** CDlJV     Office of Transportation                 EPA420-P-05-005
          and Air Quality                    November 2005
  United States
  Environmental Protection
  Agency
          Guidance for Quantifying and
          Using Emission Reductions
          From Mobile Source Retrofit
          Projects in State
          Implementation Plans and
          Transportation and General
          Conformity


          Draft Document for External
          Review

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                                                               EPA420-P-05-005
                                                                 November 2005
                    for
                                                                         in

                                    Conformity

              Draft Document for             Review
                  Transportation and Regional Programs Division
                      Certification and Compliance Division
                     Office of Transportation and Air Quality

                                     and

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

                      U.S. Environmental Protection Agency
                                  NOTICE
  This Technical Report does not necessarily represent final EPA decisions or positions.
It is intended to present technical analysis of issues using data that are currently available.
        The purpose in the release of such reports is to facilitate an exchange of
        technical information and to inform the public of technical developments.

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                Draft Document for External Review—November 17, 2005


                               TABLE OF CONTENTS

CHAPTER 1: Introduction

       1.1    What is the purpose of this guidance?
       1.2    How does this guidance relate to existing Clean Air Act requirements?
       1.3    What vehicles or engines does this guidance address?
       1.4    What is a retrofit project?
       1.5    Can a state require retrofits of highway and nonroad vehicles or engines?
       1.6    What types of retrofit proj ects does this guidance address?
       1.7    How does this guidance relate to the Voluntary Mobile Source Emission
             Reduction Program guidance?
       1.8    Who should you contact for additional information?

CHAPTER 2: Quantifying Retrofit Emission Reductions

       2.1    How do you quantify emission reductions from retrofit programs?
       2.2    What is NMIM and why should you use it to quantify emission reductions from
             NMIM?
       2.3    Can you use NMEVI to create inventories for SIPs or conformity analyses?
       2.4    Can you use NMEVI to quantify emission reductions from retrofit programs even
             if you are not using it to generate the local inventory?
       2.5    How do you use NMEVI to  quantify emission reductions from retrofit programs?

CHAPTER 3: Using Emission Reductions in SIPs

       3.1    What are the basic requirements for using emission reductions in SIPs?
       3.2    How can the estimated emission reductions be used for SIP purposes?
       3.3    What would a state submit  to EPA to meet the requirements for incorporating a
             retrofit project in a SIP?

CHAPTER 4: Using Emission Reductions in Transportation and General Conformity
             Determinations

       4.1    What is transportation conformity, and what kinds of retrofit projects can be used
             in transportation conformity determinations?
       4.2    What requirements need to be met for any retrofit project to be used in a
             transportation conformity determination?
       4.3    How can the emission reductions from nonroad retrofit projects be used in
             transportation conformity determinations?
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       4.4    How can the emission reductions from nonroad retrofit projects be used in general
             conformity determinations?
       4.5    How are nonroad retrofit projects addressed by the general conformity regulation?
       4.6    What requirements would potentially limit the use of nonroad retrofit projects in
             the general conformity program?

CHAPTER 5: Monitoring and Penalties for SIP Purposes

       5.1    What monitoring and record keeping should occur to document retrofit emission
             reductions for SIP purposes?
       5.2    What validation and reconciliation should occur for emission reductions in SIPs
             approved under the VMEP guidance?
       5.3    What types of penalties can be assessed for not complying with CAA
             requirements?
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(Note: As used in this document, the terms "we", "us" and "our" refer to EPA. The terms "you"
and "your" refer to a state or local air pollution control agency or state or local transportation or
other federal agency, as appropriate.)
                                     CHAPTER 1

                                   INTRODUCTION

1.1    What is the purpose of this guidance?

       The purpose of this document is to provide you with guidance on quantifying and using
emission reductions from highway and nonroad diesel vehicles and engines which have been
retrofitted with emission reduction technology. This guidance document describes how to
quantify and use reductions of nitrogen oxides (NOx), hydrocarbons (HC), particulate matter
(both PM2 5 and PM10), and carbon monoxide (CO) in 8-hour ozone, PM2 5, PM10, and CO
nonattainment and maintenance areas. You can use the emission reductions resulting from
implementing a retrofit project for meeting requirements such as those necessary for an
attainment or maintenance  state implementation plan (SIP), a reasonable further progress (RFP)
SIP, transportation conformity determinations (highway vehicles in most cases), and general
conformity determinations  (nonroad vehicles only).

       EPA believes that retrofit projects provide a unique opportunity for state and local
governments to reduce pollution from highway and nonroad diesel vehicle fleets, and as a result,
assist in attaining the new 8-hour ozone and PM2 5 national ambient air quality standards
(NAAQS or standards).  In addition, on August 10, 2005, a new transportation bill was signed
into law as  SAFETEA-LU, or the Safe, Accountable, Flexible, Efficient Transportation Equity
Act: A Legacy for Users. SAFETEA-LU clarifies the funding eligibility requirements to provide
further federal funding for retrofit projects through the Congestion Mitigation and Air Quality
Improvement Program (CMAQ).  In selecting CMAQ projects, Section 1808(b) - (d) of
SAFETEA-LU calls on states and metropolitan planning organizations (MPOs) to give priority
to cost-effective air quality projects, including diesel retrofit projects. The law also notes that
States and MPOs continue to have final CMAQ project selection authority.

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

       This document provides guidance to state and local air pollution control agencies,
transportation agencies, and the general public on quantifying and using control measures to
reduce highway and nonroad diesel vehicle and engine emissions in SIPs and transportation and
general conformity determinations. SIP requirements can be found in Clean Air Act (CAA)
sections 110(a)(2) and 172(c).  Transportation and general conformity requirements can be found
in CAA section 176(c). This guidance document does not substitute for those provisions, nor is
it a regulation itself. Unless otherwise indicated, it does not impose binding, enforceable
requirements on any party. Further, it does not assure that EPA will approve all instances of its
application, and thus the guidance may not apply to a particular situation based upon the
circumstances. The EPA and state decision makers retain the discretion to adopt approaches  on
a case-by-case basis that differ from this guidance where appropriate and consistent with the
statute and applicable regulations. Any decisions by EPA regarding a particular SIP
demonstration will only be made based on the statute and applicable regulations, and will only
be made following notice and opportunity for public review and comment.  Therefore, interested
parties are free to raise questions and objections about the appropriateness of the application  of
this guidance to a particular situation.

       Where specific recommendations are provided, you should consider whether or not such
recommendations are appropriate for your particular project or situation. This guidance is a
living document and may be revised periodically without public notice.  EPA welcomes public
comments on this document at  any time and will consider those comments in any future
revisions of this guidance document.

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

       This guidance focuses on emission reductions from highway and nonroad diesel vehicles
and engines1. New emission standards will affect all 2007 and future model year heavy-duty
highway vehicles and engines. New emission standards (Tier 4) will phase in for 2008 and
future model year nonroad engines.  In general, this guidance applies to the retrofit of those
vehicles and engines manufactured before those standards take effect and that will not have to
comply with EPA's upcoming highway and nonroad regulations; thereby providing incentives,
such as air quality credits, to retrofit those engines and vehicles. This guidance document can be
used, however, for emission reductions from retrofits of post-2007 and post-2008 vehicles and
engines if such activities meet the definition of "retrofit" discussed below.


1.4    What is a retrofit project?

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

       • EPA "verified" emission control technologies and fuels (for example, oxidation catalysts,
       particulate matter filters, emulsified fuels)2
       • EPA certified engines3 as engine repowers or replacements
       • California's Air Resources Board (CARB) "verified" emission control technologies and
       fuels (see paragraph below)
       1  Highway sources include vehicles used on roads for transportation of passengers or
freight.  Nonroad sources include vehicles, engines, and equipment used for construction,
agriculture, nonroad transportation, recreation, and many other purposes. Within these two broad
categories, highway and nonroad sources are further distinguished by size, weight, use, and/or
horsepower.

       2  For a complete list of all EPA verified technologies, consult the list at the following
web site: www.epa.gov/otaq/retrofit/retroverifiedlist.htm.

       3  For a complete list of all EPA certified large highway and nonroad engines, consult the
list at the following web site: www.epa.gov/otaq/certdata.htm.

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       EPA signed a Memorandum of Agreement (MOA)4 with C ARB to coordinate the
verification of diesel retrofit technologies .  This MOA establishes reciprocity in verifications of
hardware or device-based retrofits, and further establishes our joint commitment to cooperate on the
evaluation of retrofit technologies. This agreement commits EPA and CARB to work toward
accepting particulate matter (PM) and NOx verification reduction levels assigned by the other's
verification programs. Additionally, as retrofit manufacturers initiate and conduct in-use testing,
both agencies agreed to coordinate this testing so data generated may satisfy the requirements of
each program.  This MOA is intended to expedite the verification and introduction into the market
of innovative emission reduction technologies. Additionally, this MOA should reduce the effort
needed for retrofit technology manufacturers to complete verification.
1.5    Can a state require retrofits of highway and nonroad vehicles or engines?

       Under the CAA, no state but California may set its own emission standards for new highway
motor vehicles and new motor vehicle engines, subject to receiving a waiver from EPA under CAA
section 209(b).  Other states may adopt California standards pursuant to the terms of CAA section
177. Because this is limited to new vehicles and engines, states are not specifically prohibited
from requiring controls (such as retrofits) on vehicles and engines which are no longer new.5

       Also, CAA section 209(d) states that nothing in the Act precludes any state from the right to
control, regulate, or restrict the use, operation, or movement of registered or licensed motor
vehicles.

       No state, including California, can regulate new engines used in farm and construction
equipment smaller than 175 horsepower or new locomotives or new engines used in locomotives.
In addition, no state other than California, pursuant to a waiver from EPA, may set standards from
nonroad spark-ignition engines smaller than 50 horsepower. California can also regulate certain
new and non-new nonroad engines provided it first obtains a waiver of federal preemption from
       4 MOA is at the following web site: www.epa.gov/otaq/retrofit/retroverifiedlist.htm.

       5  To some extent, states are able to set mandatory emission standards (such as retrofits)
for in-use highway motor vehicles and engines.  However, a District Court held in 1972 (see
Allwav Taxi. Inc. v. City of New York. 340 F. Supp.l 120 (S.D.N.Y.), aff d 468 F.2d 624 (2d.
Cir. 1972)) that a state or locality is not free to impose its own emission control standards the
moment after a new car is bought and registered. The court stated that such a measure would be
an obvious circumvention of the Clean Air Act and would defeat the congressional purpose of
preventing obstruction of interstate commerce. The court stated the preemption sections,
however, do not preclude a state or locality from imposing its own exhaust emission standards
upon the resale or re-registration of the automobile.

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EPA under CAA section 209(e)(2). Other states may adopt California's new or non-new nonroad
standards for which a waiver of preemption has been authorized by EPA, with the exception of the
spark-ignition engines smaller than 50 horsepower.

       Under EPA interpretation, California may apply for a waiver under section 209(e)(2) to
establish mandatory retrofit projects for in-use nonroad engines and vehicles,  and other states may
adopt California's program if EPA has granted a waiver of preemption and the standards are
identical.  States are otherwise precluded from establishing their own mandatory retrofit
requirements.

       EPA believes that states are not precluded from regulating the use and operation of nonroad
engines. The US Supreme Court in EMA v SCAOMD. 124 S.Ct 1756 (2004) held that
requirements mandating the purchase of alternative-fueled vehicles on private operators amounted
to emission standards for new motor vehicles and are preempted by CAA section 209(a). In the
same decision the Supreme Court remanded to the U.S. District Court the question of whether
governmental entities can set certain requirements for public fleets. The U.S. District Court
subsequently ruled on a motion on May 5, 2005 that the fleet rules, as applied to state and local
governments, fall within the market participation exemption to preemption, and thus are not
preempted by section 209(a). To the extent the U.S. District Court decision is upheld it may allow
the fleet rules to be applied to state and local governments (through the market participation -
purchasing doctrine), and may possibly reach the issue of whether the fleet rules can be applied to
private entities under public contract.

       Regarding the general issue of the scope of federal preemption of state emission standards,
EPA is also aware of several instances where political  subdivisions have exercised their purchasing
power or contracting authority to mandate the use of engines or vehicles that meet certain emission
requirements for publicly funded projects.
1.6    What types of retrofit projects does this guidance address?

       This document will address two types of retrofit projects: fleet specific and fleet wide
projects. A fleet specific project has a specific  number of vehicles/engines to be retrofitted about
which detailed and precise information on vehicle/engine types, model years, and activity
information is known. A fleet wide project refers to a retrofit effort based on more general
mandates or goals which result in retrofits being applied to a wide range of vehicles or engines for
which precise information about vehicle/engine types, model years, and activity is not known.
Fleet Wide retrofits may arise from a state regulation (see Question 1.5) or  voluntary program .
Differences between fleet wide and fleet specific projects are discussed in more detailed in
Question 2.4.1.
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1.7    How does this guidance relate to the Voluntary Mobile Source Emission Reduction
       Program SIP guidance?

       In October 1997, EPA issued its "Guidance on Incorporating Voluntary Mobile Source
Emission Reduction Programs in State Implementation Plans (SIPs)" (VMEPs).6 All voluntary
retrofit projects should follow this guidance when being considered for the SIP.  The purpose of the
1997 VMEP guidance is to support innovative methods in achieving emission reductions for SIPs.
Under the guidance, the amount of emission reduction credits allowed for voluntary mobile emission
reductions in a SIP is capped at three percent of the total projected future year emission reductions
required to attain the applicable air quality standards.  Today's guidance relies on EPA's existing
VMEP guidance for voluntary retrofit projects, and interested parties should refer to that guidance for
specific information on incorporating retrofit projects as a VMEP in the SIP.
1.8    Who should you contact for additional information?

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

       For general questions regarding retrofit programs or the application of verified retrofit
technologies for the existing fleet of highway and nonroad vehicles, please contact Steve Albrink of
EPA's Office of Transportation and Air Quality at (202) 343-9671, albrink.steve@epa.gov.

       For technical questions regarding the use of NMEVI for calculating emission reductions from
retrofit projects, please contact EPA's Office of Transportation and Air Quality at mobile@epa.gov.

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

       For general questions concerning the use of emission reductions from nonroad retrofit projects
in general conformity, please contact Tom Coda of EPA's Office of Air Quality Planning and
Standards at (919) 541-3037, coda.tom@epa.gov.
         This policy is found at:  www.epa.gov/otaq/transp/traqvolm.htm.

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                                       CHAPTER 2

                  QUANTIFYING RETROFIT EMISSION REDUCTIONS

2.1    How do you quantify emission reductions from retrofit projects?

       For states other than California, EPA recommends the use of the National Mobile Inventory
Model (NMIM) to estimate emissions reductions from retrofit projects for SIPs and for conformity
analyses. NMIM provides the most complete and accurate method available for estimating the
impact of a retrofit project for highway or nonroad diesel vehicles or engines under local conditions.
An explanation of what NMIM is, how it works, and why it is the best method for calculating
emission reductions for retrofits is provided in Section 2.1. A discussion of the use of NMIM to
generate emissions inventories for SIPs or conformity is provided in Section 2.2. A discussion of
how to use NMEVI to calculate emission reductions from retrofit projects in areas that are not using
NMIM for general inventory preparation is provided in Section 2.3. A general discussion of NMIM
inputs is provided in Section 2.4.

       EPA  is not providing guidance at this time for the quantification of emission reductions from
retrofit projects in California.
2.2    What is NMIM and why should you use it to quantify emission reductions from
       retrofits?

       Presently, MOBILE6.2 and NONROAD2005 cannot directly assess the emissions impacts of
retrofit programs.  However, EPA has recently added this capability to the National Mobile Inventory
Model (current version - NMIM2005). NMIM is a graphical user interface that contains the
MOBILE6.2 and NONROAD2005 models and a database of county-level input information, the
National County Database (NCD) (note cautions about the use of the NCD in Section 2.2).
NMEVI2005 is capable of producing monthly inventories by source classification code (SCC) and
county for every state except California. NMIM was created to simplify the process of developing
county-by-county  emission inventories for multi-county areas, states, or the entire nation. When
using NMIM, users can simply select the year, months, and county or counties they wish to evaluate.
Since NMIM includes county-level information, it will automatically create MOBILE6.2 input files,
run MOBILE6.2, and multiply the emission factors by VMT to produce highway vehicle emission
inventories for each county for each month.7 NMIM will also automatically create NONROAD2005
input files, run NONROAD2005, and produce nonroad equipment emission inventories for each
       7 "EPA's National Mobile Inventory Model (NMIM), A Consolidated Emissions
Modeling System for MOBILE6 and NONROAD". H. Michaels, et al.  U.S. EPA.
www.epa.gov/otaq/models/nmim/420r05024.pdf.
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county for each month. NMIM also provides a post-processing module that will aggregate the
months into an annual inventory and produce tab-delineated output that can be read into database or
spreadsheet software applications.

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

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

       While other approaches to estimating emission reductions from retrofit projects are possible,
EPA believes it will be difficult to create an approach that is as thorough and consistent with the rest
of the mobile source inventory as the NMIM method. If you want to develop your own approach,
you should consult with your EPA Regional Office for approval. You must provide all relevant
technical support documentation, including the assumptions and other relevant information used to
calculate emission reductions and the approach must use the latest information as required by
applicable requirements.
2.3    Can you use NMIM to create inventories for SIPs or conformity analyses?

       Because NMEVI incorporates MOBILE6.2 and NONROAD2005, it may be used to generate
emissions inventories for SIPs and conformity analyses.  The pre- and post-processors in NMIM may
have advantages or disadvantages in various areas or applications compared to pre-existing methods.
Therfore, before using NMIM, State and local air quality and transportation agencies should work

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together with EPA and DOT to determine whether NMIM is appropriate given local conditions and
modeling methods and to determine what modifications are needed to the NMIM database to
accurately model local conditions.

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

       States have provided information for the National County Database (NCD) as part of the
National Emissions Inventory (NEI) development process.  However, given the NEI cycle, this may
not be the most recent or best available information at the time a state initiates modeling as required
in the latest planning assumptions provisions of the conformity rules (40 CFR 93.110). For SIPs and
regional conformity analyses,  state and local agencies should review the information in the NCD to
evaluate whether it includes the latest and best information currently available including latest
planning assumptions where applicable. Where more current information is available, the database
must be modified to incorporate the most recent data to meet regulatory latest planning assumptions
requirements for SIPs and conformity.  (EPA encourages states to separately submit updates to the
NCD  so that the most accurate database is available for both national and local inventory
development).  The NCD works at the county level and will need to be modified to account for areas
containing partial  counties, if necessary. The NCD also does not contain VMT estimates for future
years, so any use of NMEVI for a future evaluation year will have to include a projection of future
VMT. The interagency consultation process should be used to evaluate whether the use of NMIM is
appropriate in a given area, and to evaluate what changes are needed in the NMIM database for the
area.

       If you are using NMIM to develop  inventories for SIPs or conformity, and have made certain
that the appropriate local conditions have been entered in the NMIM database, entering the
appropriate retrofit inputs as described below will ensure that retrofit reductions are incorporated in
the inventory.  If emission reductions from retrofits need to be calculated separately, you will have to
run NMIM twice - a base case without the retrofit program and a control case with the retrofit
program and with all other NMEVI inputs unchanged.  You would then calculate  the difference
between these two inventories to determine the emission reductions from the retrofit program.
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2.4    Can you use NMIM to quantify emission reductions from retrofit programs even if you
       are not using it to generate the local inventory?

       Yes, even if NMEVI is not being used for inventory development, you can and should use it
for the calculation of emission reductions for retrofits.  When using NMIM solely to calculate
emission reductions from retrofits, you should first make sure that all NMIM inputs in the base case
are as consistent as possible with the MOBILE6.2 and NONROAD2005 inputs being used to
generate the inventory used in the SIP or conformity analysis.  You should use those same inputs,
along with those needed to describe the retrofit program, for the control case. Given that some
differences in inputs and effects of pre- and post-processors may result in differences between
emissions calculated using NMIM compared to other inventory methods, NMEVI retrofit reductions
should be calculated as a percentage reduction to the affected fleet, which can then be converted to
mass reduction by multiplying by the emissions level for the affected fleet derived from the local
inventory.
2.5    How do you use NMIM to quantify emission reductions from retrofit programs?

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


       2.5.1  Differences between "fleet specific" and "fleet wide" retrofit programs

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

       A "fleet wide" retrofit project refers to situations where there are general mandates or goals,
but the actual individual vehicles or engines which will be retrofit are not known in advance. A state
or local ordinance that requires a percentage of trucks in certain classes to be retrofit with a particular
technology would be an example of a "fleet wide" project. In this case, the actual number of vehicles
or engines, or their type, model year, or activity is not precisely known.
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       There are important differences between fleet specific and fleet wide projects that affect the
kind of information that is needed to run NMIM. It is assumed that for fleet specific projects the
precise number of vehicles or engines in each model year of each class that are to be retrofit will be
known. In addition, it is assumed that the annual average mileage or hours accumulated by each
model year of each class is also known.

       Fleet wide projects are expected to have no precise information about the individual vehicles
or engines which will be retrofit.  In this case, the NMIM model assumes that the average mileage or
hours  accumulated by retrofit vehicles or engines is the same as for all vehicles or engines of that
model year and vehicle or engine class.  Implementation is expressed as a fraction of all vehicles or
engines of that model year and vehicle class. If the precise number of vehicles or engines which are
retrofit is known, it must still be expressed as a fraction of all vehicles or engines of that model year
and vehicle class or engine type in order to use the fleet wide calculation option.

       As discussed in detail in the NMIM User Guide, the specifics of highway and off-road retrofit
programs are described in separate input files called the "On-Road Retrofit Parameters File" and the
"Off Road Retrofit Parameters File". These files are used for both fleet specific and fleet wide
retrofit projects. For highway and off-road fleet specific projects, additional input files called the
"On-Road Fleet Information Parameters File" and the "Off-Road Fleet Information Parameters File"
are required.  These files describe in detail the  specific fleets affected by the retrofit program.

       252   The retrofit parameters

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

       2.5.2.1 Pollutants affected by the retrofit program

       While NMIM allows you to enter the entire range of pollutants that MOBILE6.2 and
NONROAD2005 provide emissions estimates  for,  this guidance currently applies only to NOx, HC,
CO, PM10, and PM2.5 emissions. Therefore, these are the only inputs that should be used when
evaluating the emissions reductions of retrofit programs for emissions reduction credit under this
guidance.  As discussed in Section 2.4.2.3 below, all pollutants affected by the retrofit program,
including any that increase as a result of the retrofit technology, should be evaluated for SIP or
conformity purposes.
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       2.5.2.2 Vehicle or engine types affected

       As discussed in Section 1.3 above, this guidance document only addresses retrofit projects for
diesel highway vehicles and off-road engines and equipment. NMEVI allows you to enter the full
range of vehicle and engine types included in MOBILE6.2 and NONROAD2005, but only inputs for
diesel vehicles or engines should be used for retrofit emissions reduction credit under this guidance.

       2.5.2.3 Percentage effectiveness of the Retrofit

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

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

       2.5.3   The fleet information parameters

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

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

       2.5.3.1 Vehicle class or specific engine parameters

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

       2.5.3.2 Number of vehicles or engines

       The number of vehicles or engines entered for the specific fleet should be based on the
calendar year for which emission estimates are being calculated. When estimating emissions for a
specific fleet in the current year, this is the current size of the fleet. However, in future years the fleet
of affected vehicles or engines may become smaller as some vehicles or engines in the fleet are
scrapped while other newer, non-retrofit vehicles may be added to the fleet.  MOBILE6.2 and
NONROAD2005 include the effects of scrappage when projecting future emissions for the entire
fleet (e.g., both models assume that the number of 1998 model year vehicles or engines  decreases in
each future year).  However, these  effects are not applied to the number of vehicles or engines
entered in the fleet information file  for a specific fleet (e.g., if your input file indicates that you have
20 1998 model year vehicles or engines in your retrofit fleet in 2005, NMIM will assume 20 1998
model year vehicles or engines in any future year that you model). If you have reason to believe that
some of the vehicles currently in the specific fleet may no longer be in the fleet by the calendar year
that is being evaluated, reduce the input for number of vehicles or engines appropriately.

       2533 VMT or hours of use

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

       The activity level (VMT or hours of use) entered for the specific fleet should be based on the
calendar year for which emission estimates are being calculated. When estimating emissions for a
specific fleet in a current year, this is the current activity level of the fleet. However, in future years,
the activity level of the affected vehicles or engines in the fleet may change as older vehicles and
engines are often used less than newer ones. MOBILE6.2 includes the effects of decreased activity
with age when projecting future emissions for the entire fleet (e.g., MOBILE6.2 assumes that the
activity of 1998 model year vehicles or engines decreases in each future year). However, these
effects are not applied to the activity levels entered in the fleet information file for a specific fleet

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(e.g., if your input file indicates that 1998 model year vehicles are driven 100,000 miles in 2005,
NMEVI will assume that 1998 model year vehicles are driven 100,000 miles in any future year that
you model).  If you have reason to believe that activity levels of vehicles or engines currently in the
specific fleet may be lower by the calendar year that is being evaluated, this lowered activity should
be accounted for by reducing the input for VMT or hours of use appropriately.
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                                       CHAPTER 3

                        USING EMISSION REDUCTIONS IN SIPS

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

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

       3.1.1. Quantifiable -

       SIP Requirement:  The emission reductions from a retrofit project are quantifiable if they are
measured in a reliable manner and can be replicated. Emission reductions must be calculated for the
time period for which the reductions will be used.

       Specific Recommendations:

       (A) In general, if you  are retrofitting certified vehicles/engines with verified emission control
technologies or certified engines, quantifying the emission reductions is fairly straightforward. Issues
may arise when dealing with  pre-certified engines and/or non-verified technologies. In these
circumstances, you will need to document the emission reductions by providing all relevant data to
EPA for review.

       (B) Chapter 2 of this document provides you with a recommended method for quantifying
emission reductions. You can use this methodology or you can submit your own methodology. If
you submit your own, we will review it and make a decision as to the appropriateness of its use on a
case-by-case basis.

       3  1 2 Surplus -

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


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       3.1.3 Federally Enforceable -

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

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

       The specific requirements for enforceability vary when submitting a SIP retrofit project as a
mandatory or voluntary measure. If your retrofit project is mandatory,  then there is no limit on the
amount of emission reductions that can be claimed as long as such reductions are supported and meet
standard SIP enforceability requirements for mandatory measures.  If your retrofit control measure is
approved under EPA's VMEP guidance, the state is responsible for assuring that the reductions
credited in the SIP occur. The state would need to make an enforceable SIP commitment to monitor,
assess and report on the emission reductions resulting from the voluntary measure and to remedy any
shortfalls from forecasted emission reductions in a timely manner.  Further, the total of all voluntary
measures (including retrofit measures) may not exceed three percent of the total reductions needed to
meet any requirements for reasonable further progress, attainment or maintenance. In the
circumstance where the actual emission reductions achieved are more than the amount estimated in
the SIP, you may take credit for  the additional emission reductions provided it does not exceed the
three percent  cap on voluntary measures and meets the other requirements of the VMEP guidance. If
you wish to have a SIP  revision  approved under the VMEP guidance consult that policy for further
information.
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       3.1.4 Permanent -

       SIP Requirement: The emission reduction produced by the retrofit control measure must be
permanent throughout the time period that the reduction is used in the applicable SIP.

       Specific Recommendations:

       (A) Full emission reductions can be credited from retrofit vehicles that operate exclusively
within the nonattainment or maintenance area. Vehicles that typically operate within a captive area
may include, but are not limited to, the following:

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

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

       (B) EPA and ARB provide information on the durability of the verified retrofit technology
which allows you to determine the length of time the technology may perform at its verified emission
reduction capability.  Consequently, you should select retrofit technologies that are verified or
certified by EPA, or California's Air Resources Board.  For a list of verified technologies, see
www.epa.gov/otaq/retrofit/retroverifiedlist.htm.

       (C) For regulatory or voluntary retrofit control measures, you should demonstrate that the
retrofit vehicles or engines remain in use within the nonattainment or maintenance area for their
useful life.

       3.1.5 Adequately Supported-

       SIP Requirement: The state must demonstrate that it has adequate funding, personnel, and
other  resources to implement the retrofit control measure on schedule.

       Specific Recommendations:

       (A) The state should ensure it has allocated appropriate funds from a reliable funding source.

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


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

       (C) The state should assess and verify the status of the retrofit vehicles and/or engines and the
associated emission reductions, as applicable.
3.2    How can the estimated emission reductions be used for SIP purposes?

       For your reasonable further progress, attainment or maintenance SIP strategy, you can use
emission reductions which are expected to be generated from the retrofit control measure by applying
the following criteria:

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

       (B)  Emission reductions would be commensurate with the level of travel  and associated
reductions from retrofitted vehicles within a given nonattainment or maintenance area. For example,
if retrofitted vehicles are operated exclusively within the nonattainment or maintenance area, the
associated reductions from retrofit technology would also be assumed to occur within such an area.
However, some fleets may leave the nonattainment or maintenance  area for some portion of their
operation. Such fleets may be considered as part of a retrofit project, but the emission reductions
claimed are limited to the travel (and the associated emission reductions) that are expected to occur
from such vehicles within the nonattainment or maintenance area.
3.3    What would a state submit to EPA to meet the requirements for incorporating a retrofit
       control measure in a SIP?

       You would submit to EPA a written document which:

       (A) Identifies and describes the retrofit measure and its implementation schedule to
reduce emissions within a specific time period;
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       (B) Contains estimates of emission reductions attributable to the measure, including the
methodology and other technical support documentation used for your estimates.  You can follow the
methodology provided in Chapter 2 of this document or you can submit your own. If you submit
your own methodology for quantifying the emission reductions, you must also provide all relevant
technical support documentation, including the assumptions and other relevant information used to
calculate emission reductions. You must rely on the most recent information available at the time the
SIP is developed;

       (C) Either contains federally enforceable requirements for you to implement, track, and
monitor the measure; or if the measure is developed under the VMEP guidance, the state enforceably
commits to evaluate and report the resulting emission reductions;

       (D) If the measure is developed under the VMEP guidance, the state enforceably commits to
remedy any SIP emission  shortfall in a timely manner if the measure does not achieve estimated
emission reductions; and

       (E) Meets all other requirements for SIP revisions under CAA sections 110 and 172.
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                                        CHAPTER 4

                      Using Emission Reductions in Transportation and
                             General Conformity Determinations

4.1    What is transportation conformity, and what kinds of retrofit projects can be credited in
       transportation conformity determinations?

       Transportation conformity is required under Clean Air Act section 176(c) (42 U.S.C. 7506(c))
to ensure that federally supported highway and transit project activities are consistent with ("conform
to") the purpose of the SIP. Conformity to the purpose of the SIP means that transportation activities
will not cause new air quality violations, worsen existing violations, or delay timely attainment of the
relevant national ambient air quality standards (NAAQS or "standards"). EPA's transportation
conformity rule (40 CFR parts 51 and 93) establishes the criteria and procedures for determining
whether transportation plans, transportation improvement programs (TIPs) or projects conform to the
SIP.  Transportation conformity applies to areas that are  designated nonattainment, and those
redesignated to attainment after 1990 ("maintenance areas" with plans developed under Clean Air
Act section 175 A) for transportation-related criteria pollutants, including 8-hour ozone, PM25, and
PM10, nonattainment and maintenance areas that could benefit from NOx and PM reductions from
retrofit projects.

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

       MPOs may use emissions reductions from highway vehicle retrofit projects in transportation
conformity determinations, since transportation conformity includes emissions and reductions from
on-road mobile sources. Nonroad mobile source emissions and control programs, including the
emissions and reductions from nonroad retrofitted vehicles, are included in the nonroad mobile
source inventory of the SIP.  When appropriate and desired, the transportation conformity regulation
provides  options for crediting reductions from nonroad retrofit projects, such as retrofitted highway
construction equipment. See Question 4.3 below for further information on options for crediting
nonroad retrofit projects in transportation conformity determinations.


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4.2    How can the emission reductions from highway retrofit projects be included in
transportation conformity determinations?

       The transportation conformity rule describes the specific requirements for including emission
reductions from highway retrofit projects in a transportation conformity determination. If credit is
obtained for a retrofit project in the SIP's motor vehicle emissions budget, this does not preclude it
from also being used towards the transportation conformity determination.

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

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

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

       >      The regulatory action for the retrofit project is already adopted by the enforcing
             jurisdiction (e.g., a state has adopted a rule to require such a project);

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

       »•      There is a written commitment to implement the retrofit project in a submitted SIP
              with a motor vehicle emissions budget that EPA has found adequate.8

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

       Whatever the case, any emission reductions can only be applied in a transportation conformity
determination for the time period or years in which the retrofit project will be implemented. Written
commitments must come from the agency with the authority to implement the retrofit project.  The
latest emissions model and planning assumptions must also be used when calculating emissions
reductions, according to 40 CFR 93.110 and 93.111.
       8Section 93.118 of the transportation conformity rule describes the process and criteria
that EPA considers when determining whether submitted SIP budgets are appropriate for
transportation conformity purposes prior to EPA's SIP approval action.

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       You would utilize the interagency consultation process required by 40 CFR 93.105 to discuss
the methods and assumptions used to quantify the reductions from the retrofit project.  Chapter 2 of
this document provides you with a method for quantifying emission reductions.
4.3    How can the emission reductions from nonroad retrofit projects be included in
       transportation conformity determinations?

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

•      apply nonroad retrofit emission reductions (as a "safety margin") to the on-road motor vehicle
       emissions budgets through a SIP revision; or

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

Both of these options are provided by the current transportation conformity rule and are completed
through the SIP process with consultation among federal, state, and local air quality and
transportation agencies. An area may decide to pursue one of these options if it is anticipated that
emission reductions from nonroad retrofit projects may be  needed to assure future transportation
conformity determinations.

       These options are  supported by section 93.124(b) of the transportation conformity rule, which
states:

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

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

       The following  paragraphs provide details for crediting nonroad retrofit projects, regardless of
 funding source, in the transportation conformity process.  Nonroad retrofit projects that are reflected
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in a transportation conformity determination under either option must meet the conformity rule
requirements articulated in Question 4.2, in addition to any other requirements described below.

Applying Credit Through a Safety Margin

      Some areas may have a "safety margin" in their SIP. Section 93.101 of the transportation
conformity rule defines a "safety margin" as "the amount by which the total projected emissions
from all sources of a given pollutant are less than the total  emissions that would satisfy the
applicable requirement for reasonable further progress, attainment, or maintenance."  Safety
margins are calculated for a specific year in the SIP for which a budget is established (e.g., the 10th
year of a maintenance plan, etc.). Examples of areas that may have safety margins are maintenance
areas and 8-hour ozone and PM2 5 nonattainment areas with less severe air quality problems. Several
nonattainment areas have already established safety margins through the SIP process to assist in
making future  transportation conformity  determinations.

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

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

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

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

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

•     Meet any other applicable SIP statutory and regulatory requirements.

See Chapter 3  for more information about including a retrofit project in a SIP.

      EPA notes that the allocation of a  safety margin to the on-road transportation sector could
impact an area's ability to allow future growth in emissions from other source sectors (e.g.,
stationary sources). State and local transportation and air quality agencies and other affected parties

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 should always consult on whether a safety margin is appropriate for transportation conformity in a
 given area.

 Establishing a Trading Mechanism in the SIP

       State and local agencies can also establish a more fluid process through the SIP to trade
 emissions among the motor vehicle emissions budgets and emission inventories of other source
 sectors. Section 93.124(b) and EPA's Economic Incentive Program (EIP) guidance9 discuss trading
 in transportation conformity among different sources.  The primary concerns articulated in that
 guidance are: 1) to ensure that credits are only taken in transportation conformity if they are truly
 reductions to overall air quality (i.e., are not offset by emissions increases in other emissions
 sources); and 2) to ensure that double-counting does not occur among source categories in the SIP or
 in transportation conformity. Emissions reductions that are to be used in trading programs must be
 consistent with the EIP guidance, and the other criteria listed below.  SIP  revisions must be approved
 by EPA before trading programs can be utilized for transportation conformity determinations.

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

       The entire SIP must continue to demonstrate its Clean Air Act purpose when trades are
       allowed, pursuant to the statute and 40 CFR 93.124(a). When  the trading program is
       developed, the state air agency would need  to ensure that there would be a net air quality
       benefit from any nonroad retrofit project reductions that would be traded, while ensuring that
       emissions inventories from all sources continue to be  consistent with the SIP's demonstration.
       A state regulation must be developed that describes in adequate detail the scope and process
       for making trades so that the trading program can be implemented as intended. Such a
       regulation would also provide that all trades become enforceable through the trading
       mechanism approved into the SIP in the event that reductions are not otherwise enforceable;

       Trades must be based on nonroad retrofit projects that result in a net emission reduction,
       which must consider the emissions produced by the vehicles and the impact of any retrofit
       technology. Individual trades cannot exceed the net air quality benefits of a retrofit project;
       9EPA's January 2001 guidance entitled, "Improving Air Quality with Economic Incentive
Programs," provides additional information on developing and implementing economic incentive
based control strategies. This guidance is available at:
http://www.epa. gov/ttn/oarpg/tl/memoranda/eipfm.pdf See Appendix 16.10 for further
information regarding the transportation conformity requirements that need to be met by an EIP
trading program.

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      The trading program should ensure that individual trades must only be made when net air
      quality benefits exist (i.e., cannot result in "double-counting" in reductions already accounted
      for in the SIP, conformity, NSR offsets, etc.;

•     Reductions can only be taken for conformity analysis years where reductions are achieved;

•     Control programs that produce reductions must be assured and enforceable, have adequate
      funding and resource commitments, and be on schedule;

      The public is provided an opportunity to comment on trades that occur under the trading
      program; and,

•     Meet any other applicable SIP requirements.

See Chapter 3 for more information about including a nonroad retrofit  project in a SIP.

EPA consultation

      State and local agencies are strongly encouraged to consult early with their respective EPA
Regional Office if they are considering applying a safety margin or developing a trading program in
the SIP for transportation conformity  purposes.  EPA is available to provide such technical
assistance so that SIP revisions can be processed efficiently.  See Chapter 1 for more information
regarding EPA regional transportation contact information.
4.3   How can the estimated emission reductions be used for general conformity
      determinations?

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

      To reduce the regulatory burden on insignificant actions, the regulation establishes a number
of exemptions for categories of actions or activities know to have insignificant emissions increases
or whose emissions fall below certain de minimis levels. The general conformity rule establishes de
minimis emission levels based on the severity of the nonattainment problem.  If the net increase in
total direct and indirect emissions from a federal action is below the de minimis levels,  the federal

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agency does not have to make a conformity determination for the action.  The general conformity
rule also exempts federal actions such as routine recurring transportation of material and personnel
and maintenance dredging and debris disposal where no new deepening occurs.  See section 93.153
of the general conformity rule for further details.

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

      A voluntary retrofit project would be expected to retrofit an existing fleet of vehicles that are
not considered in transportation conformity determinations.  Since such a retrofit project would not
be increasing emissions, the implementation of a retrofit project would not be subject to general
conformity requirements. However, credit generated by diesel retrofit programs could be used in a
number of ways in general conformity determinations, such as:

•     Retrofit of diesel engines could be used to mitigate or offset emission increases caused by a
      federal action. For example, the retrofitting of diesel airplane tugs at a military air station
      could be used to mitigate a portion of the emission increases associated with an expansion
      project at the military base or the retrofitting of package delivery vehicles could be used to
      offset the emission increases caused by a base expansion.

      The Vision 100-Century of Aviation Reauthorization Act of 2003 (P.L. 108-176), directed the
      FAA to establish a national program to reduce airport ground emissions at commercial service
      airports located in air quality nonattainment and maintenance areas.  The Voluntary Airport
      Low Emissions (VALE) program allows airport sponsors to use certain funds to finance low
      emission vehicles, refueling and recharging stations, gate electrification, and other airport air
      quality improvements (including retrofit projects). Credits generated by the emission
      reductions are kept by the airport sponsor and may only be used for current  or future general
      conformity determinations.  Creditable emission reductions must be voluntary and cannot
      otherwise be use to meet other applicable air quality attainment and maintenance
      requirements. Emission reductions must also be "permanent" in that they continue to occur at
      the estimated level throughout the lifetime of the vehicles and infrastructure.

      A federal or federally permitted facility which is subject to the general conformity regulation,
      such as a military base or a commercial airport, could institute an agreement with a State to
      operate the facility within an facility-wide emissions budget. Emission reductions from a fleet
      retrofitting program could ensure emission increases generated by future actions would not

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      exceed the facility-wide budget and thus would conform with the SIP. Demonstrating
      emissions from a new action do not exceed the facility-wide emissions budget could be use in
      a general conformity determination. Although the general conformity rules currently do not
      have a specific provision for facility-wide emission budgets, the rules do not prohibit it either.


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

      Emission reductions used as part of the (1) project design, (2) mitigation measures, (3) offset,
or (4) for credit for future conformity determinations, must be surplus, permanent, quantifiable and
enforceable as described in the general conformity rule and Chapter 3 of this document and must be
reviewed by EPA, state, tribes and local air quality agencies and the public as part of the review of
the general conformity determination. In addition, general conformity regulations also require
mitigation measures to meet a number of requirements.  In order for a retrofit project to be
acceptable as a mitigation measure, it would have to meet the following:

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

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

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

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

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

•     If the retrofit project is modified resulting in an increase in  emissions, the new mitigation
      measures must continue to support the initial general conformity determination and must
      undergo public review.
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EPA consultation:

      State and local agencies are strongly encouraged to consult early with their respective EPA
Regional Office if they are considering applying a nonroad retrofit project in a general conformity
determination. See Chapter 1 for more information regarding EPA regional transportation contact
information.
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                                       CHAPTER 5

                                 Monitoring and Penalties
5.1   What monitoring and record keeping should occur to document retrofit emission
      reductions?

      5.1.1    What should you monitor and record?

      For each retrofitted vehicle or engine generating emission reductions, as applicable, you or
another responsible party should monitor and record the following information, where applicable,
for each time period for which an emission reduction is generated:

      •     Actual use and operation of the retrofit vehicles/engines and retrofit technology
      •     Actual use of any required fuel (e.g., ultra-low sulfur diesel fuel)
      •     Proper installation of retrofit technology at proj ect initiation
      •     Proper training of vehicle operators and technicians at project initiation
      •     Maintaining surplus account of emission reductions (discounting credits when new
            regulations become effective)

      5.1.2    How long should you maintain records?

      All information to be monitored and recorded in accordance with this guidance for existing
SIP requirements should be maintained by you or another responsible party for a period of no less
than five years, or longer where appropriate.
5.2   What validation and reconciliation should occur for emission reductions in SIPs
      approved under the VMEP Policy?

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

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

      Any person who submits false information to you or fails to implement or comply with
provisions pursuant to this guidance necessary to demonstrate compliance with CAA requirements,
should be subject to one or more of the following actions, as appropriate:

      (A) Disapprove the application for emission reductions;
      (B) Void all previously issued emission reductions;
      (C) Designate the responsible party to be ineligible to generate emission reductions;
      (D) Assess a penalty (see paragraph above).
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