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Control of Air Pollution from New Motor Vehicles: Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Control Requirements

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AGENCY:

Environmental Protection Agency.

ACTION:

Final rule.

SUMMARY:

The pollution emitted by diesel engines contributes greatly to our nation's continuing air quality problems. Even with more stringent heavy-duty highway engine standards set to take effect in 2004, these engines will continue to emit large amounts of nitrogen oxides and particulate matter, both of which contribute to serious public health problems in the United States. These problems include premature mortality, aggravation of respiratory and cardiovascular disease, aggravation of existing asthma, acute respiratory symptoms, chronic bronchitis, and decreased lung function. Numerous studies also link diesel exhaust to increased incidence of lung cancer. We believe that diesel exhaust is likely to be carcinogenic to humans by inhalation and that this cancer hazard exists for occupational and environmental levels of exposure.

We are establishing a comprehensive national control program that will regulate the heavy-duty vehicle and its fuel as a single system. As part of this program, new emission standards will begin to take effect in model year 2007, and will apply to heavy-duty highway engines and vehicles. These standards are based on the use of high-efficiency catalytic exhaust emission control devices or comparably effective advanced technologies. Because these devices are damaged by sulfur, we are also reducing the level of sulfur in highway diesel fuel significantly by mid-2006. The program provides substantial flexibility for refiners, especially small refiners, and for manufacturers of engines and vehicles. These options will ensure that there is widespread availability and supply of the low sulfur diesel fuel from the very beginning of the program, and will provide engine manufacturers with the lead time needed to efficiently phase-in the exhaust emission control technology that will be used to achieve the emissions benefits of the new standards.

We estimate that heavy-duty trucks and buses today account for about one-third of nitrogen oxides emissions and one-quarter of particulate matter emissions from mobile sources. In some urban areas, the contribution is even greater. This program will reduce particulate matter and oxides of nitrogen emissions from heavy duty engines by 90 percent and 95 percent below current standard levels, respectively. In order to meet these more stringent standards for diesel engines, the program calls for a 97 percent reduction in the sulfur content of diesel fuel. As a result, diesel vehicles will achieve gasoline-like exhaust emission levels. We are also finalizing more stringent standards for heavy-duty gasoline vehicles, based in part on the use of the low sulfur gasoline that will be available when the standards go into effect.

The clean air impact of this program will be dramatic when fully implemented. By 2030, this program will reduce annual emissions of nitrogen oxides, nonmethane hydrocarbons, and particulate matter by a projected 2.6 million, 115,000 and 109,000 tons, respectively. We project that these reductions and the resulting significant environmental benefits of this program will come at an average cost increase of about $2,000 to $3,200 per new vehicle in the near term and about $1,200 to $1,900 per new vehicle in the long term, depending on the vehicle size. In comparison, new vehicle prices today can range well over $100,000 for larger heavy-duty vehicles. We estimate that when fully implemented the sulfur reduction requirement will increase the cost of producing and distributing diesel fuel by about five cents per gallon.

DATES:

This rule will become effective March 19, 2001. The incorporation by reference of certain publications listed in this rule is approved by the Director of the Office of Federal Register as of March 19, 2001.

ADDRESSES:

Comments: All comments and materials relevant to today's action have been placed in Public Docket No. A-99-06 at the following address: U.S. Environmental Protection Agency (EPA), Air Docket (6102), Room M-1500, 401 M Street, SW, Washington, DC 20460 (on the ground floor in Waterside Mall) from 8:00 a.m. to 5:30 p.m., Monday through Friday, except on government holidays. You can reach the Air Docket by telephone at (202) 260-7548 and by facsimile at (202) 260-4400. We may charge a reasonable fee for copying docket materials, as provided in 40 CFR part 2.

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FOR FURTHER INFORMATION CONTACT:

Margaret Borushko, U.S. EPA, National Vehicle and Fuel Emissions Laboratory, 2000 Traverwood, Ann Arbor MI 48105; Telephone (734) 214-4334, FAX (734) 214-4816, E-mail borushko.margaret@epa.gov

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SUPPLEMENTARY INFORMATION:

Regulated Entities

This action will affect you if you produce or import new heavy-duty engines which are intended for use in highway vehicles such as trucks and buses, or produce or import such highway vehicles, or convert heavy-duty vehicles or heavy-duty engines used in highway vehicles to use alternative fuels, or produce or import light-duty highway diesel vehicles. It will also affect you if you produce, import, distribute, or sell highway diesel fuel, or sell nonroad diesel fuel.

The following table gives some examples of entities that may have to follow the regulations. But because these are only examples, you should carefully examine the regulations in 40 CFR parts 69, 80, and 86. If you have questions, call the person listed in the FOR FURTHER INFORMATION CONTACT section of this preamble:

CategoryNAICS Codes aSIC Codes bExamples of potentially regulated entities
Industry3361123711Engine and Truck Manufacturers
336120
Industry8111127533Commercial Importers of Vehicles and
8111987549Vehicle Components
Industry3241102911Petroleum Refiners
Industry4227105171Diesel Fuel Marketers and Distributors
4227205172
industry4842204212Diesel Fuel Carriers
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4842304213
a North American Industry Classifications System (NAICS).
b Standard Industrial Classification (SIC) system code.

Access to Rulemaking Documents Through the Internet

Today's final rule is available electronically on the day of publication from the Environmental Protection Agency Internet Web site listed below. Electronic copies of the preamble, regulatory language, Regulatory Impact Analysis, and other documents associated with today's final rule are available from the EPA Office of Transportation and Air Quality (formerly the Office of Mobile Sources) Web site listed below shortly after the rule is signed by the Administrator. This service is free of charge, except any cost that you incur for connecting to the Internet.

Environmental Protection Agency Web Site: http://www.epa.gov/​fedrgstr/​ (Either select a desired date or use the Search feature.)

Office of Transportation and Air Quality (OTAQ) Web Site: http://www.epa.gov/​otaq/​ (Look in “What's New” or under the “Heavy Trucks/Busses” topic.)

Please note that due to differences between the software used to develop the document and the software into which document may be downloaded, changes in format, page length, etc. may occur.

Table of Contents

I. Overview

A. What Requirements Are Being Set?

1. Heavy-Duty Emission Standards

2. Fuel Quality Standards

B. Why is EPA Taking This Action?

1. Heavy-Duty Vehicles Contribute to Serious Air Pollution Problems

2. Technology-Based Solutions

3. Basis for Action Under the Clean Air Act

C. Putting This Rule in Perspective

1. Diesel Popularity

2. Past Progress and New Developments

3. Tier 2 Emissions Standards

4. Mobile Source Air Toxics Rulemaking

5. Nonroad Engine Standards and Fuel

6. State Initiatives

7. Retrofit Programs

8. Actions in Other Countries

II. The Air Quality Need and Projected Benefits

A. Overview

B. Public Health and Welfare Concerns

1. Health and Welfare Concerns Raised During Public Hearings

2. Ozone and its Precursors

a. Health and Welfare Effects From Short-Term Exposures to Ozone

b. Current and Future Nonattainment Status With the 1-Hour Ozone NAAQS

c. Public Health and Welfare Concerns from Prolonged and Repeated Exposures to Ozone

3. Particulate Matter

a. Health and Welfare Effects

b. Attainment and Maintenance of the PM10 NAAQS

c. Public Health and Welfare Concerns from Exposure to Fine PM

d. Other Welfare Effects Associated with PM

e. Conclusions Regarding PM

4. Diesel Exhaust

a. Potential Cancer Effects of Diesel Exhaust

b. Noncancer Effects of Diesel Exhaust

5. Other Criteria Pollutants

6. Other Air Toxics

a. Benzene

b. 1,3-Butadiene

c. Formaldehyde

d. Acetaldehyde

e. Acrolein

f. Dioxins

7. Other Welfare and Environmental Effects

a. Acid Deposition

b. Eutrophication and Nitrification

c. Polycyclic Organic Matter Deposition

d. Visibility and Regional Haze

C. Contribution From Heavy-Duty Vehicles

1. NOX Emissions

2. PM Emissions

3. Environmental Justice

D. Anticipated Emissions Benefits

1. NOX Reductions

2. PM Reductions

3. NMHC Reductions

4. Additional Emissions Benefits

a. CO Reductions

b. SOX Reductions

c. Air Toxics Reductions

E. Clean Heavy-Duty Vehicles and Low-Sulfur Diesel Fuel are Critically Important for Improving Human Health and Welfare

III. Heavy-Duty Engine and Vehicle Standards

A. Why Are We Setting New Heavy-Duty Standards?

B. Emission Control Technologies for Heavy-Duty Vehicles and Engines

C. What Engine and Vehicle Standards are We Finalizing?

1. Heavy-Duty Engine Exhaust Emissions Standards

a. FTP Standards

b. Supplemental Provisions for HD Diesel Engines (SET & NTE)

c. Crankcase Emissions Control

d. On-Board Diagnostics (OBD)

2. Heavy-Duty Vehicle Exhaust Emissions Standards

a. FTP Standards

b. Supplemental Federal Test Procedure

c. On-Board Diagnostics (OBD)

3. Heavy-Duty Evaporative Emission Standards

D. Incentives for Early Introduction of Clean Engines and Vehicles

E. Feasibility of the New Engine and Vehicle Standards

1. Feasibility of Stringent Standards for Heavy-Duty Diesel

a. Meeting the PM Standard

b. Meeting the NOX Standard

c. Meeting the NMHC Standard

d. Meeting the Crankcase Emissions Requirements

e. The Complete System

2. Feasibility of Stringent Standards for Heavy-Duty Gasoline

3. Feasibility of the New Evaporative Emission Standards

F. Need for Low Sulfur Diesel Fuel

1. Catalyzed Diesel Particulate Filters and the Need for Low Sulfur Fuel

a. Inhibition of Trap Regeneration Due to Sulfur

b. Loss of PM Control Effectiveness

c. Increased Maintenance Cost for Diesel Particulate Filters Due to Sulfur

2. Diesel NOX Catalysts and the Need for Low Sulfur Fuel

a. Sulfur Poisoning (Sulfate Storage) on NOX Adsorbers

b. Sulfate Particulate Production and Sulfur Impacts on Effectiveness of NOX Control Technologies

3. What About Sulfur in Engine Lubricating Oils?

G. Fuel Economy Impact of High Efficiency Control Technologies

1. Diesel Particulate Filters and Fuel Economy

2. NOX Control Technologies and Fuel Economy

3. Emission Control Systems for 2007 and Net Fuel Economy Impacts

H. Review of the Status of Heavy-Duty Diesel NOX Emission Control Technology

IV. Our Program for Controlling Highway Diesel Sulfur

A. Highway Diesel Sulfur Standards for Refiners and Importers

1. Standards and Deadlines that Refiners and Importers Must Meet

2. Temporary Compliance Option for Refiners and Importers

a. Generating Credits

b. Using Credits

c. How Long Will Credits Last?

d. Additional Limitations on Credit Trading for Some States

3. What Information Must Refiners/Importers Submit to Us?

4. Impacts of the Highway Diesel Fuel Program

a. Ensures Adequate Supplies of Highway Diesel Fuel

b. Ensures Widespread Availability of Low Sulfur Diesel Fuel

c. Provides Lower Costs to Refineries

d. Misfueling Concerns Should Be Minimized Start Printed Page 5004

e. Summary

B. What Provisions Apply in the Geographic Phase-in Area?

1. What Is the Geographic Phase-in Area and How Was it Established?

2. Highway Diesel Provisions for GPA Refiners

3. How Do Refiners Apply for an Extension of the GPA Gasoline Program?

4. Required Reporting for GPA Refiners

C. Hardship Provisions for Qualifying Refiners

1. Hardship Provisions for Qualifying Small Refiners

a. Qualifying Small Refiners

b. How Do We Define Small Refiners?

c. What Options Are Available for Small Refiners?

d. How Do Small Refiners Apply for Small Refiner Status?

2. Farmer Cooperative Refiners Will Benefit From the Flexible Provisions Available to Other Refiners

3. General Hardship Provisions

a. Temporary Waivers from Low Sulfur Diesel Requirements in Extreme Unforseen Circumstances

b. Temporary Waivers Based on Extreme Hardship Circumstances

D. Technological Feasibility of the Low Sulfur Diesel Fuel Program

1. What Technology Will Refiners Use?

2. Have These Technologies Been Commercially Demonstrated?

3. Feasibility of Distributing Low Sulfur Highway Diesel Fuel

E. What Are the Potential Impacts of the Low Sulfur Diesel Program on Lubricity and Other Fuel Properties?

1. What Is Lubricity and Why Might It Be a Concern?

2. Today's Action on Lubricity: a Voluntary Approach

3. What Are Today's Actions on Fuel Properties Other than Sulfur?

F. How Are State Programs Affected by the Low Sulfur Diesel Program?

1. State Preemption

2. What Provisions Apply in Alaska?

a. Today's Action Regarding the 500 ppm Standard in Alaska

b. Why Are We Treating Alaska Uniquely?

3. What Provisions Apply in American Samoa, Guam, and the Commonwealth of Northern Mariana Islands?

a. Today's Action Regarding the Highway Diesel Fuel Standard in the Territories

b. Why Are We Treating These Territories Uniquely?

G. Refinery Air Permitting

V. Economic Impact

A. Cost for Diesel Vehicles to Meet Emissions Standards

1. Summary of New System and Operating Costs

2. New System Costs for NOX and PM Emission Control

3. Operating Costs Associated With NOX and PM Control

B. Cost for Gasoline Vehicles to Meet the New Emissions Standards

1. Summary of New System Costs

2. Operating Costs Associated With Meeting the Heavy-Duty Gasoline Standard

C. Cost of Fuel Change

1. Refinery Costs

2. Highway Diesel Fuel Supply

3. Cost of Lubricity Additives

4. Distribution Costs

a. Distribution Costs Under the Fully Implemented Program

b. Distribution Costs During the Initial Years

5. Benefits of Low-sulfur Diesel Fuel for the Existing Diesel Fleet

D. Aggregate Costs

E. Cost Effectiveness

1. What Is the Cost Effectiveness of This Program?

2. Comparison With Other Means of Reducing Emissions

F. Does the Value of the Benefits Outweigh the Cost of the Standards?

1. What Was Our Overall Approach to the Benefit-Cost Analysis?

2. What Are the Significant Limitations of the Benefit-Cost Analysis?

3. How Has the Benefit-Cost Analysis Changed from Proposal?

4. What Are the Benefits in the Years Leading up to 2030?

5. What Were the Results of the Benefit-Cost Analysis?

VI. Requirements for Engine and Vehicle Manufacturers

A. Compliance with Standards and Enforcement

1. Allowable Maintenance

2. Emission Data Waivers

3. Crankcase Emissions

4. Non-Conformance Penalties

5. Idle CO Standards

B. Compliance With Phase-in Schedules

C. Averaging, Banking, and Trading

D. FTP Changes to Accommodate Regeneration of Exhaust Emission Controls

E. Improvements to the Test Procedures

F. Certification Fuel

G. Misfueling Concerns for Light-and Heavy-duty Diesel Vehicles

H. In-Use Compliance Levels During the Transition Years to New Technologies

VII. Highway Diesel Fuel Program: Compliance, Enforcement and Downstream Provisions

A. General Provisions

1. Definition of Diesel Fuel Covered by This Program

2. Relationship to Highway Diesel Standards

B. What Are the Requirements for Refiners and Importers?

1. General Requirements

2. Refiner and Importer Temporary Compliance Option Provisions and the Credit Trading Program

a. Early Credits Program

b. Credit Use in a Credit Deficit Situation

c. Resolving Issues of Invalid Credits

d. Compliance Provisions

e. Additional Provisions for Importers of Diesel Fuel and for Foreign Refiners Subject to the Temporary Compliance Option and Hardship Provisions

3. Refiner Hardship Provisions

a. General Refiner Hardship Provisions

b. Small Refiner Hardship Provisions

c. Relief for Refiners Supplying Gasoline to the Tier 2 Geographic Phase-In Area (GPA)

C. What Requirements Apply Downstream of the Refinery or Import Facility?

1. Downstream Enforcement of the Standards

2. Other Provisions

a. Implementation Dates

b. Product Segregation and Contamination

c. Diesel Fuel Pump Labeling

3. Use of Used Motor Oil in New Diesel Vehicles

4. Use of Kerosene in Diesel Fuel

5. Use of Diesel Fuel Additives

D. What Are the Testing and Sampling Methods and Requirements?

1. Diesel Fuel Testing Requirements and Test Methods

2. Diesel Fuel Sampling Methods

E. What Are the Recordkeeping, Reporting and Product Transfer Document Requirements?

1. Registration of Refiners and Importers

a. All Refiners and Importers

b. Prospective Small Refiners

c. Refiners Seeking an Extension of the GPA Gasoline Sulfur Standards

2. Pre-Compliance Reports

a. All Refiners

b. Small Refiners

c. GPA Refiners

3. Annual Compliance Reports

a. All Refiners

b. Small Refiners

4. Initial Confirmation of 15 ppm Fuel Production

5. Product Transfer Documents (PTDs)

a. Diesel Fuel

b. Additives

6. Recordkeeping Requirements

7. Record Retention

F. Are There Any Exemptions From the Highway Diesel Fuel Requirements?

1. Research and Development

2. Racing Vehicles

3. Military Fuel

G. Liability and Penalty Provisions for Noncompliance

1. General

2. What Is the Liability That Additive Manufacturers and Distributors, and Parties That Blend Additives into Diesel Fuel, Are Subject To?

a. General

b. Liability When the Additive Is Designated as Complying with the 15 ppm Sulfur Standard

c. Liability When the Additive Is Designated as Having a Possible Sulfur Content Greater than 15 ppm

H. How Will Compliance With the Sulfur Standards Be Determined?

VIII.Standards and Fuel for Nonroad Diesel Engines

IX. Public Participation

X. Administrative Requirements

A. Administrative Designation and Regulatory Analysis

B. Regulatory Flexibility Analysis

1. Need for and Objectives of the Rule

2. Summary of Significant Public Comments on the IRFA

3. Types and Number of Small Entities

4. Reporting, Recordkeeping and Other Compliance Requirements

5. Regulatory Alternatives To Minimize Impact on Small Entities

C. Paperwork Reduction Act Start Printed Page 5005

D. Intergovernmental Relations

1. Unfunded Mandates Reform Act

2. Executive Order 13084: Consultation and Coordination with Indian Tribal Governments

E. National Technology Transfer and Advancement Act

F. Executive Order 13045: Children's Health Protection

G. Executive Order 13132: Federalism

H. Congressional Review Act

XI. Statutory Provisions and Legal Authority

I. Overview

This rule covers the second of two phases in a comprehensive nationwide program for controlling emissions from heavy-duty engines (HDEs) and vehicles. It builds upon the phase 1 program we recently finalized (65 FR 59896, October 6, 2000). That action affirmed the 50 percent reduction in emissions of oxides of nitrogen ( NOX) from 2004 model year highway diesel engines, set in 1997 (62 FR 54693, October 21, 1997), and set new emission standards for heavy-duty gasoline-fueled engines and vehicles for 2005.

This second phase of the program looks beyond 2004, based on the use of high-efficiency exhaust emission control devices and the consideration of the vehicle and its fuel as a single system. In developing this rule, we took into consideration comments received in response to the advance notice of proposed rulemaking (64 FR 26142, May 13, 1999) and the notice of proposed rulemaking (NPRM) (65 FR 35430, June 2, 2000), including comments provided at five public hearings last June.

This program will result in particulate matter (PM) and NOX emission levels that are 90 percent and 95 percent below the standard levels in effect today, respectively. In order to meet these more stringent standards for diesel engines, the rule mandates a 97 percent reduction in the sulfur content of diesel fuel. The heavy-duty engine standards will be effective starting in the 2007 model year and the low sulfur diesel fuel needed to facilitate the standards will be widely available in September 2006. As a result, diesel vehicles will achieve gasoline-like exhaust emission levels, in addition to their inherent advantages over gasoline vehicles with respect to fuel economy, lower greenhouse gas emissions, and lower evaporative hydrocarbon emissions. The rule also includes more stringent standards for heavy-duty gasoline vehicles. In addition to its impact on heavy-duty vehicle emissions, this rule will make clean diesel fuel available in time for implementation of the light-duty Tier 2 standards.

The standards will result in substantial benefits to public health and welfare and the environment through significant reductions in emissions of NOX, PM, nonmethane hydrocarbons (NMHC), carbon monoxide (CO), sulfur oxides (SOX), and air toxics. We project that by 2030, this phase 2 program will reduce annual emissions of NOX, NMHC, and PM by 2.6 million, 115,000 and 109,000 tons, respectively. These emission reductions will prevent 8,300 premature deaths, over 9,500 hospitalizations, and 1.5 million work days lost. All told the benefits of this rule equal $70.3 billion. A sizeable part of the benefits in the early years of this program come from large reductions in the amount of direct and secondary PM caused by the existing fleet of heavy-duty vehicles. These reductions are due to the use of the higher quality diesel fuel in these vehicles.

A. What Requirements Are Being Set?

There are two basic parts to this program: (1) New exhaust emission standards for heavy-duty highway engines and vehicles, and (2) new quality standards for highway diesel fuel. The systems approach of combining the engine and fuel standards into a single program is critical to the success of our overall efforts to reduce emissions, because the emission standards will not be feasible without the fuel change. The feasibility of the emission standards is based on the use of high-efficiency exhaust emission control devices that would be damaged by sulfur in the fuel. This rule, by providing extremely low sulfur diesel fuel, will also enable cleaner diesel passenger vehicles and light-duty trucks. This is because the same pool of highway diesel fuel also services these light-duty diesel vehicles, and these vehicles can employ technologies similar to the high-efficiency heavy-duty exhaust emission control technologies that will be enabled by the fuel change. We believe these technologies are needed for diesel vehicles to comply with our Tier 2 emissions standards for light-duty highway vehicles (65 FR 6698, February 10, 2000).

We believe that this systems approach is a comprehensive way to enable effective new technologies for clean diesel, affecting all sizes of highway diesel engines, and may translate to future reductions from diesel engines used in nonroad applications too. The fuel change, in addition to enabling new technologies, will also produce emissions and maintenance benefits in the existing fleet of highway diesel vehicles. These benefits will include reduced sulfate PM and sulfur oxides emissions, reduced engine wear and less frequent oil changes, and longer-lasting exhaust gas recirculation (EGR) components on engines equipped with EGR. Heavy-duty gasoline vehicles will also be expected to have much lower emissions due to the transfer of recent technology developments for light-duty applications, and the recent action taken to reduce sulfur in gasoline as part of the Tier 2 rule.

The basic elements of the rule are outlined below. Detailed provisions and justifications for our rule are discussed in subsequent sections.

1. Heavy-Duty Emission Standards

We are finalizing a PM emissions standard for new heavy-duty engines of 0.01 grams per brake-horsepower-hour (g/bhp-hr), to take full effect for diesels in the 2007 model year.[1] We are also finalizing standards for NOX and NMHC of 0.20 g/bhp-hr and 0.14 g/bhp-hr, respectively. These NOX and NMHC standards will be phased in together between 2007 and 2010, for diesel engines. The phase-in will be on a percent-of-sales basis: 50 percent from 2007 to 2009 and 100 percent in 2010. This phase-in schedule differs somewhat from the proposed schedule for reasons explained in Section III. Gasoline engines will be subject to these standards based on a phase-in requiring 50 percent compliance in the 2008 model year and 100 percent compliance in the 2009 model year. This phase-in schedule also differs from that proposed for reasons explained in Section III. In addition, we are finalizing our proposal to include turbocharged diesels in the existing crankcase emissions prohibition, effective in 2007.

Standards for complete HDVs will be implemented on the same schedule as for gasoline engine standards. For certification of complete vehicles between 8500 and 10,000 pounds gross vehicle weight rating (GVWR), the standards are 0.2 grams per mile (g/mi) for NOX, 0.02 g/mi for PM, 0.195 g/mi for NMHC, and 0.032 g/mi for formaldehyde.[2] For vehicles between Start Printed Page 500610,000 and 14,000 pounds, the standards are 0.4 g/mi for NOX, 0.02 g/mi for PM, 0.230 g/mi for NMHC, and 0.040 g/mi for formaldehyde. These standards levels are roughly comparable to the engine-based standards in these size ranges. Note that these standards will not apply to vehicles above 8500 pounds that we classify as medium-duty passenger vehicles as part of our Tier 2 program.

Finally, we are adopting new evaporative emissions standards for heavy-duty engines and vehicles, effective on the same schedule as the gasoline engine and vehicle exhaust emission standards. The new standards for 8500 to 14,000 pound vehicles are 1.4 and 1.75 grams per test for the 3-day diurnal and supplemental 2-day diurnal tests, respectively. Standards levels of 1.9 and 2.3 grams per test will apply for vehicles over 14,000 pounds. These standards represent more than a 50 percent reduction in the numerical standards as they exist today.

The program includes flexibility provisions to facilitate the transition to the new standards and to encourage the early introduction of clean technologies, and adjustments to various testing and compliance requirements to address differences between the new technologies and existing engine-based technologies. These provisions are described in Sections III and VI.

2. Fuel Quality Standards

This rule specifies that, beginning June 1, 2006, refiners must begin producing highway diesel fuel that meets a maximum sulfur standard of 15 parts per million (ppm). All 2007 and later model year diesel-fueled vehicles must be refueled with this new low sulfur diesel fuel. This sulfur standard is based on our assessment of the impact of sulfur on advanced exhaust emission control technologies, and a corresponding assessment of the feasibility of low sulfur fuel production and distribution.

Today's program includes a combination of flexibilities available to refiners to ensure a smooth transition to low sulfur highway diesel fuel. First, refiners can take advantage of a temporary compliance option, including an averaging, banking and trading component, beginning in June 2006 and lasting through 2009, with credit given for early compliance before June 2006. Under this temporary compliance option, up to 20 percent of highway diesel fuel may continue to be produced at the existing 500 ppm sulfur maximum standard. Highway diesel fuel marketed as complying with the 500 ppm sulfur standard must be segregated from 15 ppm fuel in the distribution system, and may only be used in pre-2007 model year heavy-duty vehicles. Second, we are providing additional hardship provisions for small refiners to minimize their economic burden in complying with the 15 ppm sulfur standard. Third, we are providing additional flexibility to refiners subject to the Geographic Phase-in Area (GPA) provisions of the Tier 2 gasoline sulfur program, which will allow them the option of staggering their gasoline and diesel investments. Finally, we are adopting a general hardship provision for which any refiner may apply on a case-by-case basis under certain conditions. These hardship provisions, coupled with the temporary compliance option, will provide a “safety valve” allowing up to 25 percent of highway diesel fuel produced to remain at 500 ppm for these transitional years to minimize any potential for highway diesel fuel supply problems.

In addition, today's program includes unique provisions for implementing the low sulfur diesel fuel program in the State of Alaska, given that it is exempt from the current 500 ppm standard. Certain U.S. territories are excluded from both the new engine standards and highway diesel fuel standards.

The compliance provisions for ensuring diesel fuel quality are essentially consistent with those that have been in effect since 1993 under the existing 500 ppm sulfur standard (55 FR 34120, August 21, 1990). Additional compliance provisions have been established primarily during the transition years of the program to verify refiners' compliance with the temporary compliance option to ensure the two grades of highway diesel fuel remain segregated, and to discourage misfueling of model year 2007 and later diesel vehicles.

B. Why is EPA Taking This Action?

1. Heavy-Duty Vehicles Contribute to Serious Air Pollution Problems

As discussed in detail in Section II, emissions from heavy-duty vehicles contribute greatly to a number of serious air pollution problems, and would have continued to do so into the future absent further controls to reduce these emissions. First, heavy-duty vehicles contribute to the health and welfare effects of ozone, PM, NOX, SOX, and volatile organic compounds (VOCs), including toxic compounds such as formaldehyde. These adverse effects include premature mortality, aggravation of respiratory and cardiovascular disease (as indicated by increased hospital admissions and emergency room visits, school absences, work loss days, and restricted activity days), changes in lung function and increased respiratory symptoms, changes to lung tissues and structures, altered respiratory defense mechanisms, chronic bronchitis, and decreased lung function. Ozone also causes crop and forestry losses, and PM causes damage to materials and soiling of commonly used building materials and culturally important items such as statues and works of art. Second, NOX, SOX and PM contribute to substantial visibility impairment in many parts of the U.S. Third, NOX emissions from heavy-duty trucks contribute to the acidification, nitrification and eutrophication of water bodies. Fourth, the Agency has concluded, and the Clean Air Scientific Advisory Committee has approved in public session, that diesel exhaust is likely to be carcinogenic to humans.

Millions of Americans live in areas with unhealthful air quality that currently endangers public health and welfare. Without emission reductions from the standards for heavy-duty vehicles, there is a significant risk that an appreciable number of 45 areas with 128 million people across the country will violate the 1-hour ozone national ambient air quality standard (NAAQS) during the period when these standards will take effect. Furthermore, our analysis shows that PM10 concentrations in 10 areas with a population of 28 million people face a significant risk of exceeding the PM10 NAAQS without significant additional controls between 2007 and 2030. Under the mandates and authorities in the Clean Air Act, Federal, state, and local governments are working to bring ozone and particulate levels into compliance with the 1-hour ozone and PM10 NAAQS through State Implementation Plan (SIP) attainment and maintenance plans, and to ensure that future air quality reaches and continues to achieve these health-based standards. The reductions in this rulemaking will play a critical part in these important efforts to attain and maintain the NAAQS. In addition, reductions from this action will also reduce public health and welfare effects associated with ozone and fine PM at concentrations that do not constitute a violation of the 1-hour ozone and PM10 NAAQS.

Emissions from heavy-duty vehicles account for substantial portions of the country's ambient PM and NOX levels. ( NOX is a key precursor to ozone formation). By 2007, we estimate that heavy-duty vehicles will account for 28 percent of mobile source NOX emissions and 20 percent of mobile source PM emissions. These proportions are even Start Printed Page 5007higher in some urban areas, such as in Sacramento, Atlanta, and Washington, DC, where HDVs contribute over 34 percent of the mobile source NOX emissions, and in Santa Fe, Los Angeles, and Hartford, where heavy-duty vehicle PM emissions account for 38, 25 and 30 percent of the mobile source PM emissions inventory, respectively. Over time, the relative contribution of diesel engines to air quality problems will go even higher if diesel-equipped light-duty vehicles become more popular, as is expected by some automobile manufacturers. The PM and NOX standards for heavy-duty vehicles in this rule will have a substantial impact on emissions. By 2030, NOX emissions from heavy-duty vehicles under today's standards will be reduced by 2.6 million tons, and PM emissions will decline by about 109,000 tons, dramatically reducing this source of NOX and PM emissions. Urban areas, which include many poorer neighborhoods, can be disproportionately impacted by HDV emissions, and these neighborhoods will thus receive a relatively larger portion of the benefits expected from new HDV emissions controls.

In addition to its contribution to PM inventories, diesel exhaust PM is of special concern because it has been implicated in an increased risk of lung cancer and respiratory disease. The EPA draft Health Assessment Document for Diesel Exhaust (Draft Assessment) was reviewed in public session by the Clean Air Scientific Advisory Committee (CASAC) on October 12-13, 2000.[3] The Agency has concluded, and the CASAC approved at this session, that diesel exhaust is likely to be carcinogenic to humans. State and local governments, in their efforts to protect the health of their citizens and comply with requirements of the Clean Air Act (CAA or “the Act”), have recognized the need to achieve major reductions in diesel PM emissions, and have been seeking Agency action in setting stringent new standards to bring this about.[4]

2. Technology-Based Solutions

Although the air quality problems caused by diesel exhaust are challenging, we believe they can be resolved through the application of high-efficiency emissions control technologies. As discussed in detail in Section III, the development of diesel emissions control technology has advanced in recent years so that very large emission reductions (in excess of 90 percent) are possible, especially through the use of catalytic emission control devices installed in the vehicle's exhaust system and integrated with the engine controls. These devices are often referred to as “exhaust emission control” or “aftertreatment” devices. Exhaust emission control devices, in the form of the well-known catalytic converter, have been used in gasoline-fueled automobiles for 25 years, but have had only limited application in diesel vehicles.

Based on the Clean Air Act requirements discussed in Section I.B.3, we are setting stringent new emission standards that will result in the use of these diesel exhaust emission control devices (see Section III). We are also finalizing changes to diesel fuel quality standards in order to enable these high-efficiency technologies (Section IV). Heavy-duty gasoline engines will also be able to reach the significantly lower emission levels envisioned in this rule by relying on the transfer of recent technology developments for light-duty applications, given the recent action taken to reduce sulfur in gasoline (65 FR 6698, February 10, 2000).

To meet the new standards, application of high-efficiency exhaust emission controls for both PM and NOX will be needed. High-efficiency PM exhaust emission control technology has been available for several years, although engine manufacturers have generally not needed this technology in order to meet our PM emission standards. This technology has continued to improve over the years, especially with respect to durability and robust operation in use. It has also proven extremely effective in reducing exhaust hydrocarbon emissions. Thousands of such systems are now in use in fleet programs, especially in Europe. However, as discussed in detail in Section III, these systems are very sensitive to sulfur in the fuel. For the technology to be viable and capable of meeting the standards, we believe that it will require diesel fuel with sulfur content capped at the 15 ppm level.

Similarly, high-efficiency NOX exhaust emission control technology will be needed if heavy-duty vehicles are to attain the new standards. We believe this technology, like the PM technology, is dependent on the 15 ppm maximum diesel fuel sulfur levels being adopted in this rule to be feasible and capable of achieving the standards. Similar high-efficiency NOX exhaust emission control technology has been quite successful in gasoline direct injection engines that operate with an exhaust composition fairly similar to diesel exhaust. However, as discussed in Section III, application of this technology to diesels has some additional engineering challenges. In that section we discuss the current status of this technology. We also discuss the major development issues still to be addressed and the development steps that can be taken to address these issues. With the lead time available and the certainty of low-sulfur diesel fuel established by today's action, the evidence leaves us confident that the application of this technology to diesels will proceed at a reasonable rate of progress and will result in systems capable of achieving the standards.

The need to reduce the sulfur in diesel fuel is driven by the requirements of the exhaust emission control technology that we project will be needed to meet the standards. The challenge in accomplishing the sulfur reduction is driven by the feasibility of needed refinery modifications, and by the costs of making the modifications and running the equipment. Today, a number of refiners are acting to provide low sulfur diesel to some markets. In consideration of the impacts that sulfur has on the efficiency, reliability, and fuel economy impact of diesel engine exhaust emission control devices, we believe that controlling the sulfur content of highway diesel fuel to the 15 ppm level is necessary and feasible, and, in the context of this rule's overall program, cost effective.

3. Basis For Action Under the Clean Air Act

Section 202(a)(1) of the Act directs us to establish standards regulating the emission of any air pollutant from any class or classes of new motor vehicles or engines that, in the Administrator's judgment, cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare. Section 202(a)(3) requires that EPA set standards for heavy-duty trucks that reflect the greatest degree of emission reduction achievable through the application of technology which we determine will be available for the model year to which the standards apply. We are to give appropriate consideration to cost, energy, and safety factors associated with the application of such technology. We may revise such technology-based standards, taking costs into account, on the basis of information concerning the effects of air pollution from heavy-duty vehicles or engines and other sources of mobile source related Start Printed Page 5008pollutants on the public health and welfare. Section 202(a)(3)(C) requires that promulgated standards apply for no less than three years and go into effect no less than 4 years after promulgation. This rule conforms with these statutory requirements.

We believe the evidence provided in Section III and the Regulatory Impact Analysis (RIA) indicates that the stringent emission standards finalized today are feasible and reflect the greatest degree of emission reduction achievable in the model years to which they apply. We have given appropriate consideration to costs in choosing these standards. Our review of the costs and cost-effectiveness of these standards indicate that they will be reasonable and comparable to the cost-effectiveness of other emission reduction strategies that have been required or could be required in the future. We have also reviewed and given appropriate consideration to the energy factors of this rule in terms of fuel efficiency and effects on diesel fuel supply, production, and distribution, as discussed below, as well as any safety factors associated with these standards.

The information regarding air quality and the contribution of heavy-duty engines to air pollution in Section II and the RIA provides strong evidence that emissions from such engines significantly and adversely impact public health or welfare. First, there is a significant risk that several areas will fail to attain or maintain compliance with the NAAQS for 1-hour ozone concentrations or PM10 concentrations during the period that these new vehicle and engine standards will be phased into the vehicle population, and that heavy-duty engines contribute to such concentrations, as well as to concentrations of other NAAQS-related pollutants. This risk will be significantly reduced by the standards adopted today; however, the evidence indicates that some risk remains even after the reductions achieved by these new controls on heavy-duty vehicles and diesel fuel. Second, EPA believes that diesel exhaust is likely to be carcinogenic to humans. The risk associated with exposure to diesel exhaust includes the particulate and gaseous components. Some of the toxic air pollutants associated with emissions from heavy-duty vehicles and engines include benzene, formaldehyde, acetaldehyde, dioxin, acrolein, and 1,3-butadiene. Third, emissions from heavy-duty engines contribute to regional haze and impaired visibility across the nation, as well as acid deposition, POM deposition, eutrophication and nitrification, all of which are serious environmental welfare problems.

Based on this evidence, EPA believes that, for purposes of section 202(a)(1), emissions of NOX, VOCs, SOx and PM from heavy-duty trucks can reasonably be anticipated to endanger the public health or welfare. In addition, this evidence indicates that it will not be appropriate to modify the technology-based standards pursuant to section 202(a)(3)(B). EPA believes that it is required under section 202(a)(3)(A) to set technology-based standards that meet the criteria of that provision, and is not required to make an affirmative determination under section 202(a)(1). Instead EPA is authorized to take air quality into consideration under section 202(a)(3)(B) in deciding whether to modify or not set standard under section 202(a)(3)(A). In this case, however, EPA believes the evidence fully supports a determination under section 202(a)(1) to set standards, and a determination not to modify such standards under section 202(a)(3)(B).

In addition, there is significant evidence that emissions from heavy-duty trucks contribute to levels of ozone such that large segments of the national population are expected to experience prolonged exposure over several hours at levels that present serious concern for the public health and welfare. The same is true for exposure to fine PM. These public health and welfare problems are expected to occur in many parts of the country, including areas that are in compliance with the 1-hour ozone and PM10 NAAQS (PM10 is particulate matter that is 10 microns or smaller). This evidence is an additional reason why the controls finalized today are justified and appropriate under the Act. While EPA sees this as additional support for this action, EPA also believes that the evidence of air pollution problems summarized above and described in greater detail elsewhere is an adequate justification for this rule independent of concern over prolonged exposure to ozone and fine PM levels.

Section 211(c) of the CAA allows us to regulate fuels where emission products of the fuel either: (1) Cause or contribute to air pollution that reasonably may be anticipated to endanger public health or welfare, or (2) will impair to a significant degree the performance of any emission control device or system which is in general use, or which the Administrator finds has been developed to a point where in a reasonable time it will be in general use were such a regulation to be promulgated. This rule meets each of these criteria. The discussion of the first test is substantially the same as the above discussion for the heavy-duty engine standards, because SOx and sulfate PM emissions from heavy-duty diesel vehicles are due to sulfur in diesel fuel. The substantial adverse effect of high diesel sulfur levels on diesel control devices or systems expected to be used to meet the heavy-duty standards is discussed in depth in Section III.F and in the RIA. In addition, our authority under section 211(c) is discussed in more detail in Appendix A to the RIA.

C. Putting This Rule In Perspective

There are several helpful perspectives to establish in understanding the context for this rule: the growing popularity of diesel engines, past progress and new developments in diesel emissions control, Tier 2 light-duty emission standards and other related EPA initiatives (besides the above-discussed rulemaking for highway heavy-duty engine emission standards in 2004), and recent actions and plans to control diesel emissions by the States and in other countries.

1. Diesel Popularity

The diesel engine is increasingly becoming a vital workhorse in the United States, moving much of the nation's freight, and carrying out much of its farm, construction, and other labor. Diesel engine sales have grown significantly over the last decade, so that now about a million new diesel engines are put to work in the U.S. every year. Unfortunately, these diesel engines emit large quantities of harmful pollutants annually.

Furthermore, although diesel emissions in this country come mostly from heavy-duty trucks and nonroad equipment, an additional source may grow out of auto manufacturers' plans to greatly increase the sales of diesel-powered light-duty vehicles (LDVs) and especially of light-duty trucks (LDTs), a category that includes the fast-selling sport-utility vehicles, minivans, and pickup trucks. These plans reflect the continuation of an ongoing dieselization trend, a trend recently most evident in the growing popularity of diesel-powered light heavy-duty trucks (8500 to 19,500 pounds). Diesel market penetration is working its way from larger to smaller highway applications and to a broader array of nonroad equipment applications. Finally, especially in Europe where diesels have already gained a broad consumer acceptance, the diesel engine is increasingly viewed as an attractive technology option for reducing emissions of gases that contribute to Start Printed Page 5009global warming, because it has greater operating efficiency than a gasoline engine.

2. Past Progress and New Developments

Since the 1970's, highway diesel engine designers have employed numerous strategies to meet our emissions standards, beginning with smoke controls, and focusing in the 1990's on increasingly stringent NOX, hydrocarbon, and PM standards. These strategies have generally focused on reducing engine-out emissions and not on exhaust emission controls, although relatively low-efficiency oxidation catalysts have been applied in some designs to reduce PM, with the recognition that their effectiveness is limited by sulfur in the fuel. On the fuel side, we set quality standards that provided emissions benefits by limiting the amount of sulfur and aromatics in highway diesel fuel beginning in 1993 (55 FR 34120, August 21, 1990). Our most recent round of standard setting for heavy-duty highway diesels occurred in 1997 (62 FR 54693, October 21, 1997), effective with the 2004 model year. These standards were recently reviewed in a final rulemaking (65 FR 59896, October 6, 2000). These actions will result in engines that emit only a fraction of the NOX, hydrocarbons, and PM produced by engines manufactured just a decade ago. We consider this an important first phase of our current initiative to reconcile the diesel engine with the environment.

Nevertheless, certain characteristics inherent in the way diesel fuel combustion occurs have prevented achievement of emission levels comparable to those of today's gasoline-fueled vehicles. Although diesel engines provide advantages in terms of fuel economy, durability, and evaporative emissions, and have inherently low exhaust emissions of hydrocarbons and carbon monoxide, controlling NOX emissions is a greater challenge for diesel engines than for gasoline engines, primarily because of the ineffectiveness of three-way catalysis in the oxygen-rich and relatively cool diesel exhaust environment. Similarly, PM emissions, which are inherently low for properly operating gasoline engines, are more difficult to control in diesel engines, because the diesel combustion process tends to form soot particles. The challenge is somewhat complicated by the fact that historical diesel NOX control approaches tend to increase PM, and vice versa, but both are harmful pollutants that need to be controlled.

Considering the air quality impacts of diesel engines and the potential for growth of diesels in the lighter-duty portion of the market, it is imperative that progress in diesel emissions control continue. Significant progress has already been made in the design of exhaust emission control devices for diesel applications, driven in part by the challenge presented by the stringent Tier 2 standards for light-duty vehicles. As discussed in detail in Section III, new exhaust emission control technologies for NOX, PM, and hydrocarbon reduction will allow a major advancement in diesel emissions control of a magnitude comparable to that ushered in by the automotive catalytic converter in the 1970's. However, changes in diesel fuel quality will be needed to enable these high-efficiency exhaust emission control devices.

3. Tier 2 Emissions Standards

Auto manufacturers' design plans for new light-duty diesel vehicle models will be greatly affected by our recent adoption of stringent new emission standards for light-duty highway vehicles (referred to as “Tier 2” standards) that will phase in between 2004 and 2009. These Tier 2 standards will require significant improvements in electronic engine controls and catalysts on gasoline vehicles. We anticipate that these advances will be transferred over to heavy-duty gasoline vehicles in meeting the standards finalized in this rule. The Tier 2 NOX and PM standards, that apply equally to gasoline and diesel vehicles, will also require the use of high-efficiency emission control technologies on light-duty diesel vehicles. The low sulfur highway diesel fuel brought about by this rule will make it possible for designers to employ these high-efficiency exhaust emission control technologies in these light-duty applications. The timing of the fuel change provides for the use of these devices in time to satisfy Tier 2 phase-in requirements.

The Tier 2 program phases in interim and final standards over a number of years, providing manufacturers the option of delaying some of their production of final Tier 2 designs until later in the phase-in. For vehicles up to 6000 lbs GVWR (LDVs) and light light-duty trucks (LLDTs)), the interim standards begin in 2004 and phase out by 2007, as they are replaced by the final Tier 2 standards. For vehicles between 6000 and 8500 lbs ( heavy light-duty trucks (HLDTs)), the interim standards begin in 2004 and phase out by 2009 as they are replaced by the final Tier 2 standards. A new category of vehicles between 8,500 and 10,000 lbs, medium-duty passenger vehicles (MDPVs), will follow the same phase-in schedule as HLDTs.

Our assessment in the Tier 2 final rule is that the interim standards are feasible for diesel vehicles without a need for fuel quality changes. Manufacturers can take advantage of the flexibilities provided in the Tier 2 program to delay the need for light-duty diesels to meet the final Tier 2 levels until late in the phase-in period (as late as 2007 for LDVs and LLDTs, and 2009 for HLDTs and MDPVs). However, low sulfur fuel is expected to be needed for diesel vehicles designed to meet the final NOX and PM standards, because these vehicles are likely to employ light-duty versions of the sulfur-sensitive exhaust emission control technologies discussed in Section III. The gasoline quality changes and light-duty gasoline engine developments that will result from the Tier 2 rule will also help make it feasible for heavy-duty gasoline engines to meet the standards in this rule.

4. Mobile Source Air Toxics Rulemaking

Passenger cars, on-highway trucks, and nonroad equipment emit hundreds of different compounds and elements. Several of these are considered to be known, likely, or possible human carcinogens. These include diesel exhaust, plus several VOCs such as acetaldehyde, benzene, 1,3-butadiene, formaldehyde, and acrolein. Trace metals may also be present in heavy-duty diesel engine emissions, resulting from metals in fuels and lubricating oil, and from engine wear. Several of these metals have carcinogenic and mutagenic effects.

Important reductions in these and other mobile source air toxics have occurred under existing programs established under Clean Air Act Sections 202(a) (on-highway engine requirements), 211 (the fuel requirements), and 213 (nonroad engine requirements). Although these programs are primarily designed for control of criteria pollutants, especially ozone and PM10, they also achieve important reductions in diesel PM and gaseous air toxics through VOC and hydrocarbon controls.

In addition to these programs, Section 202(l)(2) of the Act directs us to consider additional controls to reduce emissions of hazardous air pollutants from motor vehicles, their fuels, or both. Those standards are to reflect the greatest degree of emission reduction achievable through the application of technology which will be available, taking into account existing standards, costs, noise, energy, and safety factors. We published a proposed rule on mobile source air toxics on August 4, Start Printed Page 50102000 (65 FR 48058). This MSAT final rule was signed on December 20, 2000. Interested parties should refer to the final rule if interested in the ultimate form of the regulation.

The mobile source air toxics (MSATs) rule consists of four parts. First, we identify a list of 21 MSATs that are known to be emitted from motor vehicles or their fuels and are considered by the Agency to pose potential adverse human health risks. Diesel exhaust is included on this MSAT list because, as discussed in Section II, human epidemiological studies have suggested that diesel exhaust is associated with increased risk of adverse respiratory effects and lung cancer. Second, the MSAT rule considers the contribution of mobile sources to the nation's air toxics inventory and evaluates the toxics benefits of existing mobile source emission control programs. The benefits of the program as proposed are included in this analysis. Third, the MSAT final rule considers whether additional controls are appropriate at this time, given technological feasibility, cost, and the other criteria specified in the Act. The final rule includes a toxics performance standard applicable to reformulated gasoline and anti-dumping standards that apply to conventional gasoline. With regard to additional vehicle-based controls, we proposed that it is not appropriate at this time to set more stringent standards than the technology forcing standards found in this rule and our recently adopted Tier 2 rulemaking. Finally, because of our concern about the potential future health impacts of exposure to the public of air toxics from the remaining emissions from mobile sources in the future, we continue our toxics-related research activities and to conduct a future rulemaking to evaluate whether, based on the additional data, additional mobile source air toxics controls should be adopted. This rulemaking would be completed no later than 2004.

EPA also intends to rely on today's rule to satisfy in part its obligations under section 202(l) of the Clean Air Act. In the mobile source air toxics NPRM, the Agency proposed a list of mobile source air toxics, including diesel exhaust, as well as a number of specific constituents of heavy-duty vehicle exhaust (gasoline and diesel).[5] The emissions standards established in today's action result in the greatest achievable reductions of diesel PM and heavy-duty vehicle NMHC. The Agency is scheduled to finalize the mobile source air toxics rulemaking on or before December 20, 2000.

5. Nonroad Engine Standards and Fuel

Although this rule covers only highway diesel engines and fuel, it is clear that potential requirements for nonroad diesel engines and fuel are related. It is expected that nonroad diesel fuel quality, currently unregulated, may need to be controlled in the future in order to reduce the large contribution of nonroad engines to NOX and PM inventories. Refiners, fuel distributors, states, environmental organizations, and others have asked that we provide as much information as possible about the future specifications for both types of fuel as early as possible.

We do plan to give further consideration to additional control of nonroad engine emissions. As discussed below in Section VIII, an effective control program for these engines requires the resolution of several major issues relating to engine emission control technologies and how they are affected by fuel sulfur content. The many issues connected with any rulemaking for nonroad engines and fuel warrant serious attention, and we believe it is premature for us to take any action on this initiative in this rule. We plan to initiate action in the future to formulate proposals that would address both nonroad diesel fuel and engines.

6. State Initiatives

The California Air Resources Board (ARB) and local air quality management districts within California are also pursuing measures to better control diesel emissions. Key among these efforts is work resulting from the Board's designation of particulate emissions from diesel-fueled engines as a toxic air contaminant (TAC) on August 27, 1998. TACs are air pollutants that may cause or contribute to an increase in death or serious illness or may pose a present or future hazard to human health. The TAC designation was based on research studies showing that emissions from diesel-fueled engines may cause cancer in animals and humans, and that workers exposed to higher levels of emissions from diesel-fueled engines are more likely to develop lung cancer.

In September 2000 the ARB approved a Diesel Risk Reduction Plan developed by its staff following an extensive public process.[6] This plan includes several California measures related to highway diesel vehicles, including the major elements of the program we are establishing on a nationwide basis in this final rule. Because truck travel from other states has a large effect on California's air quality, the plan and the Board's resolution further encourages the EPA adopt this nationwide program, as well as other diesel-related emissions reduction programs.

The ARB has also adopted stringent new emission requirements for urban transit buses and is considering similar requirements for school buses.[7] This program is aimed at encouraging the use of clean alternative fuels and high-efficiency diesel emission control technologies. Their program includes requirements for zero-emissions buses, fleet average NOX levels, and retrofits for PM control, as well as model year 2007 NOX and PM standards levels of 0.2 and 0.01 g/bhp-hr, respectively (equal to the levels finalized in this rule). It also requires that all diesel fuel used by transit agencies after July 1, 2002 must meet a cap of 15 ppm sulfur. This is a much earlier schedule than that finalized in this rule, to support the ARB's proposed transit bus fleet program.

Other states, most notably Texas, have taken steps toward adopting programs for cleaner diesel fuel and cleaner diesel engines. On December 6, 2000, the Texas Natural Resource Conservation Commission adopted a program that, among other things, would require the capping of diesel fuel sulfur levels in many counties to 15 ppm by June 2006.[8] This proposal exemplifies the importance that states with air quality problems have attached to clean diesel fuel, and specifically to the 15 ppm maximum sulfur requirement in 2006 being set in this rule

.

7. Retrofit Programs

Many States facing air quality improvement challenges have expressed strong interest in programs that will reduce emissions from existing highway and nonroad diesel engines through the retrofitting of these engines with improved emission control devices. The urban transit bus program adopted by the California ARB includes such a retrofit requirement as one of its major components (see Section I.C.6). In March 2000 we announced our own Diesel Retrofit Initiative to support and Start Printed Page 5011encourage fleet operators, air quality planners, and retrofit manufacturers in creating effective retrofit programs. These programs are appealing because the slow turnover of the diesel fleet to the new low-emitting engines makes it difficult to achieve near-term air quality goals through new engine programs alone. Some of the exhaust emission control technologies discussed in this rule are especially appealing for use in retrofits because they can be fitted to an existing vehicle as add-on devices without major engine modifications, although some of the more sophisticated systems that require careful control of engine parameters may be more challenging.

Because of the uncertainty at this time in how and when such programs may be implemented, our analysis for today's rule does not calculate any benefits from them. Nevertheless, we believe that this program can enable the viability of these retrofit technologies. We expect that large emission benefits from the existing fleet could be realized as a result of the fuel changes we are finalizing here, combined with retrofit versions of the technologies that will be developed in response to the finalized engine standards. These benefits will be especially important in the early years of the program when new vehicles standards are just beginning to have an impact, and when States and local areas need to gain large reductions to attain air quality goals.

8. Actions In Other Countries

There is substantial activity taking place in many countries related to the regulation of diesel fuel and engines. The large light-duty vehicle market share enjoyed by diesels in many European countries has helped to stir innovation in dealing with diesel emissions problems. Advanced emissions control technologies are being evaluated there in the in-use fleet and experience gained from these trials is helping to inform the diesel emissions control discussion in the U.S. In addition, several European countries have low sulfur diesel fuel, with maximum sulfur levels varying from 10 to 50 ppm, and so experience gained from the use of these fuels, though not completely transferable to the U.S. situation, also provides valuable experience. European Union countries will limit sulfur in diesel fuel to 50 ppm by 2005, and even more aggressive plans are being discussed or implemented. The United Kingdom made a rapid conversion to 50 ppm maximum sulfur diesel fuel in 1999 by offering tax incentives. This change occurred with much smaller refinery investments than had been predicted, and some refinery production there is actually at levels well below the 50 ppm cap. Germany is moving forward with plans to introduce a 10 ppm sulfur cap for diesel fuel by 2003, also via tax incentives, and is attempting to get the 50 ppm specification that was adopted by the European Commission revised downward to the 10 ppm cap level. The Commission is reviewing the implications of moving to this level.

One European country has had extensive experience with the transition to low sulfur diesel fuel. In the early 1990's, Sweden decided to take advantage of the environmental benefits of 10 ppm sulfur/low aromatics fuel by introducing it with a reduction in the diesel fuel tax. The program has been quite successful, and in excess of 90 percent of the highway diesel fuel used there is of this 10 ppm maximum sulfur class.[9]

The government of Canada has expressed its intent to harmonize its fuel regulations with the U.S. fuels standards being adopted today.[10] This would simplify the operation of new-technology vehicles that cross the U.S-Canada border. However, the success of the U.S. program does not depend on harmonized diesel fuel standards, and Section VI.H discusses how differences between the future fuel specifications in the U.S. and those in Canada and Mexico may be accommodated.

II. The Air Quality Need and Projected Benefits

A. Overview

Heavy-duty vehicle emissions contribute to air pollution with a wide range of adverse health and welfare impacts. Emissions of VOC, CO, NOX, SOx, and PM from HD vehicles contribute a substantial percentage of the precursors or direct components of ambient concentrations of ozone, PM, sulfur and nitrogen compounds, aldehydes, and substances known or considered likely to be carcinogens. Emissions of VOCs include some specific substances known or suspected to cause cancer. Of particular concern is human epidemiological evidence linking diesel exhaust to an increased risk of lung cancer, and the Agency is also concerned about the noncancer health effects of diesel exhaust We have finalized on December 20, 2000 a rule which lists diesel particulate matter and diesel exhaust organic gases as a mobile source air toxic under section 202(l) of the Clean Air Act, and the particulate matter standard finalized today reflects the greatest degree of emissions reductions achievable under section 202(l) for on-highway heavy-duty vehicle PM emissions. Heavy-duty vehicle emissions also cause adverse environmental effects including visibility reductions, acid rain, nitrification and eutrophication of water bodies.

Emissions from heavy-duty vehicles, which are predominantly diesel-powered, account for substantial portions of the country's ambient PM and ground-level ozone levels. By 2007, we estimate that heavy-duty vehicles will account for 28 percent of mobile source NOX emissions (including highway and non-road), and 20 percent of mobile source PM emissions. These proportions are even higher in some urban areas, such as Atlanta and Los Angeles. Urban areas, which include many poorer neighborhoods, can be disproportionately impacted by HDV emissions because of heavy traffic in and out of densely populated urban areas.

The Agency developed new emissions inventories and conducted new air quality modeling for this rule to determine the risk of exposure to unhealthy ambient concentrations of ozone and particulate matter in 2007, 2020 and 2030. This analysis, supplemented with local air quality modeling and other information on emissions and air quality trends, indicates that an appreciable number of the 45 areas with a total population of 128 million people face a significant risk of violating the 1-hour ozone standard between 2007 and 2030. Ten PM10 nonattainment areas with 28 million people face a significant risk of experiencing particulate matter levels that violate the PM10 standard during the same period.

Under the mandates and authorities in the Clean Air Act, federal, state, and local governments are working to bring ozone and particulate levels into compliance with the 1-hour ozone and PM10 NAAQS through SIP attainment plans. Areas that reach attainment without reductions from this rule are likely to need additional reductions to ensure that future air quality continues to achieve ozone and PM standards, and areas that seek redesignation to attainment may use the reductions from this rule in future maintenance plans.

The heavy-duty vehicle and engine emission standards, along with the diesel fuel sulfur standard finalized today, will have a dramatic impact in Start Printed Page 5012reducing the large contribution of HDVs to air pollution. These standards will result in substantial benefits to public health and welfare through significant annual reductions in emissions of NOX, PM, NMHC, carbon monoxide, sulfur dioxide, and air toxics. For example, we project a 1.8 million ton reduction in NOX emissions from HD vehicles in 2020, which will increase to 2.6 million tons in 2030 when the current HD vehicle fleet is completely replaced with newer HD vehicles that comply with these emission standards. When coupled with the emission reductions projected to result from the Phase 1 (model year 2004) HDV standards, the emission reductions from heavy-duty vehicles are projected to be as large as the substantial reductions the Agency expects from light-duty vehicles as a result of its recently promulgated Tier 2 rulemaking.

In sum, the Agency's air quality modeling and other evidence demonstrates that ambient concentrations of ozone, particulate matter, sulfur and nitrogen compounds, VOCs, air toxics, CO and diesel exhaust are anticipated to endanger public health, welfare and the environment in the time period between 2007 and 2030. Emission reductions expected from today's action are predicted to lessen future ambient concentrations of ozone and particulate matter and associated adverse public health and welfare effects.

B. Public Health and Welfare Concerns

1. Health and Welfare Concerns Raised During Public Hearings

The Agency received a significant number of comments on this section during the public hearings and in written comments from interested parties. Comments are addressed in this section as well as in the Response to Comment document that accompanies this action.

Throughout the five public hearings held around the country on the proposed heavy-duty engine and diesel fuel rule, the Agency received strong public support at each venue for increasing the stringency of heavy-duty truck and bus emission standards, and for further controls on sulfur in diesel fuel, in order to enable the necessary exhaust emission control. In addition to the 55,000 comments received from citizens in support of the Agency proposal to clean diesel fuel by mid-2006 and reduce emissions from diesel engines in 2007, we received 8,500 comments from citizens urging the Agency to act prior to 2007.

Public officials and representatives of environmental, public health, or community-based organizations testified regularly about the link between public health ailments, such as asthma and lung cancer, and air pollution caused by diesel exhaust and particulate matter. In different ways, many noted that the impact of diesel soot is compounded by the fact that it is discharged at street level where people live and breathe. A regular complaint was the close proximity of bus depots, transfer terminals, and heavily-trafficked roadways to homes and apartment buildings, and in particular, to hospitals, playgrounds and schools. A common theme revolved around the notion that since asthma is an incurable disease, it was of utmost importance to help reduce the severity and frequency of attacks by reducing environmental triggers such as ozone, particulate matter and diesel exhaust.

Major industries represented during these public hearings were the heavy-duty vehicle engine manufacturers, the oil industry, and the commercial truckers. While each had a different perspective, most supported the underlying intent of the proposal to improve public health and welfare, and some also supported the specific requirements as proposed. For those who objected to the proposal, the main thrust of their concerns related to the stringency and public health necessity of the new standards and the diesel fuel sulfur requirement. Largely in their written comments, these industries raised questions about the need for additional reductions in order to meet existing ozone and PM national ambient air quality standards and took exception with the Agency's characterization of diesel exhaust as a human carcinogen at environmental levels of exposure. Some industry commenters also challenged the Agency's reliance on public welfare and environmental effects such as visibility impairment and eutrophication of water bodies because the Agency had insufficiently quantified the benefits that would result from new standards on heavy-duty vehicles and diesel fuel.

The following subsections present the available information on the air pollution situation that is likely to exist without this rule for each ambient pollutant. We also present information on the improvement that is expected to result from this rule.

2. Ozone and Its Precursors

a. Health and Welfare Effects From Short-Term Exposures to Ozone

NOX and VOC are precursors in the photochemical reaction which forms tropospheric ozone. A large body of evidence shows that ozone can cause harmful respiratory effects including chest pain, coughing, and shortness of breath, which affect people with compromised respiratory systems most severely. When inhaled, ozone can cause acute respiratory problems; aggravate asthma; cause significant temporary decreases in lung function of 15 to over 20 percent in some healthy adults; cause inflammation of lung tissue; produce changes in lung tissue and structure; may increase hospital admissions and emergency room visits; and impair the body's immune system defenses, making people more susceptible to respiratory illnesses. Children and outdoor workers are likely to be exposed to elevated ambient levels of ozone during exercise and, therefore, are at greater risk of experiencing adverse health effects. Beyond its human health effects, ozone has been shown to injure plants, which has the effect of reducing crop yields and reducing productivity in forest ecosystems.

There is strong and convincing evidence that exposure to ozone is associated with exacerbation of asthma-related symptoms. Increases in ozone concentrations in the air have been associated with increases in hospitalization for respiratory causes for individuals with asthma, worsening of symptoms, decrements in lung function and increased medication use. Studies have also indicated that exposure to particulate matter can be associated with altered lung function and increased respiratory symptoms, and asthmatic children are considered to be particularly sensitive to these effects. In addition, exposures to particulate matter or ozone have been shown to have a priming effect for responsiveness to allergens, with the pollutant exposure leading to heightened responses to allergens among allergic asthmatics. It is not believed, based on the current evidence, that exposure to outdoor pollutants such as ozone or particulate matter is a cause of asthma.

Asthma is one of the most common and costly diseases in the United States. According to the President's Task Force on Environmental Health Risks and Safety Risks to Children, America is in the midst of an asthma epidemic.[11] Start Printed Page 5013Since 1980, the number of asthma sufferers in the United States has more than doubled from 6.7 million to 17.3 million in 1998.[12] Today, more than 5 percent of the US population has asthma. On average, 15 people died every day from asthma in 1995, and the death rate has nearly tripled since 1975. In 1998, the cost of asthma to the U.S. economy was estimated to be $11.3 billion, with hospitalizations accounting for the single largest portion of the cost.[13] A recent report by the Pew Environmental Health Commission at Johns Hopkins School of Public Health estimates that by 2010, 22 million Americans will suffer from asthma, or one in 14 Americans and one in every five families.[14] At present, asthma cannot be cured, only controlled.

To address this growing public health problem, the President's Task Force on Environmental Health Risks and Safety Risks to Children ranked asthma as its highest priority. The President's Task Force created and charged the Asthma Priority Area Workgroup, co-chaired by EPA and the Department of Health and Human Services, with reviewing current Federal efforts to address the issue, and to make recommendations. In May, 2000, the Task Force issued a strategy that focused on developing a greater understanding of the role environmental factors associated with the onset of asthma; and triggers of asthma. The report found that “children with asthma have long been recognized as particularly sensitive to outdoor air pollution,” The report noted that “25 percent of children in America live in areas that regularly exceed EPA limits for ozone.” The first guiding principle was to focus efforts to “eliminate the disproportionate impact of asthma in minority populations and those living in poverty.” Testimony received during the Agency's five public hearings on this rule contained numerous references and detailed personal accounts as to the severe and sometimes fatal impact of asthma on the lives of American citizens.

b. Current and Future Nonattainment Status With the 1-Hour Ozone NAAQS

Today, ground level ozone remains a pervasive pollution problem in the United States. As of July, 2000, 102 million people (1999 census) lived in 31 metropolitan areas designated nonattainment under the 1-hour ozone NAAQS.[15] This is a sharp decline from the 101 nonattainment areas originally identified under the Clean Air Act Amendments of 1990, but elevated ozone concentrations remain a serious public health concern throughout the nation.

Over the last decade, declines in ozone levels were found mostly in urban areas, where emissions are heavily influenced by controls on mobile sources and their fuels.[16] Twenty-three metropolitan areas have realized a decline in ozone levels since 1989, but at the same time, ozone levels in 11 metropolitan areas with 7 million people have increased.[17] Regionally, California and the Northeast have recorded significant reductions in peak ozone levels, while four other regions (the Mid-Atlantic, the Southeast, the Central and Pacific Northwest) have seen ozone levels increase.

The highest ambient concentrations are currently found in suburban areas, consistent with downwind transport of emissions from urban centers. Concentrations in rural areas have risen to the levels previously found only in cities. Over the last decade, ozone levels at 17 of our National Parks have increased, and in 1998, ozone levels in two parks were 30 to 40 percent higher than the ozone NAAQS.

i. Results of Photochemical Ozone Modeling and Analysis of Emissions Inventories

In conjunction with this rulemaking, the Agency performed ozone air quality modeling for nearly the entire Eastern U.S covering metropolitan areas from Texas to the Northeast.[18] This ozone air quality modeling was based upon the same modeling system as was used in the Tier 2 air quality analysis, with the addition of updated inventory estimates for 2007 and 2030.[19] This modeling supports the conclusion that there is a broad set of areas with predicted ozone concentrations in 2007 and 2030 at or above 0.125 ppm, in the baseline scenarios without additional emission reductions. EPA established the 1-hour standard at 0.12 parts per million (ppm) daily maximum 1-hour average concentration not to be exceeded more than once per year on average. Compliance with the 1-hour standard is judged on the basis of the most recent three years of ambient air quality monitoring data.

We have compared and supplemented our own ozone modeling with other modeling studies, submitted to us as state implementation plan (SIP) revisions, or brought to our attention through our consultations with states on SIP revisions that are in development. The ozone modeling in the SIP revisions has the advantage of using emission inventories that are more specific to the area being modeled, and of using meteorological conditions selected specifically for each area. Also, the SIP revisions included other evidence and analysis, such as analysis of air quality and emissions trends, observation-based models that make use of data on concentrations of ozone precursors, alternative rollback analyses, and information on the responsiveness of the air quality model. For some areas, we decided that the predictions of 1-hour ozone exceedances from our modeling were less reliable than conclusions that could be drawn from this additional evidence and analysis. For example, in some areas our episodes did not capture the meteorological conditions that have caused high ozone, while local modeling did so. Thus, these local analyses are considered to be more extensive than our own modeling for estimating whether there would be NAAQS nonattainment without further emission reductions, when interpreted by a weight of evidence method which meets our guidance for such modeling.

Photochemical ozone modeling conducted for this rulemaking was based in part on updated national emissions inventories for all sources. National emission trends for NOXStart Printed Page 5014predict a significant decline from 1996 to 2007, a leveling off of the downward trend between 2007 to 2020, and an increase in NOX inventories from 2020 to 2030. By 2030, national NOX levels are estimated to reach levels that are within ten percent of 2007 levels. Predictions of national VOC emissions indicate a reduction from 1996 to 2007, followed by an increase between 2007 and 2030 resulting in 2030 levels that are estimated to be 10 percent greater than VOC emissions levels in 2007. In metropolitan ozone nonattainment areas, such as Charleston, Chicago and Houston, NOX or VOC emissions in 2030 are predicted to reach or exceed 2007 levels. These estimated national and metropolitan area emissions inventories of ozone precursors are consistent with the conclusions reached by analysis of ozone modeling conducted for this rule that additional reductions are needed in order to enable areas to reach and maintain attainment of the ozone standard between 2007 and 2030.

The Agency conducted ozone modeling based on inventories developed with and without reductions from this rulemaking for three future years: 2007, 2020 and 2030. The year 2007 was chosen because it is also the first year of implementation for the new standards adopted in today's action. It is also the year that nine major urban areas with a history of persistent and elevated ozone concentrations must demonstrate attainment, and is also relevant to the South Coast Air Basin of California (South Coast) with an attainment date of 2010. In addition, modeling was performed for 2030 when the full benefits of the rule are expected to be realized and for 2020 which represents an intermediate year between the start of the program and full turnover of the affected vehicle fleet. The year 2020 is also representative of the period when areas that have come into attainment may need additional reductions in order to maintain the standard.

Today's rule will provide a substantial reduction in emissions of ozone precursors, particularly NOX. These emissions reductions will greatly lower ozone concentrations which will help federal and State efforts to bring about attainment of the current 1-hour ozone standard. As described in the Air Quality Modeling Technical Support Document for this rule, EPA performed regional scale ozone modeling for the Eastern U.S. to assess the impacts of the controls in this rule on predicted 1-hour ozone exceedances. The results of this modeling were examined for those 37 areas in the East for which EPA's modeling predicted exceedances in 2007, 2020 and/or 2030 and current 1-hour design values are above the standard or within 10 percent of the standard. The results for these areas combined indicate that there will be substantial reductions in the number of exceedances and the magnitude of high ozone concentrations in both 2020 and 2030 due to this rule. The modeling also indicates that without the rule, exceedances would otherwise increase by 37 percent between 2020 and 2030 as growth in emissions offsets the reductions from Tier 2 and other current control programs.

For all areas combined, the rule is forecast to provide a 33 percent reduction in exceedances in 2020 and a 38 percent reduction in 2030. The total amount of ozone above the standard is expected to decline by nearly 37 percent in 2020 and 44 percent in 2030. Also, daily maximum ozone exceedances are lowered by 5 ppb on average in 2020 and nearly 7 ppb in 2030. The modeling forecasts an overall net reduction of 39 percent in exceedances from 2007, which is close to the start of this program, to 2030 when controls will be fully in place. In addition, the results for each individual area indicates that all areas are expected to have fewer exceedances in 2030 with the HDV controls than without this rule.

During the public comment period on the proposed rule, EPA received several comments that expressed concern about potential increases in ozone that might result from this rule. As indicated above, the air quality modeling results indicate an overall reduction in ozone levels in 2007 and 2030 during the various episodes modeled. Examining individual areas, nearly the entire country is projected to benefit substantially from the reductions in this rule.[20] There is a metropolitan area that EPA modeled as having exceedances with the one-hour ozone standard under baseline conditions in 2007 through 2030, which the Agency's modeling for the HDV rule estimated could have less than a 3 percent increase in its peak ozone levels in 2020 and 2030 and small net increase (i.e., less than 1 ppb) in levels above the 1-hour standard in 2030. However, EPA's air quality modeling did not predict an increase in the number of exceedances in this CMSA/MSA in 2020 and a decrease in exceedances occurred in 2030. In another CMSA/MSA in another State, in 2030 there was less than a one percent increase in the summer peak level. Yet, this area had fewer exceedances and lower ozone above the 1-hour standard in both 2020 and 2030 under the rule. EPA expects that the States will have State Implementation Plans that will consider federal controls and complement them with State actions to provide attainment and will work with the States to ensure this occurs.

Considering all of EPA's air quality modeling results, it is clear that the significant ozone reductions from this rule outweigh the limited ozone increases that may occur in the future assuming no additional reductions from federal or local controls. Additional details on this are provided in the Response to Comments document and in EPA's Heavy Duty Rule Air Quality Modeling Technical Support Document. Furthermore, EPA's Regulatory Impact Analysis for this rule shows significant health and welfare benefits occurring from the ozone reductions that the rule provides (see details on the benefits in Section V.F.5 of the preamble and Chapter VII of the RIA).

ii. Areas At Risk of Exceeding the 1-Hour Ozone Standard in the Future

This section presents the Agency's conclusions about the risk of future nonattainment for 45 areas listed in Table II.B-1 based on photochemical ozone modeling conducted for this rule and other evidence such as local air quality modeling.[21] The areas listed in Table II.B-1 are separated into two broad groups: (1) Those areas with attainment dates in 2007 or 2010 that will benefit from reductions from this rule to attain and maintain the standard; and (2) those areas with attainment dates prior to 2007 that will benefit from reductions from this rule to maintain the standard after their attainment dates. Because ozone concentrations causing violations of the 1-hour ozone standard are well established to endanger public health and welfare, this indicates that it is appropriate for the Agency to set new standards for heavy-duty vehicles. The following discussion follows these groupings from top to bottom. A more detailed discussion is found in the Regulatory Impact Analysis (RIA).

Ten metropolitan areas contained within designated ozone nonattainment areas have statutorily-defined attainment dates of 2007 or 2010, or Start Printed Page 5015have requested attainment date extensions to 2007. These 10 areas are listed at the top of Table II.B-1, and are New York City, Houston, Hartford, New London, Chicago, Milwaukee, Dallas, Beaumont-Port Arthur, Los Angeles, and Southeast Desert.

Each of these areas needs additional emission reductions in order to reach attainment by 2007, and to maintain the standards in the future. Some of these areas have emission reduction shortfalls that are identified in their attainment demonstrations (i.e., South Coast Air Basin, New York and Houston), and reductions from this rule will assist State efforts to reach attainment.[22] Three other areas—Southeast Desert, Hartford, New London—are subject to ozone transport from upwind areas with identified shortfalls (South Coast and New York), and depend upon attainment from these upwind areas to reach attainment themselves. We have received attainment plans for two areas in Texas (Dallas and Beaumont-Port Arthur), and the Agency is likely to consider the reductions from this rule in its proposed approval of these attainment plans in Federal Register notices. Finally, there are two areas in the Midwest—Chicago and Milwaukee—that have incorporated reductions from this rule into their regional ozone modeling, and plan to rely on reductions from this rule to support their 2007 attainment demonstration.[23]

For all ten areas, even if all shortfalls were filled by the States, there is some risk that at least some of the areas will not attain the standards by their attainment dates of 2007, or 2010 for Los Angeles. In that event, the reductions associated with this program, which increase substantially after 2007, will help assure that any residual failures to attain are remedied. Finally, there is also some risk that the areas will be unable to maintain attainment after 2007. Considered collectively, there is a significant risk that some areas will not be in attainment throughout the period when the new standards will reduce heavy-duty vehicle emissions.

The rest of the areas have required attainment dates prior to 2007, or have no attainment date but are subject to a general obligation to have a SIP that provides for attainment and maintenance. These 34 areas, according to our modeling, are at risk of exceeding the ozone NAAQS between 2007 and 2030. These areas will be able to rely on reductions from this rule to continue to maintain the standard after attainment is reached, and will be able to take credit for this program in their maintenance plans when they seek redesignation to attainment of the ozone standard. If any of these areas reach attainment, and then fall back into nonattainment, or fail to reach attainment by 2007, reductions from this rule will assist these areas in achieving the ozone standard. If an area does not choose to seek redesignation, the continuing reductions from this rulemaking will help ensure maintenance (i.e., prevent future exceedances) with the 1-hour standard after initial attainment is reached.

Areas with attainment dates prior to 2007 are presented in two groupings in the table at the end of this section: a group of 20 areas in the middle of Table II.B-1, and a group of 15 areas at the bottom of Table II.B-1. For the middle group of 20 areas, EPA and the States are pursuing the established statutory processes for attaining and maintaining the ozone standard, or have already redesignated these areas to attainment with a maintenance plan (e.g., Cincinnati). EPA has re-instated the 1-hour ozone standard to some of these areas, restoring the applicability of these processes to them. The Agency believes that there is a significant risk that future air quality in a number of these areas will exceed the ozone standard at some time in the 2007 and later period. This belief is based on three factors: (1) Recent exceedances in 1997-1999, (2) predicted exceedances in 2007, 2020 or 2030 after accounting for existing mobile source requirements and other local or regional controls currently in place or required, and (3) our assessment of the magnitude of recent violations, the year-to-year variability of meteorological conditions conducive to ozone formation, transport from areas with later attainment dates, and other variables inherent in predicting future attainment such as the potential for some areas to experience unexpectedly high economic growth rates, growth in vehicle miles traveled, varying population growth from area to area, and differences in vehicle choice.

Only a subset of these 20 areas have yet adopted specific control measures that have allowed the Agency to fully approve an attainment plan. For some of these areas, we have proposed a finding, based on all the available evidence, that the area will attain by its applicable attainment date. We have approved a 10-year maintenance plan for Cincinnati, OH from 1999 to 2009. However, in many cases, these proposals depend on the State adopting additional emission reduction measures. The RIA provides more information on our recent proposals on attainment demonstrations and maintenance plans.[24] Until the SIPs for these areas are actually submitted, reviewed and approved by EPA, there is some risk that these areas will not adopt fully approvable SIPs.

Finally, there are 15 additional metropolitan areas for which the available ozone modeling and other evidence is less clear regarding the need for additional reductions (see Table II.B-1). Our ozone modeling predicted these areas to need further reductions to avoid exceedances in 2007, 2020 or 2030. The recent air quality monitoring data for these areas shows ozone levels with less than a 10 percent margin below the NAAQS. We believe there is a risk that future ozone levels will be above the NAAQS because of the year-to-year variability of meteorological conditions conducive to ozone formation, or because local emissions inventories may increase faster than national inventories.

iii. Conclusion

In sum, without these reductions, there is a significant risk that an appreciable number of the 45 areas, with a population of 128 million people in 1999, will violate the 1-hour ozone standard during the time period when these standards will apply to heavy-duty vehicles. The evidence summarized in this section, and presented in more detail in the air quality modeling TSD and the RIA, supports the Agency's belief that emissions of NOX and VOC from heavy-duty vehicles in 2007 and later will contribute to a national ozone air pollution problem that warrants regulatory action under section 202(a)(3) of the Act. Start Printed Page 5016

Table II.B-1 a

[Areas and 1999 Populations at Risk of Exceeding the Ozone Standard between 2007 and 2030]

MSA/CMSA/State1999 Population (in millions)
Areas with 2007/2010 Attainment Dates (Established or Requested)
Beaumont-Port Arthur, TX0.4
Chicago-Gary-Kenosha, IL-IN-WI8.9
Dallas-Fort Worth, TX4.9
Hartford, CT1.1
Houston-Galveston-Brazoria, TX4.5
Los Angeles-Riverside-Orange County, CA16.0
Milwaukee-Racine, WI1.6
New London-Norwich, CT-RI0.3
New York-Northern New Jersey-Long Island, NY-NJ-CT-PA20.2
Southeast Desert, CA0.5
10 areas58.4
Areas with Pre-2007 Attainment Dates or No Specific Attainment Date, with a Recent History of Nonattainment.
Atlanta, GA3.9
Baton Rouge, LA0.6
Birmingham, AL0.9
Boston-Worcester-Lawrence, MA-HN-ME-CT5.7
Charlotte-Gastonia-Rock Hill, NC-SC1.4
Detroit-Ann Arbor-Flint, MI MSA5.5
Huntington-Ashland, WV-KY-OH0.3
Louisville, KY-IN1.0
Macon, GA MSA0.3
Memphis, TN-AR-MS1.1
Nashville, TN1.2
Philadelphia-Wilmington-Atlantic City, PA-NJ-DE-MD6
Richmond-Petersburg, VA1
Sacramento-Yolo, CA1.7
San Diego, CA2.8
San Francisco-Oakland-San Jose, CA6.9
San Joaquin Valley, CA3.2
St. Louis, MO-IL2.6
Ventura County, CA0.7
Washington, DC—Baltimore, DC, MD, VA MSA7.4
20 Areas54.2
Areas with Pre-2007 Attainment Dates and Recent Concentrations within 10 percent of an Exceedance.
Barnstable-Yarmouth, MA0.2
Benton Harbor, MI0.2
Biloxi-Gulfport-Pascagoula, MS MSA0.4
Charleston, WV MSA0.3
Cincinnati-Hamilton, OH-KY-IN2.0
Cleveland-Akron, OH CMSA2.9
Grand Rapids-Muskegon-Holland, MI MSA1.1
Houma, LA0.2
Lake Charles, LA0.2
New Orleans, LA MSA1.3
Norfolk-Virginia Beach-Newport News, VA-NC MSA1.6
Orlando, FL MSA1.5
Pensacola, FL MSA0.4
Providence-Fall River-Warwick, RI-MA1.1
Tampa-St. Petersburg-Clearwater, FL MSA2.3
15 areas15.7
Total Areas: 45Population: 128
a In order to determine the reliability of model predictions the Agency ran the ozone model for current ozone concentrations and compared those predictions with actual ozone levels recorded by ozone monitors. The results of the model's performance are presented in the RIA for this rule.
Start Printed Page 5017

c. Public Health and Welfare Concerns from Prolonged and Repeated Exposures to Ozone

A large body of scientific literature regarding health and welfare effects of ozone has associated health effects with certain patterns of ozone exposures that do not necessarily include any hourly ozone concentration above the 0.12 parts per million (ppm) level of the 1-hour NAAQS. The science indicates that there are health effects attributable to prolonged and repeated exposures to lower ozone concentrations. Studies of 6 to 8 hour exposures showed health effects from prolonged and repeated exposures at moderate levels of exertion to ozone concentrations as low as 0.08 ppm. Prolonged and repeated ozone concentrations at these levels are common in areas throughout the country, and are found in areas that are exceeding, and areas that are not exceeding, the 1-hour ozone standard. For example, 153 million people, or 87 percent of the total population in counties evaluated (176 million), lived in areas with 2 or more days with concentrations of 0.09 ppm or higher in 1998, including areas currently violating the 1-hour NAAQS. In the 2007, before the application of emission reductions resulting from this rule, we estimated that 116 million, or 93 percent of the total population considered in the analysis, are predicted to live in areas with at least 2 days with model-adjusted 8-hour average concentrations of 0.08 ppm or higher. By 2030, the number of people (139 million) and the relative percentage (91 percent) of the total population considered in the analysis is projected to grow significantly without reductions from this rule. Since prolonged exposures at moderate levels of ozone are more widespread than exceedances of the 1-hour ozone standard, and given the continuing nature of the 1-hour ozone problem described above, adverse health effects from this type of ozone exposure can reasonably be anticipated to occur in the future in the absence of this rule. Adverse welfare effects can also be anticipated, primarily from damage to vegetation. See the RIA for further details.

Studies of acute health effects have shown transient pulmonary function responses, transient respiratory symptoms, effects on exercise performance, increased airway responsiveness, increased susceptibility to respiratory infection, increased hospital and emergency room visits, and transient pulmonary respiratory inflammation. Such acute health effects have been observed following prolonged exposures at moderate levels of exertion at concentrations of ozone well below the current standard of 0.12 ppm. The effects are more pronounced at concentrations above 0.09 ppm, affecting more subjects or having a greater effect on a given subject in terms of functional changes or symptoms. A more detailed discussion may be found in the RIA.

With regard to chronic health effects, the collective data have many ambiguities, but provide suggestive evidence of chronic effects in humans. There is a biologically plausible basis for considering the possibility that repeated inflammation associated with exposure to ozone over a lifetime, as can occur with prolonged exposure to moderate ozone levels below peak levels, may result in sufficient damage to respiratory tissue that individuals later in life may experience a reduced quality of life, although such relationships remain highly uncertain.

Ozone has many welfare effects, with damage to plants being of most concern. Plant damage affects crop yields, forestry production, and ornamentals. The adverse effect of ozone on forests and other natural vegetation can in turn cause damage to associated ecosystems, with additional resulting economic losses, as well as aesthetic impacts which may not be fully quantifiable in economic terms. Ozone concentrations of 0.10 ppm can be phytotoxic to a large number of plant species, and can produce acute injury and reduced crop yield and biomass production. Ozone concentrations at or below 0.10 ppm have the potential over a longer duration of creating chronic stress on vegetation that can result in reduced plant growth and yield, shifts in competitive advantages in mixed populations, decreased vigor, and injury from other environmental stresses.

Section 202(a) provides EPA with authority to promulgate standards applicable to motor vehicle emissions that “in the Administrator's judgment, cause or contribute to air pollution reasonably anticipated to endanger public health and welfare.” The evidence in the RIA regarding the occurrence of adverse health effects due to prolonged and repeated exposure to ozone concentrations in the range discussed above, and regarding the populations that are expected to receive exposures at these levels, along with the welfare effects described above, supports a conclusion that emissions of NOX and VOC from heavy-duty vehicles in 2007 and later will be contributing to a national air pollution problem that warrants regulatory action under section 202(a) of the Act.

3. Particulate Matter

a. Health and Welfare Effects

Particulate matter (PM) represents a broad class of chemically and physically diverse substances. It can be principally characterized as discrete particles that exist in the condensed (liquid or solid) phase spanning several orders of magnitude in size. All particles equal to and less than 10 microns are called PM10. Fine particles can be generally defined as those particles with an aerodynamic diameter of 2.5 microns or less (also known as PM2.5), and coarse fraction particles are those particles with an aerodynamic diameter greater than 2.5 microns, but equal to or less than a nominal 10 microns. The health and environmental effects of PM are strongly related to the size of the particles.

The emission sources, formation processes, chemical composition, atmospheric residence times, transport distances and other parameters of fine and coarse particles are distinct. Fine particles are directly emitted from combustion sources and are formed secondarily from gaseous precursors such as sulfur dioxide, nitrogen oxides, or organic compounds. Fine particles are generally composed of sulfate, nitrate, chloride and ammonium compounds; organic and elemental carbon; and metals. Combustion of coal, oil, diesel, gasoline, and wood, as well as high temperature process sources such as smelters and steel mills, produce emissions that contribute to fine particle formation. In contrast, coarse particles are typically mechanically generated by crushing or grinding and are often dominated by resuspended dusts and crustal material from paved or unpaved roads or from construction, farming, and mining activities. Fine particles can remain in the atmosphere for days to weeks and travel through the atmosphere hundreds to thousands of kilometers, while coarse particles deposit to the earth within minutes to hours and within tens of kilometers from the emission source.

Diesel particles are a component of both coarse and fine PM, but fall mostly in the fine and ultrafine size range.[25] Diesel PM contains small quantities of numerous mutagenic and carcinogenic compounds. While representing a very small portion (less than one percent) of the national emissions of metals, and a small portion of diesel particulate matter (one to five percent), we note that several toxic trace metals of potential Start Printed Page 5018toxicological significance are also emitted by diesel engines including chromium, manganese, mercury and nickel. In addition, small amounts of dioxins have been measured in diesel exhaust, some of which may partition into the particle phase, though the impact of these emissions on human health is not clear.

Particulate matter, like ozone, has been linked to a range of serious respiratory health problems. Scientific studies suggest a likely causal role of ambient particulate matter (which is attributable to a number of sources including diesel) in contributing to a series of health effects. The key health effects categories associated with ambient particulate matter include premature mortality, aggravation of respiratory and cardiovascular disease (as indicated by increased hospital admissions and emergency room visits, school absences, work loss days, and restricted activity days), aggravated asthma, acute respiratory symptoms, including aggravated coughing and difficult or painful breathing, chronic bronchitis, and decreased lung function that can be experienced as shortness of breath. Observable human noncancer health effects associated with exposure to diesel PM include some of the same health effects reported for ambient PM such as respiratory symptoms (cough, labored breathing, chest tightness, wheezing), and chronic respiratory disease (cough, phlegm, chronic bronchitis and suggestive evidence for decreases in pulmonary function). Symptoms of immunological effects such as wheezing and increased allergenicity are also seen. Studies in rodents, especially rats, show the potential for human inflammatory effects in the lung and consequential lung tissue damage from chronic diesel exhaust inhalation exposure. Both fine and coarse particles can accumulate in the respiratory system. Exposure to fine particles is most closely associated with such health effects as premature mortality or hospital admissions for cardiopulmonary disease. For additional information on health effects, see the RIA. PM also causes damage to materials and soiling of commonly used building materials and culturally important items such as statutes and works of art. It is a major cause of substantial visibility impairment in many parts of the U.S.

Heavy-duty vehicles contribute to particle formation through a number of pollutants. The contribution to PM fine varies by region of the country. Sulfate plays a major role in the composition of fine particulate across the country, but typically makes up over half the fine particles found in the Eastern United States. Organic carbon accounts for a large portion of fine particle mass, with a slightly higher fraction in the west. Diesel engines are the principal source of elemental carbon, which makes up about 5-6 percent of particle mass. Nationally, nitrate plays a relatively small role in the make up of fine particles, but ammonium nitrate plays a far larger role in southern California. Ammonium nitrate-formed secondarily from NOX and ammonia emissions—is one of the most significant components of particulate matter pollution in California. During some of the worst episodes of elevated particle levels in the South Coast, ammonium nitrate can account for about 65-75 percent of the PM2.5 mass. Reducing ammonium nitrate through controls on NOX sources is a critical part of California's particulate matter strategy. Nationally, the standards finalized in this rule will significantly reduce HDV emissions of SOX, NOX, VOCs and elemental carbon, and thus contribute to reductions in ambient concentrations of PM10 and PM2.5.

b. Attainment and Maintenance of the PM10 NAAQS

Under the CAA, we are to regulate HDV emissions if they contribute to air pollution that can reasonably be anticipated to endanger public health and welfare. We have already addressed the question of what concentration patterns of PM endanger public health, in setting the NAAQS for PM10 in 1987. The PM NAAQS were revised in 1997, largely by adding new standards for fine particles (PM2.5) and modifying the form of the daily PM10 standard. On judicial review, the revised standards were remanded for further proceedings, and the revised PM10 standards were vacated. The Supreme Court is currently reviewing that decision. Oral arguments were held on November 7, 2000 and a decision by the Court is expected in 2001. Pending final resolution of the litigation, the 1987 PM10 standard is the applicable NAAQS for PM10.

Commenters questioned the need for additional PM10 reductions in order to achieve attainment with the PM10 NAAQS, and questioned the Agency's statement that, unlike ozone, PM10 emissions are projected to increase in the future. Commenters are correct that significant progress has occurred over the last decade,[26] but the Agency's statement was based on projected PM10 inventory increases in the future between 1996 and 2030. During this period, inventory trends for current PM10 nonattainment areas, or those with concentrations within 10 percent of the standard, are predicted to increase significantly. For example, from 1996 to 2030, increases are predicted in Clark County (Las Vegas) of 41 percent, Harris County (Houston) of 37 percent, and Phoenix of 24 percent. A more detailed discussion is provided in the RIA.

i. Current PM10 Nonattainment

The most recent PM10 monitoring data indicates that 14 designated PM10 nonattainment areas with a projected population of 23 million violated the PM10 NAAQS in the period 1997-1999. Table II.B-3 lists the 14 areas, and also indicates the PM10 nonattainment classification and 1999 projected population for each PM10 nonattainment area. The projected population in 1999 was based on 1990 population figures which were then increased by the amount of population growth in the relevant county from 1990 to 1999.

Table II.B-3.—PM10 Nonattainment Areas Violating the PM10 NAAQS in 1997-99

AreaClassification1999 Population (projected, in millions)
Hayden/Miami, AZModerate0.004
Phoenix, AZSerious2.977
Nogales, AZModerate0.025
San Joaquin Valley, CASerious3.214
Imperial Valley, CAModerate0.122
Start Printed Page 5019
Owens Valley, CASerious0.018
Searles Valley, CAModerate0.029
Coachella Valley, CASerious0.239
South Coast Air BasinSerious14.352
Las Vegas, NVSerious1.200
Reno, NVModerate0.320
Anthony, NM bModerate0.003
El Paso, TX aModerate0.611
Wallula, WA bModerate0.052
Total Areas: 1423.167
a EPA has determined that continuing PM10 nonattainment in El Paso, TX is attributable to international transport under section 179(B).
b The violation in this area has been determined to be attributable to natural events under section 188(f) of the Act.

In addition to the 14 PM10 nonattainment areas that are currently violating the PM10 NAAQS, there are 25 unclassifiable areas that have recently recorded ambient concentrations of PM10 above the PM10 NAAQS. EPA adopted a policy in 1996 that allows areas with PM10 exceedances that are attributable to natural events to retain their designation as unclassifiable if the State is taking all reasonable measures to safeguard public health regardless of the sources of PM10 emissions. Areas that remain unclassifiable areas are not required under the Clean Air Act to submit attainment plans, but we work with each of these areas to understand the nature of the PM10 problem and to determine what best can be done to reduce it. With respect to the monitored violations reported in 1997-99 in the 25 areas designated as unclassifiable, we have not yet excluded the possibility that factors such as a one-time monitoring upset or natural events, which ordinarily would not result in an area being designated as nonattainment for PM10, may be responsible for the problem. Emission reductions from today's action will assist these currently unclassifiable areas to achieve ambient PM10 concentrations below the current PM10 NAAQS.

ii. Risk of Future Exceedances of the PM10 Standard

The new standards for heavy-duty vehicles will benefit public health and welfare through reductions in direct diesel particles and NOX, VOCs, and SOX which contribute to secondary formation of particulate matter. Because ambient particle concentrations causing violations of the PM10 standard are well established to endanger public health and welfare, this information supports the new standards for heavy-duty vehicles. The reductions from today's rule will assist States as they work with the Agency through implementation of local controls including development and adoption of additional controls as needed to move their areas into attainment by the applicable deadline, and maintain the standards thereafter.

The Agency's PM inventory analysis performed for this rulemaking predicts that without additional reductions 10 areas face a significant risk of failing to meet or to maintain the PM10 NAAQS even with federal, State and local controls currently in place.[27] Table II.B-4 presents information about these 10 areas and subdivides them into two groups. The first group of 6 areas are designated PM10 nonattainment areas which had recent monitored violations of the PM10 NAAQS in 1997-1999 and increasing inventories of PM10 from 2007 to 2030 (see Table II.B-3 for predicted increases in emissions). These areas have a population of 19 million. Included in the group are the nonattainment areas that are part of the Los Angeles, Phoenix and Las Vegas (Clark County) metropolitan areas, where traffic from heavy-duty vehicles is substantial. These six areas will benefit from the reductions in emissions that will occur from the new standards for heavy-duty vehicles, as will other areas impacted by heavy-duty vehicle emissions.

The second group of four counties listed in Table II.B-4 with a total of nine million people in 1999 also had predicted exceedances of the PM10 standard. While these four areas registered, in either 1997 or 1998, single-year annual average monitored PM10 levels of at least 90 percent of the PM10 NAAQS, these areas did not exceed the formal definition of the PM10 NAAQS over the three-year period ending in 1999. For each of these four areas (i.e., Cuyahoga, Harris, New York, and San Diego), inventories of total PM10 are predicted to increase between 1996, when these areas recorded values within 10 percent of the PM10 standard, and 2030 when this rule will take full effect. Additionally, EPA is in the process of taking final action on a request by the State of Ohio to redesignate Cuyahoga County as attainment. This action is based on locally developed information and is consistent with the requirements of the CAA which include, among other requirements a 10-year plan for maintenance of the PM10 standard.

For some of these areas, total PM10 inventories are predicted to decline or stay relatively constant from 1996 to 2007, and then increase after 2007. Based on inventory projections, the small margin of attainment which the four areas currently enjoy will likely erode between 1996 and 2030, and for some areas before 2007, if additional actions to reduce the growth of future emissions are not taken. We therefore consider these four areas to each individually have a significant risk of exceeding the PM10 standard between 2007 and 2030 without further emission reductions. The emission reductions from the new standards for heavy-duty vehicles will help these areas attain and maintain the PM10 NAAQS in conjunction with other processes that Start Printed Page 5020are currently moving these areas towards attainment.

Table II.B-4—Areas With Significant Risk of Exceeding the PM10 NAAQS Without Further Emission Reductions Between 2007 and 2030

AreaPercent increases in PM10 emissions (1996-2030)1999 Population (projected) (millions)
Areas currently exceeding the PM10 standard:
Clark Co., NV (Las Vegas)411.217
El Paso, TX a140.611
Hayden/Miami, AZ40.004
Los Angeles South Coast Air Basin, CA1414.352
Nogales, AZ30.025
Phoenix, AZ243.012
Subtotal for 6 Areas19.22
Areas within 10% of exceeding the PM10 standard:
Cuyahoga Co., OH (Cleveland)281.37
Harris, Co., TX (Houston)373.26
New York Co., NY141.55
San Diego Co., CA132.83
Subtotal for 4 Areas9.01
10 Areas28.23
a EPA has determined that PM10 nonattainment in this area is attributable to international transport. While reductions in heavy-duty vehicle emissions cannot be expected to result in attainment, they will help reduce the degree of PM10 nonattainment.

EPA recognizes that the SIP process is ongoing and that nonattainment areas are in the process of implementing, or will be adopting and implementing, additional control measures to achieve the PM10 NAAQS in accordance with their attainment dates under the Clean Air Act. EPA believes, however, that as in the case of ozone, there are uncertainties inherent in any demonstration of attainment that is premised on forecasts of emission levels in future years. Even if these areas adopt and submit SIPs that EPA is able to approve as demonstrating attainment of the PM10 standard, and attain the standard by the appropriate attainment dates, the inventory analysis conducted for this rule and the history of PM10 levels in these areas indicates that there is still a significant risk that these areas will need the reductions from the heavy-duty vehicle standards adopted today to maintain the PM10 standards in the long term (ie, between 2007 and 2030). In addition, this list does not fully consider the possibility that there are other areas which are now meeting the PM10 NAAQS that have at least a significant probability of requiring further reductions to continue to maintain it.

c. Public Health and Welfare Concerns From Exposure to Fine PM

Many epidemiologic studies have shown statistically significant associations of ambient PM levels with a variety of human health endpoints in sensitive populations, including mortality, hospital admissions and emergency room visits, respiratory illness and symptoms measured in community surveys, and physiologic changes in mechanical pulmonary function. These effects have been observed in many areas with ambient PM levels at or below the current PM10 NAAQS. The epidemiologic science points to fine PM as being more strongly associated with some health effects, such as premature mortality, than coarse PM.

Associations of both short-term and long-term PM exposure with most of the above health endpoints have been consistently observed. The general internal consistency of the epidemiologic data base and available findings have led to increasing public health concern, due to the severity of several studied endpoints and the frequent demonstration of associations of health and physiologic effects with ambient PM levels at or below the current PM10 NAAQS. The weight of epidemiologic evidence suggests that ambient PM exposure has affected the public health of U.S. populations. Specifically, increased mortality associated with fine PM was observed in cities with longer-term average fine PM concentrations in the range of 16 to 21 μg/m 3.

Current 1999 PM2.5 monitored values, which cover about a third of the nation's counties, indicate that at least 40 million people live in areas where long term ambient fine particulate matter levels are at or above 16 μg/m 3 (37 percent of the population in the areas with monitors), which is the low end of the range of long term average PM2.5 concentrations in cities where statistically significant associations were found with serious health effects, including premature mortality (EPA, 1996).[28]

The Agency used the Regulatory Model System for Aerosols and Desposition (REMSAD) to model baseline and post-control ambient PM concentrations. For a description of the REMSAD model, the reader is referred to Chapter VII of the RIA.

Our REMSAD modeled predictions allow us to also estimate the affected population for the counties which do not currently have PM2.5 monitors. According to our national modeled predictions, there were a total of 76 Start Printed Page 5021million people (1996 populations) living in areas with modeled annual average PM2.5 concentrations at or above 16 μg/m 3 (29 percent of the population).[29]

The REMSAD model also allows us to estimate future PM2.5 levels. However, the most appropriate method of making these projections relies on the model to predict changes between current and future states. Thus, we have estimated future conditions only for the areas with current PM2.5 monitored data (which, as just noted, covers about a third of the nation's counties). For these counties, REMSAD predicts the current level of 37 percent of the population living in areas where fine PM levels are at or above 16 μg/m 3 to increase to 59 percent in 2030.

It is reasonable to anticipate that sensitive populations exposed to similar or higher levels, now and in the 2007 and later time frame, will also be at increased risk relative to the general population of premature mortality associated with exposures to fine PM. In addition, statistically significant relationships have also been observed in U.S. cities between PM levels and increased respiratory symptoms and decreased lung functions in children.

Since EPA's examination in the mid-1990s of the epidemiological and toxicological evidence of the health effects of PM, many new studies have been published that reevaluate or extend the initial research. The Agency is currently reviewing these new studies to stay abreast of the literature and adjust as necessary its assessment of PM's health effects. It is worth noting that within this new body of scientific literature, there are two new studies funded by the Health Effects Institute, a EPA-industry jointly funded group, that have generally confirmed the mid-1990s findings of the Agency about the association of fine particles and premature mortality and various other respiratory and cardiovascular effects. HEI's National Morbidity, Mortality and Air Pollution Study (NMMAPS), evaluated associations between air pollutants and mortality in 90 U.S. cities, and also evaluated associations between air pollutants and hospital admissions among the elderly in 14 U.S. cities.[30] In HEI's Reanalysis of the Harvard Six Cities Study and the American Cancer Society Study of Particulate Air Pollution and Mortality, data were obtained from the original investigators for two previous studies.[31 32] , The extensive analyses included replication and validation of the previous findings, as well as sensitivity analyses using alternative analytic techniques, including different methods of covariate adjustment, exposure characterization, and exposure-response modeling.[33]

Section 202(a) provides EPA with independent authority to promulgate standards applicable to motor vehicle emissions that “in the Administrator's judgment, cause or contribute to air pollution reasonably anticipated to endanger public health and welfare.” The body of health evidence is supportive of our view that PM exposures are a serious public health concern. This concern exists for current exposures as well as exposures that can reasonably be anticipated to occur in the future. The risk is significant from an overall public health perspective because of the large number of individuals in sensitive populations that we expect to be exposed to ambient fine PM in the 2007 and later time frame, as well as the importance of the negative health effects. This information warrants a requirement to reduce emissions from heavy-duty vehicles, to address elevated levels of fine PM. This evidence supports EPA's conclusion that emissions from heavy-duty vehicles that lead to the formation of fine PM in 2007 and later will be contributing to a national air pollution problem that warrants action under section 202(a)(3).

d. Other Welfare Effects Associated with PM

The deposition of airborne particles reduces the aesthetic appeal of buildings, and promotes and accelerates the corrosion of metals, degrades paints, and deteriorates building materials such as concrete and limestone. This materials damage and soiling are related to the ambient levels of airborne particulates, which are emitted by heavy-duty vehicles. Although there was insufficient data to relate materials damage and soiling to specific concentrations, and thereby to allow the Agency to establish a secondary PM standard for these impacts, we believe that the welfare effects are real and that heavy-duty vehicle PM, NOX, SOX, and VOC contribute to materials damage and soiling.

e. Conclusions Regarding PM

There is a significant risk that, despite statutory requirements and EPA and State efforts towards attainment and maintenance, some areas of the U.S. will violate the PM10 NAAQS in 2007 and thereafter. Heavy-duty vehicles contribute substantially to PM10 levels, as shown in Section II.C below.

It is also reasonable to anticipate that concentrations of fine PM, as represented for example by PM2.5 concentrations, will also endanger public health and welfare even if all areas attain and maintain the PM10 NAAQS. Heavy-duty vehicles contribute to this air pollution problem.

There are also important environmental impacts of PM10, such as regional haze which impairs visibility. Furthermore, while the evidence on soiling and materials damage is limited and the magnitude of the impact of heavy-duty vehicles on these welfare effects is difficult to quantify, these welfare effects support our belief that this action is necessary and appropriate.

Finally, in addition to its contribution to PM inventories, diesel exhaust PM is of special concern because it has been implicated in an increased risk of lung cancer and respiratory disease in human studies, and an increased risk of noncancer health effects as well. The information provided in this section shows that there will be air pollution that warrants regulatory action under section 202(a)(3) of the Act.

4. Diesel Exhaust

Diesel emissions are of concern to the agency beyond their contribution to ambient PM. As discussed in detail in the draft RIA, there have been health studies specific to diesel exhaust emissions which indicate potential hazards to human health that appear to be specific to this emissions source. For chronic exposure, these hazards included respiratory system toxicity and carcinogenicity. Acute exposure also causes transient effects (a wide range of physiological symptoms stemming from irritation and inflammation mostly in the respiratory system) in humans though they are highly variable depending on individual human susceptibility. The chemical Start Printed Page 5022composition of diesel exhaust includes several hazardous air pollutants, or air toxics. In our Mobile Source Air Toxic Rulemaking under section 202(l) of the Act discussed above, EPA determined that diesel particulate matter and diesel exhaust organic gases be identified as a Mobile Source Air Toxic (MSAT). The purpose of the MSAT list is to provide a screening tool that identifies compounds emitted from motor vehicles or their fuels for which further evaluation of emissions controls is appropriate. As discussed in chapter 3 on engine technology, the particulate matter standard finalized today reflects the greatest degree of emissions reductions achievable under section 202(l) for on-highway heavy-duty vehicle PM emissions.

a. Potential Cancer Effects of Diesel Exhaust

The EPA has concluded that diesel exhaust is likely to be carcinogenic to humans by inhalation at occupational and environmental levels of exposure.[34] The draft Health Assessment Document for Diesel Exhaust (draft Assessment), was reviewed in public session by the Clean Air Scientific Advisory Committee (CASAC) on October 12-13, 2000.[35] The CASAC found that the Agency's conclusion that diesel exhaust is likely to be carcinogenic to humans is scientifically sound. CASAC concurred with the draft Assessment's findings with the proviso that EPA provide modifications and clarifications on certain topics. The Agency expects to produce the finalized Assessment in early 2001. Information presented here is consistent with that to be provided in the final Assessment.

In its review of the published literature, EPA found that about 30 individual epidemiologic studies show increased lung cancer risk associated with diesel emissions. In the draft Assessment EPA evaluated 22 studies that were most relevant for risk assessment, 16 of which reported significant increased lung cancer risks, ranging from 20 to 167 percent, associated with diesel exhaust exposure. Published analytical results of pooling many of the 30 studies showed that on average, the risks were increased by 33 to 47 percent. Questions remain about the influence of other factors (e.g., effect of smoking, other particulate sources), the quality of the individual epidemiologic studies, exposure levels, and consequently the precise magnitude of the increased risk of lung cancer. From a weight of evidence perspective, EPA concludes that the epidemiologic evidence, as well as supporting data from certain animal and mode of action studies, support the Agency's conclusion that exposure to diesel exhaust is likely to pose a human lung cancer hazard to occupationally exposed individuals as well as to the general public exposed to typically lower environmental levels of diesel exhaust.

Risk assessments in the peer-reviewed literature have attempted to assess the lifetime risk of lung cancer in workers occupationally exposed to diesel exhaust. These estimates suggest that lung cancer risk may range from 10−4 to 10−2.[36] [37] [38] The Agency recognizes the significant uncertainties in these studies, and has not used these estimates to assess the possible cancer unit risk associated with ambient exposure to diesel exhaust.

While available evidence supports EPA's conclusion that diesel exhaust is likely to be a human lung carcinogen, and thus is likely to pose a cancer hazard to humans, EPA has concluded that the available data are not sufficient to develop a confident estimate of cancer unit risk. The absence of a cancer unit risk for diesel exhaust limits our ability to quantify, with confidence, the potential impact of the hazard (magnitude of risk) on exposed populations. In the draft Assessment, EPA acknowledged this limitation and provided a discussion of the possible environmental cancer risk consistent with the majority of the occupational epidemiological findings of increased lung cancer risk and the exposure differences between the occupational and environmental settings.[39] The Agency concluded in developing its perspective on risk that there is a reasonable potential that environmental lifetime cancer risks (“environmental risk range”) from diesel exhaust may exceed 10-5 and could be as high as 10-3.[40]

The environmental risk estimates included in the Agency's risk perspective are meant only to gauge the possible magnitude of risk to provide a means to understand the potential significance of the lung cancer hazard. The estimates are not to be construed as cancer unit risk estimates and are not suitable for use in analyses which would estimate possible lung cancer cases in exposed populations.

EPA recognizes that, as in all such risk assessments, there are uncertainties in this assessment of the environmental risk range including limitations in exposure data, uncertainty with respect to the most accurate characterization of the risk increases observed in the epidemiological studies, chemical changes in diesel exhaust over time, and extrapolation of the risk from occupational to ambient environmental exposures. As with any such risk assessment for a carcinogen, despite EPA's thorough examination of the available epidemiologic evidence and exposure information, at this time EPA can not rule out the possibility that the lower end of the risk range includes zero.[41] However, it is the Agency's best scientific judgement that the assumptions and other elements of this analysis are reasonable and appropriate for identifying the risk potential based on the scientific information currently available.

The Agency believes that the risk estimation techniques that were used in the draft Assessment to gauge the potential for and possible magnitude of risk are reasonable and the CASAC Start Printed Page 5023panel has concurred with the Assessment's discussion of the possible environmental risk range with an understanding that some clarifications and caveats would be added to the final version of the Assessment. Details of the technical approach used in estimating the possible range of environmental risks and uncertainties are provided in the RIA.

In the draft Assessment, the Agency also provided a discussion of the potential overlap and/or relatively small difference between some occupational settings where increased lung cancer risk is reported and ambient environmental exposures. The potential for small exposure differences underscores the concern that some degree of occupational risk may also be present in the environmental setting and that extrapolation of occupational risk to ambient environmental exposure levels should be more confidently judged to be appropriate. The relevant exposure information is presented in the RIA.

In the absence of having a unit cancer risk to assess environmental risk, EPA has considered the relevant epidemiological studies and principles for their assessment, the relative risk from occupational exposure as assessed by others, and relative exposure differences between occupational and ambient environmental levels of diesel exhaust exposure.

While uncertainty exists in estimating the possible magnitude of the environmental risk range, the likely hazard to humans together with the potential for significant environmental risks leads the Agency to believe that diesel exhaust emissions should be reduced in order to protect the public's health. We believe that this is a prudent measure in light of:

  • The designation that diesel exhaust is likely to be carcinogenic to humans,
  • The exposure of the entire population to various levels of diesel exhaust,
  • The consistent observation of significantly increased lung cancer risk in workers exposed to diesel exhaust, and
  • The potential overlap and/or relatively small difference between some occupational settings where increased lung cancer risk is reported and ambient exposures.

In the late 1980s, the International Agency for Research on Cancer (IARC) determined that diesel exhaust is “probably carcinogenic to humans” and the National Institute for Occupational Safety and Health classified diesel exhaust a “potential occupational carcinogen.”42[43] Based on IARC findings, the State of California identified diesel exhaust in 1990 as a chemical known to the State to cause cancer. In 1996, the International Programme on Chemical Safety of the World Health Organization listed diesel exhaust as a “probable” human carcinogen.[44] In 1998, the California Office of Environmental Health Hazard Assessment (OEHHA, California EPA) identified diesel PM as a toxic air contaminant due to the noncancer and cancer hazard and because of the potential magnitude of the cancer risk.[45] Most recently, the U.S. Department of Health and Human Services National Toxicology Program designated diesel exhaust particles as “reasonably anticipated to be a human carcinogen” in its Ninth Report on Carcinogens.[46] The concern for a carcinogenicity hazard resulting from diesel exhaust exposures is longstanding and widespread.

b. Noncancer Effects of Diesel Exhaust

The acute and chronic exposure-related noncancer effects of diesel exhaust emissions are also of concern to the Agency. Acute exposure to diesel exhaust can result in physiologic symptoms consistent with irritation and inflammation, and evidence of immunological effects including increased reaction to allergens and some symptoms associated with asthma. The acute effects data, however, lack sufficient detail to permit the calculation of protective levels for human exposure.

For chronic diesel exhaust exposure, EPA is completing the development of an inhalation reference concentration (RfC). The RfC is an estimate of the continuous human inhalation exposure (including sensitive subgroups) that is likely to be without an appreciable risk of deleterious noncancer effects during a lifetime. While the limited amount of human data are suggestive of respiratory distress, animal test data are quite definitive in providing a basis to anticipate a hazard to the human lung based on the irritant and inflammatory reactions in test animals. Thus, EPA believes that chronic diesel exhaust exposure, at sufficient exposure levels, increases the hazard and risk of an adverse health effect. Based on CASAC advice regarding the use of the animal data to derive the RfC, the Agency will provide in the final Assessment in 2001 an RfC based on diesel exhaust effects in test animals of approximately 5 μg/m 3.

In addition, it is also instructive to recognize that diesel exhaust particulate matter is part of ambient fine PM. A qualitative comparison of adverse effects of exposure to ambient fine PM and diesel exhaust particulate matter shows that the respiratory system is adversely affected in both cases, though a wider spectrum of adverse effects has been identified for ambient fine PM. Relative to the diesel PM database, there is a wealth of human data for fine PM noncancer effects. Since diesel exhaust PM is a component of ambient fine PM, the fine PM health effects data base can be informative. The final Assessment will discuss the fine PM health effects data and its relation to evaluating health effects associated with diesel exhaust.

5. Other Criteria Pollutants

The standards being finalized today will help reduce levels of three other pollutants for which NAAQS have been established: carbon monoxide (CO), nitrogen dioxide (NO2), and sulfur dioxide (SO2). As of July, 2000, every area in the United States has been designated to be in attainment with the NO2 NAAQS. There were 28 areas designated as nonattainment with the SO2 standard, and 17 areas designated CO nonattainment areas.

A health threat of carbon monoxide at outdoor levels occurs for those who suffer from cardiovascular disease, such as angina petoris, where it can exacerbate the effects. Studies also show that outdoor levels can lower peak performance from individuals that are exercising and lower exercise tolerance of sensitive individuals. EPA believes that epidemiological evidence suggests that there is a risk of premature mortality and lowered birth weight from CO exposure.[47] The Carbon Monoxide Criteria Document was finalized in Start Printed Page 5024August 2000 and made available to the public at that time.

6. Other Air Toxics

In addition to NOX and particulates, heavy-duty vehicle emissions contain several other substances that are known or suspected human or animal carcinogens, or have serious noncancer health effects. These include benzene,1,3-butadiene, formaldehyde, acetaldehyde, acrolein, and dioxin. For some of these pollutants, heavy-duty engine emissions are believed to account for a significant proportion of total nation-wide emissions. Although these emissions will decrease in the short term, they are expected to increase between 2010 and 2020 without the emission limits, as the number of miles traveled by heavy-duty trucks increases. In the RIA, we present current and projected exposures to benzene, 1,3-butadiene, formaldehyde, and acetaldehyde from all on-highway motor vehicles.

By reducing hydrocarbon and other organic emissions, both in gas phase and bound to particles, the emission control program in today's action will also reduce the direct emissions of air toxics from HDVs. Today's action will reduce exposure to hydrocarbon and other organic emissions and therefore help reduce the impact of HDV emissions on cancer and noncancer health effects.

a. Benzene

Highway mobile sources account for 42 percent of nationwide emissions of benzene and HDVs account for 7 percent of all highway vehicle benzene emissions.[48] The EPA has recently reconfirmed that benzene is a known human carcinogen by all routes of exposure (including leukemia at high, prolonged air exposures), and is associated with additional health effects including genetic changes in humans and animals and increased proliferation of bone marrow cells in mice.4950[51] EPA believes that the data indicate a causal relationship between benzene exposure and acute lymphocytic leukemia and suggest a relationship between benzene exposure and chronic non-lymphocytic leukemia and chronic lymphocytic leukemia. Respiration is the major source of human exposure and at least half of this exposure is attributable to gasoline vapors and automotive emissions. A number of adverse noncancer health effects including blood, disorders, such as preleukemia and aplastic anemia, have also been associated with low-dose, long-term exposure to benzene.

b. 1,3-Butadiene

Highway mobile sources account for 42 percent of the annual emissions of 1,3-butadiene and HDVs account for 15 percent of the highway vehicle portion. Today's program will play an important role in reducing in the mobile contribution of 1,3-butadiene. Reproductive and/or developmental effects have been observed in mice and rats following inhalation exposure to 1,3-butadiene.[52] No information is available on developmental/reproductive effects in humans following exposure to 1,3-butadiene. In the EPA1998 draft Health Risk Assessment of 1,3-Butadiene, that was reviewed by the SAB, EPA proposed that 1,3-butadiene is a known human carcinogen based on human epidemiologic, laboratory animal data, and supporting data such as the genotoxicity of 1,3-butadiene metabolites.[53] The Environmental Health Committee of EPA's Scientific Advisory Board (SAB), reviewed the draft document in August 1998 and recommended that 1,3-butadiene be classified as a probable human carcinogen, stating that designation of 1,3-butadiene as a known human carcinogen should be based on observational studies in humans, without regard to mechanistic or other information.[54] In applying the 1996 proposed Guidelines for Carcinogen Risk Assessment, the Agency relies on both observational studies in humans as well as experimental evidence demonstrating causality and therefore the designation of 1,3-butadiene as a known human carcinogen remains applicable.[55] The Agency has revised the draft Health Risk Assessment of 1,3-Butadiene based on the SAB and public comments. The draft Health Risk Assessment of 1,3-Butadiene will undergo the Agency consensus review, during which time additional changes may be made prior to its public release and placement on the Integrated Risk Information System (IRIS).

c. Formaldehyde

Highway mobile sources contribute 24 percent of the national emissions of formaldehyde, and HDVs account for 36 percent of the highway portion. EPA has classified formaldehyde as a probable human carcinogen based on evidence in humans and in rats, mice, hamsters, and monkeys.[56] Epidemiological studies in occupationally exposed workers suggest that long-term inhalation of formaldehyde may be associated with tumors of the nasopharyngeal cavity (generally the area at the back of the mouth near the nose), nasal cavity, and sinus. Formaldehyde exposure also causes a range of noncancer health effects, including irritation of the eyes (tearing of the eyes and increased blinking) and mucous membranes. Sensitive individuals may experience these adverse effects at lower concentrations than the general population and in persons with bronchial asthma, the upper respiratory irritation caused by formaldehyde can precipitate an acute asthmatic attack. The agency is currently conducting a reassessment of risk from inhalation exposure to formaldehyde.

d. Acetaldehyde

Highway mobile sources contribute 29 percent of the national acetaldehyde emissions and HDVs are responsible for approximately 33 percent of these highway mobile source emissions. Acetaldehyde is classified as a probable human carcinogen and is considered moderately toxic by the inhalation, oral, and intravenous routes. The primary acute effect of exposure to acetaldehyde vapors is irritation of the eyes, skin, and respiratory tract. At high concentrations, irritation and pulmonary effects can occur, which could facilitate the uptake of other contaminants. The agency is currently conducting a reassessment of Start Printed Page 5025risk from inhalation exposure to acetaldehyde.

e. Acrolein

Highway mobile sources contribute 16 percent of the national acrolein emissions and HDVs are responsible for approximately 39 percent of these highway mobile source emissions. Acrolein is extremely toxic to humans when inhaled, with acute exposure resulting in upper respiratory tract irritation and congestion. The Agency has developed a reference concentration for inhalation (RfC) of acrolein of 0.02 micrograms/m3.[57] Although no information is available on its carcinogenic effects in humans, based on laboratory animal data, EPA considers acrolein a possible human carcinogen.

f. Dioxins

Recent studies have confirmed that dioxins are formed by and emitted from heavy-duty diesel trucks and are estimated to account for 1.2 percent of total dioxin emissions in 1995. In the environment, the pathway of immediate concern is the food pathway (e.g., human ingestion of certain foods, e.g. meat and dairy products contaminated by dioxin) which may be affected by deposition of dioxin from the atmosphere. EPA classified dioxins as probable human carcinogens in 1985. Recently EPA has proposed, and the Scientific Advisory Board has concurred, to classify one dioxin compound, 2,3,7,8-tetrachlorodibenzo-p-dioxin as a human carcinogen and the complex mixtures of dioxin-like compounds as likely to be carcinogenic to humans using the draft 1996 carcinogen risk assessment guidelines.[58] Using the 1986 cancer risk assessment guidelines, the hazard characterization for 2,3,7,8-tetrachlorodibenzo-p-dioxin is “known” human carcinogen and the hazard characterization for complex mixtures of dioxin-like compounds is “probable” human carcinogens. Acute and chronic noncancer effects have also been reported for dioxin.

7. Other Welfare and Environmental Effects

Some commenters challenged the Agency's use of adverse welfare and environmental effects associated with emissions from heavy-duty vehicles as a partial basis for this rulemaking. Other commenters went to great lengths to support the Agency's inclusion of these welfare and environmental effects. Additional information has been added since the proposal in order to update and clarify the available information on welfare and environmental impacts of heavy-duty vehicle emissions. The following section presents information on four categories of public welfare and environmental impacts related to heavy-duty vehicle emissions: acid deposition, eutrophication of water bodies, POM deposition, and impairment of visibility.

a. Acid Deposition

Acid deposition, or acid rain as it is commonly known, occurs when SO2 and NOX react in the atmosphere with water, oxygen, and oxidants to form various acidic compounds that later fall to earth in the form of precipitation or dry deposition of acidic particles.[59] It contributes to damage of trees at high elevations and in extreme cases may cause lakes and streams to become so acidic that they cannot support aquatic life. In addition, acid deposition accelerates the decay of building materials and paints, including irreplaceable buildings, statues, and sculptures that are part of our nation's cultural heritage. To reduce damage to automotive paint caused by acid rain and acidic dry deposition, some manufacturers use acid-resistant paints, at an average cost of $5 per vehicle—a total of $61 million per year if applied to all new cars and trucks sold in the U.S.

Acid deposition primarily affects bodies of water that rest atop soil with a limited ability to neutralize acidic compounds. The National Surface Water Survey (NSWS) investigated the effects of acidic deposition in over 1,000 lakes larger than 10 acres and in thousands of miles of streams. It found that acid deposition was the primary cause of acidity in 75 percent of the acidic lakes and about 50 percent of the acidic streams, and that the areas most sensitive to acid rain were the Adirondacks, the mid-Appalachian highlands, the upper Midwest and the high elevation West. The NSWS found that approximately 580 streams in the Mid-Atlantic Coastal Plain are acidic primarily due to acidic deposition. Hundreds of the lakes in the Adirondacks surveyed in the NSWS have acidity levels incompatible with the survival of sensitive fish species. Many of the over 1,350 acidic streams in the Mid-Atlantic Highlands (mid-Appalachia) region have already experienced trout losses due to increased stream acidity. Emissions from U.S. sources contribute to acidic deposition in eastern Canada, where the Canadian government has estimated that 14,000 lakes are acidic. Acid deposition also has been implicated in contributing to degradation of high-elevation spruce forests that populate the ridges of the Appalachian Mountains from Maine to Georgia. This area includes national parks such as the Shenandoah and Great Smoky Mountain National Parks.

A recent study of emissions trends and acidity of waterbodies in the Eastern United States by the General Accounting Office (GAO) found that sulfates declined in 92 percent of a representative sample of lakes from 1992 to 1999, and nitrate levels increased in 48 percent of the lakes sampled.[60] The decrease in sulfates is consistent with emissions trends, but the increase in nitrates is inconsistent with the stable levels of nitrogen emissions and deposition. The study suggests that the vegetation and land surrounding these lakes have lost some of their previous capacity to use nitrogen, thus allowing more of the nitrogen to flow into the lakes and increase their acidity. Recovery of acidified lakes is expected to take a number of years, even where soil and vegetation have not been “nitrogen saturated,” as EPA called the phenomenon in a 1995 study.[61] This situation places a premium on reductions of SOX and especially NOX from all sources, including HDVs, in order to reduce the extent and severity of nitrogen saturation and acidification of lakes in the Adirondacks and throughout the United States.

The SOX and NOX reductions from today's action will help reduce acid rain and acid deposition, thereby helping to reduce acidity levels in lakes and streams throughout the country and help accelerate the recovery of acidified lakes and streams and the revival of ecosystems adversely affected by acid deposition. Reduced acid deposition levels will also help reduce stress on forests, thereby accelerating reforestation efforts and improving timber production. Deterioration of our Start Printed Page 5026historic buildings and monuments, and of buildings, vehicles, and other structures exposed to acid rain and dry acid deposition also will be reduced, and the costs borne to prevent acid-related damage may also decline. While the reduction in sulfur and nitrogen acid deposition will be roughly proportional to the reduction in SOX and NOX emissions, respectively, the precise impact of today's action will differ across different areas.

b. Eutrophication and Nitrification

Eutrophication is the accelerated production of organic matter, particularly algae, in a water body. This increased growth can cause numerous adverse ecological effects and economic impacts, including nuisance algal blooms, dieback of underwater plants due to reduced light penetration, and toxic plankton blooms. Algal and plankton blooms can also reduce the level of dissolved oxygen, which can also adversely affect fish and shellfish populations.

In 1999, NOAA published the results of a five year national assessment of the severity and extent of estuarine eutrophication. An estuary is defined as the inland arm of the sea that meets the mouth of a river. The 138 estuaries characterized in the study represent more than 90 percent of total estuarine water surface area and the total number of US estuaries. The study found that estuaries with moderate to high eutrophication conditions represented 65 percent of the estuarine surface area. Eutrophication is of particular concern in coastal areas with poor or stratified circulation patterns, such as the Chesapeake Bay, Long Island Sound, or the Gulf of Mexico. In such areas, the “overproduced” algae tends to sink to the bottom and decay, using all or most of the available oxygen and thereby reducing or eliminating populations of bottom-feeder fish and shellfish, distorting the normal population balance between different aquatic organisms, and in extreme cases causing dramatic fish kills.

Severe and persistent eutrophication often directly impacts human activities. For example, losses in the nation's fishery resources may be directly caused by fish kills associated with low dissolved oxygen and toxic blooms. Declines in tourism occur when low dissolved oxygen causes noxious smalls and floating mats of algal blooms create unfavorable aesthetic conditions. Risks to human health increase when the toxins from algal blooms accumulate in edible fish and shellfish, and when toxins become airborne, causing respiratory problems due to inhalation. According to the NOAA report, more than half of the nation's estuaries have moderate to high expressions of at least one of these symptoms—an indication that eutrophication is well developed in more than half of U.S. estuaries.

In recent decades, human activities have greatly accelerated nutrient inputs, such as nitrogen and phosphorous, causing excessive growth of algae and leading to degraded water quality and associated impairments of freshwater and estuarine resources for human uses.[62] Since 1970, eutrophic conditions worsened in 48 estuaries and improved in 14. In 26 systems, there was no trend in overall eutrophication conditions since 1970.[63] On the New England coast, for example, the number of red and brown tides and shellfish problems from nuisance and toxic plankton blooms have increased over the past two decades, a development thought to be linked to increased nitrogen loadings in coastal waters. Long-term monitoring in the United States, Europe, and other developed regions of the world shows a substantial rise of nitrogen levels in surface waters, which are highly correlated with human-generated inputs of nitrogen to their watersheds.

On a national basis, the most frequently recommended control strategies by experts surveyed by National Oceanic and Atmospheric Administration (NOAA) between 1992-1997 were agriculture, wastewater treatment, urban runoff, and atmospheric deposition.[64] In its Third Report to Congress on the Great Waters, EPA reported that atmospheric deposition contributes from 2 to 38 percent of the nitrogen load to certain coastal waters.[65] A review of peer reviewed literature in 1995 on the subject of air deposition suggests a typical contribution of 20 percent or higher.[66] Human-caused nitrogen loading to the Long Island Sound from the atmosphere was estimated at 14 percent by a collaboration of federal and state air and water agencies in 1997.[67] The National Exposure Research Laboratory, US EPA, estimated based on prior studies that 20 to 35 percent of the nitrogen loading to the Chesapeake Bay is attributable to atmospheric deposition.[68] The mobile source portion of atmospheric NOX contribution to the Chesapeake Bay was modeled at about 30 percent of total air deposition.[69]

Deposition of nitrogen from heavy-duty vehicles contributes to elevated nitrogen levels in waterbodies. In the Chesapeake Bay region, modeling shows that mobile source deposition occurs in relatively close proximity to highways, such as the 1-95 corridor which covers part of the Bay surface. The new standards for heavy-duty vehicles will reduce total NOX emissions by 2.6 million tons in 2030. The NOX reductions will reduce the airborne nitrogen deposition that contributes to eutrophication of watersheds, particularly in aquatic systems where atmospheric deposition of nitrogen represents a significant portion of total nitrogen loadings.

c. Polycyclic Organic Matter Deposition

EPA's Great Waters Program has identified 15 pollutants whose deposition to water bodies has contributed to the overall contamination loadings to the these Great Waters.[70] One of these 15 pollutants, a group known as polycyclic organic matter (POM), are compounds that are mainly adhered to the particles emitted by mobile sources and later fall to earth in the form of precipitation or dry deposition of particles. The mobile source contribution of the 7 most toxic POM is at least 62 tons/year and represents only those POM that adhere to mobile source particulate emissions.[71] The majority of these emissions are produced by diesel engines.

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POM is generally defined as a large class of chemicals consisting of organic compounds having multiple benzene rings and a boiling point greater than 100 degrees C. Polycyclic aromatic hydrocarbons are a chemical class that is a subset of POM. POM are naturally occurring substances that are byproducts of the incomplete combustion of fossil fuels and plant and animal biomass (e.g., forest fires). Also, they occur as byproducts from steel and coke productions and waste incineration. Evidence for potential human health effects associated with POM comes from studies in animals (fish, amphibians, rats) and in human cells culture assays. Reproductive, developmental, immunological, and endocrine (hormone) effects have been documented in these systems. Many of the compounds included in the class of compounds known as POM are classified by EPA as probable human carcinogens based on animal data.

Evidence for potential human health effects associated with POM comes from studies in animals (fish, amphibians, rats) and in human cells culture assays. Reproductive, developmental, immunological, and endocrine (hormone) effects have been documented in these systems. Many of the compounds included in the class of compounds known as POM are classified by EPA as probable human carcinogens based on animal data.

The particulate reductions from today's action will help reduce not only the particulate emissions from highway diesel engines but also the deposition of the POM adhering to the particles, thereby helping to reduce health effects of POM in lakes and streams, accelerate the recovery of affected lakes and streams, and revive the ecosystems adversely affected.

d. Visibility and Regional Haze

Visibility impairment, also called regional haze, is a complex problem caused by a variety of sources, both natural and anthropogenic (e.g., motor vehicles). Regional haze masks objects on the horizon and reduces the contrast of nearby objects. The formation, extent, and intensity of regional haze are functions of meteorological and chemical processes, which sometimes cause fine particle loadings to remain suspended in the atmosphere for several days and to be transported hundreds of kilometers from their sources (NRC, 1993).

Visibility has been defined as the degree to which the atmosphere is transparent to visible light (NRC, 1993). Visibility impairment is caused by the scattering and absorption of light by particles and gases in the atmosphere. Fine particles (0.1 to 2.5 microns in diameter) are more effective per unit mass concentration at impairing visibility than either larger or smaller particles (NAPAP, 1991). Most of the diesel particle mass emitted by diesel engines falls within this fine particle size range. Light absorption is often caused by elemental carbon, a product of incomplete combustion from activities such as burning diesel fuel or wood. These particles cause light to be scattered or absorbed, thereby reducing visibility.

Heavy-duty vehicles contribute a significant portion of the emissions of direct PM, NOX, and SOX that result in ambient PM that contributes to regional haze and impaired visibility. The Grand Canyon Visibility Transport Commission's report found that heavy-duty diesel vehicles contribute 41 percent of fine elemental carbon or soot, 20 percent of NOX, 7 percent of fine organic carbon, and 6 percent of SOX. The report also found that reducing total mobile source emissions is an essential part of any program to protect visibility in the Western U.S. The Commission identified mobile source pollutants of concern as VOC, NOX, and elemental and organic carbon. The Western Governors Association, in later commenting on the Regional Haze Rule and on protecting the 16 Class I areas on the Colorado Plateau, stated that the federal government, and particularly EPA, must do its part in regulating emissions from mobile sources that contribute to regional haze in these areas. As described more fully later in this section, today's action will result in large reductions in these pollutants. These reductions are expected to provide an important step towards improving visibility across the nation. Emissions reductions being achieved to attain the 1-hour ozone and PM10 NAAQS will assist in visibility improvements. Moreover, the timing of the reductions from the standards fits very well with the goals of the regional haze program. We will work with the regional planning bodies to make sure they have the information to take account of the reductions from this final rule in their planning efforts.

The Clean Air Act contains provisions designed to protect national parks and wilderness areas from visibility impairment. In 1999, EPA promulgated a rule that will require States to develop plans to dramatically improve visibility in national parks. Although it is difficult to determine natural visibility levels, we believe that average visual range in many Class I areas in the United States is significantly less (about 50-66 percent of natural visual range in the West, about 20 percent of natural visual range in the East) than the visual range that will exist without anthropogenic air pollution. The final Regional Haze Rule establishes a 60-year time period for planning purposes, with several near term regulatory requirements, and is applicable to all 50 states. One of the obligations is for States to representative conduct visibility monitoring in mandatory Class I Federal areas and determine baseline conditions using data for year 2000 to 2004. Reductions of particles, NOX, sulfur, and VOCs from this rulemaking will have a significant impact on moving all states towards achieving long-term visibility goals, as outlined in the 1999 Regional Haze Rule.

C. Contribution from Heavy-Duty Vehicles

Nationwide, heavy-duty vehicles are projected to contribute about 15 percent of the total NOX inventory, and 28 percent of the mobile source inventory in 2007. Heavy-duty NOX emissions also contribute to fine particulate concentrations in ambient air due to the transformation in the atmosphere to nitrates. The NOX reductions resulting from today's standards will therefore have a considerable impact on the national NOX inventory. All highway vehicles account for 34 percent and heavy-duty highway vehicles account for 20 percent of the mobile source portion of national PM10 emissions in 2007. The heavy-duty portion of the inventory is often greater in the cities, and the reductions in this rulemaking will have a relatively greater benefit in those areas.

1. NOX Emissions

Heavy-duty vehicles are important contributors to the national inventories of NOX emissions. Without NOX reductions from this rule, HDVs are expected to contribute approximately 18 percent of annual NOX emissions in 1996. The HDV contribution is predicted to fall to 15 percent in 2007 and 14 percent in 2020 due to reductions from the 2004 heavy-duty rulemaking, and then rise again to 16 percent of total NOX inventory by 2030 (Table II.C-1). Annual NOX reductions from this rule are expected to total 2.6 million tons in 2030. Start Printed Page 5028

Table II.C-1—NOX Emissions From HDVs With and Without Reductions From This Rule

Without this rule (base case)With this rule (control case)
YearHDV annual NOX tonsHDV annual NOX tons as a percent of total NOXReductions in annual HDV NOX tons
19964,810,00018n/a
20073,040,0001558,000
20202,560,000141,820,000
20302,960,000162,570,000

The contribution of heavy-duty vehicles to NOX inventories in many MSAs is significantly greater than that reflected in the national average. For example, HDV contributions to total annual NOX is greater than the national average in the eight metropolitan statistical areas listed in Table II.C-2. Examples of major cities with a history of persistent ozone violations that are heavily impacted by NOX emissions from HDVs include: Los Angeles, Washington, DC, San Diego, Hartford, Atlanta, Sacramento. As presented in the table below, HDV's contribute from 22 percent to 33 percent of the total NOX inventories in these selected cities. NOX emissions also contribute to the formation of fine particulate matter, especially in the West. In all areas, NOX also contributes to environmental and welfare effects such as regional haze, and eutrophication and nitrification of water bodies.

Table II.C-2—Heavy-Duty Vehicle Percent Contribution to NOX Inventories in Selected Urban Areas in 2007

MSA, CMSA / StateHDV NOX as portion of total NOX (%)HDV NOX as portion of mobile source NOX (%)
National1528
Sacramento, CA3337
Hartford, CT2838
San Diego, CA2528
San Francisco, CA2429
Atlanta, GA2234
Los Angeles2226
Dallas2228
Washington-Baltimore, MSA2236

2. PM Emissions

Nationally, we estimate that primary emissions of PM10 to be about 33 million tons/year in 2007. Fugitive dust, other miscellaneous sources and crustal material (wind erosion) constitute approximately 90 percent of the 2007 PM10 inventory. However, there is evidence from ambient studies that emissions of these materials may be overestimated and/or that once emitted they have less of an influence on monitored PM concentration than this inventory share would suggest. Mobile sources account for 22 percent of the PM10 inventory (excluding the contribution of miscellaneous and natural sources) and highway heavy-duty engines, the subject of today's action, account for 20 percent of the mobile source portion of national PM10 emissions in 2007.

The contribution of heavy-duty vehicle emissions to total PM emissions in some metropolitan areas is substantially higher than the national average. This is not surprising, given the high density of these engines operating in these areas. For example, in Los Angeles, Atlanta, Hartford, San Diego, Santa Fe, Cincinnati, and Detroit, the estimated 2007 highway heavy-duty vehicle contribution to mobile source PM10 ranges from 25 to 38 percent, while the national percent contribution to mobile sources for 2007 is projected to be about 20 percent. As illustrated in Table II.C-3, heavy-duty vehicles operated in El Paso, Indianapolis, San Francisco, and Minneapolis also account for a higher portion of the mobile source PM inventory than the national average. These data are based on updated inventories developed for this rulemaking. Importantly, these estimates do not include the contribution from secondary PM, which is an important component of diesel PM.

Table II.C-3—2007 Heavy-Duty Vehicle Contribution to Urban Mobile Source PM Inventories

MSA, StateHDV PM Contribution to mobile source PMGa
National (48 State)20
Atlanta, GA MSA25
Cincinnati-Hamilton, OH-KY-IN CMSA26
Detroit-Ann Arbor-Flint, MI CMSA25
El Paso, TX MSA23
Hartford, CT MSA30
Indianapolis, IN MSA23
Los Angeles-Riverside-Orange County, CA CMSA25
Minneapolis-St. Paul, MN-WI MSA23
San Diego, CA MSA27
San Francisco-Oakland-San Jose, CA CMSA24
Santa Fe, NM MSA38
a Direct exhaust emissions only; excludes secondary PM.

The city-specific emission inventory analysis and investigations of ambient PM2.5 summarized in the RIA indicate that the contribution of diesel engines to PM inventories in several urban areas around the U.S. is much higher than indicated by the national PM emission inventories only. One possible explanation for this is the concentrated use of diesel engines in certain local or regional areas which is not well represented by the national, yearly average presented in national PM emission inventories. Another reason may be underestimation of the in-use diesel PM emission rates. Our current modeling incorporates deterioration only as would be experienced in properly maintained, untampered vehicles. We are currently in the process of reassessing the rate of in-use deterioration of diesel engines and vehicles which could significantly increase the contribution of HDVs to diesel PM. Start Printed Page 5029

3. Environmental Justice

Environmental justice is a priority for EPA. The Federal government stated its concern, in part, over this issue through issuing Executive Order 12898, Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations (February 11, 1994). This Order requires that federal agencies make achieving environmental justice part of their mission. Similarly, the EPA created an Office of Environmental Justice (originally the Office of Environmental Equity) in 1992, commissioned a task force to address environmental justice issues, oversees a Federal Advisory Committee addressing environmental justice issues (the National Environmental Justice Advisory Council), and has developed an implementation strategy as required under Executive Order 12898.

Application of environmental justice principles as outlined in the Executive Order advances the fair treatment of people of all races, income, and culture with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies. Fair treatment implies that no person or group of people should shoulder a disproportionate share of any negative environmental impacts resulting from the execution of this country's domestic and foreign policy programs.

For the last several years, environmental organizations and community-based citizens groups have been working together to phase out diesel buses in urban areas. For example, the Natural Resources Defense Council initiated a “Dump Dirty Diesel” campaign in the 1990s to press for the phase out of diesel buses in New York City. Other environmental organizations operating in major cities such as Boston, Newark, and Los Angeles have joined this campaign. The Coalition for Clean Air worked with NRDC and other experts to perform exposure monitoring in communities located near distribution centers where diesel truck traffic is heavy. These two organizations concluded that facilities with heavy truck traffic are exposing local communities to diesel exhaust concentrations far above the average levels in outdoor air. The report states: “These affected communities, and the workers at these distribution facilities with heavy diesel truck traffic, are bearing a disproportionate burden of the health risks.” [72] Other diesel “hot spots” identified by the groups are bus terminals, truck and bus maintenance facilities, retail distribution centers, and busy streets and highways.

While there is currently a limited understanding of the relationship of environmental exposures to the onset of asthma, the environmental triggers of asthma attacks for children with asthma have become increasingly well characterized.[73] Asthma's burden falls hardest on the poor, inner city residents, and children. Among children up to 4 years of age, asthma prevalence increased 160 percent since 1980.[74] African-American children have an annual rate of hospitalization three times that for white children, and are four times as likely to seek care at an emergency room.[75] In 1995, the death rate from asthma in African-American children, 11.5 per million, was over four times the rate in white American children, 2.6 per million.[76]

Local community groups and private citizens testified at public hearings held for this rule that the residents of their communities suffer greatly, and disproportionally, from air pollution in general, and emissions from heavy-duty vehicles in particular. For example, a testifier in New York pointed out that “since Northern Manhattan and the South Bronx experience asthma mortality and morbidity rates at three to five times greater than the citywide average, New York City's problem is Northern Manhattan's crisis.” [77]

The new standards established in this rulemaking are expected to improve air quality across the country and will provide increased protection to the public against a wide range of health effects, including chronic bronchitis, respiratory illnesses, and aggravation of asthma symptoms. These air quality and public health benefits could be expected to mitigate some of the environmental justice concerns related to heavy-duty vehicles since the rule will provide relatively larger benefits to heavily impacted urban areas.

D. Anticipated Emissions Benefits

This subsection presents the emission benefits we anticipate from heavy-duty vehicles as a result of our new NOX, PM, and NMHC emission standards for heavy-duty engines. The graphs and tables that follow illustrate the Agency's projection of future emissions from heavy-duty vehicles for each pollutant. The baseline case represents future emissions from heavy-duty vehicles at present standards (including the MY2004 standards). The controlled case quantifies the future emissions of heavy-duty vehicles once the new standards in this FRM are implemented.

We use the same baseline inventory as is used in the county-by-county, hour-by-hour air quality analyses associated with this rule. However, we made a slight modification to the controlled inventory to incorporate the changes between the proposed and final standards. Because the detailed air quality analyses took several months to perform, we had to use the proposed standards for the air quality analysis. Since beginning this analysis, we updated the control case emission inventories to reflect the final phase-in of the NOX standard, slight changes to the timing of the HDGV standards, a temporary compliance option for introducing the low sulfur fuel requirements, and various hardship provisions for refiners in our emission inventory projections. The emission inventory calculations are presented in detail in the Regulatory Impact Analysis.

1. NOX Reductions

The Agency expects substantial NOX reductions on both a percentage and a tonnage basis from the new standards. The RIA provides additional projections between 2007 and 2030. As stated previously, HDVs contribute about 15 percent to the national NOX inventory for all sources in 2007. Figure II.D-1 shows our national projections of total NOX emissions with and without the engine controls finalized today. Table II.D-1 presents the total reductions.78 This includes both exhaust and crankcase emissions.79 The standards Start Printed Page 5030should result in close to a 90 percent reduction in NOX from new engines.

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Table II.D-1.—Estimated Reductions in NOX

Calendar yearNOX reduction [thousand short tons]
200758
2010419
20151,260
20201,820
20302,570

2. PM Reductions

As stated previously, HDVs will contribute about 20 percent to the 2007 national PM10 inventory for mobile sources. The majority of the projected PM reductions are directly a result of the exhaust PM standard. However, a modest amount of PM reductions will come from reducing sulfur in the fuel. For the existing fleet of heavy-duty vehicles, a small fraction of the sulfur in diesel fuel is emitted directly into the atmosphere as direct sulfate, and a portion of the remaining fuel sulfur is transformed in the atmosphere into sulfate particles, referred to as indirect sulfate. Reducing sulfur in the fuel decreases the amount of direct sulfate PM emitted from heavy-duty diesel engines and the amount of heavy-duty diesel engine SOx emissions that are transformed into indirect sulfate PM in the atmosphere.[80] For engines meeting the new standards, we consider low sulfur fuel to be necessary to enable the PM control technology. In other words, we do not claim an additional benefit beyond the new exhaust standard for reductions in direct sulfate PM for new engines. However, once the low sulfur fuel requirements go into effect, many pre-2007 model year engines would also be using low sulfur fuel. Because these pre-2007 model year engines are certified with higher sulfur fuel, they will achieve reductions in PM beyond their certification levels.

Figure II.D-2 shows our national projections of total HDV PM (TPM) emissions with and without the new engine controls. This figure includes brake and tire wear, crankcase emissions and the direct sulfate PM (DSPM) benefits due to the use of low sulfur fuel by the existing fleet. These direct sulfate PM benefits from the existing fleet are also graphed separately. The new standards will result in about a 90 percent reduction in exhaust PM from new heavy-duty diesel engines. The low sulfur fuel should result in more than a 95 percent reduction in direct sulfate PM from pre-2007 heavy-duty diesel engines. Due to complexities of the conversion and removal processes of sulfur dioxide, we do not attempt to quantify the indirect sulfate reductions that would be derived from this rulemaking in the inventory analysis. Nevertheless, we recognize that these indirect sulfate PM reductions contribute significant additional benefits to public health and welfare, and we include this effect in our more detailed air quality analysis.

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Table II.D-2.—Estimated Reductions in PM

Calendar yearPM reduction [thousand short tons]
200711
201036
201561
202082
2030109

3. NMHC Reductions

The standards described in Section III are designed to be feasible for both gasoline and diesel heavy-duty vehicles. Although the standards give manufacturers the same phase-in for NMHC as for NOX, we model the NMHC reductions for diesel vehicles to be fully in place in 2007 due to the application of particulate control technology. We believe the use of aftertreatment for PM control will cause the NMHC levels to be below the standards as soon as the PM standard goes into effect in 2007.

HDVs account for about 3 percent of national VOC and 8 percent from mobile sources in 2007. Figure II.D-3 shows our national projections of total NMHC emissions with and without the new engine controls. This includes both exhaust emissions and evaporative emissions. Table II.D-3 presents the projected reductions of NMHC due to the new standards.

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Start Printed Page 5034

Table II.D-3.—Estimated Reductions in NMHC

Calendar yearNMHC reduction [thousand short tons]
20072
201021
201554
202083
2030115

4. Additional Emissions Benefits

This subsection looks at tons/year emission inventories of CO, SOX, and air toxics from HDEs. Although we are not including stringent standards for these pollutants in this action, we believe the standards will result in reductions in CO, SOX, and air toxics. Here, we present our anticipated benefits.

a. CO Reductions

In 2007, HDVs are projected to contribute to approximately 5 percent of national CO and 9 percent of CO from mobile sources. Although it does not include new CO emission standards, today's action would nevertheless be expected to result in a considerable reduction in CO emissions from heavy-duty vehicles. CO emissions from heavy-duty diesel vehicles, although already very low, would likely be reduced by an additional 90 percent due to the operation of emissions control systems that will be necessary to achieve today's new standards for hydrocarbons and particulate matter. CO emissions from heavy-duty gasoline vehicles would also likely decline as the NMHC emissions are decreased. Table II.D-4 presents the projected reductions in CO emissions from HDVs.

Table II.D-4.—Estimated Reductions in CO

Calendar yearCO reduction [thousand short tons]
200756
2010317
2015691
2020982
20301,290

b. SOX Reductions

HDVs are projected to emit approximately 0.5 percent of national SOX and 8 percent of mobile source SOX in 2007. We are requiring significant reductions in diesel fuel sulfur to enable certain emission control devices to function properly. We expect SOX emissions to decline as a direct benefit of low sulfur diesel fuel. The majority of these benefits will be from heavy-duty highway diesel vehicles; however, some benefits will also come from highway fuel burned in other applications such as light-duty diesel vehicles and nonroad engines. As discussed in greater detail in the section on PM reductions, the amount of sulfate particles (direct and indirect) formed as a result of diesel exhaust emissions will decline for all HD diesel engines operated on low sulfur diesel fuel, including the current on-highway HD diesel fleet, and those non-road HD diesel engines that may operate on low sulfur diesel fuel in the future. Table II.D-5 presents our estimates of SOX reductions resulting from the low sulfur fuel.

Table II.D-5.—Estimated Reductions In SOX Due To Low Sulfur Fuel

Calendar yearSOX reduction [thousand short tons]
200779
2010107
2015117
2020126
2030142

c. Air Toxics Reductions

This FRM establishes new non-methane hydrocarbon standards for all heavy-duty vehicles and a formaldehyde standard for complete heavy-duty vehicles. Hydrocarbons are a broad class of chemical compounds containing carbon and hydrogen. Many forms of hydrocarbons, such as formaldehyde, are directly hazardous and contribute to what are collectively called “air toxics.” Air toxics are pollutants known to cause or suspected of causing cancer or other serious human health effects or ecosystem damage. The Agency has identified at least 20 compounds emitted from on-road gasoline vehicles that have toxicological potential, 19 of which are emitted by diesel vehicles, as well as an additional 20 compounds which have been listed as toxic air contaminants by California ARB.[81] [82] This action also will reduce emissions of diesel exhaust and diesel particulate matter (see Section II.B for a discussion of health effects).

Our assessment of heavy-duty vehicle (gasoline and diesel) air toxics focuses on the following compounds with cancer potency estimates that have significant emissions from heavy-duty vehicles: benzene, formaldehyde, acetaldehyde, and 1,3-butadiene. These compounds are an important, but limited, subset of the total number of air toxics that exist in exhaust and evaporative emissions from heavy-duty vehicles. The reductions in air toxics quantified in this section represent only a fraction of the total number and amount of air toxics reductions expected from the new hydrocarbon standards.

For this analysis, we estimate that air toxic emissions are a constant fraction of hydrocarbon exhaust emissions from future engines. Because air toxics are a Start Printed Page 5035subset of hydrocarbons, and new emission controls are not expected to preferentially control one type of air toxic over another, the selected air toxics chosen for this analysis are expected to decline by the same percentage amount as hydrocarbon exhaust emissions. We have not performed a separate analysis for the new formaldehyde standard since compliance with the hydrocarbon standard should result in compliance with the formaldehyde standard for all petroleum-fueled engines. The RIA provides more detail on this analysis. Table II.D-6 shows the estimated air toxics reductions associated with the reductions in hydrocarbons.

Table II.D-6.—Estimated Reductions In Air Toxics (short tons)

Calendar yearBenzeneFormaldehydeAcetaldehyde1,3-Butadiene
2007241816714
20103561,670608135
20159654,7201,720384
20201,3407,0802,600567
20301,96010,2003,730823

E. Clean Heavy-Duty Vehicles and Low-Sulfur Diesel Fuel are Critically Important for Improving Human Health and Welfare

Despite continuing progress in reducing emissions from heavy-duty engines, emissions from these engines continue to be a concern for human health and welfare. Ozone continues to be a significant public health problem, and affects not only people with impaired respiratory systems, such as asthmatics, but healthy children and adults as well. Ozone also causes damage to plants and has an adverse impact on agricultural yields. Particulate matter, like ozone, has been linked to a range of serious respiratory health problems, including premature mortality, aggravation of respiratory and cardiovascular disease, aggravated asthma, acute respiratory symptoms, and chronic bronchitis. Importantly, EPA has concluded that diesel exhaust is likely to be carcinogenic to humans by inhalation at occupational and environmental levels of exposure.

Today's action will reduce NOX, VOC, CO, PM, and SOX emissions from these heavy-duty vehicles substantially. These reductions will help reduce ozone levels nationwide and reduce the frequency and magnitude of predicted exceedances of the ozone standard. These reductions will also help reduce PM levels, both by reducing direct PM emissions and by reducing emissions that give rise to secondary PM. The NOX and SOX reductions will help reduce acidification problems, and the NOX reductions will help reduce eutrophication problems. The PM and NOX standard enacted today will help improve visibility. All of these reductions are expected to have a beneficial impact on human health and welfare by reducing exposure to ozone, PM, diesel exhaust and other air toxics and thus reducing the cancer and noncancer effects associated with exposure to these substances.

III. Heavy-Duty Engine and Vehicle Standards

In this section, we describe the vehicle and engine standards we are finalizing today to respond to the serious air quality needs discussed in Section II. Specifically, we discuss:

  • The CAA and why we are finalizing new heavy-duty standards.
  • The technology opportunity for heavy-duty vehicles and engines.
  • Our new HDV and HDE standards, and our phase-in of those standards.
  • Why we believe the stringent standards being finalized today are feasible in conjunction with the low sulfur gasoline required under the recent Tier 2 rule and the low sulfur diesel fuel being finalized today.
  • The effects of diesel fuel sulfur on the ability to meet the new standards, and what happens if high sulfur diesel fuel is used.
  • Plans for future review of the status of heavy-duty diesel NOX emission control technology.

A. Why Are We Setting New Heavy-Duty Standards?

We are finalizing new heavy-duty vehicle and engine standards and related provisions under section 202(a)(3) of the CAA, which authorizes EPA to establish emission standards for new heavy-duty motor vehicles. (See 42 U.S.C. 7521(a)(3).) Section 202(a)(3)(A) requires that such standards “reflect the greatest degree of emission reduction achievable through the application of technology which the Administrator determines will be available for the model year to which such standards apply, giving appropriate consideration to cost, energy, and safety factors associated with the application of such technology.” Section 202(a)(3)(B) allows EPA to take into account air quality information in revising such standards. Because heavy-duty engines contribute greatly to a number of serious air pollution problems, especially the health and welfare effects of ozone, PM, and air toxics, and because millions of Americans live in areas that exceed the national air quality standards for ozone or PM, we believe the air quality need for tighter heavy-duty standards is well founded. This, and our belief that a significant degree of emission reduction from heavy-duty vehicles and engines is achievable, giving appropriate consideration to cost, energy, and safety factors, through the application of new diesel emission control technology, further refinement of well established gasoline emission controls, and reductions of diesel fuel sulfur levels, leads us to believe that new emission standards are warranted.

B. Emission Control Technologies for Heavy-Duty Vehicles and Engines

For the past 30 or more years, emission control development for gasoline vehicles and engines has concentrated most aggressively on exhaust emission control devices. These devices currently provide as much as or more than 95 percent of the emission control on a gasoline vehicle. In contrast, the emission control development work for diesels has concentrated on improvements to the engine itself to limit the emissions leaving the combustion chamber.

However, during the past 15 years, more development effort has been put into diesel exhaust emission control devices, particularly in the area of PM control. Those developments, and recent developments in diesel NOX control devices, make the widespread commercial use of diesel exhaust emission controls feasible. Through use of these devices, we believe emissions control similar to that attained by gasoline applications will be possible with diesel applications. However, without low sulfur diesel fuel, these technologies cannot be implemented on heavy-duty diesel applications. Low sulfur diesel fuel will at the same time Start Printed Page 5036also allow these technologies to be implemented on light-duty diesel applications.

As discussed at length in the preamble to our proposal, several exhaust emission control devices have been or are being developed to control harmful diesel exhaust pollutants. Of these, we believe that the catalyzed diesel particulate trap and the NOX adsorber are the most likely candidates to be used to meet the very low diesel exhaust emission standards adopted today on the variety of applications in the heavy-duty diesel market. While other technologies exist that have the potential to provide significant emission reductions, such as selective catalytic reduction systems for NOX control, and development of these technologies is being pursued to varying degrees, we believe that the catalyzed diesel particulate trap and the NOX adsorber will be the only likely broadly applicable technology choice by the makers of engines and vehicles for the national fleet in this timeframe. However, as discussed in detail in the Final RIA, we strongly believe that none of these technologies can be brought to market on diesel engines and vehicles unless the kind of low sulfur diesel fuel adopted in this rule is available.

As for gasoline engines and vehicles, improvement continues to be made to gasoline emissions control technology. This includes improvement to catalyst designs in the form of improved washcoats and improved precious metal dispersion. Much effort has also been put into improved cold start strategies that allow for more rapid catalyst light-off. This can be done by retarding the spark timing to increase the temperature of the exhaust gases, and by using air-gap manifolds, exhaust pipes, and catalytic converter shells to decrease heat loss from the system.

These improvements to gasoline emission controls will be made in response to the California LEV-II standards and the federal Tier 2 standards.[83] These improvements should transfer well to the heavy-duty gasoline segment of the fleet. With such migration of light-duty technology to heavy-duty vehicles and engines, we believe that considerable improvements to heavy-duty gasoline emissions can be realized, thus allowing vehicles to meet the much more stringent standards adopted today.

The following discussion provides more detail on the technologies we believe are most capable of meeting very stringent heavy-duty emission standards. The goal of this discussion is to describe the emission reduction capability of these emission control technologies and their critical need for diesel fuel sulfur levels as low as those being finalized today. But first, we present the details of the new emission standards being finalized today.

C. What Engine and Vehicle Standards Are We Finalizing?

1. Heavy-Duty Engine Exhaust Emissions Standards

a. FTP Standards [84]

The emission standards finalized today for heavy-duty engines are summarized in Table III.C-1. For reasons explained below, the phase-in schedule for these standards differs from the proposed schedule. We are also finalizing an incentive provision to encourage the early introduction of engines meeting these new standards. This incentive provision is explained in section III.D. In addition, we have altered our Averaging, Banking, and Trading (ABT) provisions from what was proposed. The final ABT provisions are discussed in detail in section VI.

Table III.C-1.—Full Useful Life Heavy-Duty Engine Exhaust Emissions Standards and Phase-Ins for Incomplete Vehicles

Standard (g/bhp-hr)Phase-In by Model Year a
2007200820092010
DieselNOX0.2050%50%50%100%
NMHC0.1450%50%50%100%
PM0.01100%100%100%100%
GasolineNOX0.200%50%100%100%
NMHC0.140%50%100%100%
PM0.010%50%100%100%
a Percentages represent percent of sales.

With respect to PM, this new standard represents a 90 percent reduction for most heavy-duty diesel engines from the current PM standard. The current PM standard for most heavy-duty engines, 0.10 g/bhp-hr, was implemented in the 1994 model year; the PM standard for urban buses implemented in that same year was 0.05 g/bhp-hr; these standards are not changing when other standards change in the 2004 model year timeframe. The new PM standard of 0.01 g/bhp-hr being finalized today is projected to require the addition of highly efficient PM traps to diesel engines, including those diesel engines used in urban buses; it is not expected to require the addition of any new hardware for gasoline engines.

With respect to NMHC and NOX, these new standards represent significant reductions from the 2004 diesel engine standard which is either 2.4 g/bhp-hr NOX+NMHC, or 2.5 g/bhp-hr NOX+NMHC with a cap on NMHC of 0.5 g/bhp-hr. We generally expect that 2004 diesel engines will meet those standards with emission levels around 2.2 g/bhp-hr NOX and 0.2 g/bhp-hr NMHC. Like the PM standard, the new NOX standard is projected to require the addition of a highly efficient NOX emission control system to diesel engines which, with help from the PM trap, will need to be optimized to control NMHC emissions. For gasoline Start Printed Page 5037engines, the 2005 model year standard recently finalized in the Phase 1 heavy-duty rule is 1.0 g/bhp-hr NOX+NMHC. (See 65 FR 59896, October 6, 2000.) There is a direct trade off between NOX and NMHC emissions with a gasoline engine, but we would generally expect NOX levels over 0.5 g/bhp-hr and NMHC levels below that. Regardless of the NOX and NMHC split, today's standards represent significant reductions for 2008 and later engines that will require substantial improvement in the effectiveness of heavy-duty gasoline emission control technology.

We proposed a new formaldehyde standard of 0.016 g/bhp-hr for both heavy-duty diesel and gasoline engines. However, we have decided not to finalize those standards. We proposed the formaldehyde (HCHO) standard because it is a hazardous air pollutant that is emitted by heavy-duty engines and other mobile sources. In the proposal, we stated our belief that formaldehyde emissions from gasoline and diesel engines are and will remain inherently low, but having the standard would ensure that excess emissions would not occur. Several commenters took issue with our proposed standard claiming that the benefits were nonexistent, that we should address toxic emissions in our toxics rulemaking, and that we had shown neither its technological feasibility nor its measurability. After further consideration we do believe that the proposed formaldehyde standard is not necessary because the NMHC standard we are promulgating today will almost certainly result in formaldehyde emissions well below our proposed formaldehyde standard. As a result, other comments on this issue such as those concerning technological feasibility and measurability are no longer relevant to this rule. We will continue to evaluate this issue to ensure that formaldehyde emissions do not become a problem in the future and may take action to consider standards if warranted.

We believe a phase-in of the diesel NOX standard is appropriate. With a phase-in, manufacturers are able to introduce the new technology on a portion of their engines, thereby gaining valuable experience with the technology prior to implementing it on their entire fleet. Also, we are requiring that the NOX, and NMHC standards be phased-in together for diesel engines. That is, engines will be expected to meet both of these new standards, not just one or the other. We are requiring this because the standard finalized in the Phase 1 heavy-duty rule is a combined NMHC+NOX standard. With separate NOX and NMHC phase-ins, say 50/50/50/100 for NOX and 100 percent in 2007 for NMHC, the 2.5 gram engines being phased-out would have a 2.5 gram NOX+NMHC standard and a new 0.14 gram NMHC standard with which to comply. While this could be done, we believe that it introduces unnecessary compliance complexity to the program.

In our NPRM, we requested comment on a range of possible phase-in schedules for NOX including anything from our primary proposal of 25/50/75/100 percent phase-in to a possible requirement for 100 percent compliance in the 2007 model year. We have determined that a 50/50/50/100 percent phase-in schedule is the most appropriate schedule for several reasons.

Some commenters argued that we should require 100 percent compliance in the 2007 model year because of the 0.20 gram standard was both technologically feasible and critical given the nation's air quality needs. Other commenters were concerned that 100 percent compliance to the 0.20 gram NOX standard in the first year of the program was ill advised as it would provide little opportunity for industry to “field test” new NOX control technologies. These commenters also expressed concern over workload burdens on industry members needing to redesign all of their new engines and vehicles in one year. Some commenters were concerned that a 25/50/75/100 percent phase-in schedule would introduce competitiveness issues whereby those vehicles equipped with new NOX control technology may be less attractive to some buyers than vehicles without the technology, making them difficult for manufacturers to sell.

We set standards and implementation schedules based on many factors including technological feasibility, cost, energy, and safety. Considering these factors, we believe that industry should be provided the flexibility of having a phase-in of the new NOX standard. As discussed in section III.E below, we believe the 0.20 gram NOX standard is feasible in the 2007 time frame. However, we believe a phase-in is appropriate for a couple of reasons. First, the phase-in will provide industry with the flexibility to roll out the NOX control technology on only a portion of their fleet. This will allow them to focus their resources on that half of their fleet being brought into compliance in 2007. This ability to focus their efforts will increase both the efficiency and the effectiveness of those efforts. Second, a phase-in allows industry the ability to introduce the new technology on those engines it believes are best suited for a successful implementation which, in turn, provides a valuable opportunity to refine that technology on only a portion of their product line prior to the next push toward full implementation.

Another concern with respect to our proposed phase-in schedule was raised by several commenters and pertains to its interaction with the final implementation schedule for the new supplemental requirements (the Supplemental Emission Test, SET, and the Not-to-Exceed, NTE). These requirements, finalized in the Phase 1 heavy-duty final rule, will be implemented in the 2007 model year on all heavy-duty diesel engines. (See 65 FR 59896, October 6, 2000.) Under a 25/50/75/100 percent phase-in schedule of new diesel engine emission requirements, 25 percent of engines in the 2007 model year would meet 0.20 and 0.01 g/bhp-hr NOX and PM, while 75 percent would meet 2.5 and 0.01 g/bhp-hr NOX and PM. Further, all of those engines would be required, beginning in the 2007 model year, to meet the supplemental requirements based on the FTP emission standards to which they were certified. A 25/50/75/100 percent phase-in schedule would change the supplemental requirements for those 25 percent of engines in the 2008 model year that would have to change to meet the new 50 percent compliance requirement. This change would be required even though the supplemental requirements on those 25 percent of engines were first implemented only one model year earlier, in model year 2007. Commenters have questioned whether this is consistent with section 202(a)(3)(c) of the Clean Air Act, which requires that standards for heavy-duty vehicles and engines apply for no less than three model years without revision. Under this argument, the supplemental requirements implemented in the 2007 model year must be allowed three model years of stability, meaning that no changes can be required to those standards until the 2010 model year.

The final phase-in schedule, 50/50/50/100 percent, addresses any concerns about violating the stability requirement of the Act and addresses the technology and lead time benefits of a phase-in as discussed above.[85] While this phase-in does not provide certain commenters with their goal of 100 percent implementation of very low NOX engines in 2007, we believe it is Start Printed Page 5038appropriate for the technology, cost, and other reasons described above. This 50/50/50/100 percent phase-in schedule does provide a more rapid implementation of low NOX engines and, more importantly, provides more air quality benefits in 2007 than would our proposed phase-in schedule. We are also finalizing provisions that would encourage manufacturers to introduce clean technology, both diesel and gasoline, earlier than required in return for greater flexibility during the later years of our phase-in. These optional early incentive provisions are analogous to those included in our light-duty Tier 2 rule and are discussed in more detail in section III.D. We have also revised our Averaging, Banking, and Trading program to increase flexibility as discussed further in section VI.

For gasoline engines, we proposed 100 percent compliance in the 2007 model year. However, since the proposal was published, we have set new standards for heavy-duty gasoline engines that take effect in the 2005 model year. Therefore, the three year stability requirement of the CAA requires that today's new standards not apply until the 2008 model year at the earliest. Further, while we had not proposed a phase-in for gasoline standards, based on comments received we believe that a phase-in should be provided. The phase-in will allow manufacturers to implement improved gasoline control technologies on their heavy-duty gasoline engines in the same timeframe as they implement those technologies on their Tier 2 medium-duty passenger vehicles (MDPV). This consistency with Tier 2 is discussed in more detail below in section III.C.2 on vehicle standards. Note that the gasoline engine phase-in schedule is the same as but separate from the gasoline vehicle phase-in schedule discussed below. As we have done for diesel engines, we have also revised our Averaging, Banking, and Trading program for gasoline engines to increase flexibility as discussed further in section VI.

For a discussion of why we believe these standards are technologically feasible in the time frame required, refer to section III.E below and for a more detailed discussion refer to the RIA contained in the docket. The averaging, banking, and trading (ABT) provisions associated with today's standards are discussed in Section VI of this preamble. The reader should refer to that section for more details.

b. Supplemental Provisions for HD Diesel Engines (SET & NTE)

In addition to the new FTP standards for HD diesel engines contained in today's final action, we are also finalizing the supplemental emission standards we proposed to apply to the new HDDEs, with a number of changes as discussed in this section. The supplemental provisions will help ensure that HD diesel engines achieve the expected in-use emission reductions over a wide range of vehicle operation and a wide range of ambient conditions, not only the test cycle and conditions represented by the traditional FTP. The Agency has historically relied upon the FTP and the prohibition of defeat devices to ensure that HDDE emission control technologies which operate during the laboratory test cycle continue to operate in-use. The supplemental provisions are a valuable addition to the FTP and the defeat device prohibition to ensure effective in-use emission control. The supplemental provisions for HD diesel engines consist of two principal requirements, the supplemental emission test and associated standards (SET),[86] and the not-to-exceed test and associated standards (NTE). The supplemental emission standards finalized today for heavy-duty diesel engines are summarized in Table III.C-2.

Table III.C-2.—Full Useful Life Heavy-Duty Diesel Engine Supplemental Exhaust Emissions Standards

Supplemental testRequirements for NOX, NMHC, PM
Supplemental emission test1.0 × FTP standard (or FEL).
Not-to-exceed test1.5 × FTP standard (or FEL).

The SET and NTE test procedures were recently adopted for 2007 on-highway HD diesel engines. (See 65 FR 59896, October 6, 2000.) In the recent HD Phase 1 rulemaking which promulgated the SET and NTE, the supplemental provisions were finalized in the context of the emission control technology expected to be used to meet the 2004 FTP standards, i.e., injection timing strategies and cooled EGR. In this final action, we are finalizing a number of changes to the supplemental provisions to address specific technical issues raised by commenters and which result from the expected application of high efficiency exhaust emission control devices on HD diesel engines and vehicles to meet today's new standards. These changes are minor in nature and will not impact the emission reductions we expect from the Phase 2 standards. These changes are discussed in the following sections. Additional discussion regarding the supplemental provisions for HDDEs is contained in the RIA and the Response to Comments (RTC) for this final rule, as well as in Section III.E of this preamble (“Feasibility of the New Engine and Vehicle Standards”).

i. Supplemental Emission Test

We are finalizing supplemental emission test provisions for HD diesel engines and vehicles certified to the new FTP standards contained in this final rule. The SET emission standard is equal to 1.0 times the FTP standard or FEL for HD diesel engines. Emission results from this test must meet the numerical standards for the FTP. The SET requirements are phased-in beginning with the 2007 model year, consistent with the phase-in of the new FTP standards. The supplemental emission test duty cycle consists of 13 modes of speed and torque, primarily covering the typical highway cruise operating range of heavy-duty diesel engines. The emission results from each of the modes are weighted by defined factors in the regulations, and the final weighted emission value for each pollutant must meet the SET standard. In addition, several of the 13 individual modes are in the NTE control zone, and must meet the applicable NTE requirements. The SET test is a laboratory test performed using an engine dynamometer under the same conditions which apply to the FTP, as specified in the regulations. (See 40 CFR 86.1360.)

The regulations for the SET in model year 2007 as they apply to the 2004 FTP emission standards contain additional steady-state test point emission limits. The Phase 1 supplemental requirements define a “Maximum Allowable Emission Limit” (MAEL) which the engines must comply with. The Phase 1 regulations allowed EPA to randomly select up to three steady-state test points prior to certification which the manufacturer would test to show compliance with the MAEL. These test points are referred to as “mystery points”. In this final rule we have eliminated the MAEL for engines certified to the Phase 2 standards. The MAEL assures that an engine is calibrated to maintain emission control similar to the SET test under steady state conditions across the engine map, not just at the pre-defined 13 test points Start Printed Page 5039which comprise the SET test. For Phase 1 engines the MAEL was necessary to ensure this potential for gaming did not occur because the difference between the FTP standard and the NTE standard could be large, for example, 0.625 g/bhp-hr for NMHC + NOX. However, for Phase 2 engines the NTE requirements are a mere 0.10 g/bhp-hr NOX greater than the FTP standard. Considering this small increment, we have eliminated the MAEL for Phase 2 engines because it is redundant with the NTE. For the same reasons, we have eliminated the certification “mystery points” for engines complying with today's diesel engine standards.

ii. Not-to-Exceed

We are also finalizing revisions to the not-to-exceed emission standards for HD diesel engines certified to the Phase 2 FTP standards contained in this final rule. These NTE procedures apply under engine operating conditions within the range specified in the NTE test procedure that could reasonably be expected to be seen in normal vehicle operation and use. (See 40 CFR 86.1370.) The NTE procedure defines limited and specific engine operating regions (i.e., speed and torque conditions) and ambient operating conditions (i.e., altitude, temperature, and humidity conditions) which are subject to the NTE emission standards. Emission results from this test procedure must be less than or equal to 1.5 times the FTP standards (or FEL) for NOX, NMHC, and PM. The new NTE requirements are phased-in starting with the 2007 model year, consistent with the new FTP standards.

The Not-To-Exceed (NTE) provisions were recently finalized for HDDEs certified to the 2004 FTP emission standards with implementation beginning in model year 2007. (See 65 FR 59896, October 6, 2000.) The NTE approach establishes an area (the “NTE control area”) under the torque curve of an engine where emissions must not exceed a specified value for any of the regulated pollutants.[87] The NTE requirements would apply under engine operating conditions that could reasonably be expected to be seen in normal vehicle operation and use which occur during the conditions specified in the NTE test procedure. (See 40 CFR 86.1370.) This test procedure covers a specific range of engine operation and ambient operating conditions (i.e., temperature, altitude, and humidity). The NTE control area, emissions standards, ambient conditions and test procedures for HDDEs are described in the regulations.

The NTE multiplier promulgated in the previous final rulemaking for HD diesel engines certified to the 2004 FTP standards is 1.25 × FTP standard (e.g., 1.25 × 2.5g/bhp-hr NMHC+NOX and 1.25 × 0.1 g/bhp-hr PM). We believe the NTE cap finalized today (1.5 × the Phase 2 FTP standards or FEL) allows sufficient headroom above the FTP standard to accommodate the technical challenges necessary to meet the NTE standard which must be met over a broader range of ambient conditions, a shorter time period, and a wider variety of operating conditions, than the FTP or the SET. While the 1.5 NTE multiplier we are finalizing is greater than what we proposed, in absolute terms the NTE requirement for Phase 2 engines is much smaller than for Phase 1 engines (i.e., the magnitude of the cap in g/bhp-hr emissions), and the Phase 2 NTE cap will help ensure the emission reductions we expect from the Phase 2 standards will occur in-use. The NTE requirements have been modified from what we proposed based on our assessment of the emission performance of the exhaust emission control devices that will be used to meet the new FTP standards (e.g., catalyzed particulate traps and NOX adsorbers). Under the program finalized today, an NTE limit of 1.5 × the NOX FEL would apply to 2007 and later model year engines certified with FELs less than 1.5 g/bhp-hr NOX. As discussed throughout this notice, the stringent 2007 PM standard, 0.01 g/bhp-hr, can be met with the use of catalyzed particulate traps. Because of the very low particulate matter emissions which will be emitted by engines meeting the PM standard, this final rule also establishes a minimum PM NTE requirement for engines certified with FELs below 0.01 g/bhp-hr at 1.5 × the FTP standard, not the FEL. Based on our assessment of the expected exhaust emission control devices and their performance, the NTE standard of 1.5 × FTP standard is both technologically feasible and appropriate. A detailed discussion of the feasibility of the NTE requirements is contained in the RIA for this final rule.

Today's action allows the NTE deficiency provisions we recently finalized for 2007 HDDEs meeting the 2004 FTP standards to be used by HDDEs meeting the standards contained in today's final rule (See 40 CFR 86.007-11(a)(4)(iv) in the regulations, and 65 FR 59914 of the Phase 1 rule for a detailed discussion of the NTE deficiencies.). These deficiency provisions are similar to the deficiency provisions which currently apply to LD and HD on-board diagnostic systems. This will allow the Administrator to accept a HDDE as compliant with the NTE even though some specific requirements are not fully met. This provision will be available for manufacturers through 2013, though it will be more limited after 2009 as described below. In the Phase 1 rule, the Agency finalized deficiency provisions which were allowed through model year 2009. In this rule, it is appropriate to extend the availability of the NTE deficiency provisions beyond 2009. Given the nature of the phase-in requirements in this rule, manufacturers may be introducing new engine families certified to the Phase 2 NOX and NMHC standards as late as model year 2010, and these families may need limited access to a NTE deficiency for a few years after their introduction. Therefore, we have extended the availability of deficiencies through model year 2013, but with one constraint. Given the considerable lead time available, we have limited the number of deficiencies to three per engine family for 2010 through 2013.

In addition, we have made a number of changes to the NTE requirements to address specific technical issues which arise from the application of high efficiency exhaust emission control devices to HDDEs. These provisions will only be summarized here. A detailed discussion is contained in the RIA and the RTC for this final rule. These changes include: engine start-up provisions; exhaust emission control device warm-up provisions; modifications of the NTE control zone; and adjustments to the NTE minimum emissions sample time.

Under this final rule, the NTE requirements will not apply during engine start-up conditions. EPA intended to include the provision excluding start-up provisions from the NTE requirements under the Phase 1 rulemaking, and it was discussed in the preamble for both the Phase 1 proposal and final rule. However, this provision was inadvertently left out of the regulations. We have corrected this in today's rule for both Phase 1 and Phase 2 engines. In addition, with the application of advanced exhaust emission control devices, an exhaust emission control device warm-up provision is a necessary criterion for the NTE. Specifically, until the exhaust gas temperature on the outlet side of the exhaust emission control device(s) Start Printed Page 5040achieves 250 degrees Celsius, the engine is not subject to the NTE. Additional discussion of this provision is contained in the RIA.

We have made three changes to the NTE engine control zone. First, we have expanded the NTE engine control zone for engines certified to the new 0.01 g/bhp-hr PM standard. The NTE requirements as specified in the regulations for engines certified to the 2004 FTP standards provide specific “PM carve-outs” to the NTE control zone. These carve-outs define an area of the engine operating regime (speed and torque area) to which the NTE does not apply for PM emissions. (See 65 FR 59961.) The PM only carve-outs were specified because, under certain engine operating regions, the NTE requirements for PM could not be met with the technology projected to be used to meet the 2004 FTP standards. However, as discussed in the RIA, the advanced PM trap technology that will be used to meet the PM standard contained in today's final rule is very efficient at controlling PM emissions across the entire NTE control zone. Due to the high PM reduction capabilities of catalyzed PM traps, there is no need for the PM specific carve-outs. Therefore, we have eliminated the NTE PM carve-outs for Phase 2 engines. Second, we have added a provision which would allow a manufacturer to exclude defined regions of the NTE engine control zone from NTE compliance if the manufacturer could demonstrate that the engine, when installed in a specified vehicle(s), is not capable of operating in such regions. Finally, we have added a provision which would allow a manufacturer to petition the Agency to limit testing in a defined region of the NTE engine control zone during NTE testing. This optional provision would require the manufacturer to provide the Agency with in-use operation data which the manufacturer could use to define a single, continuous region of the NTE control zone. This single area of the control zone must be specified such that operation within the defined region accounts for 5 percent or less of the total in-use operation of the engine, based on the supplied data. Further, to protect against gaming by manufacturers, the defined region must generally be elliptical or rectangular in shape, and share a boundary with the NTE control zone. If approved by EPA, the regulations then disallow testing with sampling periods in which operation within the defined region constitutes more than 5.0 percent of the time-weighted operation within the sampling period.

We have also changed the minimum emissions sample time approach for NTE testing to address technical issues specific to the advanced exhaust emission control devices anticipated to be used to meet the NTE requirements. We proposed that the minimum emission sample time for the NTE was 30 seconds, which is what we recently finalized for engines certified to the Phase 1 standards. This short sample time was sufficient to ensure that momentary spikes in emissions (e.g., such as could occur in a two or three second time frame) could not be isolated for determining compliance with the NTE (e.g., an NTE test must be no shorter than a 30 second average). However, the use of highly efficient exhaust emission control devices complicates the minimum sample time requirements because of the potential for short-duration emission increases during regeneration events. We have adjusted the minimum sample time requirements to address this issue as follows (a detailed discussion of the need for this change is contained in the RIA). The regulations specify that the NTE sample time can be as short as 30 seconds provided no regeneration events occur within the sample period. However, if a regeneration event is included in the sample time, the sample time must include the period of time from the start of one regeneration event to the start of the next regeneration event, for each regeneration included in the sample. A regeneration event is determined by the engine manufacturer. This second provision regarding the minimum NTE sample time also cannot be shorter than 30 seconds. This sample time provision applies to any HDDE engine equipped with an exhaust emission control device which requires discreet regeneration events, regardless of the nature of the regeneration (e.g., NOX regeneration, desulfation).

c. Crankcase Emissions Control

Crankcase emissions are the pollutants that are emitted in the gases that are vented from an engine's crankcase. These gases are also referred to as “blowby gases” because they result from engine exhaust from the combustion chamber “blowing by” the piston rings into the crankcase. These gases are vented to prevent high pressures from occurring in the crankcase. Our emission standards have historically prohibited crankcase emissions from all highway engines except turbocharged heavy-duty diesel engines. The most common way to eliminate crankcase emissions has been to vent the blowby gases into the engine air intake system, so that the gases can be recombusted. We made the exception for turbocharged heavy-duty diesel engines in the past because of concerns about fouling that could occur by routing the diesel particulates (including engine oil) into the turbocharger and aftercooler. Our concerns are now alleviated by newly developed closed crankcase filtration systems, specifically designed for turbocharged heavy-duty diesel engines. These new systems (discussed more fully in Section III.E below and in Chapter III of the Final RIA) are already required for new on-highway diesel engines under the EURO III emission standards.

In today's action, we are eliminating the exception for turbocharged heavy-duty diesel engines starting in the 2007 model year. Manufacturers will be required to control crankcase emissions from these engines, preferably by routing them back to the engine intake or to the exhaust stream upstream of the exhaust emission control devices. However, in response to the manufacturers' comments, we are finalizing the crankcase control requirement to allow manufacturers to treat crankcase emissions from these engines the same as other exhaust emissions (i.e., we provide a performance requirement and leave the design to the manufacturer). Under this allowance, manufacturers could potentially discharge some or all of the crankcase emissions to the atmosphere, but only if they were able to keep the combined total of the crankcase emissions and the other exhaust emissions below the applicable exhaust emission standards. They could do this by routing the crankcase gases into the exhaust stream downstream of the exhaust emission control devices, or by continuing the current practice of venting the gases to the engine compartment. But, they could take either of these approaches only if they make sure that the combined total of the crankcase emissions and the other exhaust emissions are below the applicable exhaust emission standards. Also, the manufacturer would have to ensure that the crankcase emissions were readily measurable during laboratory and in-use field testing.[88] Despite this allowance made at the request of commenters, given the low levels of today's final standards we believe that manufacturers will have to close the crankcases of all of their Start Printed Page 5041engines by either routing the crankcase emissions into the engine intake or by routing them into the exhaust upstream of the exhaust emission control devices.

d. On-Board Diagnostics (OBD)

The Phase 1 heavy-duty final rule put into place OBD requirements for heavy-duty diesel and gasoline engines weighing 14,000 pounds or less. (See 65 FR 59896, October 6, 2000.) In that rule, the OBD thresholds for malfunction identification are based on multiples of the applicable FTP emission standards to which the engine is certified. Given the structure of the 2004 FTP emission standards (2005 FTP emission standards for gasoline engines), which are combined NMHC+NOX standards, the OBD thresholds are based on a multiple of the combined FTP standards. However, the structure of the 2007 FTP standards (2008 for gasoline engines) finalized today is not a combined NMHC+NOX standard, but is instead a separate NOX and a separate NMHC standard.

Therefore, today's final rule is revising the existing section of the regulations to link OBD thresholds to whatever the appropriate standards are whether they are the combined FTP standards or the new separate FTP standards finalized today. This is consistent with the intent of our OBD requirements since inception—that the OBD thresholds be based on the FTP standards to which the vehicle or engine has been certified.

We are also revising the phase-in for the OBD requirements finalized in the Phase 1 rule. (See 65 FR 59896.) In that rule, OBD systems were required to phase-in on a schedule of 60/80/100 percent beginning in the 2005 model year. At least one commenter claimed that the OBD phase-in may require multiple changes to OBD systems in consecutive years, because OBD systems are tied to the FTP standards to which they are certified.[89] We have decided, for diesel engine OBD systems, to revise the 60/80/100 percent phase-in to 50/50/100 percent beginning in the 2005 model year. This revised phase-in not only alleviates the commenter's concerns, but also makes the OBD phase-in consistent with the implementation of new emission standards.

In addition, we have decided, for gasoline engine OBD systems, to revise the 60/80/100 percent phase-in to 60/80/80/100 percent beginning in the 2005 model year.[90] As with the new diesel OBD phase-in, this gasoline engine OBD phase-in alleviates the commenter's concerns, and it also makes the gasoline OBD phase-in more consistent with the implementation of new emission standards while maximizing the percentage of gasoline engines designed to meet the OBD requirements.

We also received comments suggesting that we commit to making any necessary changes to the OBD requirements based on the outcome of future rulemaking efforts by the California Air Resources Board (ARB). While we cannot make any such commitment, nor do we believe the commenter truly would want us to commit to making changes solely because ARB made changes, we do intend to continue our normal practice of working closely with ARB and harmonizing our OBD requirements where appropriate. Of course, any changes to our OBD requirements could only be done via rulemaking.[91]

2. Heavy-Duty Vehicle Exhaust Emissions Standards [92]

a. FTP Standards

The emission standards being finalized today for heavy-duty gasoline vehicles are summarized in Table III.C-3. We have already required that all complete heavy-duty gasoline vehicles, whether for transporting passengers or for work, be chassis certified. (See 65 FR 59896, October 6, 2000.) Current federal regulations do not require that complete diesel vehicles over 8,500 pounds be chassis certified; instead, our regulations have traditionally required certification of their engines. Today's final rule allows, as an option, chassis certification of complete heavy-duty diesel vehicles under 14,000 pounds. This option is discussed in more detail later in this section.

The Tier 2 final rule created a new vehicle category called “medium-duty passenger vehicles.” [93] These vehicles, both gasoline and diesel, are required to meet requirements of the Tier 2 program, which carries with it a chassis certification requirement. As a result, diesel medium-duty passenger vehicles must certify using the chassis certification test procedure.[94] Today's heavy-duty vehicle based standards, or chassis standards, for 2008 and later model year heavy-duty gasoline vehicles would apply to the remaining complete gasoline vehicles under 14,000 pounds and those complete diesel vehicles under 14,000 pounds choosing the chassis certification option; these complete vehicles are typically used for commercial, non-passenger applications. The standards shown in Table III.C-3 are, we believe, comparable in stringency to the diesel and gasoline engine standards shown in Table III.C-1.

Start Printed Page 5042

Table III.C-3.—Full Useful Life Heavy-Duty Vehicle Exhaust Emissions Standards and Phase-Ins for Complete Vehicles a

[Grams/mile]

Weight range (GVWR)Standard (g/mi)Phase-in by model year b
20082009
8,500 to 10,000 lbsNOX0.2
NMHC0.195
HCHO0.032
PM0.02
10,001 to 14,000 lbsNOX0.450%100%
NMHC0.230
HCHO0.040
PM0.02
a Does not include medium-duty passenger vehicles.
b Percentages represent percent of sales.

These NOX standards represent a 78 percent reduction and a 60 percent reduction from the standards for 8,500-10,000 pound and 10,000-14,000 pound vehicles, respectively, finalized for the 2005 model year. The 2005 model year standards are equivalent to the California LEV-I NOX standards of 0.9 g/mi and 1.0 g/mi, respectively. The NOX standards shown in Table III.C-3 are consistent with the CARB LEV-II NOX standards for low emission vehicles (LEVs) in each respective weight range. The NOX standard is slightly higher for the 10,000 to 14,000 pound vehicles for several reasons: these vehicles are tested at a heavier payload; they generally have a larger frontal area which creates more drag on the engine and requires it to work harder; and their in-use duty cycle tends to be more severe. The increased weight results in using more fuel per mile than vehicles tested at lighter payloads; therefore, they tend to emit slightly more grams of pollutant per mile than lighter vehicles.[95]

The NMHC standards finalized today represent a 30 percent reduction from the 2005 standards for 8500-10,000 and 10,000-14,000 pound vehicles. The 2005 model year standards require such vehicles to meet NMHC standard levels of 0.28 g/mi and 0.33 g/mi, respectively (equal to the California LEV-I nonmethane organic gases (NMOG) standard levels). These new NMHC standards are consistent with the CARB LEV-II NMOG standards for LEVs in each respective weight class. The NMHC standard for 10,000-14,000 pound vehicles is higher than for 8,500-10,000 pound vehicles for the same reason as stated above for the higher NOX standard for such vehicles.

The formaldehyde (HCHO) standards shown in Table III.C-3 are not the standards we proposed. The standards we are finalizing are equivalent to the California LEV-II LEV category standards. This approach is being taken to maintain consistency with the approach taken on NOX and NMHC standards. Although we are not finalizing formaldehyde standards for engine certified systems, because all the exhaust emission standards for complete vehicles are consistent with the CARB LEV II standards, we believe it is appropriate to maintain the formaldehyde standard for gasoline vehicles. Formaldehyde is a hazardous air pollutant that is emitted by heavy-duty vehicles and other mobile sources, and we are finalizing these formaldehyde standards to prevent excessive formaldehyde emissions. These standards are especially important for any methanol-fueled vehicles because formaldehyde is chemically similar to methanol and is one of the primary byproducts of incomplete combustion of methanol. Formaldehyde is also emitted by vehicles using petroleum fuels (i.e., gasoline or diesel fuel), but to a lesser degree than is typically emitted by methanol-fueled vehicles. We expect that petroleum-fueled vehicles able to meet the NMHC standards should comply with the formaldehyde standards with large compliance margins. Based upon our analysis of the similar Tier 2 standards for passenger vehicles, we believe that formaldehyde emissions from petroleum-fueled vehicles when complying with the new PM, NMHC and NOX standards should be as much as 90 percent below the standards.[96] Thus, to reduce testing costs, we are finalizing a provision that permits manufacturers of petroleum-fueled vehicles to demonstrate compliance with the formaldehyde standards based on engineering analysis. This provision requires manufacturers to make a demonstration in their certification application that vehicles having similar size and emission control technology have been shown to exhibit compliance with the applicable formaldehyde standard for their full useful life. This demonstration is expected to be similar to that required to demonstrate compliance with the Tier 2 formaldehyde standards.

The PM standard is 80 percent lower than the CARB LEV-II LEV category PM standard of 0.12 g/mi, which actually applies only to diesel vehicles. Note that the PM standard shown in Table III.C-3 represents not only a stringent PM level, but a new standard for federal HDVs where none existed before. Both the California LEV II program for heavy-duty diesel vehicles and the federal Tier 2 standards for over 8,500 pound gasoline and diesel vehicles designed for transporting passengers contain PM standards. The PM standard finalized today is consistent with the light-duty Tier 2 bins 7 and 8 level of 0.02 g/mi.

The timing for our final gasoline vehicle standards differs from what we had proposed. Our proposal had no phase-in, requiring 100 percent compliance in the 2007 model year. However, since the proposal was published, we have set new standards for heavy-duty gasoline complete vehicles that take effect in the 2005 model year. Therefore, the three year stability requirement of the CAA requires that today's new standards not apply until the 2008 model year at the earliest. Further, based on comments Start Printed Page 5043received, we believe that a phase-in should be provided. The phase-in will allow manufacturers to implement improved gasoline control technologies on their heavy-duty gasoline vehicles in the same timeframe as they implement those technologies on their Tier 2 medium-duty passenger vehicles (MDPV). The MDPVs generally use the same engines and emission control systems as do the heavy-duty versions of those vehicles. MDPVs must comply with our light-duty Tier 2 program at 50 percent beginning in the 2008 model year and then 100 percent in the 2009 model year. As a result of this MDPV phase-in, and the stability requirements of the CAA, and because we believe it provides the greatest emission control considering costs, we are finalizing a gasoline phase-in of 50/100 percent beginning in the 2008 model year. Commenters suggested a 40/80/100 percent phase-in beginning in the 2008 model year, but we believe that a 50/100 percent phase-in allows appropriate leadtime and synergy with the MDPV requirements of our Tier 2 program. It is worth clarifying that this phase-in excludes California complete heavy-duty vehicles, which are already required to be certified to the California emission standards. It also excludes vehicles sold in any state that has adopted California emission standards for complete heavy-duty vehicles. It would be inappropriate to allow manufacturers to “double-count” the vehicles by allowing them to count those vehicles both as part of their compliance with this phase-in and for compliance with California requirements. We would handle heavy-duty engines similarly if California were to adopt different emission standards than those being established by this rule.

We are also finalizing provisions that would encourage manufacturers to introduce clean technology earlier than required in return for greater flexibility during the later years of our phase-in. These optional early incentive provisions are analogous to those included in our light-duty Tier 2 rule and are discussed in more detail in section III.D.

As we have done for diesel and gasoline engines, we have revised our Averaging, Banking, and Trading program for gasoline vehicles and engines to increase flexibility as discussed further in section VI. The reader should refer to that section for more details. Note that the gasoline vehicle phase-in schedule is the same as but separate from the gasoline engine phase-in schedule discussed above. For a discussion of why we believe these standards are technologically feasible in the time frame required, refer to section III.E below, and for a more detailed discussion refer to the RIA contained in the docket.

We are also allowing complete heavy-duty diesel vehicles under 14,000 pounds to certify to the heavy-duty vehicle standards. The issue of chassis certification of diesels was raised as part of the Phase 1 rule. At that time, manufacturers expressed little interest in such a provision. Because the heavy-duty diesel industry is largely not a vertically-integrated industry, in that one company makes the engine and another makes the vehicle, chassis certification is not an immediately attractive or practical option for diesel engine manufacturers. Nonetheless, some manufacturers have begun to express interest in diesel chassis certification.[97] Also, the California Air Resources Board allows complete diesel vehicles to chassis certify. We like the idea of diesel chassis certification because it allows us to more easily evaluate such vehicles in-use. A chassis certified diesel could be acquired easily by EPA and tested in its vehicle configuration without the need to remove the engine for an engine test.

Therefore, while we fully expect that manufacturers will continue to certify the engines intended for complete diesel vehicles to the engine standards, we will allow the option to chassis certify such vehicles. Any chassis-certified complete diesel vehicles must meet the applicable Phase 2 emission standards for complete vehicles (i.e., this option is not available to diesels certified to the Phase 1 standards). In addition, while complete diesel vehicles would count against the phase-in requirements for diesel engines, they would not be allowed in the Averaging, Banking, and Trading program. Therefore, a chassis-certified diesel vehicle can neither use nor earn ABT credits, but counts as part of the 50 percent phase-in. Further, complete diesels choosing the chassis certification option would be required to comply with our federal OBD vehicle-based requirements for monitoring of exhaust emission control devices, even if choosing the option to demonstrate OBD compliance using the California OBD II requirements. Lastly, diesel vehicles choosing this option would be certified under subpart S which applies to chassis certified complete vehicles, but the evaporative emissions provisions of that subpart would not apply for diesel vehicles.

b. Supplemental Federal Test Procedure

We did not propose new supplemental FTP (SFTP) standards for heavy-duty vehicles. The SFTP standards control off-cycle emissions in a manner somewhat analogous to the NTE requirements for engines. We believe that the SFTP standards are an important part of our light-duty program just as we believe the NTE requirements will be an important part of our heavy-duty diesel engine program. Although we did not propose SFTP standards for heavy-duty vehicles, we stated an intention to do so via a separate rulemaking. We requested comment on such an approach, and on appropriate SFTP levels for heavy-duty vehicles along with supporting data.

We received unanimous support from industry commenters to address SFTP standards for heavy-duty vehicles in a separate rulemaking. In our Tier 2 final rule, we stated that we are currently contemplating a new SFTP rulemaking that would consider “Tier 2” SFTP standards for all Tier 2 vehicles, including MDPVs. California is also interested in developing more stringent SFTP standards within the context of their LEV II program and we are coordinating with California on these new SFTP standards. Given our concern over “off cycle” emissions, we believe it is appropriate that SFTP standards apply to all chassis certified vehicles, heavy-duty and light-duty. As part of the SFTP rule being contemplated, we expect to examine not only those issues stated in the Tier 2 rule (e.g., the SFTP test cycles and different SFTP standards for different vehicles sizes) but also the issue of heavy-duty SFTP standards.

c. On-Board Diagnostics (OBD)

The Phase 1 heavy-duty rule finalized OBD requirements for heavy-duty diesel engines, heavy-duty gasoline engines, and heavy-duty complete vehicles weighing 14,000 pounds or less. (See 65 FR 59896, October 6, 2000.) In that rulemaking, the final regulatory language stated the OBD catalyst thresholds for complete vehicles as multiples of a combined NMHC+NOX emission standard. However, the emission standards for complete vehicles are not combined, as are the engine standards in that final rule. Therefore, the OBD catalyst thresholds for complete vehicles were not stated properly in the applicable sections of the regulations.

Today's final rule corrects that regulatory error by revising the appropriate regulatory language to link the OBD thresholds to a separate, rather than combined, set of FTP exhaust Start Printed Page 5044emission standards. This is consistent with the Phase 1 heavy-duty proposal which correctly linked the proposed OBD thresholds to the separate FTP exhaust emission standards. (See 64 FR 58472, October 29, 1999.) It is also consistent with the preamble to the Phase 1 final rule, which stated the catalyst monitor threshold correctly. This change makes the OBD thresholds for complete vehicle certifications consistent with the structure used since implementation of the federal OBD requirements. (See 58 FR 9468, February 19, 1993.)

Consistent with the changes already discussed in section III.C.1, we are also revising the phase-in for complete vehicle OBD requirements finalized in the Phase 1 rule. (See 65 FR 59896.) In that rule, OBD systems were required to phase-in on a schedule of 60/80/100 percent beginning in the 2005 model year. At least one commenter pointed out that the OBD phase-in may require multiple changes to OBD systems in consecutive years because OBD systems are tied to the FTP standards to which they are certified. We have decided, for gasoline vehicle OBD systems, to revise the 60/80/100 percent phase-in to 60/80/80/100 percent beginning in the 2005 model year.[98] This revised OBD phase-in alleviates the commenter's concerns, and it makes the gasoline OBD phase-in more consistent with the implementation of new emission standards while maximizing the percentage of gasoline vehicles designed to meet the OBD requirements.

3. Heavy-Duty Evaporative Emissions Standards

We are finalizing new evaporative emission standards for heavy-duty vehicles and engines. The new standards are shown in Table III.C-4. These standards will apply to heavy-duty gasoline-fueled vehicles and engines, and methanol-fueled heavy-duty vehicles and engines. Consistent with existing standards, the standard for the two day diurnal plus hot soak test sequence would not apply to liquid petroleum gas (LPG) fueled and natural gas fueled HDVs.

Table III.C-4.—New Heavy-Duty Evaporative Emissions Standards a

[Grams per test]

Category3 day diurnal + hot soakSupplemental 2 day diurnal + hot soak b
8,500-14,000 lbs1.41.75
>14,000 lbs1.92.3
a To be implemented on the same schedule as the gasoline engine and vehicle exhaust emission standards shown in Tables III.C-1 and III.C-3. These new standards do not apply to medium-duty passenger vehicles, and do not apply to diesel fueled vehicles and engines.
b Does not apply to LPG or natural gas fueled HDVs.

These new standards represent more than a 50 percent reduction in the numerical standards as they exist today. The Phase 1 heavy-duty rule made no changes to the numerical value of the standard, but it did put into place new evaporative emission test procedures for heavy-duty complete gasoline vehicles.[99] (See 65 FR 59896, October 6, 2000.) For establishing evaporative emission levels from complete heavy-duty vehicles, the standards shown in Table III.C-4 presume the test procedures required in the Phase 1 heavy-duty rule.

The new standards for 8,500 to 14,000 pound vehicles are consistent with the Tier 2 standards for medium-duty passenger vehicles (MDPV). MDPVs are of consistent size and have essentially identical evaporative emission control systems as the remaining work-oriented HDVs in the 8,500 to 10,000 pound weight range. Therefore, the evaporative emission standards should be equivalent. We are requiring those same standards for the 10,000 to 14,000 pound HDVs because, historically, the evaporative emission standards have been consistent throughout the 8,500 to 14,000 pound weight range. We believe that the HDVs in the 10,000 to 14,000 pound range are essentially equivalent in evaporative emission control system design as the lighter HDVs; therefore, continuing this historical approach is appropriate.

We are finalizing slightly higher evaporative emission standards for the over 14,000 pound HDVs because of their slightly larger fuel tanks and for non-fuel emissions related to larger vehicle sizes. This is consistent with past evaporative emission standards. The levels chosen for the over 14,000 pound HDVs maintains the same ratio relative to the 8,500 to 14,000 pound HDVs as exists with current evaporative standards. To clarify, the current standards for the 3 day diurnal test are 3 and 4 grams/test for the 8,500 to 14,000 and the over 14,000 pound categories, respectively. The ratio of 3:4 is maintained for the new 2008 standards, 1.4:1.9.

The new standard levels are slightly higher than the California LEV-II standard levels. The California standard levels are 1.0 and 1.25 for the 3-day and the 2-day tests, respectively. However, federal vehicles are certified using the higher-volatility federal test fuel.[100] Arguably, the federal and California evaporative emission standards are equivalent in stringency despite the difference in standard levels. We believe that our standards are appropriate for federal heavy-duty vehicles.

We are requiring that the new evaporative emission standards be implemented on the same schedule as the gasoline engine and vehicle exhaust standards shown in Tables III.C-1 and III.C-3. This will allow manufacturers to plan any needed changes to new vehicles at the same time, although it is not necessary that the exhaust and evaporative standards be phased-in on the same vehicles and engines. Also, we are finalizing the revised durability provisions finalized in the Tier 2 rulemaking, which require durability demonstration using fuel containing at least 10 percent alcohol. Alcohol can break down the materials used in evaporative emission control systems. Therefore, a worst case durability demonstration would include a worst case alcohol level in the fuel (10 percent) because in some areas of the country there is widespread use of alcohol fuels.

D. Incentives for Early Introduction of Clean Engines and Vehicles

In our proposal, we requested comment on alternative phase-in approaches that could provide attractive implementation options to Start Printed Page 5045manufacturers without compromising air quality. We requested comment on a “declining standard” approach and a “cumulative phase-in” approach. We received only limited comment on those approaches with no commenters expressing particularly strong support for them. We did receive numerous comments suggesting that we provide some form of incentive for manufacturers to introduce clean technology engines earlier than required by the base program. We are finalizing the approach discussed here as an incentive for manufacturers to introduce clean diesel engines earlier than the 2007 model year (or the 2008 model year for gasoline engines and vehicles).

In our Tier 2 rule, we stated our belief that providing inducements to manufacturers to certify vehicles early to very low levels is appropriate. We believe that such inducements may help pave the way for greater and/or more cost effective emission reductions from future vehicles. We believe the program discussed here provides a strong incentive for manufacturers to maximize their development and introduction of the best available vehicle and engine emission control technology. This, in turn, provides a stepping stone to the broader introduction of this technology soon thereafter. Early production of cleaner vehicles enhances the early benefits of our program. If a manufacturer can be induced to certify to the new standards by the promise of reasonable extra credits, the benefits of that decision to the program may last for many years.

The incentive program finalized today is analogous to the provisions set forth in the final Tier 2 rule. We are finalizing provisions that permit manufacturers to take credit for diesel engines certified to this rule's final standards prior to the 2007 model year (prior to the 2008 model year for gasoline engines or vehicles) in exchange for making fewer diesel engines certified to these standards in or after the 2007 model year (2008 for gasoline engines or vehicles). In other words, a clean engine sold earlier than required displaces the requirement to sell a similar engine later. Note that the emission standards must be met to earn the early introduction credit. That is, emission credits earned under averaging, banking, and trading cannot be used to demonstrate compliance. Therefore, the early introduction engine credit is an alternative to the ABT program in that any early engines or vehicles can earn either the engine credit or the ABT emission credit, but not both. The purpose of the incentive is to encourage introduction of clean technology engines earlier than required in exchange for added flexibility during the phase-in years.

Any early engine credits earned for a diesel-fueled engine would, of course, be predicated on the assurance by the manufacturer that the engine would indeed be fueled with low sulfur diesel fuel in the marketplace. We expect this would occur through selling such engines into fleet applications, such as city buses, school buses, or any such well-managed centrally-fueled fleet. For this reason, we believe that any engines sold within this early incentive program would be sold primarily in urban areas where more centrally-fueled fleets exist. Because of the difficulty associated with low sulfur diesel fuel availability prior to mid-2006, we believe it is necessary and appropriate to provide a greater incentive for early introduction of clean diesel technology. Therefore, we will count one early diesel engine as 1.5 diesel engines later. This extra early credit for diesel engines means that fewer clean diesel engines than otherwise would be required may enter the market during the years 2007 and later. But, more importantly, it means that emission reductions would be realized earlier than under our base program. We believe that providing incentives for early emission reductions is a worthwhile goal for this program. Therefore, we are finalizing these provisions for manufacturers willing to make the early investment in cleaner engines. For gasoline engines and vehicles, the early engine credit will be a one-for-one credit because the gasoline needed by the engine or vehicle will be readily available.

We are providing this early introduction credit to diesel engines that meet all of today's final standards (0.20 g/bhp-hr NOX, 0.14 g/bhp-hr NMHC, and 0.01 g/bhp-hr PM). We are also providing this early introduction credit to diesel engines that pull-ahead compliance with only the 0.01 g/bhp-hr PM standard. However, a PM-only early engine can offset only PM compliant engines during the phase-in years, not NOX, NMHC, and PM compliant engines.

An important aspect of the early incentive provision is that it must be done on an engine or vehicle count basis. That is, a diesel engine meeting new standards early counts as 1.5 such diesel engines later and a gasoline engine or vehicle early counts as one gasoline engine or vehicle later. This contrasts with a provision done on an engine percentage basis which would count one percent of diesel engines early as 1.5 percent of diesel engines later. Basing the incentive on an engine count will alleviate any possible influence of fluctuations in engine and vehicle sales in different model years.

Another important aspect of this program is that it is limited to engines sold prior to the 2007 model year (2008 for gasoline). In other words, diesel engines sold in the 2007 through 2009 model years that exceed the required 50 percent phase-in will not be considered “early” introduction engines and will, therefore, receive no early introduction credit. The same is true for gasoline engines and vehicles sold in the 2008 model year. However, such engines and vehicles will still be able to generate ABT credits. Note that early gasoline vehicles can count for later gasoline vehicles, and early gasoline engines can count for later gasoline engines, but early gasoline vehicles cannot be traded for later gasoline engines and vice versa.

Table III.D-1 shows an example for a diesel engine manufacturer and how it might use this incentive provision on an assumed fleet of 100 engine sales growing at one percent per year beginning in the 2004 model year.

Table III.D-1.—Example Engine Introduction Under Our Early Incentive Program

2004200520062007200820092010
Total Sales100101102103104105106
Clean Engines under000525253106
Base program
Clean Engines under444464647106
Incentive Program
Start Printed Page 5046

The four engines sold early in each of model years 2004 through 2006 generate a total credit of 18 engines (4×3×1.5=18). This allows the manufacturer to reduce its compliant engine count in each of model years 2007 through 2009 by six engines (18/3=6). This helps the manufacturer by reducing total costs through requiring fewer total engines at the low-emitting, clean engine level. But, more importantly, it introduces clean technology engines early and, by 2010 in this example, generates from four to six years of emission reductions that otherwise would not have occurred.

As further incentive to introduce clean engines and vehicles early, we are also finalizing a provision that would give manufacturers an early introduction credit equal to two engines during the phase-in years. This “Blue Sky” incentive would apply for diesel engines meeting one-half of today's final NOX standard while also meeting the NMHC and PM standards. For gasoline engines, the same early introduction double engine credit would be available to engines sold prior to 2008 and meeting one-half the NOX standard while also meeting the NMHC, PM, and evaporative emission standards. For gasoline vehicles, the double engine credit would be available to those vehicles certified early to the California SULEV levels and today's PM and evaporative emission standards.[101] Due to the extremely low emission levels to which these Blue Sky series engines and vehicles would need to certify, we believe that the double engine count credit is appropriate. Table III.D-2 shows the emission levels that would be required prior to the 2007 model year for diesel engines and the 2008 model year for gasoline vehicles and engines to earn any early introduction engine credits.

Table III.D-2.—Emission Levels and Credits Available for Early Introduction Engines

CategoryMust meet aEarly engine credit b
Early Diesel PM-only cPhase 2 PM &1.5-to-1
Phase 1 NOX + NMHC
Early Diesel Engine cAll Phase 2 Standards1.5-to-1
Early Gasoline Engine or Vehicle—ExhaustPhase 2 Exhaust Standards1-to-1
Early Gasoline Engine or Vehicle—EvapPhase 2 Evaporative Standards1-to-1
Blue Sky Series Diesel c or Gasoline Engine0.10 g/bhp-hr NOX & All other Phase 2 Standardsd2-to-1
Blue Sky Series Gasoline0.02 g/mi PM & California SULEV Level Standardsd2-to-1
Vehicle
a Phase 1 refers to standards required by 65 FR 59896, October 6, 2000; Phase 2 refers to today's final standards.
b  Engine count credits must be earned prior to the phase-in years of 2007 for diesel and 2008 for gasoline.
c Early diesel engines must also meet the Phase 2 crankcase emissions requirements.
d For gasoline engines and vehicles, these must also meet the Phase 2 evaporative emission standards.

Alternative fueled vehicles and engines can also play a significant role in this incentive program. Any alternative fueled diesel-cycle engine certified to today's final standards prior to the 2007 model year can generate a 1.5 diesel-cycle engine count credit during the diesel phase-in years. Likewise, any alternative fueled Otto-cycle engine certified to today's final standards prior to the 2008 model year can generate one Otto-cycle engine count credit. Many commenters suggested that EPA should do more than was put forward in our proposal to encourage the introduction of alternative fuel technologies. To the extent that alternative fueled vehicles and engines are cleaner than diesels and gasolines, they may have an advantage within today's program. We believe that this program and its structure provides significant incentives for manufacturers to introduce alternative fueled vehicles and engines.

One final aspect of the incentive program is its interaction with our Tier 2 program. The Tier 2 final rule allows some MDPVs to be equipped with engine-certified diesel engines through the 2007 model year. Any such engines are required to comply with the diesel engine standards that apply during the given model year. Given that they are certified as heavy-duty diesel engines, any such engines that meet today's final diesel standards prior to the 2007 model year would be allowed within today's incentive program provided they in no way generate any emission or engine count credits within the Tier 2 program. Further, any MDPVs, whether gasoline or diesel, certified on a chassis dynamometer and being counted in any way as part of the Tier 2 program, cannot be used as part of today's incentive program because they are not considered heavy-duty vehicles.

E. Feasibility of the New Engine and Vehicle Standards

For more detail on the information and analyses supporting our assessment of the technological feasibility of today's standards, please refer to the Final RIA in the docket for this rule. The following discussion summarizes the more detailed discussion found in the Final RIA and in the Summary and Analysis of Comments document.

1. Feasibility of Stringent Standards for Heavy-Duty Diesel

The designers and manufacturers of diesel engines have made substantial progress over the last 20 years reducing NOX emissions by 60 percent and PM emissions by almost 90 percent through better engine design. We believe that, in response to our Phase 1 heavy-duty rule, industry will have implemented all promising engine-based emission reduction technologies in order to meet the 2.5 g/bhp-hr NOX+NMHC standard and the 0.1 g/bhp-hr PM standard. To get the substantial PM and NOX reductions from diesel engines needed to solve the air quality problems identified in section II, we believe a new technology solution will be required. That solution is the application of high efficiency exhaust emission control technologies (catalysts) to diesel engines, analogous to the application of catalyst technologies to passenger cars in the 1970s. These high efficiency catalyst technologies, enabled by the use of diesel fuel with sulfur content at or below 15 ppm, can reduce NOX and PM emissions by more than 90 percent. This dramatic reduction in emissions will Start Printed Page 5047enable diesel powered vehicles to reach emission levels well below today's gasoline emission levels. As detailed in the sections below, these technologies are rapidly being developed and will be available for application to diesel powered vehicles by, or even before, the 2007 model year provided the low sulfur diesel fuel required today is widely available.

a. Meeting the PM Standard

Diesel PM consists of three primary constituents: Unburned carbon particles (soot), which make up the largest portion of the total PM; the soluble organic fraction (SOF), which consists of unburned hydrocarbons that have condensed into liquid droplets or have condensed onto unburned carbon particles; and sulfates, which result from oxidation of fuel and oil derived sulfur in the engine's exhaust. Several exhaust emission control devices have been developed to control harmful diesel PM constituents—the diesel oxidation catalyst (DOC), and the many forms of diesel particulate filters, sometimes called PM traps. DOCs have been shown to be durable in use, but they effectively control only the SOF portion of the total PM which, on a modern diesel engine constitutes only 10 to 30 percent of the total PM. Therefore, the DOC on its own would only offer a modest reduction in PM emissions, and would not be able to meet the PM standard set here.

Diesel particulate filters were first investigated some twenty years ago as a means to capture solid particles in diesel exhaust. A variety of approaches to this technology have been developed most of which provide excellent mechanical filtration of the solid particles that make up the bulk of diesel PM (60 to 80 percent). The collected PM, mostly carbon particles, must then be “burned off” of the filter before the filter becomes plugged. This burning off of collected PM (oxidation of the stored PM, releasing CO2) is referred to as “regeneration,” and can occur either:

  • On a periodic basis by using base metal catalysts (including fuel-borne base metal catalysts) or an active regeneration system such as an electrical heater, a fuel burner, or a microwave heater; or,
  • On a continuous basis by using precious metal catalysts.

Diesel particulate traps that regenerate on a periodic basis (referred to here as either uncatalyzed or base metal catalytic PM traps) demonstrated high PM trapping efficiencies many years ago, but the level of the applicable PM standard was such that it could be met through less costly “in-cylinder” control techniques. Un-catalyzed diesel particulate filters will not be able to meet the 0.01 g/bhp-hr PM standard finalized today as they are only moderately effective at controlling the SOF fraction of the particulate. In addition, they require active regeneration technology which must be engaged frequently making the systems expensive to operate (increasing fuel consumption) and less reliable.

We believe the kind of PM trap that would be able to meet the PM standard in a reliable, durable, cost effective manner, and the type of trap that will prove to the be the industry's technology of choice, is one capable of regenerating on an essentially continuous basis. In addition these PM traps will be able to achieve very low PM emissions because:

  • They are highly efficient at controlling the solid carbon portion of PM;
  • Unlike uncatalyzed filters, they are highly efficient at oxidizing the SOF of diesel PM;
  • They employ precious metals to produce conditions that reduce the temperature at which regeneration occurs, thereby allowing for passive regeneration under normal operating conditions typical of a diesel engine; [102]
  • Because they regenerate continuously, they have lower average backpressure thereby reducing potential fuel economy impacts; and,
  • Because of their passive regeneration characteristics, they need no extra burners or heaters like what would be required by an active regeneration system, thereby reducing potential failures and fuel economy impacts.

These catalyzed PM traps are able to provide in excess of 90 percent control of diesel PM when operated on diesel fuel with sulfur levels at or below 15 ppm. However, as discussed in detail in the RIA, the catalyzed PM trap cannot regenerate properly with current fuel sulfur levels, as such sulfur levels poison the catalytic function of the PM trap inhibiting the necessary NO to NO2 reaction to the point of stopping trap regeneration.[103] Also, because SO2 is so readily oxidized to SO3, the 0.01 g/bhp-hr PM standard cannot be achieved with fuel sulfur levels above 15 ppm because of the resultant increase in sulfate PM emissions (“sulfate make”).[104]

More than one exhaust emission control manufacturer is known to have or be developing these precious metal catalyzed, passively regenerating PM traps and to have them in broad field test programs in areas where low sulfur diesel fuel is currently available. In field trials since 1994, they have demonstrated highly efficient PM control and good durability with some units accumulating in excess of 360,000 miles of field use.[105] The experience gained in these field tests also helps to clarify the need for low sulfur diesel fuel. In Sweden, where below 10 ppm diesel fuel sulfur is readily available, more than 3,000 catalyzed diesel particulate filters have been introduced into retrofit applications without a single failure. These retrofit applications include intercity trains, airport buses, mail trucks, city buses and garbage trucks.[106] The field experience in areas where sulfur is capped at 50 ppm has been less definitive. In regions without extended periods of cold ambient conditions, such as the United Kingdom, field tests on 50 ppm sulfur cap fuel have been positive, matching the durability at 10 ppm, but would be unable to meet a 0.01 g/bhp-hr PM standard due to a substantial increase in sulfate PM. However, field tests on 50 ppm sulfur fuel in Finland where colder winter conditions are often encountered (similar to northern parts of the United States) have experienced a failure rate of 10 percent, due to trap plugging. This 10 percent failure rate has been attributed to insufficient trap regeneration due to fuel sulfur in combination with low ambient temperatures.[107] Other possible reasons for the high failure rate in Finland when contrasted with the Swedish experience appear to be unlikely. The Finnish and Swedish fleets were substantially similar, with both fleets consisting of transit buses powered by Volvo and Scania engines in the 10 to 11 liter range. Further, the buses were operated in city areas and none of the vehicles were operated in northern extremes such as north of the Start Printed Page 5048Arctic Circle.[108] Given that the fleets in Sweden and Finland were substantially similar, and given that ambient conditions in Sweden are expected to be similar to those in Finland, we believe that the increased failure rates noted here are due to the higher fuel sulfur level in a 50 ppm cap fuel versus a 10 ppm cap fuel.[109] Testing on an even higher fuel sulfur level of 200 ppm was conducted in Denmark on a fleet of 9 vehicles. In less than six months all of the vehicles in the Danish fleet had failed due to trap plugging.[110] We believe that this real world testing clearly indicates that increasing diesel fuel sulfur levels limit trap regeneration, leading to plugging of the PM trap even at fuel sulfur levels as low as 50 ppm.

From these results, we can further conclude that lighter applications (such as large pick-up trucks and other light heavy-duty applications), having lower exhaust temperatures than heavier applications, may experience similar failure rates even in more temperate climates and would, therefore, need lower sulfur fuel even in the United Kingdom. These results are understood to be due to the effect of sulfur on the trap's ability to create sufficient NO2 to carry out proper trap regeneration. Without the NO2, the trap continues to trap the PM at high efficiency, but it is unable to oxidize, or regenerate, the trapped PM. The possible result is a plugged trap. This vulnerability of the catalyzed diesel particulate filter due to sulfur in the fuel and the consequences of trap plugging are discussed fully in section III.F and the RIA.

Several commenters raised concerns with our use of the extensive fleet experience in Europe, to draw conclusions about the necessary sulfur reductions required in order to ensure PM trap durability. Their concerns focused generally around the fact that these fleets were made up of retrofit applications, and that the nature of the fleet operation did not represent a controlled experiment (ideally all things would have been equal except for the fuel sulfur level). While we acknowledge these limitations in the data, we believe they still provide reasonable evidence of the need for low sulfur diesel fuel. The diversity of applications, climates, fuel properties, NOX emission levels, and sulfur levels help to show the relative robustness of the technology. Further, we believe the PM trap manufacturer's analysis of the failure mode (i.e., that cold ambient conditions coupled with diminished NO to NO2 conversion due to sulfur led to the failures that were experienced) is the most likely explanation of the observed phenomena. Sulfur in diesel fuel is known to inhibit the oxidation of NO to NO2 (as described in section III.F) leading to reduced ability to regenerate the PM filter, especially under low ambient conditions. For our detailed response to comments surrounding catalyzed diesel particulate filter durability refer to the RTC document.

Several progressive refineries have begun to produce diesel fuel with sulfur content less than 15 ppm for limited markets in the United States. The availability of this low sulfur diesel fuel makes it possible to introduce diesel particulate filters into these limited markets today. International Truck and Engine Corporation (“International”) has announced its intent to commercialize its Green Diesel Engine TechnologyTM in 2001 coupled with less than 15 ppm sulfur fuel to achieve our proposed MY 2007 NMHC and PM emissions standards six years in advance of the requirement. International's ability to bring a catalyzed diesel particulate filter technology to commercialization in such a short period highlights the advanced state of this technology.[111]

Modern catalyzed PM traps have been shown to be very effective at reducing PM mass. In addition, recent data show that they are also very effective at reducing the overall number of emitted particles when operated on low sulfur fuel. Hawker, et. al., found that a modern catalyzed PM trap reduced particle count by over 95 percent, including some of the smallest measurable particles (<50 nm), at most of the tested conditions. The lowest observed efficiency in reducing particle number was 86 percent. No generation of particles by the PM trap was observed under any tested conditions.[112] Kittelson, et al., confirmed that ultrafine particles can be reduced by a factor of ten by oxidizing volatile organics, and by an additional factor of ten by reducing sulfur in the fuel. Catalyzed PM traps efficiently oxidize nearly all of the volatile organic PM precursors, and elimination of as much fuel sulfur as possible will substantially reduce the number of ultrafine PM emitted from diesel engines. The combination of catalyzed PM traps with low sulfur fuel is expected to result in very large reductions in both PM mass and the number of ultrafine particles.

The data currently available show that catalyzed particulate filters can provide significant reductions in PM. Catalyzed particulate filters, in conjunction with low sulfur fuel, have been shown to be more than 90 percent efficient over the FTP and at most SET modes.[113] Testing completed as part of the Diesel Emission Control Sulfur Effects (DECSE) program has demonstrated that a heavy duty diesel engine can achieve less than 0.01 g/bhp-hr PM emissions over the supplemental emission test when equipped with a catalyzed diesel particulate filter and operated on diesel fuel with sulfur content less than 15 ppm.[114] Further testing at NVFEL has demonstrated that FTP PM emissions can likewise be controlled below 0.01 g/bhp-hr provided less than 15 ppm sulfur diesel fuel is used with a catalyzed PM trap.[115] Based upon these test results, extensive field experience throughout the world and International Truck and Engine Corporation's commitment to produce vehicles with this technology in 2001, we conclude that the 0.01 g/bhp-hr FTP PM standard is feasible and that it represents the lowest emission level possible having given consideration to cost, energy and safety factors.

With regard to the NTE PM requirements, there is the potential for sulfate production during some operating modes covered by the NTE which would likely exceed the FTP PM standard. However, the NTE PM standard is equal to 1.5 × FTP standard. Even though the FTP standard of 0.01 g/bhp-hr PM is very low, the small additional head room provided by a Start Printed Page 5049NTE multiplier of 1.5 will be sufficient to enable PM trap equipped HDDEs to meet the NTE provisions, even when operated on 15 ppm sulfur fuel. This is supported by data generated as part of the DECSE test program, as well as data generated at our own laboratory, as discussed in greater detail in the RIA.[116] As discussed in the RIA, the expanded ambient condition requirements of the NTE test procedure will have little effect on the PM reduction capabilities of a PM trap. The SET PM requirements have also been demonstrated in our laboratory and are supported by the DECSE test program. A detailed discussion is contained in the RIA. Based on this information and assessment, we conclude that the PM supplemental requirements will be feasible in the 2007 time frame.

b. Meeting the NOX Standard

NOX emissions from gasoline-powered vehicles are controlled to extremely low levels through the use of the three-way catalyst technology first introduced in the 1970s. Today, an advancement upon this well-developed three-way catalyst technology, the NOX adsorber, has shown that it too can make possible extremely low NOX emissions from lean-burn engines such as diesel engines. The potential of the NOX adsorber catalyst is limited only by its need for careful integration with the total vehicle system (as was done for three-way catalyst equipped passenger cars in the 1980s and 1990s) and by poisoning of the catalyst from sulfur in the fuel. Just as the Tier 2 rulemaking enables advanced three-way catalyst equipped vehicles to meet ultra low NOX emission levels through the use of low sulfur gasoline, today's rulemaking will enable NOX adsorbers through substantial reductions in diesel fuel sulfur levels. The NOX adsorber has already been commercially introduced in a number of stationary and mobile source applications.

NOX Adsorbers in Power Generation

NOX adsorber catalysts were first introduced in the power generation market less than five years ago. Since then, NOX adsorber systems in stationary source applications have enjoyed considerable success. In 1997, the South Coast Air Quality Management District of California determined that a NOX adsorber system provided the “Best Available Control Technology” NOX limit for gas turbine power systems.[117] Average NOX control for these power generation facilities is in excess of 92 percent.[118] A NOX adsorber catalyst applied to a natural gas fired powerplant has demonstrated better than 99 percent reliability for more than 21,000 hours of operation while controlling NOX by more than 90 percent.[119]

NOX Adsorbers in Lean-Burn Gasoline Vehicles

The NOX adsorber's ability to control NOX under oxygen rich (fuel lean) operating conditions has led the industry to begin applying NOX adsorber technology to lean-burn engines in mobile source applications. NOX adsorber catalysts have been developed and are now in production for lean-burn gasoline vehicles in Japan, including several vehicle models sold by Toyota Motor Corporation.[120] The 2000 model year saw the first U.S. application of this technology with the introduction of the Honda Insight, certified to the California LEV-I ULEV category standard. These lean burn gasoline applications are of particular interest because they are similar to diesel vehicle applications in terms of NOX storage under lean exhaust conditions and the need for periodic NOX regeneration under transient driving conditions. The substantial experience already gained and continuing to be gained from NOX adsorber use in lean-burn gasoline vehicles provides a firm basis from which diesel NOX adsorber development is proceeding.

NOX Adsorbers in Light-Duty Diesel Vehicles

This rapid development pace of the NOX adsorber technology is not limited to gasoline applications but includes markets where low sulfur diesel fuel is already available or has been mandated to coincide with future emission standards. In Japan, Toyota Motor Corporation has recently announced that it will begin introducing vehicles using its Diesel Particulate— NOX Reduction (DPNR) system in 2003. This system uses a NOX adsorber catalyst applied on the surface of a diesel particulate filter, providing greater than 80 percent reductions in both PM and NOX. Toyota notes however, that DPNR requires fuel with low sulfur content in order to maintain high efficiency for a long duration.[121] In Europe, both Daimler Chrysler and Volkswagen, driven by a need to meet stringent Euro IV emission standards, have published results showing how they would apply the NOX adsorber technology to their diesel-powered passenger cars. Volkswagen reports that it has already demonstrated NOX emissions of 0.137 g/km (0.22 g/mi), a 71 percent reduction, on a diesel powered Passat passenger car equipped with a NOX adsorber catalyst.[122]

US DOE Research Programs

The U.S. Department of Energy (DOE) has funded several test programs at national laboratories and in partnership with industry to investigate NOX adsorber technology. At Oak Ridge National Laboratory, DOE researchers have shown that a NOX adsorber and a laboratory regeneration system can reduce NOX by more than 90 percent when used on a diesel powered Mercedes A-class passenger car. Following 600 miles of driving with 150 ppm sulfur fuel, the system performance degraded considerably.[123] While the system was not production ready, it does demonstrate that very high efficiencies are achievable with advanced emission control systems operating on low sulfur fuel.[124] With additional system development over the next several years we are confident that the remaining design challenges such as long-term durability will be solved.

EPA NVFEL Current Technology Evaluation Program

As part of an effort to evaluate the rapidly developing state of this technology, the Manufacturers of Emission Control Association (MECA) provided four different NOX adsorber catalyst formulations to EPA for Start Printed Page 5050evaluation. Testing of these catalysts at NVFEL revealed that all four formulations were capable of reducing NOX emissions by more than 90 percent over the broad range of operation in the supplemental emission test (SET) procedure as summarized in Figure III-1. At operating conditions representative of “road-load” operation for a heavy duty on-highway truck, the catalysts showed NOX reductions as high as 99 percent resulting in NOX emissions well below 0.1 g/bhp-hr from an engine-out level of nearly 5 g/bhp-hr.[125] Testing on the FTP has shown similarly good results, with hot start FTP NOX emissions reduced by more than 90 percent. These results demonstrate that significant NOX reductions are possible over a broad range of operating conditions with current NOX adsorber technology, as typified by the FTP and the SET.

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This large body of evidence that NOX adsorbers are highly effective, that they can be applied to diesel engines (as further described in the RIA), and that there is a clear and strong prospect for their further development, causes us to conclude that NOX adsorbers will provide at least one feasible path to the NOX standards we have set today. Further, we can conclude from this development experience that the 0.20 g/bhp-hr NOX standard represents the lowest standard achievable by the year 2007, having given appropriate consideration to cost, energy, and safety as described elsewhere in sections III and V of this document and in the RIA.

Remaining Engineering Development

The considerable success in demonstrating NOX adsorber technology in laboratory settings, as outlined above, clearly shows that the technology is currently capable of achieving the NOX standard level. There are several engineering challenges that will be addressed in going from this level of demonstration to implementation of durable and effective emission control systems on production vehicles. One of these technical challenges involves changes to the way diesel engines will need to operate in order to take full advantage of the NOX adsorber, representing a shift from current day engine operation. Working within the engine design and operating principles expected for 2004 model year engines, optimization of the total system (matching exhaust temperatures to the operating window of NOX adsorbers and controlling exhaust air to fuel ratios), will be essential to getting the best performance from the NOX adsorber. We have estimated in the RIA that diesel engine manufacturers collectively will need to invest $385 million in order to implement this change. In addition to the generic need to optimize operation to match the NOX adsorber performance, industry will further need to address NOX adsorber desulfation and its associated issues because some sulfur will still remain in the fuel and the engine's lubricating oil.

Clear engineering paths to address these problems can be described today, several years in advance of when they will need to be applied. The primary thing that must occur is to eliminate most of the sulfur from diesel fuel. The fuel sulfur standard set today in this rulemaking overcomes this obstacle. The second set of system engineering steps needed to accomplish both NOX regeneration and desulfation are already being laid out in test programs conducted by DOE in the DECSE Phase II program and in our own test program at the National Vehicle and Fuel Emissions Laboratory. The DECSE Phase II program clearly demonstrates that, through changes in “in-cylinder” operation, diesel exhaust conditions can be generated that are optimized for NOX storage (fuel lean operation), NOX regeneration (fuel rich operation), or desulfation (hot, fuel rich operation). This in-cylinder approach, discussed more fully in the RIA, represents a likely technical solution for light heavy-duty vehicles which are expected to already have the necessary EGR and common rail fuel system technologies need for this approach by the 2004 model year. Testing at NVFEL shows yet another engineering path to optimizing the NOX control system external to the combustion system. This approach segregates the exhaust into separate streams external to the engine and manipulates exhaust conditions by changing exhaust mass flow (through valves) and by adding supplemental fuel with an electronic fuel injector. This approach means that exhaust temperatures and air to fuel ratios can be controlled external to the engine allowing great flexibility to control and optimize NOX regeneration and sulfur regeneration events. This approach may prove to be a good solution for heavy heavy-duty vehicles because of the freedom it allows for optimization of both the engine operation and the aftertreatment operation with fewer tradeoffs with regards to fuel consumption and engine durability. A complete description of this approach and its merits is given in the RIA.

Each of the engineering paths described here shows a means for compliance with the NOX standard given further optimization and development and, given past experiences with the introduction of new technologies, other approaches are likely to be devised as well. Given industry's demonstrated ability to develop solutions to similar issues with gasoline three-way catalysts and gasoline-based NOX adsorber technologies, we are confident that the NOX emission control system can be designed for the long life required for heavy-duty diesel operation. We are not alone in this evaluation of NOX adsorber development, as evidenced by the strong endorsement of the technology by many in the industry.[126] For example, one letter we have received stated, “We believe all NOX Adsorber development issues have been identified and the technology is proceeding according to schedule. We have identified development paths leading toward production optimization and do not see insurmountable technical barriers. We are confident in our ability and experience in applying the science of surface chemistry and catalysis to achieve our objective.” [127]

NTE NOX Limits

The broad NOX reduction capability of the NOX adsorbers will also enable the NTE NOX requirements to be met. As discussed previously, we have established an NTE NOX standard of 1.5 × FTP standard, or 0.30 g/bhp-hr NOX, which is 0.10 g/bhp-hr above the FTP standard. The NMHC+NOX NTE standard for 2004 technology HDDEs is 1.25 × 2.5 g/bhp-hr NMHC + NOX, or 3.125 g/bhp-hr, which is 0.625 g/bhp-hr above the 2004 FTP standard. As discussed in the RIA for this final rule, we would expect that the majority of the NTE standard for a 2004 technology engine would be comprised of NOX emissions, perhaps as much as 3.0 g/bhp-hr (with the remainder, 0.125 g/bhp-hr, being HC). Based on available data, including data from our NVFEL test facility, we believe a NOX adsorber system will be capable of a 90 percent or greater emission reduction across the entire NTE control zone, for the test conditions covered by the NTE test procedure, by model year 2007. A 90 percent reduction from the “base” NOX NTE level of 3.0 g/bhp-hr would result in a tailpipe emission rate of 0.30 g/bhp-hr, which is 1.5 times the 2007 FTP NOX standard. As discussed in the RIA, we have demonstrated NOX reductions on the order of 90 percent or greater across the NTE control zone in our test program at NVFEL. A complete description of the NOX adsorber testing completed at NVFEL is provided in the final RIA and in the docket associated with this rule. This testing was performed at standard laboratory conditions; however, we do not expect the expanded ambient conditions required for NTE compliance to have a significant impact on the performance of the exhaust emission control systems. Additional discussion of this issue is contained in the RTC and the RIA for this rule. Start Printed Page 5053

Sulfur Trap

The preceding discussion of NOX adsorbers assumes that SOX (SO2 and SO3) emissions will be “trapped” on the surface of the catalyst, effectively poisoning the device and requiring a “desulfation” (sulfur removal event) to recover catalyst efficiency. We believe that, at the 15 ppm cap fuel sulfur level, this strategy will allow effective NOX control with moderately frequent desulfation and with a modest fuel consumption of one percent. We believe this fuel consumption impact will be more than offset by reduced reliance on current, more fuel inefficient NOX control strategies (see discussion in Section III.G for estimates of overall fuel economy impacts). In the NPRM for this rulemaking, we sought comment on the potential of a separate SOX trap catalyst to control sulfur poisoning of the NOX adsorber catalyst. As detailed further in the final RIA and RTC documents, we believe that even if a separate SOX trap system were used, fuel sulfur levels would have to be 15 ppm or lower in order for the NOX adsorber technology to function properly over the life of a heavy-duty vehicle.

Urea SCR Technology

SCR Technology has been put forward by some as another means of meeting stringent NOX standards. For reasons discussed below we do not believe that it provides an adequate basis for establishing the feasibility of today's emission standards. Selective Catalytic Reduction (SCR), like the NOX adsorber technology, was first developed for stationary applications and is currently being refined for the transient operation found in mobile applications. With the SCR system, a urea solution is injected upstream of the catalyst which breaks down the urea into ammonia and carbon dioxide. The ammonia is used as a NOX reductant across the SCR catalyst producing N2 and water. Catalysts containing precious metals (platinum) can be used at the inlet and outlet of SCR systems designed for mobile applications to improve low temperature NOX reduction performance and to oxidize any ammonia that may pass through the SCR, respectively. SCR systems using these oxidation catalysts and being developed for mobile applications are more often called “compact SCR” systems. Generally, reference to SCR throughout this preamble should be taken to mean compact SCR. The use of these platinum catalysts enables SCR systems to achieve NOX reductions at lower temperatures (as required for diesel engine applications), but introduces sensitivity to sulfur in much the same way as for diesel particulate filter technologies. Sulfur in diesel fuel inhibits low temperature performance and results in high sulfate-make, leading directly to higher particulate emissions. For a further discussion of SCR system sensitivity to sulfur in diesel fuel, and of its need for low sulfur diesel fuel, refer to Section III.F.

Urea SCR catalysts, like NOX adsorbers, need low sulfur diesel fuel to achieve high NOX conversion efficiencies and to control sulfate PM emissions. If low sulfur fuel is required, SCR NOX control may be possible in some applications by 2007. However we believe there are significant barriers to its general use for meeting the 2007 standards. SCR systems require vehicles to carry a supply of urea. The infrastructure for delivering urea at the diesel fuel pump would need to be in place for these devices to be feasible in the marketplace; and before development of the infrastructure could begin, the industry would have to decide upon a standardized method of delivery for the urea supply.

In addition to this, there would need to be adequate safeguards in place to ensure the urea is used throughout the life of the vehicle since, given the added cost of urea and the fact that urea depletion would not normally affect driveability, there would be an incentive not to refill the urea tank. This could lead to considerable uncertainties regarding the effectiveness of SCR, even if EPA were to promulgate the regulations that likely would be needed to require the regular replenishment of urea. Some commenters have suggested that this is the key issue with regard to urea SCR systems. One commenter further concludes that this issue could be addressed by designing engines with on-board diagnostic systems utilizing a NOX sensor that would observe a loss of NOX control. When observed, the engine would be designed to reduce power gradually until a 50 percent loss of power was realized. This power loss would serve to encourage the user to replenish the urea tank.[128] While such an approach may be possible, it raises concerns for public safety as poor engine performance could lead to inadequate power for safe merging onto highways and other related driving situations. We remain hesitant to base a national program on such technology when important issues such as driver training on the need to refill the urea tank and the consequences of failure to do so cannot be appropriately controlled. This approach would seem to suggest a need for EPA-mandated spot checks of individual vehicles to ensure compliance with the NOX standard. How such a program would work and the burden that it might place on small business entities was not addressed in the comments. In testimony given at the public hearing held for this rulemaking in Los Angeles, the California Trucking Association raised concerns about the appropriateness of putting this regulatory burden on truckers when a simpler technology such as a diesel NOX adsorber was available instead.[129] Without measures similar to these, we would expect that a substantial number of users would not remember to fill their urea tanks. Since failure to provide urea for a vehicle would lead to a total loss of NOX control for that vehicle, we would need to model the loss of NOX control to be expected from an SCR based program. Such a loss in NOX control most likely would be appreciable and, in effect, the NOX standard would not be met on a fleetwide basis.

We believe that these significant obstacles would prevent the widespread or general availability of SCR for use as a NOX control strategy to meet the 0.20 g/bhp-hr NOX standard. These problems may, however, be resolved in some niche applications; for example, certain well-managed centrally-fueled fleets. Because of the many obstacles to ensure in-use NOX control with the SCR, we do not believe that feasibility of the 0.20 g/bhp-hr NOX standard can be based upon SCR technology. For further discussion of urea SCR's need for low sulfur diesel fuel, refer to section III.F of this preamble.

Summary

Based on the discussion above, we believe that NOX exhaust emission control technology, in combination with low sulfur diesel fuel of 15 ppm or lower, is capable of meeting the very stringent NOX standards finalized today. The certainty provided by this rulemaking that low sulfur diesel fuel will be available in the future, and the emission standards finalized today that necessitate advanced NOX controls, should lead to rapid development of these technologies. The NOX adsorber technology has shown remarkable advancement in the last five years, both in stationary source applications and Start Printed Page 5054lean-burn gasoline applications, and now for heavy-duty diesel engines. Given this rapid progress, the availability of low sulfur diesel fuel, the identification of engineering paths to resolving the technological issues, and the lead time provided by today's rulemaking, we believe that applying NOX adsorbers to heavy-duty diesel engines will provide the emission reductions needed to comply with the 2007 HD NOX standards. This can be done in a cost effective way, with little or no fuel economy impact, and no special concerns of safety.

c. Meeting the NMHC Standard

Historically control of non-methane hydrocarbon (NMHC) emissions on diesel engines has been relatively simple, when compared to gasoline engines, due to the net fuel lean (abundant oxygen) operation typical of diesel engines. In fact, due to this operating characteristic, diesel engine NMHC levels have often been significantly below the mandated levels. The introduction of catalytic NOX control and the subsequent need to operate under alternately net lean and net rich conditions is likely to make NMHC control more difficult.

Meeting the NMHC standards under the lean operating conditions typical of the biggest portion of NOX adsorber operation should not present any special challenges to diesel manufacturers. Since the devices discussed above—catalyzed particulate filters and NOX adsorbers, contain platinum and other precious metals to oxidize NO to NO2, they are also very efficient oxidizers of hydrocarbons. NMHC emission reductions of greater than 95 percent have been shown in these devices over the transient FTP and SET modes.[130] Given that typical engine-out NMHC is expected to be in the 0.20 g/bhp-hr range for engines meeting the 2004 standards, this level of NMHC reduction will mean that under lean conditions emission levels will be well below the standard.

However, the NOX regeneration strategies for the NOX adsorber technology may prove difficult to control precisely, leading to a possible increase in HC emissions under the rich operating conditions required for NOX regeneration. Even with precise control of the regeneration cycle, HC slip may prove to be a difficult problem due to the need to regenerate the NOX adsorber under net rich conditions (excess fuel) rather than the stoichiometric (fuel and air precisely balanced) operating conditions typical of a gasoline three-way catalyst. It seems likely therefore, that in order to meet the HC standards we have set, an additional clean up catalyst may be necessary. A diesel oxidation catalyst, like those applied historically for HC and partial PM control, can reduce HC reductions (including toxic HCs) by more than 80 percent.[131] This amount of additional control along with optimized NOX regeneration strategies will ensure very low HC emissions. With such a downstream clean-up device to control HC slip during the periodic NOX regeneration event, the HC standard we have set here can be met. For a complete description of how the clean up catalyst functions in conjunction with the NOX adsorber technology, please refer to the complete system description given below in section III.E.1.e and to the final RIA.

Given industry's extensive experience with diesel oxidation catalysts, the long lead time provided by this rulemaking and the availability of less than 15 ppm sulfur diesel fuel, we conclude, having given consideration to cost, energy impacts and safety, that the NMHC standard is feasible.

d. Meeting the Crankcase Emissions Requirements

The most common way to eliminate crankcase emissions has been to vent the blow-by gases into the engine air intake system, so that the gases can be recombusted. Until today's rulemaking, we have required that crankcase emissions be controlled only on naturally aspirated diesel engines. We have made an exception for turbocharged heavy-duty diesel engines because of concerns in the past about fouling that could occur by routing the diesel particulates (including engine oil) into the turbocharger and aftercooler. However, this is an environmentally significant exception since most heavy-duty diesel trucks use turbocharged engines, and a single engine can emit over 100 pounds of NOX, NMHC, and PM from the crankcase over its lifetime.

Given the available means to control crankcase emissions, we have eliminated this exception. We anticipate that the heavy-duty diesel engine manufacturers will be able to control crankcase emissions through the use of closed crankcase filtration systems or by routing unfiltered blow-by gases directly into the exhaust system upstream of the emission control equipment. However, the provision has been written such that if adequate control can be had without “closing” the crankcase then the crankcase can remain “open.” Compliance would be ensured by adding the emission from the crankcase ventilation system to the emissions from the engine control system downstream of any emission control equipment.

We expect that in order to meet the stringent tailpipe emission standards set here, that manufacturers will have to utilize closed crankcase approaches as described here. Closed crankcase filtration systems work by separating oil and particulate matter from the blow-by gases through single or dual stage filtration approaches, routing the blow-by gases into the engine's intake manifold and returning the filtered oil to the oil sump. These systems are required for new heavy-duty diesel vehicles in Europe starting in 2000. Oil separation efficiencies in excess of 90 percent have been demonstrated with production ready prototypes of two stage filtration systems.[132] By eliminating 90 percent of the oil that would normally be vented to the atmosphere, the system works to reduce oil consumption and to eliminate concerns over fouling of the intake system when the gases are routed through the turbocharger. Mercedes-Benz currently utilizes this type of system on virtually all of its heavy-duty diesel engines sold in Europe. An alternative approach would be to route the blow-by gases into the exhaust system upstream of the catalyzed diesel particulate filter which would be expected to effectively trap and oxidize the engine oil and diesel PM. This approach may require the use of low sulfur engine oil to ensure that oil carried in the blow-by gases does not compromise the performance of the sulfur-sensitive emission control equipment.

e. The Complete System

We expect that the technologies described above would be integrated into a complete emission control system as described in the final RIA. The engine-out emissions will be balanced with the exhaust emission control package in such a way that the result is the most beneficial from a cost, fuel economy and emissions standpoint. The engine-out exhaust characteristics will also have a role in assisting the exhaust emission control devices used. The NOXStart Printed Page 5055adsorber, for instance, will require periods of oxygen-depleted exhaust flow in order to accomplish NOX regeneration and to allow for sulfur control using desulfation events. This may be most efficiently done by reducing the air-fuel ratio that the engine is operating under during the regeneration to reduce the oxygen content of the exhaust, or alternatively by partitioning the exhaust flow such that only a small portion of the exhaust flow is used for NOX regeneration, thereby reducing the amount of oxygen needing to be depleted through fuel addition. Further, it is envisioned that the PM device will be integrated into the exhaust system upstream of the NOX reduction device. This placement would allow the PM trap to take advantage of the engine-out NOX as an oxidant for the particulate, while removing the particulate so that the NOX exhaust emission control device will not have to deal with large PM deposits which may cause a deterioration in performance. Further it allows the NOX adsorber to make use of the upstream PM filter as a pre-catalyst to oxidize some NO to NO2 and to partially oxidize the reductant (diesel fuel or exhaust hydrocarbons) to a more desirable reductant form such as CO before entering the NOX adsorber. Of course, there is also the possibility of integrating the PM and NOX exhaust emission control devices into a single unit to replace a muffler and save space (Toyota's DNPR system being an example of this approach).[133] The final component in any of these system configurations is likely to be some form of clean up catalyst which can provide control of HC slip during NOX regeneration as well as H2 S slip during SOx regeneration. Particulate free exhaust may also allow for new options in EGR system design to optimize its efficiency.

We expect that the emission reduction efficiency of the exhaust emission control system will vary across the NTE zone as a function of exhaust temperature and space velocity.[134] Consequently, to maintain the NTE emission cap, the engine-out emissions would have to be calibrated with exhaust emission control system performance characteristics in mind. This would be accomplished by lowering engine-out emissions where the exhaust emission control system was less efficient, for example by retarding fuel injection timing or increasing the EGR rate. Conversely, where the exhaust emission control system is very efficient at reducing emissions, the engine-out emissions could be tuned for higher emissions and better fuel economy. These trade-offs between engine-out emissions and exhaust emission control system performance characteristics are similar to those of gasoline engines with three-way catalysts in today's light-duty vehicles and can be overcome through similar system based engineering solutions. Managing and optimizing these trade-offs will be crucial to effective implementation of exhaust emission control devices on diesel applications.

2. Feasibility of Stringent Standards for Heavy-Duty Gasoline

Gasoline emission control technology has evolved rapidly in recent years. Emission standards applicable to 1990 model year vehicles required roughly 90 percent reductions in exhaust NMHC and CO emissions and a 75 percent reduction in NOX emissions compared to uncontrolled emissions. Today, some vehicles' emissions are well below those necessary to meet the current federal heavy-duty gasoline standards, the 2004 heavy-duty gasoline standards, and the California Low-Emission Vehicle standards for medium-duty vehicles. The continuing emissions reductions have been brought about by ongoing improvements in engine air-fuel management hardware and software plus improvements in exhaust system and catalyst designs.

We believe that the types of changes being seen on current vehicles have not yet reached their technological limits and continuing improvement will allow them to meet today's standards. The RIA describes a range of specific emission control techniques that we believe could be used. There is no need to invent new technologies, although there will be a need to apply existing technology more effectively and more broadly. The focus of the effort will be in the application and optimization of these existing technologies.

In our light-duty Tier 2 rule, we have required that gasoline sulfur levels be reduced to a 30 ppm average, with an 80 ppm maximum. This sulfur level reduction is the primary enabler for the Tier 2 standards. Similarly, we believe that the gasoline sulfur reduction, along with refinements in existing gasoline emission control technology, will be sufficient to allow heavy-duty gasoline vehicles and engines to meet the emission standards sought by today's rule.

However, we recognize that the emission standards are stringent, and considerable effort will have to be undertaken. For example, we expect that every engine will have to be recalibrated to improve upon its cold start emission performance. Manufacturers will have to migrate their light-duty calibration approaches to their heavy-duty offerings to provide cold start performance in line with what they will have to achieve to meet the Tier 2 standards.

We also project that today's new heavy-duty gasoline standards would require the application of advanced engine and catalyst systems similar to those projected for their light-duty counterparts. Historically, manufacturers have introduced technology on light-duty gasoline applications and then applied those technologies to their heavy-duty gasoline applications. Today's standards will allow manufacturers to take this same approach. In other words, we expect that manufacturers will meet today's new standards through the application of technology developed to meet light-duty Tier 2 standards for 2004.

Improved calibration and systems management will be critical in optimizing the performance of the engine with the advanced catalyst system. Precise air/fuel control must be tailored for emissions performance and must be optimized for all types of driving. Calibration refinements may also be needed for EGR system optimization and to reduce cold start emissions through methods such as spark timing retard. We also project that electronic control modules with expanded capabilities will be needed on some vehicles and engines.

We also expect increased use of other technologies in conjunction with those described above. We expect some increased use of air injection to improve upon cold start emissions. We may also see air-gap manifolds, exhaust pipes, and catalytic converter shells as a means of improving upon catalyst light-off times thereby reducing cold start emissions. Other, non-catalyst related improvements to gasoline emission control technology include higher speed computer processors which enable more sophisticated engine control algorithms and improved fuel injectors providing better fuel atomization thereby improving fuel combustion.

Catalyst system durability is, and will always be, a serious concern. Historically, catalysts have deteriorated when exposed to very high temperatures. This has long been a concern especially for heavy-duty work Start Printed Page 5056vehicles. However, catalyst manufacturers continue to make strides in the area of thermal stability and we expect that improvements in thermal stability will continue for the next generation of catalysts.

We believe that, by optimizing all of these technologies, manufacturers will be able to achieve today's standards. Advanced catalyst systems have already shown potential to reduce emissions to close to these levels. Some current California vehicles are certified to levels below 0.20 g/mi NOX. California tested an advanced catalyst system on a vehicle loaded to a test weight comparable to a heavy-duty vehicle test weight and achieved NOX and NMOG levels of 0.1 g/mi and 0.16 g/mi, respectively. The California vehicle with the advanced catalyst had not been optimized as a system to take full advantage of the catalyst's capabilities.

The compliance flexibility provisions can also be an important tool for manufacturers in implementing a new standard. The program allows manufacturers to transition to the more stringent standards by introducing emissions controls over a longer period of time, as opposed to a single model year. Manufacturers plan their product introductions well in advance. With the compliance flexibilities, manufacturers can better manage their product lines so that the new standards don't interrupt their product introduction plans. Also, the program allows manufacturers to focus on higher sales volume vehicles first and use credits for low sales volume vehicles.

3. Feasibility of the New Evaporative Emission Standards

The new evaporative emission standards appear to be feasible now. Many designs have been certified that already meet these standards. A review of 1998 model year certification data indicates that five of eight evaporative system families in the 8,500 to 14,000 pound range comply with the new 1.4 g/test standard, while all evaporative system families in the over 14,000 pound range comply with the new 1.9 g/test standard.

The new evaporative emission standards should not require the development of new materials but may, in some cases, require new application of existing materials. Low permeability materials and low loss connections and seals are already used to varying degrees on current vehicles, but that practice may become more widespread. Today's new standards would likely ensure their consistent use and discourage manufacturers from switching to cheaper materials or designs to take advantage of the large safety margins they have had under current standards.

There are two approaches to reducing evaporative emissions for a given fuel. One is to minimize the potential for permeation and leakage by reducing the number of hoses, fittings and connections. The second is to use less permeable hoses and lower loss fittings and connections. Manufacturers are already employing both approaches.

Most manufacturers are moving to “returnless” fuel injection systems. Through more precise fuel pumping and metering, these systems eliminate the return line in the fuel injection system. The return line carries unneeded fuel from the fuel injectors back to the fuel tank. Because the fuel injectors are in such close contact with the hot engine, the fuel returned from the injectors to the fuel tank has been heated. This returned fuel is a significant source of fuel tank heat and vapor generation. The elimination of the return line also reduces the total length of hose on the vehicle though which vapors can permeate, and it reduces the number of fittings and connections through which fuel can leak.

Low permeability hoses and seals, and low loss fittings are available and are already used on many vehicles. Fluoropolymer materials can be added as liners to hose and component materials to yield large reductions in permeability over such conventional materials as monowall nylon. In addition, fluoropolymer materials can greatly reduce the adverse impact of alcohols in gasoline on permeability of evaporative components, hoses and seals.

F. Need for Low Sulfur Diesel Fuel

The following discussion will build upon the brief sulfur sensitivity points made earlier in this section by providing a more in-depth discussion of sulfur's effect on the diesel exhaust emission control technologies. In order to evaluate the effect of sulfur on diesel exhaust control technologies, we used three key factors to categorize the impact of sulfur in fuel on emission control function. These factors were efficiency, reliability, and fuel economy. Taken together these three factors lead us to believe that diesel fuel sulfur levels of 15 ppm will be required in order to make feasible the heavy-duty vehicle emission standards. Brief summaries of these factors are provided below. A more in-depth review is given in the following subsections and in the final RIA.

The efficiency of emission control technologies to reduce harmful pollutants is directly affected by sulfur in diesel fuel. Initial and long term conversion efficiencies for NOX, NMHC, CO and diesel PM emissions are significantly reduced by catalyst poisoning and catalyst inhibition due to sulfur. NOX conversion efficiencies with the NOX adsorber technology in particular are dramatically reduced in a very short time due to sulfur poisoning of the NOX storage bed. In addition, total PM control efficiency is negatively impacted by the formation of sulfate PM. As explained in detail in the following sections, all of the advanced NOX and PM technologies described here have the potential to make significant amounts of sulfate PM under operating conditions typical of heavy-duty vehicles. We believe that the formation of sulfate PM will be in excess of the total PM standard, unless diesel fuel sulfur levels are at or below 15 ppm. Based on the strong negative impact of sulfur on emission control efficiencies for all of the technologies evaluated, we believe that 15 ppm represents an upper threshold of acceptable diesel fuel sulfur levels.

Reliability refers to the expectation that emission control technologies must continue to function as required under all operating conditions for the life of the vehicle. As discussed in the following sections, sulfur in diesel fuel can prevent proper operation of both NOX and PM control technologies. This can lead to permanent loss in emission control effectiveness and even catastrophic failure of the systems. Sulfur in diesel fuel impacts reliability by decreasing catalyst efficiency (poisoning of the catalyst), increasing diesel particulate filter loading, and negatively impacting system regeneration functions. Among the most serious reliability concerns with sulfur levels greater than 15 ppm are those associated with failure to properly regenerate. In the case of the NOX adsorber, failure to regenerate will lead to rapid loss of NOX emission control as a result of sulfur poisoning of the NOX adsorber bed. In the case of the diesel particulate filter, sulfur in the fuel reduces the reliability of the regeneration function. If regeneration does not occur, catastrophic failure of the filter could occur. It is only by the availability of low sulfur diesel fuels that these technologies become feasible. The analysis given in the following section makes clear that diesel fuel sulfur levels will need to be under 15 ppm in order to ensure robust operation of the technologies under the variety of operating conditions anticipated to be experienced in the field.

Fuel economy impacts due to sulfur in diesel fuel affect both NOX and PM Start Printed Page 5057control technologies. The NOX adsorber sulfur regeneration cycle (desulfation cycle) can consume significant amounts of fuel unless fuel sulfur levels are very low. The larger the amount of sulfur in diesel fuel, the greater the adverse effect on fuel economy. As sulfur levels increase above 15 ppm, the adverse effect on fuel economy becomes more significant, increasing above one percent and doubling with each doubling of fuel sulfur level. Likewise, PM trap regeneration is inhibited by sulfur in diesel fuel. This leads to increased PM loading in the diesel particulate filter and increased work to pump exhaust across this restriction. With low sulfur diesel fuel, diesel particulate filter regeneration can be optimized to give a lower (on average) exhaust backpressure and thus better fuel economy. Thus, for both NOX and PM technologies the lower the fuel sulfur level the lower the operating costs of the vehicle.

1. Catalyzed Diesel Particulate Filters and the Need for Low Sulfur Fuel

Diesel particulate filters (PM traps) function to control diesel PM through mechanical filtration of PM from the diesel exhaust stream and then oxidation of the stored PM (trap regeneration). Through oxidation in the catalyzed diesel particulate filter the stored carbonaceous PM is converted to CO2 and released into the atmosphere. Failure to oxidize the stored PM leads to accumulation in the trap, eventually causing the trap to become so full that it severely restricts exhaust flow through the device, leading to trap or vehicle failure.

As discussed earlier in this section, uncatalyzed diesel particulate filters require exhaust temperatures in excess of 650° C in order for the collected PM to be oxidized by the oxygen available in diesel exhaust. That temperature threshold for oxidation of PM by exhaust oxygen can be decreased to 450° C through the use of base metal catalytic technologies. For a broad range of operating conditions typical of in use operation, diesel exhaust is significantly cooler than 400° C. If oxidation of the trapped PM could be assured to occur at exhaust temperatures lower than 300° C, then diesel particulate filters would be expected to be robust for most applications and operating regimes. Oxidation of PM (regeneration of the trap) at such low exhaust temperatures can occur by using oxidants which are more readily reduced than oxygen. One such oxidant is NO2.

NO2 can be produced in diesel exhaust through the oxidation of the nitrogen monoxide (NO), created in the engine combustion process, across a catalyst. The resulting NO2-rich exhaust is highly oxidizing in nature and can oxidize trapped diesel PM at temperatures as cool as 250°C.[135] Some platinum group metals are known to be good catalysts to promote the oxidation of NO to NO2. Therefore in order to ensure passive regeneration of the diesel particulate filters, significant amounts of platinum group metals (primarily platinum) are being used in the wash-coat formulations of advanced diesel particulate filters. The use of platinum to promote the oxidation of NO to NO2 introduces several system vulnerabilities affecting both the durability and the effectiveness of the catalyzed diesel particulate filter when sulfur is present in diesel exhaust. The two primary mechanisms by which sulfur in diesel fuel limits the robustness and effectiveness of diesel particulate filters are inhibition of trap regeneration, through inhibition of the oxidation of NO to NO2, and a dramatic loss in total PM control effectiveness due to the formation of sulfate PM. Unfortunately, these two mechanisms trade-off against one another in the design of diesel particulate filters. Changes to improve the reliability of regeneration by increasing catalyst loadings lead to increased sulfate emissions and, thus, loss of PM control effectiveness. Conversely, changes to improve PM control by reducing the use of platinum group metals and, therefore, limiting “sulfate make” leads to less reliable regeneration. We believe the only means of achieving good PM emission control and reliable operation is to reduce sulfur in diesel fuel, as shown in the following subsections.

a. Inhibition of Trap Regeneration Due to Sulfur

The passively regenerating diesel particulate filter technologies rely on the generation of a very strong oxidant, NO2, to ensure that the carbon captured by the PM trap's filtering media is oxidized under the exhaust temperature range of normal operating conditions. This prevents plugging and failure of the PM trap. NO2 is produced through the oxidation of NO in the exhaust across a platinum catalyst. This oxidation is inhibited by sulfur poisoning of the catalyst surface.[136] This inhibition limits the total amount of NO2 available for oxidation of the trapped diesel PM, thereby raising the minimum exhaust temperature required to ensure trap regeneration. Without sufficient NO2, the amount of PM trapped in the diesel particulate filter will continue to increase and can lead to excessive exhaust back pressure, low engine power, and even catastrophic failure of the diesel particulate filter itself.

The failure mechanisms experienced by diesel particulate filters due to low NO2 availability vary significantly in severity and long term consequences. In the most fundamental sense, the failure is defined as an inability to oxidize the stored particulate at a rate fast enough to prevent net particulate accumulation over time. The excessive accumulation of PM over time blocks the passages through the filtering media, making it more restrictive to exhaust flow. In order to continue to force the exhaust through the now more restrictive filter, the exhaust pressure upstream of the filter must increase. This increase in exhaust pressure is commonly referred to as increasing “exhaust backpressure” on the engine.

The increase in exhaust backpressure represents increased work being done by the engine to force the exhaust gas through the increasingly restrictive particulate filter. Unless the filter is frequently cleansed of the trapped PM, this increased work can lead to reductions in engine performance and increases in fuel consumption. This loss in performance may be noted by the vehicle operator in terms of poor acceleration and generally poor driveability of the vehicle. In some cases, engine performance can be so restricted that the engine stalls, stranding the vehicle. This progressive deterioration of engine performance as more and more PM is accumulated in the filter media is often referred to as “trap plugging.” Trap plugging also has the potential to cause engine damage. If the exhaust backpressure gets high enough to open the exhaust valves prematurely, the exhaust valves can then strike the piston causing catastrophic engine failure. Whether trap plugging occurs, and the speed at which it occurs, will be a function of many variables in addition to the fuel sulfur level; these variables include the vehicle application, its duty cycle, and ambient conditions. However, if the fuel sulfur level is sufficiently high to prevent trap regeneration in any real world conditions experienced, trap plugging can occur. This is not to imply that any time a vehicle is refueled once with high sulfur fuel trap plugging will occur. Rather, it is important to know that the use of fuel with sulfur levels higher than 15 ppm significantly Start Printed Page 5058increases the chances of particulate filter failure.

Catastrophic failure of the filter can occur when excessive amounts of PM are trapped in the filter due to a lack of NO2 for oxidation. This failure occurs when excessive amounts of trapped PM begin to oxidize at high temperatures (combustion-like temperatures of over 1000° C) leading to a “run-away” combustion of the PM. This can cause temperatures in the filter media to increase in excess of that which can be tolerated by the particulate filter itself. For the cordierite material commonly used as the trapping media for diesel particulate filters, the high thermal stresses caused by the high temperatures can cause the material to crack or melt. This can allow significant amounts of the diesel particulate to pass through the filter without being captured during the remainder of the vehicle's life. That is, the trap is destroyed and PM emission control is lost. Further the high temperatures generated during this event can destroy the downstream catalyst components, such as the NOX adsorber, rendering them ineffective as well.

Full field test evaluations and retrofit applications of these catalytic trap technologies are occurring in parts of Europe where low sulfur diesel fuel is already available.[137] The experience gained in these field tests helps to clarify the need for low sulfur diesel fuel. In Sweden and some European city centers where below 10 ppm diesel fuel sulfur is readily available, more than 3,000 catalyzed diesel particulate filters have been introduced into retrofit applications without a single failure. Given the large number of vehicles participating in these test programs, the diversity of the vehicle applications which included intercity trains, airport buses, mail trucks, city buses and garbage trucks, and the extended time periods of operation (some vehicles have been operating with traps for more than 5 years and in excess of 300,000 miles[138] ), there is a strong indication of the robustness of this technology on 10 ppm low sulfur diesel fuel. The field experience in areas where sulfur is capped at 50 ppm has been less definitive. In regions without extended periods of cold ambient conditions, such as the United Kingdom, field tests on 50 ppm cap low sulfur fuel have also been positive, matching the durability at 10 ppm, although sulfate PM emissions are much higher. However, field tests on 50 ppm fuel in Finland, where colder winter conditions are sometimes encountered (similar to many parts of the United States), showed a significant number of failures (~10 percent) due to trap plugging. This 10 percent failure rate has been attributed to insufficient trap regeneration due to fuel sulfur in combination with low ambient temperatures.[139] Other possible reasons for the high failure rate in Finland when contrasted with the Swedish experience appear to be unlikely. The Finnish and Swedish fleets were substantially similar, with both fleets consisting of transit buses powered by Volvo and Scania engines in the 10 to 11 liter range. Further, the buses were operated in city areas and none of the vehicles were operated in northern extremes such as north of the Arctic Circle.[140] Given that the fleets in Sweden and Finland were substantially similar, and given that ambient conditions in Sweden are expected to be similar to those in Finland, we believe that the increased failure rates noted here are due to the higher fuel sulfur level in a 50 ppm cap fuel versus a 10 ppm cap fuel.[141] Testing on an even higher fuel sulfur level of 200 ppm was conducted in Denmark on a fleet of 9 vehicles. In less than six months all of the vehicles in the Danish fleet had failed due to trap plugging.[142] The failure of some fraction of the traps to regenerate when operated on fuel with sulfur caps of 50 ppm and 200 ppm is believed to be primarily due to inhibition of the NO to NO2 conversion as described here. Similarly the increasing frequency of failure with higher fuel sulfur levels is believed to be due to the further suppression of NO2 formation when higher sulfur level diesel fuel is used.

As shown above, sulfur in diesel fuel inhibits NO oxidation leading to increased exhaust backpressure, reduced fuel economy, compromised reliability, and potentially engine damage. Therefore, we believe that, in order to ensure reliable and economical operation over a wide range of expected operating conditions, diesel fuel sulfur levels should be at or below 15 ppm. With these low sulfur levels we believe, as demonstrated by experience in Europe, that catalyzed diesel particulate filters will prove to be both durable and effective at controlling diesel particulate emissions. We did receive comments from the refining industry suggesting that PM filters could work on fuel sulfur levels as high as 50 ppm. The commenters pointed to some specific test programs where fuel with an approximate average sulfur level of 30 ppm was used as evidence of the robustness of the technology on higher sulfur fuels. While we do not deny that it is possible to operate some vehicles in limited applications over defined driving cycles on fuel as high as 30 ppm, we do not believe that this limited data should be the basis for a national program. The reality that some vehicles do fail on 50 ppm cap fuel, as demonstrated by the Finish fleet results mentioned above, shows that durability is not assured with the use of higher sulfur diesel fuel. We believe that the evidence, as a whole, shows that oxidation of NO to NO2 will be poisoned due to these higher fuel sulfur levels with a resulting significant possibility of PM trap failures that is too great a concern for us to feel confident about a fuel sulfur level higher than 15 ppm.

b. Loss of PM Control Effectiveness

In addition to inhibiting the oxidation of NO to NO2, the sulfur dioxide (SO2) in the exhaust stream is itself oxidized to sulfur trioxide (SO3) at very high conversion efficiencies by the precious metals in the catalyzed particulate filters. The SO3 serves as a precursor to the formation of hydrated sulfuric acid (H2 SO4+H2 O), or sulfate PM, as the exhaust leaves the vehicle tailpipe. Virtually all of the SO3 is converted to sulfate under dilute exhaust conditions in the atmosphere as well in the dilution tunnel used in heavy-duty engine testing. Since virtually all sulfur present in diesel fuel is converted to SO2, the precursor to SO3, as part of the combustion process, the total sulfate PM is directly proportional to the amount of sulfur present in diesel fuel. Therefore, even though diesel particulate filters are very effective at trapping the carbon and the SOF portions of the total PM, the overall PM reduction efficiency of catalyzed diesel particulate filters drops off rapidly with increasing sulfur levels due to the formation of sulfate PM downstream of the trap. Start Printed Page 5059

SO2 oxidation is promoted across a catalyst in a manner very similar to the oxidation of NO, except it is converted at higher rates, with peak conversion rates in excess of 50 percent. The SO2 oxidation rate for a platinum based oxidation catalyst typical of the type which might be used in conjunction with, or as a washcoat on, a catalyzed diesel particulate filter can vary significantly with exhaust temperature. At the low temperatures typical of some urban driving and the heavy-duty federal test procedure (HD-FTP), the oxidation rate is relatively low, perhaps no higher than ten percent. However at the higher temperatures that might be more typical of highway driving conditions and the Supplemental Emission Test (also called the EURO III or 13 mode test), the oxidation rate may increase to 50 percent or more. These high levels of sulfate make across the catalyst are in contrast to the very low SO2 oxidation rate typical of diesel exhaust (typically less than 2 percent). This variation in expected diesel exhaust temperatures means that there will be a corresponding range of sulfate production expected across a catalyzed diesel particulate filter.

The US Department of Energy in cooperation with industry conducted a study entitled DECSE to provide insight into the relationship between advanced emission control technologies and diesel fuel sulfur levels. Interim report number four of this program gives the total particulate matter emissions from a heavy-duty diesel engine operated with a diesel particulate filter on several different fuel sulfur levels. A straight line fit through this data is presented in Table III.F-1 below showing the expected total direct PM emissions from a heavy-duty diesel engine on the supplemental emission test cycle.[143] The data can be used to estimate the PM emissions from heavy-duty diesel engines operated on fuels with average fuel sulfur levels in this range.

Table III.F-1.—Estimated PM Emissions From a Heavy-Duty Diesel Engine at the Indicated Fuel Sulfur Levels

Supplemental emission test performance
Fuel sulfur [ppmm]Tailpipe PM b [g/bhp-hr]PM increase relative to 3 to 3 ppm sulfur
30.003
7 a0.006100%
15a0.009200%
300.017470%
1500.0712300%
a The PM emissions at these sulfur levels are based on a straight-line fit to the DECSE data; PM emissions at other sulfur levels are actual DECSE data. (Diesel Emission Control Sulfur Effects (DECSE) Program—Phase II Interim Data Report No. 4, Diesel Particulate Filters-Final Report, January 2000. Table C1.) Although DECSE tested diesel particulate filters at these fuel sulfur levels, they do not conclude that the technology is feasible at all levels, but they do note that testing at 150 ppm is a moot point as the emission levels exceed the engine's baseline emission level.
b  b Total exhaust PM (soot, SOF, sulfate).

Table III.F-1 makes it clear that there are significant PM emission reductions possible with the application of catalyzed diesel particulate filters and low sulfur diesel fuel. At the observed sulfate PM conversion rates, the DECSE program results show that the 0.01 g/bhp-hr total PM standard is feasible for diesel particulate filter equipped engines operated on fuel with a sulfur level at or below 15 ppm. The results also show that diesel particulate filter control effectiveness is rapidly degraded at higher diesel fuel sulfur levels due to the high sulfate PM make observed with this technology. It is clear that PM reduction efficiencies are limited by sulfur in diesel fuel and that, in order to realize the PM emissions benefits sought in this rule, diesel fuel sulfur levels must be at or below 15 ppm. The data further indicates that were the fuel sulfur level set at a 30 ppm average, as some commenters suggested, the PM emissions from the controlled vehicles would be nearly three times the emissions from a vehicle operating on fuel with a 7 ppm average.

c. Increased Maintenance Cost for Diesel Particulate Filters Due to Sulfur

In addition to the direct performance and durability concerns caused by sulfur in diesel fuel, it is also known that sulfur can lead to increased maintenance costs, shortened maintenance intervals, and poorer fuel economy for particulate filters. Diesel particulate filters are highly effective at capturing the inorganic ash produced from metallic additives in engine oil. This ash is accumulated in the filter and is not removed through oxidation, unlike the trapped carbonaceous PM. Periodically the ash must be removed by mechanical cleaning of the filter with compressed air or water. This maintenance step is anticipated to occur on intervals of well over one hundred thousand miles. However, sulfur in diesel fuel increases this ash accumulation rate through the formation of metallic sulfates in the filter, which increases both the size and mass of the trapped ash. By increasing the ash accumulation rate, the sulfur shortens the time interval between the required maintenance of the filter and negatively impacts fuel economy.

2. Diesel NOX Catalysts and the Need for Low Sulfur Fuel

All of the NOX exhaust emission control technologies discussed previously in Section III are expected to utilize platinum to oxidize NO to NO2 to improve the NOX reduction efficiency of the catalysts at low temperatures or as in the case of the NOX adsorber, as an essential part of the process of NOX storage. This reliance on NO2 as an integral part of the reduction process means that the NOX exhaust emission control technologies, like the PM exhaust emission control technologies, will have problems with sulfur in diesel fuel. In addition, NOX adsorbers have the added problem that the adsorption function itself is poisoned by the presence of sulfur. The resulting need to remove the stored sulfur (desulfate) leads to a need for extended high temperature operation which can deteriorate the NOX adsorber. These limitations due to sulfur in the fuel affect the overall performance and feasibility of the technologies.

a. Sulfur Poisoning (Sulfate Storage) on NOX Adsorbers

The NOX adsorber technology relies on the ability of the catalyst to store NOX as a nitrate (MNO3) on the surface of the catalyst, or adsorber (storage) bed, during lean operation. Because of the similarities in chemical properties of SOX and NOX, the SO2 present in the exhaust is also stored by the catalyst surface as a sulfate (MSO4). The sulfate compound that is formed is significantly more stable than the nitrate compound and is not released and reduced during the NOX release and reduction step (NOX regeneration step). Since the NOX adsorber is essentially 100 percent effective at capturing SO2 in the adsorber bed, the sulfur build up on the adsorber bed occurs rapidly. As a result, sulfate compounds quickly occupy all of the NOX storage sites on the catalyst Start Printed Page 5060thereby rendering the catalyst ineffective for NOX storage and subsequent NOX reduction (poisoning the catalyst).

The stored sulfur compounds can be removed by exposing the catalyst to hot (over 650°C) and rich (air-fuel ratio below the stoichiometric ratio of 14.5 to 1) conditions for a brief period.[144] Under these conditions, the stored sulfate is released and reduced in the catalyst.[145] While research to date on this procedure has been very favorable with regards to sulfur removal from the catalyst, it has revealed a related vulnerability of the NOX adsorber catalyst. Under the high temperatures used for desulfation, the metals that make up the storage bed can change in physical structure. This leads to lower precious metal dispersion, or “metal sintering,” (a less even distribution of the catalyst sites) reducing the effectiveness of the catalyst.[146] This degradation of catalyst efficiency due to high temperatures is often referred to as thermal degradation. Thermal degradation is known to be a cumulative effect. That is, with each excursion to high temperature operation, some additional degradation of the catalyst occurs.

One of the best ways to limit thermal degradation is by limiting the accumulated number of desulfation events over the life of the vehicle. Since the period of time between desulfation events is expected to be determined by the amount of sulfur accumulated on the catalyst (the higher the sulfur accumulation rate, the shorter the period between desulfation events) the desulfation frequency is expected to be proportional to the fuel sulfur level. In other words for each doubling in the average fuel sulfur level, the frequency and accumulated number of desulfation events are expected to double. We believe, therefore, that the diesel fuel sulfur level must be set as low as possible in order to limit the frequency and duration of desulfation events. Without control of fuel sulfur levels below 15 ppm, we can no longer conclude with any confidence that sulfur poisoning can be controlled without unrecoverable thermal degradation. Some commenters have suggested that the NOX adsorber technology could meet the NOX standard using diesel fuel with a 30 ppm average sulfur level. This would imply that the NOX adsorber could tolerate as much as a four fold increase in desulfation frequency (when compared to an expected seven to 10 ppm average) without any increase in thermal degradation. This conclusion is inconsistent with our understanding of the technology that, with each desulfation event, some thermal degradation occurs. Therefore, we believe that diesel fuel sulfur levels must be at or below 15 ppm in order to limit the number and frequency of desulfation events. Limiting the number and frequency of desulfation events will limit thermal degradation and, thus, enable the NOX adsorber technology to meet the NOX standard.

Sulfur in diesel fuel for NOX adsorber equipped engines will also have an adverse effect on fuel economy. The desulfation event requires controlled operation under hot and net fuel rich exhaust conditions. These conditions, which are not part of a normal diesel engine operating cycle, can be created through the addition of excess fuel to the exhaust. This addition of excess fuel causes an increase in fuel consumption. We have developed a spreadsheet model that estimates the frequency of desulfation cycles from published data and then estimates the fuel economy impact from this event.[147] Table III-F.2 shows the estimated fuel economy impact for desulfation of a NOX adsorber at different fuel sulfur levels assuming a desired 90 percent NOX conversion efficiency. The estimates in the table are based on assumed average fuel sulfur levels associated with different sulfur level caps. Note that, although we can estimate the fuel consumption penalty of operation on diesel fuel sulfur levels higher than 15 ppm, this analysis does not consider the higher degree of thermal degradation due to the more frequent desulfation events which are required for operation on these higher sulfur levels.

Table III.F-2.—Estimated Fuel Economy Impact From Desulfation of a 90% Efficient NOX Adsorber

Fuel sulfur cap (ppm)Average fuel sulfur (ppm)Fuel economy penalty (in percent)
50035027
50302
25151
157<1
52<<<1

The table highlights that the fuel economy penalty associated with sulfur in diesel fuel is noticeable even at average sulfur levels as low as 15 ppm and increases rapidly with higher sulfur levels. It also shows that the use of a NOX adsorber with a 15 ppm sulfur cap fuel would be expected to result in a fuel economy impact due to the need for desulfation of the catalyst of less than one percent, absent other changes in engine design. However, as discussed in Section G below, we anticipate that other engine modifications could be made to offset this fuel economy impact. For example, a NOX control device in the exhaust system could allow use of fuel saving engine strategies, such as advanced fuel injection timing, that could be used to offset the increased fuel consumption associated with the NOX adsorber. The result is that low sulfur fuel enables the NOX adsorber which, in turn, enables fuel saving engine modifications. The total emission control system fuel economy impact, which we estimate to be zero under a 15 ppm cap program, is discussed below in Section III.G.

Future improvements in the NOX adsorber technology are expected and needed if the technology is to provide the environmental benefits we have projected today. Some of these improvements are likely to include improvements in the means and ease of removing stored sulfur from the catalyst bed. However because the stored sulfate species are inherently more stable than the stored nitrate compounds (from stored NOX emissions), we expect that a separate release and reduction cycle (desulfation cycle) will always be needed in order to remove the stored sulfur. Therefore, we believe that fuel with a sulfur level at or below 15 ppm sulfur will be necessary in order to control thermal degradation of the NOX adsorber catalyst and to limit the fuel economy impact of sulfur in diesel fuel.

b. Sulfate Particulate Production and Sulfur Impacts on Effectiveness of NOX Control Technologies

The NOX adsorber technology relies on a platinum based oxidation function Start Printed Page 5061in order to ensure high NOX control efficiencies. As discussed more fully in section III.F.1, platinum based oxidation catalysts form sulfate PM from sulfur in the exhaust gases significantly increasing PM emissions when sulfur is present in the exhaust stream. The NOX adsorber technology relies on the oxidation function to convert NO to NO2 over the catalyst bed. For the NOX adsorber this is a fundamental step prior to the storage of NO2 in the catalyst bed as a nitrate. Without this oxidation function the catalyst will only trap that small portion of NOX emissions from a diesel engine which is NO2. This would reduce the NOX adsorber effectiveness for NOX reduction from in excess of 90 percent to something well below 20 percent. The NOX adsorber relies on platinum to provide this oxidation function due to the need for high NO oxidation rates under the relatively cool exhaust temperatures typical of diesel engines. Because of this fundamental need for a catalytic oxidation function, the NOX adsorber inherently forms sulfate PM when sulfur is present in diesel fuel, since sulfur in fuel invariably leads to sulfur in the exhaust stream.

The Compact-SCR technology, like the NOX adsorber technology, uses an oxidation catalyst to promote the oxidation of NO to NO2 at the low temperatures typical of much of diesel engine operation. As discussed above, there are substantial questions regarding the ability of SCR systems to be implemented successfully to meet the requirements finalized today. By converting a portion of the NOX emissions to NO2 upstream of the ammonia SCR reduction catalyst, the overall NOX reductions are improved significantly at low temperatures. Without this oxidation function, low temperature SCR NOX effectiveness is dramatically reduced making compliance with the NOX standard impossible. As discussed previously in Section III, platinum group metals are known to be good catalysts to promote NO oxidation, even at low temperatures.[148] Therefore, future Compact-SCR systems would need to rely on a platinum oxidation catalyst in order to provide the required NOX emission control. This use of an oxidation catalyst in order to enable good NOX control means that Compact SCR systems will produce significant amounts of sulfate PM when operated on anything but the lowest fuel sulfur levels due to the oxidation of SO2 to sulfate PM promoted by the oxidation catalyst.

Without the oxidation catalyst promoted conversion of NO to NO2, neither of these NOX control technologies can meet the NOX standard set here. Therefore each of these technologies will require low sulfur diesel fuel to control the sulfate PM emissions inherent in the use of oxidation catalysts. The NOX adsorber technology may be able to limit its impact on sulfate PM emissions by releasing stored sulfur as SO2 under rich operating conditions. The Compact-SCR technology, on the other hand, has no means to limit sulfate emissions other than through lower catalytic function or lowering sulfur in diesel fuel. The degree to which the NOX emission control technologies increase the production of sulfate PM through oxidation of SO2 to SO3 varies somewhat from technology to technology, but it is expected to be similar in magnitude and environmental impact to that for the PM control technologies discussed previously in section III.F.1, since both the NOX and the PM control catalysts rely on precious metals to achieve the required NO to NO2 oxidation reaction.

Thus, we believe that diesel fuel sulfur levels will need to be at or below 15 ppm in order to apply any of these NOX control technologies. Without this low sulfur fuel, the NOX control technologies are expected to create PM emissions well in excess of the PM standard regardless of the engine-out PM levels. Again, as noted with the PM control technologies, test results to date on catalysts with high oxidation potential indicate that were the fuel sulfur level set with a 30 ppm average, as some commenters suggested, the PM emissions from the controlled vehicles would increase nearly three fold over the level expected from fuel with a 7 ppm average, the average fuel sulfur level we would expect from a 15 ppm cap fuel (see Table III.F.1).

3. What About Sulfur in Engine Lubricating Oils?

Current engine lubricating oils have sulfur contents which can range from 2,500 ppm to as high as 8,000 ppm by weight. Since engine oil is consumed by heavy-duty diesel engines in normal operation, it is important that we account for the contribution of oil derived sulfur in our analysis of the need for low sulfur diesel fuel. One way to give a straightforward comparison of this effect is to express the sulfur consumed by the engine as an equivalent fuel sulfur level. This approach requires that we assume specific fuel and oil consumption rates for the engine. Using this approach, estimates ranging from two to seven ppm diesel fuel sulfur equivalence have been made for the sulfur contribution from engine oil.[149 150] If values at the upper end of this range accurately reflect the contribution of sulfur from engine oil to the exhaust this would be a concern as it would represent 50 percent of the total sulfur in the exhaust under a 15 ppm diesel fuel sulfur cap (with an average sulfur level assumed to be approximately seven ppm). However, we believe that this simplified analysis, while valuable in demonstrating the need to investigate this issue further, overstates the likely sulfur contribution from engine oil by a significant amount due to its inclusion of engine oil lost through the open crankcase system in the estimate of oil consumption to the exhaust.

Current heavy-duty diesel engines operate with open crankcase ventilation systems which “consume” oil by carrying oil from the engine crankcase into the environment. This consumed oil is correctly included in the total oil consumption estimates, but should not be included in estimates of oil entering the exhaust system for this analysis, since as currently applied this oil is not introduced into the exhaust. At present we estimate that the majority of lube oil consumed by an engine meeting the 0.1 g/bhp-hr PM standard is lost through crankcase ventilation, rather than through the exhaust. Based on assumed engine oil to PM conversion rates and historic soluble organic fraction breakdowns we have estimated the contribution of sulfur from engine oil to be less than two ppm fuel equivalency. With our action to close the crankcase, coupled with the use of closed crankcase ventilation systems that separate in excess of 90 percent of the oil from the blow-by gases, we believe that this very low contribution of lube oil to sulfur in the exhaust can be maintained. For a further discussion of our estimates of the sulfur contribution from engine oil refer to the final RIA in the docket.

G. Fuel Economy Impact of High Efficiency Control Technologies

The high efficiency emission control technologies expected to be applied in order to meet the NOX and PM standards involve wholly new system components integrated into engine designs and calibrations, and as such Start Printed Page 5062may be expected to change the fuel consumption characteristics of the overall engine design. After reviewing the likely technology options available to the engine manufacturers, we believe that the integration of the engine and exhaust emission control systems into a single synergistic emission control system will lead to heavy-duty vehicles which can meet demanding emission control targets without increasing fuel consumption beyond today's levels.

1. Diesel Particulate Filters and Fuel Economy

Diesel particulate filters are anticipated to provide a step-wise decrease in diesel particulate (PM) emissions by trapping and oxidizing the diesel PM. The trapping of the very fine diesel PM is accomplished by forcing the exhaust through a porous filtering media with extremely small openings and long path lengths.[151] This approach results in filtering efficiencies for diesel PM greater than 90 percent but requires additional pumping work to force the exhaust through these small openings. The additional pumping work is anticipated to increase fuel consumption by approximately one percent.[152] However, we believe this fuel economy impact can be regained through optimization of the engine—PM trap—NOX adsorber system, as discussed below.

2. NOX Control Technologies and Fuel Economy

NOX adsorbers are expected to be the primary NOX control technology introduced in order to provide the reduction in NOX emissions envisioned in this rulemaking. NOX adsorbers work by storing NOX emissions under fuel lean operating conditions (normal diesel engine operating conditions) and then by releasing and reducing the stored NOX emissions over a brief period of fuel rich engine operation. This brief periodic NOX release and reduction step is directly analogous to the catalytic reduction of NOX over a gasoline three-way catalyst. In order for this catalyst function to occur the engine exhaust constituents and conditions must be similar to normal gasoline exhaust constituents. That is, the exhaust must be fuel rich (devoid of excess oxygen) and hot (over 250°C). Although it is anticipated that diesel engines can be made to operate in this way, it is assumed that fuel economy while operating under these conditions will be worse than normal. We have estimated that the fuel economy impact of the NOX release and reduction cycle would, all other things being equal, increase fuel consumption by approximately one percent. Again, we believe this fuel economy impact can be regained through optimization of the engine—PM trap—NOX adsorber system, as discussed below.

In addition to the NOX release and regeneration event, another step in NOX adsorber operation may affect fuel economy. As discussed earlier, NOX adsorbers are poisoned by sulfur in the fuel even at the low sulfur levels mandated here. As discussed in the RIA, we anticipate that the sulfur poisoning of the NOX adsorber can be reversed through a periodic “desulfation” event. The desulfation of the NOX adsorber is accomplished in a similar manner to the NOX release and regeneration cycle described above. However it is anticipated that the desulfation event will require extended operation of the diesel engine at rich conditions.[153] This rich operation will, like the NOX regeneration event, require an increase in the fuel consumption rate and will cause an associated decrease in fuel economy. With a 15 ppm fuel sulfur cap, we are projecting that fuel consumption for desulfation would increase by one percent or less, which we believe can be regained through optimization of the engine-PM trap- NOX adsorber system as discussed below.

While NOX adsorbers require non-power producing consumption of diesel fuel in order to function properly and, therefore, have an impact on fuel economy, they are not unique among NOX control technologies in this way. In fact NOX adsorbers are likely to have a very favorable NOX to fuel economy trade-off when compared to other NOX control technologies like cooled EGR and injection timing retard that have historically been used to control NOX emissions. Today, most diesel engines rely on injection timing control (retarding injection timing) in order to meet the 4.0 g/bhp-hr NOX emission standard. For 2004 model year compliance, we expect that engine manufacturers will use a combination of cooled EGR and injection timing control to meet the 2.0 g/bhp-hr NOX standard. Because of the more favorable fuel economy trade-off for NOX control with EGR when compared to timing control, we have forecast that less reliance on timing control will be needed in 2004. Therefore, fuel economy will not be changed even at this lower NOX level.

NOX adsorbers have a significantly more favorable NOX to fuel economy trade-off when compared to cooled EGR or timing retard alone, or even when compared to cooled EGR and timing retard together.[154] Current NOX adsorber data show greater than 90 percent reduction in NOX emissions over the SET, while only increasing fuel consumption by a very reasonable two percent. Further the data show that, for significant portions of the engine's typical operating range, NOX control in excess of 98 percent is possible even with engine-out emissions as high as 5 g/bhp-hr.[155] Therefore, we expect manufacturers to take full advantage of the NOX control capabilities of the NOX adsorber and project that they will decrease reliance on technologies with a less favorable emissions to fuel economy trade-off, especially injection timing retard, when operating at conditions where the NOX adsorber performance is significantly greater than 90 percent. We would therefore predict that the fuel economy impact currently associated with NOX control from timing retard would be decreased by at least three percent. In other words, through the application of advanced NOX emission control technologies, which are enabled by the use of low sulfur diesel fuel, we expect the NOX trade-off with fuel economy to continue to improve significantly when compared to today's technologies. This will result in both much lower NOX emissions, and potentially overall improvements in fuel economy. Improvements could easily offset the fuel consumption of the NOX adsorber itself and, in addition, the one percent fuel economy loss projected to result from the application of PM filters. Consequently, we are projecting no fuel economy penalty to result from this rule.

3. Emission Control Systems for 2007 and Net Fuel Economy Impacts

We anticipate that, in order to meet the stringent NOX and PM emission standards set today, the engine manufacturers will integrate engine-based emission control technologies and Start Printed Page 5063post-combustion emission control technologies into a single systems-based approach that will fundamentally shift historic trade-offs between emissions control and fuel economy. As outlined in the preceding two sections, individual components in this system will introduce new constraints and opportunities for improvements in fuel efficient control of emissions. Having considered the many opportunities to fundamentally improve these relationships, we believe that it is unlikely that fuel economy will be lower than today's levels and, in fact, may improve through the application of these new technologies and this new systems approach. Therefore, for our analysis of economic impacts in Section V, no penalty or benefit for changes to fuel economy are considered.

H. Review of the Status of Heavy-Duty Diesel NOX Emission Control Technology

In the NPRM, we provided a detailed technical evaluation of test data and other information that concluded that the proposed program would be technologically feasible for all heavy-duty engines. During the public comment period, we received many comments as well as additional information about the likely status and capability of emission control technology development in the 2007 time frame. To this information we have added our own updated evaluation of test data as well as technical information developed by ourselves and others.

Based on this information, and as discussed in Sections III.E and III.F above, we now have an even higher degree of confidence that manufacturers will be able to meet the new heavy-duty standards. Manufacturers of heavy-duty gasoline engines will apply essentially the same technology that is being developed for light-duty trucks under the Tier 2 program and should not have major problems doing so, especially given the significant available lead time. Regarding diesels, although the technological challenges are somewhat greater than for gasoline engines, we believe that manufacturers will achieve the engine standards adopted today for 2007 and later years, in conjunction with the low sulfur diesel fuel we are also requiring.

As we discussed earlier, there are two primary technologies that diesel engine manufacturers expect to use to meet the standards adopted in today's rule, and they are at different stages of commercial development. Catalyzed diesel PM trap technologies are in widespread fleet testing today, we have shown that there are no serious impediments to the widespread application of this technology to heavy-duty diesel engines that can meet our new standards by 2007, if not earlier. Diesel NOX adsorber technology, the emission control technology we believe will be used for heavy-duty diesel engines to meet the very low NOX emission standards adopted today, is less developed relative to PM control technology. Still, as we discussed earlier, we have identified a clear technological pathway to compliance with the NOX standards using NOX adsorber technology. While we do not anticipate major obstacles in commercializing these systems by 2007, it is important that the various parties in the industry continue to make good progress in their development of NOX adsorber technology for heavy-duty diesel engines.

As a mechanism for monitoring and evaluating this technological progress, we believe it will be important to publicly reassess the status of heavy-duty diesel NOX adsorber systems on an ongoing basis. To accomplish this, we will conduct regular biennial reviews of the status of heavy-duty NOX adsorber technology. For each review, we will collect and analyze information from engine manufacturers, NOX adsorber manufacturers, our own testing, and other sources. At the end of each review cycle, we will release (and post on the Web) a report discussing the status of the technology and any implications for the heavy-duty engine emission control program. We will release the first report by December 31, 2002 and subsequent reports at the end of each second year through December 31, 2008. This biennial process is similar to that used by the State of California to monitor and evaluate their emission control programs.

IV. Our Program for Controlling Highway Diesel Sulfur

With today's action, we are requiring substantial reductions in highway diesel fuel sulfur levels nationwide, because sulfur significantly inhibits the ability of the diesel emission control devices to function which are necessary to meet the emission standards finalized today. With the highway diesel fuel sulfur standard we are finalizing today, we have concluded that there will be technology available to achieve the reductions required by the stringent emission standards we are implementing for model year 2007 and later heavy-duty engines.

In developing the provisions of the fuel program being adopted today, we identified several goals that we want the program to achieve. First, we must ensure that there will be an adequate supply of highway diesel fuel for all vehicles. Second, we must ensure that low sulfur diesel fuel will be readily available nationwide for the 2007 and later model year heavy-duty vehicles that need it. Finally, we want to ensure a smooth transition to low sulfur fuel.

In the NPRM, we proposed that refiners be required to start producing all of their highway diesel fuel at the 15 ppm sulfur level beginning in 2006. We also requested comment on a range of options for transitioning to the low sulfur diesel fuel over time. With regard to the programmatic goals noted above, the proposed approach, which would have required all highway diesel fuel to meet the 15 ppm sulfur standard in 2006, guaranteed availability of the low sulfur diesel fuel throughout the nation. However, many commenters stated concerns that the proposed program would not ensure adequate overall supplies of highway diesel fuel, especially if some refiners chose not to continue producing highway diesel fuel to avoid the changes needed to meet the low sulfur levels.

The final diesel fuel program we are adopting today includes flexibilities for the refining industry as a whole, as well as additional flexibilities for refiners experiencing hardship circumstances. First, the program gives refiners a temporary compliance option for low sulfur diesel fuel beginning in mid-2006. The final program also includes additional flexibilities for refineries located in certain western states (the Geographic Phase-In Area (GPA) [156] ), provisions for qualifying small refiners, and a general hardship provision for which any refiner may apply under certain conditions. These flexibilities ensure that the vast majority of refiners nationwide can fully comply at the earliest possible date while avoiding an excessive burden on a subset of refiners. The following section details each of the requirements of the highway diesel fuel program for refiners and importers, summarizes the analyses we have performed on the impacts of the temporary compliance option being adopted today, and describes additional information we have received that supports the changes made to the proposed program. Section VII provides additional information about the Start Printed Page 5064compliance and enforcement provisions that will accompany these requirements.

We believe the highway diesel fuel program we are adopting today meets all of the programmatic goals noted above. We believe that the final program will ensure that the overall supply of highway diesel fuel will be sufficient for all vehicles. To the extent there may have been supply concerns with a complete fuel turnover to low sulfur diesel in 2006 as some commenters have suggested, the flexibilities for refiners contained in the final program will serve as a “safety valve” by allowing up to 25 percent of the highway diesel fuel to remain at the current 500 ppm sulfur standard and providing additional time, if needed, for some refiners to fully convert over to low sulfur fuel. The combination of flexibilities provided to refiners in today's final rule should eliminate any concerns about the potential for supply shortfalls of highway diesel fuel. The final diesel fuel program is carefully structured so that we are confident there will be widespread availability of low sulfur fuel across the nation for 2007 and later model heavy-duty vehicles. In this way, the important health benefits of this program to people throughout the country can be achieved expeditiously, at a reasonable cost, while minimizing the burden on the affected industries.

This section also summarizes our technical feasibility analysis of the low sulfur highway diesel fuel program, and the impact of the program on other fuel properties and specialty fuels. Finally, the following section describes how state programs will be affected by today's action including a provision that allows the State of Alaska the option of developing an alternative transition plan for implementing low sulfur fuel.

A. Highway Diesel Sulfur Standards for Refiners and Importers

The requirements of the highway diesel fuel sulfur control program will become effective in time to be available with the introduction of the first heavy-duty engines meeting the model year 2007 and later engine standards we are adopting today. The following paragraphs describe the requirements, standards, and deadlines that apply to refiners and importers of highway diesel fuel and the options available to all refiners.

1. Standards and Deadlines That Refiners and Importers Must Meet

As described earlier in Section III.H. above, the new standards being adopted today for heavy-duty engines will begin with the 2007 model year. With today's action, we are adopting specific dates when fuel intended to be marketed as low sulfur diesel fuel must be produced at the refinery, distributed at the terminal level, and marketed at the retail level. Refiners and importers are required to produce highway diesel fuel meeting the 15 ppm sulfur standard beginning June 1, 2006.[157] At the terminal level, highway diesel fuel sold as low sulfur fuel is required to meet the 15 ppm sulfur standard beginning July 15, 2006. For retail stations and wholesale purchaser-consumers, highway diesel fuel sold as low sulfur fuel must meet the 15 ppm sulfur standard by September 1, 2006.

In the NPRM, we proposed a set of compliance dates slightly earlier than the dates contained in today's final rule. Under the proposal, refiners, terminals and retailers would have had to begin producing low sulfur diesel fuel by April 1, 2006, May 1, 2006 and June 1, 2006, respectively. Several commenters pointed out that the April introduction date for refiners occurred at the same time refiners would be changing over from winter to summer gasoline to comply with Reid Vapor Pressure (RVP) requirements. They recommended that the introduction of low sulfur diesel fuel be delayed for a couple of months to provide refiners and the distribution system the opportunity to focus on the two conversions separately and ensure that each occurs as designed. Commenters also suggested that we extend the time period between the refinery and downstream deadlines to better allow for the time it may take the distribution system to make a complete transition to the 15 ppm sulfur level.

In response to these concerns, today's action provides a few additional months for introduction of the low sulfur diesel fuel compared to the NPRM and provides an additional month between the refinery and retail compliance dates, to provide a smoother transition through the distribution system. We believe the additional time provides appropriate relief for the refiners, while still assuring that low sulfur diesel fuel will be available at the retail level no later than September 1, 2006. This schedule will allow manufacturers to introduce 2007 and later model year diesel engines and vehicles as early as September 1, 2006. While a slight delay from the dates of the proposal, the Agency does not believe this delay will place any undue burden on the engine manufacturers. Historically, new heavy-duty vehicle models were introduced on or around January 1 (of the same calendar year as the model year). Only recently, manufacturers have begun introducing some model lines earlier, particularly light heavy-duty vehicles.

In the NPRM, we proposed that all highway diesel fuel be required to comply with the 15 ppm sulfur standard starting in 2006. Today's program includes a combination of flexibilities available to refiners to ensure a smooth transition to low sulfur highway diesel fuel. Refiners can take advantage of a temporary compliance option, including an averaging, banking and trading component, beginning in June 2006 and lasting through 2009, with credit given for early compliance before June 2006. Under this option, up to 20 percent of highway diesel fuel may continue to be produced at the existing 500 ppm sulfur maximum standard, though it must be segregated from 15 ppm fuel in the distribution system, and may only be used in pre-2007 model year heavy-duty vehicles. We are providing additional hardship provisions for small refiners to minimize their economic burden in complying with the 15 ppm sulfur standard and giving additional flexibility to refiners subject to the Geographic Phase-in Area (GPA) provisions of the Tier 2 gasoline sulfur program, which will allow them the option of staggering their gasoline and diesel investments. Finally, we are adopting a general hardship provision for which any refiner may apply on a case-by-case basis under certain conditions. These hardship provisions, coupled with the temporary compliance option, will provide a “safety valve” allowing up to 25 percent of highway diesel fuel produced to remain at 500 ppm for these transitional years to effectively address the concerns over highway diesel fuel supply.

It should be noted that the requirements of the fuel program described below apply to refiners and importers only.[158] We are not adopting any retailer availability requirements Start Printed Page 5065with these provisions. In other words, we are not requiring that diesel retailers sell the 15 ppm fuel. Rather, retailers may sell 15 ppm sulfur diesel fuel, 500 ppm sulfur diesel fuel, or both. We believe the program being adopted today for refiners and importers will ensure that adequate supplies of low sulfur diesel fuel are available throughout the nation. The voluntary compliance and hardship provisions have been designed with a required level of production that we believe will ensure that 15 ppm fuel is distributed widely through pipelines and at terminals throughout the country without the need for a retailer availability requirement. Our analysis supporting the design of these provisions can be found in Chapter IV of the RIA for today's action.

2. Temporary Compliance Option for Refiners and Importers

We believe there are several advantages to allowing some flexibility in the early years of the program such that not all of the highway diesel fuel pool must be converted to low sulfur diesel fuel at one time. First, some commenters expressed concerns over adequate supplies of highway diesel fuel if the entire pool converted to low sulfur diesel fuel in 2006, because they believe some refiners might produce less total highway diesel fuel volume or choose to leave the highway diesel fuel market altogether. Allowing the temporary compliance option lowers this concern because a portion of the highway diesel pool can remain at the current 500 ppm sulfur standard, if necessary, providing additional time for the market to adjust. This portion of the highway diesel pool that refiners choose to delay will likely be the portion that is more costly for them to desulfurize and, thus, most likely to raise concerns with respect to shortfalls. Second, a temporary compliance option can benefit refiners by reducing the fuel production costs in the early years of the program, because refiners are able to spread out their capital investments. The option also benefits refiners by spreading out the industry-wide demand for engineering and construction resources over several years, and also by allowing more time between the gasoline sulfur and diesel sulfur compliance dates. Third, refiners that are able to delay investment could attain lower costs for such equipment as technology improvements are realized during that time and as refiners see how well the desulfurization technologies achieve the 15 ppm sulfur standard.

The primary emissions benefits of low sulfur highway diesel fuel are the emissions reductions that will occur over time as new vehicles designed to meet the emission standards adopted today are introduced into the vehicle fleet. Consequently, in the NPRM we requested comment on several options that would allow refiners and importers to phase in the production of low sulfur highway diesel fuel. With today's action, we are adopting a temporary compliance option for refiners and importers that will allow them to produce less than 100 percent of their highway diesel fuel at the 15 ppm sulfur level. Refiners and importers may choose to participate in the compliance option on a refinery-by-refinery basis. A refiner must demonstrate compliance with the compliance option on an annual basis. Refiners with special financial hardships have additional flexibility provisions, which are described further in Section IV.C.

We believe today's temporary compliance option in combination with the hardship provisions discussed in Section IV.C. has the potential to provide flexibility to more than half of all U.S. refineries by allowing up to 25 percent[159] of the highway diesel fuel volume in the country to continue to be produced at the current sulfur level of 500 ppm. We estimate that refiners will be able to save as much as $1.7 billion over the duration of the optional compliance program compared to the proposed requirement that all highway diesel fuel comply with 15 ppm sulfur in 2006. Much, but not all, of this potential savings will be offset by increased costs in the distribution system. We project that in total a small overall savings should result from refiners taking advantage of the temporary compliance option.

Under the temporary compliance option finalized today, a refinery may produce up to 20 percent of its total highway diesel fuel at the existing highway diesel fuel sulfur standard of 500 ppm, determined on an annual basis. The remaining 80 percent of the highway diesel fuel produced at that refinery during the year must meet a sulfur standard of 15 ppm.[160] As part of this temporary compliance option, a PADD-based averaging, banking, and trading (ABT) program will be available. Figure IV-1 presents the five PADDs into which the United States is divided.[161] For example, a refinery could produce more than 80 percent of its highway diesel fuel as low sulfur diesel fuel and generate credits based on the volume of highway diesel fuel produced at 15 ppm that exceeded the 80 percent requirement. Within that same PADD (within the limits noted below for California, Alaska, Hawaii, and any state with an EPA-approved waiver from the federal program), these credits may be averaged with another refinery owned by that refiner, banked for use in future years, or sold to another refinery.

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Also, a refinery may produce less than 80 percent of its highway diesel fuel at the 15 ppm sulfur level, as long as it obtains enough credits from another refinery within the PADD to offset the volume of 500 ppm sulfur fuel produced that exceeded the 20 percent of highway diesel fuel allowed to be produced at the 500 ppm sulfur level. As noted above, any credit trading will be limited to those refineries within the same PADD (within the limits noted below for California, Alaska, Hawaii, and any state with an EPA-approved waiver from the federal program). This restriction is necessary to limit the possibility that any area of the country is dominated by refineries complying via purchases of credits and, thus, producing a small volume of low sulfur diesel fuel, which could lead to concerns that the low sulfur diesel fuel would not be sufficiently available throughout the country.

Based on an extensive analysis which incorporates the hardship provisions and GPA refiner provisions discussed in Section IV.B. and C., we have chosen a level of 80 percent to have confidence that there will be widespread availability of 15 ppm fuel throughout the United States. Given the requirements of today's program, we believe that all pipelines are likely to carry the 15 ppm fuel. Pipelines that may be able to carry only one grade of highway diesel fuel are likely to carry 15 ppm as the majority diesel fuel in the market.[162] Those that are able to carry more than one grade of highway diesel fuel will facilitate the distribution of the remaining 500 ppm fuel. In addition, to ensure widespread availability of low sulfur diesel fuel throughout the nation, we have found it necessary to set the 15 ppm production threshold high enough so that there is a sufficient geographic scattering of refineries producing low sulfur diesel fuel around the country. At a lower threshold, there could be isolated regions of the country where 15 ppm fuel would not be available in sufficient quantities.

We have analyzed the refinery/pipeline distribution system in the United States in the context of the small refiner hardship and other provisions of the rule and believe a 80 percent temporary compliance option level for 15 ppm is necessary to achieve widespread availability and avoid shortages in specific areas. At levels below an 80 percent level, we would have concerns over whether 15 ppm sulfur diesel fuel would be the primary highway diesel fuel distributed through pipelines and whether the low sulfur diesel fuel would be available to all areas of the country in sufficient quantities. The reader is directed to Chapter IV of the RIA for today's action for our complete analysis supporting the development of the temporary compliance option.

While we have set the minimum requirement under the compliance option at 80 percent, we believe most refineries will focus on production of one grade or the other. We expect that certain refineries will find it more economically advantageous to install the necessary equipment to produce all of their highway diesel fuel at the 15 ppm sulfur level and generate credits. Conversely, other refineries may find it advantageous to continue producing all of their highway diesel fuel at the 500 ppm sulfur fuel through the period of the compliance option, by obtaining credits to demonstrate compliance. This will provide additional time for those refiners that have not converted to low sulfur fuel. This will allow refiners to spread out their capital investments and provide more time to arrange for engineering and construction resources. In addition, the refiners that are able to delay investment could attain lower costs for such equipment as technology improvements are realized during that time and as refiners see how well the range of desulfurization technologies works to achieve the 15 ppm sulfur standard.

Foreign refiners may choose to participate in the temporary compliance option. For purposes of determining compliance with the low sulfur diesel requirements, foreign refiners must demonstrate compliance based on the amount of highway diesel fuel they import into the United States. Therefore, a given foreign refiner must demonstrate that at least 80 percent of the highway diesel fuel it imported into each PADD Start Printed Page 5067meets a 15 ppm sulfur level, or show that it has enough credits from other refiners in the PADD into which it imported the fuel to cover the volume of fuel below the 80 percent requirement. Foreign refineries may also generate credits if they exceed the 80 percent requirement in a given PADD, and may sell those credits within the same PADD. A foreign refiner may also choose to not participate in the temporary compliance option and, as described below, let the fuel importer be the party which demonstrates compliance.

Importers of highway diesel fuel (i.e., companies that import fuel but are not solely refiners) may also participate in the temporary compliance option. Importers must demonstrate that at least 80 percent of the highway diesel fuel imported into each PADD (within the limits noted below for California, Alaska, Hawaii, and any state with an EPA-approved waiver from the federal program) meets a 15 ppm sulfur level, or show that they have enough credits from other refiners in the PADD into which the fuel is imported to cover the volume of fuel below the 80 percent requirement. Importers may also generate credits if they exceed the 80 percent requirement in a given PADD. Importers that import highway diesel fuel from foreign refiners that are participating in the temporary compliance option must exclude the volume of fuel purchased from those refiners in their compliance calculations or credit generation calculations.

Because we expect most refineries to choose to produce fuel either all at the 15 ppm sulfur level or all at the 500 ppm sulfur level, credits will be generated by some refiners and desired by others. Thus, the ABT program will play an important part in achieving overall compliance. The details of the ABT program are described below.

a. Generating Credits

Beginning on June 1, 2006 and continuing through December 31, 2009, refineries and importers may generate credits based on the volume of low sulfur diesel fuel produced above the required percentage (i.e., 80 percent). One credit will be generated for every gallon of highway diesel fuel produced at 15 ppm sulfur that exceeds the 80 percent requirement. Credits will be calculated on a calendar-year basis. For example, if a refinery produces 10 million gallons of highway diesel fuel in 2007, it must produce 80 percent of its highway diesel volume (8 million gallons) as low sulfur during 2007. If the refinery actually produces 100 percent of its highway diesel fuel as low sulfur during 2007, it can generate credits based on the volume of the “extra” 20 percent of low sulfur fuel it produced above the required minimal percentage—that is, two million gallons of credits. Because the requirements for low sulfur fuel begin in the middle of 2006, a refinery will generate credits in 2006 based on the volume of low sulfur fuel produced beginning June 1, 2006 that exceeds 80 percent of the highway diesel fuel produced at its facility between June 1, 2006 and December 31, 2006. Once credits are generated by a refinery, they may be used by the refinery for averaging purposes with other refineries owned by the same refiner, traded to another refinery, or banked for use in future calendar year averaging or trading. Credits may only be used in the PADD in which they are generated, with the further limitations on credit generation and use in PADD V noted below for California, Alaska, and Hawaii.

Refineries may no longer generate credits after December 31, 2009. Beginning January 1, 2010, every refinery must either comply with the low sulfur diesel fuel requirements by (1) producing 100 percent of its highway diesel fuel at the 15 ppm sulfur level or (2) by using credits through May 31, 2010 to demonstrate compliance with the 100 percent requirement, provided that banked credits are available to the refinery (described in more detail below). Starting June 1, 2010, all refineries must produce 100 percent of their highway diesel fuel as low sulfur fuel (without the use of credits).

Finally, early credits, or credits from low sulfur fuel produced at a refinery prior to June 1, 2006, may be generated, but only under limited circumstances. Unlike in the Tier 2 program, where significant emission benefits accrued with the early introduction of low sulfur gasoline, very little emission benefit (only a small reduction in sulfate PM emissions from the in-use fleet) will result from the early introduction of 15 ppm diesel fuel. Consequently, the main purpose in allowing early credits under the diesel program is to smooth program implementation beginning June 1, 2006, by allowing a pool of credits to be available upon program startup. By allowing the generation of early credits, both purchasers and sellers of credits can have confidence in the legitimacy of the credits traded, which, in turn, allows for the purchaser to have increased confidence in their ability to rely on the ABT program for compliance. Consequently, beginning June 1, 2005 we will allow refineries to generate credits for any volume of highway diesel fuel produced which meets the 15 ppm cap. Any refiner that chooses to do so may bank these credits for later use during the compliance option years, or may trade them to other refineries within the same PADD for use during the compliance option years. The one restriction placed on the generation of these credits is that refiners will have to demonstrate that the 15 ppm fuel produced early is segregated in the distribution system and not commingled with current 500 ppm sulfur fuel. Only that volume that the refiner verifies was actually sold as 15 ppm fuel at retail or into centrally-fueled fleets will be eligible for early credits.

Providing refiners with an incentive to produce diesel fuel complying with the 15 ppm cap earlier than required will not only instill confidence in the ABT program under the temporary compliance option, but will also provide both refiners and the distribution system the opportunity to gain valuable experience prior to the start of the program with producing and distributing fuel meeting the 15 ppm cap. We believe that allowing early credit generation for one year prior to the start of the program will provide the opportunity for the generation of sufficient early credits to provide refiners with the program implementation flexibility they will need. If we allowed early credits to be generated in this manner for a longer time period, we are concerned that the significant amounts of early credits that could be generated could compromise availability of 15 ppm fuel at the startup of the program. Use of these credits after June 1, 2006 could affect the availability of low sulfur highway diesel fuel across the country when the 2007 model year heavy-duty engines are introduced in the market, because the amount of 500 ppm fuel could significantly exceed the 20 percent threshold allowed under our temporary compliance option.

The only situation in which we will allow for the generation of credits prior to June 1, 2005 is if a refiner demonstrates that the fuel will be used in vehicles certified to meet the 2007 particulate matter standard being adopted today for heavy-duty engines (0.01 g/bhp-hr) or in vehicles with retrofit technologies that achieve emission levels equivalent to the 2007 NOX or PM standard verified as part of a retrofit program administered by EPA or a state. (Refer to section I.C.7 for more discussion on retrofit programs.) Under this situation, we will have confidence that emission benefits are in fact accruing early, along with the fuel sulfur credits. The early credit provision of this fuel program will complement the provisions that encourage the Start Printed Page 5068introduction of cleaner vehicles earlier than the 2007 model year, as discussed in Section III.D.

b. Using Credits

If a refinery does not meet the 80 percent minimum requirement for low sulfur highway diesel fuel with actual production at that refinery, the refinery will be able to use credits to demonstrate compliance with the 80 percent requirement. The use of credits is limited to credits generated by refineries within the same PADD (within the limits noted below for California, Alaska, Hawaii, and any state with an EPA-approved waiver from the federal program). Under the temporary compliance option, for every gallon of 500 ppm sulfur fuel produced by a refinery that exceeds the maximum allowed limit of 20 percent, the refinery must obtain one credit from another refinery within the same PADD or use banked credits (that were generated within the same PADD).

Although credits will not officially exist until the end of the calendar year (based on the generating refinery's actual low sulfur fuel production for that calendar year), refineries may contract with each other for credit sales prior to the end of the year, based on anticipated production. The actual trading of credits will not take place until the end of the year. All credit transfer transactions will have to be concluded by the last day of February after the close of the annual compliance period and each refinery must submit documentation (as described in Section VII.E.) demonstrating compliance with the appropriate volume of low sulfur highway diesel fuel. For example, a refinery that wishes to purchase credits from another refinery to comply with the 2007 required percentage of low sulfur fuel can do so based on the generating refinery's projections of low sulfur fuel production. By the end of February 2008, both the credit-purchasing refinery and the credit-selling refinery must reconcile the validity of the credits, and demonstrate compliance with the 80 percent requirement. As noted earlier, at the beginning of the program, the initial compliance period will begin on June 1, 2006 and end on December 31, 2006. For this initial period, refineries must submit documentation, by February 28, 2007, demonstrating compliance with the appropriate levels of low sulfur highway diesel fuel for the period between June 1, 2006 and December 31, 2006.

Because there could be situations where a refinery planning to use credits to comply with the minimum percentage of fuel required comes up short at the end of the year, we are adopting provisions that allow a limited amount of carryover, or “credit deficits.” A refinery that does not meet the required percentage of low sulfur fuel production in a given year will be allowed to carry forward a credit deficit for one year, as long as the deficit does not exceed five percent of its annual highway diesel fuel production. However, the refinery will have to make up the credit deficit and come into compliance with the required low sulfur production percentage in the next calendar year, or the refinery will be in violation of the program requirements. This provision is intended to give some relief to refineries faced with an unexpected shutdown or that otherwise are unable to obtain sufficient credits to meet the required percentage of low sulfur fuel production.

With regard to credit trading, any person can act as a broker in facilitating credit transactions, whether or not such person is a refiner and/or importer, so long as the title to the credits are transferred directly from the refinery generating the credits to the refinery purchasing the credits. Whether credits are transferred directly from the generating refinery to the purchasing refinery, or through a broker, the refinery purchasing the credits should have sufficient information to fully assess the likelihood that credits are valid. Any credits that are traded to another refinery may, in turn, be traded to another refinery; however, the credits cannot be traded more than twice. We believe this provision is necessary because repeated transfers of credits would significantly reduce our ability to verify the validity of credits.

c. How Long Will Credits Last?

The goal of the ABT provisions is to provide additional flexibility to refiners in the early years of the low sulfur diesel fuel program. After the first few years of the program, there will be a significantly greater proportion of after-treatment-equipped vehicles in the fleet. It will be important to ensure a full transition to the new low sulfur fuel to prevent misfueling of those vehicles and preserve the environmental benefits of the program. Therefore, the ability of refineries to generate credits will end on December 31, 2009. Refineries will be allowed to use any available banked credits, including early credits, for fuel produced through May 31, 2010. Any remaining credits not used for the compliance period until May 31, 2010 will expire. Beginning June 1, 2010, all refineries must produce 100 percent of their highway diesel fuel at the 15 ppm sulfur level without the use of credits, and the ABT program will end.

d. Additional Limitations on Credit Trading for Some States

At this time we are adopting a low sulfur highway diesel fuel program that will apply throughout the United States, with trading of credits limited to those refineries located within the same PADD. Although we are adopting a diesel fuel program that currently will apply nationwide, it is possible that the State of California, or some other state, may adopt in the future a different highway diesel fuel program than that adopted today.[163] To assure that adequate supplies of low sulfur diesel fuel will be available throughout all regions of the country, we are adopting provisions that do not allow refineries located in states with a state-approved 15 ppm highway diesel sulfur program to participate in the credit program. In other words, credit trading is limited only to those refineries complying with the federal program. For example, without such provisions, if California were to adopt its own state program requiring the production of 15 ppm diesel fuel, we are concerned that it might be possible for California refineries to generate enough credits such that areas outside of California in PADD V are dominated by the production of 500 ppm sulfur diesel fuel, with little or no 15 ppm fuel available. This would be problematic for the model year 2007 and later heavy-duty engines designed to be operated on low sulfur fuel. The reader is directed to Chapter IV of the RIA for today's action for our complete analysis supporting the development of the temporary compliance option.

As discussed in Section IV.F. of this preamble, the State of Alaska, which is a part of PADD V, will have the opportunity to develop, and submit to us for approval, an alternative transition plan for implementing the low sulfur highway diesel fuel program. Such a plan will allow Alaska to develop a transition program tailored to its isolated market. If, for some reason, Alaska does not submit an alternative plan, or we do not approve the plan submitted by Alaska, then the federal program described in today's action will apply. In the event we do not approve an alternative plan for Alaska, based on our analysis of the likely response of refineries in Alaska to the temporary compliance option and because its fuel distribution system is essentially isolated from the rest of PADD V, we are Start Printed Page 5069concerned that all of the fuel offered for sale in Alaska could be 500 ppm sulfur fuel if refineries in Alaska were allowed to purchase credits from other PADD V refineries. For this reason, under today's program, refineries in Alaska will be allowed to generate credits as described earlier. However, they may only sell credits to, or purchase credits from, other refineries in or importers of fuel to Alaska. We believe this will provide assurance that low sulfur highway diesel fuel will be sufficiently available in Alaska and will also reduce the chance that credits from Alaska will result in significantly less low sulfur diesel fuel in PADD V areas outside of Alaska. Again, these default provisions of the national program will only be effective in the event that we do not approve an alternate transition plan for Alaska.

Hawaii is in a similar situation to Alaska with regard to fuel distribution. Hawaii, which is part of PADD V, is an isolated market and we have similar concerns with regard to whether low sulfur diesel fuel would be available in Hawaii if the two refineries currently operating were able to purchase credits from other PADD V refineries and produce all 500 ppm sulfur fuel. For this reason, under today's program, the refineries in Hawaii will be allowed to generate credits as described earlier. However, they may only sell credits to, or purchase credits from, other refineries in or importers of fuel to Hawaii. We believe this will ensure that low sulfur highway diesel fuel will be available in Hawaii.

3. What Information Must Refiners/Importers Submit to Us?

To ensure a smooth transition to the program and to evaluate compliance once the program has begun, we are requiring refiners and importers to submit a variety of information to us. Section VII.E of this document and the regulatory language for today's action provide detailed description of the information that must be submitted and the dates when such submittals are due.[164]

First, refiners and importers that currently or in 2006 expect to produce or supply highway diesel fuel are required to register with us by December 31, 2001. This will inform us on the universe of refiners that we expect to participate in the highway diesel market once the program begins.

Second, to help facilitate the market for credit trading under the temporary compliance option, any refiner or importer planning to produce or import highway diesel in 2006, is required to submit to us an annual pre-compliance report. Refiners and importers are required to submit these annual pre-compliance reports from 2003 through 2005. These reports must contain estimates of the volumes of 15 ppm sulfur fuel and 500 ppm sulfur fuel that will be produced at each refinery, and, for those refineries planning to participate in the trading program, a projection of how many credits will be generated or must be used by each refinery. These pre-compliance reports must also contain information outlining each refinery's timeline for compliance and provide information regarding engineering plans (e.g., design and construction), the status of obtaining any necessary permits, and capital commitments for making the necessary modifications to produce low sulfur highway diesel fuel. Based on the information submitted by refiners and importers, we plan to issue an annual report that summarizes, in a way that protects the confidentiality of individual refiners and importers, the information contained in the pre-compliance reports. Our annual report will provide information, summarized and aggregated on a PADD basis, describing the volumes of 15 ppm and 500 ppm highway diesel planned to be produced, and estimates of the number of credits that refineries expect to generate or use. We believe this information will be important to refiners as they make plans for complying with the temporary compliance option. For example, this information will be useful in giving refiners a better indication of the potential market for credits and availability of credits in their PADD. To prevent the release of confidential information, our annual report will not contain any information on individual refinery compliance plans.

Third, refiners and importers are required to submit annual compliance reports that demonstrate compliance with the requirements of this final rule. The first annual compliance report is due by the end of February 2007 (for the period of June 1, 2006 through December 31, 2006) and is required annually through February 2011. The reports must show, on a refinery basis, the volumes of 15 ppm and 500 ppm sulfur highway diesel fuel produced at each refinery during the compliance period, the number of credits used (or generated) at each refinery to demonstrate compliance with the 80 percent requirement for low sulfur diesel fuel, and the sources of the credits used. The information submitted in the annual compliance reports must be segregated by PADD.

4. Impacts of the Highway Diesel Fuel Program

Based on analyses we have performed, as described in more detail below, we believe the temporary compliance provisions contained in today's final rule will assure adequate supplies of highway diesel fuel, will provide flexibility for refiners, and should result in lower costs for both refiners and consumers. In addition, we believe the temporary compliance provisions as adopted today will ensure sufficient availability of low sulfur highway diesel fuel to new vehicle owners who need it without the need for a retailer availability requirement, and should not lead to significant levels of misfueling and the associated loss of emission benefits. We have analyzed each of these issues in developing the final fuel program. A summary of our analyses and the conclusions we have drawn are discussed below. A detailed description of these analyses are contained in the RIA for today's action. In addition, a complete list of the comments related to a possible phase-in program and our response to those comments is included in the Response to Comments document for this final rule.

a. Ensures Adequate Supplies of Highway Diesel Fuel

We received several comments on the NPRM fuel program that suggested there would be a shortfall in the amount of highway diesel supply if all of the highway diesel fuel were required to meet a 15 ppm sulfur limit beginning in 2006. As described later in Section V.C., in response to these comments we analyzed the capability of the entire diesel fuel refining industry in the U.S. to adjust to the low sulfur fuel requirements. Based on this analysis, we believe that supplies of highway diesel fuel will be sufficient even if all highway diesel fuel were required to comply with the 15 ppm standard in 2006. The temporary compliance option included in today's rule is intended as a “safety valve” that, along with the hardship provisions discussed in Section IV.C.,will further help to ensure adequate supplies of highway diesel fuel beginning in 2006.

In performing the analysis of diesel fuel supply, we examined all diesel fuel refiners (including those that currently make only off-highway diesel fuel but not highway diesel fuel) to assess the likelihood of their investing in the production of 15 ppm highway diesel Start Printed Page 5070fuel. Using a refinery cost model, we made projections of the likely response by refineries to today's low sulfur requirements by estimating the cost for each refinery to produce low sulfur diesel fuel. The results of our analysis show that the overall supply of highway diesel fuel will continue to be adequate to meet market demands as refiners are required to start producing low sulfur highway diesel fuel. Most refineries that currently produce highway diesel fuel will produce about the same volume of low sulfur diesel fuel once the program takes effect. However, several refineries could economically expand their current highway diesel fuel production by shifting some of their off-highway production today, and a few others currently producing only off-highway diesel fuel could economically shift to some highway diesel production. Consequently, our analysis indicates that there is ample capability in the refining industry to continue to economically supply sufficient quantities of highway diesel fuel when today's program goes into effect. For a fuller discussion of this analysis, see Section V of this preamble and Chapter IV of the RIA.

If any potential for highway diesel fuel shortfalls exists by requiring all fuel to meet 15 ppm sulfur in 2006, as CRA's analysis suggests, we believe that allowing some continued supply of 500 ppm, as we are doing under the temporary compliance option and hardship provisions contained in today's action, addresses this concern. Since the final rule allows some transition period before the entire highway diesel pool is required to meet the 15 ppm sulfur standard, some refiners will not need to change their current operations and will be able to continue producing 500 ppm fuel during these years. Those refiners that delay production of low sulfur diesel fuel until the later years of the program will tend to be the refiners with the highest cost to comply and, thus, refiners that would otherwise have the greatest tendency not to invest and thereby impact supply. Refiners that begin producing low sulfur diesel fuel in the later years of the program will also be able to take advantage of ongoing improvements in desulfurization technology. Together, these factors will help avoid or reduce any potential losses in highway diesel fuel production when the program requires full compliance with low sulfur diesel fuel.

b. Ensures Widespread Availability of Low Sulfur Diesel Fuel

A major concern we noted in the NPRM regarding a fuel phase-in program was ensuring the widespread availability of low sulfur diesel fuel. Without an assurance of widespread availability, there would be concerns whether the 2007 and later model year heavy-duty vehicles that were designed to operate on low sulfur fuel would be able to purchase it in all parts of the country. If such vehicles were fueled with 500 ppm diesel fuel, the emission control systems could be irreversibly damaged and any benefit of the new emission standards could be eliminated (see Section III.F. above). Therefore, in setting the requirements for the temporary compliance option, we have analyzed the likelihood that fuel will be widely available so that 2007 and later model year heavy-duty vehicles will be able to find low sulfur fuel in all local markets across the country. To achieve this goal, we believe there need to be assurances that refineries producing 15 ppm fuel are sufficiently scattered throughout each of the PADDs and that most pipelines will carry 15 ppm fuel (either as the only highway diesel fuel or in addition to 500 ppm highway fuel).

In determining what fraction of highway diesel fuel would need to be low sulfur under the temporary compliance option provision, taking into account the potential impact of the hardship provisions, we used a refinery cost model to estimate the costs of producing 15 ppm fuel for all refineries. We then assumed that the refineries with the lowest costs would convert to 15 ppm fuel and assumed the other refineries would purchase credits and continue producing 500 ppm fuel through the compliance option period. We then overlaid the information on which refineries were estimated to be producing 15 ppm fuel with the highway diesel fuel distribution system in the United States. We examined different levels for the temporary compliance option beginning as low as 20 percent and ranging as high as 90 percent. The results of the analysis show that at temporary compliance option levels for 15 ppm below 80 percent, there are local regions of the country where we believe there would likely be shortages of low sulfur diesel fuel. The areas where we believe there would be shortages are either (1) served by pipelines that we believe would not carry 15 ppm fuel, because the refineries serving those pipelines are projected to produce primarily 500 ppm; or (2) dominated by refineries we believe would continue producing 500 ppm fuel under the temporary compliance option and are not currently capable of receiving significant supplies of a second grade of diesel fuel through other reasonable means. At the 80 percent level, we believe that all pipelines will carry low sulfur diesel fuel, since there are a sufficient number of refineries scattered across the country producing low sulfur diesel fuel and at sufficient volumes for pipelines to choose to carry it. We also believe that the program ensures that low sulfur diesel fuel will be sufficiently available to retail outlets at a reasonable cost either at a local terminal or by trucking the fuel a limited distance.

As noted earlier, we are not adopting any retailer availability requirements with today's fuel program. Given the amount of low sulfur diesel fuel required under today's temporary compliance option, we believe the distribution system will make low sulfur diesel fuel widely available without any requirements on retail outlets to supply low sulfur diesel fuel.

c. Provides Lower Costs to Refineries

One benefit of the temporary compliance option being adopted today is that a significant number of refiners will have the ability to delay the date when they convert their highway diesel fuel production to 15 ppm, allowing the refining industry to stretch out its engineering and construction resources. Given the flexibilities being adopted today, we believe that many large refineries, and other refineries for which diesel desulfurization is least expensive, will make the commitment to convert their entire highway diesel pool to 15 ppm sulfur in 2006 and sell credits to other refineries that will continue to produce all of their fuel at the 500 ppm sulfur level. Using a refinery cost model to estimate how refineries will respond to the temporary compliance option requirements, we believe that more than half of the refineries will delay capital investment by buying credits and continue producing 500 ppm sulfur diesel fuel under the temporary compliance option and small refiner hardship provisions. We estimate that refiners will be able to save as much as $1.7 billion over the transition period compared to a requirement that all highway diesel fuel comply with 15 ppm sulfur in 2006. As noted earlier, much of this potential savings will be offset by increased costs in the distribution system. Nevertheless, we project that in total, an overall savings of approximately $0.65 billion could result.

d. Misfueling Concerns Should Be Minimized

By allowing a 500 ppm and 15 ppm sulfur highway diesel fuels to be in the Start Printed Page 5071market at the same time, there is the possibility that model year 2007 and later heavy-duty vehicles will be misfueled with 500 ppm sulfur fuel, either accidentally or intentionally. As discussed above, if such vehicles are fueled with 500 ppm diesel fuel, the emission control systems could be irreversibly damaged and any benefit of the new emission standards could be eliminated. To minimize the possibility of misfueling, we are adopting labeling requirements that apply to both retail stations and vehicle manufacturers. Under these provisions, labels will be applied at the diesel fuel pumps at retail stations and at the fuel tank inlet on the vehicle. The labels must indicate that only 15 ppm sulfur highway diesel fuel may be used in 2007 and later model year heavy-duty vehicles. The labeling requirements for fuel pumps and vehicles are described in detail in Sections VII.C. and VI.G., respectively.

Given the program being adopted today, we believe that intentional misfueling will not be a serious problem. The main incentive vehicle owners may have for using 500 ppm sulfur fuel would likely be cost savings. In general, producing 500 ppm sulfur should be cheaper than producing 15 ppm fuel. However, given the requirements adopted today, we believe there should not be a large cost differential between the 15 ppm sulfur fuel and the 500 ppm sulfur fuel at retail outlets. Under the credit trading program, to produce 500 ppm fuel, most refiners will have to purchase credits from other refiners producing 15 ppm fuel, increasing the cost of the 500 ppm fuel, while decreasing the cost of the 15 ppm fuel. At the refinery gate, the cost of both fuels should be approximately the same. In addition, given the amount of 15 ppm fuel required under the temporary compliance option, 15 ppm fuel will be distributed through essentially the entire pipeline system. The distribution of 500 ppm fuel, on the other hand, will be more limited, due to its much lower volume. We expect that the 500 ppm fuel will be distributed by truck in the areas nearby refineries producing this fuel and through a few major pipelines to a limited number of major fuel consuming areas. Overall, the better economies of scale of transporting 15 ppm fuel should compensate for any additional handling cost due to the need to more carefully avoid contamination with higher sulfur fuels. For these reasons, we expect the price to consumers of 500 ppm sulfur fuel to be generally close to that of 15 ppm sulfur fuel and, therefore, there should not be a significant economic incentive to misfuel with 500 ppm sulfur fuel. Finally, because vehicle owners will likely void the manufacturer's warranty if they misfuel with 500 ppm sulfur fuel, they will have an additional incentive not to misfuel. Owners of heavy-duty vehicles make significant investments in these vehicles and will not want to take the chance of voiding their warranty for a relatively small savings in fuel cost.

In addition to our concern about intentional misfueling, we also have some concerns about accidental misfueling during the optional compliance program years. This concern is lessened to some extent because of the limited amount of 500 ppm sulfur fuel that will be available, the short duration of the optional compliance program, the knowledgeable owners and operators of trucks and most importantly, the labels that will be required on both the vehicle and the fuel pumps. Thus, we do not expect either type of misfueling to be a significant problem.

e. Summary

In summary, today's program has been structured to ensure a smooth transition to low sulfur highway diesel fuel. We believe this will allow the refining industry the ability to spread out capital investments and provide more time for the market to transition to the low sulfur diesel fuel. This, in turn, will help to mitigate any potential for concerns about highway diesel fuel supply shortfalls. We also believe the provisions included in the program will continue to provide assurance that adequate supplies of low sulfur highway diesel fuel will be available throughout the nation for the 2007 and later model year heavy-duty vehicles that will require the fuel to comply with the emission standards. Moreover, because the flexibilities included in the program should reduce the economic impact on refiners, we will also expect there to be a reduction in the costs to highway diesel fuel users.

B. What Provisions Apply in the Geographic Phase-in Area?

1. What Is the Geographic Phase-in Area and How Was it Established?

In the low sulfur gasoline rule, we established the GPA provision which provides temporarily less stringent standards for gasoline sold in certain parts of the West and Alaska (40 CFR 80.215). A map of the area is shown in Figure IV-2, below.[165] As described in the preamble to the low sulfur gasoline final rule, we used two criteria to develop and evaluate the GPA approach: (1) Relative environmental need and (2) the ability of U.S. refiners and the distribution system to provide compliant gasoline.

Start Printed Page 5072

In part, we defined the GPA based on the relative difficulty of producing or obtaining complying low sulfur gasoline (see preamble to the low sulfur gasoline rule at 65 FR 6698, February 10, 2000). The refining industry in the GPA is dominated by small capacity, geographically-isolated refineries located within that area. As a general rule, refineries in this area will (because of their crude oil capacity, corporate size, and location) have the most difficult time of all refineries nationwide in competing for the engineering and construction resources needed to modify their refineries to comply with the low sulfur gasoline standards.

Furthermore, an assessment of gasoline production and use data and information on the products pipeline system shows that states and counties in the GPA are solely or predominantly dependent on gasoline produced by these refineries and have limited or no access to gasoline from other parts of the country. Specifically, Department of Energy data for 1998 indicate that over 80 percent of the gasoline sold in this area is produced by the relatively small refineries located within the region. Much of this gasoline is produced by small volume refineries that are not owned by small businesses, and are therefore not afforded the flexibility of the small refiner provisions described in Section IV.C. Providing low sulfur gasoline to these states and counties is expected to be more difficult and costly in the near term.

The temporary gasoline provisions for the GPA apply for three years, 2004 through 2006. Since the low sulfur gasoline standards for the rest of the country require compliance in January 2006 with a 30 ppm refinery average standard and an 80 ppm gallon cap, the geographic phase-in provides an additional year for refiners to reach those standards. This extra year and the somewhat less stringent standards during the gasoline phase-in will provide the refining industry the opportunity for a more orderly transition to the 30/80 ppm gasoline sulfur standards by January 2007.

The gasoline GPA provision covers all gasoline produced (or imported) for use in the GPA[166] , whether refined within the area or distributed within the area via pipeline, barge, truck, or rail. Foreign refiners are involved in this program through importers, which are the regulated entities.

2. Highway Diesel Provisions for GPA Refiners

In response to our proposal, we received many comments from the refining industry and others regarding the timing of our proposed highway diesel fuel sulfur program. Commenters argued that the proposed schedule for diesel sulfur compliance, beginning in mid-2006, would be a problem since it directly coincides with the December 2006 gasoline sulfur compliance date for the GPA. Some said that the timing of the diesel program could effectively negate the benefit to refiners of the GPA program since desulfurization investments would need to take place during essentially the same time period. This could thus increase the difficulty of refiners in this region to raise capital and to engage engineering and construction resources. Some also said that an extension of the GPA gasoline program would allow more rational planning without unduly reducing the air quality benefits of the program.

We agree with many of the commenters in this regard—refineries supplying the GPA tend to be disproportionately challenged compared to other refiners with respect to capital formation, the availability of engineering and construction resources, and the isolated nature of many of the markets. Moreover, the introduction of low sulfur highway diesel fuel in June 2006 indeed overlaps with the conclusion of the interim low sulfur gasoline standards for GPA refiners.

In consideration of these comments, we believe that it is appropriate to grant additional flexibility to refiners that supply gasoline to the GPA while also meeting the low sulfur diesel standards. Additional flexibility for GPA refiners will allow them to spread out their capital investments for producing low sulfur gasoline and highway diesel fuel. In light of the above, we are modifying Start Printed Page 5073the GPA gasoline program while still achieving significant environmental benefits. We expect this provision will have little long-term impact on the environmental benefits of the Tier ­2/Gasoline Sulfur program, while providing for considerable near-term implementation flexibility and improved feasibility of the highway diesel fuel program.

Refiners that produce both gasoline and highway diesel fuel and are subject to the GPA gasoline sulfur program may choose to stagger their desulfurization investments for the two fuels. Refiners that comply with the low sulfur diesel fuel standard by June 1, 2006 for all of their highway diesel fuel production may receive a two-year extension of their interim GPA gasoline standards for 2006, that is through December 31, 2008. In addition to allowing refiners the opportunity to spread out their desulfurization investments, we believe this provision will encourage the production of 15 ppm diesel fuel by some refiners producing fuel for the GPA, which will further help to ensure the new fuel is widely available for new vehicles throughout the area. Although the GPA gasoline program applies to both refiners and importers, the extension of the GPA gasoline program under today's program applies only to refiners. This reflects the fact that only refiners have to make capital investments to comply with the diesel sulfur standard.

To receive the two-year extension of the GPA standards, a U.S. refinery must by June 1, 2006 produce 100 percent of its highway diesel fuel at 15 ppm sulfur (including refineries that supply only a fraction of their gasoline production to the GPA). In addition, the refinery must maintain a production volume of 15 ppm highway diesel fuel that is at least 85 percent of the baseline highway diesel volume that was produced at that refinery on average during calendar years 1998 and 1999. We believe that it is very important that the extension of a GPA refinery's interim gasoline sulfur standard be linked to a substantial environmental benefit from the production of 15 ppm diesel fuel in 2006. We have established a minimum volume requirement to prevent the extension of the GPA gasoline program from applying in situations where a refinery changes its refinery product slate to produce very little highway diesel fuel—even though this production is at 15 ppm sulfur. We believe the 85 percent level is sufficient to reflect a substantial investment in desulfurization technology. At the same time the 85 percent level should allow for any reasonable variation in production of highway diesel fuel that would be expected to occur in typical situations between now and 2006, particularly given the continued growth of the highway diesel market.

Similarly, a foreign refinery that meets the same conditions as a domestic GPA refiner may also sell gasoline into the GPA that meets a less stringent sulfur standard during 2007 and 2008.[167] That is, a foreign refinery that by June 1, 2006 sells 100 percent of the highway diesel fuel it imports into the U.S. as 15 ppm fuel (and that maintains the 85 percent of baseline volume requirement) may sell somewhat higher-sulfur gasoline into the GPA in 2007 and 2008. The actual gasoline sulfur standard during this period, as with domestic refiners, would be based on the foreign refinery's gasoline sulfur baseline.

If a situation arises where a GPA refinery did not produce highway diesel fuel in 1998 or 1999 but later begins to produce 15 ppm diesel fuel, use of the GPA gasoline phase-in extension will require case-by-case EPA approval. In its application for such approval, a refinery must show us that the loss of emission reductions will not be significant and must propose an appropriate minimum production volume. In evaluating such a proposed minimum volume, we may consider, among other factors, the typical ratio between highway diesel and gasoline production for other refineries in the industry. Again, the reason for the two-year extension of the gasoline interim program is to allow the GPA refinery to spread out its capital investments while increasing the quantity of 15 ppm fuel being produced. We expect that GPA refineries using this option will make a substantive capital investment in diesel desulfurization and have thus set this minimum 15 ppm diesel production volume limit.

Since refiners participating in this program are required to produce 100 percent of their highway diesel at 15 ppm, those that choose this option cannot participate in the highway diesel temporary compliance option, and, therefore, are not permitted to generate credits on the low sulfur diesel fuel that they produce. If, after June 1, 2006, a foreign refinery is not producing 100 percent of its highway diesel fuel imported into the U.S. at 15 ppm sulfur in the required volume, it forfeits the two-year extension or any remaining portion of the extension of its interim gasoline program.

3. How Do Refiners Apply for an Extension of the GPA Gasoline Program?

Any refinery that seeks an extension of its GPA gasoline standards must apply to us as a part of its registration, due by December 31, 2001. In this application, the refinery must indicate its intention to produce 100 percent of its highway diesel fuel at 15 ppm (and at a volume at least 85 percent of the highway diesel fuel volume it produced on average during calendar years 1998 and 1999) by June 1, 2006.

4. Required Reporting for GPA Refiners

As described in Section VII.E below, refiners that plan to use the extension of the GPA gasoline standard must report their plans and progress several times over the course of the program. In addition to their initial registration and application discussed above, a refinery must submit pre-compliance reports in 2003, 2004, and 2005, describing its progress toward the capacity to produce 100 percent of its highway diesel fuel at 15 ppm sulfur (at a volume at least 85 percent of its baseline volume). Then, by July 1, 2006, such a refinery must confirm to us that by June 1, 2006 it was producing 100 percent of its highway diesel fuel at 15 ppm, at the appropriate volume.[168] After the diesel sulfur program is underway in 2006, the refinery must provide us with annual compliance reports by the end of February of 2007, 2008, and 2009 (i.e., until after the end of the extended interim gasoline sulfur program for GPA refiners on December 31, 2008).

C. Hardship Provisions for Qualifying Refiners

This section describes various provisions for certain qualifying refiners, both domestic and foreign, that may face hardship circumstances.

1. Hardship Provisions for Qualifying Small Refiners

In developing our diesel sulfur program, we evaluated the need and the ability of refiners to meet the 15 ppm standard as expeditiously as possible. This analysis is described in detail in Chapter IV of the RIA. As a part of this analysis, we found that while the majority of refiners would be able to meet the needed air quality goals in the Start Printed Page 50742006 time frame, there would be some refiners that would face particularly challenging circumstances which would cause them to have more difficulty, in comparison to the industry as a whole, in meeting the standards.

We believe it is feasible and necessary for the vast majority of the program to be implemented reasonably quickly to achieve the air quality benefits as soon as possible. To do otherwise would be to base the time frame of the entire program on the lowest common denominator. Thus, we have provided special flexibility provisions for a subset of refiners that qualify as “small refiners,” which represent about five percent of the overall highway diesel volume. As described in more detail below, and in the Regulatory Impact Analysis (Chapter VIII of the RIA), we concluded that refineries owned by small businesses face unique hardship circumstances, compared to larger companies.

a. Qualifying Small Refiners

The primary reason for special small refiner provisions is that small businesses generally lack the resources available to large companies which enable the large companies (including those large companies that own small volume refineries) to raise capital for investing in desulfurization equipment. The small businesses are also likely to have more difficulty in securing loans, competing for engineering resources, and completing construction of the needed desulfurization equipment in time to meet the standards adopted today which begin in 2006. In addition, the implementation of the low sulfur diesel program will occur in the same general time frame as the implementation of the low sulfur gasoline program, since most of those small refiners that are covered by the interim standards under the Tier 2/Gasoline Sulfur program (40 CFR Part 80, Subpart H) are also covered by today's diesel fuel sulfur program.

The emissions benefits of the low sulfur diesel program are needed as soon as possible—to allow the implementation of new emission reduction requirements on heavy-duty engines and vehicles and, thus, to reduce ozone, particulate matter, and other harmful air pollutants. Since our analysis showed that small businesses in particular face hardship circumstances, we are adopting temporary provisions that will provide refineries owned by small businesses additional time to meet the ultimate 15 ppm sulfur cap or balance investments of this program with those related to the Tier 2/Gasoline Sulfur program. This approach allows us to achieve the earliest implementation date for advanced technology diesel vehicles (i.e., the 2007 model year) and the needed emission reductions they will bring.

We believe that the temporary flexibilities described below are an effective way to begin the broad implementation of the standards as expeditiously as is feasible and thereby achieve significant air quality benefits in an expeditious manner. This section describes the special provisions we are offering small businesses to mitigate the impacts of our program on them and generally explains the analysis we undertook of those impacts. Please refer to the Response to Comments document for a detailed discussion of comments we received on these provisions, and to the RIA for a more detailed discussion of our analysis of small refiner circumstances.

As explained in the discussion of our compliance with the Regulatory Flexibility Act in Section X.B. and in the Regulatory Flexibility Analysis in Chapter VIII of the RIA, we considered the impacts of our proposed regulations on small businesses. We have historically, as a matter of practice, considered the potential impacts of our regulations on small businesses. We believe that the temporary flexibilities we are adopting for small refiners contributed to our development of a framework to achieve significant environmental benefits from lower sulfur diesel in the most expeditious manner that is reasonably practicable.

A large part of the analysis of small business impacts conducted for this rulemaking was performed in conjunction with a Small Business Advocacy Review (SBAR) Panel we convened, pursuant to the Regulatory Flexibility Act as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA). In the SBREFA amendments, 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 directed agencies to consider the impacts of certain actions on small entities. The final report of the Panel is available in the docket. Through the SBREFA process, the Panel provided information and recommendations regarding:

  • The significant economic impact of the proposed rule on small entities;
  • 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;
  • The projected reporting, recordkeeping, and other compliance requirements of the proposed rule; and,
  • Other relevant federal rules that may duplicate, overlap, or conflict with the proposed rule.

In addition to our participation in the SBREFA process, we conducted our own outreach, fact-finding, and analysis of the potential impacts of our regulations on small businesses. Some of the small refiners with whom we and the Panel met indicated their belief that their businesses may close due to the substantial costs, capital and other impacts of meeting the 15 ppm diesel fuel standard without either additional time or flexibility with respect to gasoline sulfur compliance. Based on these discussions and analyses, the Panel and we agree that small refiners would likely experience a significant and disproportionate financial hardship in reaching the objectives of our diesel fuel sulfur program. However, the Panel also noted that the burden imposed upon the small refiners by our sulfur requirements varied from refiner to refiner and could not be alleviated with a single provision. We agree with the Panel and are offering qualifying small refiners three options to choose from in moving toward compliance with the low sulfur diesel fuel requirements.

For today's action, we have structured a selection of temporary flexibilities for qualifying small refiners, both domestic and foreign, based on the factors described below. Generally, we structured these provisions to address small refiner hardship while expeditiously achieving air quality benefits and ensuring that the low sulfur diesel fuel coincides with the introduction of 2007 model year diesel vehicles.

First, the compliance deadlines in the program, combined with flexibility for small refiners, will quickly achieve the air quality benefits of the program, while helping to ensure that small refiners will have adequate time to raise capital for new or revamped equipment. Most small refiners have limited additional sources of income beyond refinery earnings for financing the equipment necessary to produce low sulfur diesel. Because these small refiners typically do not have the financial backing that larger and generally more integrated companies have, they can benefit from additional time to secure capital financing from their lenders. Start Printed Page 5075

Second, we believe that allowing time for refinery sulfur-reduction technologies to be proven out by larger refiners before small refiners have to put them in place will reduce the risks incurred by small refiners that utilize these technologies to meet the standards. The added time will likely allow for lower costs of these improvements in desulfurization technology (e.g., better catalyst technology or lower-pressure hydrotreater technology). Because of the poorer economies of scale and the higher relative capital and operating costs faced by small refiners, more time for technology development and commercialization will limit the economic consequences for small refiners. Small refiners are disadvantaged by the economies of scale that exist for the larger refining companies-capital costs and per-barrel fixed operating costs are generally higher for small refiners.

Third, providing small refiners more time to comply will increase the availability of engineering and construction resources. Since most large and small refiners must install additional processing equipment to meet the sulfur requirements, there will be a tremendous amount of competition for technology services, engineering manpower, and construction management and labor. Our analysis shows that there are limits to the price elasticity of these resources. In addition, vendors will be more likely to contract their services with the major companies first, as their projects will offer larger profits for the vendors.

Finally, because the gasoline and diesel sulfur requirements will occur in approximately the same time frame, small refiners that produce both fuels will have a greater difficulty than most other refiners in securing the necessary financing. Hence, any effort that increases small refiners' ability to stagger investments for low sulfur gasoline and diesel will facilitate compliance with the two programs.

Providing these options to assist small refiners experiencing hardship circumstances enables us to go forward with the 15 ppm sulfur standard beginning in 2006. Without this flexibility, the benefits of the 15 ppm standard would possibly not be achieved as quickly. By providing temporary relief to those refiners that need additional time, we are able to adopt a program that expeditiously reduces diesel sulfur levels in feasible manner for the industry as a whole. In addition, we believe the volume of diesel that will be affected by this hardship provision is marginal. We estimate that small refiners contribute approximately five percent of all domestic diesel fuel production.

b. How Do We Define Small Refiners?

The following definition of small refiner is based closely on our small refiner definition in the Tier 2/Gasoline Sulfur rule. We define a refiner that meets both of the following criteria as a “small refiner” for purposes of this rule:

  • No more than 1,500 employees corporate-wide, based on the average number of employees for all pay periods from January 1, 1999 to January 1, 2000.
  • A corporate crude oil capacity less than or equal to 155,000 barrels per calendar day (bpcd) for 1999.

In determining the total number of employees and crude oil capacity, a refiner must include the number of employees and crude oil capacity of any subsidiary companies, any parent company and subsidiaries of the parent company, and any joint venture partners. We define a subsidiary of a company to mean any subsidiary in which the company has a 50 percent or greater ownership interest. This definition of small refiner is the same definition used under the recently promulgated Tier 2/Gasoline Sulfur program (40 CFR 80.225), except that we have included additional regulatory language to clarify our interpretation of the term “subsidiary” and we have updated the time period used to determine the employee number and crude oil capacity criteria to reflect data for the most recent calendar years. This approach is consistent with the Small Business Administration's regulations, which specify that, where the number of employees is used as a size standard, the size determination is to be based on the average number of employees for all pay periods during the preceding 12 months (13 CFR 121.106).

The gasoline sulfur standards and the diesel sulfur standards will impact small refiners in approximately the same time frame. For this reason, we will consider any refiner that we approve as meeting the small refiner definition under the gasoline sulfur program (40 CFR 80.235) to be a small refiner under the highway diesel sulfur rule as well without further demonstration.

In addition, a company that after January 1, 2000 either acquires or reactivates a refinery that was shutdown or non-operational between January 1, 1999 and January 1, 2000 may also apply for small refiner status. Such an application needs to be submitted to us no later than June 1, 2003. In this case, we will judge eligibility under the employment and crude oil capacity criteria based on the most recent 12 consecutive months unless data provided by the refiner indicates that another period of time is more appropriate. Companies with refineries built after January 1, 2000 are not eligible for the small refiner hardship provisions.

If a refiner with approved small refiner status later exceeds the 1,500 employee threshold or the corporate crude oil capacity of 155,000 bpcd without merger or acquisition, it may keep its small refiner status. This is to avoid stifling normal company growth and is subject to our finding that the company did not apply for and receive the small refiner status in bad faith. On the other hand, if a refiner with approved small refiner status later exceeds the small refiner criteria through merger or acquisition, its refineries must forfeit their small refiner status and begin complying with the national standards by January 1 of the next calendar year. For example, if a small refiner with two refineries purchases a third refinery in 2007 and that purchase causes the refiner to exceed the employee or corporate crude oil capacity thresholds for small refiner status, then that refiner must forgo its small refiner status and begin complying with the national standards by January 1, 2008 at all its refineries.

c. What Options Are Available for Small Refiners?

All refiners producing highway diesel fuel are able to take advantage of the temporary compliance option discussed in Section IV.A. Diesel producers that also market gasoline in the GPA may receive additional flexibility under today's rule (Section IV.B.). As an alternative, refiners that seek and are granted small refiner status may choose from the following three options under the diesel sulfur program. These three options have evolved from concepts on which we requested and received comment in the proposal. In most cases, we believe that small refiners will find these options preferable to either the broader diesel fuel temporary compliance option or the GPA provision discussed above.

500 ppm Option. A small refiner may continue to produce and sell diesel fuel meeting the current 500 ppm sulfur standard for four additional years, until May 31, 2010, provided that it reasonably ensures the existence of sufficient volumes of 15 ppm fuel in the marketing area(s) that it serves.

Small Refiner Credit Option. A small refiner that chooses to produce 15 ppm fuel prior to June 1, 2010 may generate and sell credits under the broader Start Printed Page 5076temporary compliance option. Since a small refiner has no requirement to produce 15 ppm fuel under this option, any fuel it produces at or below 15 ppm sulfur will qualify for generating credits.

Diesel/Gasoline Compliance Date Option. For small refiners that are also subject to the Tier 2/Gasoline sulfur program (40 CFR Part 80, Subpart H), the refiner may choose to extend by three years the duration of its applicable interim gasoline standards, provided that it also produces all its highway diesel fuel at 15 ppm sulfur beginning June 1, 2006.

All refiners producing diesel fuel are required to provide us with basic data on their progress toward compliance in 2003-2005 under the pre-compliance reporting requirements described above in Section IV.A. As a part of their pre-compliance reports, small refiners must provide a limited amount of additional information specific to the option they choose. We discuss each option, and the special pre-compliance reporting requirements for each option, in the next paragraphs and in Section VII.E below.

i. 500 ppm Option

The 500 ppm option is available for any refiner that qualifies as a small refiner. Under this option, small refiners may continue selling highway diesel fuel with sulfur levels meeting the current 500 ppm standard for four additional years, provided that they supply information showing that sufficient alternate sources of 15 ppm diesel fuel in their market area will exist for fueling new heavy-duty highway vehicles. Under this option, small refiners may supply current 500 ppm highway diesel fuel to any markets for use only in vehicles with older (pre-2007) technology until May 31, 2010. In other words, small refiners that choose this option may delay production of highway diesel fuel meeting the 15 ppm standard for four years.

This 500 ppm option for small refiners is similar to the option provided to all refiners under the temporary compliance option described in Section IV.A above in that it allows a refiner to continue producing and selling the current 500 ppm fuel for a period of time. However, this option differs from the broader compliance option in that small refiners may produce and sell 100 percent of their highway fuel at 500 ppm without needing to buy credits. In contrast, under the broader temporary compliance option, refiners must buy credits to produce any volume of 500 ppm fuel over 20 percent of their total highway diesel production.

At the retail level, retailers will not be subject to any availability requirements and thus may sell 500 ppm fuel, 15 ppm highway fuel, or both (as is the case under the broader diesel temporary compliance option described in Section IV.A). All parties in the diesel fuel distribution system will have to maintain the segregation of 15 ppm fuel and 500 ppm fuel and only 15 ppm fuel may be sold for use in model year 2007 and later heavy-duty diesel vehicles.

As a part of their pre-compliance reporting due June 1, 2003 (see Section IV.A. above), any small refiners taking advantage of this 500 ppm option must show that sufficient sources of 15 ppm fuel will likely exist in the area served by the small refiner in the absence of production of 15 ppm fuel by that refiner.[169] A small refiner could approach this showing in different ways. For example, depending on the circumstances, the refiner might point to the presence of other refiners in the area that are expected to produce 15 ppm fuel, or to the refiner's proximity to a major pipeline that will be carrying 15 ppm fuel. Similarly, the refiner might show that its market share in the area's highway diesel market will be too small to significantly affect the volume of 15 ppm fuel regardless of the small refiner's actions.

Another approach could be to indicate practical steps that the refiner itself is prepared to take to help ensure that 15 ppm diesel fuel will be available. One commenter suggested a plan to add a separate tank and expand its fuel loading rack for handling 15 ppm diesel fuel that would be supplied by a different refiner—thus making low sulfur fuel available, at least at the wholesale level, at its refinery gate even though it produced no 15 ppm fuel.

Because of the wide distribution of 15 ppm fuel that we believe will occur under the industry-wide optional compliance program discussed in Section IV.A. above, we expect that few if any small refiners wishing to use the 500 ppm option will find it difficult to make the showing that 15 ppm fuel will exist in the area. If we do not take action on this showing within four months of receiving a refiner's 2003 pre-compliance report (i.e., by October 1, 2003 at the latest), the refiner's showing will be considered approved.

Finally, we are providing this option so that small refiners may use the temporary flexibility provided by the 500 ppm option as a pathway toward compliance with the 15 ppm standard and not as an opportunity for those refiners to greatly expand their production of fuel meeting the 500 ppm sulfur standard. To help ensure that any significant expansion of refining capacity that a small refiner undertakes in the future will be accompanied by an expansion of desulfurization capacity, we are limiting the volume of 500 ppm sulfur fuel that a small refiner may produce under this option to a baseline level. Specifically, small refiners selecting this 500 ppm option must limit the volume they produce of highway diesel fuel meeting the 500 ppm sulfur standard to the lesser of the following values: (1) 105 percent of the average highway diesel volume it produced from crude oil in calendar years 1998 and 1999 or (2) the average highway diesel volume it produced from crude oil in calendar years 2004 and 2005. Any volume of 500 ppm highway diesel fuel (averaged over the previous 12 consecutive months) that exceeds this limitation after 2006 must comply with the diesel sulfur standards that apply to other refiners under the broader program (i.e., the standards described in Section IV.A. above, including the 80% requirement of the temporary compliance option).

ii. Small Refiner Credit Option

We believe that the relative difficulty for small refiners to comply with today's program warrants compliance flexibility for these refiners. At the same time, we want to encourage all refiners to produce low sulfur diesel fuel as early and in as many geographic areas as possible. As an incentive for small refiners to invest in desulfurization capacity, those that choose to produce 15 ppm fuel earlier than required under the 500 ppm option may generate credits for each gallon of diesel fuel produced that meets the 15 ppm standard. This includes the ability to generate credits prior to the start of the program on June 1, 2006 under the provisions described in Section IV.A.1.a. They could then sell these credits to other refiners for use in the broader optional diesel fuel compliance program described above in Section IV.A, helping to offset some low sulfur diesel fuel production costs.

Under this option, credits may be generated based on the volume of any diesel fuel that meets the 15 ppm standard. Refiners may then sell their remaining highway diesel fuel under the 500 ppm option above. Start Printed Page 5077

Pre-compliance reporting for small refiners choosing this Small Refiner Credit option is identical to that for the 500 ppm option (that is, if the small refiner is also producing 500 ppm highway diesel fuel), with the additional requirement that the refiner also report on any credits it expects to generate and sell. If the quantity of 15 ppm fuel that the refiner is preparing to produce is significant, this factor may be useful in making the necessary showing that 15 ppm fuel will be available in the refiner's market area.

iii. Diesel/Gasoline Compliance Date Option

The Tier 2/Gasoline Sulfur program included a special provision that applies for refiners that qualify as small refiners (40 CFR Part 80, Subpart H). Under that program, each small refiner is assigned an interim gasoline sulfur standard for each of its refineries. This interim standard for each refinery is established based on the baseline sulfur level of that refinery. The standards are designed to require each small refiner to either make a partial reduction in their gasoline sulfur levels or, if they already produce low sulfur fuel, to maintain their current levels. The interim program lasts for four years, 2004 through 2007, and the refiner can apply for an extension of up to three years. After the interim program expires, small refiners must produce the same low sulfur gasoline as other refiners.

Today's diesel sulfur program takes effect in the same time frame as the small refiner interim program for low sulfur gasoline. To avoid the need for simultaneous investments in both gasoline and diesel fuel desulfurization, several small refiners subject to both programs raised the concept of allowing those investments to be staggered in time. Because of the relative difficulty small refiners will face in financing desulfurization projects, especially for both diesel and gasoline desulfurization in the same time frame, we agree that this concept has merit and have adopted it for this rule. Under this concept, small refiners may extend the duration of their gasoline sulfur interim standards and, thus, potentially postpone some or all of their gasoline desulfurization investments while they work to achieve the low sulfur diesel standard “on time” in 2006. To the extent that small refiners choose this Diesel/Gasoline Compliance Date option, this provision will benefit the overall diesel program by increasing the availability of 15 ppm diesel fuel in the small refiners' market areas.

Specifically, this option provides that a small refiner can receive a three-year extension of a refinery's interim gasoline standard, until January 1, 2011, if it meets two criteria: (1) It produces both gasoline and diesel fuel at a refinery and chooses to comply with the 15 ppm diesel fuel sulfur standard by June 1, 2006 for all its highway diesel production at that same refinery, and (2) it produces a minimum volume of 15 ppm fuel at that refinery that is at least 85 percent of the average volume of highway diesel fuel that it produced at that refinery during calendar years 1998 and 1999. We believe that it is very important that the extension of a small refiner's interim low sulfur gasoline standard be linked to a substantial environmental benefit from the production of low sulfur diesel fuel in 2006. We have established a minimum volume requirement to prevent the Diesel/Gasoline Compliance Date option from applying in situations where a refiner changes its refinery product slate to produce very little highway diesel fuel—even though this production is at a 15 ppm sulfur level—and yet receives an extension of its interim gasoline sulfur standard.[170] We believe the 85 percent level is sufficient to reflect a substantial investment in desulfurization technology. At the same time the 85 percent level should allow for any reasonable variation in production of highway diesel fuel that would be expected to occur in typical situations between now and 2006, particularly given the continued growth of the highway diesel market. Again, the three-year extension of the gasoline interim program is to allow small refiners to stretch out their capital investments while increasing the quantity of 15 ppm fuel being produced. We expect that small refiners using this option will make a substantive capital investment in diesel desulfurization and have thus set this minimum 15 ppm diesel volume limit.

We believe that the additional three-year extension of the interim gasoline sulfur standards provided today is warranted without any further action by small refiners, provided that they assume the financial burden of full low sulfur diesel compliance in 2006 (i.e., instead of choosing the flexibility of the broader temporary compliance program). The diesel and gasoline desulfurization investments for those refiners can thus be staggered in time. We believe a three-year extension is appropriate due to the substantial investment in highway diesel fuel that these small refiners will be undertaking.

By July 1, 2006, small refiners that plan to use the Diesel/Gasoline Compliance Date option for one or more refineries must send a letter to us confirming that by June 1, 2006 they were producing 100 percent of their highway diesel fuel in compliance with the 15 ppm sulfur standard at their refinery(ies). These refiners must make similar confirmations each year through 2011 in their annual compliance reports (due by the end of February of each year)—until after the end of the extended interim low sulfur gasoline program for small refiners on December 31, 2010.

If a given small refiner was not producing 15 ppm fuel for all its highway diesel production at that refinery by June 1, 2006, the July 1, 2006 letter must confirm that the refiner is forfeiting the “automatic” three-year extension of that refinery's interim gasoline program (although the refiner may still apply for a case-by-case extension through the Tier 2/Gasoline Sulfur program under 40 CFR 80.260). In this case, we will consider a request that the refiner be allowed to use either the 500 ppm option or the Small Refiner Credit option, or both, provided that information addressing the conditions of these options as described above are included in the July 1, 2006 letter. If the refiner does not request the use of the 500 ppm option or the Small Refiner Credit option, the letter must confirm that the refiner is complying with the diesel sulfur requirements applicable to refiners that are not small refiners.

The Tier 2/Gasoline Sulfur program includes a general hardship provision for which refiners may apply. (Today's program also includes a similar provision). Depending on the nature of its hardship, a small refiner that applies for this general hardship provision under the gasoline program may be granted a “tailor-made” interim gasoline sulfur program different from the “default” program established in the rule. If such a small refiner were then to be covered by today's diesel fuel requirements and chose this Diesel/Gasoline Compliance Date option, we will allow it an extension of its special interim program for gasoline (as established under the general hardship provision) for three years beyond the scheduled end date (although no later than December 31, 2010) so long as it Start Printed Page 5078met the 15 ppm diesel fuel standard and production volume requirements in 2006.

As with the other two options, refiners expecting to use the Diesel/Gasoline Compliance Date option and thus to produce their highway diesel fuel exclusively at 15 ppm fuel will have to report certain information beginning in 2003. As a part of their pre-compliance reporting due June 1, 2003 (see Section IV.A. above), any small refiners taking advantage of this option must provide information showing that diesel desulfurization plans are on track. The information supplied under this requirement must include, but will not be limited to, the following: (1) Status of applying for and receiving any necessary air pollution control permits, (2) financing that is in place or being sought, and (3) the status of engineering or construction contracts. As a part of the pre-compliance reporting due in 2004 and 2005, the refiner must provide more complete information as it becomes available to update its earlier report (e.g., the status of beginning or completing construction of desulfurization equipment).

iv. Relationship of the Options to Each Other

By definition, since a small refiner must produce 100 percent of its highway diesel as 15 ppm under the Diesel/Gasoline Compliance Date option, that option is not compatible with either the 500 ppm option or the Small Refiner Credit option. Thus a refiner choosing the Diesel/Gasoline Compliance Date option may not choose either of the other two options. However, the 500 ppm option and the Small Refiner Credit option are compatible with each other, and so a refiner may choose either or both of these options.

d. How Do Small Refiners Apply for Small Refiner Status?

Refiners that are not small refiners under the gasoline sulfur program but that are seeking small refiner status under the diesel sulfur program must apply to us as a part of their registration for the general diesel sulfur program, due no later than December 31, 2001. The application must include the following information: [171]

  • The name and address of each location at which any employee of the company, including any parent companies or subsidiaries,[172] worked during the 12 months preceding January 1, 2000;
  • The average number of employees at each location, based on the number of employees for each of the company's pay periods for the 12 months preceding January 1, 2000;
  • The type of business activities carried out at each location; and
  • The total crude oil refining capacity of its corporation. We define total capacity as the sum of all individual refinery capacities for multiple-refinery companies, including any and all subsidiaries, as reported to the Energy Information Administration (EIA) for 1999, or in the case of a foreign refiner, a comparable reputable source, such as professional publication or trade journal.[173] Refiners do not need to include crude oil capacity used in 1999 through a lease agreement with another refiner in which it has no ownership interest.

The crude oil capacity information reported to the EIA or comparable reputable source is presumed to be correct. However, in cases where a company disputes this information, we will allow 60 days after the company submits its application for small refiner status for that company to petition us with detailed data it believes shows that the EIA or other source's data was in error. We will consider this data in making a final determination about the refiner's crude oil capacity.

We will consider any refiner that was granted small refiner status under the Tier 2/Gasoline Sulfur program to also qualify as a small refiner under today's program, provided that it also produced highway diesel fuel in 1999. Such a refiner only needs to indicate as a part of its registration for this program that it is covered by the gasoline sulfur small refiner program and that it expects to be eligible for any small refiner optioins available in today's diesel program.

2. Farmer Cooperative Refiners Will Benefit From the Flexible Provisions Available to Other Refiners

Some refineries in the U.S. are owned by farmer cooperatives. In the NPRM, we asked for comment on whether it would be appropriate to extend hardship relief to farmer cooperatives, similar to the flexibility options for small refiners. Representatives of farmer cooperative refiners have commented to us that as refiners they face unique challenges under a diesel fuel sulfur program. As described in more detail below and in the Response to Comments document, we have carefully considered the situation of farmer cooperative refiners. We have concluded that while there are clearly differences in how farmer cooperative refiners are organized and are financed compared to other refiners, we are not able to make a determination that farmer cooperative refiners, as a class, face unique economic hardship. As discussed further below, we believe that the combination of flexibilities built into today's diesel program will be valuable to farmer cooperative refiners. To the extent any of the farmer cooperative refiners face economic hardship in complying with the diesel sulfur program, this determination can best be made on a case-by-case basis for each farmer cooperative refiner, as discussed further below.

As is the case for all refiners, we believe that farmer cooperative refiners will be able to benefit significantly from the several flexibility provisions discussed elsewhere in Section IV of this preamble. As we mentioned above, the farmer cooperative refiner with the smallest refinery appears to meet the criteria for status as a “small refiner,” and thus will likely be eligible for the special provisions discussed earlier (Section IV.C.1. above). The second smallest refinery owned by a farmer cooperative is located and markets all or most of its gasoline within the geographic GPA and, as such, is eligible for GPA low sulfur gasoline extension described in Section IV.B. above (if it meets the production and volume requirements for 15 ppm fuel). Alternatively, this refinery could participate in the temporary compliance option for diesel fuel described in Section IV.A. above.

The two other farmer cooperative refiners (as well as any other refiner) may participate in the temporary compliance option for diesel fuel and the averaging, banking, and trading provisions described above (Section IV.A.), potentially allowing them to postpone diesel desulfurization investments. If needed, any of the farmer cooperative refiners may also apply for case-by-case hardship relief (Section IV.C.3. below). Through such a case-by-case review, we will be in a better position to make a determination of whether a particular farmer cooperative refiner faced an economic hardship situation, as we would then have available to us specific financial information about each cooperative owner. If we determine that a cooperative refiner faced an economic Start Printed Page 5079hardship situation, we could then tailor any temporary hardship provisions to best suit the needs of that refiner. Given this combination of options and “safety valves” built into the diesel sulfur program, and the factors discussed below, we do not believe it is necessary to provide special provisions specifically for farmer cooperative refiners as a class.

Farmer cooperatives that own refineries, like all farmer cooperatives, are organized as a means for individual farmers (or local cooperatives owned by individual farmers) to collectively gain benefits in important aspects of their farming businesses—in this case, the production and distribution of the fuel needed for their operation. It should also be noted that the diesel fuel produced by farmer cooperative refiners is sold not only to farmers, but also to the wholesale petroleum market, for sale at service stations, truck stops, or fleets. Individual farmers and others become members of local cooperatives that provide a range of products and services to their members. These local cooperatives in turn often form the membership of larger, regional cooperatives, including those that own three of the four farmer cooperative refineries in the U.S.

Refiners that are also cooperative businesses are significantly different from other refiners in several respects. The key aspect is that several avenues for accessing capital used by many other refiners (in this case, the capital needed to carry out diesel fuel desulfurization projects in their refineries) are not available to, or are not practical for, cooperative refiners. In particular, farmer cooperatives, unlike publicly-held corporations, are generally not permitted to raise equity capital in the securities markets (that is, by selling stock). At the same time, the equity financing provided by the membership, usually a modest amount assessed from each member as a condition of membership, provides a return for the members only to the extent that the members purchase the products or services of the cooperative. Conventional investors that do not regularly patronize the cooperative have little incentive to provide investment from the outside, since their investment will not appreciate in value.

For farmer cooperatives, money for capital projects is generally raised internally as equity from members and as loans from banks or other financial institutions. In this sense, farmer cooperative refiners are similar to privately-held refining companies, which are also unable to raise capital by selling public stock. In the case of farmer cooperatives, equity capital is raised either by assessment of the members or, more often, by retaining a portion of the cooperative's earnings that would otherwise be distributed to the members (on the basis of how much business they have done with the cooperative). The amount of equity available to the cooperative, as well as the earning prospects of the cooperative, usually determine whether financial institutions will lend additional capital, how much money will be lent, and what terms the cooperative will have to agree to. For example, when a cooperative's equity is low and/or the farm economy is stressed (and thus the prospects for strong earnings performance by the cooperative are diminished) cooperatives can have difficulty competing among other potential borrowers for loans for large capital projects.

While the unique structural and financial characteristics of farmer cooperative refiners can present special challenges to these refiners, their status as cooperatives can also provide advantages not shared by other refiners. The same federal and state laws and regulations that place limitations on the financial avenues available to cooperatives also tend to include special provisions only available to cooperatives. These include special treatment for cooperatives under securities laws, antitrust laws, contractual marketing laws, and restrictive corporate entity laws, some or all of which may come into play in efforts to capitalize refinery desulfurization projects.

Also, the relatively large regionally-based cooperatives that own refineries have a variety of other business interests as well. This broader business base, which involves not only the refining and distribution of fuels but also a variety of other agricultural supply, processing, and related operations, may often provide an advantage to these larger cooperative refiners as compared to competing refiners that have little or no business beyond refining and fuel marketing. Finally, the three larger farmer cooperative refiners have developed several economic relationships among one another—including joint refinery ownership, a joint refinery operating agreement, and a joint fuel distribution and marketing organization—that together create greater options for financing than are available to many other refiners.

Based on the compliance option provisions in this action we do not believe that farmer cooperative refiners as a class face a disproportionate economic burden in complying with the diesel sulfur program. However, certain cooperative refiners may face additional economic obstacles, therefore the potential need exists for some financial assistance to farmer cooperative refiners from U.S. government programs. During interagency review, concerns were discussed relating to the uniqueness of the structure of farmer cooperative refineries and the key issue of accessing capital was identified. The U.S. Department of Agriculture (USDA) has indicated an interest and willingness to review its existing authorities for the potential mechanisms to provide financial assistance to refiner cooperatives who do invest in desulfurization programs. Congress and USDA have long recognized the unique circumstances of farmers and rural communities by establishing programs to provide assistance. This assistance would be primarily in the form of guaranteed loans, which could provide a significant source of funding for cooperative refiners to make capital investment in desulfurization. However, USDA's loan program is subject to limitations, including a $25 million annual cap on individual loans, so the cooperative refiners may have to acquire additional financing. EPA understands that USDA supports efforts, where appropriate, to provide assistance to farmer-owned cooperatives from other sources.

In conclusion, after reviewing this information, we have not been able to clearly distinguish a unique economic burden that today's program will place on farmer cooperative refiners, as a class, apart from other refiners, especially other refiners of similar size and/or those that are privately-held companies. However, as described above, several of the flexible provisions we have incorporated into the overall diesel sulfur program will be valuable to farmer cooperative refiners.

3. General Hardship Provisions

a. Temporary Waivers from Low Sulfur Diesel Requirements in Extreme Unforseen Circumstances

In this final rule, we are adopting a provision which, at our discretion, will permit domestic or foreign refiners to seek a temporary waiver from the highway diesel sulfur standards under certain rare circumstances. This waiver provision is similar to provisions in the reformulated gasoline (RFG) and low sulfur gasoline regulations. It is intended to provide refiners short-term relief in unanticipated circumstances—such as a refinery fire or a natural disaster—that cannot be reasonably foreseen now or in the near future. Start Printed Page 5080

Under this provision, a refiner may seek permission to distribute highway diesel fuel that does not meet the applicable low sulfur standards for a brief time period. An approved waiver of this type could, for example, allow a refiner that has reached its maximum allowable production volume of 500 ppm sulfur fuel under the temporary compliance option to temporarily and modestly exceed that volume, so long as the other conditions described below were met. Such a request will be based on the refiner's inability to produce complying highway diesel fuel because of extreme and unusual circumstances outside the refiner's control that could not have been avoided through the exercise of due diligence. The request will also need to show that other avenues for mitigating the problem, such as purchase of credits toward compliance under the temporary compliance option, had been pursued and yet were insufficient.

As with other types of relief established in this rule, this type of temporary waiver will have to be designed to prevent fuel exceeding the 15 ppm standard from being used in 2007 and later vehicles. As with the small refiner hardship provisions described above, any such waiver must show that other sources of 15 ppm fuel exist in the refiner's market area to help reduce the risk that owners of 2007 and later diesel vehicles will have difficulty finding the 15 ppm fuel they need during the period of the waiver.

The conditions for obtaining a low sulfur diesel waiver are similar to those in the RFG and low sulfur gasoline regulations. These conditions are necessary and appropriate to ensure that any waivers that are granted are limited in scope, and that refiners do not gain economic benefits from a waiver. Therefore, refiners seeking a waiver must show that the waiver is in the public interest, that the refiner was not able to avoid the nonconformity, that it will make up the air quality detriment associated with the waiver, that it will make up any economic benefit from the waiver, and that it will meet the applicable diesel sulfur standards as expeditiously as possible.

b. Temporary Waivers Based on Extreme Hardship Circumstances

In addition to the provision for short-term relief in extreme unforseen circumstances, we are adopting a provision for relief based on extreme hardship circumstances. In developing our diesel sulfur program, we considered whether any refiners would face particular difficulty in complying with the standards in the lead time provided. As described earlier in this section, we concluded that refineries owned by small businesses will experience more difficulty in complying with the standards on time because they have less ability to raise the capital necessary for refinery investments, face proportionately higher costs because of poorer economies of scale, and are less able to successfully compete for limited engineering and construction resources. However, it is possible that other refiners that are not small refiners will also face particular difficulty in complying with the sulfur standards on time. Therefore, we are including in this final rule a provision which allows us, at our discretion, to grant temporary waivers from the diesel sulfur standards based on a showing of extreme hardship circumstances.

The extreme hardship provision allows any domestic or foreign refiner to request a waiver from the sulfur standards based on a showing of unusual circumstances that result in extreme hardship and significantly affect a refiner's ability to comply with the low sulfur diesel standards by June 1, 2006. An approved extreme hardship waiver may provide refiners with provisions similar to those for small refiners, or as with the waiver for extreme unforseen circumstances, may provide a greater allowance for producing 500 ppm (for sale only for use in pre-2007 vehicles) during the period the temporary compliance option is in effect. As with other relief provisions established in this rule, any waiver under this provision must be designed to prevent fuel exceeding the 15 ppm standard from being used in 2007 and later vehicles.

By providing short-term relief to those refiners that need additional time because they face hardship circumstances, we can adopt an overall program that reduces diesel fuel sulfur beginning in 2006 for the majority of the industry. However, we do not intend for this waiver provision to encourage refiners to delay planning and investments they would otherwise make. We do not expect to grant temporary waivers that apply to more than approximately one percent of the national highway diesel fuel pool in any given year.

The regulatory language for today's action includes a complete list of the information that must be included in a refiner's application for an extreme hardship waiver. If a refiner fails to provide all the information, as specified in the regulations, as part of its hardship application, we can deem the application void. The following are some examples of the types of information that must be contained in an application:

—The crude oil refining capacity and diesel fuel sulfur level at each of the refiner's refineries.

—Details on how the refiner plans to modify its current operation to achieve future diesel fuel sulfur levels.

—The anticipated timing for the overall project the refiner is proposing and key milestones to ultimately produce 100 percent of highway diesel fuel at the 15 ppm sulfur standard.

—The refiner's capital requirements for the proposed project

—Plans for financing the project and financial statements

—List of the areas where the refiner's diesel fuel will be sold.

We will consider several factors in our evaluation of the hardship waiver applications. Such factors will include whether a refinery's configuration is unique or atypical; the proportion of diesel fuel production relative to other refinery products; whether the refiner, its parent company, and its subsidiaries are faced with severe economic limitations (for example, a demonstrated inability to raise necessary capital or an unfavorable bond rating); steps the refiner has taken to attempt to comply with the standards, including efforts to obtain credits towards compliance. In addition, we will consider the total crude oil capacity of the refinery and its parent or subsidiary corporations, if any, in assessing the degree of hardship and the refiner's role in the diesel market. Finally, we will consider where the diesel fuel will be sold in evaluating the environmental impacts of granting a waiver.

This extreme hardship provision is intended to address unusual circumstances that should be apparent now or will emerge in the near future. Thus, refiners seeking additional time under this provision must apply for relief by June 1, 2002. Applicants for a hardship waiver must also submit a plan demonstrating how they will achieve the standards as quickly as possible. In submitting the plan, applicants must include a timetable for obtaining the necessary capital, contracting for engineering and construction resources, obtaining any necessary permits, and beginning and completing construction.

We will review and act on applications and, if a waiver is granted, will specify a time period, not to extend beyond May 31, 2010, for the waiver.

D. Technological Feasibility of the Low Sulfur Diesel Fuel Program

This section summarizes our assessment of the feasibility of refining Start Printed Page 5081and distributing diesel fuel with a sulfur content of no more than 15 ppm. Based on this evaluation, we believe it is technologically feasible for refiners to meet the 15 ppm sulfur standard in the lead time provided. We are summarizing our analysis here and we refer the reader to the RIA for more details.

1. What Technology Will Refiners Use?

Conventional diesel desulfurization technologies have been available and in use for many years. Conventional hydrotreating technology involves combining hydrogen with the distillate (material falling into the boiling range of diesel fuel) at moderate pressures and temperatures and flowing the mixture through a fixed bed of catalyst.

We project that all refiners will be technically capable of meeting the 15 ppm sulfur cap with extensions of the same conventional hydrotreating which they are using to meet the current highway diesel fuel standard of 500 ppm sulfur. This extension will likely mean adding a second stage of conventional hydrotreating. Converting an existing one-stage hydrotreater into a two-stage hydrotreater will involve adding an additional reactor as well as other, more minor units to support the new desulfurization unit. These units could include hydrogen plants, sulfur recovery plants, amine plants and sour water scrubbing facilities. All of these units are already operating in refineries, but may have to be expanded or enlarged. We also project that all refiners will utilize recently developed, high activity catalysts, which increase the amount of sulfur that can be removed relative to the catalysts which were available when the current desulfurization units were designed and built.

While still utilizing this conventional hydrotreating technology, we expect that some refiners (roughly 20 percent of current production volume) will decide to invest in a completely new two-stage hydrotreater rather than revamp their current unit. This could occur because the current hydrotreater is too old or designed to operate at too low a pressure, or because the refiner desires to expand production of highway diesel fuel.

The sufficiency of conventional hydrotreating to meet a 15 ppm sulfur cap with current diesel fuel blendstocks is based primarily on information provided by several refining technology vendors.[174] The vendors all projected that two-stage hydrotreating would be sufficient to meet a 15 ppm sulfur cap. However, their projections of hydrogen consumption and requisite reactor volume varied widely. Our projections for hydrogen consumption and reactor volume are near the lower end of the range and are essentially the same projections as were made in support of the proposed rule.

Many refiners commented that we had underestimated the cost of meeting the 15 ppm sulfur cap. They argued that higher pressure, thick walled reactors of greater volume would be needed and that hydrogen consumption would be much higher than we projected. With one exception, neither the refiners, nor the technology vendors provided any underlying catalyst performance data with which we could use to arbitrate between the varying projections. One vendor did submit catalyst performance data from a commercial unit processing a diesel fuel like that produced in the U.S. Such commercial data is very limited, as refiners are generally not currently producing diesel fuel at sulfur levels below 10 ppm with this technology from diesel fuel feedstocks typical of U.S. refiners. Some refiners are currently producing diesel fuel at sulfur levels below either 10 or 50 ppm. However, their diesel fuel blendstocks differ substantially in quality from those available in the U.S., so their experience cannot be extrapolated easily to producing sub-15 ppm sulfur diesel fuel in the U.S.

Based on our review of the limited catalyst performance data in the published literature and the one set of confidential data submitted, we believe that the projections of the more optimistic vendors are the most accurate for the 2006 timeframe. For example, the confidential commercial data indicated that five ppm sulfur levels could be achieved with two-stage hydrotreating a moderate hydrogen pressures despite the presence of a significant amount of light cycle oil (LCO). The key factor was the inclusion of a hydrogenation catalyst in the second stage, which saturated many of the poly-nuclear, aromatic rings in the diesel fuel, allowing the removal of sulfur from the most sterically hindered compounds. In addition, refiners that are able to defer production of 15 ppm diesel fuel through the purchase of credits will have the added benefit of being able to observe the operation of those hydrotreating units starting up in 2006. This should allow these refiners to be able to select from the best technologies which are employed in the first phase of the program.

In addition, alternative technologies are presently being developed which could produce additional savings for refiners that are able to delay production of 15 ppm fuel until 2010. Phillips 66 Company, for example, just announced that they are developing a version of their S-Zorb technology for diesel fuel desulfurization. This technology has been selected by at least one major refiner (Marathon-Ashland) to meet the Tier 2/low sulfur gasoline requirements. In conjunction with a DOE research program, Phillips is designing and constructing a commercially sized S-Zorb diesel fuel unit at their Borger refinery. This unit is currently scheduled for start-up in 2004. We believe that this technology could reduce the cost of meeting the 15 ppm cap by roughly 25 percent.

2. Have These Technologies Been Commercially Demonstrated?

As mentioned above, conventional diesel desulfurization technologies have been available and in use for many years. U.S. refiners have roughly seven years of experience with this technology in producing highway diesel fuel with less than 500 ppm sulfur. Refiners in California also have the same length of experience with meeting the California 500 ppm cap on sulfur and an additional aromatics standard.[175] To meet both sulfur and aromatics standards, refineries in California are producing highway and nonroad diesel fuel with an average sulfur level of 150 ppm.

Some refiners in Europe are producing a very low-sulfur, low aromatics diesel fuel for use in the cities in Sweden (Class I Swedish Diesel) using two-stage hydrotreating. This “Swedish city diesel” is averaging under 10 ppm sulfur and under 10 volume percent aromatics. While clearly demonstrating the feasibility of consistently producing diesel fuel with less than 10 ppm sulfur from selected feedstocks, there are a few differences between the Swedish fuel and typical U.S. diesel fuel. First, the tight aromatics specification applicable to Swedish City diesel fuel usually requires the use of ring-opening or dearomatization catalysts in the second stage of the two-stage hydrotreating unit. Second, Swedish Class I diesel fuel also must meet a tight density specification. Third, it is not clear Start Printed Page 5082whether any refiner is producing a large fraction of their distillate production to this specification. Thus, the European experience demonstrates the efficacy of the two-stage process and its ability to produce very low sulfur diesel fuel. However, doing so without saturating most of the aromatics present and with heavier feedstock has only been demonstrated in pilot plants and not commercially. Even this pilot plant data has not been available for us to evaluate directly, due to vendors' competitiveness concerns.

Europe has adopted a 50 ppm cap sulfur standard for all diesel fuel which takes effect in 2005. Some countries, including England, have implemented tax incentives for refiners to produce this fuel sooner. The majority of diesel fuel in England already meets the 50 ppm specification. Refiners have reported no troubles with this technology. This diesel fuel is being produced in one-stage hydrotreaters. However, as mentioned above, European diesel fuel contains less heavier compounds than diesel fuel in the U.S., so the use of one-stage conventional hydrotreating to meet very low sulfur levels is applicable, but not sufficient to demonstrate feasibility in the U.S. Germany has also established a tax incentive, but for diesel fuel containing 10 ppm or less sulfur. One European technology vendor indicated that they have already licensed two desulfurization units to German refiners planning to produce diesel fuel to obtain this tax credit. Europe also is considering a 10 ppm sulfur cap to take effect later in the decade. However, no refiner is currently producing number two diesel fuel to this specification.

Phillips Petroleum is currently in the process of designing and constructing a commercial sized S-Zorb unit to produce sub-15 ppm diesel fuel at their Borger, Texas refinery. This plant is scheduled to begin commercial operation in 2004. This may not be in time to give refiners sufficient confidence in this novel process to rely on it to meet the 2006 deadline. However, this process, with its attendant hydrogen, cost, and global emission savings should be available for those refiners that are able to defer investment under the temporary compliance option and hardship provisions of today's rule. While we are confident that this and other technology will be available to meet the requirements of today's rule, EPA will work with the Department of Energy, refiners and technology providers to continue to monitor and analyze the progress in further developing and implementing this new diesel desulfurization technology. This will allow us to improve our understanding of how this new technology can be employed to enhance the implementation of this program.

3. Feasibility of Distributing Low Sulfur Highway Diesel Fuel

We believe that with relatively minor changes and associated costs, the existing distribution system will be capable of adequately managing sulfur contamination during the transportation of 15 ppm highway diesel fuel from the refinery through to the end-user. Further, we believe that the existing system is capable of handling two grades of highway diesel fuel (500 ppm and 15 ppm sulfur cap) in a limited fashion during the transition period of the sulfur program at acceptable cost with the addition of storage tanks at a fraction of distributor facilities.

The following minor changes in distribution practices will be needed as a result of today's rule during the transition years of the fuel program when various hardship and optional compliance provisions are in effect and thereafter:

—To adequately separate shipments of highway diesel fuel from shipments of higher sulfur products, pipeline operators will need to increase the amount of highway diesel fuel that they downgrade to a lower value product.

—Instead of cutting the mixture of jet fuel and highway diesel fuel that results during pipeline shipments of these products into the highway diesel pool, pipeline operators will need to segregate this mixture and sell it into the nonroad diesel pool. This change will necessitate the addition at some terminals of small tanks to handle the mixture of jet fuel and highway diesel fuel.

—Terminal operators will need to perform additional quality control testing to ensure compliance with the 15 ppm sulfur cap.

We also recognize that tank truck operators will need to more carefully and consistently observe current industry practices to limit contamination during the transport of 15 ppm sulfur highway diesel fuel. However, because these practices already exist and need only to be better enforced by distributors, we continue to believe that this can be accomplished at insignificant cost. We believe that there will not be a significant increase in the volume of highway diesel fuel discovered to exceed the sulfur standard downstream of the refinery as a result of today's rule. Distributors will quickly optimize the distribution system using the means described above to avoid creating additional volumes of out of specification product.

To accommodate two grades of highway diesel fuel during the transition period, additional storage tanks will need to be added at some refineries, terminals, bulk plants, and truck stops. There are significant costs associated with the addition of tanks which are fully accounted for during the transition period (see Section V). Commenters on the NPRM stated that in addition to the substantial economic burden that adding additional storage tanks would represent for some distributors, limitations in available space and permitting restrictions could preclude some distributors from installing additional tanks. This transition is also an added concern for those users of specialty fuels (i.e., military fuels, etc.) who currently compete for the limited storage tanks because these fuels must be segregated. We believe that the burden of adding new storage tanks to the system is made manageable by the fact that not all distributors will need to handle 500 ppm as well as 15 ppm sulfur highway diesel fuel during this time period. Marketplace forces will determine which facilities assume the additional burden of handling both grades of highway diesel fuel. Those facilities for which the addition of a storage tank would represent an unacceptable burden would opt not to serve the 500 ppm sulfur highway diesel market during the transition years.

We received several comments on the proposed rule that substantial uncertainties exist regarding the ability of the distribution system to adapt to the added hardship of limiting sulfur contamination of highway diesel fuel meeting a 15 ppm sulfur cap. These commenters noted that under today's rule other products in the distribution system would have a sulfur content of over 300 times the 15 ppm highway diesel fuel sulfur cap, and that unavoidable mixing of small quantities of these high sulfur products into highway diesel fuel could easily cause the 15 ppm sulfur cap to be exceeded. To illustrate the magnitude of the challenge, these commenters noted that currently the maximum sulfur content of any product that shares the distribution system with highway diesel fuel is no more than 10 times the current 500 ppm sulfur cap for highway diesel fuel.[176] Some commenters stated that the only way to adequately limit sulfur contamination in the distribution Start Printed Page 5083of diesel fuel with a 15 ppm sulfur cap may be to create a completely segregated system (at an unacceptably high cost). These commenters stated that unavoidable contamination could cause many batches of highway diesel fuel to be noncompliant with the 15 ppm cap resulting in shortages and high costs. Some commenters stated that additional evaluation is needed to determine the capability of the distribution system to limit contamination to the very low levels necessitated by today's rule.

While we acknowledge that today's rule will pose a substantial new challenge to the distribution system, we believe that the additional measures outlined in this section will substantially address issues associated with adequately limiting sulfur contamination during the distribution of 15 ppm sulfur highway diesel fuel.[177] Its true that not all of the potential minute sources of sulfur contamination in the distribution sources have been identified and that the cumulative magnitude from these sources is uncertain. However, we believe that the contamination from such sources, while made more significant by the implementation of the 15 ppm sulfur cap, is not of a sufficient magnitude to jeopardize the feasibility of distributing low sulfur highway diesel fuel. We will work with the Department of Energy, refiners and others involved in diesel fuel distribution to analyze, compile data, and conduct additional research, where appropriate, to not only more fully understand all sources of contamination and deliverability in the distribution of diesel fuel below the 15ppm cap, but also their impact on the deliverability of other fuels, including specialty military fuels. This information will be used, in conjunction with information being developed on the operation of emission control devices (which are affected by exposure to sulfur), to monitor progress on the successful implementation of this final rule which depends on an integrated vehicle/fuel systems approach. Please refer to Section V.D. on the costs of today's rule to the distribution system, and to the Regulatory Impact Analysis and Response to Comments documents for additional discussion regarding the feasibility of distributing highway diesel fuel with a 15 ppm sulfur cap.

E. What Are the Potential Impacts of the Low Sulfur Diesel Program on Lubricity and Other Fuel Properties?

1. What Is Lubricity and Why Might It Be a Concern?

Engine manufacturers depend on diesel fuel lubricity properties to lubricate and protect moving parts within fuel pumps and injection systems for reliable performance. Unit injector systems and in-line pumps, commonly used in heavy-duty engines, are actuated by cams lubricated with crankcase oil, and have minimal sensitivity to fuel lubricity. However, rotary and distributor type pumps, commonly used in light and medium-duty diesel engines, are completely fuel lubricated, resulting in high sensitivity to fuel lubricity.

In the United States, there is no government or industry standard for diesel fuel lubricity. Thus, specifications for lubricity are determined by the market. Since the beginning of the 500 ppm sulfur highway diesel program in 1993, fuel system producers, engine and vehicle manufacturers, and the military have been working with the American Society for Testing and Materials (ASTM) to develop protocols and standards for diesel fuel lubricity in its D-975 specifications for diesel fuel. Although the ASTM has not yet adopted specific protocols and standards, we understand that refiners have been treating diesel fuel with lubricity additives on a batch to batch basis, when poor lubricity fuel is expected. In addition, the military has found that traditional corrosion inhibitor additives that it uses in its fuels have been highly effective in reducing fuel system component wear. Some commenters expressed concern about the impacts of a 15 ppm standard on fuel lubricity.

Experience has shown that it is very rare for a naturally high-sulfur fuel to have poor lubricity, although, most studies show relatively poor overall correlation between sulfur content and lubricity. Considerable research remains to be performed for a better understanding of the fuel components most responsible for lubricity. Consequently, we are uncertain about the potential impacts of the 15 ppm sulfur standard on fuel lubricity. There is evidence that the typical process used to remove sulfur from diesel fuel—hydrotreating—can impact lubricity depending on the severity of the treatment process and characteristics of the crude. Because refiners will likely rely on hydrotreating to achieve the proposed sulfur limit, there may be reductions in the concentration of those components of diesel fuel which contribute to adequate lubricity. As a result, the lubricity of some batches of fuel may be reduced compared to today's levels, resulting in an increased need for the use of lubricity additives in highway diesel fuel. In response to the proposal, all comments submitted regarding lubricity either stated or implied that the proposed sulfur standard of 15 ppm would likely cause the refined fuel to have lubricity characteristics that would be inadequate to protect fuel injection equipment, and that mitigation measures such as lubricity additives would be necessary. However, the commenters suggested varied approaches for addressing lubricity. For example, some suggested that we need to establish a lubricity requirement by regulation, but others suggested that the current voluntary (market) system would be adequate. The Department of Defense recommended that we encourage the industry (ASTM) to adopt lubricity protocols and standards before the implementation date of the low sulfur fuel established by today's action. Other suggested approaches included incorporation of biodiesel as a solution to the lubricity issue, and the need to further examine the issues.

Blending small amounts of lubricity-enhancing additives increases the lubricity of poor-lubricity fuels to acceptable levels. These additives are available in today's market, are effective, and are in widespread use around the world. For example, in the U.S., we understand that refiners are treating diesel fuel with lubricity additives on a batch to batch basis, when poor lubricity fuel is expected. Other examples include Sweden, Canada, and the U.S. military. Since 1991, the use of lubricity additives in Sweden's 10 ppm sulfur Class I fuel and 50 ppm sulfur Class II fuel has resulted in acceptable equipment durability.[178] Since 1997, Canada has required that its 500 ppm sulfur diesel fuel not meeting a minimum lubricity be treated with lubricity additives. The U.S. military has found that the traditional corrosion inhibitor additives that it uses in its fuels have been highly effective in reducing fuel system component wear.

2. Today's Action on Lubricity: A Voluntary Approach

We have decided to not establish a lubricity standard in today's action, but have included a 0.2 cents per gallon cost in our calculations for the economic Start Printed Page 5084impact to account for the potential increased use of lubricity additives (see section V.D.2). We believe the best approach is to allow the industry and the market to address the lubricity issue in the most economical manner, while avoiding an additional regulatory scheme. A voluntary approach should provide adequate customer protection from engine failures due to low lubricity, while providing the maximum flexibility for the industry. This approach will be a continuation of current industry practices for diesel fuel produced to meet the current federal and California 500 ppm sulfur diesel fuel specifications, and benefits from the considerable experience gained since 1993. It will also include any new specifications and test procedures that we expect will be adopted by the American Society for Testing and Materials (ASTM) regarding lubricity of highway diesel fuel quality.

We do not believe that an EPA regulation for lubricity is appropriate for several reasons. First, the expertise and mechanism for a lubricity standard already exist in the industry. According to the comments, the industry has been working on a lubricity specification for ASTM D-975, and low cost remedies for poor lubricity have already been proven and are already being used around the world. Although some commenters expressed concerns that the ASTM process might move too slowly to establish a lubricity specification by 2006, we fully expect the refining industry, engine manufacturers and end users to work together to resolve any issues as part of their normal process in dealing with customer and supplier fuel quality issues. Today's action will increase the urgency of those working to establish an ASTM D-975 lubricity specification, and we believe they will do so in time for the production and distribution of the low sulfur highway diesel fuel. We will do our part to encourage the ASTM process be brought to a successful conclusion.

Second, we have no firm basis to justify a lubricity specification in today's action. One such basis might be adequate demonstration that a lubricity level below or above a certain specification would either cause emissions to increase, or hinder the operation of emission control equipment. However, we have no evidence that lubricity impacts emissions, or emission control equipment. This issue is primarily a concern about equipment performance. Equipment performance is more appropriately addressed by the industry rather than government regulation by this Agency.

Third, even if we had a statutory basis to justify a lubricity standard, we are concerned that establishing an EPA lubricity regulation would provoke the same disagreements that the industry is now engaged in its efforts to establish an ASTM D-975 specification. We are in no better position to judge those issues than the industry experts who are already involved. Further, once a specification is put into the regulations and the industry subsequently determines that the specification should be changed, based on new information or circumstances, the burden would be on us to amend the mandated specification by rulemaking. This is a significant burden to put on the Agency for an engine performance issue that can and should be resolved by the industry without government intervention.

Subsequent to the close of the comment period another issue related to lubricity concerns was raised to the Agency. These concerns related to potential incompatibilities in old vehicles of the new engine oils the industry hopes to develop for use in the new 2007 and later model year vehicles. Much of the ash in today's motor oil results from the need to control acidification of the engine oil (maintain total base number, or TBN control), which is in large part a function of the sulfur content of the fuel and the sulfuric acid that it forms. Without the ability to control acidification of the engine oil, engine wear increases significantly. The ash in the oil, however, will tend to shorten the maintenance intervals for particulate filters to remove built up ash on new 2007 and later model year vehicles. At the same time, engines operated on low sulfur fuel have much less need for TBN control and the high ash levels that result. Consequently, manufacturers are investigating with the lubricant industry the potential of lower ash oils for use in engines operated on low sulfur diesel fuel and equipped with particulate traps. If the new oil developed is not “backwards compatible” to sufficiently control acidification and wear in the pre-existing fleet of vehicles on the road that may still be operated on high sulfur diesel fuel for the first few years of the program, then two grades of motor oil would have to be on the market simultaneously. This has caused some stakeholders to raise vehicle performance and durability concerns that might result from using the new oil in the old vehicles—namely “mis-oiling.”

Since the engine and lubricant industries still have a number of years to develop these new oil formulations, it is still premature to determine whether or not the new oils will be backwards compatible and whether mis-oiling would raise any serious concerns. While this would not appear to be an air quality concern and as such something the Agency generally leaves up to the industry to resolve, we will nevertheless offer to work with the industry and industry associations on this issue over the coming years.” EPA anticipates that engine manufacturers would likely provide engine labels to distinguish low ash oil from high ash oil because misoiling could result in engine damage.

3. What Are Today's Actions on Fuel Properties Other Than Sulfur?

We are not taking action today on any fuel properties other than sulfur. We have examined the impact of fuel properties other than sulfur, such as aromatics, on the materials used in engines and fuel supply systems. We do not believe there will be impacts on materials from such other fuel properties.

While there were some problems with leaks from fuel pump O-ring seals made of a certain material (Nitrile) after the introduction of 500 ppm sulfur diesel fuel in the United States in 1993, these issues have since been addressed by equipment manufacturers who switched to materials that are compatible with low aromatic fuels. The leakage from the Nitrile seals was determined to be due to low aromatics levels in some 500 ppm sulfur fuel, not the low sulfur levels. In the process of lowering the sulfur content of some fuel, some of the aromatics had also been removed. Normally, the aromatics in the fuel penetrate the Nitrile material and cause it to swell, thereby providing a seal with the throttle shaft. When low-aromatics fuel is used after conventional fuel has been used, the aromatics already in the swelled O-ring will leach out into the low-aromatics fuel. Subsequently, the Nitrile O-ring will shrink and pull away, thus causing leaks, or the stress on the O-ring during the leaching process will cause it to crack and leak. Not all 500 ppm sulfur fuels caused this problem, because the amount and type of aromatics varied. Fuel pumps using a different material (Viton) for the seals did not experience leakage. We believe that no additional problems will occur with a change of fuel from 500 to 15 ppm sulfur.

F. How Are State Programs Affected by the Low Sulfur Diesel Program?

1. State Preemption

Section 211(c)(4)(A) of the CAA prohibits states (and political Start Printed Page 5085subdivisions of states) from prescribing or attempting to enforce controls or prohibitions respecting any fuel characteristic or component if EPA has prescribed a control or prohibition applicable to such fuel characteristic or component under section 211(c)(1). This preemption applies to all states except California, as explained in section 211(c)(4)(B). For states other than California, the Act provides two mechanisms for avoiding preemption. First, section 211(c)(4)(A)(ii) creates an exception to preemption for state prohibitions or controls that are identical [179] to the prohibition or control adopted by EPA. Second, states may seek EPA approval of SIP revisions containing fuel control measures, as described in section 211(c)(4)(C). We may approve such SIP revisions, and thereby “waive” preemption, only if it finds the state control or prohibition “is necessary to achieve the national primary or secondary ambient air quality standard which the plan implements.”

When we adopted the current highway diesel fuel sulfur standard of 500 ppm pursuant to our authority under section 211(c)(1) of the CAA in 1990, States were preempted from also doing so under the provisions of section 211(c)(4)(A). The 15 ppm highway diesel fuel sulfur standard promulgated today modifies the existing standard and, as a result, do not initiate any new preemption of state authority. Today's action continues the explicit preemption under section 211(c)(4)(A) of state actions to prescribe or enforce highway diesel fuel sulfur controls. States other than California with highway diesel fuel sulfur control programs not already approved into their SIPs are preempted under Section 211(c)(4)(A) and will therefore need to obtain a waiver from us under the provisions described in section 211(c)(4)(C) for all state fuel sulfur control measures, unless the state control or prohibition is identical to ours.

Aside from the explicit preemption in Section 211(c)(4)(A), a court could also consider whether a state sulfur control is implicitly preempted under the Supremacy Clause of the U.S. Constitution. Courts have determined that a state law is preempted by federal law where the state requirement actually conflicts with federal law by preventing compliance with both federal and state requirements, or by standing as an obstacle to accomplishment of Congressional objectives. A court could thus consider whether a given state sulfur control is preempted, notwithstanding waiver of preemption under 211(c)(4)(C), if it places such significant cost and investment burdens on refiners that refiners cannot meet both state and federal requirements in time, or if the state control would otherwise meet the criteria for conflict preemption.

2. What Provisions Apply in Alaska?

There are important nationwide environmental and public health benefits that will be achieved with cleaner diesel engines and fuel, particularly from reduced particulate emissions, nitrogen oxides, and air toxics (as further discussed in section II). Therefore, it is also important to implement this program in Alaska. Any 2007 and later model year diesel vehicles in Alaska, or driven to Alaska, must be fueled with low sulfur highway diesel, or risk potential damage to the aftertreatment technologies or even the engines themselves. Although the engine standards established today are not based upon different technology and cost implications for Alaska as compared to the rest of the country, the low sulfur fuel program has different implications.

Unlike the rest of the nation, Alaska is currently exempt from the 500 ppm sulfur standard for highway diesel fuel and dye requirements. Since the beginning of the 500 ppm highway diesel fuel program, we have granted Alaska exemptions from meeting the sulfur standard and dye requirements, because of its unique geographical, meteorological, air quality, and economic factors. (These unique factors are discussed generally in this section, and in more detail in the RIA.) Because of these unique factors, we are establishing in today's action an alternative option for implementing the low sulfur fuel program in Alaska.

We are providing the State of Alaska an opportunity to develop an alternative low sulfur transition plan. We intend to facilitate the development of this plan by working in close cooperation with the state and key stakeholders. This plan must ensure that sufficient supplies of low sulfur diesel fuel are available in Alaska to meet the demand of any new 2007 and later model year diesel vehicles. Given that Alaska's demand for highway diesel fuel is very low and only a small number of new diesel vehicles are introduced in Alaska each year, it may be possible to develop an alternative implementation plan for Alaska in the early years of the program that provides low sulfur diesel only in sufficient quantities to meet the demand from the small number of new diesel vehicles. This would give Alaska refiners more flexibility during the transition period because they would not have to desulfurize the entire highway diesel volume. Our goal in offering this additional flexibility is to transition Alaska into the low sulfur fuel program in a manner that minimizes costs, while still ensuring that the new vehicles receive the low sulfur fuel they need. We expect that the transition plan will begin to be implemented at the same time as the national program, but the state will have an opportunity to determine what volumes of low sulfur fuel must be supplied, and in what timeframes, in different areas of the state.

At a minimum, this transition plan must: (1) Ensure an adequate supply (either through production or imports) of 15 ppm fuel to meet the demand of any 2007 or later model year vehicles, (2) ensure sufficient retail availability of low sulfur fuel for new vehicles in Alaska, (3) address the growth of supply and availability over time as more new vehicles enter the fleet, (4) include measures to ensure segregation of the 15 ppm fuel and avoid contamination and misfueling, and (5) ensure enforceability. We anticipate that, to develop a workable transition plan, the state will likely work in close cooperation with refiners and other key stakeholders, including retailers, distributors, truckers, engine manufacturers, environmental groups, and other interested groups. For example, the state will likely rely on input from the trucking industry in determining the expected low sulfur fuel volume needed in Alaska, based on the anticipated number of new vehicles, and how this volume is expected to grow during the first few years of the program. Similarly, the state will likely rely on the Alaska refiners' input regarding plans for supplying (either through production or imports) low sulfur fuel to meet the expected demand. Further, the state will likely rely on input and cooperation from retailers and distributors to determine at which locations the low sulfur fuel should be made available. Retailers offering low sulfur fuel will have to take measures to prevent misfueling, such as pump labeling, which must include Start Printed Page 5086provisions that are at least as stringent as those required of retailers nationally by the regulations and as described in section VII. Similarly, all parties in the distribution system must ensure the low sulfur fuel remains segregated and must take measures to prevent sulfur contamination, in a manner that is at least as stringent as that required nationally by the regulations and as described in section VII.

If the state anticipates that the primary demand for low sulfur fuel will be along the highway system (e.g., to address truck traffic from the lower-48 states) in the early years of the program, then the initial stages of the transition plan could be focused in these areas. We believe it would be appropriate for the state to consider an extended transition schedule for implementing the low sulfur program in rural Alaska, as part of the state's overall plan, based on when they anticipate the introduction of a significant number of 2007 and later model year vehicles in the remote areas.

Under this approach, the state will be given the opportunity to develop such a transition plan, as an alternative to the national program, and submit it to us for approval. We intend to help facilitate the development of the plan, by working closely with the state and the relevant stakeholders so they will have an opportunity to address our concerns in their submittal. It is our intent that any flexibility that is available to small refiners nationwide (as described in Section IV) will also be available to small refiners in Alaska under an approved alternative transition plan. To ensure that refineries and other affected parties will have certainty regarding their regulatory requirements with adequate lead time, Alaska must submit this plan by April 1, 2002 (approximately one year after the effective date of today's rule). If Alaska submits such a plan to us within one year, and if it provides a reasonable alternative as described above, we will conduct a rulemaking with notice for public comment and then publish a final rule promulgating the new regulatory scheme for Alaska. Our intent is to issue such a final rule within one year of Alaska's submittal of the plan. However, if the state chooses not to submit an alternative plan, or if the plan it submits does not provide a reasonable alternative for Alaska as described above, then refiners and other regulated parties in Alaska will be subject to the national program, including the implementation schedule established in today's action, without further regulatory action.

a. Today's Action Regarding the 500 ppm Standard in Alaska

We are extending the existing temporary exemption from the current diesel fuel sulfur standard of 500 ppm for the areas of Alaska served by the Federal Aid Highway System (FAHS) to the effective date for the new standard (i.e., June 1, 2006 at the refinery level; July 15, 2006 at the terminal level; and September 1, 2006 at all downstream locations). While Alaska submitted a petition for a permanent exemption from the 500 ppm standard for these areas, we are not taking further action on that petition. Our goal is to take action on that petition in a way that minimizes costs through Alaska's transition to the new low sulfur program. The cost of compliance could be reduced if Alaska refiners were given the flexibility to meet the low sulfur standard in one step, rather than two steps (i.e., once for the current 500 ppm sulfur standard in 2004 when the temporary exemption expires, and again for the new 15 ppm standard in 2006).

As already discussed, we are allowing Alaska to develop an alternative transition plan for implementing the low sulfur diesel fuel program. During such a transition period, it is possible that both low sulfur diesel fuel (for 2007 and later model year vehicles) and higher sulfur (for older vehicles) highway fuels might be available in Alaska. To avoid the two-step sulfur program described above during an alternative transition period, we will consider additional extensions to the temporary exemption of the 500 ppm standard beyond 2006 (e.g., for that portion of the highway diesel pool that is available for the pre-2007 vehicles) during Alaska's transition period. We will make a decision on any additional temporary extensions, if appropriate, in the context of the separate rulemaking taking action on the alternative transition plan submitted by Alaska.

As in previous actions to grant Alaska sulfur exemptions, we will not base any vehicle or engine recall on emissions exceedences caused by the use of high-sulfur (>500 ppm) fuel in Alaska during the period of the temporary sulfur exemption. Our in-use testing goals are to establish whether representative engines, when properly maintained and used, will meet emission standards for their useful lives. These goals are consistent with the requirements for recall outlined in Section 207(c)(1) of the CAA. Further, manufacturers may have a reasonable basis for denying emission related warranties where damage or failures are caused by the use of high sulfur fuel in Alaska.

The Engine Manufacturers Association commented that the level of protection provided to engine manufacturers under the current exemption for Alaska and the proposal, as described above, falls short of what is reasonable and necessary. It asserted that the use of high sulfur diesel fuel by an engine should raise a “rebuttable presumption” that the fuel has caused the engine failure, and that EPA should have the burden of rebutting that presumption. It also asserted that the emissions warranty is a regulatory requirement under Section 207, that only EPA has the authority to exclude claims based on the use of high sulfur diesel fuel. We understand and concur with the manufacturers' concerns about in-use testing of engines operated in an area exempt from fuel sulfur requirements. Consequently, we affirm that, for recall purposes, we will not seek to conduct or cause the in-use testing of engines we know have been exposed to high sulfur fuels. We will likely screen any engines used in our testing program to see if they have been operated in the exempt area. We believe we can readily obtain sufficient samples of engines without testing engines from exempt areas. Also, in any recall that we order, manufacturers have the option of requesting a public hearing. The use of engines that have seen high sulfur fuel will increase the likelihood of a recall hearing. We expect manufacturers to scrutinize any test engines for sulfur usage that were used to justify an ordered recall. In reviewing the warranty concerns of the Engine Manufacturers Association, we have determined that our position regarding warranties, as previously stated and described above, is consistent with section 207(a) and (b) of the CAA and does not require any new or amended regulatory language to implement.

Today's action also grants Alaska's request for a permanent exemption from the dye requirement of 40 CFR 80.29 and 40 CFR 80.446 for the entire state. The costs of complying with the low sulfur (both the current 500 ppm sulfur and new 15 ppm sulfur) diesel fuel requirements could be reduced significantly if Alaska were not required to dye the non-highway fuel. Dye contamination of other fuels, particularly jet fuel, is a serious potential problem. This is a serious issue in Alaska since the same transport and storage tanks used for jet fuel (which is more than half of Alaska's distillate market) are generally also used for other diesel products, including off-highway diesel products which are required to be dyed under the current Start Printed Page 5087national program. This issue is discussed further in the RIA (Chapter VIII).

b. Why Are We Treating Alaska Uniquely?

Section 211(i)(4) of the Clean Air Act (CAA) provides that the states of Alaska and Hawaii may seek an exemption from the diesel fuel sulfur standard (500 ppm as specified in section 211(i)) in the same manner as provided in section 325 of the CAA. The requested exemption could be granted if EPA determines that compliance with such requirement is not feasible or is unreasonable due to unique geographical, meteorological, or economic factors of the territory, or other local factors as EPA considers significant.

On February 12, 1993, Alaska submitted a petition under section 325 of the CAA to exempt highway vehicle diesel fuel in Alaska from paragraphs (1) and (2) of section 211(i) of the CAA, except for the minimum cetane index requirement.[180] The petition requested that we temporarily exempt highway vehicle diesel fuel in communities served by the FAHS from meeting the sulfur content (500 ppm) specified in section 211(i) of the CAA and the dye requirement for non-highway diesel fuel of 40 CFR 80.29, until October 1, 1996. The petition also requested a permanent exemption from those requirements for areas of Alaska not reachable by the FAHS'the remote areas. On March 22, 1994, (59 FR 13610), we granted the petition based on geographical, meteorological, air quality, and economic factors unique to Alaska.

On December 12, 1995, Alaska submitted a petition for a permanent exemption for all areas of the state served by the FAHS, that is, those areas covered only by the temporary exemption. On August 19, 1996, we extended the temporary exemption until October 1, 1998 (61 FR 42812), to give us time to consider comments to that petition that were subsequently submitted by stakeholders. On April 28, 1998 (63 FR 23241) we proposed to grant the petition for permanent exemption. Substantial public comments and substantive new information were submitted in response to the proposal. To give us time to consider those comments and new information, we extended the temporary exemption for another nine months until July 1, 1999 (September 16, 1998, 63 FR 49459). During this time period, we started work on a nationwide rule to consider more stringent diesel fuel requirements, particularly for the sulfur content (today's action). To coordinate the decision on Alaska's request for a permanent exemption with the new nationwide rule on diesel fuel quality, we extended the temporary exemption until January 1, 2004 (June 25, 1999, 64 FR 34126).

As discussed in the previous section, in today's action we are extending the temporary exemption from the 500 ppm diesel fuel sulfur standard to the effective date for the new nationwide 15 ppm diesel fuel sulfur standard in 2006. While it is important to implement in Alaska the cleaner diesel engines and fuel of today's action, our goal is to take action on the petition in a way that minimizes costs through Alaska's transition to the new low sulfur program. The cost of compliance could be reduced if Alaska refiners were given the flexibility to meet the low sulfur standard in one step (i.e., going straight from uncontrolled levels to the 15 ppm sulfur standard), rather than in two steps. We considered the prior public comments we received as a result of our previous notices and actions regarding exemptions from the 500 ppm sulfur standard for highway diesel fuel in Alaska (see RIA).

Unlike in the rest of the country, diesel fuel consumption for highway use in Alaska represents only five percent of the State's total distillate fuel consumption. Aviation and marine applications, power generation and heating consume most of the distillate, while Alaska's highway diesel vehicle fleet is relatively small, particularly outside the FAHS. The state estimates that there are less than 9000 diesel vehicles in the entire state, with less than 600 of these vehicles in all of rural Alaska. The state also indicates that new model vehicles are introduced into the Alaska market at a slower rate than elsewhere, thus Alaska does not need to transition its highway fuel to low sulfur as quickly as the rest of the nation.

Most of the fuel consumed in Alaska is produced by refineries located in Alaska. This is primarily because of the more severe cloud point specification needed for the extremely low temperatures experienced in much of Alaska during the winter and the high cost to import fuel that is produced elsewhere. There are four commercial refineries in Alaska. Only one of these refineries currently has any desulfurization capacity, which is relatively small. Consequently, because these refineries will have to reduce sulfur from uncontrolled levels to meet the new 15 ppm standard established by today's action, these refineries could incur substantially higher costs than those in the rest of the nation. Given the very small highway diesel demand, however, it is doubtful that more than one or two Alaska refineries will choose to produce low sulfur highway fuel, and these refiners could even decide to import it from refineries outside of Alaska.

Further, Alaska's fuel distribution system faces many unique challenges. Unlike the rest of the country, because of its current exemption from the 500 ppm sulfur standard and dye requirements, Alaska does not currently segregate highway diesel fuel from that used for off-road, marine, heating oil, and other distillate uses. Therefore, the distribution system costs for segregating a low sulfur grade of diesel for highway uses will be significant. The existing fuel storage facilities limit the number of fuel types that can be stored. In addition to significant obstacles to expanding tankage in Alaska, the cost of constructing separate storage facilities, and providing separate tanks for transporting low sulfur diesel fuel (e.g., by barge or truck), could be significant. Most of Alaska's communities rely on barge deliveries, and ice formation on the navigable waters during the winter months restricts fuel delivery to these areas. Construction costs are 30 percent higher in Alaska than in the lower-48 states, due to higher costs for freight deliveries, materials, electrical, mechanical, and labor. There is also a shorter period of time during which construction can occur, because of seasonal extremes in temperature and the amount of daily sunlight.

The severe impacts to Alaska's fuel distribution system of implementing a low sulfur requirement for highway diesel fuel would likely occur whether we require the current 500 ppm standard or the new 15 ppm standard. The impacts to Alaska's refineries and fuel importers are greater at 15 ppm than at 500 ppm. It is likely that the refiners and fuel importers would have a significant incremental impact if we required Alaska to implement the 500 ppm diesel fuel sulfur standard in 2004 when the current exemption expires, and the 15 ppm diesel fuel sulfur standard in 2006 when the new national requirement becomes effective, rather than only once for the 15 ppm diesel fuel sulfur standard in 2006. Start Printed Page 5088

3. What Provisions Apply in American Samoa, Guam, and the Commonwealth of Northern Mariana Islands?

a. Today's Action Regarding the Highway Diesel Fuel Standard in the Territories

As we proposed, today's action excludes American Samoa, Guam and the Commonwealth of Northern Mariana Islands from the new diesel fuel sulfur requirement of 15 ppm and the 2007 heavy-duty diesel vehicle and engine emissions standards, and other requirements associated with those emission standards. The territories will continue to have access to 2006 heavy-duty diesel vehicle and engine technologies, at least as long as manufacturers choose to market those technologies. We will not, however, allow the emissions control technology in the territories to backslide from those available in 2006. If, in the future, manufacturers choose to market only heavy-duty diesel vehicles and engines with 2007 and later emission control technologies, we believe the market will determine when and if the territories will make the investment needed to obtain and distribute the low sulfur diesel fuel necessary to support these technologies.

This exclusion from emission standards does not apply to the new heavy-duty gasoline engine and vehicle emission standards, because low sulfur gasoline that complies with our regulations will be available, and so concerns about damage to engines and emissions control systems will not exist. This exclusion from emission standards also does not apply to light-duty diesel vehicles and trucks because gasoline vehicles and trucks meeting the emission standards and capable of fulfilling the same functions will be available. We believe that the market will determine when and if having access to new light-duty diesel technologies in the territories, in place of or in addition to gasoline technologies, is important enough to obtain and distribute the low sulfur diesel fuel needed to support those technologies.

As we also proposed, we are requiring all heavy-duty diesel motor vehicles and engines for these territories to be certified and labeled to the applicable requirements (either to the 2006 model year standards and associated requirements under the exclusion, or to the standards and associated requirements applicable for the model year of production under the nationwide requirements) and warranted, as otherwise required under the Clean Air Act and EPA regulations. Special recall and warranty considerations due to the use of excluded high sulfur fuel are the same as those for Alaska during its exemption and transition periods (see the discussion in previous section). To protect against this exclusion being used to circumvent the emission requirements applicable to the rest of the United States (i.e., continental United States, Alaska, Hawaii, Puerto Rico and the U.S. Virgin Islands) after 2006 by routing exempted (pre-2007 technology) vehicles and engines through one of these territories, we are restricting the importation of vehicles and engines from these territories into the rest of the United States. After the 2006 model year, diesel vehicles and engines certified under this exclusion to meet the 2006 model year emission standards for sale in American Samoa, Guam and the Commonwealth of the Northern Mariana Islands will not be permitted entry into the rest of the United States.

b. Why Are We Treating These Territories Uniquely?

Unlike the rest of the nation (except Alaska), these territories are currently exempt from the 500 ppm sulfur standard for highway diesel fuel. Section 325 of the CAA provides that upon request of Guam, American Samoa, the Virgin Islands, or the Commonwealth of the Northern Mariana Islands, we may exempt any person or source, or class of persons or sources, in that territory from any requirement of the CAA, with some specific exceptions. The requested exemption could be granted if we determine that compliance with such requirement is not feasible or is unreasonable due to unique geographical, meteorological, or economic factors of the territory, or other local factors as we consider significant.

Prior to the effective date of the current highway diesel sulfur standard of 500 ppm, the territories of American Samoa, Guam and the Commonwealth of Northern Mariana Islands petitioned us for an exemption under section 325 of the CAA from the sulfur requirement under section 211(i) of the CAA and associated regulations at 40 CFR 80.29. The petitions were based on geographical, meteorological, air quality, and economic factors unique to those territories. We subsequently granted the petitions.[181]

These U.S. territories are islands with limited transportation networks. Combined, these three territories have only approximately 1300 registered diesel vehicles. Diesel fuel consumption in these vehicles represents just a tiny fraction of the total diesel fuel volume consumed on these islands; the bulk of diesel fuel is burned in marine, nonroad, and stationary applications. Consequently highway diesel vehicles are believed to have a negligible impact on the air quality in these territories, which, with minor exceptions, is very good.

All three of these territories lack internal petroleum supplies and refining capabilities and rely on long distance imports. Given their remote location from Hawaii and the U.S. mainland, most petroleum products are imported from East rim nations, particularly Singapore. Although Australia, the Philippines, and certain other Asian countries have or will soon require low sulfur diesel fuel, their sulfur limit is 500 ppm, not the new 15 ppm sulfur limit established by today's action for the United States. Compliance with low sulfur (15 ppm) requirements for highway fuel would require construction of separate storage and handling facilities for small quantities of a unique grade of diesel fuel for highway purposes, or use of low sulfur (15 ppm) diesel fuel for all purposes to avoid segregation. Either of these alternatives would require importation of the low sulfur fuel from Hawaii or the U.S. mainland, and would significantly add to the already high cost of diesel fuel in these territories, which rely heavily on United States support for their economies.

G. Refinery Air Permitting

Prior to making diesel desulfurization changes, some refineries may be required to obtain a preconstruction permit, under the New Source Review (NSR) program, from the applicable state/local air pollution control agency.[182] We believe that today's program provides sufficient lead time for refiners to obtain any necessary NSR permits well in advance of the compliance date. Further, refiners will be able to stagger their construction of desulfurization projects, since many Start Printed Page 5089refineries could take advantage of the temporary compliance option for low sulfur diesel fuel from 2006-2009, as described in Section IV.A. Although some refiners commented that obtaining air permits would be a factor in their ability to comply in the 2006 time frame, state/local agencies commented that they will make the issuance of permits a top priority, because they strongly support achieving the environmental objectives of the low sulfur highway diesel program. State/local agencies further commented that they are committed to working with all affected parties to expedite the processing and issuance of any necessary permits.

For the Tier 2/gasoline sulfur control program promulgated in December 1999, refiners had expressed concerns that permit delays might impede their ability to meet compliance dates. Although we believed that the Tier 2 program provided sufficient lead time for refiners to obtain permits, we committed to undertake several actions to minimize the possibility of any delays for refineries obtaining major NSR permits for gasoline desulfurization projects. These actions include providing federal guidance on emission control technologies[183] and the appropriate use of motor vehicle emission reductions (resulting from the use of low sulfur gasoline), where available, as emission offsets, as well as forming EPA permit teams to assist states in quickly resolving issues, where needed. These three items are discussed in more detail in the Tier 2 final rule (see 65 FR 6773, Feb. 10, 2000).

Given that today's diesel sulfur program provides more than five years of lead time, as well as an additional transitional period, we believe refiners will have ample time to obtain any necessary preconstruction permits. Nevertheless, we believe it is reasonable to continue our efforts under the Tier 2 program, as described above, to help states in facilitating the issuance of permits under the highway diesel sulfur program. For example, the guidance on BACT and LAER control technology that is currently under development for the gasoline sulfur program should have application for diesel desulfurization projects as well. We will plan to reevaluate this guidance to the extent that it may need to be revised or updated for application to highway diesel desulfurization projects. Similarly, we believe the concept of EPA permit teams for gasoline sulfur projects could readily be extended to permits related to diesel projects as well. These teams will track the overall progress of permit issuance and will be available to assist state/local permitting authorities, refineries and the public upon request to resolve site-specific permitting questions. Further, in Tier 2, we announced our plan to issue guidance to help states determine whether and to what extent they may wish to use vehicle emissions reductions as offsets for refineries implementing gasoline desulfurization projects. We are currently in the process of evaluating public comments received on the draft guidance relating to the use of Tier 2 reductions as refinery offsets. Whatever resolution we determine is appropriate for this guidance in the Tier 2 context, we plan to apply a similar approach for diesel desulfurization projects as well. Finally, to facilitate the processing of permits, we encourage refineries to begin discussions with permitting agencies and to submit permit applications as early as possible.

V. Economic Impact

This Section discusses the projected economic impact and cost effectiveness of the emission standards and low-sulfur fuel requirement. Full details of our cost and cost effectiveness analyses can be found in the RIA.

A. Cost for Diesel Vehicles to Meet Emissions Standards

1. Summary of New System and Operating Costs

The technologies described in Section III represent significant technological advancements for controlling emissions, but also make clear that much effort remains to develop and optimize these new technologies for maximum emission-control effectiveness with minimum negative impacts on engine performance, durability, and fuel consumption. On the other hand, it has become clear that manufacturers have a great potential to advance beyond the current state of understanding by identifying aspects of the key technologies that contribute most to hardware or operational costs or other drawbacks and pursuing improvements, simplifications, or alternatives to limit those burdens. To reflect this investment in long-term cost savings potential, the cost analysis includes an estimated $385 million in R&D outlays for heavy-duty engine designs and $220 million in R&D for catalysts systems giving a total R&D outlay for improved emission control of more than $600 million. The cost and technical feasibility analyses accordingly reflect substantial improvements on the current state of technology due to these future developments.

Estimated costs are broken into additional hardware costs and life-cycle operating costs. The incremental hardware costs for new engines are comprised of variable costs (for hardware and assembly time) and fixed costs (for R&D, retooling, and certification). Total operating costs include the estimated incremental cost for low-sulfur diesel fuel, any expected increases in maintenance cost or fuel consumption costs along with any decreases in operating cost expected due to low-sulfur fuel. Cost estimates based on these projected technology packages represent an expected incremental cost of engines in the 2007 model year. Costs in subsequent years will be reduced by several factors, as described below. Separate projected costs were derived for engines used in three service classes of heavy-duty diesel engines. All costs are presented in 1999 dollars.

The costs of these new technologies for meeting the 2007 model year standards are itemized in the RIA and summarized in Table V.A-1. For light heavy-duty vehicles, the cost of an engine is estimated to increase by $1,990 in the early years of the program reducing to $1,170 in later years and operating costs over a full life-cycle to increase by approximately $500 in the near term. For medium heavy-duty vehicles the cost of a new engine is estimated to increase by $2,560 initially decreasing to $1,410 in later years with life-cycle operating costs increasing by approximately $900 in the near term. Similarly, for heavy heavy-duty engines, the vehicle cost in the first year is expected to increase by $3,230 decreasing to $1,870 in later years. Estimated additional life-cycle operating costs for heavy heavy-duty engines in the near term are approximately $3,800. The higher incremental increase in operating costs for the heavy heavy-duty vehicles is due to the larger number of miles driven over their lifetime (714,000 miles on average) and their correspondingly high lifetime fuel usage. Emission reductions are also proportional to VMT and so are significantly higher for heavy heavy-duty vehicles.

We also believe there are factors that will cause cost impacts to decrease over time, making it appropriate to distinguish between near-term and long term costs. Research in the costs of manufacturing has consistently shown that as manufacturers gain experience in production, they are able to apply innovations to simplify machining and Start Printed Page 5090assembly operations, use lower cost materials, and reduce the number or complexity of component parts.[184] Our analysis, as described in more detail in the RIA, incorporates the effects of this learning curve by projecting that the variable costs of producing the low-emitting engines decreases by 20 percent starting with the third year of production (2009 model year) and by reducing variable costs again by 20 percent starting with the fifth year of production. Additionally, since fixed costs are assumed to be recovered over a five-year period, these costs are not included in the analysis after the first five model years. Finally, manufacturers are expected to apply ongoing research to make emission controls more effective and to have lower operating cost over time. However, because of the uncertainty involved in forecasting the results of this research, we have conservatively not accounted for it in this analysis. Table V.A-1 lists the projected costs for each category of vehicle in the near-and long-term. For the purposes of this analysis, “near-term” costs are those calculated for the 2007 model year and “long term” costs are those calculated for 2012 and later model years.

Table V.A-1.—Projected Incremental System Cost and Life Cycle Operating Cost for Heavy-Duty Diesel Vehicles

[net present values in the year of sale, 1999 dollars]

Vehicle classModel yearHardware costLife-cycle operating costa b
Lightnear term1,990509
Heavy-dutylong term1,170537
Mediumnear term2,560943
Heavy-dutylong term1,410996
Heavynear term3,2303,785
Heavy-dutylong term1,8703,979
a Incremental life-cycle operating costs include the incremental costs to refine and distribute low sulfur diesel fuel, the service cost of closed crankcase filtration systems, the maintenance cost for PM filters and the lower maintenance costs realized through the use of low sulfur diesel fuel (see discussion in Section V.C).
b These costs are for new vehicles only and do not reflect any costs or savings for the existing fleet.

2. New System Costs for NOX and PM Emission Control

Several new technologies are projected for complying with the 2007 model year emission standards. We are projecting that NOX adsorbers and catalyzed diesel particulate filters will be the most likely technologies applied by the industry in order to meet the emissions standards. The fact that manufacturers will have several years before implementation of the new standards ensures that the technologies used to comply with the standards will develop significantly before reaching production. This ongoing development could lead to reduced costs in three ways. First, we expect research will lead to enhanced effectiveness for individual technologies, allowing manufacturers to use simpler packages of emission control technologies than we would predict given the current state of development. Similarly, we anticipate that the continuing effort to improve the emission control technologies will include innovations that allow lower-cost production. Finally, we believe that manufacturers will focus research efforts on any drawbacks, such as fuel economy impacts or maintenance costs, in an effort to minimize or overcome any potential negative effects.

We anticipate that in order to meet the standards, industry will introduce a combination of primary technology upgrades for the 2007 model year. Achieving very low NOX emissions will require continued development of NOX emission control technologies and improvements in engine management to take advantage of the exhaust emission control system capabilities. The manufacturers are expected to take a systems approach to the problem of optimizing the engine and exhaust emission control system to realize the best overall performance possible. Since most research to date with exhaust emission control technologies has focused on retrofit programs, there remains room for significant improvements by taking such a systems approach. The NOX adsorber technology in particular is expected to benefit from re-optimization of the engine management system to better match the NOX adsorbers performance characteristics. The majority of the $600 million dollars we have estimated for research is expected to be spent on developing this synergy between the engine and NOX exhaust emission control systems. PM control technologies are expected to be less sensitive to engine operating conditions as they have already shown good robustness in retrofit applications with low-sulfur diesel fuel.

The NOX adsorber system that we are anticipating will be applied in 2007 consists of a catalyst which combines traditional gasoline three-way conversion technology with a newly developed NOX storage function, a reductant metering system and a means to control exhaust air fuel (A/F) ratio. The NOX adsorber catalyst itself is a relatively new device, but is benefitting in its development from over 20 years of gasoline three-way catalyst development. In order for it to function properly, a systems approach that includes a reductant metering system and control of exhaust A/F ratio is also necessary. Many of the new air handling and electronic system technologies developed in order to meet the 2004 heavy-duty engine standards can be applied to accomplish the NOX adsorber control functions as well. Some additional hardware for exhaust NOX or O2 sensing, for exhaust partitioning and for fuel metering will likely be required. The RIA also calculates an increase in warranty costs for this additional hardware. In total the new NOX control technologies required in order to meet the 2007 emission standards are estimated to increase light heavy-duty engine costs by $1,000, medium heavy-duty engine costs by $1,310 and heavy heavy-duty engine costs by $1,650 in the year 2007. In the year 2012 and Start Printed Page 5091beyond the incremental costs are expected to decrease to $590 for a light heavy-duty engine, $690 for a medium heavy-duty engine and to $930 for a heavy heavy-duty engine.

Catalyzed diesel particulate filters are experiencing widespread retrofit use in much of Europe as low-sulfur diesel fuel becomes readily available. These technologies are proving to be robust in their non-optimized retrofit applications requiring no modification to engine or vehicle control functions. We therefore anticipate that catalyzed diesel particulate filters can be integrated with new diesel engines with only a minimal amount of engine development. We do not anticipate that additional hardware beyond the diesel particulate filter itself and an exhaust pressure sensor for OBD will be required in order to meet the PM standard. However, in order to ensure trap durability under all possible operating conditions, some engine manufacturers may choose to provide backup regeneration technologies for their PM filter based systems. As detailed further in the RIA and the RTC documents, we do not anticipate that these redundant systems will add to variable costs. We estimate in 2007 that diesel particulate filter systems will add $730 to the cost of a light heavy-duty vehicle, $950 to the cost of a medium heavy-duty vehicle and $1,190 to the cost of a heavy heavy-duty vehicle. By 2012 these costs are expected to decrease to $425, $530, and $690 respectively. These cost estimates are comparable to estimates made by the Manufacturers of Emission Controls Association for these technologies.[185]

The hydrocarbon (HC) exhaust standards set in this rulemaking will be challenging for both diesel and gasoline engine technologies. For diesel engines utilizing the NOX adsorber based technology solution to control NOX emissions, HC control due to imprecise NOX regeneration control may be difficult. One way to ensure HC compliance will be to apply a separate diesel oxidation catalyst which can control HC emissions to the limits set here. These diesel oxidation catalysts are expected to add an additional cost to the system of $206 for light heavy-duty vehicles, $261 for medium heavy-duty vehicles, and $338 for heavy heavy-duty vehicles.

We have eliminated the exemption that allowed turbo-charged heavy-duty diesel engines to vent crankcase gases directly to the environment, so called open crankcase systems, and have projected that manufacturers will rely on engineered closed crankcase ventilation systems which filter oil from the blow-by gases. We estimate that the initial cost of these systems in 2007 will be $37, $42, and $49 for light, medium and heavy heavy-duty diesel engines respectively. Additionally we expect a portion of the oil filtration system to be a service replacement oil filter which will be replaced on a 30,000 mile service interval with a service cost of $10, $12, and $15 for light, medium, and heavy heavy-duty diesel engines respectively. These cost are summarized with the other cost for emission controls in Table V.A-1 and are included in the aggregate cost reported in Section V.D.

3. Operating Costs Associated With NOX and PM Control

The RIA assumes that a variety of new technologies will be introduced to enable heavy-duty vehicles to meet the new emissions standards. Primary among these are advanced emission control technologies and low-sulfur diesel fuel. The many benefits of low-sulfur diesel fuel are described in Section III, and the incremental cost for low-sulfur fuel is described in Section V.C. The new emission control technologies are themselves not expected to introduce additional operating costs in the form of increased fuel consumption. Operating costs are estimated in the RIA over the life of the vehicle and are expressed as a net present value (NPV) in 1999 dollars for comparison purposes.

Total operating cost estimates include both the expected increases in maintenance and fuel costs (both the incremental cost for low-sulfur fuel and any fuel consumption penalty) due to the emission control systems application and the predicted decreases in maintenance cost due to the use of low-sulfur fuel. Our analysis projects some increase in operating costs due to the incremental cost of low-sulfur diesel fuel but no net increase in fuel consumption with the application of the new emission control technologies (see discussion in Section III.G). The net increase in operating costs are summarized in Table V.A-1. While we are using these incremental operating cost estimates for our cost effectiveness calculations, it is almost certain that the manufacturers will improve existing technologies or introduce new technologies in order to offset at least some of the increased operating costs.

We estimate that the low-sulfur diesel fuel required in order to enable these technologies will have an incremental cost of approximately $0.045/gallon in the near term increasing to $0.050/gallon in the long term as discussed in Section V.C. The low-sulfur diesel fuel may also provide additional benefits by reducing the engine maintenance costs associated with corrosion due to sulfur in the current diesel fuel. These benefits, which are discussed further in Section V.C.5 and in the RIA, include extended oil change intervals due to the slower acidification rate of the engine oil with low-sulfur diesel fuel. Service intervals for the EGR system are also expected to increase due to lower-sulfur induced corrosion than will occur with today's higher-sulfur fuel. This lengthening of service intervals provides a significant savings to the end user. As described in more detail in the RIA we anticipate that low-sulfur diesel fuel will provide additional cost savings to the consumer of $153 for light heavy-duty vehicles, $249 for medium heavy-duty vehicles and $610 dollars for heavy heavy-duty vehicles.

The operating costs for replacement filters in the closed crankcase filtration systems expressed as a net present value in the year of sale are estimated to be $31 for light heavy-duty vehicles, $59 for medium heavy-duty vehicles and $218 for heavy heavy-duty vehicles for vehicles sold in 2007.

PM filter based technologies capture all forms of particulate in the exhaust including inorganic solid particles which can come from the engine oil or wear products of the engine. These inorganic particles (often call ash) must be periodically cleaned from the particulate filter. We have estimated the additional maintenance cost to clean the PM filter expressed as a net present value in the year of sale of $55 for light heavy-duty vehicles, $56 for medium heavy-duty vehicles and $208 dollars for heavy heavy-duty vehicles, as detailed in the RIA.

Factoring the cost savings due to low sulfur diesel fuel into the additional cost for low-sulfur diesel fuel and the service cost of the closed crankcase ventilation system and the PM filter system yields an increase in vehicle operating costs expressed as a net present value in the year of sale of $509 for a light heavy-duty vehicle, $943 for a medium heavy-duty vehicle and $3,785 for a heavy heavy-duty vehicle. These life cycle operating costs are also summarized in Table V.A-1. The net increase in operating cost can also be expressed as an average annual operating cost for each class of heavy-duty vehicle by dividing the total undiscounted operating costs by the average vehicle life assumed to be 9 years for light heavy-duty vehicles, and Start Printed Page 509211 years for medium and heavy heavy-duty engines. Expressed as an approximate annual per vehicle cost, the additional operating cost is estimated as $80 for a light heavy-duty vehicle, $130 for a medium heavy-duty vehicle, and $510 for a heavy heavy-duty vehicle.

B. Cost for Gasoline Vehicles to Meet the New Emissions Standards

1. Summary of New System Costs

To perform a cost analysis for the final gasoline standards, we first determined a package of likely technologies that manufacturers could use to meet the standards and then determined the costs of those technologies. In making our estimates, we have relied on our own technology assessment which included publicly available information such as that developed by California, confidential information supplied by individual manufacturers, and the results of our own in-house testing.

In general, we expect that heavy-duty gasoline vehicles would (like Tier 2 light duty vehicles) be able to meet these standards through refinements of current emissions control components and systems rather than through the widespread use of new technology. More specifically, we anticipate a combination of technology upgrades such as the following:

  • Improvements to the catalyst system design, structure, and formulation, plus an increase in average catalyst size and loading.
  • Air and fuel system modifications including changes such as improved oxygen sensors, and calibration changes including improved precision fuel control and individual cylinder fuel control.
  • Exhaust system modifications, possibly including air gapped components, insulation, leak free exhaust systems, and thin wall exhaust pipes.
  • Increased use of fully electronic exhaust gas recirculation (EGR).
  • Increased use of secondary air injection.
  • Use of ignition spark retard on engine start-up to improve upon cold start emission control.
  • Use of low permeability materials and minor improvements to designs, such as the use of low-loss connectors, in evaporative emission control systems.

We expect that the technologies needed to meet the heavy-duty gasoline standards will be very similar to those required to meet the Tier 2 standards for vehicles over 8,500 pounds GVWR. Few heavy-duty gasoline vehicles currently rely on technologies such as close coupled catalysts and secondary air injection, but we expect they would to meet the new standards.

For each group we developed estimates of both variable costs (for hardware and assembly time) and fixed costs (for R&D, retooling, and certification). Cost estimates based on the current projected costs for our estimated technology packages represent an expected incremental cost of vehicles in the near-term. For the longer term, we have identified factors that would cause cost impacts to decrease over time. First, since fixed costs are assumed to be recovered over a five-year period, these costs disappear from the analysis after the fifth model year of production. Second, the analysis incorporates the expectation that manufacturers and suppliers would apply ongoing research and manufacturing innovation to making emission controls more effective and less costly over time. Research in the costs of manufacturing has consistently shown that as manufacturers gain experience in production and use, they are able to apply innovations to simplify machining and assembly operations, use lower cost materials, and reduce the number or complexity of component parts.[186] These reductions in production costs are typically associated with every doubling of production volume. Our analysis incorporates the effects of this “learning curve” by projecting that a portion of the variable costs of producing the new vehicles decreases by 20 percent starting with the third year of production. We applied the learning curve reduction only once since, with existing technologies, there would be less opportunity for lowering production costs than would be the case with the adoption of new technology. We did not apply the learning curve reduction to precious metal costs, nor did we apply it for the evaporative standards.

We have prepared our cost estimates for meeting the new heavy-duty gasoline standards using a baseline of current technologies for heavy-duty gasoline vehicles and engines. Finally, we have incorporated what we believe to be a conservatively high level of R&D spending at $2,500,000 per engine family where no California counterpart exists. We have included this large R&D effort because calibration and system optimization is likely to be a critical part of the effort to meet the standards. However, we believe that the R&D costs may be generous because the projection probably underestimates the carryover of knowledge from the development required to meet the light-duty Tier 2 and CARB LEV-II standards.

Table V.B-1 provides our estimates of the per vehicle cost for heavy-duty gasoline vehicles and engines. The near-term cost estimates in Table V.B-1 are for the first years that vehicles meeting the standards are sold, prior to cost reductions due to lower productions costs and the retirement of fixed costs. The long-term projections take these cost reductions into account.

Table V.B-1.—Projected Incremental System Cost and Life Cycle Operating Cost for Heavy-Duty Gasoline Vehicles

[Net Present Values in the year of sale, 1999 dollars]

Vehicle classModel yearIncremental system costLife-cycle operating cost
Heavy-Dutynear term$198$0
Gasolinelong term1670
Start Printed Page 5093

2. Operating Costs Associated With Meeting the Heavy-Duty Gasoline Standard

Low sulfur gasoline is a fundamental enabling technology which will allow heavy-duty gasoline vehicles to meet the very low emission standards being finalized today. The low sulfur gasoline required under the Tier 2 proposal will enable advanced exhaust emission control for heavy-duty vehicles as well. Today's final rule puts no additional requirements on gasoline sulfur levels and as such should not increase gasoline fuel costs. Additionally, the new technologies being employed in order to meet the new standards are not expected to increase fuel consumption for heavy-duty gasoline vehicles. In fact, there may be some small improvement in fuel economy from the application of improved fuel and air control systems on these engines. Therefore, in the absence of changes to gasoline specifications and with no decrease in fuel economy, we do not expect any increase in vehicle operating costs.

C. Cost of Fuel Change

We estimate that the overall net cost associated with producing and distributing 15 ppm diesel fuel, when those costs are allocated to all gallons of highway diesel fuel, will be approximately 5.0 cents per gallon in the long term, or an annual cost of roughly $2.2 billion per year once the program is fully effective starting June 1, 2010. During the initial years under temporary compliance option, the overall net cost is projected to be 4.5 cents per gallon, or an annual cost of roughly $1.7 billion per year.

This cost consists of a number of components associated with refining and distributing the new fuel. The majority of the cost is related to refining. From 2006-2010, refining costs are estimated to be approximately 3.3 cents per gallon of highway diesel fuel (4.1 cents per gallon for that portion produced to the 15 ppm standard), increasing to 4.3 cents per gallon once the program is fully in place. In annual terms, the 2006-2010 refining costs are expected to be about $1.4 billion per year, increasing to about $1.8 billion in 2011. These figures include the cost of producing slightly more volume of diesel fuel because: (1) Desulfurization decreases the energy density of the fuel and (2) slightly more highway diesel fuel is expected to be downgraded to nonroad diesel fuel in the distribution system.

A small cost of 0.2 cents per gallon is associated with an anticipated increase in the use of additives to maintain fuel lubricity. Also, distribution costs are projected to increase by 1.0 cents per gallon during the initial years under the temporary compliance option, including the cost of distributing slightly greater volumes of fuel. Together, these two cost components only amount to about $0.5 billion per year beginning in 2006. These costs drop to only about $0.3 billion in 2011.

As discussed in Sections V.A. and V.C.5, operation with 15 ppm sulfur diesel fuel is expected to reduce average vehicle maintenance costs by approximately 1 cent on a per gallon basis. Beginning in 2011, this reduction in maintenance costs will total roughly $400 million per year. All of these cost estimates are discussed in more detail below and in the RIA.

1. Refinery Costs

As explained in Section IV, EPA believes that refiners will meet the 15 ppm sulfur standard through an extension of the same hydrotreating technology which is used today to meet the current 500 ppm sulfur standard. Meeting the new standard will generally require refiners to install additional hydrotreating equipment. Most refiners are expected to add another hydrotreating reactor and other related equipment to their existing desulfurization unit. However, we project that some refiners, roughly 20 percent, will conclude that it is not economical to add onto their existing unit and will instead build an entirely new hydrotreater.

Consistent with our analysis for the NPRM, we estimate that a refinery's diesel fuel will have to average 7 ppm in order to consistently meet the 15 ppm standard. For the NPRM, we estimated the cost of producing highway diesel fuel with a 7 ppm average sulfur level for the average U.S. refinery. We received a number of comments on the NPRM which indicated that the cost for various refiners would differ dramatically, as would the cost of treating the various blendstocks which comprise highway diesel fuel. In response, we extended our refining cost model to be specific to each refinery in the U.S., based on a refinery's production volume and estimated composition of its highway diesel fuel. Using this model, we estimated each refinery's cost of producing 7 ppm sulfur highway diesel fuel and then aggregated these results to estimate a national average cost.

This analysis considers the fact that some diesel fuel blendstocks are more difficult to desulfurize than others. As indicated in some comments on the NPRM, this could lead refiners to shift their blendstocks between highway diesel fuel and other distillate products in order to minimize costs. For example, our analysis found that the incremental cost of desulfurizing current highway diesel fuel can be more expensive for some refiners than the cost to other refiners of desulfurizing nonroad diesel fuel to meet the 15 ppm standard, despite the fact that the current sulfur level of nonroad diesel fuel is roughly 2500-3000 ppm.

We evaluated costs under two scenarios: (1) all current producers of highway diesel fuel continued to do so, and (2) some refiners increase production of highway diesel fuel and some refiners facing higher desulfurization costs leave the highway diesel fuel market. Our cost projections presented below are based on the first scenario. This is conservative, because in this scenario, some refineries currently produce relatively low volumes of highway diesel fuel and would face relatively high costs per gallon to desulfurize this same volume of fuel.

We project that the average refining cost to meet the 15 ppm cap standard will be 4.3 cents per gallon, including capital costs amortized at 7 percent per year before taxes, once the standard is fully in place in June, 2010. Refining costs will be lower, 4.1 cents per gallon of 15 ppm fuel (or 3.3 cents per gallon of all highway diesel fuel), during optional compliance provisions (2006-2010), because we expect that those refiners facing the lowest cost of meeting the standard in each PADD will invest to produce the new fuel. We project that refiners will invest $3.8 billion in new equipment in order for about 80 percent of highway diesel fuel to meet the 15 ppm standard in 2006. An additional $1.4 billion will be invested for the rest of the highway diesel fuel market to meet the new standard in 2010, for a total capital cost of $5.2 billion. The average refinery is projected to spend about $43 million in capital costs, and $7 million per year in operating costs.

Table V.C-1 shows the range of average costs per refinery by PADD. Despite the varying size of refineries and differences in their available distillate blendstocks, the variations in the average cost between PADDs in either 2006 or 2010 are small, with the exception of PADD 4. PADD 4 average costs are 30-40 percent higher than the costs in the other PADDs. Start Printed Page 5094

Table V.C-1.—Average Refining Costs by PADD (cents per gallon of 15 ppm fuel)

20062010
PADD 14.44.7
PADD 24.34.5
PADD 33.83.9
PADD 45.15.3
PADD 54.24.5
U.S. Average4.14.3

A number of other estimates of the cost of the 15 ppm sulfur standard were submitted as part of the comments. Mathpro used a notional refinery model to estimate the national average costs of the proposed standard for EMA. Charles River Associates (CRA), along with Baker and O'Brien, used the Prism refinery model to estimate the cost for each refinery in the U.S. for API. Finally, EnSys used the Oak Ridge National Laboratory PADD 3 refinery model to estimate costs for DOE. Table V.C-2 summarizes these estimates after adjusting the projected costs to represent a 7 percent rate of return on investment before taxes (except for the CRA cost, which could not be adjusted).

Table V.C-2.—Comparison of National Average Refining Cost Estimates

[7 percent rate of return on investment before taxes]

Average cost (cents per gallon of 15 ppm fuel)Capital cost ($ billion)
EPA (Full program)4.45.3
Methpro for EMA*4.2-6.13.4-6.1
CRA for API (10% after tax rate of return)6.2
EnSys for DOE (conservative technology)* †5.1-6.03.9-6.5
EnSys for DOE (optimistic technology)* †4.2-4.42.7-4.5
* Lower end of range assumes 100 percent revamped equipment; upper end assumes all new equipment.
† Costs are only for the Gulf Coast refining region, which have slightly lower per-gallon costs than the entire U.S., and about half the capital costs.

The costs estimated by Mathpro are the most similar to those estimated by EPA. This is primarily because the desulfurization technology projected to be used were similar in the two studies.

CRA projected the use of similar technology, but estimated that 40 percent of refiners would build new desulfurization units, versus our estimate of 20 percent. CRA also assumed that technology vendors are inherently optimistic in their projections and increased their projected costs by roughly 20 percent. CRA also projected that nonroad diesel fuel sulfur levels would be capped at 500 ppm. How this affected the projected cost of producing 15 ppm fuel is not clear. CRA assumed that this 500 ppm fuel would be produced by blending 8 ppm sulfur highway diesel fuel and 3000 ppm heating oil. Much of this production was assumed to occur due to mixing in the distribution system. An unknown amount of 500 ppm fuel was produced at refineries. Desulfurization costs are not linear, as shown by CRA's own study. Thus, any blending of 15 ppm sulfur highway diesel fuel with non-desulfurized heating oil at refineries was much more costly than simply hydrotreating nonroad diesel fuel to 500 ppm. It also required refiners to hydrotreat the most difficult blendstocks at a much higher cost. Because of these significant differences in both methodology and assumptions, it is not surprising that CRA's costs would be higher than those estimated by Mathpro or ourselves.

EnSys's cost estimates require some explanation due to the number of scenarios they analyzed. EnSys did not estimate how many refiners would build new desulfurization units and how many would modify their current hydrotreaters, but simply presented costs if refiners took one approach or the other. Thus, the lower limits of the ranges shown in Table V.C-2 assume refiners modify their current hydrotreaters, while the upper limits assume that refiners would build new units. EnSys also projected costs for two separate sets of technologies. One set was considered conservative and relied on technologies that are already in commercial use. The other was considered to be optimistic and was similar to that projected to be used by EPA, Mathpro and CRA. EnSys' costs using the conservative technology are higher than our estimates. This is due to the fact that this technology involves greater capital investment and greater consumption of hydrogen. These greater costs are due to the fact that this technology is not just designed to reduce sulfur, but to reduce aromatic content, increase cetane levels and perform some cracking. EnSys' costs using the optimistic technology are much more similar to those of EPA and Mathpro, considering that EnSys' range of costs reflects both revamped and new desulfurization units and that EPA's costs are dominated (80 percent) by revamped units.

Some of the variation in the costs projected by the various studies involves uncertainty in exactly what degree of hydrotreating will be necessary to meet the 15 ppm sulfur standard day in and day out with a variety of distillate feedstocks. As discussed in Section IV above, there is currently no commercial experience in the U.S. and only a limited amount of information in the public literature on the costs associated with reducing the sulfur level in diesel fuel to very low levels on an ongoing operational basis. Thus, any cost projections involve a significant amount of uncertainty.

2. Highway Diesel Fuel Supply

While API and many refiners did not question the feasibility of the 15 ppm standard, they did indicate that the cost would be higher than that projected by EPA. API believes that those refiners facing higher than average costs may decide to leave the highway diesel fuel market. They argue this is especially a possibility if they are faced with a sulfur standard below a 30 ppm average (or 50 ppm cap), which they believe will require very large investments for high pressure hydrotreating to maintain current highway diesel production volumes. API also believes that many refiners may reduce their production of highway diesel fuel, by switching the feedstocks (i.e., LCO) which are most difficult to desulfurize to other markets, Start Printed Page 5095thus avoiding the higher investments associated with high pressure hydrotreating. If some refiners reduce highway diesel fuel production, that could present an opportunity for other refiners, who choose to make the investment, of higher prices for the new 15 ppm sulfur product.

This view is embodied by a study by Charles River Associates (CRA) and Baker and O'Brien which was commissioned by API. CRA polled refiners concerning their plans under a 15 ppm sulfur cap. Using the results of this survey, as well as other information, CRA projected refiners' costs of meeting the 15 ppm standard, as well as their likely production volumes. CRA concluded that U.S. refiners would likely reduce their highway diesel fuel production by an average of 12 percent, creating significant shortages and price spikes.

CRA's conclusions appear to have been strongly affected by their assumptions, as well as the refiner survey they conducted. For example, CRA assumed that the new sulfur standard would cause 10 percent more highway diesel fuel to be “lost” in the distribution system compared to today (i.e., downgraded to off-highway diesel fuel). We believe based on the analysis outlined in the RIA that 2.2 percent is a more accurate estimate, resulting in 9 percent more 15 ppm fuel being available than CRA estimated. This difference alone accounts for 75 percent of the potential national supply shortfall projected by CRA.

CRA also concluded, with little explanation, that 20 refineries producing highway diesel fuel today would not produce highway diesel fuel under the 15 ppm standard and that many more would reduce production. Given the lack of information provided in the study, it was not possible to evaluate CRA's criteria in selecting these 20 refineries, nor was it possible to determine how much of the shortfall was attributable to this conclusion. While CRA evaluated whether refiners currently producing highway diesel fuel would be likely to leave the market, they did not assess whether any refineries currently not producing highway diesel fuel might enter the market. EPA did conduct such an assessment. We found 2 refineries that produce essentially no highway diesel fuel today which could meet the new standard for less than 5 cents per gallon. Production from these refineries would increase highway diesel fuel production by 9 percent. We also found based on our assessment that 4 other refineries could produce highway diesel fuel from their off-highway diesel fuel blendstocks for less than 5 cents per gallon. Production from these 6 refineries would increase highway diesel fuel production by 7 percent. Together with a more reasonable estimate of downgrades in the distribution system, this would more than compensate for any potential lost production, even as estimated by CRA.

CRA also implicitly assumed that the material it projected could be removed from the highway diesel market could be sold at a reasonable price. However, CRA did not analyze the impact of this additional supply on the prices which could be obtained in these markets, or even if these alternative markets could physically absorb all of this material. Much of this material is not diesel fuel, but poor quality blendstock. It is not clear that such material could be blended into non-highway diesel fuel and CRA did not analyze this likely problem. Our analyses, supported by a study by Muse, Stancil and Co., indicate that any substantial quantities of highway diesel fuel diverted to other markets will depress prices in those markets substantially.[187] Hydrotreating diesel fuel to meet the 15 ppm standard avoids these depressed prices, reducing the net cost of meeting the new standard. Since CRA only considered the cost to desulfurize highway diesel fuel, and ignored the added cost of dumping this fuel into markets with depressed prices, CRA's conclusions must be considered to be seriously flawed in this regard.

Furthermore, CRA ignored the fact that roughly 15 percent of today's highway diesel fuel is consumed in engines and furnaces not requiring this fuel. Any shortage of highway diesel fuel would lead many of these non-essential users to switch to nonroad diesel fuel or heating oil. Only limitations in the fuel distribution system would cause these users to continue to burn highway diesel fuel.

These problems with CRA's analysis, plus the lack of detail available concerning the specifics of the study, lead us to reject the study's conclusions that there will be significant supply shortfalls under a 15 ppm sulfur standard.

Finally, if any potential for highway diesel fuel shortfalls exists by requiring all fuel to meet 15 ppm sulfur in 2006, as CRA's analysis suggests, we believe that allowing some continued supply of 500 ppm, as we are doing under the temporary compliance option and hardship provisions contained in today's action, addresses this concern. Since the final rule allows some transition period before the entire highway diesel pool is required to meet the 15 ppm sulfur standard, some refiners will not need to change their current operations and will be able to continue producing 500 ppm fuel during these years. Those refiners that delay production of low sulfur diesel fuel until the later years of the program will tend to be the refiners with the highest cost to comply and, thus, refiners that would otherwise have the greatest tendency not to invest and thereby impact supply. Refiners that begin producing low sulfur diesel fuel in the later years of the program will also be able to take advantage of ongoing improvements in desulfurization technology. Together, these factors will help avoid or reduce any potential losses in highway diesel fuel production when the program requires full compliance with low sulfur diesel fuel.

As mentioned above, EPA agrees that some refiners will face higher desulfurization costs than others. This is generally the case with any fuel quality regulation, since the crude oils processed by, as well as the configurations and product slates of individual refineries vary dramatically. As mentioned above and summarized in the RIA, we used our refining cost model to assess the likelihood that refiners would leave the highway diesel fuel market or reduce their production of highway diesel fuel. We also assessed the likelihood of other refiners entering this market. We found that a number of refiners appear to be in a position to expand their highway diesel fuel production capacity very economically relative to other refiners facing higher desulfurization costs. We also found that up to 2 refineries not now producing highway diesel fuel could easily enter the highway diesel fuel market at very competitive costs.

Some refiners may have an alternative market for their diesel fuel. In the extreme, a refiner would likely prefer to only shift his light cycle oil to other distillate products, like nonroad diesel fuel and No. 2 heating oil, retaining his other blendstocks in the higher value highway diesel fuel market. However, in many cases, a refiner cannot shift light cycle oil directly to a distillate product, because the resulting non-highway fuel would no longer meet applicable specifications, such as sulfur or cetane. In most cases, we expect that the refiner must shift highway diesel fuel to alternative markets in order to be able to obtain a reasonable price.

As mentioned above, Muse, Stancil, & Co. analyzed the ability of refiners to Start Printed Page 5096divert highway diesel fuel or its blendstocks to other distillate markets. Muse, Stancil found that this ability varied significantly by PADD. In PADDs II and IV, it would be difficult for refiners to move any appreciable quantity of highway diesel fuel to other markets. For example, compared to the value of highway diesel fuel today, the achievable value for the diverted material would decrease by 14 to 20 cents per gallon if refiners tried to move more than 5 percent of their highway diesel fuel to other markets. The loss in value was highest in these two PADDs, because growth in nonroad diesel fuel consumption is small or negative, the ability to reduce the consumption of highway diesel fuel by users other than highway vehicles was limited, and exports are only available through the Gulf or West Coasts with a large transportation cost of getting the material there.

In PADDs III and V, the loss of value was lower, at 4.5-5 cents per gallon and was the lowest in PADD I, 2 cents per gallon. This was primarily because of the ability to export high sulfur diesel fuel overseas. Generally, these losses in value apply if diesel fuel was being diverted to other distillate markets. If light cycle oil was being diverted, the value would drop an additional 3-3.5 cents per gallon.

At lower levels of diversion (e.g., 5 percent or less), the loss in value was much less, ranging from 1.6-5 cents per gallon across the five PADDs. However, the primary reason for this was the reduced use of highway diesel fuel by users other than highway vehicles, who do not require this fuel. Muse believed that such conversions were limited, but real and could represent roughly a third of the current use of highway diesel fuel in other than highway vehicles. If this occurs, then demand for highway diesel fuel drops at the same time. Thus, in this case, the total refining costs associated with the new sulfur standard will decline because the total amount of fuel; needing to be desulfurized will decrease.

The only area where refiners could easily divert substantial amounts of highway diesel fuel is PADD I. PADD I refiners currently produce a relatively low amount of highway diesel fuel and substantial amounts of high sulfur diesel fuel/heating oil are imported. Thus, refiners in PADD I facing relatively high costs of meeting the 15 ppm standard could shift some or all of their highway diesel fuel to other markets, reducing imports and not substantially affecting prices in this market.

In the end, refiners will make their decisions regarding investment based on their projections of demand of 15 and 500 ppm diesel fuel, the prices of these fuels and the prices available in alternative markets. At this time, we do not project that the specifics involved in this case (technology, cost, alternative markets) are significantly different from those which have existed in the past. The last time EPA regulated diesel fuel, the refining industry actually overbuilt desulfurization capacity for the current 500 ppm standard, as evidenced by the significant use in the nonroad market of diesel fuel produced to the current highway diesel sulfur standard of 500 ppm and the relatively low price of highway diesel fuel relative to nonroad diesel fuel. Some of this overproduction may have been due to limitations in the distribution system to distribute both highway and nonroad grades of diesel fuel. However, the refinery system as a whole was able to supply both highway diesel vehicles, plus the use of highway diesel fuel by other users. This was accomplished despite the fact that a number of small refiners did decide to switch from the highway diesel fuel market to the nonroad diesel fuel market, presumably for economic reasons.

3. Cost of Lubricity Additives

As discussed in Section IV, the refinery processes needed to achieve the sulfur standard have some potential to degrade the natural lubricity characteristics of the fuel. Consequently, an increase in the use of lubricity additives for diesel fuel may be anticipated over the amounts used today. As described in more detail in the Regulatory Impact Analysis in the Public Docket, we include in our fuel cost estimate an average cost of 0.2 cents per gallon for lubricity additives over the entire pool of low sulfur highway diesel fuel (the same cost estimate as used in the proposal). This estimate is comparable to an estimate made by Mathpro in a study sponsored by the Engine Manufacturers Association, and is consistent with the cost estimate submitted by Cummins in its comments.

Prior to the proposal, we contacted various producers of lubricity additives to get their estimates of what costs might be incurred for this increase in the use of lubricity additives. The cost estimates varied from 0.1 to 0.5 cents per gallon. The cost is likely to be a strong function of not only the additive type, but also the assumed treatment rate and the volume of fuel that needs to be treated, both of which will be, to some extent, a function of the sulfur cap. We requested comment on our cost estimate, including whether there may be unique costs for the military to maintain the lubricity of their distillate fuels. We requested that comments addressing this issue include a detailed discussion of the volumes of fuel affected, current lubricity additive use, and the additional measures that might be needed (and associated costs) to maintain the appropriate level of fuel lubricity. In response to the proposal, we received few comments on the cost of lubricity additives, and none on the volumes of fuel affected, current lubricity additive use, or additional measures that might be needed to maintain the appropriate level of lubricity. In considering the comments, we have found no basis in today's action to use a different average cost estimate to treat low sulfur diesel for lubricity than that which was used in the proposal (0.2 cents per gallon). See more discussion in the Response to Comments Document in the Public Docket.

4. Distribution Costs

We estimate that as a result of today's rule, distribution costs will increase by 0.5 cents per gallon of highway diesel fuel supplied when the sulfur requirements are fully implemented beginning in the year 2010. During the initial years (2006 through May 31, 2010) we estimate that the increase in distribution costs will be 0.4 cents per gallon of highway diesel fuel supplied, with an additional 0.7 cents per gallon equivalent related to capital costs for additional storage tanks to handle two grades of highway diesel fuel.[188]

In the proposal, we estimated that distribution costs would increase by 0.2 cents per gallon if the proposed requirement that the entire highway diesel fuel pool meet a 15 ppm sulfur cap beginning in 2006 be adopted. This cost was comprised of roughly 0.1 cents per gallon due to an increase in pipeline interface and testing costs, and 0.1 cents per gallon for distributing the additional volume of highway diesel fuel needed due to an anticipated decrease in fuel energy density as a side effect of reducing the sulfur content to the proposed 15 ppm cap. The case evaluated in the NPRM is most similar to that for the fully implemented sulfur program in this final rule.

We took advantage of additional information contained in the comments to the NPRM in formulating a more comprehensive estimate of the Start Printed Page 5097distribution costs under today's rule. In some cases this involved adjusting an estimate for a parameter that factored into our calculation of costs in the NPRM. One important example is that we increased our estimate of the additional volume of highway diesel shipped by pipeline that would need to be downgraded to a lower-value product. This product downgrade is necessitated by mixing that takes place between products that abut each other while in the pipeline. The mixture is referred to as interface when it can be blended into another product and transmix when it must be returned to the refinery for reprocessing. In other cases, our reevaluation of distribution costs included the consideration of parameters that did not factor into the estimation of distribution costs in the proposed rule. For example, commenters to the NPRM brought to our attention that there would be additional costs associated with needed changes in the handling practices for interface volumes which result from shipments of jet fuel and highway diesel fuel that abut each other in the pipeline.

There are a number of common factors in the estimation of distribution costs during the initial period and after the sulfur requirements are fully implemented, such as the increase in interface volumes for pipeline shipments of highway diesel fuel. However, there are other factors that are unique to the estimation of costs during the initial years as well. For example, with two grades of highway diesel fuel in the distribution system at the same time there are costs associated with the need for additional storage tanks at some petroleum terminals and refineries. Our estimation of distribution costs under these two periods is discussed separately in the following sections. Where there is a commonality, the issue is discussed under the section on distribution costs for the fully implemented program.

a. Distribution Costs Under the Fully Implemented Program

Based on the considerations discussed below, we estimate that the increase in distribution costs under the fully implemented sulfur program will be 0.5 cents per gallon of highway diesel fuel supplied.

The cost of distributing the additional volume of highway diesel fuel needed to compensate for the lower energy density of highway diesel fuel that meets a 15 ppm sulfur cap is estimated at 0.17 cents per gallon of highway diesel fuel supplied. As in the NPRM, the cost of producing this additional volume was included in the calculation of refinery costs (see Section V.C.1.). In the NPRM, we estimated that the cost of distributing highway diesel fuel was equal to the difference in price at the refinery rack and the retail price. For today's final rule, we based our estimate of distribution cost on a PADD by PADD evaluation of the difference in the price of highway diesel fuel at the refiner rack versus the retail price. The price differential for each PADD was weighted by the additional volume of fuel we anticipate will need to be produced in each PADD to arrive at an estimate of distributing the additional volume needed for the nation as a whole. We believe this approach provides a more accurate estimate of costs.

Based on additional information provided in the comments on the changes in pipeline interface practices that would result from today's rule, we adjusted our estimate of the increased volume of highway diesel fuel that would be downgraded to a lower-value product from 1.5 percent to 2.2 percent of highway diesel fuel supplied (see the RIA to this rule). As in the NPRM, the cost of producing this additional volume was included in the calculation of refinery costs (see Section V.C.1.). The cost of downgrading the increased volume of highway diesel fuel to a lower-value product is based on the difference in the cost of 15 ppm sulfur diesel fuel and the product to which the interface is downgraded. Under the fully imlemented program, this downgrade would be made into the nonroad diesel pool. The cost of this increased volume of downgrade is estimated at approximately 0.14 cents per gallon of highway diesel supplied.

We identified that there would also be an increase in the economic impact for the existing volume of interface currently associated with pipeline shipments of highway diesel fuel. This is because the cost of downgrading the existing interface volume would be determined by the difference between the cost of 15 ppm sulfur fuel and nonroad diesel fuel rather than the difference in cost between current 500 ppm diesel fuel and nonroad diesel fuel as it is today. We estimate that the increase in the cost of downgrading the existing highway diesel interface would be 0.09 cents per gallon of highway diesel fuel supplied.

We anticipate that there may be minor costs in addition to those discussed above associated with optimizing the distribution system to adequately limit sulfur contamination. These costs could result from various minor changes to distribution practices and or hardware discovered to be needed by industry while preparing to comply with today's rule. While it is not possible to specifically identify the nature of these changes, they could include the occasional replacement of a leaking valve or improvements in communication practices to facilitate batch changes in the pipeline system. There may also be some cost associated with the process that we anticipate the distribution industry will undertake to evaluate its readiness to comply with the requirements in today's rule. Such costs might result from testing to determine the level of contamination introduced through the use of various distribution hardware or practices. It is not possible to specifically identify the costs that might be associated with this optimization process. However, given the limited nature of the changes that might be needed and that the need for such changes would not be widespread, we believe that the associated costs would not pose a substantial burden. We estimate that the miscellaneous costs associated with optimizing the distribution system to limit sulfur contamination would be 0.025 cents per gallon of highway diesel fuel supplied (on average) during the period from when the sulfur program is fully implemented (2010) through the year 2020. These costs were amortized at a rate of 7% over the period of 2006 through 2020. The per gallon cost is somewhat higher during the initial years.

Commenters to the proposed rule stated that it is current practice for all of the interface generated when highway diesel fuel abuts jet fuel in the pipeline to be cut into highway diesel fuel. They pointed out that this practice would no longer be possible when all highway diesel fuel is required to meet a 15 ppm sulfur cap because of the relatively high sulfur content of jet fuel (as high as 3000 ppm).[189] They stated that the mixture of highway diesel fuel meeting a 15 ppm sulfur cap and jet fuel would need to be returned from the terminal to the refinery for reprocessing, at high cost (i.e. would need to be treated as transmix). While we agree that handling procedures for this mixture will need to change, we believe that it will not be necessary to treat it as transmix. We believe that there will be opportunity for the mixture to be sold from the terminal into the nonroad diesel pool. This will increase the cost associated with downgrading this mixture. Start Printed Page 5098Expressed in terms of the volume of highway diesel fuel supplied, we estimate this cost at 0.07 cents per gallon. Additional storage tanks will be needed to handle the mixture at those terminals that currently do not handle nonroad diesel fuel. The cost of these tanks has been fully accounted for in the calculation of costs during the initial years of the program.

The additional quality control testing at the terminal level needed to ensure compliance with the 15 ppm sulfur cap would be the same during the initial years as after the requirements are fully implemented. We estimate that the cost of this additional testing would be as we projected in the proposal, 0.002 cent per gallon of highway diesel supplied (see the RIA to this rule).

We believe that there will not be a significant increase in the volume of highway diesel fuel discovered to exceed the sulfur standard downstream of the refinery as a result of today's rule. We believe this will be the case both during the initial years and after the sulfur requirements are fully implemented. We anticipate that distributors will quickly optimize their practices to avoid sulfur contamination. We also anticipate that distributors will gain some experience in reducing sulfur contamination in the distribution system through complying with the recently finalized Tier 2 low sulfur gasoline requirements (65 FR 6698, February 10, 2000). While outside the scope of this final rule, it is worth pointing out that potential difficulties in distributing 15 ppm diesel fuel would be lessened if the sulfur content of nonroad diesel fuel is reduced by a future rulemaking (as discussed in Section 8). We anticipate that the batches of highway diesel fuel that are discovered to exceed the 15 ppm sulfur cap will be coped with as follows:

—When possible, by blending highway diesel fuel that is below the 15 ppm cap with the out-of-specification batch to bring the resulting mixture into compliance. This practice will be more difficult than it is currently because the amount of fuel needed to blend the out-of-specification batch into compliance may increase. However, we expect it to continue to be the method of choice for handling out-of-specification highway diesel whenever possible.

—By downgrading the batch either to nonroad diesel fuel or to 500 ppm highway diesel during the initial years.

—By reprocessing the batch to meet the 15 ppm cap, but only in those infrequent instances where the previous options do not exist.

We do not believe that the cost of handling out-of specification highway diesel batches will increase significantly as a result of today's action.

Tank truck, tank wagon, and barge operators may need to more carefully and consistently observe current industry practices to limit contamination in some situations. However, these situations are more the exception than the rule and are of a limited nature. Consequently, we believe that this can be accomplished at an insignificant cost. Additional considerations exist for distributors during the initial years as discussed in the following section.

Please refer to the Response to Comments Document for an evaluation of the comments received on the increase in fuel distribution costs associated with today's rule, and to the RIA for a detailed discussion of the way in which we derived the our cost estimates.

b. Distribution Costs During the Initial Years

The factors that cause distribution costs to differ during the initial years include:

—Having a lesser volume of 15 ppm diesel fuel in the system reduces the costs associated with distributing 15 ppm fuel.

—Having an additional grade of highway diesel fuel in the system (500 ppm) creates additional pipeline interface volumes, and additional product downgrade costs.

—The need for additional equipment to handle an additional grade leads to additional costs that must be accounted for during the initial years.

—Having 500 ppm highway diesel fuel in the system allows some opportunity for the pipeline interface volumes associated with the shipment of 15 ppm fuel and jet fuel to be downgraded to 500 ppm diesel fuel rather than nonroad diesel fuel. This will reduce the cost associated with downgrading the subject interface volumes.

In calculating the distribution costs for the initial years of the program, we estimated that 60 percent of the 15 ppm highway diesel fuel shipped by pipeline will be carried in pipelines that choose not to carry 500 ppm diesel fuel. We estimated that the remaining 40 percent of 15 ppm highway diesel fuel shipped by pipeline would be carried in pipelines that carry 500 ppm as well as nonroad diesel fuel. For the sake of simplicity and to allow a comparison with distribution costs when the program is fully implemented, the distribution costs during the initial years as discussed below are expressed in terms of the total volume of highway diesel fuel supplied. This includes 500 ppm as well as 15 ppm highway diesel fuel.

For the reasons outlined above, the following costs, which are also present under the fully implemented sulfur program, were adjusted to reflect the unique conditions during the initial years. During the initial years, the cost of distributing the additional volume of highway diesel fuel needed to compensate for lower energy density of 15 ppm sulfur fuel is estimated at 0.14 cents per gallon of highway diesel fuel supplied. The cost of the increased volume of highway diesel fuel that must be downgraded to a lower-value product is estimated at 0.1 cents per gallon of highway diesel supplied. We estimate that during the initial years of the program the increase in the cost of downgrading the existing highway diesel interface would be 0.08 cents per gallon of highway diesel fuel supplied. During the initial years, the cost of downgrading the interface between pipeline shipments of jet fuel and highway diesel fuel is estimated to increase by 0.03 cents per gallon of highway diesel fuel supplied. The cost of the additional tanks required at terminals to handle this interface is estimated at 0.009 cents per gallon of highway diesel fuel supplied. This tank cost was amortized over the period of the four-year transition period. We estimate that the miscellaneous costs associated with optimizing the distribution system to limit sulfur contamination would be 0.027 cents per gallon of highway diesel fuel supplied (on average) during the initial period (2006—2010).

As noted in the previous section, the additional quality control testing at the terminal level needed to ensure compliance with the 15 ppm sulfur cap would be the same during the initial years and after the requirements are fully implemented. We estimate that the cost of this additional testing would be as we projected in the proposal, 0.002 cent per gallon of highway diesel supplied.

The cost during the initial years of downgrading the additional interface volumes associated with having two grades of highway diesel fuel in part of the pipeline system is estimated at 0.004 cents per gallon of highway diesel full supplied

The most substantial costs associated with the provisions during the initial years of the program are due to the need to handle an additional grade of highway diesel fuel in the distribution Start Printed Page 5099system. Under the final program, the production of 500 ppm sulfur fuel will be much less than that of 15 ppm fuel. At the same time, most of the diesel vehicle fleet can burn 500 ppm fuel during the initial period. Because of its greater volume and the need to distribute it everywhere in the country, we expect that essentially all pipelines and terminals will handle 15 ppm fuel. In contrast, distribution of 500 ppm fuel will concentrate on those areas nearest the refineries producing that fuel, plus a few major pipelines serving major refining areas.

Regarding distribution to the final user, we expect that nearly all truck stops in areas where 500 ppm fuel is available will invest in piping and tankage to handle a second fuel. Because of the significant expense involved in adding a second tank, in these areas, we expect service stations will only carry one fuel or the other, as market demands dictate. Likewise, we expect that centrally fueled fleets and card locks will only handle 15 ppm fuel. Under this scenario, sales of 500 ppm fuel are limited to only those vehicles which refuel at truck stops and service stations. This is somewhat conservative since some centrally fueled fleets may have the flexibility to inexpensively handle two fuels. Likewise, some card locks in a given area may be able to carry 15 ppm fuel and others 500 ppm fuel and still serve their clients at little extra cost. Still, given the above assumptions, we project that the 500 ppm fuel will have to be distributed to areas representing about 50 percent of the national diesel fuel demand. Also, as the fleet turns over to 2007 and later vehicles during the initial years, the amount of 500 ppm fuel produced will gradually decrease from just over 20 percent in 2007 to about 16 percent in 2010.

The tankage cost at refineries, terminals, pipelines and bulk plants handling both fuels is estimated to be $0.81 billion. The cost for truck stops to handle two fuels is roughly $0.24 billion, for a total cost of $1.05 billion. Amortized over all of the highway diesel fuel supplied during the initial four-years (15 ppm and 500 ppm) at 7 percent per annum, the cost per gallon is 0.7 cents.

5. Benefits of Low-Sulfur Diesel Fuel for the Existing Diesel Fleet

We estimate that the low-sulfur diesel fuel will provide additional benefits to the existing heavy-duty vehicle fleet as soon as the fuel is introduced. We believe these benefits will offer significant cost savings to the vehicle owner without the need for purchasing any new technologies. The RIA has catalogued a variety of benefits from the low-sulfur diesel fuel. These benefits are summarized in Table V.C-3.

Table V.C-3.—Components Potentially Affected by Lower Sulfur Levels in Diesel Fuel

Affected componentsEffect of lower sulfurPotential impact on engine system
Piston RingsReduce corrosion wearExtended engine life and less frequent rebuilds.
Cylinder LinersReduce corrosion wearExtended engine life and less frequent rebuilds.
Oil QualityReduce deposits and less need for alkaline additivesReduce wear on piston ring and cylinder liner and less frequent oil changes.
Exhaust System (tailpipe)Reduces corrosion wearLess frequent part replacement.
EGRReduces corrosion wearLess frequent part replacement.

The actual value of these benefits over the life of the vehicle will depend upon the length of time that the vehicle operates on low-sulfur diesel fuel and the degree to which vehicle operators change engine maintenance patterns to take advantage of these benefits. For a vehicle near the end of its life in 2007 the benefits will be quite small. However for vehicles produced in the years immediately preceding the introduction of low-sulfur fuel the savings will be substantial. The RIA estimates that a heavy heavy-duty vehicle introduced into the fleet in 2006 will realize savings of $610 over its life. This savings could alternatively be expressed in terms of fuel costs as approximately 1 cent per gallon as discussed in the RIA. These savings will occur without additional new cost to the vehicle owner beyond the incremental cost of the low-sulfur diesel fuel, although these savings will require changes to existing maintenance schedules. Such changes seem likely given the magnitude of the savings and the nature of the regulated industry.

D. Aggregate Costs

Using current data for the size and characteristics of the heavy-duty vehicle fleet and making projections for the future, the diesel per-engine, gasoline per-vehicle, and per-gallon fuel costs described above can be used to estimate the total cost to the nation for the emission standards in any year. Figure V.D-1 portrays the results of these projections.[190] All capital costs have been amortized.

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As can be seen from the figure, the annual costs start out at less than 1.0 billion dollars in year 2006 and increase during the initial years to about $3.6 billion in 2010. Thereafter, total annualized costs are projected to continue increasing due to the effects of projected growth in engine sales and fuel consumption. The RIA provides further detail regarding these cost projections.

Future consumption of 15 ppm diesel fuel may be influenced by a potential influx of diesel-powered cars and light trucks into the light-duty fleet. At the present time, virtually all cars and light trucks being sold are gasoline fueled. However, the possibility exists that diesels will become more prevalent in the car and light-duty truck fleet, since automotive companies have announced their desire to increase their sales of diesel cars and light trucks. For the Tier 2 rulemaking, the Agency performed a sensitivity analysis using A.D.Little's “most likely” increased growth scenario of diesel penetration into the light-duty vehicle fleet which culminated in a 9 percent and 24 percent penetration of diesel vehicles in the LDV and LDT markets, respectively, in 2015 (see Tier 2 RIA, Table III.A.-13). Were this scenario to play out, the increased number of diesel-powered cars and light-duty trucks would increase the societal costs (those costs, in total, paid by consumers) for the higher priced diesel fuel because more diesel fuel would be consumed. However, were more diesel vehicles to penetrate the light-duty fleet, less gasoline would be consumed than was estimated in our Tier 2 cost analysis. Also, diesel vehicles tend to get higher fuel economy. As a result, the effect of increased dieselization of the light-duty fleet will likely have little or no impact on the aggregate costs estimated for the standards being finalized in today's action.

E. Cost Effectiveness

One tool that can be used to assess the value of new standards for heavy-duty vehicles and engines is cost effectiveness, in which the costs incurred to reach the standards are compared to the mass of emission reductions. This analysis results in the calculation of a $/ton value, the purpose of which is to show that the reductions from the engine and fuel controls being finalized today are cost effective, in comparison to alternative means of control. This analysis involves a comparison of our program not only to past measures, but also to other potential future measures that could be implemented. Both EPA and States have already adopted numerous control measures, and remaining measures tend to be more expensive than those previously employed. As we and States tend to employ the most cost effective available measures first, more expensive ones must be adopted to achieve further emission reductions.

Comments we received in response to our Notice of Proposed Rulemaking on the subject of our cost effectiveness analysis are addressed in the Response to Comments Document.

1. What Is the Cost Effectiveness of This Program?

We have calculated the cost-effectiveness of our diesel engine/gasoline vehicle/diesel sulfur standards based on two different approaches. The first considers the net present value of all costs incurred and emission reductions generated over the life of a single vehicle meeting our standards. This per-vehicle approach focuses on the cost-effectiveness of the program from the point of view of the vehicles and engines which will be used to meet the new requirements. However, the per-vehicle approach does not capture all of the costs or emission reductions from our diesel engine/gasoline vehicle/diesel sulfur program since it does not account for the use of 15 ppm diesel fuel in current diesel engines. Therefore, we have also calculated a 30-year net present value cost-effectiveness using the net present value of costs and emission reductions for all in-use vehicles over a 30-year time frame. The baseline or point of comparison for this evaluation is the previous set of engine, vehicle, and diesel sulfur standards (in other words, the applicable 2006 model year standards).

As described earlier in the discussion of the cost of this program, the cost of complying with the new standards will decline over time as manufacturing costs are reduced and amortized capital investments are recovered. To show the effect of declining cost in the per-vehicle cost-effectiveness analysis, we have developed both near term and long term cost-effectiveness values. More specifically, these correspond to vehicles sold in years one and six of the vehicle and fuel programs. Chapter VI of the RIA contains a full description of this analysis, and you should look in that document for more details of the results summarized here.

The 30-year net present value approach to calculating the cost-effectiveness of our program involves the net present value of all nationwide emission reductions and costs for a 30 year period beginning with the start of the diesel fuel sulfur program and introduction of model year 2007 vehicles and engines in year 2006. This 30-year timeframe captures both the early period of the program when very few vehicles that meet our standards will be in the fleet, and the later period when essentially all vehicles in the fleet will meet the new standards. We have calculated the 30-year net present value cost-effectiveness using the net present value of the nationwide emission reductions and costs for each calender year. These emission reductions and costs are given for every calendar year in the RIA, in addition to details of the methodology we used to calculated the 30-year net present value cost-effectiveness.

Our per-vehicle and 30-year net present value cost-effectiveness values are given in Tables V.E-1 and V.E-2. Table V.E-1 summarizes the per-vehicle, net present value cost-effectiveness results for our diesel engine/gasoline vehicle/diesel sulfur standards using sales weighted averages of the costs (both near term and long term) and emission reductions of the various vehicle and engine classes affected. Table V.E-2 provides the same information from the program 30-year net present value perspective. It is based on the net present value of the 30 year stream of vehicle and fuel costs and NMHC+ NOX and PM emission reductions, resulting in the 30-year net present value cost-effectiveness. Diesel fuel costs applicable to diesel engines have been divided equally between the adsorber and trap, since 15 ppm diesel fuel is intended to enable all technologies to meet our standards. In addition, since the trap produces reductions in PM and also operates as an enabling device for the NOX adsorber, we have divided the total trap costs equally between compliance with the PM standard and compliance with the NOX and NMHC standards.

Tables V.E-1 and V.E-2 also display cost-effectiveness values based on two approaches to account for the reductions in SO2 emissions associated with the reduction in diesel fuel sulfur. While these reductions are not central to the program and are therefore not displayed with their own cost-effectiveness, they do represent real emission reductions due to our program. The first set of cost-effectiveness numbers in the tables simply ignores these reductions and bases the cost-effectiveness on only the NOX, NMHC, and PM emission reductions from our program. The second set accounts for these ancillary reductions by crediting some of the cost of the program to SO2. The amount of cost allocated to SO2 is based on the cost-effectiveness of SO2Start Printed Page 5102emission reductions that could be obtained from alternative, potential future EPA programs. The SO2 credit was applied only to the PM calculation, since SO2 reductions are primarily a means to reduce ambient PM concentrations.

Table V.E-1.—Per-Engine a Cost Effectiveness of the Standards for 2007 and Later MY Vehicles

PollutantsDiscounted lifetime cost effectiveness per tonDiscounted lifetime cost effectiveness per ton with SO2 credit b
Near-term costs:
NOX+NMHC$2,125$2,125
PM14,2377,599
Long-term costs:
NOX+NMHC1,6211,621
PM11,3404,701
a As described above, per-engine cost effectiveness does not include any costs or benefits from the existing, pre-control, fleet of vehicles that would use the 15 ppm diesel fuel.
b $446 credited to SO2 (at $4800/ton) for PM cost effectiveness.

Table V.E-2.—30-Year Net Present Value a Cost Effectiveness of the Standards

30-year n.p.v. cost effectiveness per ton30-year n.p.v. cost effectiveness per ton with SO2 credit b
NOX+NMHC$2,149$2,149
PM13,6074,195
a This cost effectiveness methodology reflects the total fuel costs incurred in the early years of the program when the fleet is transitioning from pre-control to post-control diesel vehicles. In 2007 <10% of highway diesel fuel is anticipated to be consumed by 2007 MY vehicles. By 2012 this increases to >50% for 2007 and later MY vehicles.
b $7.1 billion credited to SO2 (at $4800/ton).

2. Comparison With Other Means of Reducing Emissions

In comparison with other mobile source control programs, we believe that our program represents a cost effective strategy for generating substantial NOX, NMHC, and PM reductions. This can be seen by comparing the cost effectiveness of today's program with a number of mobile source standards that EPA has adopted in the past. Table V.E-3 summarizes the cost effectiveness of several past EPA actions for NOX+ NMHC. Table V.E-4 summarizes the cost effectiveness of several past EPA actions for PM.

Table V.E-3.—Cost Effectiveness of Previous Mobile Source Programs for NOX+NMHC

Program$/ton
Tier 2 vehicle/gasoline sulfur1,340-2,260
2004 Highway HD diesel212-414
Off-highway diesel engine425-675
Tier 1 vehicle2,054-2,792
NLEV1,930
Marine SI engines1,171-1,846
On-board diagnostics2,313
Marine CI engines24-176
Note: Costs adjusted to 1999 dollars.

Table V.E-4.—Cost Effectiveness of Previous Mobile Source Programs for PM

Program$/ton
Marine CI engines5222-3881
1996 urban bus12,264-19,622
Urban bus retrofit/rebuild30,251
1994 highway HD diesel20,900-24,467
Note: Costs adjusted to 1999 dollars.

We can see from these tables that the cost effectiveness of our diesel engine/gasoline vehicle/diesel sulfur standards falls within the range of these other programs for both NOX+NMHC and PM. Our program overlaps the range of the recently promulgated standards for Tier 2 light-duty vehicles and gasoline sulfur shown in Table V.E-3. Our program also overlaps the cost-effectiveness of past programs for PM. It is true that some previous programs have been more cost efficient than the program we are finalizing today. However, it should be expected that the next generation of standards will be more expensive than the last, since the least costly means for reducing emissions is generally pursued first.

In evaluating the cost effectiveness of our diesel engine/gasoline vehicle/diesel sulfur program, we also considered whether the new standards are cost effective in comparison with possible stationary source controls. In the context of the Agency's rulemaking which would have revised the ozone and PM NAAQS,[191] the Agency compiled a list of additional known technologies that could be considered in devising new emission reductions strategies.[192] Through this broad review, over 50 technologies were identified that could reduce NOX, VOC, or PM. The cost effectiveness of these technologies averaged approximately $5,000/ton for VOC, $13,000/ton for NOX, and $40,000/ton for PM. Although a $10,000/ton limit was actually used in the air quality analysis presented in the NAAQS revisions rule, these values clearly indicate that, not only are future emission control strategies likely to be more expensive (less cost effective) than past strategies, but the cost effectiveness of our program falls well below the average of those choices, and is near the lower end of the range of potential future strategies.

In summary, we believe that the weight of the evidence from alternative means of providing substantial NOX + NMHC and PM emission reductions indicates that our diesel engine/gasoline vehicle/diesel sulfur program is cost effective relative to other means of achieving air quality improvements. We believe this is true from the perspective of other mobile source control programs and from the perspective of other stationary source technologies that might be considered.

F. Does the Value of the Benefits Outweigh the Cost of the Standards?

While EPA uses relative cost-effectiveness as the principal economic policy criterion for these standards, further insight regarding the merits of the standards can be provided by benefit-cost analysis. The purpose of this section is to summarize the methods we used and results we obtained in conducting an analysis of the economic benefits of the HD Engine/Diesel Fuel program, and to compare these economic benefits with the estimated costs of the rule. In summary, the results of our analysis indicate that the economic benefits of the HD Engine/Diesel Fuel standards will exceed the costs of meeting the standards. The annual estimated benefits we were able to quantify were $70.4 billion (1999$).

1. What Was Our Overall Approach to the Benefit-Cost Analysis?

The basic question we sought to answer in the benefit-cost analysis was, “What are the net yearly economic benefits to society of the reduction in mobile source emissions likely to be Start Printed Page 5103achieved by the final HD Engine/Diesel Fuel program?” In designing an analysis to address this question, we selected a future year for analysis (2030) that is representative of full-implementation of the program (i.e., when the US heavy-duty truck fleet is composed of virtually only compliant heavy-duty vehicles). We also adopted an analytical structure and sequence similar to that used in the “section 812 studies” to estimate the total benefits and costs of the full Clean Air Act.[193] Moreover, we used many of the same models and assumptions used in the section 812 studies as well as other Regulatory Impact Analyses (RIAs) prepared by the Office of Air and Radiation. One difference from previous RIAs, however, is that for particulate matter air quality modeling we used the Regulatory Modeling System for Aerosols and Deposition (REMSAD) model. This model was used in the most recent section 812 study to model air quality in the West. By adopting the major design elements, models, and assumptions developed for the section 812 studies and other RIAs, we have largely relied on methods which have already received extensive review by the independent Science Advisory Board (SAB), by the public, and by other federal agencies.

2. What Are the Significant Limitations of the Benefit-Cost Analysis?

Every benefit-cost analysis examining the potential effects of a change in environmental protection requirements is limited to some extent by data gaps, limitations in model capabilities (such as geographic coverage), and uncertainties in the underlying scientific and economic studies used to configure the benefit and cost models. Deficiencies in the scientific literature often result in the inability to estimate changes in health and environmental effects, such as potential increases in premature mortality associated with increased exposure to carbon monoxide. Deficiencies in the economics literature often result in the inability to assign economic values even to those health and environmental outcomes which can be quantified. While these general uncertainties in the underlying scientific and economics literatures are discussed in detail in the RIA and its supporting documents and references, the key uncertainties which have a bearing on the results of the benefit-cost analysis of today's action are the following:

  • The exclusion of potentially significant benefit categories (e.g., health and ecological benefits of reduction in hazardous air pollutants emissions);
  • Errors in measurement and projection for variables such as population growth;
  • Uncertainties in the estimation of future year emissions inventories and air quality;
  • Uncertainties associated with the extrapolation of air quality monitoring data to some unmonitored areas required to better capture the effects of the standards on the affected population;
  • Variability in the estimated relationships of health and welfare effects to changes in pollutant concentrations; and
  • Uncertainties associated with the effect of potential future actions to limit emissions.

Despite these uncertainties, we believe the benefit-cost analysis provides a reasonable indication of the expected economic benefits of the HD Engine/Diesel Fuel program in 2030 under a set of assumptions. For the final HD Engine/Diesel Fuel benefit analysis, we adopt an approach similar to the Tier 2/Gasoline Sulfur RIA and the section 812 study. We first present an estimate for a primary set of benefit endpoints followed by a presentation of alternative calculations of key health and welfare endpoints to characterize uncertainty in this primary set.

One key area of uncertainty is the value of a statistical life (VSL) for risk reductions in mortality. The adoption of a value for the projected reduction in the risk of premature mortality is the subject of continuing discussion within the economic and public policy analysis community. There is general agreement that the value to an individual of a reduction in mortality risk tends to vary based on several factors, including the age of the individual, the type of risk, the level of control the individual has over the risk, the individual's attitude toward risk, and the health status of the individual. Age in particular may be an important difference between populations affected by air pollution mortality risks and populations affected by workplace risks. Premature mortality risks from air pollution tend to affect the very old more than the working age population. As such, any adjustments to VSL for age differences may have a large impact on total benefits. However, EPA prefers not to draw distinctions in the monetary value assigned to the lives saved even if they differ in age, health status, socioeconomic status, gender or other characteristic of the adult population.

In the recent Tier 2/Gasoline Sulfur benefits analysis, we employed a value of statistical life years (VSLY) approach developed for the Section 812 studies in exploring the impact of age on VSL. However, since these earlier analyses were completed, the SAB Environmental Economics Advisory Committee (EEAC) issued a new advisory report which identifies significant additional limitations in this method. Specifically, the SAB EEAC notes that “inferring the value of a statistical life year, however, requires assumptions about the discount rate and about the time path of expected utility of consumption” (EPA-SAB-EEAC-00-013). They also note that “the theoretically appropriate method is to calculate [willingness to pay (WTP)] for individuals whose ages correspond to those of the affected population, and that it is preferable to base these calculations on empirical estimates of WTP by age.”

SAB advised that the EPA “continue to use a wage-risk-based VSL as its primary estimate, including appropriate sensitivity analyses to reflect the uncertainty of these estimates,” and that “the only risk characteristic for which adjustments to the VSL can be made is the timing of the risk” (EPA-SAB-EEAC-00-013). In developing our primary estimate of the benefits of premature mortality reductions, we have appropriately discounted over the lag period between exposure and premature mortality. However, an empirical basis that meets the SAB's standards of reliability for adjusting the current $6 million VSL for many of these factors does not yet exist. A discussion of these factors is contained in the RIA and supporting documents. EPA recognizes the need for additional research by the scientific community to develop additional empirical support for adjustments to VSL for the factors mentioned above.

In accordance with the SAB advice, we use the VSL in our primary estimate and present alternative calculations of adjustment for age and other factors. Specifically, several studies conducted by Jones-Lee, et al. (1985, 1989, 1993) found a significant effect of age on the value of mortality risk reductions expressed by citizens in the United Kingdom. The results are supported by a recent analysis which asked samples of Canadian residents their values for reductions in mortality risk (Krupnick et al., 2000). As alternative calculations, we apply the ratios based on the Jones-Start Printed Page 5104Lee, et al. (1989, 1993) studies to the estimated premature mortalities within the appropriate age groups to provide alternative age-adjusted estimates of the value of avoided premature mortalities.

In the same way, the presentation of the other alternative calculations for certain endpoints seeks to demonstrate how much the overall benefit estimate might vary based on the value EPA has given to a parameter (which has uncertainty associated with it) underlying the estimates for human health and environmental effect incidence and the economic valuation of those effects. These alternative calculations represent conditions that might occur; however, EPA has selected the best values supported by current scientific literature for use in the primary estimate. The alternate calculations include the following:

  • Estimating PM-related premature mortality benefits based on different concentration-response (C-R) function estimates;
  • Value of avoided premature mortality incidences based on VSLY;
  • Consideration of reversals in chronic bronchitis treated as lowest severity cases;
  • Estimate of ozone-related chronic asthma;[194]
  • Value of visibility changes in all Federal Class I areas;
  • Value of visibility changes in US residential areas;
  • Value of reduced household soiling damage;
  • Alternative sensitivities of crops to ozone exposure from National Crop Loss Assessment Network estimates; and
  • Avoided costs of reducing nitrogen loadings in three case study eastern estuaries and nine other eastern estuaries.

Unfortunately, it is not possible to combine all of the assumptions used in the alternate calculations to arrive at different total benefit estimates because, it is highly unlikely that the selected combination of alternative values would all occur simultaneously. Therefore, it is better to consider each alternative calculation individually to assess the sensitivity of total benefits to individual assumptions. For instance, estimating PM-related premature mortality benefits based on different concentration-response functions may be an important uncertainty. Specifically, the Harvard Six Cities study by Dockery et al. (1993) of the relationship between PM concentration and premature mortality is a plausible alternative to the American Cancer Society (ACS)/Krewski et al. (2000) study used for the primary estimate of benefits. The SAB has noted that “the study had better monitoring with less measurement error than did most other studies” (EPA-SAB-COUNCIL-ADV-99-012, 1999). However, the Dockery et al. study had a more limited geographic scope (and a smaller study population) than the ACS/Krewski et al. study and the ACS/Krewski et al. study appears more likely to mitigate a key source of potential confounding. The Dockery et al. study did cover a broader age category (25 and older compared to 30 and older in the ACS study) and followed the cohort for a longer period (15 years compared to 8 years in the ACS study). For these reasons, the Dockery et al. study is considered to be a plausible alternative estimate of the avoided premature mortality incidences associated with this final rule. The alternative estimate for mortality can be substituted for the valuation component in our primary estimate of mortality benefits to observe how the net benefits of the program may be influenced by this assumption.

In addition to the estimate for the primary set of endpoints and alternative calculations of benefits, our RIA also presents an appendix with supplemental benefit estimates and sensitivity analyses of other key parameters in the benefits analysis that have greater uncertainty surrounding them due to limitations in the scientific literature. The following sensitivity analyses include alternative income elasticities of willingness to pay;[195] alternative discount rates;[196] alternative PM exposure lags preceding mortality; threshold analysis for PM mortality;[197] and other analyses.

Even with our efforts to fully disclose the uncertainty in our estimate, this uncertainty presentation method does not provide a definitive or complete picture of the true range of monetized benefits estimates. The set of alternative calculations is only representative of those benefits that we were able to quantify and monetize.

3. How Has the Benefit-Cost Analysis Changed From Proposal?

No quantitative benefits analysis was conducted for the proposal, although we outlined the methodology to be used for the final rule analysis. We summarized and responded to public comment regarding the methods in the Summary and Analysis of Comment document. Moreover, we have improved the methods that were presented at proposal. For the benefits assessment for the final rule, EPA updated the C-R functions for health endpoints (e.g., Krewski et al., 2000), updated the emissions inventory, and presented air quality information regarding urban and residential visibility. For the air quality inputs to the benefits analysis, we used the REMSAD model which offers improved chemistry, resolution, and other capabilities over the Source-Receptor Matrix discussed in the proposal. The model's performance, including uncertainties, are discussed elsewhere in the RIA and technical support documents. In addition, we also updated our presentations of monetary benefits of the reduced premature mortality based on advice from the SAB.[198] All of the changes made since the proposal serve to improve the analysis.

4. What Are the Benefits in the Years Leading up to 2030?

The HD Engine/Diesel Fuel program has various cost and emission related components, as described earlier in this section. These components would begin at various times and in some cases would phase in over time. This means that during the early years of the program there would not be a consistent match between cost and benefits. This is especially true for the vehicle control portions of the program, where the full vehicle cost would be incurred at the time of vehicle purchase, while the fuel cost along with the emission reductions and benefits resulting from all these costs would occur throughout the lifetime of the vehicle. Because of this Start Printed Page 5105inconsistency and our desire to more appropriately match the costs and emission reductions of our program, our analysis uses a future year when the fleet is nearly fully turned over (2030).

In the years before 2030, the benefits from the HD Engine/Diesel Fuel program will be less than those estimated here, because the compliant heavy-duty fleet will not be fully phased in. Annualized costs, on the other hand, reach nearly their full value within a few years of program initiation (once all phase-ins are completed). This can be seen by comparing the anticipated emission reductions described earlier in section II.D with the aggregate costs of section V.E. Thus, a benefit-cost ratio computed for the earlier years of the program would be expected to be lower than a ratio based on our 2030 analysis. On the other hand, since the estimated benefits are more than ten times the costs in 2030, the emission reduction and cost trends suggest that it is likely that annual benefits would exceed costs from a time early in the life of the program.[199]

Furthermore, to the extent that a lower ratio of benefits to costs early in the program is the result of the mismatch of costs and benefits in time, a simple analysis of an individual year would be misleading. A more appropriate means of capturing the impacts of timing differences in benefits and costs would be to produce a net present value comparison of the costs and benefits over some period of years (an approach analogous to the aggregate cost effectiveness presented in section V.F). Unfortunately, while this is relatively straight-forward for the costs, it is currently not feasible to do a multi-year analysis of the benefits as this would require a significant amount of air quality modeling to capture each year.

5. What Were the Results of the Benefit-Cost Analysis?

The benefit-cost analysis for the HD Engine/Diesel Fuel program reflects a single year “snapshot” of the yearly benefits and costs expected to be realized once the standards have been fully implemented and non-compliant vehicles have all been retired. As discussed in section V.F-4, the benefit-cost ratio would be expected to be lower than the results calculated here in the early years of the program.

Table V.F-1 presents EPA's primary estimate of the benefits of the rule, both the estimated reductions in incidences and the estimated economic value of those incidence reductions. In interpreting the results, it is important to keep in mind the limited set of effects we are able to monetize. Specifically, the table lists the avoided incidences of individual health and environmental effects, the pollutant associated with each of these endpoints, and the estimated economic value of those avoided incidences. For several environmental effects such as visibility, the concept of incidences or cases does not apply as it does for health effects; thus, for these categories economic values are applied directly to air quality conditions. As the table indicates, we estimate that the HD Engine/Diesel Fuel program will produce about 5,500 fewer cases of chronic bronchitis, and we also see significant improvements in minor restricted activity days (with an estimated 9,838,500 fewer cases). Our estimate also incorporates significant reductions in impacts on children's health, showing reductions of 17,600 cases of acute bronchitis, 192,900 fewer cases of lower respiratory symptoms, and 193,400 fewer cases of upper respiratory symptoms in asthmatic children each year. In addition, today's rule is estimated to reduce 361,400 incidents of asthma attacks each year in asthmatics of all ages from reduced exposure to ozone and particles. Asthma is the most prevalent chronic disease among children and currently affects over seven percent of children under 18 years of age.

Total monetized benefits, however, are driven primarily by the estimated 8,300 fewer premature fatalities each year, which account for almost 89 percent of total benefits. We assume for this analysis that some of the incidences of premature mortality related to PM exposures occur in a distributed fashion over the five years following exposure. To take this into account in the valuation of reductions in premature mortality, we apply an annual three percent discount rate to the value of premature mortality occurring in years after our analysis year.

Table V.F-1.—EPA Primary Estimate of the Annual Quantified and Monetized Benefits Associated With Improved Air Quality Resulting From the HD Engine/Diesel Fuel Rule in 2030 A

EndpointPollutantAvoided incidence A C (cases/year)Monetary benefits A D (millions 1999$)
Premature mortality B (adults, ages 30 and over)PM B8,300$62,580
Chronic bronchitisPM5,500$2,430
Hospital Admissions from Respiratory CausesOzone and PM4,100$60
Hospital Admissions from Cardiovascular CausesOzone and PM3,000$50
Emergency Room Visits for AsthmaOzone and PM2,400<$5
Acute bronchitis (children, ages 8-12)PM17,600<$5
Upper respiratory symptoms (asthmatic children, ages 9-11)PM193,400$10
Lower respiratory symptoms (children, ages 7-14)PM192,900<$5
Asthma attacks (asthmatics, all ages) EOzone and PM361,400Ba
Work loss days (adults, ages 18-65)PM1,539,400$160
Minor restricted activity days (adults, ages 18-65)Ozone and PM9,838,500$530
(adjusted to exclude asthma attacks)
Other health effects EOzone, PM, CO, NMHCU1+U2+U3+U4B1+B2+B3+B4
Decreased worker productivityOzone$140
Recreational visibility (86 Class I Areas)PM$3,260
Residential visibilityPMB5
Household soiling damagePMB6
Materials damagePMB7
Nitrogen Deposition to EstuariesNitrogenB8
Premature mortality B (adults, ages 30 and over)PM B8,300$62,580
Start Printed Page 5106
Chronic bronchitisPM5,500$2,430
Hospital Admissions from Respiratory CausesOzone and PM4,100$60
Hospital Admissions from Cardiovascular CausesOzone and PM3,000$50
Emergency Room Visits for AsthmaOzone and PM2,400<$5
Acute bronchitis (children, ages 8-12)PM17,600<$5
Upper respiratory symptoms (asthmatic children, ages 9-11)PM193,400$10
Lower respiratory symptoms (children, ages 7-14)PM192,900<$5
Asthma attacks (asthmatics, all ages) EOzone and PM361,400Ba
Work loss days (adults, ages 18-65)PM1,539,400$160
Minor restricted activity days (adults, ages 18-65)Ozone and PM9,838,500$530
(adjusted to exclude asthma attacks)
Other health effects EOzone and PMU1+U2+U3+U4B1+B2+B3+B4
CO, NMHC
Decreased worker productivityOzone$140
Agricultural crop damage (6 crops)Ozone$1,120
Commercial forest damage, (6 species in Eastern US)OzoneB9
Commercial forest damage, otherOzoneB10
Other welfare effects EOzone, PMB11+B12+B13+B14
CO, NMHC
Monetized Total F$70,360+B
Notes:
A Ozone-related benefits are only calculated for the Eastern US due to unavailability of reliable modeled ozone concentrations in the Western US, thus underestimating national ozone-related benefits. See RIA and technical support documents for details.
B Premature mortality associated with ozone is not separately included in this analysis. It is assumed that the ACS/Krewski, et al. (2000) C-R function for premature mortality captures both PM mortality benefits and any mortality benefits associated with other air pollutants. Also note that the valuation assumes the 5 year distributed lag structure described earlier and a 3 percent discount rate over that lag period.
C Incidences are rounded to the nearest 100.
D Dollar values are rounded to the nearest 10 million. Monetary benefits account for growth in real GDP per capita between 1990 and 2030.
E The Ui are the incidences and the Bi are the values for the unquantified category i. For some categories such as asthma attacks, we were able to quantify the reduction in incidence, but we present the monetization as an alternative calculation. A detailed listing of unquantified PM, ozone, CO, and NMHC related health and welfare effects is provided in Table V.F-2. NMHC shown here are also hazardous air pollutants listed in the Clean Air Act.
F B is equal to the sum of all unmonetized categories, i.e. Ba+B1+B2+...+Bn.

This table also indicates with a “B” those additional health and environmental benefits which could not be expressed in quantitative incidence and/or economic value terms. A full listing of the benefit categories that could not be quantified or monetized in our estimate are provided in Table V.F-2. For instance, visibility is expected to improve in all areas of the country, with the largest improvements occurring in heavily populated residential areas (e.g., half of the urban areas show an improvement of 0.5 deciviews or more). However, due to limitations on sources to value these effects, we include a “B” in the primary estimate table for this category. Likewise, the HD Engine/Diesel Fuel rule will also provide progress for some estuaries to meet their goals for reducing nitrogen deposition (e.g., nitrogen loadings for the Albemarle/Pamlico Sound are reduced by 24 percent of their reductions goal), however, this endpoint is also displayed with a “B” in the table. A full appreciation of the overall economic consequences of the HD Engine/Diesel Fuel standards requires consideration of all benefits and costs expected to result from the new standards, not just those benefits and costs which could be expressed here in dollar terms.

In summary, EPA's primary estimate of the benefits of the HD Engine/Diesel Fuel rule is $70.4 billion in 2030. This estimate accounts for growth in real gross domestic product (GDP) per capita between 1990 and 2030.

Table V.F-2.—Additional, Non-monetized Benefits of the HD Engine/Diesel Fuel Standards

PollutantUnquantified effects
Ozone HealthPremature mortality; A Increased airway responsiveness to stimuli; Inflammation in the lung; Chronic respiratory damage; Premature aging of the lungs; Acute inflammation and respiratory cell damage; Increased susceptibility to respiratory infection; and Non-asthma respiratory emergency room visits.
Ozone WelfareDecreased yields for commercial forests; Decreased yields for fruits and vegetables; Decreased yields for non-commercial crops; Damage to urban ornamental plants; Impacts on recreational demand from damaged forest aesthetics; and Damage to ecosystem functions.
PM HealthInfant mortality; Low birth weight; Changes in pulmonary function; Chronic respiratory diseases other th