costs Analysis (Cost Analysis Document).   We further
explained that where the level and type of EPA activity and costs
were similar for each industry then those industries were grouped
together, the total number of certificates were added together,
and equal fees were allocated to each anticipated certificate.
(See Cost Analysis Document at p. 21.)    In this way, EPA
determined the portion of the MVECP costs dedicated to each
certification request type.

     We proposed three "fee categories": 1. Light-Duty, which
includes light-duty vehicles and trucks, motorcycles, and because
of similar compliance programs medium-duty passenger vehicles and
certain heavy-duty vehicles were included, with subcategories
created where it was determined that a different level of services
and costs were expected to be expended; 2. Engines, which includes
heavy-duty highway (HDE HW) and nonroad compression-ignition  (NR
CI) engines  (excluding marine and locomotive),  with subcategories
created where it was determined that a different level of services
and costs were expected to be expended; and 3.  Other Engines and
Vehicles, where currently EPA only plans to do certification
review and includes marine CI and SI engines, nonroad SI engines,
locomotive engines, large spark-ignition engines,  recreational
marine engines, recreational vehicles,  heavy-duty engine
evaporative systems and heavy-duty engines certified for
California only .

     What Commenters Said:
  4 See Cost Analysis Document  starting at page  16  (step  5 of
"general steps").

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Section 2.1.1.  EMA maintains that the language of section 217(a)
of the CAA relevant to heavy-duty engine and vehicle
manufacturers, which states in part,  that EPA's fees for such
manufacturers "shall not exceed a reasonable amount to recover an
appropriate portion of  [the]  reasonable costs [of the MVECP]"
requires EPA to only recover a portion and not all of the
certification and compliance program costs.  EMA believes such
portion should be from the costs just associated with the heavy-
duty engine and vehicle manufacturers.  Although EMA initially
stated that they did not have a definitive percentage or portion
that EPA should assess,  EMA in a subsequent comment stated that
the appropriate "portion" of EPA's certification and compliance
costs for heavy-duty engine and vehicle manufacturers to bear is
50 percent.

     EMA states that the plain language of section 217(a) requires
that only a "portion" of the costs associated with the heavy-duty
engine (HDE)  compliance program can be recoverable and thus 100
percent of such costs is not a portion.  EMA suggests that EPA's
interpretation (that heavy-duty manufacturers pay 100 percent of
the costs allocated to that industry) would provide no purpose or
effect to the last sentence in 217(a). Since the basic premise of
fee collection is to impose fees for specific benefits conferred
upon an identifiable beneficiary5, EMA suggests  that  it  is  self-
evident that EPA would only collect such appropriate fee even
without the language in the last sentence.  Further,  EMA points to
the EMA decision and claims it does not validate EPA's
interpretation of 217(a).  EMA suggests that the dicta from that
decision only states that "Congress intended that the EPA charge
manufacturers of heavy-duty engines and vehicles something less
than it charges other manufacturers"  and the EPA must "do
something that moves non-trivially in the direction that Congress
intended."  and thus does not hold that EPA may assess HDE
manufacturers 100 percent of all costs and yet still comply with
the requirement in 217(a) which requires that only a portion of
such reasonable costs be assessed.

     Our Response:
  5   EMA cites  EMA v EPA,  20  F.3d  1177,  1180  (B.C.  Cir.  1994)  for
this proposition.  The court held in this instance that "Under the
IOAA an agency may impose a fee only for a service that confer a
specific private benefit upon an identifiable beneficiary."

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     EPA agrees with EMA's suggestion that the general principle
of section 217 and of the IOAA is to generally recover all costs
that are specifically tied to a specific benefit for an
identifiable party.   The introductory sentence on 217(a) suggests
that "all reasonable costs" might appropriately be calculated for
the all MVECP services as noted in 217(a)(1-3) for all industries
and then EPA is subsequently directed to charge the heavy-duty
engine and vehicle manufacturers its appropriate "portion" of the
otherwise aggregated costs.

     We disagree with EMA's interpretation of the EMA decision.
The court discusses EMA's claim that heavy-duty manufacturers
should pay less than the "fair share" of costs occurs in section
III C of the decision.  The court noted that "According to EMA,
the Congress intended that heavy-duty manufacturers be charged a
fee that recovers less than their fair share of the total cost of
the Compliance Program because they face smaller sales volumes and
more onerous compliance testing than do manufactures of light-duty
vehicles and engines."  The cost methodology EPA used in the fees
rule that the court reviewed, and used for the current rule, was
to segregate the costs for each certificate type (including HDE HW
CI and SI)  and divide such total costs by the number of
certificates expected to be issued within that certificate type.
As noted on worksheet #2 of the original Cost Analysis,  the total
costs for HDE HW CI and SI is $3,956,759 and cost per certificate
is $30,437.  Worksheet #2 of the revised Cost Analysis shows that
this amount is now $3,193,596.  The amount per certificate is
$21,578, a reduction of $8,859 per certificate in the final rule
as explained in section 2.2  (this reduction is a result in a
recalculation in the number of certificates expected to be issued,
a reduction in the costs associated with the upgrades to the test
cells in Ann Arbor, and other adjustments) whereas the fee per
light-duty vehicle certificate is $33,883.

     The court in EMA (page 1183) acknowledged EPA's methodology
of and intent to give effect to section 217(a) by segregating the
costs of heavy-duty, light-duty, and motorcycle certificates and
by waiving the fee to the extent that it exceeds one percent of
the projected sales revenue for any manufacturer.  The court
suggests that it is reasonably clear that Congress intended that
the EPA charge manufacturers of heavy-duty engines and vehicles
"something less than it charges other manufacturers" although "the
statute is silent as to both the means by which and the degree to
which the agency is to do so." The court continued and found that
what EPA had done, in segregating costs as noted above,  was an
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appropriate way to implement section 217(a) for heavy-duty
manufacturers.

     We also note that the discussion that EMA cites from EMA
regarding the fact that the IOAA already provides the necessary
authority and requirement that fees for service only be collected
when a specific benefit falls upon an identifiable industry
includes additional discussion of what is an "identifiable
beneficiary" versus the general public.  The court states that
"[a]  general benefit conferred upon an industry, such as the
public confidence that may attend the mere facts of its
regulation, is insufficient to justify a fee."  (italics added).
The court continues and states that "[i]n a regulated industry,  a
certificate of approval is deemed a benefit specific to the
recipient." (italics added).6   The  court  clearly differentiates
between the regulated industry versus the general public.

     All such manufacturers receive the specific benefit of a
certificate from EPA and are otherwise regulated.  However, we
believe the language of section 217 authorizes us to use a
methodology that identifies the costs directly associated or
portioned by EPA that relate to the heavy-duty engine and vehicle
industry.  We have in fact identified such costs for this industry
and apply no other costs to the fees collected from it.  Since the
resulting fee levels and waiver provisions result in a fee for
heavy-duty engine manufacturers that is significantly lower than
all other motor vehicle manufacturers except for motorcycle
manufacturers and independent commercial importers (ICIs),  whose
costs are segregated both from heavy-duty and general light-duty
vehicle costs,  and thus EPA believes this is an appropriate way to
implement section 217(a).

     What Commenters Said:

Section 2.1.2  EMA then points to section 217's use of the term
"reasonable" and legislative history on section which is to the
effect that "[t]he authority granted to the Administrator under
this section [217]  must be carefully exercised so as to avoid
proceeding with 'gold plated'  compliance programs since the costs
will not fall on the government."  (See H.R. 101-490,  May 17,
1990).    EMA suggests that a 50 percent allocation would also give
recognition to the tremendous outlays of capital and man-hours
that HDE manufacturers already spend to conduct extensive
  6 EMA at 1180.
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certification and compliance testing and given the new costs to
comply with the 2007 model year requirements and its own in-use
not-to-exceed (NTE)7 compliance  testing.

     EMA believes that 50 percent is the appropriate portion of
the costs that should be collected in order to protect against
"gold-plated" programs and by ensuring that EPA maintains a
meaningful role in funding such programs.  It would also recognize
the capital and man-hours that heavy-duty manufacturers spend to
stay up with EPA requirements, including costs for additional data
and new test cells in order to meet the 2007 standards.  In
addition, EMA again claims that the manufacturers face extensive
in-use NTE compliance testing in the future and thus in many ways
are already paying more than their fair share of compliance cost
burden.

     Our Response:

     EPA believes the best interpretation of section 217 is that
the costs associated with heavy-duty manufacturers be segregated
from other types of manufacturers.   In reaching this conclusion
EPA is guided by the sentence in section 217 that EMA relies upon
"In the case of heavy-duty engine and vehicle manufacturers, such
fees shall not exceed a reasonable amount to recover an
appropriate portion of such reasonable costs" and the preceding
sentence which states "The Administrator may establish for all
foreign and domestic manufacturers a fee schedule based on such
factors as the Administrator finds appropriate and equitable and
nondiscriminatory,  including the number of vehicles or engines
produced under a certificate of conformity"  (italics added).

     We believe it is appropriate to segregate the MVECP costs
associated with each industry and then to divide the number of
certificates within each respective industry by its segregated
costs.  In order to be nondiscriminatory we also believe that all
industry groups (or "fee categories")  must reimburse the
government for all the costs for their respective industry group.
The costs that each industry group must incur to comply with EPA's
emission requirements such as manufacturers' own NTE testing, test
cell development,  etc.,  is properly considered by EPA when it
adopts such requirements, e.g. when it adopts emission standards.
The cost to industry is taken into account in that rulemaking.
  7  Not-to-exceed  requirements  specify  that  engine  emissions  must
not exceed a specified value for any of the regulated pollutants.

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This rule, however, focuses on EPA's actions and associated costs.
We believe that is consistent with the directive in the IOAA that
special benefit programs be self-sustaining to the extent possible
and the first sentence of section 217(a)  authorizing EPA to
"...establish fees to recover all reasonable costs."

     Thus, we believe that the directive to recover "reasonable,"
"appropriate," and "equitable and nondiscriminatory" costs or fees
means that EPA must use clear and explained accounting measures,
make reasonable estimates of costs, and properly distribute its
costs to specific programs where specific benefits are bestowed to
a specific industry group.

     Therefore, EPA believes the purposes of section 217 and IOAA
are also best served by collecting all costs incurred by the
Agency but only collecting the fair share of costs of HDE
compliance that is associated with such activity and therefore EPA
makes no adjustment of its fees based on commenters suggestions.

     EPA believes that the certification and compliance program
designed for the heavy-duty industry is appropriate and reasonably
correlates with the contribution of emissions from this sector to
the overall inventory of emissions from mobile sources and also is
very reasonable when compared to the level of activity and costs
associated with other industry categories, including the light-
duty industry.  As further explained in section 2.2 below, EPA
believes its certification and compliance program is reasonable,
if not modest, for the heavy-duty industry and in no respect can
it be considered a "gold-plated" program.  From EPA's original
proposed cost of $30,347 for each heavy-duty certificate we have
now reduced the cost in the final rule to $21,578.

     2.2  Costs Unrelated to the MVECP

     What We Proposed:

     We proposed recovery of those costs incurred by the Agency in
conducting new vehicle and engine certification, new vehicle and
engine compliance monitoring and testing and in-use vehicle or
engine compliance monitoring.  The proposed fees are based on what
EPA believes to be all recoverable direct and indirect costs
associated with administering these activities.  Recoverable costs
include all labor, direct and indirect program operating costs
associated with the activities listed above, and EPA's general
overhead costs.  Operating costs include such things as the
purchase of equipment or property as that specified on worksheet

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#10, which is the itemization of laboratory modernization budget
request.

     The Cost Analysis contains worksheets which further explain
the associated costs.  Several worksheets within the Cost Analysis
set forth the costs that are applicable to the heavy-duty highway
certification type.

     Worksheet # 1 shows a total recoverable cost for HD HW of
$3,956,759 of which $769,448 is designated as Certification and
Compliance Division  (CCD) direct program costs and $275,431 of
Laboratory Operations Division  (LOD)  direct program costs.
Various costs are included within the indirect program costs
including $193,000 for lab modernization. The labor costs include
$1,404,646 of direct costs and $345,509 of indirect costs.
Worksheet # 3 (the summary sheet for LOD which is located in Ann
Arbor) shows an additional (or projected) direct labor cost of
$224,055 and an indirect total of $249,785 for HD HW.  Worksheet
#4  (the summary sheet for CCD which is located both in Ann Arbor
and DC) shows that no costs for labor are incurred in Ann Arbor
and $1,276,315 of labor costs in DC.   Worksheet #7 breaks down
LOD's additional labor needs and shows that 1.50 total full time
equivalent employees (FTEs) will be required to perform and
process tests in Ann Arbor.

     The Cost Analysis at page 33 explains the Laboratory
Modernization (Lab Mod)  costs on worksheet #10.  Included was a
total cost estimate of $14,130,000 of which $10,030,00 was deemed
recoverable.  This recoverable portion was amortized over 10 years
for an annual recoverable cost of $1,003,000.  These costs were
allocated to the light-duty and the heavy-duty highway industries
using the actual cost allocation method according to the program
for which the equipment was purchased. The "actual cost"
allocation method, as explained further at page 110 of the Cost
Analysis, is used when the costs can be directly attributable to
an industry category.  For example, for the HDE HW category, EPA
attributed $193,000 per year in lab modernization costs for the
test cells associated with testing such engines.  Thus worksheet
#10 breaks down the costs by various pieces of equipment and their
purpose.   For example,  under the Heavy-Duty Test Engine Sites
various pieces of equipment are listed, whether such equipment
will be used in test cell number 1 or number 2  (HDE #1 and HDE
#2), and whether the costs of such equipment are recoverable or
not.  The total costs associate with the Lab Mod for the two
heavy-duty test cells is $3,030,000 of which EPA proposed
$1,930,000 as recoverable, and, amortized over 10 years, resulted

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in annual cost (and proposed fee collection)  of $193,000.   At the
time of the proposal EPA anticipated using both test cells for
MVECP activities as well as other activities and proposed
recovering the full costs of any equipment related to MVECP
activities regardless of their potential use for non-MVECP
activities. Worksheet #3 and worksheet #1 both include the
$193,000 figure for the lab mod costs associated with the heavy-
duty test cells.

     The core testing operations costs for LOD as noted on
worksheet #1 are further explained on worksheet #12, including a
breakdown of HDE HW costs of $275,431 of which $225,360 will be
used on engine procurement.  Separate from the LOD costs for lab
modification and core testing operations costs are CCD's programs
costs as listed on worksheet #13.   These costs include "In-use
on-vehicle testing" at $297,200 and "enhanced engine compliance
programs" at $380,000.  The enhanced engine compliance program
costs are further broken down in worksheet #16 including $200,000
for confirmatory testing for certification, $30,000 for selective
enforcement audits, and $150,000 for in-use engine dyno testing.
This program's costs are discussed again and further clarified
within section 2.3.

     What Commenters Said:

Section 2.2.1.  In its initial comments, EMA expressed the concern
that EPA was seeking to assess and recover fees for EPA's
developmental test lab facilities and personnel in Ann Arbor.
EMA stated that since these facilities were not utilized in
connection with the MVECP for manufacturers'  heavy-duty on-highway
or nonroad engines compliance or certification activities but
instead are used for general regulatory efforts and technological
feasibility demonstrations, such efforts and demonstrations do not
confer specific benefits on any identifiable beneficiary or
manufacturer.

     OPEI supported EMA's comment and contended that EPA cannot
impose certification fees on small spark-ignition (SSI) engine
manufacturers for costs that are not directly related to
processing SSI engine certification.  Both commenters considered
costs associated with EPA's developmental test lab facilities and
personnel associated with such facilities in Ann Arbor, Michigan
as "unrelated costs."

     Our Response:
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     EPA agrees with commenters that fees should not be assessed
for the costs associated with using Ann Arbor's test laboratory
facilities and personnel for activities not related to the MVECP
such as general regulatory efforts and technological feasibility
demonstrations, or for other developmental purposes.  As EPA noted
in the NPRM, the costs of activities such as regulation
development, emission factor testing, air quality assessment,
support of state inspection programs and research were not
included with the costs study nor are included in the fees
proposed. (See 67 FR at 51409).    As noted on revised worksheet
#10, of the $14,130,000 associated with the laboratory
modification budget,  only $8,485,000 was deemed recoverable as a
laboratory equipment associated with compliance testing
activities.  Specifically, those costs linked to the "advance
engine test sites" and the "climate control test facility," which
fall under the heading "Critical Regulatory Developmental Test
Capability"  are not labeled as recoverable and thus are not
included in the fees proposed.   Revised worksheet #10 also
reflects that other costs associated with developmental testing
are not labeled as recoverable.   As further noted below, EPA has
further refined these costs and has eliminated other costs not
determined to be MVECP related.

     We did not include the costs of developmental lab facilities
and personnel in Ann Arbor in our fees calculation.  The lab
facilities that were included as recoverable in the cost study are
for engine testing that EPA plans to begin in the near future.
Therefore, the costs are associated with compliance testing and
are recoverable by fees.

     What Commenters Said:

Section 2.2.2. In its initial comments, EMA also contended that
EPA does not currently conduct any HDE testing at Ann Arbor and
therefore questioned both the need for such testing along with the
additional labor costs of conducting such testing along with the
other costs of such testing as summarized on worksheet # 3.

     Our Response:

     Section 2.2.3 addresses the issue of whether EPA's proposal
included sufficient information regarding whether EPA planned to
conduct HDE compliance testing in Ann Arbor.   This section
addresses EMA's concern whether EPA actually would do testing at
Ann Arbor and the need for such testing, along with an explanation
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for why EPA believes the cost estimates associated with such
testing are reasonable.

     EPA notes that the need for such testing partially arises
from purely the emission contribution from heavy-duty engines
which is second only to light-duty on-highway vehicles for mobile
sources and represents approximately one-half of the emissions of
light-duty vehicles.  Furthermore,  EPA has experienced a
relatively high degree of the use of defeat devices and non-
conformity of heavy-duty vehicles in recent years.  The discovery
of the level of noncompliance in this industry led to the
perception that EPA was not doing an adequate job of overseeing
the HDE industry.  In 1998 consent decrees were entered into with
almost the entire HDE HW industry,  to resolve claims of several
cases of noncompliance.  The Agency is only now beginning on its
efforts to test some of these vehicles during in-use operation
over their useful lives.  EMA's comment suggests that it may be
unnecessary to implement a new HDE compliance program (or that it
is not necessary until the 2007 requirements commence),  or that
such a program is untenable in Ann Arbor.   EPA believes these
comments are misplaced.  As noted from revised worksheet #1, EPA's
proposed fees program allocated a cost of  $3.2 million for the HDE
on-highway industry.

     As also explained at section 2.2.4,  EPA believes it has
developed and is now in the process of implementing a cohesive and
comprehensive compliance program, including a significant
component in Ann Arbor, for HDE on-highway engines.  EMA is
correct that a testing program in Ann Arbor did not exist at the
time of the fees proposal, however, EPA has extensive experience
in testing light-duty vehicles and has identified a similar need
for heavy-duty in order to ensure that any emission problems are
found in a timely manner.  Similarly, EPA has extensive experience
with procuring vehicles for testing and estimating costs and we
note that commenters did not question the  accuracy of such costs.
EPA has invested the requisite resources to conduct a testing
program in Ann Arbor and plans to use that facility along with
testing conducted in the Washington, DC area and at any necessary
outside contracted laboratories as explained at 2.2.4.

Section 2.2.3. On December 10,  2002, EPA met with EMA.  At that
time, EMA once more sought an explanation of the costs attributed
to HDE testing at Ann Arbor which are reflected in LOD's
summarized costs on worksheet #3 and the description of LOD's core
testing operations description on worksheet #12.   As explained on
page 30 of the Cost Analysis, LOD's direct program costs include

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the costs of testing and vehicle and engine procurement for such
tests, including those costs at worksheet #12.  EMA sought
clarification of worksheet #10 (the laboratory modernization costs
for the two heavy-duty test engine sites) and how those costs were
coordinated with the LOD costs noted above and with LOD's FTE
costs.

     In response to our explanation,   EMA submitted additional
comments contending there was an inadequate explanation on the HDE
testing at Ann Arbor,  and more specifically the use of test cells
at Ann Arbor.  EMA further contended that EPA wrongly seeks to
recover 100 percent of the costs associated with the advance
engine test cells when EPA would be utilizing, at most, only 25
percent of the cells for compliance activities.  EMA stated that
only 25 percent of the costs should be assessed to reflect the
actual amount of time the dyno would be used for compliance
activities.  EMA also contended that our proposal does not evince
an intent to conduct HDE testing at Ann Arbor.

     Our Response

     EPA's original cost analysis for the lab modernization plan
assessed the entire cost of any equipment that would be used for
MVECP services and this plan included specifically the upgrading
of two heavy-duty engine test cells (HDE #1 and HDE #2 on
worksheet #10) and the allocation of the upgrade costs to the
heavy-duty highway industry which EMA now questions.  At the time
of the proposal EPA's intent was to use each of two test cells
approximately only 25 percent of the time for compliance activity
purposes.  In their pre-modernization condition these cells were
not suitable to perform testing that could be used for compliance
or certification type activities.  Since the two cells were to be
utilized for compliance activities, the lab equipment and
facilities of each test cell needed to be upgraded to deliver data
that would meet requirements for certification or  recall
purposes.  Since the upgrade was not necessary for the non-
compliance test activities that were conducted in these test
cells, the entire costs of the test cells were included in the
fees proposal as compliance related costs.

     EPA has reexamined its plans for the use of the two HDE test
cells and has determined that most compliance testing will occur
in test cell HDE #2.   Although EPA had originally planned to use
both test cells, HDE #1 and HDE #2, approximately 25 percent of
the time for compliance testing,  EPA has determined that it will
be using HDE #2 approximately 25 percent for compliance testing.

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Although it may be appropriate to assess the full costs of the
test equipment in the Ann Arbor HDE #2  (and to some extent that
equipment shared with HDE #1 that is used in HDE #2)  to fees
because the equipment is necessary for EPA's enforcement
activities, EPA has allocated the costs as noted below.

     EPA is guided by the language of section 217(a)  (and in
general by the IOAA)  which states that the Administrator may
establish fees based on such factors as she finds appropriate and
equitable,  and in this instance we find it equitable to only
prorate for that approximate percentage of the time that the
equipment related to compliance purposes will be used in
comparison to all of its uses.  We believe that prorating the
costs result in more accurate costs than those presented in the
notice of proposed rulemaking.

     Most of the HDE HW testing will take place in HDE #2 test
cell which requires the additional equipment outlined on revised
worksheet #10.  In cases where there was an equipment cost solely
for HDE #2, such as the heavy-duty engine cell controller
replacement, the analytical/sampling system and the selective
catalytic reduction (SCR)  load controller, one-quarter of the cost
was assessed to the heavy-duty fees as this cell will be used for
compliance purposes one quarter of the time.  Therefore, instead
of $1,150,000 being recovered by EPA for these pieces of equipment
as proposed, EPA will now only recover $287,500.

     In cases where there was an equipment cost common to both HDE
#1 and HDE #2, such as the diesel engine cell cooling control and
the oxides of nitrogen (NOx) and particulate matter (PM)
measurement methods and equipment, one-eighth of the cost was
assessed to determine the recoverable portion.

     EPA disagrees with the comment that our proposal does not
evince an intent to conduct HDE testing at Ann Arbor.   EMA also
suggests that EPA is not currently conducting any such testing in
Ann Arbor and questions the need for such testing in light of
EPA's other enhanced compliance programs as spelled out in
worksheet #16 and because the manufacturers themselves will be
conducting their own in-use testing program. We address those
concerns in section 2.3

     Our Cost Analyses Document contains extensive demonstration
of costs associated with HDE HW testing at Ann Arbor such as to
place the public on notice of our intent to conduct a heavy-duty
compliance program.  For example, we defined "direct program

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costs" as those costs for compliance work, including the costs of
testing either at EPA's lab or a contracted test facility,
procurement of vehicles or engines and equipment needed to conduct
the tests (see page 14 of the Cost Analysis).   EPA explained that
in some cases new compliance programs are being planned.  We also
explained that the cost of testing (as a direct program cost) to
be performed at EPA's lab is included in LOD's portion of the Cost
Analysis and are not included in CCD's portion (see page 40 of
Cost Analysis).   EPA provided an explanation that within LOD
several groups exist, including the "Compliance Development and
Testing Group" and the "Advance Testing Group" and that
recoverable FTE were only from the former group as the latter
group conducts work based on developmental testing and research in
vehicle technology, thus EPA clearly differentiated between the
two and provided notice for the types of labor associated with
compliance testing at the Ann Arbor facility.   (See page 44 of the
Cost Analysis).   In addition, additional labor needs which would
be necessary for heavy-duty compliance testing in Ann Arbor are
reflected on worksheet #7 (now replaced by revised worksheet #7)
and explained at page 46-47 of the Cost Analysis.  EPA notes that
in its revised test plan fewer FTE will be required to conduct
compliance testing in test cell #2.

     We explained that the NVFEL laboratory modernization plan
includes three critical testing support areas requiring new
instrumentation and upgrades, including critical diesel engine
standards test capability (including testing to the new 2004 HDE
standards -see page 49 of the Cost Analysis).   We also explained
that the "critical regulatory development" test capability is not
involved in compliance testing, and in fact the intent of the
proposal was to not charge fees for developing that capability. We
provided further information that the Ann Arbor heavy-duty engine
test sites will be required to test not only the 2007 NTE
standards but also both the current emission levels and the new
2004 model year standards (see page 50 of the Cost Analysis).

     EPA also disagrees with EMA's contention that there was no
notice of the amount of compliance testing to be conducted at the
upgraded cells since we clearly set forth the procurement cost of
HDE HW engines as a component of LOD's core testing operations
costs, including the number of engines to be procured and at what
costs (see page 52 of the Cost Analysis).

     What Commenters Said:
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Section 2.2.4. EMA also contends that EPA's computation of
expenses at Ann Arbor are replicated elsewhere and thus result in
"double dipping."  EMA points to the Agency costs for conducting
HDE confirmatory tests, by outside contractors,  which is reflected
as $20,000 or $30,000 per engine family on worksheet #16 of the
Cost Analysis, and questions what additional
certification/compliance activity will take place at the two test
cells in Ann Arbor.  In addition, EMA asserts that the use of
contractors renders EPA's attempt to collect additional facility
and labor costs  (direct program costs) for such testing improper
since EPA will not incur such costs when outside contractors are
used.

     Our Response:

     The testing listed on worksheets #10 and #16 is not double
counting of the same testing but represents different sets of
testing and related costs.  This testing will allow EPA to meet
its testing goals for the heavy-duty industry.  See further
discussion of this in section 2.3.

     The cost analysis reflects the costs associated with EPA's
comprehensive strategy to ensure compliance and the various
components of the testing plans included within such strategy.
EPA plans to continue with the heavy-duty screening of engines in-
use by using portable emission measuring equipment that is
currently being conducted.  This testing is designed to survey the
industry and to detect possible compliance issues.  Independent of
this screening testing, we will also be conducting confirmatory
certification dyno-testing (and potentially in-use dyno testing to
the extent it is not conducted elsewhere, any costs estimated to
be incurred at Ann Arbor will also be incurred if testing is
conducted elsewhere) at the laboratory in Ann Arbor.  This testing
will consist of both certification confirmatory testing and some
testing of in-use engines.  Because of possible limitations in lab
accessibility in Ann Arbor, and as likely follow up testing to the
screening testing, we will also conduct testing at a contracted
facility.   Although in many instances EPA believes that the
screening testing will provide a sufficient basis for making
compliance determinations, we also recognize the likely necessity
of continuing to test engines in laboratory conditions.  This is
further explained in section 2.3.

     We believe that this testing is necessary as a review of the
current testing plans indicated that the testing for the heavy-
duty industry lags behind the testing that is conducted on the

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light-duty industry.  EPA took into account the discrepancy
between the current compliance programs for the two industries,
the need for additional heavy-duty testing based on recent
noncompliance in its testing plans for the industry and on the
degree to which manufacturer run compliance activities programs
are or will be in place for these industries.  The test plans
include the screening that is currently being conducted as well as
additional testing that would be conducted at the Ann Arbor
facility and testing at a contracted facility.

     2.3  Costs for In-use Programs

     What We Proposed:

     We proposed continuance of the Agency's current compliance
methods for light-duty vehicles, motorcycles and heavy-duty
highway vehicles and engines which insure the overall compliance
of a vehicle or engine with applicable emission standards
throughout their useful life.  EPA explained that this
certification process may include confirmatory testing (testing
conducted by EPA in-house to confirm manufacturer test data)  and
compliance inspections and investigations (such as selective
enforcement audits) and in-use testing. (67 FR at 51406-51408).
Currently, EPA conducts testing of in-use heavy-duty highway
engines and nonroad compression-ignition engines at costs of
$297,200 and $72,800, respectively as indicated on worksheet # 13.
This testing is screening in nature,  and uses portable test
equipment on-board the vehicle.  This screening is used as an
indicator of engines that may be noncompliant.  To assist in this
testing, EPA is planning to purchase commercial emission detection
units that can monitor emissions from heavy-duty engines and
nonroad compression-ignition engines during use at costs of
$80,000 and $20,000, respectively.  These costs are shown on
worksheet #13.

     We also proposed fees for new compliance testing for in-use
heavy-duty engines.  Some of the testing will be conducted in the
Ann Arbor laboratory at a test site that is being upgraded to
conduct compliance-level tests.  The proposed8 costs  for  the  in-
use testing conducted at EPA's Ann Arbor facility included the
equipment costs listed in worksheet #10 ($193,000 per year for
heavy-duty), the labor listed in worksheet #7  (2.75 FTE), and the
  8 Note that the final costs for the HDE equipment costs is
$38,500 per year, not $193,000 as proposed.

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cost of procuring in-use heavy-duty engines listed under Engine
Procurement - Heavy-Duty, on worksheet #12 ($225,360).

     In addition to the new testing that will be conducted in Ann
Arbor,  we are planning an Enhanced Engine Compliance Program.
Worksheet #16 reflects the costs for this program.  This will be
conducted at a contracted facility (with the exception of the
selective enforcement testing) and includes certification
confirmatory testing, selective enforcement testing, and in-use
engine dyno testing for both heavy-duty highway engines and
nonroad CI engines at costs of $200,000, $30,000 and $150,000
respectively.

     What Commenters Said:

     EMA opposed fees based on EPA's expectation of conducting an
enhanced in-use compliance program when, at the same time,  the
Agency is in the process of developing and implementing a
manufacturer-run in-use testing program.

Section 2.3.1.  EMA states that EPA's current in-use testing is
just geared toward regulatory development and feasibility testing
of its measurement equipment.  EMA further contended that the fees
are inappropriate because the NTE emissions standards and related
testing and requirements do not become effective for HDE HW
engines until 2007, much later than when the new fees become
effective, and are not yet proposed for NR CI engines.

     Our Response:

     Regulatory development and feasibility testing were not
included in the cost study, and were not included in the costs
that will be recovered by fees.  Furthermore, the cost study only
assesses the costs of compliance and confirmatory testing.

     EPA acknowledges that one purpose of the current in-use
testing has been developing the portable testing devices and
related testing procedures, but the primary purpose now and
certainly in the future of the enhanced engine compliance program
will be compliance testing.  This is to implement the prohibition
against use of defeat devices and to conduct compliance testing of
new emission control components based on both the 2004 HDE HW
standards and the 2007 standards. Thus both our screening testing
and laboratory testing will commence in 2004 and not await the
additional requirements  (such as NTE standards)  in 2007.   Our
current on-vehicle testing has several compliance purposes,

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including: as a general screening tool to see how such vehicles
might perform based on federal test procedure (FTP)  conditions, as
a tool to insure that no heavy-duty engine manufactures are
employing defeat devices.  As explained below, in addition to
continuing surveillance-like testing of small samples of vehicles
per engine family, EPA plans to conduct more compliance testing to
measure the durability of new emission components and to measure
such vehicles or engines in laboratory conditions.

     EPA has included the additional HDE HW compliance programs in
its cost analysis and is recovering such costs by today's rule
because such programs are part of EPA's plan to increase its
compliance oversight for this industry.

     We also note that the near term compliance testing will not
be for "regulatory development" purposes but rather to insure the
durability on new technologies being applied to heavy-duty on-
highway and nonroad engines.   These new technologies have not
undergone extensive in-use scrutiny and assurances of durability.
As a result an in-use compliance program is necessary now to
ensure that the applicable new emission standards are being met.

     What Commenters Said:

Section 2.3.2.
      EMA states that manufacturers will be conducting a
comprehensive in-use not to exceed  (NTE)9  testing program of  on-
highway HDE during the 2005 and 2006 time period and will
subsequently conduct a manufacturer-run in-use program.  EMA
maintains that as a result,  EPA and the California Air Resources
Board (GARB) will not engage in routine in-use testing of HDE
engine families.  Thus, EMA argues that EPA's in-use testing will
be minimized, not enhanced, due to the manufacturer-run in-use
testing.
Our Response:

     EPA agrees with EMA's comment that manufacturers will be
conducting an in-use NTE pilot testing program during 2005 and
2006 yet we disagree with EMA's characterization of this testing
as "comprehensive."  In fact during this pilot period it is
  9  Not-to-exceed requirements  specify that  engine  emissions  must
not exceed a specified value for any of the regulated pollutants.

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expected that EPA will be required to conduct its own testing if
determination of the scope or causes of potential nonconformance
was required and that EPA may be required to generate additional
testing data should a remedial action for nonconformance be
sought.  EPA also expects, and therefore agrees with EMA's
comment, that manufacturers will be conducting their own in-use
verification testing program in 2007, and thus EPA will not be
conducting routine testing that is duplicative of manufacturer
testing.  Independent from the manufacturers' testing throughout
this time period, EPA sees the need to conduct the projected
levels in-use testing to ensure compliance with all emission
standards, including NTE standards.  EPA believes that an EPA-run
in-use presence will continue into the future at the levels
projected.

     The enhanced in-use program is planned by EPA to address the
Agency's compliance testing needs.  New technologies, such as
catalysts and traps, will soon be added to heavy-duty on-highway
(both for the 2004 and 2007 regulatory requirements) and nonroad
compression-ignition engines which have not undergone extensive
in-use scrutiny and assurances of durability.  Thus we believe it
is appropriate to establish an in-use compliance presence to
ensure that the applicable new emission standards are being met.
In terms of equity with other industries and in terms of the need
for the compliance programs, we believe that EPA's proposed
compliance program and the associated fees are appropriate.   In
addition, as noted above, EPA's in-use testing will not be
duplicative, but as envisioned by EPA's settlement agreement with
EMA, EPA's testing will be used for purposes of verifying any
manufacturer testing as necessary in order to make final
compliance determinations and other separate testing to supplement
the testing of engine families not tested by manufacturers.

     As evidence of EPA's intent to conduct the current and future
HDE HW and NR CI testing programs, EPA has formally requested an
additional $8 million in the fiscal year 2004 budget request sent
to Congress "to help ensure compliance with the more stringent and
complex Tier II and Diesel regulations for cars, heavy-duty diesel
engines, and gasoline and diesel fuels that will take effect in FY
2004."  Included in the request is the "development of a credible
heavy-duty compliance program" as Congress has previously
questioned EPA's oversight of this industry.  We believe it is
appropriate to include the new testing program costs associated
with heavy-duty compliance in the budget request just as it was
appropriate to include the $10 million associated with the
recoverable portion of the $14 million spent on the laboratory

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modernization projections which,  at the time,  was based on both
EPA's design plans and needs and a similar request to Congress for
such funding which has since been funded in subsequent
appropriations.  We also note that much of the testing that will
be conducted during the 2005-2006 pilot testing period will be for
purposes of refining testing protocols, etc. and that EPA must
maintain a reasonable level of compliance testing in order to
ensure that emission standards are being met while vehicles are
operating during their useful lives.  Similar to EPA's in-use
verification program conducted by manufacturers in the light-duty
industry (the Compliance Assurance Program  (CAP 2000)),  EPA
believes it will continue to test at projected levels beyond 2007
when manufacturers will be expected to be required to conduct
their own in-use testing as EPA testing in conjunction with
manufacturer testing forms the basis for adequately determining
the performance of engines during in-use operation.

     What Commenters Said:

Section 2.3.3. The Alliance/AIAM  maintains that since CAP 2000
transferred the obligation of in-use verification and confirmatory
testing to manufacturers, EPA appears to be charging fees for
costs that are already borne by manufacturers.  They also cite to
a statement regarding our authority to require SEA testing in the
NPRM and contend that since CAP 2000 also reduced or transferred
EPA's workload as it relates to SEA testing, that any costs
associated with SEA testing is inappropriate.

     Our Response:

     Although the Alliance/AIAM maintains that CAP 2000
transferred the obligation of in-use verification and confirmatory
testing to manufacturers, in fact what CAP 2000 accomplished was
the shift in emphasis that had been placed on certification to in-
use performance and in-use testing.  EPA neither transferred nor
intended to transfer EPA's own in-use verification and
confirmatory testing to the manufacturers.  Rather, after CAP 2000
was implemented, EPA began gradually increasing the amount of in-
use testing that it was conducting, initially at the Virginia test
laboratory (VTL) in Alexandria, Virginia, then transferred this
testing (during the time when testing at VTL was being phased out)
to EPA's Ann Arbor laboratory where the in-use testing program
continues to operate and increase in scope.  The costs of the in-
use testing program reflects our implementation of the new Tier 2
emission standards and associated new technology.
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      We did not propose any fees for SEA testing for the light-
duty program, therefore, the Cost Analysis Document does not
reflect any light-duty costs for SEA testing. However, this does
not preclude EPA from increasing its in-use testing program or
conducting SEA testing if it deems it necessary in the future.
Any related fee change would be through Notice and Comment
rulemaking.

     What Commenters Said:

Section 2.3.4.  EMA indicated that EPA should readdress the
assessment of fees for in-use testing once the manufacturer-run
program is up and running.  EMA also stated that by the time EPA
conducts a new rulemaking for HDE fees, the HDE manufacturers will
have been making "double payments."

     Our Response:

     As noted above in section 2.3.2, EPA believes that its
initial modest compliance program that has been designed for the
HDE industry, and for which costs will be recovered by today's
rulemaking,  is appropriate and is expected to continue for the
foreseeable future.  The Agency recognizes the significant role
the HDE manufacturers will play in contributing to a comprehensive
compliance program by conducting their own in-use testing.  As
such EPA anticipates that it may re-examine the scope of its own
HDE HW  in-use compliance program and its effectiveness at a time
when its new program is fully developed and can also be examined
in the context of a mature manufacturer-run in-use program.   This
reexamination will focus on whether the manufacturer in-use
testing program as finally adopted and implemented indicates that
changes are appropriate in the nature or extent of EPA testing.
EPA will examine the scope of manufacturer-run testing and
determine whether any redundant or unnecessary in-use testing is
being done by EPA or whether additional EPA testing is required.
EPA believes that this will timely address the concern of "double
payments," in order to avoid manufacturers paying for testing that
they are conducting and also paying fees for EPA to conduct the
same testing.

     2.4 Costs Too High for Industry

     What We Proposed:
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     As earlier mentioned in section 2.1,  the Cost Analysis
Document contains EPA's in-depth analysis of the recoverable costs
associated with running the MVECP.

     We explained that each request for a certificate of
conformity within a certification request type is potentially
subject to an equal amount of EPA expenditure related to the
applicable certification,  SEA,  and in-use compliance monitoring
and audit programs, and where applicable,  fuel economy.  EPA
believes it is fair and equitable to calculate fees in a manner
whereby the fee for each certificate within a certification
request type is approximately the same.

     The Cost Analysis divided the various affected industries
into three separate categories,  light-duty vehicles, heavy-duty
and nonroad compression-ignition engines and "Other."  Each
category was further subdivided if the amount of testing or EPA
services varied significantly.   The "Other" category was not
subdivided as it included vehicles and engines that would only
receive certification review and some minimal testing.  The fees
were determined by dividing the total costs of services provided
by EPA to this category by the projected number of certificate
applications that would be received by manufacturers included in
the category.

     What Commenters Said:

Section 2.4.1.  Mercury Marine opposed the fee structure for
marine engine manufacturers.  It asserted that EPA's proposed fee
of $827 per certificate would have a 2003 model year impact to
Mercury Marine of over $23,000.

     Mercury Marine stated that the marine industry agreed to
redesign its products to meet EPA regulations in 1994 and 1995.
They noted that the cost of this redesign is in excess of 500
million dollars industry wide.    Mercury stated that the
discussions at that time certainly did not include any additional
costs for certification.

     Mercury Marine stated that the marine industry is sensitive
to changing costs and is unable to deal with the fees that EPA
proposed.

     Our Response:
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     As mentioned above,  both section 217 and the IOAA direct EPA
to recover fees associated with the various engine and vehicle
certification and compliance programs.   Today's rulemaking is in
compliance with the strictures of both provisions.  Industries
that have not had to pay fees until now will be charged fees to
cover the services provided by the EPA.  EPA understands that the
new fees are an expense that many manufacturers have not had to
pay and that this expense may be difficult to budget into a
manufacturer's expenses.   This is why EPA notified manufacturers
of the new fees early in the rulemaking process to give
manufacturers time to budget for the new fees.

      To reduce their fees burden, EPA included liberal waiver
provisions for small engine families to assure manufacturers that
the cost of fees will never exceed one percent of the projected
aggregate retail value of the vehicle or engines being certified.
It should be noted that when a fee is reduced the cost of the
compliance services are covered by the government and are not
distributed among other fee payers.

     Although we did not mention certification fees as part of the
marine engines rulemaking, we believe that we have given adequate
notice of the new fees in order for manufacturers to prepare for
the new fees.  Furthermore, since 1992 light-duty vehicle and
heavy-duty engine manufacturers have been paying fees.  Thus, we
also believe that the new fees schedule will ensure the equitable
treatment of all manufacturers that are certified by EPA.

     What Commenters Said:

Section 2.4.2. Briggs and Stratton stated that small engine
applications are simple and straightforward, they require a
minimum amount of review by EPA, there is no OBD II, fleet
averaging, etc.  Therefore, only a minimum fee should be set for
certification, lower than those in the "Other" fee category.
Because manufacturers of the small engine industry have a larger
number of smaller engine families and the engines are of a low
cost then this provides an additional justification for lower
fees.

     Outdoor Power Equipment Institute (OPEI) suggested that lawn
and garden engines should be treated differently than the other
engines and vehicles in EPA's category for "other engines."  OPEI
asserted that EPA took the position that it incurs the same
expense, whether processing a certificate for a very complex
locomotive engine, or an engine used to power a hedge trimmer.

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Furthermore,   OPEI comments that although it is not familiar with
the intricacies of locomotive engine design and usage,  EPA cannot
possibly spend the same amount of time certifying a locomotive
engines as a lawn and garden engine.

     Our Response:

     To reflect the services we provide to industries within a
category (see worksheet #2 for the categories "LDV and Highway
Motorcycles," HDE Highway and Nonroad CI," and "Other")  in some
instances we further subcategorized the fee categories.   In
addition to assessing the time that may be spent reviewing
certification applications within a category or subcategory,  we
also assessed whether the applicable industry type would receive a
similar level of compliance testing and associated costs.    The
goal of this is to develop subcategories that are expected to
receive similar compliance activity and related costs.   EPA's cost
analysis for the fees rule divided categories into subcategories
whenever there was a substantial difference between the level of
services given to a subcategory.  For example,  EPA conducts pre-
certification testing and in-use testing for light-duty vehicle
and trucks.  Conversely,  EPA plans to conduct much less motorcycle
testing within that same category.  Therefore,  the fees for the
motorcycles are less than the light-duty vehicle and light-duty
truck fees.  EPA plans, for the industries in the "Other"
category, to conduct the same level of effort for certification
review and also plans only a minimal amount of testing.   Testing
is a major cost that separates subcategories and is not a
significant cost for this category.  Therefore,  the industries in
the "Other" category remained grouped together.

     The certification information submitted by the individual
industries largely consists of test data,  descriptions of engines
or vehicles in the engine family, and forms indicating the
standards that the vehicles or engines meet.  This information
does not vary significantly whether the engines are large and
complex or small and less complex.  Certification review of all
industries in the "Other" category consists of a review of the
information that the manufacturer submits.  The review includes
determining that the engine or vehicle is being certified in the
correct certification category, that the certification tests were
conducted on the worst case engine or vehicle,  that the forms were
filled out correctly, and that the vehicle or engine meets EPA's
emission standards.  In this respect, all of the certificate
applications submitted by the industries included in the "Other"
category are the same.

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     In the course of EPA's review of certification applications,
certain items may be reviewed more closely for one application
than for another application, items such as defeat devices,
auxiliary control devices or new technology.  EPA decides whether
these items should be reviewed depending upon the history of the
industry,  the manufacturer and other factors.  Although the level
of review of these items may change the total time spent on an
individual or an industry's applications,  the difference is not
significant and does not merit a separate subcategory.
Furthermore, other factors such as assisting new manufactures and
reviewing incomplete applications require more time than the
average difference in review time for industries' applications.
For these reasons, EPA decided that the applications in the
"Other" category are provided basically the same review and
testing services and, therefore, should be assessed the same fee.

     What Commenters Said:

Section 2.4.3.  OPEI stated that EPA had an overly simplistic
arithmetic system of evenly dividing the certification costs
between such disparate industries (as locomotive and trimmers)  and
OPEI finds this inappropriate and inequitable.   OPEI asserted
that, using the figures generated by EPA,  more than half (546)  of
the 1,027 engine families in the Other Industries category are
lawn and garden engines.  In addition,  OPEI stated that the simple
arithmetic used by EPA results in unfairly loading the "lion's
share" of the certification costs onto a single industry which
should only be responsible for its own share of certification
costs.

     Our Response:

     As described in 2.4.2 above, EPA divided the costs attributed
to the services provided to the "Other" category by the number of
projected certification applications from the industries included
in this category since each application entails approximately the
same amount of review or effort by the Agency.   Regardless of the
disparity of the applications, the amount of time spent on
locomotive applications and trimmer applications will be about the
same.

     The projected number of applications for the lawn and garden
industry constitutes more than half of the applications that will
be received and processed by the Agency.  Over half of resources
that EPA spends on the "Other" category will be spent on lawn and
garden engines.  For this reason, we believe it is appropriate,

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equitable and nondiscriminatory for the lawn and garden industry
to pay more than half of the costs for the "Other" category.

     What Commenters Said:

Section 2.4.4.  OPEI and ECHO stated that there are a lot of small
business in the lawn and garden engine industry and these
businesses may be unable to absorb fees costs as easily as other
industries.  OPEI suggested that certification fees for lawn and
garden engines be set at no more than $300 as this would take into
account the industries' razor-thin profit margin.  OPEI further
stated that most certificate applications are carried over from
year to year which,  OPEI suggests, costs EPA a fraction to process
relative to a new certification application.

     Our Response:

     EPA does recognize that in some cases the full fee for
certification may present an unreasonable burden and established a
reduced fee to provide relief to manufacturers of smaller engine
families.  The reduced fee provision should help small business
that certify smaller engine families for a limited market.
Therefore, EPA does not see fit to reduce the fee for the lawn and
garden industry to $300.

     For EPA's response to the relative cost of carryover
applications, see section 8.3 below.

     What Commenters Said:

Section 2.4.5.  The Motorcycle Industry Council stated that the
proposed motorcycle testing is adequately funded by the Agency's
existing fee and that even considering inflation, EPA's increased
costs would not equal the proposed fee.

     Our Response:

     EPA's future plans for motorcycle compliance include more
that the certification screening testing that is being conducted
today.  Worksheet #13 in the Cost Analysis includes an in-use
motorcycle compliance program which includes the costs of
motorcycle procurement, testing and computer support.  The cost of
the proposed motorcycle compliance program is $118,400.  The
motorcycle fees include this cost as well as the costs of the
labor, certification and other services all outlined in the Cost
Analysis that are dedicated to the motorcycle industry.

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Section 3: Cost Study

     3.1  Number of Engine Families

     What We Proposed:

     As previously mentioned in section 2.1,  we grouped industries
into three fee categories (industry groups):1)  Light-Duty,
consisting of light-duty vehicles and highway motorcycles;  2)
Engines, consisting of heavy-duty highway and nonroad compression-
ignition engines; and 3)  "Other", which contains other vehicles
and engines.  We proposed a fee schedule based upon the
recoverable costs for each certificate type under each fee
category and the number of known and projected certificates issued
annually for that certificate type.  We then divided our
recoverable costs by the number of certificates expected to be
issued to manufacturers within that certification request type.
Thus, for example, in the proposal we determined the recoverable
costs for the nonroad CI industry as $1,300,155 and the number of
certificates issued as 603 and the resulting fee is $2,156.
(Worksheet #2 of the revised Cost Analysis available in Docket
OAR-2002-0023 updated the cost for the nonroad CI industry to
$1,205,895, number of certificates to 662 and the resulting fee
for that industry is $1,822.)

     We determined the number of certificates expected to be
issued by examining EPA's certification database.  For currently
active certification programs, we listed the number of
certificates based on the latest information at the time of the
proposal which was for the 2001 model year (67 FR at 51406).   For
other newly regulated industries for which certificates have not
yet been issued, we projected the number of certificates based on
discussions with manufacturers and information presented to EPA
during the emission standards rulemakings for such industries. Id.

     What Commenters Said:

Section 3.1.1. EMA states that EPA significantly understated the
number of HDE on-highway and nonroad CI engine certificates that
are issued annually which resulted in an overstatement of the fees
that should be allocated to each certificate.  EMA stated that in
2001, we issued 159  HDE HW and 661 nonroad CI certificates.   EMA
also asked for an explanation as to why more current years and
certification data should not be used since that would be more
reflective of the  increase in engine families.
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     The Alliance/AIAM stated that the Agency did not provide an
explanation for the estimated number of certification requests
used in calculating the fees.  The Alliance/AIAM expresses concern
that the number of light-duty certificates appears to be based on
CAP 2000 assumptions; assumptions that they maintain have not
materialized.  In addition,  they contended that EPA's Tier 2 and
heavy-duty regulations, as well as CARB's low emission vehicle
(LEV II) regulation,  will likely result in creation of more
certification requests than projected and lead to collection of
more fees by EPA.  As a  result, EPA may collect more fees than it
is entitled to if it receives more certification requests than
projected.

     The Alliance/AIAM submitted further comment that they
expected 35 additional certificates to be issued for light-duty
vehicles for model year (MY)  2004 and that the number of
certificates would either remain the same or increase as a result
of Tier 2.  The Alliance/AIAM was hesitant to predict the effect
of the CAP 2000 rule on the number of certificate requests.

     The Alliance/AIAM suggests that EPA should base its fee
calculation on the most current number of issued certificates.
Because this number may fluctuate and because it may be difficult
to project future certification trends, they suggest that EPA keep
track of the trends and assess a fee based on the average taken
from several years.  Lastly,  they suggest that this process be
done by rulemaking to prevent EPA collecting more fees than
appropriate.

     Our Response:

     EPA's intention throughout this rulemaking process is to
determine with a reasonable level of certainty the recoverable
costs of implementing its MVECP and assessing fees per certificate
to cover such costs.   Thus,  we agree with the comment that we
should use the most current and accurate number of issued
certificates.  However, EPA does not agree with the comments of
EMA that the number of certificates used in the cost determination
should remain the same regardless of the impact on fees collected.
Simply put, EPA believes it should only recover what it
anticipates to be its actual costs and should devise a reasonable
system in order to charge a fee that most closely matches its
final actual costs and final number of certificates to be issued
in a given year.  As explained below, EPA is including a "rolling
average" formula to be applied in 2006 and thereafter in order to
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more accurately reflect the number of certificates issued each
year and the corresponding fee that is owed per certificate.

     In light of the comments that we received, EPA gathered
information regarding the number of certificates for HDE HW,
nonroad CI, and light-duty vehicles and trucks, motorcycles and
ICIs from several databases,  and reexamined its certification
numbers for the last three years, 2000, 2001 and 2002 which
comprise EPA's most recent and complete information.

     Using an average of the past two years of the most recent
complete certification information (2001 and 2002) we determined
the average number of certificates for HDE HW, nonroad CI, and
light-duty vehicles and trucks certification request types.  For
the other types EPA saw no need to reexamine its projected number
of certificates nor did EPA receive any comment.  For the light-
duty vehicles and truck category we have chosen to keep the number
405 as used in the proposal.   Although the actual average is 382
for the 2001 and 2002 model years, we believe it is likely that
there will be at least a modest increase in the number of light-
duty vehicle and truck certificates given the complexity of Tier 2
standards.  In addition, information submitted by the
Alliance/AIAM states that the number of additional certificates
for 2004 may be as high as 35.  This would bring our projection to
417 for 2004.  However, this is a projection and we do not have
complete confidence in this number.  Therefore, we have decided to
retain the proposed 405 certificates in the final rule.

     For the HDE HW category we have determined, based on a re-
examination of our database and discussions with representatives
from EMA,  that 148 certificates is a more accurate projection,
rather than the 130 in the proposal.   This will result in a
reduction of fees for such certificates.  For NR CI we have also
revised the number slightly upward to reflect a more accurate
projection of 662 rather than the proposed.  We have re-calculated
the fees amount for each of these categories and the change is
included in the new fees shown in the table in new revised
worksheet # 2 of the Revised Cost Analysis available in Docket
OAR-2002-0023 and at 40 CFR 85.2405(a).

     Although at this time, EPA believes  there is enough
certainty with regard to the total recoverable costs in future
model years, EPA recognizes that the number of issued certificates
"divisor" needs to be adjusted periodically in order to ensure
that we only collect the appropriate fee.  Therefore, we agree
with the suggestion, made by the Alliance/AIAM, that EPA monitor

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the number of certificates issued each year and collect a fee
based on the most recent information and an average of several
years.  However,  we do not believe that rulemaking is necessary
each time the Agency seeks to adjust fees based on the number of
issued certificates.  Therefore,  in this rule,  we are setting
forth the methodology  by which future calculations will be made,
based on clearly defined criteria.  EPA also recognizes that the
industry needs to know the applicable fee in advance of the
effective date.  Therefore, by today's rulemaking, EPA is
implementing a fee applicable to each certification request type
that is applicable from the effective date of the regulation
through the 2005 calendar year.  Starting in calendar year 2006,
and each subsequent year,  EPA will adjust its fees based on both
changes to the average number of certificates issued from the
prior two model year period (for calendar 2006,  model years 2003
and 2004 are considered) and an inflation adjustment factor.  The
inflation adjustment factor is discussed in section 4 below.

     By example,  for any certificate received in the 2006 or later
calendar year the fee will be adjusted from the fee applicable to
the previous calendar year.  Using 2006 calendar year as an
example, in January  2005 EPA will examine the number of
certificates issued for each certification request type in the
2003 and 2004 model years, average the two years, and then divide
this new number into the fee base established by today's rule.
The fee base will be adjusted by the inflation factor before it is
divided by the new certificates number.  In January 2006, EPA will
perform the same task for any certificate submitted in the 2007
calendar year, and so on.  EPA will publish the new fees each year
in a Dear Manufacturer letter or by similar means. The "Dear
Manufacturer" letters are also located on EPA's website:
http://www.epa.gov/otaq/cert/dearmfr/dearmfr.htm.  The new fees
will also be located on EPA's Fees website:
http://www.epa.gov/otag/fees.htm.  See section 4, below, for a
further discussion of how this annual adjustment regarding the
number of certificates will be made for each certification request
type,  including those for nonroad industries in the "Other"
category.

     What Commenters Said:

Section 3.1.2.  EMA stated that we should use the number of
certificates issued in 2001 since we also used 2001 fiscal year as
the starting point for determining activities and costs assessable
against HDE manufacturers.  EMA further stated that there should
be no future automatic adjustments for certification fees based on

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whether the number of issued certificates varies from year to year
in the future.  Since a single base year was chosen as a
foundation for the Agency's cost calculations,  the marginal cost
of each certificate should remain similarly fixed based on the
number of issued certificates in that same base year.  Otherwise,
the entire cost calculations would have to be redone based not
only on future numbers of annual certificates but also on future
year budgets and activity allocations.  EMA maintains that if more
certificates are issued in one year than another, more fees will
be received and if less certificates then less fees and that such
an outcome is appropriate.

     Our Response:

     EPA disagrees that a single base year and the number of
certificates issued that year should be chosen as a foundation of
the fees cost calculation. The two basic components of
certification fees are labor and testing costs.  These costs will
not vary each year as a result of the number of certificates that
are issued because EPA will conduct the same number of tests that
are outlined in the cost analysis and, furthermore, the same
number of FTE will be dedicated to certification review and
testing.  The FTE will adjust the amount of time spent on each
application to the number of applications submitted.  Because EPA
will be providing the same services it is important for EPA to
collect the same amount of fees each year.

     EPA will be adjusting the fees annually to reflect the change
in the cost of labor as is discussed in section 4.  The costs of
testing and the indirect costs of testing and labor may also
change, most likely increase with inflation, but because some of
the costs are fixed by contract and because the cost changes are
more difficult to determine each year, EPA will not change the
fees based upon the changes to these costs.

     3.2  Heavy-duty Highway and Nonroad Compression-ignition
Compliance Activities

     What We Proposed:

     The Cost Analysis, on worksheet #16,  included the projected
costs for an enhanced engine compliance program that EPA will
implement for heavy-duty highway and nonroad compression-ignition
engines.  It includes confirmatory testing for certification,
selective enforcement audits and in-use dyno testing programs.  We
determined the costs by using contractor prices.

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     What Commenters Said:

Section 3.2.1. EMA described the costs of enhanced testing shown
on worksheet #16 as objectionable and improper because EPA has
chosen to not implement such programs in the past presumably
because it did not see a priority or clear benefit; nevertheless
EPA now chooses to do so at the manufacturers' expense.  As a
result, the commenter further asserted that EPA must demonstrate
the need and cost-effectiveness of these new programs since it is
now the manufacturers and not EPA that will bear the expense.

     Our Response:

     EPA, in planning for the future, determined that the amount
of compliance oversight devoted to the heavy-duty industry has
been less than that devoted to the light-duty industry.  As part
of the Agency's plan to increase compliance oversight for this
industry, we intend to implement additional HDE HW and NR CI
compliance programs and the costs of these programs are included
in the Cost Analysis Document.  The procurement of in-use HDE HW
engines is included on worksheet # 12 and the enhanced engine
compliance program is outlined in worksheet #16.

     Please note that EPA reassessed its testing plans from those
set forth in the notice of proposed rulemaking to a level that is
more representative of the amount of testing that may be
accomplished with the new testing facility in Ann Arbor and the
new enhanced engine compliance program testing that will be
conducted at a contractor's facility.  EPA has used the
information on resources and lab capabilities to make the changes
and, therefore, the current rulemaking more accurately represents
the test program that EPA will put into place. The changes are
discussed more fully in the Final Rulemaking, section III.B.
Revised worksheets in the updated Cost Analysis reflect the new
costs of the revised testing plan.

     The additional compliance activities, the in-use tests that
will be conducted at NVFEL and those outlined on revised worksheet
# 16 that will be performed by a contractor at a contracted
facility, will begin to level the playing field between the light-
duty vehicle and engines industries.  Furthermore, recent events
including new emission standards and concerns about prior
noncompliance with existing standards have caused EPA to want to
increase the oversight devoted to this industry.  New standards
start in 2004 and 2007 for HDE HW and call for use of types of
emission control technology not previously used on these engines.

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In 1998 consent decrees were entered into with almost the entire
HDE HW industry,  to resolve claims of several cases of
noncompliance.

     In view of the new standards to be implemented and concerns
with claims of noncompliance and the lack of equity in testing
between the light-duty and engine industries, EPA determined that
it needed to devote more oversight to the engine industries.  We
believe that the new testing,  particularly the in-use tests, will
be an effective tool for promoting compliance with EPA emission
standards.  It is likely that in the future EPA will conduct more
engine tests than outlined in the cost study.  Fees will not be
changed to reflect the additional cost of these tests without a
new rulemaking.

     What Commenters Said:

Section 3.2.2.  EMA states that EPA estimated the costs for the
enhanced testing programs listed on worksheet #16 to be $380,000
for HDE HW and $380,000 for NR CI.   EMA notes that this cost
element alone is equivalent to $2,723 per HDE HW engine family and
$630 per NR CI engine family.   In addition, EMA states that the
extra staffing needed to plan and oversee the enhanced testing
program results in costs of $5,093 per certificate.

     Our Response:

     As discussed in the response to Section 3.2.1. above,  EPA
made several adjustments to the projected testing listed in the
proposal including changes to the Enhanced Engine Compliance
Programs described in revised worksheet #16.   The revised Enhanced
Engine Compliance Program outlines a testing programs at a cost of
$165,000 for the HDE HW industry and $300,000 for the NR CI
industry.  The cost per certificate for the enhanced engine
compliance program would be $1,115 and $453 per engine family for
the HDE HW and NR CI industries as proposed,  respectively.  EPA
believes that this cost is justified as the new enhanced
compliance program is needed as explained in the response to
section 3.2.1,  above.

     EMA also referenced and expressed concern over the estimated
extra staffing costs of  $662,038.   However,  the Agency has only
added one FTE to CCD Washington,  DC, at a cost of $99,580 before
overhead costs.  This FTE will plan and oversee the enhance engine
program.  Also testing will be conducted at contracted facilities.
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     What Commenters Said:

Section 3.2.3.   With regard to worksheet # 7,  EMA questioned
LCD's added expenses of 2.25 direct FTE and 0.5 indirect FTE and
EMA sought clarification as to how and why the Agency allocated
these FTE to the HDE HW category as there is no description of
what these new FTE would be doing.  EMA also questioned whether
the additional FTE might be inappropriately linked to the
contracted out testing in worksheet # 16 or whether these costs
are already incorporated into the CCD summary sheet at worksheet
#4.

     Our Response:

     EPA has revised LOD's additional labor needs to 1.25 direct
and .25 indirect FTE.  This revision reflects the labor needed to
conduct the revised number of in-use HD HW tests that will be
conducted in the Ann Arbor laboratory.  The 1.25 direct FTE
include 1.0 FTE technician to conduct the testing in the test
cells and 0.25 FTE to provide engineering support.  The indirect
FTE of 0.25 reflects the need for data management support for the
test cells.  The FTE are not linked to nor duplicated in the costs
for the enhanced engine testing included in worksheet #16 as the
additional FTE will be participating in testing that will be
conducted at NVFEL.

     What Commenters Said:

Section 3.2.4.   EMA expresses concerns regarding worksheet # 12
and the entry of $275,431 for "core testing costs" for HDE HW
which is carried over to worksheet #3 and then to worksheet #1.
Of these costs $225,360 is shown for heavy-duty engine
procurement.  EMA contended that one would presume that this cost
is associated with an in-use testing program even though the
nature of the testing is not described.  The remaining costs
appear to be allocated to the HDE HW category using the FTE method
and this cost should similarly be excluded unless EPA provides an
explanation of what this core testing is, why it is needed and how
it complements and integrates with other compliance programs that
exist or are proposed elsewhere in the NPRM. The commenter
questions whether all of the testing programs in worksheet #12 and
worksheet # 16 are needed in addition to the Agency's existing
compliance testing protocols.

     Our Response:
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     Proposed engine procurement costs for heavy-duty engines were
shown in worksheet # 12.   EPA had proposed to test 10 in-use
engines, two engine families of five engines per family.   The cost
to procure the engines is $25,240 for the first engine of the
family and $21,860 for subsequent engines as explained in general
terms in the Cost Analysis,  page 52.  The revised test plan
consists of testing of three engines in one engine family.  The
new cost for procuring these engines, at the same cost per engine
as proposed, is $68,960.   The revised costs are shown on new
worksheet # 12.   This testing will be conducted at the Ann Arbor
facility and will be conducted  in addition to the HD HW in use
testing listed on worksheet #16 in which one in-use HD HW family
will be tested.   Therefore,  only two heavy-duty highway engine
families will be evaluated out of the estimated 148 that are
certified on a annual basis.  Thus,  less than two  percent of the
certified family production would be evaluated for in-use
emissions annually by EPA.  EPA believes that this in-use testing
is justified as explained in the response to section 3.2.1,  above.

     3.3  General Cost Study Comments

     What We Proposed:

     EPA's cost study detailed the costs the Agency incurred in
implementing the MVECP.  We set forth our explanations and
reasoning in detail in the Cost Analysis Document.  For example,
we explained how we translated our costs into the proposed fees.

     What Commenters Said:

Section 3.3.1.  EMA stated that without detailed knowledge of
EPA's budget and budgeting process it is difficult to comment or
challenge the specific cost elements in EPA's analysis.  As stated
previously, EPA is projecting the costs of future programs that
have not been finalized or proposed.  As such EPA has failed to
provide commenters with the "necessary information" to comment in
an adequately informed manner on the NPRM.

     Our Response:

     In our proposal, we explained the specific components of the
MVECP.  (See 67 FR at 51406-08). As earlier mentioned in section 2
we also conducted a cost analysis to determine the costs
associated with our certification and compliance program and set
forth our analysis in the Cost Analysis Document.  It describes
EPA's current costs and projected costs for the identified program

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components.  As earlier mentioned in section 2, we projected our
costs to 2003 using the best information available at the time
that the cost analysis was written.  Wherever possible,
explanations were included to detail the source of the
information.  Thus, we believe that we have "identif[ied] the
components of the  [MVECP]  and provide[d] a brief explanation of
why each component is a part of the  [MVECP] program." American
Medical Association v. Reno, 57 F.3d 1129, 1135, (B.C. Cir.).

     We also believe that the Agency's budget is too general in
nature and as such does not contain the level of specificity and
explanations we have set forth in the Cost Analysis Document.
This is because the Agency's budget is prepared to reflect the
divisional levels and also generally entails resource allocation
issues.

     What Commenters Said:

Section 3.3.2.  EMA states that the fee assessments would recover
EPA's total cost in procuring equipment such as "computer
hardware/software", "in-use on-vehicle testing" and "on-vehicle
testing units purchase" as listed on worksheet #13.  EMA states
that it presumes that this is for the initiation of portable
emission testing or "ROVER-type" in-use testing to enforce the
Agency's NTE requirements and goes on to state that this is
inappropriate because the NTE requirements do not take effect for
heavy-duty highway engines until 2007 and have not been proposed
for NR CI engines.   EMA further contended that the Agency was
seeking to recover these "one-time" procurement costs annually.

     Our Response:

     The costs that EMA specifically refers to are for equipment
required for EPA's engine emissions in-use screening testing.  EPA
currently uses portable emissions test equipment for screening in-
use engines for compliance with the applicable emissions standards
and the defeat device prohibition, not for compliance with NTE
emission standards as suggested by EMA.  EPA plans to use this
tool to refer engines that are suspected of noncompliance to be
tested on engine dyno either in the AA lab or at a contracted
facility.  For this reason, the cost of the equipment is
appropriate.

     Portable emissions test equipment is a very effective
screening tool.  The equipment can collect a significant amount of
data from engines without having to take the engines out of

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service. EPA plans to increase its number of testing units and
expand the screening program.  The costs of the equipment included
in the cost study are recurring costs as EPA will need to buy
additional testing units,  replace outdated and damaged equipment
and will have to maintain of the units that have been purchased.

Section 4: Automatic Adjustment of Fees

     What We Proposed:

     We considered the effect of inflation on the MVECP and
explained that inflation may have an impact on our recovery of the
full costs associated with the program.  Thus, we proposed,
beginning with the 2005 model year,  an annual automatic adjustment
of fees based on the annual change in the Consumer Price Index
(CPI).   We also proposed a formula to enable manufacturers to
calculate the increase. We also solicited comments on alternate
ways of adjusting  fees on account of inflationary factors.   (See
67 FR at 51410)

       We explained that we intended to issue annual letters,
again beginning with the 2005 model year, informing manufacturers
of the adjusted applicable fees.  The proposed formula included an
ability to project future fees due to the CPI adjustment based on
two model years before the adjusted fee model year.  Thus for
model year 2005 EPA proposed a formula whereby the CPI for MY2003
(as determined by July 2003 CPI number) is compared to the CPI
from 2002.  We also solicited comments regarding notification
procedures of the new fee amounts.  Id.

     What Commenters Said:

Section 4.1.1.  One commenter urged the Agency not to include an
annual automatic adjustment and maintained that an "automatic"
increase in fees based on the CPI  for "all items" should not be
implemented as the actual costs of MVECP will be impacted by many
factors more significant than the CPI and such factors are not
significantly correlated with the general rate of inflation.  This
commenter also suggested that the Agency's formula for annual
adjustment is improper because many of the underlying costs are
actually one-time capital expenditures that will not fluctuate at
all in response to any changes in the CPI.
     Our Response:
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     In order to comply with both section 217 and the IOAA,  and to
timely collect fees based on actual costs and to collect fees for
such costs at time of certification,  EPA believes that it is most
practical and appropriate to collect fees based on what it
reasonably believes will be its actual costs at the time new
certification applications are received.  Thus EPA continues to
believe it most appropriate to determine its current costs and how
such costs may be affected by future events, including events such
as inflation or the addition of new compliance programs.  Although
EPA does recognize that several variables exist which may
influence the actual future costs that EPA incurs to provide MVECP
services, including changes to its budget (and resulting changes
to EPA's expenditures on certain compliance programs such as
contract costs for testing and procurement of testing vehicles,
etc),  EPA believes that such general historical budget variability
(appropriations for most of EPA's costs don't change dramatically
from year to year and general contract costs remain relatively
unchanged) has not in fact significantly affected EPA's actual
costs as compared to increases associated with annual inflation
costs.  However, by today's rule we are narrowing the budget items
that will be affected by the inflation adjustment to further limit
those items that may indeed be affected by general budget
variability.

     We believe it is reasonable to consider the effect of
inflation on the costs of conducting our various certification and
compliance programs.  However, at this time, EPA chooses to only
implement a fee schedule that will include some adjustment by
calendar year for labor costs as these costs can be reasonably
determined as explained below.

     We also agree with comments that fees should not be adjusted
for one-time capital expenditures or for other fixed costs.
Because several components of the MVECP reflects items that have a
"fixed cost" (for example, the costs associated with the Lab
Modernization),  EPA has changed the inflation formula to address
concerns regarding "one time costs" and that such cost not be
adjusted by the CPI.  At this time, EPA will only adjust labor
costs each calendar year because, as explained below, we can
reasonable determine the effect of inflation on these costs.

     EPA also believes that to some extent it may not be
appropriate to automatically adjust fees for the costs of some
compliance programs, including current direct program costs (e.g.
contract costs)  despite the general history of such costs
increasing by some amount each year.   Because EPA is not only

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continuing to implement its many current compliance activities but
is also implementing several new compliance programs that may not
have a predictable cost increase each year that tracks the
inflation rate,  EPA is not adjusting such direct program costs.

     EPA believes that the determination of the labor requirements
to cover the numerous compliance activities was accurate and that
such labor requirements will remain constant or perhaps slightly
increase within the next few years.  Such labor costs (as
expressed in annual salary increases or decreases)  for EPA
historically track a rate of increase (or decrease) that is at
least as high as that of the CPI10.   Thus, we are  finalizing our
regulations with a provision for automatic adjustment of labor
costs for each fee category based on the changes in the CPI.

     The table below represents the labor costs and the fixed
costs for each certificate type.  The fixed costs,  represented in
the F column, are those items in the cost study that are either
amortized or otherwise may be affected by variables beyond
inflation.  These costs are determined from worksheet #1 and
include a total of all "operating costs"  (both indirect and
direct)  and thus does not include the labor costs and overall EPA
overhead costs on worksheet #1.

     The labor costs, those that will be affected by the CPI, are
represented in the L column.   These are the costs that will
increase or decrease with the CPI.  These labor costs were
determined from worksheet #1 and the total labor (direct and
indirect)  costs associated with each fee category.

     The LD category has been split into Cert/FE (fuel economy)
and In-use subcategories because not all LD certificates direct
EPA In-use services.  The costs were totaled from the labor and
fixed costs of worksheets #3 and #4 of the Cost Analysis.  The
values of EPA's labor and fixed costs for the ICI,  motorcycle,
  10 EPA normally uses Federal payroll and non-payroll inflators
for budget projections issued by the Office of Management and
Budget (OMB)  when OMB submits the President's Budget to Congress
and the assumptions used for the "inflators" are higher than the
CPI inflation adjuster that EPA is choosing to use to account for
increases in labor costs in today's rulemaking.  For example, in
the fiscal year 2004 (FY 04) President's Budget to Congress, for
FY 04 EPA used a payroll (or labor) inflator of 1.048 and for FY
05 through FY 13 EPA used an inflator of 1.040.

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heavy-duty highway engines, nonroad CI engines and Other
categories were taken from worksheet #1 of the Cost Analysis and
are shown below:

LD
Cert/FE
LD In-use
LD ICI
MC HW
HD HW
NR CI
Other
F
$3,322,03
9
$2,858,22
3
$344,824
$225,726
$1, 106,22
4
$486,401
$177,425
L
$2,548,110
$2,184,331
$264, 980
$172, 829
$1,625,680
$545,160
$548,081
     This Other fee category continues to include the costs
associated with MVECP services for the marine SI
inboard/sterndrive industry although the certification fees are
not being finalized for that marine SI inboard/sterndrive
certification type  by today's rule (see section 1.2 for further
discussion).   At the time the final emissions rule for this
certification type is proposed and becomes final, EPA will
reexamine whether approximately 25 certificates per year will be
issued to this certification type.   The other certification types
covered in the "Other" category will not be charged for any costs
(fixed or labor)  associated with the marine SI inboard/sterndrive
certification type.  The Other category includes: HD HW evap,
including ICI; Marine (excluding inboard and sterndrive)  including
ICI and Annex VI; NR SI, including ICI; NR Recreational (non-
marine) ,  including ICI,  Locomotives, including ICI.

     The total cost for each certificate type commencing in 2006,
and each year thereafter, will be determined by multiplying the
labor costs (as noted in the table above)  for each fee category by
the CPI ratio of the calender year  (CY) that the fees will be
effective (minus two years)  to the CPI of calendar year 2002, then
adding the fixed costs.   The total of the adjusted labor costs
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plus the fixed costs are then multiplied by  the  existing overhead
rate of 16.9 percent.  This is similar  to  our  proposed method
except that we will now be adjusting only  our  labor costs.   EPA's
overall overhead costs are not adjusted.   We are also  implementing
this automatic adjustment in the 2006 calendar year instead of the
proposed 2005 in order to provide a stability  period before the
fees are adjusted.  As explained below  in  section 4.1.4,  for
administrative simplicity,  EPA will make  annual adjustments by
"calendar year" rather than "model year."

     For each fee category EPA will determine  the fee  for
applications submitted during any calendar year  starting in 2006
and each year thereafter using the formula below:

     Category Feecy=  [F +  (L *  (CPIcY-2/CPl2oo2) ) ] *  1.169  /  [ (cert#MY-
2  +  cert#MY-s) * .5]
     The first year that the fees will  increase  is 2006.   That
year EPA will determine the new fees using the following formula:

      Category Fee2oo6=  [F  +  (L  *  (CPIcY2oo4/CPl2oo2) ) ]  * 1.169 /
[ (cert#2oo4  + cert#2oos)  * .5]
F= Fixed costs within a category, the sum  of LOD and CCD Total
Indirect Program Costs and Total Direct Costs  rows for each
category, worksheets #3 and #4
L= Labor costs within a category, from  Total Labor Costs rows,
worksheets #3 and #4
Feecy = the calendar year of the fees to be collected
CPICY_2  =  the consumer price  index   for  all  U.S. cities  using the
"U.S. city average" area , "all items"  and  "not seasonally
adjusted" numbers calculated by the Department of Labor listed for
the month of November of the year two years  before the calendar
year.  (e.g.,  for the 2006 CY use the CPI  based  on the date of
November, 2004) .
CPI2002  =  the consumer price  index   for  all  U.S. cities  using the
"U.S. city average" area , "all items"  and  "not seasonally
adjusted" numbers calculated by the Department of Labor for
December, 2002.  The actual value for CPI2002 is 180.9.
1.169 = EPA's 16.90 percent overall overhead cost
cert#MY-s  =  the  total number of  certificates issued for  a fee
category three years prior to the model year for applicable fees
(Feecy)
cert#MY-2  =  the  total number of  certificates issued for  a fee
category two years prior to the model year for the applicable fees
(Feecy)
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     For example and by way of a hypothetical, to determine the
applicable fee for LD ICIs for any certification application
received in calendar year 2006, based on a fixed cost of $345,355
and a labor cost of $264,980, a CPI in 2002 (December 2002) of
"180.9" and a CPI in November, 2004 of  "183.1"  (this number
represents the CPI in February 2003 and EPA will use the actual
CPI number for November 2004 once it as been determined by the
Dept.  of Labor,  since determined to be 183.9)  , 95 certificates
issued in 2003 and 85 certificates issued in 2002, the formula
would be:

Fees2006(LD  ICI)  =  [$345,355    (  $264,980  (183.1/180.9))]  *  1.169/
[(95   85)  * .5]

This equals $7,969 (all rounding of numbers should occur at the
end of the calculation and the final dollar amount of the new fee
will also be rounded up or down to the nearest dollar) and
represents a cost decrease per ICI certificate of $425 from the
fee being finalized today which will only apply from the effective
date of the rule through the 2005 calendar year.

     Currently one can determine the CPI numbers by going to the
Bureau of Labor Statistics website:
(http://www.bis.gov/data/home.htm), then choosing the icon under
"CPI-A11 Urban Consumers (Current Series)  under the "Most
Requested Statistics" column.   From that page, choose (by
checking the box)   U.S. All items, 1982-84=100 - CUUROOOOSAO.
This results in a page with a table called "Series Id:
CUUROOOOSAO" from which the applicable numbers may be drawn.

     EPA also notes that manufacturers may have some concern
regarding the proper budgeting for its costs for future
certification applications and thus the regulations note that EPA
will provide notification to manufacturers at least 11 months in
advance of the calendar year in which new fees are due.  If an
event such as a rulemaking occurs that causes a significant change
in the number of certificate applications received, the Agency
will reexamine the formula to determine whether adjusting the fees
based upon the number of certificate applications is still
applicable.

     What Commenters Said:

Section 4.1.2.  Some commenters argued that automatic fee
increases would reduce EPA's incentive to provide more efficient
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MVECP services and thus would amount to "gold plating" which
Congress admonished against.

     Our Response:

     EPA does not believe that automatic fee increases would
amount to "gold-plating," rather EPA is recognizing that annual
adjustments to its labor costs are a reality and that in order to
recover its actual costs in a timely manner that an automatic
adjustment best serves this function.  We believe that the intent
of both the IOAA and section 217 is for EPA to continue to collect
its full actual costs and to do so in a reasonable and timely
manner; EPA does not believe it timely to periodically evaluate
its labor costs (in light of inflation) and issue subsequent new
fees rules. The result of such practice would be for EPA to forego
collecting a significant portion of its costs.  EPA continues to
strive to provide its services in an efficient manner and
recognizes that other cost adjustments may be necessary in the
future and will at that time conduct an additional cost study and
rulemaking if significant changes in its costs have occurred.

     What Commenters Said:

Section 4.1.3 Two commenters suggested that any adjustments to
fees should be done through periodic rulemaking and be based on
actual rather than assumed costs.  Otherwise there is no incentive
for the Agency to review its actual program to determine the
latest actual costs of the program.  One of the commenters noted
that even the number of certificates that are issued by EPA could
have a more significant effect than changes due to inflationary
increase.

     Our Response:

     EPA agrees with the comment that the number of certificates
that are issued could have a significant effect on the amount of
fees that should be charged  per certificate and addresses that
issue in section 3.1.

     As noted in the discussion in section 3.1, EPA is adopting a
provision to adjust fees based on any potential change in the
number of certificates starting in the 2006 calendar year and will
employ a similar methodology as the annual inflation adjustment
and will perform both at the same time.  The fee amount per
certificate will be determined by dividing the total cost for each
certificate type (as determined under the inflation calculation

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noted above)  by the "rolling average" of the number of
certificates issued by EPA for the model years three and four
years preceding the calendar year that the fees will become
effective.

     EPA is committed to the objectives of recovering its actual
costs in a timely manner and in providing fee payers proper notice
of the amount of fees that are required when they apply for
certification.  EPA anticipates that it will have an opportunity
to make any necessary adjustments to the fees regulation during
the course of several future rulemakings.  However, EPA disagrees
with the commenters suggestions that any adjustments should be
done through a periodic rulemaking.  The clear formula that EPA
has provided by today's rulemaking provides a predetermined basis
by which to determine adjustments to fees based on any change in
the number of certificates or changes in the costs of labor to
provide the same services as are provided currently.  The changes
in the costs of labor (for the same number of employees)  is based
on a very conservative formula of the annual CPI.   EPA believes
this is a fair and reasonable process for adjusting fees and
avoids unnecessary and possibly untimely rulemaking (a rulemaking
not done in time to reflect changes in the number of certificates
or labor costs) that may prove inefficient.

     In addition,  EPA will issue a  notice at least 11 months
before the calendar year in which new fees are owed which will
notify certification applicants of the new fees.   As discussed in
section 3.1 regarding the number of engine families or
certificates issued within a certification request type,  EPA plans
to make this inflation adjustment calculation at the same time as
the calculation of the number of certificates and will announce
both adjustments together. In other words, EPA will analyze the
adjusted costs based on inflation and also determine the new
average number of certificates.

     What Commenters Said:

Section 4.1.4.  A commenter also expressed concern with EPA's
proposal to issue notices of fee adjustments through a guidance
letter on grounds that the letter will not provide adequate
notification to manufacturers and will provide no adequate
opportunity for public review and comment.  The commenter further
asserted that manufacturers would need at least 15 months notice
prior to the model year commencement. EPA notes that this same
commenter suggests that a manufacturer would need to receive
notice by October 1, 2003 which would be 15 months in advance of

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January 1, 2005.  This would be impractical since a manufacturer
could receive a certificate for model year 2005 on January 2,  2004
and it could receive such certificate if it submitted its
application by November,  2003.

     Our Response:

     EPA wishes to clarify that the fees adjustment formula as
proposed and finalized today,  is a self-implementing mechanism (in
fact,  the fee payer is able to perform the CPI/labor calculation
based on the formula set forth in today's regulation and the
effect of the number of certificates is also predetermined).    As
such,  EPA plans to issue a letter providing information to the
manufacturers of the upcoming rates approximately 11 months before
they become effective by operation of today's rule.  EPA believes
this will provide reasonable opportunity for manufacturers to make
necessary preparations for paying any adjusted fees at time of
application for certification..

     Because EPA proposed the basis (and formula) by which fees
will be adjusted for inflation and it involves a relatively
ministerial collection of facts and application to the formula we
continue to believe that the appropriate mechanism by which to
adjust such fees is by this mechanism rather than a new rulemaking
which would only perform a similar task.  By today's rule fee
payers will be informed of the fees applicable until 2006 and will
know how fees will be adjusted on an annual basis  (for variable
costs as explained above) by operation of today's rule.
     However,  because both EPA and manufacturers may be involved
in the submitting,  processing, issuing and receiving certificates
for different model years at the same time,  and because EPA is
attempting to recover the costs for actual services provided at a
given point in time we believe it is reasonable to adjust fees by
calendar year rather than by model year.  This will avoid the
confusion regarding the amount of fees that are owed and whether
the certification applications were submitted before or after
EPA's adjustment.  Because of the overall timing of this rule we
also believe it is appropriate to implement the fee adjustment
starting in the 2006 calendar year.  Therefore, starting in
calendar year 2006, for any certification application that is
received on January 1, 2006 and thereafter (until fees are
adjusted for calendar year 2007 and certification applications are
submitted on January 1, 2007 and thereafter,  etc.) EPA will issue
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a letter approximately llmonths before the applicable calendar
year informing manufacturers of the adjustment in fees.

Section 5:  Effective Date and Application of New Fees

     What We Proposed:

     We proposed the "effective date" of our new fees schedule as
60 days from the date of publication of the final rule. (67 FR at
51411).   We also proposed applying the new fees to 2003 and later
model year vehicles and engines.  Id.  In addition,  we proposed
excluding "complete" certification applications received prior to
the effective date of the new fees regulation  (including any
remaining 2003 certification applications).  Id.

     What Commenters Said:

Section 5.1.1. One commenter suggested that the new fee schedule
should take effect for certification applications for the model
year following the model year in which the final rule is
published, in this way the manufacturers will have certainty
regarding the appropriate amount of the certification fee to be
submitted and thus will not have to guess the date that EPA will
deem their certification application complete.

     The Alliance/AIAM stated that EPA's proposal to increase fees
(for light-duty vehicle manufacturers) for manufacturers that
submit 2003 and later model year certification requests received
on or after 60 days from publication of the final rule creates
uncertainty regarding the appropriate fee to submit with each
application. The commenter notes that it cannot project when EPA
will issue the rule and thus for it to perform its necessary
budgeting to assure that it has necessary funds to cover the
increase.

     Our Response:

          EPA understands that it would be helpful to
manufacturers to have a date before which they are assured that
they will be paying the old fees so that they can budget with
certainty up to that date.  For this reason EPA is finalizing the
implementation date as of 60 days from the publication of the
final rule.  We believe that at least a 60 day lead time between
when the rule is published and when applicants will be required to
pay new fees is adequate and appropriate. EPA is again guided by
the principle that its compliance programs ought to be self-

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sustaining to the extent possible and that because we are
incurring costs at this point in time that new fees should
commence.  Although we anticipated that the final fees rule would
become final in fiscal year 2003 (FY03),  and based our projections
of costs to be incurred during that time,  we believe it even more
appropriate that we collect fees in FY04 (during which this rule
becomes effective) as our compliance programs based on new
requirements such as Tier 2 and the 2004 HDE regulations will be
in place and our anticipated budget increases will be more likely
in place.

      In addition, manufacturers have been informed of the new
fees rulemaking and commencement of new fees in FY03  for over 2
years.   An advance fees rulemaking briefing was held for
regulated industries on August 29,  2001 in Ann Arbor, MI.   At
that time EPA provided a draft of the fees schedule and cost
study.   The purpose of the briefing was to give businesses enough
time to plan for fees in their budgets.   Furthermore, the
proposed rule was published in August 2002 giving manufacturers
notice of the fees rulemaking and implementation time periods.
Therefore, the new fees will be applicable to any new
certification applications  (for MY2004, or 2005) submitted and
received on or after the date 60 days after publication of this
rule in the Federal Register. The new fees will not apply to any
certification applications  received by EPA prior to the effective
date of the regulations, providing that they are complete and
include all required data.

     What Commenters Said:

Section 5.1.2. One commenter expressed concern that manufacturers
will have no way of knowing whether their applications have been
received and deemed complete before the rule becomes final, and
that potential delays in EPA's review of the applications could
result in an undue increase in fee or delays in determining the
appropriate fee.  Instead, EPA should impose new fees for the
model year following the model year in which the final rule is
published, with at least 16 months prior to the January 1 of the
same model year.

     Our Response:

     Once a complete application is submitted to EPA the length of
time it takes to review the application will not be a factor in
meeting the effective date deadline.  Follow up questions or
clarification questions pertaining to complete applications will

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not be a factor in meeting the effective date deadline.  As long
as a complete application is submitted before the effective date
the manufacturer may pay the current fee, or in the case of
nonroad manufacturers no fee payment would be required at that
time.

     EPA maintains that manufacturers must submit a complete
certification application in order to be considered meeting the
effective date deadline.  A complete application may slightly vary
among the various industry types but in general a complete
certification application includes basic information about the
engine family/test group, emissions test data,  certification
levels, applicable emission standards,  and information on emission
control components.

     For light-duty vehicles a complete application includes a
summary sheet of emissions  test data and basic information on
test group,  certification levels, applicable emission standards,
carryover information, auxiliary emission control device (AECD)
information, description of emission control components used,
descriptions and EPA approvals for On-Board Vapor Refueling  (ORVR)
and On-Board Diagnostics (OBD) systems.

     For Ids, the complete application for certification should
contain a summary of the emissions test data, city and highway
fuel economy  (mpg) data, evaporative test data, test vehicle
description, a description of vehicles covered by a certificate,
50K, 100K,  and 120K Deterioration Factors (DFs),   applicable
emissions standards, statements of compliance for Cold CO and the
Supplemental Federal Test Procedure (SFTP) and EPA approvals for
ORVR and OBD systems11.

     A complete  heavy-duty vehicle and engine application
includes basic information on the engine family,  emission limits
for Average, Banking & Trading (AB&T)  families, emissions test
data, certification levels, applicable emission standards,
information on where the testing was performed, carryover
information (if applicable),   AECD description, a detailed
description of all emission control components,  parts listing,
parts numbers, emission control components description, copy of
  nFor Ids, the requirement of ORVR and OBD systems depend on
the age of vehicle and model year.  Ids should check with their
EPA certification representative for the vehicle or engine model
year certification requirements.

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maintenance instructions to be provided to the purchaser, copy of
the emissions label, and  a signed statement of compliance.

     A complete nonroad application includes basic information on
the engine family, emission limits for AB & T families, emissions
test data (including evaporative data where required)  ,
certification levels, deterioration factors, applicable emission
standards, information on where the testing was performed,
carryover information (if applicable),   AECD description, a
detailed description of all emission control components,  parts
listing, parts numbers,  listing of model applicability, emission
control components description and description of operation, and
a signed statement of compliance,  description of the test
procedure used,  special or alternative test procedure description
if applicable, operating cycle and the service accumulation period
necessary to break-in the test engines and stabilize emission
levels, scheduled maintenance, description of adjustable operating
parameters,  copy of maintenance instructions to be provided to the
purchaser and a copy of the emissions label, and a durability
demonstration for any after-treatment device used in an engine
family.

     In summary, complete applications as described above must be
submitted before the effective date in order to fall under the
pre-existing fee amounts.  In addition, the time required for EPA
to review the application will not be a factor in meeting the
effective date.  As long a complete application is submitted
before the effective date takes place,  the current fee regulations
would still apply to that application.    Incomplete applications
or applications with major pieces of information missing will not
be considered complete.   If an incomplete application is submitted
a week before the rule's effective date, manufacturers should be
prepared to pay the new fees for that application.

     What Commenters Said:

Section 5.1.3.  One commenter stated that the title to 40 CFR
85.2405(a) - Fees for the 2003 and 2004 model years - may be
misleading since the fees proposed apply only to certain 2003
engine families (those submitted after the effective date of the
new fees rule).

     We have revised the title to 40 CFR 85.2405(a) to read "Fees
for the 2004 and 2005 calendar years."   Because of the different
certification time periods during the calendar year in which
various industry types choose to certify we continue to believe it

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most appropriate to make the new fees applicable at a point in
time where new costs are incurred and regardless of what model
year any manufacturer may be certifying. We have changed the title
to also include the 2005 calendar year as EPA will be collecting
the same amount of fees from the effective date through the 2005
calendar year  (we will not be adjusting fees until the 2006
calendar year and have thus changed the title to 40 CFR 85.2405(b)
to read "Fees for the 2006 calendar year and beyond."

     As explained in section 5.1.2,  any complete certification
applications (submitted for model year 2004, or 2005) which is
submitted and received on or after the date 60 days after
publication of this rule in the Federal is only subject to EPA's
existing fees rule, therefore we do not believe it necessary to
provide further clarification to 85.2405(a).  For example, a model
year 2004 nonroad certification application received before the
new fee rule becomes effective would not require any fee to be
paid since under EPA's existing fee rule (from 1992)  no fees are
required for nonroad applications.

Section 6: Reduced Fees

     6.1 Reduced Fee of One Percent Aggregate Retail Price

     What We Proposed:
     EPA proposed to continue the current two part test which, if
met, would qualify an applicant for a reduction of a portion of
the certification fee.

A reduced fee is available when:

     (1)  The certificate is to be used for the sale of vehicles
          or engines within the U.S.; and
     (2)  The full fee for the certification request exceeds one
          percent of the projected aggregate retail price of all
          vehicles or engines covered by that certificate.

     Manufacturers that qualify for a reduced fee pay one percent
of the aggregate retail price of the vehicles and engines covered
by a certificate.  Under the reduced fee provision, we proposed to
retain this requirement to ensure proper balance between
recovering the MVECP costs and mitigate economic burden.  EPA
invited comment on the continued use of the one percent
multiplier, 67 FR 51412.
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     The Agency proposed two separate pathways by which a
manufacturer may request and pay a reduced fee amount.   Under the
first pathway,   manufacturers seeking a reduced fee would  include
in their certification application a calculation of the reduced
fee and a statement that they meet the reduced fee criteria.  The
manufacturer's evaluation and submission of a fee amount under
this reduced fee provision would be subject to EPA review or
audit. Id.  The Agency proposed that the applicant for a reduced
fee also subsequently provide EPA with a report (called a "report
card").   This report would include the total number of vehicles
ultimately covered by the certificate, including information on
all certificates held by the manufacturer that were issued with a
reduced fee, a calculation of the actual final reduced fee due for
each certificate, which is derived by adding up the total number
of vehicles and their sales prices, a statement of the total
initial fees paid by the manufacturer, and the total final fees
due for the manufacturer.  Id.  We also proposed that
manufacturers would also be required to "true -up" or submit the
final reduced fee due as calculated in the report card within 45
days of the end of the model year. Id.

     Under the second pathway, manufacturers who,  due to the
nature of their business, are unable to make accurate estimates of
the aggregate projected retail price of all the vehicles or
engines to be covered by the requested certificate, would pay one
percent of the retail selling price of five vehicles, engines or
conversions when applying for a certificate or a minimum fee of
$300.  Examples of such manufacturers are those that modify
customer-owned vehicles  (as done by some  ICIs and after-market
alternative fuel converters) since they are uncertain of their
customer base.    Under this pathway, manufacturers would be
required to submit the same report card and true-up the actual
amount of reduced fee due similar to the first pathway, described
above. Id.

     What Commenters Said:

Section 6.1.1.  VSC contended that the proposed minimum "5-car-up-
front deposit"  was unreasonable and that the Agency had failed to
provide a rationale for its proposal.  VSC also stated that it is
just as common, if not more common, for an Id's certificate to
cover a total of one (1) car as opposed to 5.  VSC noted that EPA
had previously acknowledged that it is difficult for ICIs to work
with a system that requires them to predict the number of cars
they will import.  VSC stated that the same associated problem
would arise under the Agency's proposal.

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     VSC suggested that the one percent low volume fee should
allow the ICI to pay one percent of the value of the cars to be
covered by the certificate for which the ICI has a contract when
making a certification request.  VSC further suggested that for
additional cars imported under the certificate,  ICIS should pay
one percent of the value of each car as each car is imported,
until payment of the standard $8,394 fee.  VSC noted that under a
pay-as-you-go system,  EPA would receive fees at the time of
certification or importation and ICIs would only pay for cars they
are actually working on and importing.
      Our Response:

     In response to comments received EPA has modified its reduced
fee provisions to respond to many of the issues raised.   The
revised reduced fees provisions are as follows:

     The reduced fee program for this rule provides two separate
pathways by which a manufacturer can request and pay a reduced fee
amount.  The fee will be one percent of the aggregate retail price
of the vehicles and engines covered by the certificate with a
refundable minimum initial payment of $750.  Each pathway
specifies when manufacturers are required to determine the price
of the vehicles or engines actually sold under a certificate and
when to either pay additional fees or seek a refund.  Under both
pathways the manufacturer:

     1) Pays a fully refundable initial payment of $750 or one
percent of the aggregate retail price of the vehicles or engines,
whichever is greater, with the request for a reduced fee.
     2) Receives a certificate for an estimated number of vehicles
or engines in the engine family to be covered by the certificate.
     3) Requests a revised a revised certificate if the number of
vehicles or engines in the engine family exceeds that on the
certificate.
     4) Is in violation of the Clean Air Act if the number of
vehicles or engines made or imported is greater than the number
indicated on the certificate.

     The first pathway will be available for engine families
having less than six vehicles, none of which have a retail price
of more than $75,000 each.   Manufacturers seeking a reduced fee
include in their certification application a statement that the
reduced fee is appropriate under the criteria.  If one percent of
the aggregate retail price of the vehicles or engines is greater

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than $750, the manufacturer must submit a calculation of the
reduced fee and the fee.  If one percent aggregate retail price of
the vehicles or engines is less than $750 the manufacturer will
submit  a calculation of the reduced fee and an initial payment of
$750.  In the event that the manufacturer does not know the value
of all of the vehicles to be imported under the certificate, it
may use the values of the vehicles or engines that are available
to determine the initial payment.

      The manufacturer's evaluation and submission of a fee amount
under this reduced fee provision is subject to EPA review or
audit.  If the manufacturer's statement of eligibility is
accepted, the manufacturer will receive a certificate for five
vehicles or engines.

     If the manufacturer's statement of eligibility or request of
a reduced fee is rejected by EPA then EPA may require the
manufacturer to pay the full fee normally applicable to it or EPA
may adjust the amount of the reduced fee that is due.

     A manufacturer's statement that it is eligible for a reduced
fee can be rejected by EPA before or after a certificate is issued
if the Agency finds that manufacturer's evaluation does not meet
the eligibility requirements for a reduced fee, the manufacturer
failed to meet the requirements to calculate a final reduced fee
using actual sales data, or the manufacturer failed to pay the net
balance due between the initial and final reduced fee calculation
(see below for discussion of the final fee calculation, reporting
and payment).

     Within 30 days of the end of the model year,  the applicant
for a reduced fee will also provide EPA with a report called a
"report card"  to aid our review of the applicant's statement of
applicability.  This report shall include the total number of
vehicles ultimately covered by the certificate.  The report card
shall include information on all certificates held by the
manufacturer that were issued with a reduced fee under the first
pathway.  For each certificate the report will include a
calculation of the actual final reduced fee due for each
certificate which is derived by adding up the total number of
vehicles and their sales prices and calculating one percent of the
total, a statement of the initial fees paid and the difference
between the initial payment and the total final fee for the
manufacturer.   Manufacturers will be required to submit the report
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card within 30 days of the end of the model year12, EPA believes
this is reasonable as manufacturers should have final figures for
each certificate by this time.

     A manufacturer may request a refund if the final fee is less
than the initial payment.  If the final fee is greater than the
initial payment, manufacturers will be required to "true-up" or
submit the final reduced fee due as calculated in the report card
within 45 days of the end of the model year.  The decision to
eliminate a minimum final reduced fee of $300 was made as a result
of comments regarding EPA's proposed policy of only issuing
refunds greater than $500.  This is discussed more fully in
section 8 of the Response to Comments Document.

     In addition, EPA may require that manufacturers submit a
report card, with the same or similar information as noted above,
for previous model years.  The purpose of such report card would
be to give EPA assurance that the manufacturer has demonstrated a
continuous capability of submitting the necessary year-to-year
report cards and that appropriate fees have been paid.  This will
assist EPA in its determination as to whether a manufacturer is
capable of adequately projecting its annual sales for reduced fee
purposes and whether the manufacturer shall remain eligible for
the reduced fee provisions.

     Under this pathway, if a manufacturer fails to report within
30 days or pay the balance due by 45 days of the end of the model
year, then EPA may refuse to approve future reduced fee requests
from that manufacturer.  In addition, if a manufacturer fails to
report within 30 days and pay the balance due by 45 days of the
end of the model year as noted above then the Agency may deem the
applicable certificate void ab initio.

     The second pathway is available for engine families that
contain more than five vehicles or engines and/or have at least
one vehicle or engine with a retail price of more than $75,000.
Manufacturers seeking a reduced fee under this pathway include in
their applications a statement that the reduced fee is appropriate
under the criteria and a calculation of the amount of the reduced
fee  (1.0 percent of the aggregate retail price of vehicles or
engines) or an initial payment of $750, whichever is greater.  As
  12 Typically,  this will be the first February 15 after a
certificate expires.  Certificates generally expire on December 31
of the model year.

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in the first pathway,  the manufacturer's evaluation and submission
of a fee amount under this reduced fee provision is subject to EPA
review or audit.  If the manufacturer's statement of eligibility
is accepted, the manufacturer will receive a certificate for the
number of vehicles or engines to be covered by the certificate.

       If the manufacturer's statement of eligibility or request
of a reduced fee is rejected by EPA then EPA may require the
manufacturer to pay the full fee normally applicable to it or EPA
may adjust the amount of the reduced fee that is due.

     A manufacturer's statement that it is eligible for a reduced
fee can be rejected by EPA before or after a certificate is issued
if the Agency finds that the manufacturer's evaluation does not
meet the eligibility requirements for a reduced fee.

     At the end of the model year, the manufacturer may request a
refund if the final fee is less than the initial payment.
Manufacturers with certificates issued with reduced fees under
this pathway will not be required to submit the report card and
true-up described above under the first pathway.

     Under either pathway, if the manufacturer realizes that it
will make or import more vehicles or engines than the number
specified on the certificate, the manufacturer must request a
revised certificate with an increased number of vehicles or
engines indicated.  At the time of revision, the manufacturer must
pay one percent of the aggregate retail price of the number of
vehicles or engines that are being added to the certificate.  The
additional fee must be received by the Agency and the certificate
must be revised and issued before the additional vehicles or
engines may be sold or imported in the United States.   If a
manufacturer imports or sells more vehicles or engines than that
indicated on the certificate, the manufacturer will be in
violation of the CAA for selling or importing uncertified vehicles
(those over and above the number indicated on the original
certificate.)

     As suggested by VSC, after the initial payment has been
submitted, the above reduced fee provisions will allow
manufacturers to pay one percent of the retail price of each
vehicle or engine as needed.  This pay-as-you go provision will
give ICIs and other manufacturers the advantage of only paying a
$750 (equivalent to the average fee for two imported vehicles) or
one percent of the value of the vehicles initial payment and then
paying for additional vehicles as needed.  Manufacturers that

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request revised certificates for an increased number of vehicles
will pay the additional one percent fee per vehicle at the time
the revised certificate is requested.

     In some cases,  when a manufacturer requests a certificate
under the first pathway, the retail price of five vehicles or
engines covered by the certificate may exceed the initial payment.
Under the provisions we are finalizing today, the difference
between the initial payment and the final reduced fee will not be
required until after the end of the year.  Therefore, EPA believes
that the reduced fee provides flexibility and mitigates any
unreasonable economic burden that a full fee may present to
manufacturers with small engine families.

     What Commenters Said:

Section 6.1.2. Sierra Research (SR) supported our reduced fee
provision.  In addition, they requested clarification of the term
"retail sales price" in the final rule.  SR sought clarification
as to whether the "retail sales price" refers to the engine price
sold by the engine manufacturer to the equipment manufacturer
(OEM)  or the engine price sold to the "consumer."  SR noted that
the latter is often referred to as the "replacement price," and
would be a component of the total equipment price.

     SR suggested that the term "retail sales price" refer to the
price at which the engine is sold to the OEM, and not the
replacement price.  SR suggested that this term not refer to the
replacement price because it can be difficult to determine what
the replacement price is at the time of certification and it can
change over time.

     Our Response:

     The retail sales price of a vehicle or engine is the price to
the consumer, or the replacement price, as defined by SR.  This
price is the easiest to determine across industries as all of the
vehicles and engines are either made for sale or will have a value
on the market if a manufacturer was to replace its own product by
one of another manufacturer.  If the final sales price is
different than the price projected at certification, the reduced
fee can be adjusted at the end of the model year to reflect the
correct retail sales price and additional fees may be paid or a
refund request may be made by the manufacturer.

     What Commenters Said:

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Section 6.1.3.  SR noted that the regulations do not address how
to aggregate different retail sales prices and requested
clarification in the final rule.

     SR suggested using the average sales price of all models
while noting that EPA would prefer a sales-weighted price where
the manufacturer multiplies the price of each model by the number
of engines projected to be sold, sums the results for all models
and then divides by the total number of engines for all models.

     Our Response:

     The aggregate retail price of an engine family is the total
of the retail sales prices of each of the engines or vehicles in
the family added together.  For example, if a manufacturer wanted
to certify a family of engines that included five engines that
sold for $100 each and four engines that would sell for $150 each,
the aggregate retail price of the family would be (5 x $100)+(4 x
$150)  or $1,100.

     What Commenters Said:

Section 6.1.4.  EMA commented on proposed 40 CFR 85.2406(b)(5)(i)
which states that EPA may require future reduced fee eligibility
determinations if it determines that a manufacturer has not
properly assessed its eligibility for reduced fees in its initial
application.  EMA commented that this was unnecessary because EPA
always has the final authority for making reduced fee
determinations.

     EMA also suggested that the language proposed in 40 CFR 
85.206(b)(5)(ii) which allows EPA to require a manufacturer to use
the provisions in (b)(7)  rather than the provisions in paragraphs
(b)(1) through  (b)(4) will generally not provide any disincentive
for improperly requesting reduced fees.

     This commenter further stated that proposed 40 CFR 
85.2406(b)(7)(i) was inconsistent with proposed 40 CFR 
85.2406(b)(5)(ii).   Proposed 40 CFR   85.2406(b)(7)(i) states
that a manufacturer must use the "second pathway" for reduced fees
"if EPA makes such a determination under paragraph  (b)(5)(ii) of
this section" but subparagraph  (i)  of 85.2406(b)(7)  states that
the request to use reduced fees under the provisions of pathway 2
shall be made prior to the submission of an application for
certification.  The commenter observed that this inconsistency
arises when a manufacturer uses pathway 2 as a result of EPA

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determination under (b)(5)(ii).   To the commenter this appears to
not comply with the provisions of 85.2406(b)(7)(i).

     Our Response:

     EPA agrees with these comments and the final rule has been
amended to reflect the changes.   The paragraph stating that EPA
may "require that future reduced fee eligibility determinations be
made by the Agency" is unnecessary and, therefore, the language is
not included in the reduced fee regulatory language set forth in
the final rule.

     The final regulatory language does not state that EPA will
require a manufacturer to use one reduced fee pathway over the
other.  The price and the number of vehicles or engines to be
covered by a certificate will determine the pathway manufacturers
will use to determine the initial reduced fee payment.

     What Commenters Said:

Section 6.1.5.  EMA sought clarification as to the applicability
of 85.2406(b)(5)(iii)  which indicates that EPA may "deny future
reduced fee requests and require submissions of the full fee
payment until such time as the manufacturer demonstrates to the
satisfaction of the Administrator that its reduced fee submissions
are based on accurate data and that the final fee payments are
made within 45 days of the end of the model year."  EMA wondered
how manufacturers would make the requisite demonstrations if the
Agency denied all future requests for the use of reduced fees.

     Our Response:

     If EPA denies reduced fee requests and requires submissions
of full fee payment, the manufacturer should contact the EPA and
demonstrate that its reduced fee submissions are based on accurate
data and that the final fee payments are made within 45 days of
the end of the model year of the year in question.  This can be
done by providing an explanation and any convincing information or
data that the reduced fee submission is appropriate and that
reports were submitted on time.   Such data may include the most
recent production data for the previous year, proof of payment of
correct fees amounts for the previous year, and recent production
plans for the current year.   Upon examining the data submitted by
the manufacturer for the model year in question, EPA may approve
the reduced fee request and, at that time, would consider any
future reduced fee requests.

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     What Commenters Said:

Section 6.1.6.  OPEI commented that the proposed reduced fee
system is inadequate for existing small volume engine families.
OPEI's example of this was the following:
"Assume that a lawn and garden engine costs $100.  For a
manufacturer to be eligible for a reduced fee (i.e.,  a fee less
than $827),  the manufacturer could sell no more than 827 engines -
- one sixth of the existing small volume cutpoint.13  Thus the one
percent sales trigger is not an effective solution for small
volume lawn and garden engines."

     OPEI quotes 40 CFR 90.3.:   "In the lawn and garden context,
a small volume engine family means":

     [A]ny handheld engine family or any non-handheld engine
     family whose eligible production in a given model year are
     projected at the time of certification to be no more than
     5,000 engines.

     OPEI requested that EPA include an additional provision that
eliminates certification fees for small volume small spark-
ignition (SSI) engine families with less than 5,000 units.  OPEI
further stated that eliminating the fee for small engine families
is critical because there is inadequate revenue from small volume
engine family sales to adequately spread the costs of the proposed
certification fees.  OPEI commented that if EPA imposes a
certification fee on lawn and garden engines, the agency should
reconcile that fee with the 5,000 unit cutpoint definition of
small volume engine families in 40 CFR part 90.

     Our Response:

     EPA established a reduced fee provision for instances to
alleviate the economic burden that may be imposed by the full fee
requirement.  The reduced fee payment of one percent of the
aggregate retail price of the engines or vehicles will assure that
all manufacturers will be treated equitably and that none will be
required to pay more than one percent of the projected aggregate
retail price of small volume families of the engines or vehicles.
13 Under the one percent of total sales trigger, engine sales
would have to be less than $82,700 to take effect; assuming a per
unit engine cost of $100,  the manufacturer could sell no more than
827 engines ($82,700/$100 = 827 engines).

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     Emissions regulations have specified small volume engine
family sizes for different industries.  The small engine family
sizes were specified to differentiate from larger engine families
for purposes such as technology application or regulatory
implementation.  The fees rule differs from these rules as it does
not distinguish the need for a reduced fee by the size of the
family but, rather, by the amount of fees that the manufacturer of
the family would have to pay.

     6.2  Retroactive Payment Under Reduced Fee Program

     What Commenters Said:

     EMA submitted an additional alternative to the reduced fee
pathways.  EMA suggested that manufacturers who pay the full fee
at the time of certification should also have the ability to seek
refunds at the end of the model year if the fee paid exceeds one
percent of the retail sales.   According to EMA,  this would enable
EPA to receive the fees up front and avoid any unnecessary delays
while not adding too much year end burden for manufacturers
already required to produce year-end production volume reports.

     EPA Response:

     Currently, the retroactive reduced fee option is available
for those engine families/test groups that meet the one percent
reduced fee provision.  Our response is just to clarify the
process.  A manufacturer that pays the standard fee for an engine
family or test group and later determines that it meets the
criteria for a reduced fee may qualify for a retroactive reduced
fee.   Under today's provision, the manufacturer may be required
to submit a report card and a refund request at the end of the
calender year for the amount of the difference between the fee
paid and one percent of the aggregate retail sales price of the
vehicles or engines covered by the certificate.

     6.3  Year End Report

     What We Proposed:

     We proposed that each applicant for a reduced fee must
provide EPA with a report card within 30 days of the end of the
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model year 14(67 FR 51411- 51412)  .  We stated that this report
shall include the total number of vehicles ultimately covered by
the certificate.  The report card shall include information on all
certificates held by the manufacturer that were issued with a
reduced fee, a calculation of the actual final reduced fee due for
each certificate which is derived by adding up the total number of
vehicles and their sales prices, a statement of the total initial
fees paid by the manufacturer and the total final fees due for the
manufacturer.  Manufacturers would be required to "true -up" or
submit the final reduced fee due as calculated within the report
card within 45 days of the end of the model year. Id.

     What Commenters Said:

     VSC stated there is no need for a year-end settlement,  but a
year-end audit would be appropriate under the pay-as-you-go system
because EPA is getting its money at the time of certification or
importation.  The commenter also stated that because ICI must file
EPA form 3520-8, a Final Admission Form,  for each imported
vehicle, the payment of the additional fees can be easily tracked.

     Our Response:

     EPA believes that a year-end settlement is needed for some
manufacturers undergoing the reduced fee process.  A true-up
requirement at the end of the year ensures that any outstanding
fee payments owed to the government are paid.  Under the first
reduced fee provision discussed above in section 6.1, a
manufacturer can receive a conditional certificate for five
vehicles, engines or motorcycles and pay $750 at certification
time and true-up with a report card at the end of the year.
Manufacturers utilizing the second pathway will not be required to
submit the report card and true-up as required under the first
pathway.

     The initial information that manufacturers submit in the
report card for reduced fees under the first pathway will be
necessary for EPA to establish all of the vehicles made or
imported under each certificate and the fee payments that have
been made by the manufacturer as well as the final reduced fee.
We agree that audits and information provided on the 3520-8 forms
  14Typically, this will be the first February 15 after a
certificate expires.  Certificates generally expire on December 31
of the model year.

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may be helpful to confirm the information submitted by
manufacturers but cannot be solely relied upon for all of the
information submitted in the report card.

     6.4  ICI Owner-Imported Vehicles (Not for Resale)

     What We Proposed:

     We proposed that the cost basis for calculating a reduced fee
for an ICI certification be based upon the full cost of the
vehicle or engine rather than the cost or value of the conversion.
We explained that EPA has not received a fee payment for the "base
vehicle" or the vehicle imported before its conversion to meet
United States' emissions requirements.  For alternative fuel
converted vehicles or engines that have been originally certified
by an OEM, we proposed the reduced fee cost basis as the value
added by the conversion.(67 FR 51412)

     What Commenters Said:

     VSC argued that the standard ICI fee should not apply to
owner-imported vehicles.   VSC suggested that the fee for owner-
imported vehicles (not for resale) should be five percent of the
cost of conversion of the vehicle to meet EPA emission standards.
VSC cited a letter sent to Mr. Di Bernard! of Liphart & Associates
by Jane Armstrong of EPA  (dated April 14, 1999)  which discusses a
class of ICI vehicles that are described as owner-imported   (not
for resale)  and are modified through the installation of OEM parts
to be identical to a certified OEM vehicle sold in the United
States.  VSC called these vehicles "Di Bernard! vehicles15."

     According to VSC, EPA would recoup more money under a fee
based on five percent of a conversion of such vehicles than the
one percent cost of conversion rule applicable to alternative fuel
vehicles.  VSC stated that the average owner-imported vehicle
conversion costs approximately  $8000, and five percent of this
amount would mean a fee of $400.  VSC stated that this amount
would be 400 times more than the per-vehicle cost for OEMs.  VSC
further noted a fee based on cost of conversion was appropriate in
  15 See  EPA docket  number  OAR-2002-0023  for  letter  from  Jane
Armstrong dated April 14,  1999 to Peter Di Bernard! regarding ICI
owner-imported vehicles and certification.

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light of the fact that our certification and compliance activities
for these types of vehicles were limited.

     VSC also stated that EPA was recouping additional fees from
ICIs by requiring Ids to recertify  each year owner-imported
vehicles of a given model year already certified by an ICI for one
MY.

     Our Response:

     EPA disagrees with the suggestion that fees for
owner-imported vehicles should be only five percent of the cost of
conversion because EPA's services are limited in these cases as
opposed to an OEM vehicle.  We require modification of owner-
imported vehicles through installation of OEM parts in order for
these vehicles to be identical to a certified OEM vehicle sold in
the United States.  This includes vehicles for resale, and
modification and test vehicles options included in 40 CFR 85.1509
and 40 CFR 89.609 and those imported on behalf of a private or
another owner (not for resale).   EPA believes that an
owner-imported vehicle under an engine family/test group certified
by EPA must meet the same emission standards/requirements as
vehicles and engines imported for resale.  As a result, each model
year owner-imported and other ICI vehicles are subject to services
such as extensive pre-certification/certification assistance,
application review,  processing and approval to ensure that they
meet the certification criteria and allowed final importation.
Other services include recall, maintenance instruction, warranty,
running changes, emissions testing and labeling, and fuel economy
testing and labeling. EPA recoups costs in providing these type of
MVECP services for these vehicles.

     In addition, EPA addressed in the abovementioned letter to
Mr. Di Bernard! of Liphart & Associates the alternative methods of
compliance demonstration for ICI owner-imported vehicles but did
not grant exemptions for compliance with the standards.

     EPA believes that all ICI vehicles are subject to a standard
fee.  If there is an unreasonable economic burden in adhering to
the fees regulations, manufacturers including ICIs may apply for a
reduced fee.  Therefore, EPA believes the reduced fee process for
these vehicles and engines is applicable as proposed.

     6.5   $300 Minimum Fee Payment

     What We Proposed:

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     As part of the proposed reduced fee provision,  we proposed a
minimum fee of $300.  We believed this amount represented the
lowest level of fee that is cost effective for the Agency to
collect and still representative of the actual costs incurred by
the Agency in providing MVECP services.
     What Commenters Said:

     OPEI commented that if the Agency believes (for
administrative reasons) that anything less than $300 is not cost
effective then the certification fee for lawn and garden small
engine families should simply be waived.

     Our Response:

     The purpose of the fees rulemaking is to recover the costs
for the services that EPA provides to manufacturers.  Because EPA
realizes that the costs of the fees may represent an unreasonable
burden for manufacturers of small engine families EPA is adopting
reduced fee provisions (see discussion in section 6) whereby
manufacturers of small engine families will have to pay no more
than one percent of the aggregate retail price of the vehicles or
engines sold under the certificate.  To waive the fee completely
is not in keeping with the core purpose of section 217 of the CAA
and the IOAA to recover the costs for the services it provides.
EPA also believes that the likelihood of such reduced fees
dropping below $300 is very low and in such cases it is still
appropriate to collect such a fee to keep an equitable and level
playing field among those manufacturers that have sales above or
below $300,000 under a certificate ($300 would represent one
percent of $300,000 in that instance).

Section 7:  ICI Issues

     7.1  Fee Provisions Specific to ICIs

     What We Proposed:

     We proposed separate and lower fees for ICI light-duty on
highway certificate requests.  We examined the costs associated
with ICIs and OEM and found that the costs associated with
administering the light-duty ICI program was lower that the costs
associated with administering the light-duty ICI program was lower
than the costs for light-duty original equipment manufacturers
(OEMs).   We proposed a fee of $8,394 for light-duty ICI
certificates with no limit on the number of vehicles to be covered
by the certificate.  For all other ICI categories, we explained

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that our certification and compliance activities were no different
for Ids than OEMs and,  therefore,  we established the same fees
for Ids and OEMs. Id.  As discussed in section 6.1,  above,  we
also proposed reduced fee provisions to alleviate any economic
burden imposed by the full standard fee.

     What Commenters Said:

     VSC suggested that the Agency should promulgate specific fee
provisions for Ids especially in light of the fact that most of
the services the Agency is seeking to recover the associated costs
are inapplicable to Ids.  As examples, VSC cited the Agency's
CFEIS system, certification compliance audits, selective
enforcement audits, monitoring of in-use data, review of in-use
testing, or Agency-run in-use or recall tests.  VSC also stated
that a multi-part ICI fee system was necessary due to the lack of
similarity between ICI importations.

     VSC further stated that ICI specific provisions would still
meet the government's need to collect fees that offsets its costs,
while taking into account the fact that Ids are small businesses.

     Our Response:

     Under the certification and compliance program Ids must meet
certain requirements and the fees reflect the costs incurred in
providing services that assist Ids in meeting those certification
and compliance requirements.  As explained earlier in sections
under 2.4, we grouped the various industries into categories based
on the similarity in the type of services we provide under the
MVECP then separated the categories into subcategories if the
levels of service within a category differed as is the case with
light-duty vehicles, motorcycles and Ids within the Light-duty
category  (worksheet #2.)

     Ids do not receive all of the services that are provided to
the light-duty subcategory.  As pointed out by VSC, Ids do not
use CFEIS, receive selective enforcement audits or services that
involve in-use testing.   The fees for Ids do not include the
costs of these services.   That is why the fees for Ids are lower
than the fees for the LD manufacturers.  Ids fees include the
cost of providing the services of certification and fuel economy
testing, extensive assistance with pre-certification activities,
application preparation and application review.
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     In addition,  EPA believes no multi-part fee system is
necessary for the various ICI importations because of the
complexity of the vehicle models, ages,  and types of ICI work
performed on ICI vehicles and engines.   Furthermore, the reduced
fee provisions allows some flexibility and adjustments in fees for
ICIs and other manufacturers.

     The EPA believes that this fee adequately reflects the time,
labor and expenses spent on ICI pre-certification and
certification activities.  ICI certification process is very time
and resource intensive yet as a category ICIs request less
certificates and cover fewer vehicles per certificate than OEMs or
industry categories.

     7.2  ICI Vehicles Imported for Resale

     What We Proposed:

     EPA proposed a fee of $8,394 for light-duty ICI certificates
as EPA has determined that this recovers the costs of MVECP
services provided.

     What Commenters Said:

     VSC argued that this fee of $8,394 should be applicable to
only ICI cars imported for resale under Declaration A on EPA form
3520-1.16

     Our Response:

     We disagree with this comment.  The EPA believes that the ICI
fee applies to all ICI certificates.  This includes certificates
that cover vehicles and engines for sale,   vehicles and engines
not for sale (i.e., owner-imported) and those modified under the
  16EPA Form 3520-1, known as the Declaration Form, is called the
Importation of Motor Vehicles and Motor Vehicle Engines Subject to
Federal Air Pollution Regulations form.   This  form is collected
by customs to ensure that motor vehicles and engines imported into
the U.S. conform with applicable  emission requirements.  Code A
is described under the Independent Commercial Importer  (ICI)
Imports section of the form as any  vehicle or engine imported by
an ICI for modifications in accordance with a valid EPA
certificate of conformity issued for the specific make, model,  and
model year in accordance with 40 CFR 85.1505.

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modification and test provisions.  Therefore the standard fee is
applicable to each certificate that covers these types of ICI
importations.  EPA believes the type of vehicles ICIs should pay
fees for are also specified on the EPA Declaration form 3520-1.1V

     7.3  Modification and Test Cars

     What We Proposed:

     The proposed reduced fees provision required inclusion of all
vehicles sold by a manufacturer in the aggregate retail price, 67
FR 51411.  EPA proposed that when calculating the aggregate retail
sales price of vehicles or engines under the reduced fee
provisions, such calculation must not only include vehicles and
engines actually sold by the ICI but also those modified under the
modification and test options in 40 CFR 85.1509 and 40 CFR 89.609
and those imported on behalf of a private or another owner, 67 FR
51412.

     What Commenters Said:

Section 7.3.1. VSC argues that EPA recognized  the "Mod and Test"
procedure as an alternative to the full certification procedure
for modification and test vehicles (also known as Declaration 'C'
cars)18, in the 1987 ICI Rule, and stated that this was a "clear
reason" why the fees rule should not be applicable to such
vehicles.  VSC also stated that the process applicable to
modification and test cars should not even be called
  "Currently, EPA Form 3520-1 contains codes A, C, J, and Z under
the ICI section.  These codes describe the type of vehicles that
are imported.  EPA believes the vehicles imported under a
certificate does not only include code A, certification vehicles
and code J, pre-certification test vehicles.  It also includes
code C,  modification and test vehicles and code Z, vehicles that
are modified to be identical to an OEM with permission.  This does
not include vehicles or engines that may be excluded or exempted
by the Administrator per section 203 of the CAA and/or U.S.
customs.

  18 Imported vehicles are described by codes selected on the EPA
Form 3520-1. Code "C" which is listed under the ICI imports
category means that the vehicle is being imported by an ICI for
modification and testing in accordance with 40CFR  85.1509.  Such
vehicles or heavy-duty engine must be at least 6 years old.

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"certification."  In addition, VSC argued that EPA had failed to
justify the combination of modification and test cars with other
ICI imports since the Agency's regulations treat them differently.
VSC further stated that the fact that these vehicles have
historically been included in the fee regulation was insufficient
to justify their continued inclusion.

     Our Response:

     We disagree with this comment.  We believe that ICI
modification and test vehicles must meet the applicable emissions
standards and undergo the certification process.  As certificate
holders,  ICIs are required to perform all of the necessary
modifications and emissions testing to ensure the vehicles they
import comply to EPA emissions standards and requirements.  Under
EPA's import regulations,  modification and test cars must be
covered by a certificate  (unless otherwise exempted by the EPA
Administrator or Customs).  Furthermore, Section 206 of the CAA
allows the EPA Administrator to test any emission control system
incorporated in a motor vehicle or engine to determine whether
such system enables the vehicle or engine to conform to the
required emission standards.  In addition, a certificate of
conformity may be issued under this section only if the
Administrator determines that the importer (or any person) has
established to the satisfaction of the Administrator that any
emission control device, system or element installed on or
incorporated in such vehicle or engine conforms to the emission
requirements.  Section 217 of the Act and the IOAA authorize EPA
to recover the costs of compliance and certification services it
provides to manufacturers.   Hence, we believe ICIs must pay fees
that represent the costs involved in assuring that modification
and test cars meet emission standards.

     The 1987 Rule for Importation of Noncomforming Motor Vehicles
and Motor Vehicle Engines (52 FR 36136, September 25, 1987) that
VSC mentioned provides a more enhanced modification and test
program in part due to previous noncompliance issues.  As a
result, these vehicles have been historically included in the fee
regulation because they are imported under a certification-based
program.  Being certificate holders makes ICIs responsible for
complying with all the emission requirements for these vehicles
which may or may not be owned by the certificate holder.

     We agree with VSC that EPA has allowed alternative methods of
compliance demonstration for ICIs  (that meet certain criteria)
however they are required to comply with applicable emission

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standards and to properly install required emission related
components that are fully functional. By requiring Ids to adhere
to the test/modification provisions while undergoing the
certification process ensures that this happens.

     ICI vehicles or engine certificates cover vehicles or engines
which are imported into U.S. but was not originally certified by
an OEM.   EPA recovers costs associated with providing various
MVECP services to ensure that these vehicles and engines meet
emission requirements.  These requirements include meeting
emission standards, and also include undergoing recall,
maintenance instruction, warranty, running changes, emissions
testing and labeling, and fuel economy testing and labeling which
are the same requirements with which light-duty OEMs are required
to comply.  In addition,  Ids  receive extensive assistance with
pre-certification activities, application preparation and
application review.  The EPA import team reviews numerous
applications for import exemptions due to hardship or other forms
of exemptions.  EPA incurs costs for conducting these types of
services.  Therefore, we believe Ids must pay fees that represent
the costs involved in assuring that modification and test cars
meet emission standards.

     What Commenters Said:

Section 7.3.2. VSC also commented that vehicles declared on EPA's
Declaration Form 3520-1 under categories "Z" "E",   "M", "EE",  and
"B"19 should likewise not have to pay any fee.  They asserted that
  19Form 3520-1,  EPA Declaration Form has codes describing the
types of vehicles and engines that are to be imported into the
U.S. that must be declared by the manufacturer.
     Codes "Z" listed under the ICI imports category means
imported by an ICI for the purpose of modifying to be identical to
an original equipment manufacturer (OEM)  certified version in
accordance with  written instructions from the OEM that are
specific to the vehicle or heavy-duty engine being imported.
      Codes "E" and "M" fall under the EPA exempted vehicles
category and mean vehicle or engine at least 21 years old and
Canadian vehicle/miscellaneous exemption, respectfully.
      Codes "B" and "EE" fall under the U.S. conforming and
"identical" vehicles category.
More specifically, code "B" indicates that the vehicle is U.S.
certified and is unmodified bearing a U.S. EPA emission control
label in the engine compartment or motorcycle frame in English.

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EPA has not established that it has any costs to recoup in regard
to these vehicles.

     Our Response:

     EPA disagrees  with this comment.  Under  EPA's import
regulations,  including section 203 of the CAA these vehicles may
not be imported into the U.S. unless covered under a certificate
of conformity,  exempted by the Administrator or otherwise
authorized by EPA and U.S. Customs Service regulations.  Based on
the EPA Declaration form 3520-1 codes "E" and "M" fall under the
exemption category.  Although the vehicles imported under the
exemption category must meet certain government requirements, we
agree that certification fee costs currently do not apply to these
vehicles.  In addition, certification fees currently do not apply
to vehicles indicated as codes "B" and "EE" on Declaration form
3520-1.  The codes  "B" and "EE" fall under the U.S. conforming and
"identical" vehicles category and cover vehicles that are required
to conform to EPA emissions standards.  Proof must be provided to
Customs that these  vehicles comply as indicated on the Declaration
form 3520-1.   Furthermore, the "Z" code indicates that the vehicle
or engine is imported by an ICI for the purpose of modifying it to
be identical to an OEM certified version (with written OEM
instructions)  and this requires undergoing the certification
process and submitting a fee payment.  Currently, EPA Form 3520-1
contains codes A, C,  J, and Z under the ICI section.  These codes
describe the type of vehicles that are generally imported by ICIs.
EPA believes the vehicles imported under a certificate does not
only include code A,  certification vehicles and code J, pre-
certification test  vehicles.  It also includes code C,
modification and test vehicles and code Z,  vehicles that are
modified to be identical to an OEM with permission.  Under these
ICI categories vehicles and engines for resale,  modification and
test vehicles and engines, or owner-imported vehicles  (not for
Code "EE" indicates that the vehicle is identical in all material
respects to a U.S. certified version either as a  Canadian vehicle
(with the proper Canadian emission control label and other
customs-EPA requirements as listed on form 3520-1),  or as a
vehicle from any country (requiring a letter from the
manufacturer's U.S. representative (not dealer or mechanic) on
letterhead stating the vehicle is identical to a U.S. EPA
certified version with respect to emissions, is not being imported
for resale or lease,  and other requirements as listed on form
3520-1).

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resale) must undergo the certification process and therefore, pay
fees, as discussed earlier in the response to section 7.2 above.

     7.4  ICI Licensing

     What We Proposed:

     ICI  licensing was not proposed in the NPRM.

     What Commenters Said:

     VSC suggested that EPA offer through the fees program an ICI
license that is renewed annually, similar to the National Highway
Traffic Safety Administration (NHTSA) Registered Importer program.
VSC further stated that in addition to raising revenue, an ICI
licensing program will provide a control on companies seeking to
become ICIs.

     Our Response:

     This comment is beyond the scope of this rulemaking.

     7.5  ICIs and SBREFA

     What We Proposed:

       In section VIII.B. of the proposed rule  we certified our
proposed fees as having no significant economic impacts on small
entities.   In addition, we also stated that our reduced fee
provisions would limit the impacts of this rule on small entities.
(Section VIII.B., Regulatory Flexibility Act (RFA),  as amended by
the Small Business Regulatory Enforcement Fairness Act of 1996
(SBREFA), 5 U.S.C. 601 et seq. (67 FR 51414).

     What Commenters Said:

Section 7.5.1.  VSC stated that the Regulatory Flexibility Act,  5
U.S.C. 601-612 was amended by SBREFA, Public Law 104-121, to
ensure that concerns regarding small entities are adequately
considered during the development of new regulations that affect
them.   VSC further quoted the SBREFA amendments in which Congress
stated that "uniform Federal regulatory * * * requirements have in
numerous instances imposed unnecessary and disproportionately
burdensome demands including legal, accounting, and consulting
costs upon small businesses * * * with limited resources[,]" and
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directed agencies to consider the impacts of certain actions on
small entities.

     VSC suggested that EPA consider two points: (1) "the
significant economic impact the proposed rule has on small
entities; and  (2) any significant alternatives to the proposed
rule which would ensure that the objectives of the proposal were
accomplished while minimizing the economic impact of the proposed
rule on small entities and providing relief to small certifiers of
vehicles."

     Our Response:

     We are committed to minimizing the burden of the fees
regulations on small entities or entities with small engine
families to the extent feasible while still meeting the statutory
requirements to charge fees.  The Agency did consider the economic
impacts of this rule on small entities, however, we believe this
rule will not have a significant economic impact on a substantial
number of small entities.  We reviewed the rulemakings that set
emission standards for the industries affected by the fees rule,
including those manufacturers affected by the recreational vehicle
rule.  The review showed that approximately 108 small businesses
will be paying fees.  The Agency examined the cost of the fees and
determined that the average cost for manufacturers of all sizes,
across industry sectors, is approximately $.41 per vehicle or
engine.

     Nevertheless,  to mitigate possible economic hardship EPA is
adopting an alternative to the full certification fee requirement
including reduced fee provisions to help small volume entities
meet the regulations while ensuring the fees rule objectives can
be accomplished.  The reduced fee provisions limits the impact of
this rule on small entities to one percent of the aggregate retail
sales price of the vehicles or engines covered by a certification
request.   Hence, the fee a manufacturer would pay will not exceed
one percent of the aggregate retail sales price of the vehicles or
engines covered by a certificate.  This one percent amount
represents a modest cost of doing business.  EPA also believes
enough notification of this fees rule was provided to allow
manufacturers enough time to plan for fees in their budgets.

     What Commenters Said:

Section 7.5.2. VSC suggested that EPA should recognize that ICIs
are not OEMs. VSC further stated that SBREFA requires this

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distinction and also compels EPA to adopt a fee system that
carefully considers Ids' and how they differ from OEMs.  VSC
requested  that we consider and include "the fact" that Ids are
small businesses that,  on the average, import fewer than 100
vehicles annually.

     Our Response:

      EPA believes that although ICI manufacturers are often small
businesses and in some instances may differ from OEMs, both Ids
and OEMs are certificate holders.  As certificate holders,   Ids
are required to meet certain certification and compliance
requirements.  These requirements include meeting emission
standards, and also include undergoing recall,  maintenance
instruction, warranty,  running changes, emissions testing and
labeling, and fuel economy testing and labeling which are the same
requirements that light-duty OEMs are required to comply to.  EPA
incurs costs for conducting these types of services.

     Under the ICI category of the cost study,  we have calculated
fees only for the services applicable to Ids and thus, ICI
certificates cost considerably less than certificates for other
vehicle manufacturers.   EPA also believes that the reduced fees
provision, while enabling the objectives of both section 217 and
the IOAA to be met, minimizes the economic impact of this rule on
small entities or entities with small engine families.

Section 8:  Other Topics

     8.1 EPA Services

     What We Proposed:

     As previously mentioned in sections 2 and 3, our proposed
fees were based on the costs the Agency incurs in providing
certification and compliance services to the various certification
groups.

     What Commenters Said:

     Mercury Marine stated that the office that handles marine SI
certification and compliance was understaffed and required follow
up calls to encourage timely processing of applications.  Mercury
Marine sought an explanation from EPA as to how fees would be used
to improve the level of service, or more specifically, to improve
the processing of requests in a timely fashion.

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     Our Response:

      The fees schedule is based on the type of services provided
to each category as well as  the amount of services that each
category receives.   It is also based on the current and projected
costs for each industry.  The projected costs for the "Other"
category does include the cost of additional personnel to assist
in processing applications.  EPA will continue to ensure the
timely processing of applications.

     8.2  Fee Payment Timing

     What We Proposed:

     EPA proposed that fees must be paid in advance of receiving a
certificate  (67 FR 51410).   We also emphasized that the Agency
would not process applications until the appropriate fees had been
fully paid.  (67 FR 51411).

What Commenters Said:

     Three commenters suggested that the Agency should not require
fees payment prior to issuing certificates.

     Our Response:

     In most instances, we begin reviewing certification
applications and, in some cases,  complete our review, prior to
receiving fees payment.  Thus, we do not necessarily suspend
application review because of non payment of fees.  However,
because we cannot issue a certificate of conformity before receipt
of fees, we are maintaining the requirement that fees be paid in
advance of submitting an application for certification.  We
believe this will ensure that we do not delay the issuance of
certificates.

     8.3  Running Changes and Carryovers

     What We Proposed:

     We did not propose any special provisions for running changes
and carryover applications.

     What Commenters Said:
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     Sierra Research noted that the Agency did not propose any
provisions for running changes and requested clarification that
running change were not certification requests and therefore,
would not trigger fees.

     OPEI suggested that certification for lawn and garden engines
be set at no more than $300 since most certificate applications
for this category were carryover applications, which generally
costs less time and effort to process as compared to new
certification applications.

     Our Response:

     We are responding for purposes of providing information only.
Running changes are those changes in a vehicle or engine
configuration, equipment or calibration which are made by an OEM
or ICI in the course of a motor vehicle or engine production.  The
cost of a running change is included in the fees cost for an
engine family or test group within the same engine-emissions
control system combination.  Therefore, they do not trigger
additional fees.

     Carryover applications are certification applications that
use data from a prior year's application. When a manufacturer
elects to carry over test data from a previous model year, its
certification effort may be reduced.  Further, such carryover test
data may reduce some of our efforts.  However, such potential
reductions are offset by additional activities necessitated by the
carryover request.   The application for a carryover is usually not
an exact duplicate of the MY being carried over.  For example,
carryover applications may involve changes (e.g. additional test
weight and horsepower) which could change the test vehicle or
engine selection.  In such cases, EPA must conduct additional
review of carryover requests to ensure that they meet EPA
requirements and that the test vehicles or engines were properly
selected for the carryover application.  Further, EPA must review
a carryover application to determine the applicability for the
regulations for the new model year as compared to the carryover
model year.  Thus,  carryover applications do not necessarily
result in lower costs than a certification request for a new
engine family/test group.  As a result, the fee schedule will
remain as proposed.  Carryover certification requests will not be
distinguished from new certification requests.

     8.4   Refunds Less than $500 and Final Fee Payments Less than
$500

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     What We Proposed:

     For applicants who fail to obtain certificates and who
subsequently request refunds, we proposed full fee refunds of
amounts exceeding $500.  This was a change from the existing
requirement that allowed for partial refunds when applicants fail
to obtain a signed certificate  (see 40 CFR 86.908-93(b)(1) ,  as
amended by 86.908-01(b)(1) ).  We also proposed the option of
applying the refund to another certification request.

     Further,  we proposed the continuation of the existing
requirement of providing partial refunds resulting from decreases
in the aggregate projected retail sales price of vehicles or
engines covered by the certification request.  (See, 40 CFR 
86.908-93(b)(2)  and 86.908-01(b)(2)).  We also invited comments on
whether to limit refund requests to $500. (67 FR 51412).

     As earlier discussed in section 6 above, we proposed a
reduced fee provision that includes calculating a final reduced
fee within 30 days of the end of the model year and "true-up" of
any additional fees owed within 45 days of the end of the model
year.  Under the 1992 fees rule reduced fee applicants pay an
additional waiver fee any time the aggregate projected retail
sales price of the vehicles or engines to be covered by a
certification request changes.   Also,  there was no minimum amount
due before payment was required.  (See, 40 CFR 86.908-93(a)(5)).

     What Commenters Said:

     EMA supported our proposal to allow manufacturers request a
full refund in cases where a certificate is not issued. EMA
suggested that 40 CFR  85.2407(a) should read "may," instead of
"shall."  EMA suggested that we clarify that manufacturers are
entitled to a full refund regardless of the reason for non-
issuance of a certificate.

     EMA suggested that 40 CFR  85.2407(b)  should read "shall"
instead of "may."  EMA also suggested that refunds should be
predicated upon a decrease in "actual" rather than "projected"
sales prices.

     EMA further objected to proposed 40 CFR   85.2407(b)(3)  and
(b)(4)(vi)  and argued that manufacturers should be entitled to any
and all refunds regardless of the amount.

     Our Response:

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     EPA agrees with EMA's comment regarding refund language.
Regulatory language has been amended to reflect these changes in
40 CFR  85.2405(a) and (b).   Upon request from a manufacturer EPA
will refund fees.   This includes instances of overpayment, when
the manufacturer withdraws an application or when EPA denies a
certificate as well as any other circumstances that would lead to
a certificate not being issued.  Also, 40 CFR  85.2407(a) and (b)
have been changed to read:

     (a) Full Refund. The Administrator shall refund the
     total fee imposed by 85.2405 if the applicant fails to
     obtain a certificate, for any reason, and requests a
     refund.

     (b)  Partial  Refund.   The  Administrator shall  refund a
     portion of a  reduced  fee,  paid  under 85.2406,  due to a
     decrease in the aggregate projected or actual retail sales
     price  of  the  vehicles  or  engines  covered  by  the
     certification request.

     However, we disagree with the comment that refunds should be
predicated on the decrease in the aggregate "actual" price rather
than the aggregate "projected"  price.  This is because not all of
the vehicles or engines would have been sold and the actual price
may not be available at the time of the refund request therefore
we have revised the regulatory language to indicate projected or
actual price.  The manufacturer should  use whichever is more
accurate.

     EPA agrees that it should not limit refunds to $500 minimum.
Therefore EPA is not adopting proposed 85.2407(b)(3)  and
(b)(4)(vi).    However, the rationale behind EPA's proposal that
manufacturers should not be required to pay a "true-up" payment of
less than $500 was balanced out by the proposal that refunds would
be limited to amounts of $500 or more.  We believed that the
amounts not paid in refunds would equal the payments not received
for "true-up."  Therefore, since EPA will be paying full refunds,
EPA is setting forth in today's rule that full payment must be
submitted at true-up to avoid an overall deficit in its recovery
of MVECP costs and to continue to abide by the intent of the IOAA
and CAA.

     8.5  Reduced Costs for California-only

     What We Proposed:
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     EPA proposed a separate California-only fee for only the
light-duty and heavy-duty fee categories. No California-only fee
was proposed for the motorcycle,  ICI,  Nonroad CI and Other
categories because EPA's responsibilities for vehicles and engines
are not decreased even though certification is only requested for
the State of California.

     What Commenters Said:

     One commenter argued that our proposed fees for California-
only certificates was inappropriate since the Agency did not
provide any benefits to manufacturers.

     Echo stated that the "Other" category should have reduced
fees for California-only families because other categories have
reduced fees for California-only.  Echo stated that the full fees
for these families cannot be justified and that EPA should not
charge for service not provided.   Echo also observed that the GARB
may decided to add its own fees further raising the cost to
manufacturers.

     OPEI commented that EPA should not impose certification fees
on California-only engine families that are not sold outside of
California.  OPEI questioned the utility of requiring this dual
certification burden.  The commenter further argued that the
proposed fees should be waived since California-only engine
families are sold only in California,  and as a result, do not
generate national sales revenue.   OPEI, further requested that the
certification fee be waived with respect to California-only engine
families.

     Our Response:

      The Clean Air Act requires that vehicles sold in the United
States to be covered by  a federal certificate of conformity
including those sold in California.  The EPA receives applications
and certifies all vehicles and engines sold in the US.  The EPA
review and testing required for California-only certification, and
therefore the benefits received,  are no less than that required
for other certificates.  Test results generated by EPA from
certification tests of these vehicles and engines are shared with
the GARB to assist in its certification process.  However, the
California-only fee is less than the standard fee because EPA does
not incur the cost of the in-use program.  The GARB conducts an
in-use program for these categories, but at this time EPA does
not.  Thus the fee for California-only certificates for light-duty

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and heavy-duty vehicles and engines reflects the EPA costs in the
certification component of the MVECP.

     As noted above in the section discussing the adjustment of
fees to reflect future inflation costs, EPA has taken the
additional step for manufacturers certifying light-duty vehicles
that will only be sold in California ("California-only" vehicles)
by only adjusting the "certification/FE" costs for inflation and
not applying an adjustment for light-duty in-use costs.

     In the case of engines and vehicles in the "Other" category,
EPA is assessing the costs of the certification and minimal
testing services that it provides.  A lower California-only fee is
not offered as EPA's work is not decreased by compliance work done
by the GARB.

      OPEI stated that no national sales revenue is generated to
absorb the cost of the fee, however, because EPA reviews the
certificate applications and the manufacturer receives benefit
from receiving a certificate, EPA should recover the costs of
providing this service as directed by the CAA and the IOAA.

     8.6  Fee Payment Suggestions

          What We Proposed:

     We invited comments on methods of streamlining the fee
payment process while still maintaining the requirement that fees
be paid in advance of certification services. (67 FR 51411) .

          What Commenters Said:

     One commenter suggested that EPA allow manufacturers to
submit fees for "undesignated" families.  This commenter noted
that as long as prepaid funds existed for a given manufacturer,
fee payments for specific families could be designated when the
manufacturer subsequently submitted an application.

     In addition,  the commenter suggested that EPA modify the fee
filing form by deleting the requirement for manufacturers to
specify family names at the time of fee submission.

          Our Response:

     EPA believes the process of collecting and tracking fee
payments by engine families or test groups has been very

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effective.  This process has been especially useful for handling
fee refunds and other transactions.  However, EPA is also
exploring other ways to collect, track and process fee payments.
As suggested, we are now looking at other ways manufacturers can
submit up-front fee deposits for undesignated families.  We
anticipate that in such instances,  manufacturers should be able to
draw from this deposit to pay for engine families or test groups
perhaps designated later in the model year or  for which
certification applications are submitted.  Prior to the effective
date of this rule, we are planning to issue a manufacturers'
guidance letter describing how to submit fee payments and conduct
other fee transactions.

     In addition,  we are exploring the idea of a banking or
accounting system to handle fee payments and transactions.  If
utilized, a banking or an accounting mechanism would be useful in
streamlining the fee collection process and other transactions.
EPA may explore how this accounting system would work for future
fee adjustments.
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