
[Federal Register Volume 79, Number 25 (Thursday, February 6, 2014)]
[Rules and Regulations]
[Pages 7077-7087]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-02612]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 1039, 1042, and 1068

[EPA-HQ-OAR-2012-0102; FRL-9905-35-OAR]
RIN 2060-AR48; 2127-AL31


Nonroad Technical Amendments

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: EPA is adopting amendments to the technical hardship 
provisions under the Transition Program for Equipment Manufacturers 
related to the Tier 4 standards for nonroad diesel engines, and to the 
replacement engine exemption generally applicable to new nonroad 
engines. These provisions may have minor impacts on the costs and 
emission reductions of the underlying regulatory programs amended in 
this action, though in most cases these are simple technical 
amendments. For those provisions that may have a minor impact on the 
costs or benefits of the amended regulatory program, any potential 
impacts would be small and we have not attempted to quantify the 
potential changes.

DATES: This final rule is effective on March 10, 2014, except for Sec.  
1039.625(m) which will be effective on February 6, 2014.

FOR FURTHER INFORMATION CONTACT: Alan Stout, Environmental Protection 
Agency, Office of Transportation and Air Quality, Assessment and 
Standards Division, 2000 Traverwood Drive, Ann Arbor, Michigan 48105; 
telephone number: (734) 214-4805; email address: stout.alan@epa.gov.

[[Page 7078]]


SUPPLEMENTARY INFORMATION: 
    This action affects companies that manufacture or remanufacture 
nonroad engines and equipment in the United States. Regulated 
categories and entities include the following:

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            Category             NAICS Code \a\             Examples of potentially affected entities
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Industry.......................          333618  Manufacturers of new nonroad engines.
Industry.......................          333111  Manufacturers of farm machinery.
Industry.......................          333120  Manufacturers of construction equipment.
Industry.......................          336611  Manufacturers of marine vessels.
Industry.......................          811310  Engine repair, remanufacture, and maintenance.
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Note:
\a\ North American Industry Classification System (NAICS)

    This table is not intended to be exhaustive, but rather provides a 
guide for readers regarding entities likely covered by these rules. 
This table lists the types of entities that the agencies are aware may 
be regulated by this action. Other types of entities not listed in the 
table could also be regulated. To determine whether your activities are 
regulated by this action, you should carefully examine the 
applicability criteria in the referenced regulations. You may direct 
questions regarding the applicability of this action to the persons 
listed in the preceding FOR FURTHER INFORMATION CONTACT section.

I. Background

    EPA published a direct final rule on June 17, 2013, to amend 
various aspects of the regulations that apply for heavy-duty highway 
engines and vehicles and for nonroad engines and equipment (78 FR 
36370). For most of those changes, we did not receive adverse comment 
and most of the amendments became effective as published. We received 
adverse comments on certain amendments, which led us to withdraw those 
regulatory changes in a notice published August 16, 2013 (78 FR 49963).
    On the same day that we published the direct final rule, we 
published a companion proposed rule that included all the content of 
the direct final rule (78 FR 36135). This final rule follows up on two 
broad areas from the proposed rule that were the subject of adverse 
comment--the replacement engine exemption for nonroad engines, and the 
technical hardship and related provisions for nonroad diesel engine and 
equipment manufacturers transitioning to Tier 4 compliance.

II. Replacement Engine Exemption

    In 1996, EPA adopted a provision allowing manufacturers in limited 
circumstances to produce new engines for replacing failed engines that 
are exempt from the requirement to be certified to current emission 
standards (61 FR 58102, November 12, 1996). With this approach, 
manufacturers have been able to make new, exempt engines in cases where 
engines certified to current standards do not have the physical or 
performance characteristics needed to power equipment that was 
originally equipped with an older engine. Without this provision, some 
equipment owners would have been forced to prematurely scrap otherwise 
working equipment (sometimes worth millions of dollars) because no 
engine meeting current emission standards could be adapted for 
installation within the space occupied by the original engine.
    EPA later amended the replacement engine exemption provisions to 
address complications related to producing partially complete engines 
for replacement purposes and to address the need to produce and sell 
replacement engines such that they would be available to operators with 
a critical need to avoid extended downtime in the case of engine 
failure (73 FR 59034, October 8, 2008). These revisions allowed 
manufacturers to sell a limited number of new, exempt replacement 
engines without taking the steps that would otherwise be required to 
document the need for the exemption and to arrange for the proper 
disposition of the old engine. The amendments also included anti-
circumvention provisions to clarify the overall purpose of the 
replacement engine exemption in an attempt to prevent manufacturers and 
operators from using exempted engines in ways that were unnecessary 
and/or detrimental to the environment.
    In the June 2013 direct final rule and companion proposed rule, EPA 
amended these provisions to remove the overly restrictive anti-
circumvention provisions and replaced them with a variety of more 
specific conditions and requirements that were intended to more 
effectively ensure that the exemption would be used appropriately. We 
received adverse comment on some of the most recent amendments in Sec.  
1068.240(b). Based on these comments, we withdrew all the amendments to 
Sec.  1068.240(a) through (d), leaving intact the change to remove the 
anti-circumvention provisions in Sec.  1068.240(g), with the 
understanding that we would revisit all the intended changes from Sec.  
1068.240(a) through (d) in this subsequent final rule.
    EPA continues to believe that new, exempt replacement engines 
should be used only in cases where a currently certified engine cannot 
practically be installed to power the old equipment. EPA believes the 
proposed regulatory language in Sec.  1068.240 serves this purpose 
without the unintended consequences described above associated with the 
anti-circumvention provisions. EPA expects manufacturers and operators 
following the regulations to continue to use the exemption provisions 
appropriately and not for the purpose of circumventing the emission 
standards. EPA is adding language to explicitly limit this provision to 
equipment that has been in service 40 years or less (at the point of 
installation) so that manufacturers and operators do not use this 
provision to keep older dirtier equipment in operation beyond its 
normal lifetime by continually using new, exempt engines to replace old 
engines. EPA has adopted a similar restriction for stationary engines 
under 40 CFR 60.4210(i), except that the maximum equipment age is 15 
years for stationary engines. EPA will continue to monitor compliance 
with the amended exemption provisions and will consider any appropriate 
changes to the regulation in the future to ensure that the exemption is 
properly used toward this purpose. This 40-year limit does not apply 
for marine diesel engines, since those engines are subject to separate 
replacement engine provisions.
    We included a 25-year limit in the proposed rule, but four 
commenters weighed in on this age limit. The California Air Resources 
Board stated that it did not oppose the proposal and appreciated the 
intent of the provision to ensure against older technology engines 
being available indefinitely. However, CARB did not believe it was 
necessary to incorporate the limit into

[[Page 7079]]

the California program because the state's in-use programs are expected 
to require fleet modernization for most nonroad applications well in 
advance of the proposed 25 year cut-off. The Northeast States for 
Coordinated In-Use Management supported the 25-year limit as a 
reasonable measure to address circumvention concerns. The National 
Groundwater Association objected to the 25-year limit, noting that 
their members have thousands of powered drilling units with an expected 
lifetime of 50 years or more. They stated that limiting access to the 
replacement engine exemption and thereby requiring operators to 
prematurely buy expensive new equipment would cause significant 
economic hardship. They acknowledged that a 40-year limit for 
groundwater drilling applications would be more appropriate. Case New 
Holland also described the potential for significant adverse impacts if 
the 25-year limit were applied to agricultural equipment; they favored 
simply removing the age specification but also stated that changing to 
a 40-year limit would provide substantial relief. As a result, we are 
replacing the proposed 25-year limit with a 40-year limit.
    The ``tracked option'' specified in Sec.  1068.240(b) also includes 
an additional step to qualify for the replacement engine exemption for 
equipment not experiencing premature engine failure. In particular, 
manufacturers would need to make a determination that the replacement 
engine is designed with the greatest degree of emission control that is 
available for the particular application (i.e., ``cleanest 
available''). For example, consider an engine being replaced that was 
built before the Tier 1 standards started to apply and that engines of 
its power category are currently subject to Tier 4 standards. In 
addition to the exemption provision requiring the manufacturer to 
determine that a Tier 4 engine does not have the necessary physical or 
performance characteristics, the manufacturer must also consider 
whether any Tier 1, Tier 2, or Tier 3 engines are being produced with 
the appropriate physical and performance characteristics for replacing 
the old engine. If a Tier 3 engine is available with the appropriate 
physical and performance characteristics for a given installation, Tier 
1 and Tier 2 engines emitting at levels above the Tier 3 standards 
would not qualify for an exemption for that equipment. This requirement 
to use the cleanest available engine fits with the intent of the 
amendments facilitating voluntary incentive programs involving 
replacement engine upgrades toward the goal of reducing emissions from 
in-use equipment, but without imposing a requirement that would involve 
new technology development or impractical equipment design changes. A 
provision similar to this has already been in place for marine diesel 
engines in Sec.  1042.615. In the case of equipment experiencing 
premature engine failure, we will continue to apply the simpler 
requirement that the replacement engine must meet emission standards 
that are the same as or better than the standards that applied to the 
old engine. We received no adverse comment on this provision.
    We are also revising the provisions related to the disposition of 
the old engine in Sec.  1068.240(b). The engine manufacturer making the 
exempt new replacement engine must take possession of the old engine or 
confirm that it has been destroyed. Although this is not a new 
requirement, we are including an additional new provision to explicitly 
allow the re-use of the old engine block, but to limit such re-use. 
Specifically, to be re-introduced into U.S. commerce, the old engine 
must either meet current emission standards or qualify for an exemption 
as if it were a new engine. For example, the old engine could be re-
used as a replacement engine for a different piece of equipment under 
certain circumstances. Under this approach, an engine made with a used 
engine block and any mix of new or used additional parts would be 
treated in a consistent way. For example, the recycled replacement 
engine would be subject to all the demonstrations and documentation 
requirements of Sec.  1068.240(b), or it could alternatively count 
toward the engine manufacturer's allowance to produce a limited number 
of exempt replacement engines under Sec.  1068.240(c). For engines 
covered by the ``tracked option'' under Sec.  1068.240(b) that are not 
re-introduced into U.S. commerce, the engine manufacturer making the 
new exempt engine must destroy the old engine or confirm that it has 
been destroyed. We note that destroying an engine means altering it so 
it can never be used again in any form as a working engine. However, we 
believe manufacturers will rarely choose to destroy an engine that 
could be remanufactured as a replacement engine under Sec.  1068.240.
    North American Repower provided comments describing their objection 
to the amendments related to the disposition of the engines being 
replaced. Their comments focused primarily on their desire for a steady 
source of old engine blocks to supply their remanufacturing activities. 
However, their objection seems to be directed at the existing 
restriction rather than the proposed flexibility regarding the 
disposition of engine cores. The existing requirement for the engine 
manufacturer to take possession of the old engine (or confirm that it 
was destroyed) has never allowed replaced engines under the ``tracked 
option'' in Sec.  1068.240(b) to be reused by other parties. This 
restriction was put in place in the past because the ``tracked option'' 
does not limit the number of exempt replacement engines a manufacturer 
may produce. Thus, it is important to restrict the re-use of these 
replaced engines so this option cannot be used to significantly 
increase the number of older-technology engines in use. To the extent 
that the provision in question has any impact on the availability of 
these engine cores, it can only make them more available. The revised 
regulations explicitly allow for re-use of the replaced engines if they 
are modified to meet current emission standards, or if they qualify for 
exemptions that apply for new engines. For example, a manufacturer 
taking possession of a replaced engine may remanufacture that engine in 
a certified configuration, or they may sell it as an exempt replacement 
engine if they take the steps and meet the conditions that apply under 
Sec.  1068.240. The manufacturer may also sell the engine core to 
another remanufacturing company under the provisions of Sec.  1068.262; 
such a transaction was not specifically authorized under the previous 
regulation. Additionally, we note that these provisions do not limit 
the ability of remanufacturing companies to recover engine cores from 
scrapped equipment or from engines replaced by used engines. Because of 
limits on producing exempt new replacement engines, it is likely that 
the number of these other engines will typically be much higher than 
the number of engines replaced with new exempt replacement engines 
under Sec.  1068.240(b) in any given year. We are finalizing these 
provisions as proposed. Note that a more detailed discussion of North 
American Repower's comments can be found in the docket for this 
rulemaking.\1\
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    \1\ Response to Comments from North American Repower Regarding 
Engine Core Recovery.'' EPA memo to Docket EPA-HQ-OAR-2012-0102 from 
Alan Stout, January 10, 2014.
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    EPA is also adding some clarification to the replacement engine 
regulations to address questions that have arisen, as well as making 
the following changes that did not receive adverse comment:

[[Page 7080]]

     Revising the labeling requirements to account for the 
possibility of using a new replacement engine to replace a previously 
exempted replacement engine. To the extent that the revised label 
statement differs from that specified by California ARB, we would 
expect to approve an adjusted statement that allows for a single, 50-
state label under Sec.  1068.201(c).
     Adjusting the reporting deadline for untracked replacement 
engines under Sec.  1068.240(c). This change would allow manufacturers 
some time after the end of the calendar year to make the determinations 
and to take the required steps to fulfill the tracking requirements for 
replacement engines under Sec.  1068.240(b). Any engines for which 
these steps and determinations are incomplete by the deadline for the 
report would need to be counted as untracked replacement engines. 
Further, to account for prevailing practices and typical timelines for 
replacement engines, we are moving back the deadline for this annual 
report from February 15 to March 31.
     Adding language to allow manufacturers to redesignate 
their exempt replacement engines before submitting the annual report. 
The regulation already specifies that it is acceptable to qualify for a 
tracked exemption under Sec.  1068.240(b), even if that wasn't the 
original plan, as long as all the applicable conditions and 
requirements are met. We are adding language to allow the converse as 
well. Specifically, if manufacturers plan to use a tracked exemption, 
but find in the end that they don't want to deal with the limitations 
on what can be done with the old engine (or if any of the other 
conditions or requirements are not met), they may count that as an 
untracked exemption for that reporting period.
     Revising Sec.  1068.240(c)(1) to specify that 
manufacturers may base sales limits for the untracked option on total 
U.S. production of certified and exempted engines together (including 
stationary engines).
     Clarifying that the provisions in Sec.  1068.240(d) 
related to partially complete engines also apply for ``current-tier'' 
replacement engines exempted under Sec.  1068.240(e).
     Adding a statement to Sec.  1042.615 for marine diesel 
engines to clarify our pre-determination that certified Tier 4 engines 
do not have the appropriate physical and performance characteristics 
for replacing older non-Tier 4 engines in marine vessels. This policy 
was established in our final rule from June 30, 2008 (see 73 FR 37157).

III. Nonroad Diesel Engine Technical Hardship Program

    EPA adopted Tier 4 standards for nonroad diesel engines under 40 
CFR part 1039 in 2004 (69 FR 38958, June 29, 2004). To meet these 
standards, engine manufacturers are pursuing development of advanced 
technologies, including new approaches for exhaust aftertreatment. 
Equipment manufacturers will need to modify their equipment designs to 
accommodate these new engine technologies and the corresponding changes 
to engine operating parameters (such as operating temperatures and heat 
rejection rates). To provide flexibility for equipment manufacturers in 
their efforts to respond to these engine design changes, the Tier 4 
standards included the Transition Program for Equipment Manufacturers. 
Flexibilities allowed under this program include delaying compliance 
for small-volume equipment models for several years or using allowances 
in the first year to manage the transition to the Tier 4 engines. While 
a certain number of allowances are available to all companies, the 
regulation provides additional relief for nonroad diesel equipment 
manufacturers under certain limited circumstances we refer to as 
``technical hardship''. EPA is amending this technical hardship program 
to facilitate EPA granting exemptions to address certain hardship 
circumstances that were not contemplated when the original 2004 final 
rule was published.
    The Transition Program for Equipment Manufacturers is intended to 
allow nonroad equipment manufacturers wide discretion to manage their 
product development timeline. Equipment manufacturers may comply either 
based on a percent of their production (generally for high-volume 
manufacturers, as described in Sec.  1039.625(b)(1)), or based on a 
maximum number of exempted pieces of equipment (generally for low-
volume manufacturers, as described in Sec.  1039.625(b)(2)). At the 
same time, the regulations include at Sec.  1039.625(m) an 
acknowledgement that equipment manufacturers might face a wide range of 
circumstances, including cases where engine manufacturers might be late 
in providing compliant engines to nonintegrated equipment 
manufacturers, such that the specified allowances are insufficient to 
avoid a disruption in the equipment manufacturer's production schedule. 
The technical hardship provision at Sec.  1039.625(m) allows EPA to 
make a judgment that an equipment manufacturer that buys engines from 
another company, through no fault of its own, needs additional 
allowances to manage the transition to Tier 4 products. The regulation 
as originally adopted specifies a maximum allowance of 150 percent of a 
manufacturer's annual production (relative to Sec.  1039.625(b)(1)), or 
a total of 1,100 allowances (relative to Sec.  1039.625(b)(2)). The 
regulation also allows for economic hardship provisions under Sec.  
1068.255; however, that eligibility depends on manufacturers showing 
that their solvency is in jeopardy without relief. Economic hardship 
therefore serves as a flexibility provision of last resort.
    As the compliance dates for the Tier 4 standards approach, 
equipment manufacturers have described scenarios where the technical 
hardship provisions are too restrictive for EPA to address their 
circumstances. For example, engine manufacturers have in some cases 
delayed delivery of Tier 4 engines until six or even twelve months 
after the Tier 4 standards start to apply, which is forcing equipment 
manufacturers to use up all their allowances under Sec.  1039.625(b) in 
the first year of the new standards. Some equipment manufacturers have 
expressed the concern that engine manufacturers in some cases have 
chosen to take advantage of these program allowances for their own 
benefit, even though they were intended to provide relief to equipment 
manufacturers. Not only have there been cases in which engine 
manufacturers did not have certain engines ready for production when 
required by the standards, but there have also been cases in which 
engine manufactures had not provided prototype engines or even 
dimensional drawings for certain engine models for equipment 
manufacturers to use to redesign their equipment. Whether or not this 
is the result of engine manufacturers acting in bad faith, it seems 
clear that this questionable planning by engine manufacturers has 
created the potential for significant hardship to some equipment 
manufacturers. Although at this point the maximum number of additional 
allowances available for EPA to grant under Sec.  1039.625(m) would 
cover a good portion of the second year of the Tier 4 standards, we now 
understand that this too may be inadequate to allow equipment 
manufacturers to respond to the engine manufacturers' very late 
deliveries of compliant engines.
    In these cases, the maximum allowable relief under Sec.  
1039.625(m) may be insufficient to allow equipment manufacturers to 
transition to meeting Tier 4 requirements without disrupting their 
ability to continue producing their equipment models. There have also

[[Page 7081]]

been cases where a company would meet the criteria to qualify for 
consideration for technical hardship under Sec.  1039.625(m) except 
that the regulation disallowed technical hardship relief for all 
engines above 560 kW and provided only limited relief for engines above 
37 kW. The regulation also provided only limited relief for companies 
that are not small businesses. In these cases, no additional relief was 
available under Sec.  1039.625(m), which again would leave equipment 
manufacturers unable to continue producing their equipment models. To 
address these circumstances, we proposed to amend the Transition 
Program for Equipment Manufacturers in three ways to address these 
concerns.
    First, we proposed to remove some of the qualifying criteria so 
that any non-vertically integrated equipment manufacturer may apply for 
technical hardship relief under Sec.  1039.625(m) for any size engine, 
rather than limiting the technical hardship relief to small businesses 
and to engines within certain power categories. We believe it is more 
appropriate to rely on our discretion to evaluate each hardship 
application on its merits rather than automatically precluding hardship 
relief based on certain characteristics of the engine or the company. 
If hardship relief is not appropriate because of an engine's power 
rating or a company's size or financial standing, we would not approve 
such a request.
    Second, we initially removed the maximum number of allowances we 
can approve under Sec.  1039.625(m). We also removed the deadlines for 
exercising those additional allowances. Specifically, we adjusted the 
provision for additional small-volume allowances under Sec.  
1039.625(b)(2) and (m)(4) by specifying that we may waive the annual 
limits on the number of allowances instead of or in addition to 
granting additional hardship allowances. We did this because there may 
be times when manufacturers only need approval to use up their regular 
allowances at a faster pace than the regulations originally allowed.
    In response to these amendments, we received adverse comments from 
the California Air Resources Board and the Manufacturers of Emission 
Controls Association. They expressed concern about EPA allowing itself 
unlimited discretion in the total number of allowances we may grant to 
provide relief to manufacturers that qualified for technical hardship 
under Sec.  1039.625(m). They also objected to the proposed approach, 
expressing a concern that we would be putting ourselves in a position 
to substantially undermine the expected emission reductions from the 
Tier 4 program. Therefore, in this final rule we are only increasing 
the maximum number of percent-of-production hardship allowances EPA may 
grant from 70 to 200 percent, and the maximum number of and small-
volume hardship allowances from 400 to 2,000 units.
    Third, we initially removed all limitations for the higher FEL caps 
under Sec.  1039.104(g). However, the California Air Resources Board 
and the Manufacturers of Emission Controls questioned the need for the 
revision and argued that allowing more engines with higher FELs would 
cause higher emissions where engines were operating, even though the 
net impact would be emissions-neutral due to the use of emissions 
credits. Subsequent to these comments, John Deere provided supplemental 
comments describing their product development efforts for engines in 
the 19-56 kW power category. They explained why the original limit on 
the higher FEL cap flexibility was not sufficient for them to complete 
their development and implementation of Tier 4 technologies in time.
    To address the environmental concerns expressed while also 
accommodating the technology development needs that were explained, we 
are adopting revised the limits on the higher FEL caps, but isolated 
that to the 19-56 kW power category. Specifically, we are increasing 
this limitation for higher FEL caps from 20 to 40 percent annually, and 
from 40 to 80 percent over the specified four-year period. This 
expanded flexibility addresses similar technological readiness 
circumstances, as described in this section for transitioning to the 
Tier 4 standards. However, with this amendment there would be no net 
environmental impact since manufacturers would need to produce low-
emission engines that generate emission credits to offset the 
additional credits used by transition engines certified to higher FELs.
    We are also revising Sec.  1039.104(g) to specify that the 
Temporary Compliance Adjustment Factor is the same whether an engine is 
subject to NOX + NMHC standards or NOX-only 
standards. This revision also addresses Tier 3 carry-over engines that 
would need to certify to the alternate FEL caps after the Tier 4 final 
standards take effect.
    Finally, we are republishing Sec.  1039.625(e)(3), which was 
inadvertently omitted in the withdrawal notice without the last 
sentence, which describes the alternative standards that apply for 
engines below 56 kW and engines above 560 kW.
    Section 553(d) of the Administrative Procedure Act (APA), 5 U.S.C. 
chapter 5, generally provides that rules may not take effect earlier 
than 30 days after they are published in the Federal Register. APA 
section 553(d) excepts from this provision any action that grants or 
recognizes an exemption or relieves a restriction. Since the provisions 
expanding the technical hardship relief in Sec.  1039.625(m) increase 
access to an exemption from emission standards, EPA is making the 
revisions to Sec.  1039.625(m) effective immediately upon publication. 
The expanded technical hardship provisions do not set new requirements, 
but rather create a streamlined path by which equipment manufacturers 
unable to install compliant Tier 4 engines may install previous-tier 
engines that they could not otherwise install without this final rule. 
Thus, the expanded technical hardship provisions of Sec.  1039.625(m) 
promulgated in this final rule are effective on February 6, 2014.

IV. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review and Executive 
Order 13563: Improving Regulation and Regulatory Review

    This action is not a ``significant regulatory action'' under the 
terms of Executive Order 12866 (58 FR 51735, October 4, 1993) and is 
therefore not subject to review under Executive Orders 12866 and 13563 
(76 FR 3821, January 21, 2011). These provisions may have minor impacts 
on the costs and emission reductions of the underlying regulatory 
programs amended in this action. Where there may be a minor impact on 
the costs or benefits of the amended regulatory program, any potential 
impacts would be small and we have not attempted to quantify the 
potential changes. As such, a regulatory impact evaluation or analysis 
is unnecessary. EPA also does not expect this rule to have substantial 
Congressional or public interest.

B. Paperwork Reduction Act

    This action does not impose any new information collection burden. 
The regulatory changes include changes to the way we implement the 
emission standards or exemption provisions to reduce burden or to 
streamline administrative procedures. However, the Office of Management 
and Budget (OMB) has previously approved the information collection 
requirements contained in the existing regulations at

[[Page 7082]]

40 CFR parts 1039 and 1068 under the provisions of the Paperwork 
Reduction Act, 44 U.S.C. 3501 et seq. and has assigned OMB Control 
Numbers 2060-0287 and 2060-0460. The OMB control numbers for EPA's 
regulations in title 40 of the Code of Federal Regulations are listed 
in 40 CFR part 9.

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) as amended by the Small 
Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121, 
110 Stat. 857), generally requires an agency to prepare a regulatory 
flexibility analysis of any rule subject to notice and comment 
rulemaking requirements under the Administrative Procedure Act or any 
other statute unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
Small entities include small businesses, small organizations, and small 
governmental jurisdictions.
    For purposes of assessing the impacts of this rule on small 
entities, small entity is defined as: (1) A small business as defined 
by Small Business Administration regulations at 13 CFR 121.201; (2) a 
small governmental jurisdiction that is a government of a city, county, 
town, school district or special district with a population of less 
than 50,000; and (3) a small organization that is any not-for-profit 
enterprise which is independently owned and operated and is not 
dominant in its field.
    After considering the economic impacts of these rules on small 
entities, we concluded that this action will not have a significant 
economic impact on a substantial number of small entities.
    This final rule allows for greater flexibility and reduced burden 
for manufacturers and remanufacturers. There are no costs and therefore 
no regulatory burden associated with this rule. We have therefore 
concluded that this rule will not increase regulatory burden for 
affected small entities.

D. Unfunded Mandates Reform Act

    This action contains no Federal mandates under the provisions of 
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), 2 U.S.C. 
1531-1538 for State, local, or tribal governments or the private 
sector. The action imposes no enforceable duty on any State, local or 
tribal governments or the private sector. Therefore, this action is not 
subject to the requirements of sections 202 or 205 of the UMRA.
    This action is also not subject to the requirements of section 203 
of UMRA because it contains no regulatory requirements that might 
significantly or uniquely affect small governments.

E. Executive Order 13132: Federalism

    This action does not have federalism implications. It will not have 
substantial direct effects on the States, on the relationship between 
the national government and the States, or on the distribution of power 
and responsibilities among the various levels of government, as 
specified in Executive Order 13132. Thus, Executive Order 13132 does 
not apply to this action.

F. Executive Order 13175: Consultation and Coordination With Indian 
Tribal Governments

    This action does not have tribal implications, as specified in 
Executive Order 13175 (65 FR 67249, November 9, 2000). Tribal 
governments would be affected only to the extent they purchase and use 
regulated vehicles. Thus, Executive Order 13175 does not apply to this 
action.

G. Executive Order 13045: Protection of Children From Environmental 
Health and Safety Risks

    This action is not subject to Executive Order 13045 (62 FR 19885, 
April 23, 1997) because it is not economically significant as defined 
in Executive Order 12866, and because EPA does not believe the 
environmental health or safety risks addressed by this action present a 
disproportionate risk to children. Any potential environmental health 
or safety impacts of this final rule would be very small.

H. Executive Order 13211: Actions That Significantly Affect Energy 
Supply, Distribution, or Use

    This action is not subject to Executive Order 13211 (66 FR 28355 
(May 22, 2001)), because it is not a significant regulatory action 
under Executive Order 12866.

I. National Technology Transfer Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (``NTTAA''), Public Law 104-113, 12(d) (15 U.S.C. 272 note) 
directs EPA to use voluntary consensus standards in its regulatory 
activities unless to do so would be inconsistent with applicable law or 
otherwise impractical. Voluntary consensus standards are technical 
standards (e.g., materials specifications, test methods, sampling 
procedures, and business practices) that are developed or adopted by 
voluntary consensus standards bodies. NTTAA directs EPA to provide 
Congress, through OMB, explanations when the Agency decides not to use 
available and applicable voluntary consensus standards.
    This action does not involve application of new technical 
standards. Therefore, EPA did not consider the use of any voluntary 
consensus standards.

J. Executive Order 12898: Federal Actions To Address Environmental 
Justice in Minority Populations and Low-Income Populations

    Executive Order 12898 (59 FR 7629, February 16, 1994) establishes 
federal executive policy on environmental justice. Its main provision 
directs federal agencies, to the greatest extent practicable and 
permitted by law, to make environmental justice part of their mission 
by identifying and addressing, as appropriate, disproportionately high 
and adverse human health or environmental effects of their programs, 
policies, and activities on minority populations and low-income 
populations in the United States.
    EPA has determined that this final rule will not have 
disproportionately high and adverse human health or environmental 
effects on minority or low-income populations because it merely makes 
minor revisions to existing regulatory programs.

K. Congressional Review Act

    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the 
Small Business Regulatory Enforcement Fairness Act of 1996, generally 
provides that before a rule may take effect, the agency promulgating 
the rule must submit a rule report, which includes a copy of the rule, 
to each House of the Congress and to the Comptroller General of the 
United States. EPA will submit a report containing this rule and other 
required information to the U.S. Senate, the U.S. House of 
Representatives, and the Comptroller General of the United States prior 
to publication of the rule in the Federal Register. A Major rule cannot 
take effect until 60 days after it is published in the Federal 
Register. This action is not a ``major rule'' as defined by 5 U.S.C. 
804(2). The changes to Sec.  1039.625(m) are effective on February 6, 
2014. All other provisions in this rule are effective on March 10, 
2014.

V. Statutory Authority

    Statutory authority for the vehicle controls is found in Clean Air 
Act section 213 (which authorizes standards for emissions of pollutants 
from new nonroad engines which emissions cause or contribute to air 
pollution which may reasonably be anticipated to endanger

[[Page 7083]]

public health or welfare), sections 203-209, 216, and 301 (42 U.S.C. 
7522, 7523, 7524, 7525, 7541, 7542, 7543, 7547, 7550, and 7601).

List of Subjects

40 CFR Part 1039

    Environmental protection, Administrative practice and procedure, 
Air pollution control, Confidential business information, Imports, 
Labeling, Penalties, Reporting and recordkeeping requirements, 
Warranties.

40 CFR Part 1042

    Environmental protection, Administrative practice and procedure, 
Air pollution control, Confidential business information, Imports, 
Labeling, Penalties, Vessels, Reporting and recordkeeping requirements, 
Warranties.

40 CFR Part 1068

    Environmental protection, Administrative practice and procedure, 
Confidential business information, Imports, Motor vehicle pollution, 
Penalties, Reporting and recordkeeping requirements, Warranties.

    Dated: January 28, 2014.
Gina McCarthy,
Administrator.
    For the reasons set forth in the preamble, the Environmental 
Protection Agency is amending title 40, chapter I of the Code of 
Federal Regulations as follows:

PART 1039--CONTROL OF EMISSIONS FROM NEW AND IN-USE NONROAD 
COMPRESSION-IGNITION ENGINES

0
1. The authority citation for part 1039 continues to read as follows:

    Authority: 42 U.S.C. 7401-7671q.

Subpart B--[Amended]

0
2. Section 1039.104 is amended by revising paragraph (g) to read as 
follows:


Sec.  1039.104  Are there interim provisions that apply only for a 
limited time?

* * * * *
    (g) Alternate FEL caps. You may certify engines to the FEL caps in 
Table 1 of this section instead of the otherwise applicable FEL caps in 
Sec.  1039.101(d)(1), Sec.  1039.102(e), or Sec.  1039.102(g)(2) for 
the indicated model years, subject to the following provisions:
    (1) The provisions of this paragraph (g) apply for limited numbers 
of engines as specified in this paragraph (g)(1). If you certify an 
engine under an alternate FEL cap in this paragraph (g) for any 
pollutant, count it toward the allowed percentage of engines certified 
to the alternate FEL caps.
    (i) Except as specified in paragraph (g)(1)(ii) of this section, 
the number of engines certified to the FEL caps in Table 1 of this 
section must not exceed 20 percent in any single model year in each 
power category, and the sum of percentages over the 4-year period must 
not exceed a total of 40 percent in each power category.
    (ii) For the 19-56 kW power category, the number of engines 
certified to the FEL caps in Table 1 of this section must not exceed 40 
percent in any single model year, and the sum of percentages over the 
4-year period must not exceed a total of 80 percent.
    (2) If your engine is not certified to transient emission standards 
under the provisions of Sec.  1039.102(a)(1)(iii), you must adjust your 
FEL upward by a temporary compliance adjustment factor (TCAF) before 
calculating your negative emission credits under Sec.  1039.705, as 
follows:
    (i) The temporary compliance adjustment factor for NOX 
and for NOX + NMHC is 1.1.
    (ii) The temporary compliance adjustment factor for PM is 1.5.
    (iii) The adjusted FEL (FELadj) for calculating emission 
credits is determined from the steady-state FEL (FELss) 
using the following equation:

FELadj = (FELss) x (TCAF)

    (iv) The unadjusted FEL (FELss) applies for all purposes 
other than credit calculation.
    (3) These alternate FEL caps may not be used for phase-in engines.
    (4) Do not apply TCAFs to gaseous emissions for phase-out engines 
that you certify to the same numerical standards (and FELs if the 
engines are certified using ABT) for gaseous pollutants as you 
certified under the Tier 3 requirements of 40 CFR part 89.

                                 Table 1 of Sec.   1039.104--Alternate FEL Caps
----------------------------------------------------------------------------------------------------------------
                                                                    Model years                     Model years
                                                  PM FEL cap, g/      for the     NOX FEL cap, g/     for the
              Maximum engine power                     kW-hr       alternate PM      kW-hr \1\     alternate NOX
                                                                      FEL cap                         FEL cap
----------------------------------------------------------------------------------------------------------------
19 <= kW < 56...................................            0.30   \2\ 2012-2015  ..............  ..............
56 <= kW < 130 \3\..............................            0.30       2012-2015             3.8   \4\ 2012-2015
130 <= kW <= 560................................            0.20       2011-2014             3.8   \5\ 2011-2014
kW > 560 \6\....................................            0.10       2015-2018             3.5       2015-2018
----------------------------------------------------------------------------------------------------------------
\1\ The FEL cap for engines demonstrating compliance with a NOX + NMHC standard is equal to the previously
  applicable NOX + NMHC standard specified in 40 CFR 89.112 (generally the Tier 3 standards).
\2\ For manufacturers certifying engines under Option 1 of Table 3 of Sec.   1039.102, these alternate
  FEL caps apply to all 19-56 kW engines for model years from 2013 through 2016 instead of the years indicated
  in this table. For manufacturers certifying engines under Option 2 of Table 3 of Sec.   1039.102,
  these alternate FEL caps do not apply to 19-37 kW engines except in model years 2013 to 2015.
\3\ For engines below 75 kW, the FEL caps are 0.40 g/kW-hr for PM emissions and 4.4 g/kW-hr for NOX emissions.
\4\ For manufacturers certifying engines in this power category using a percentage phase-in/phase-out approach
  instead of the alternate NOX standards of Sec.   1039.102(e)(1), the alternate NOX FEL cap in the table
  applies only in the 2014-2015 model years if certifying under Sec.   1039.102(d)(1), and only in the 2015
  model year if certifying under Sec.   1039.102(d)(2).
\5\ For manufacturers certifying engines in this power category using the percentage phase-in/phase-out approach
  instead of the alternate NOX standard of Sec.   1039.102(e)(2), the alternate NOX FEL cap in the table applies
  only for the 2014 model year.
\6\ For engines above 560 kW, the provision for alternate NOX FEL caps is limited to generator-set engines.

    (5) You may certify engines under this paragraph (g) in any model 
year provided for in Table 1 of this section without regard to whether 
or not the engine family's FEL is at or below the otherwise applicable 
FEL cap. For example, a 200 kW engine certified to the NOX + 
NMHC standard of Sec.  1039.102(e)(3) with an FEL equal to the FEL cap 
of 2.8 g/kW-hr may nevertheless be certified under this paragraph (g).
    (6) For engines you produce under this paragraph (g) after the Tier 
4 final standards take effect, you may certify based on a 
NOX + NMHC FEL as described in Table 1 of this section. 
Calculate emission credits for these

[[Page 7084]]

engines relative to the applicable NOX standard in Sec.  
1039.101 or Sec.  1039.102, plus 0.1 g/kW-hr.
* * * * *

Subpart G--[Amended]

0
3. Section 1039.625 is amended by revising paragraphs (e)(3) and (m) to 
read as follows:


Sec.  1039.625  What requirements apply under the program for 
equipment-manufacturer flexibility?

* * * * *
    (e) * * *
    (3) In all other cases, engines at or above 56 kW and at or below 
560 kW must meet the appropriate Tier 3 standards described in 40 CFR 
89.112. Engines below 56 kW and engines above 560 kW must meet the 
appropriate Tier 2 standards described in 40 CFR 89.112.
* * * * *
    (m) Additional exemptions for technical or engineering hardship. 
You may request additional engine allowances under paragraph (b) of 
this section; however, you may use these extra allowances only for 
those equipment models for which you, or an affiliated company, do not 
also produce the engine. Additional allowances under this paragraph (m) 
must be used within the specified seven-year period. After considering 
the circumstances, we may permit you to introduce into U.S. commerce 
equipment with such engines that do not comply with Tier 4 emission 
standards, as follows:
    (1) We may approve additional exemptions if extreme and unusual 
circumstances that are clearly outside your control and that could not 
have been avoided with reasonable discretion have resulted in technical 
or engineering problems that prevent you from meeting the requirements 
of this part. You must show that you exercised prudent planning and 
have taken all reasonable steps to minimize the scope of your request 
for additional allowances.
    (2) To apply for exemptions under this paragraph (m), send the 
Designated Compliance Officer a written request as soon as possible 
before you are in violation. In your request, include the following 
information:
    (i) Describe your process for designing equipment.
    (ii) Describe how you normally work cooperatively or concurrently 
with your engine supplier to design products.
    (iii) Describe the engineering or technical problems causing you to 
request the exemption and explain why you have not been able to solve 
them. Describe the extreme and unusual circumstances that led to these 
problems and explain how they were unavoidable.
    (iv) Describe any information or products you received from your 
engine supplier related to equipment design--such as written 
specifications, performance data, or prototype engines--and when you 
received it.
    (v) Compare the design processes of the equipment model for which 
you need additional exemptions and that for other models for which you 
do not need additional exemptions. Explain the technical differences 
that justify your request.
    (vi) Describe your efforts to find and use other compliant engines, 
or otherwise explain why none is available.
    (vii) Describe the steps you have taken to minimize the scope of 
your request.
    (viii) Include other relevant information. You must give us other 
relevant information if we ask for it.
    (ix) Estimate the increased percent of production you need for each 
equipment model covered by your request, as described in paragraph 
(m)(3) of this section. Estimate the increased number of allowances you 
need for each equipment model covered by your request, as described in 
paragraph (m)(4) of this section.
    (3) We may approve your request to increase the allowances under 
paragraph (b)(1) of this section, subject to the following limitations:
    (i) You must use up the allowances under paragraph (b)(1) of this 
section before using any additional allowances under this paragraph 
(m).
    (ii) The additional allowances under this paragraph (m)(3) may not 
exceed 200 percent for each power category.
    (iii) You may use these additional allowances only for the specific 
equipment models covered by your request.
    (4) We may approve your request to increase the small-volume 
allowances under paragraph (b)(2) of this section, subject to the 
following limitations:
    (i) You are eligible for additional allowances under this paragraph 
(m)(4) only if you do not use the provisions of paragraph (m)(3) of 
this section to obtain additional allowances within a given power 
category.
    (ii) You must use up the allowances under paragraph (b)(2) of this 
section before using any additional allowances under this paragraph 
(m).
    (iii) The additional allowances under this paragraph (m)(4) may not 
exceed 2,000 units.
    (iv) We may approve additional allowances in the form of waiving 
the annual limits specified in paragraph (b)(2) of this section instead 
of or in addition to increasing the total number of allowances under 
this paragraph (m)(4).
    (v) If we increase the total number of allowances, you may use 
these allowances only for the specific equipment models covered by your 
request.

PART 1042--CONTROL OF EMISSIONS FROM NEW AND IN-USE MARINE 
COMPRESSION-IGNITION ENGINES AND VESSELS

0
4. The authority citation for part 1042 continues to read as follows:

    Authority: 42 U.S.C. 7401-7671q.

Subpart G--[Amended]

0
5. Section 1042.615 is amended as follows:
0
a. By revising the introductory text and paragraphs (a) introductory 
text and (a)(1).
0
b. By redesignating paragraphs (b) through (d) as paragraphs (c) 
through (e).
0
c. By adding a new paragraph (b).


Sec.  1042.615  Replacement engine exemption.

    For Category 1 and Category 2 replacement engines, the provisions 
of 40 CFR 1068.240 apply except as described in this section. In 
unusual circumstances, you may ask us to allow you to apply these 
provisions for a new Category 3 engine.
    (a) This paragraph (a) applies instead of the provisions of 40 CFR 
1068.240(b)(2). The prohibitions in 40 CFR 1068.101(a)(1) do not apply 
to a new replacement engine if all the following conditions are met:
    (1) You use good engineering judgment to determine that no engine 
certified to the current requirements of this part is produced by any 
manufacturer with the appropriate physical or performance 
characteristics to repower the vessel. We have determined that engines 
certified to Tier 4 standards do not have the appropriate physical or 
performance characteristics to replace uncertified engines or engines 
certified to emission standards that are less stringent than the Tier 4 
standards.
* * * * *
    (b) The 40-year limit specified in 40 CFR 1068.240(a) does not 
apply for engines subject to this part 1042. You may accordingly omit 
the statement on the permanent labels specified in 40 CFR 1068.240 
describing this limitation.
* * * * *

[[Page 7085]]

PART 1068--GENERAL COMPLIANCE PROVISIONS FOR HIGHWAY, STATIONARY, 
AND NONROAD PROGRAMS

0
6. The authority citation for part 1068 continues to read as follows:

    Authority: 42 U.S.C. 7401-7671q.

Subpart C--[Amended]

0
7. Section 1068.240 is revised to read as follows:


Sec.  1068.240  What are the provisions for exempting new replacement 
engines?

    The prohibitions in Sec.  1068.101(a)(1) do not apply to a new 
engine if it is exempt under this section as a replacement engine. For 
purposes of this section, a replacement engine is a new engine that is 
used to replace an engine that has already been placed into service 
(whether the previous engine is replaced in whole or in part with a new 
engine).
    (a) General provisions. You are eligible for the exemption for new 
replacement engines only if you are a certificate holder. Note that 
this exemption does not apply for locomotives (40 CFR 1033.601) and 
that unique provisions apply to marine compression-ignition engines (40 
CFR 1042.615).
    (1) Paragraphs (b), (c), and (d) of this section describe different 
approaches for exempting new replacement engines where the engines are 
specially built to correspond to an engine model from an earlier model 
year that was subject to less stringent standards than those that apply 
for current production (or is no longer covered by a certificate of 
conformity). You must comply with the requirements of paragraph (b) of 
this section for any number of replacement engines you produce in 
excess of what we allow under paragraph (c) of this section. You must 
designate engines you produce under this section as tracked engines 
under paragraph (b) of this section or untracked engines under 
paragraph (c) of this section by the deadline for the report specified 
in paragraph (c)(3) of this section.
    (2) Paragraph (e) of this section describes a simpler approach for 
exempting partially complete new replacement engines that are built 
under a certificate of conformity that is valid for producing engines 
for the current model year.
    (3) For all the different approaches described in paragraphs (b) 
through (e) of this section, the exemption applies only for equipment 
that is 40 years old or less at the time of installation.
    (b) Previous-tier replacement engines with tracking. You may 
produce any number of new engines to replace an engine already placed 
into service in a piece of equipment, as follows:
    (1) The engine being replaced must have been either not originally 
subject to emission standards or originally subject to less stringent 
emission standards than those that apply to a new engine meeting 
current standards. The provisions of this paragraph (b) also apply for 
engines that were originally certified to the same standards that apply 
for the current model year if you no longer have a certificate of 
conformity to continue producing that engine configuration.
    (2) The following requirements and conditions apply for engines 
exempted under this paragraph (b):
    (i) You must determine that you do not produce an engine certified 
to meet current requirements that has the appropriate physical or 
performance characteristics to repower the equipment. If the engine 
being replaced was made by a different company, you must make this 
determination also for engines produced by this other company.
    (ii) In the case of premature engine failure, if the old engine was 
subject to emission standards, you must make the new replacement engine 
in a configuration identical in all material respects to the old engine 
and meet the requirements of Sec.  1068.265. You may alternatively make 
the new replacement engine in a configuration identical in all material 
respects to another certified engine of the same or later model year as 
long as the engine is not certified with a family emission limit higher 
than that of the old engine.
    (iii) For cases not involving premature engine failure, you must 
make a separate determination for your own product line addressing 
every tier of emission standards that is more stringent than the 
emission standards for the engine being replaced. For example, if the 
engine being replaced was built before the Tier 1 standards started to 
apply and engines of that power category are currently subject to Tier 
3 standards, you must also consider whether any Tier 1 or Tier 2 
engines that you produce have the appropriate physical and performance 
characteristics for replacing the old engine; if you produce a Tier 2 
engine with the appropriate physical and performance characteristics, 
you must use it as the replacement engine.
    (iv) You must keep records to document your basis for making the 
determinations in paragraphs (b)(2)(i) and (iii) of this section.
    (3) An old engine block replaced by a new engine exempted under 
this paragraph (b) may be reintroduced into U.S. commerce as part of an 
engine that meets either the current standards for new engines, the 
provisions for new replacement engines in this section, or another 
valid exemption. Otherwise, you must destroy the old engine block or 
confirm that it has been destroyed.
    (4) If the old engine was subject to emission standards, the 
replacement engine must meet the appropriate emission standards as 
specified in Sec.  1068.265. This generally means you must make the new 
replacement engine in a previously certified configuration.
    (5) Except as specified in paragraph (d) of this section, you must 
add a permanent label, consistent with Sec.  1068.45, with your 
corporate name and trademark and the following additional information:
    (i) Add the following statement if the new engine may only be used 
to replace an engine that was not subject to any emission standards 
under this chapter:

    THIS REPLACEMENT ENGINE IS EXEMPT UNDER 40 CFR 1068.240. SELLING 
OR INSTALLING THIS ENGINE FOR ANY PURPOSE OTHER THAN TO REPLACE AN 
UNREGULATED ENGINE MAY BE A VIOLATION OF FEDERAL LAW SUBJECT TO 
CIVIL PENALTY. THIS ENGINE MAY NOT BE INSTALLED IN EQUIPMENT THAT IS 
MORE THAN 40 YEARS OLD AT THE TIME OF INSTALLATION.

    (ii) Add the following statement if the new engine may replace an 
engine that was subject to emission standards:

    THIS ENGINE COMPLIES WITH U.S. EPA EMISSION REQUIREMENTS FOR 
[Identify the appropriate emission standards (by model year, tier, 
or emission levels) for the replaced engine] ENGINES UNDER 40 CFR 
1068.240. SELLING OR INSTALLING THIS ENGINE FOR ANY PURPOSE OTHER 
THAN TO REPLACE A [Identify the appropriate emission standards for 
the replaced engine, by model year(s), tier(s), or emission levels)] 
ENGINE MAY BE A VIOLATION OF FEDERAL LAW SUBJECT TO CIVIL PENALTY. 
THIS ENGINE MAY NOT BE INSTALLED IN EQUIPMENT THAT IS MORE THAN 40 
YEARS OLD AT THE TIME OF INSTALLATION.

    (6) Engines exempt under this paragraph (b) may not be introduced 
into U.S. commerce before you make the determinations under paragraph 
(b)(2) of this section, except as specified in this paragraph (b)(6). 
We may waive this restriction for engines excluded under paragraph 
(c)(5) of this section that you ship to a distributor. Where we waive 
this restriction, you must take steps to ensure that the engine is 
installed consistent with the requirements of this paragraph (b). For 
example, at a minimum you must report to us

[[Page 7086]]

annually whether engines we allowed you to ship to a distributor under 
this paragraph (b)(6) have been placed into service or remain in 
inventory. After an engine is placed into service, your report must 
describe how the engine was installed consistent with the requirements 
of this paragraph (b). Send these reports to the Designated Compliance 
Officer by the deadlines we specify.
    (c) Previous-tier replacement engines without tracking. You may 
produce a limited number of new replacement engines that are not from a 
currently certified engine family under the provisions of this 
paragraph (c). If you produce new engines under this paragraph (c) to 
replace engines subject to emission standards, the new replacement 
engine must be in a configuration identical in all material respects to 
the old engine and meet the requirements of Sec.  1068.265. You may 
make the new replacement engine in a configuration identical in all 
material respects to another certified engine of the same or later 
model year as long as the engine is not certified with a family 
emission limit higher than that of the old engine. The provisions of 
this paragraph (c) also apply for engines that were originally 
certified to the same standards that apply for the current model year 
if you no longer have a certificate of conformity to continue producing 
that engine configuration. This would apply, for example, for engine 
configurations that were certified in an earlier model year but are no 
longer covered by a certificate of conformity. The following provisions 
apply to engines exempted under this paragraph (c):
    (1) You may produce a limited number of replacement engines under 
this paragraph (c) representing 0.5 percent of your annual production 
volumes for each category and subcategory of engines identified in 
Table 1 to this section (1.0 percent through 2013). Calculate this 
number by multiplying your annual U.S.-directed production volume by 
0.005 (or 0.01 through 2013) and rounding to the nearest whole number. 
Determine the appropriate production volume by identifying the highest 
total annual U.S.-directed production volume of engines from the 
previous three model years for all your certified engines from each 
category or subcategory identified in Table 1 to this section, as 
applicable. In unusual circumstances, you may ask us to base your 
production limits on U.S.-directed production volume for a model year 
more than three years prior. You may include stationary engines and 
exempted engines as part of your U.S.-directed production volume. 
Include U.S.-directed engines produced by any parent or subsidiary 
companies and those from any other companies you license to produce 
engines for you.
    (2) Count every exempted new replacement engine from your total 
U.S.-directed production volume that you produce in a given calendar 
year under this paragraph (c), including partially complete engines, 
except for the following:
    (i) Engines built to specifications for an earlier model year under 
paragraph (b) of this section.
    (ii) Partially complete engines exempted under paragraph (e) of 
this section.
    (3) Send the Designated Compliance Officer a report by March 31 of 
the year following any year in which you produced exempted replacement 
engines under this paragraph (c). In your report include the total 
number of replacement engines you produce under this paragraph (c) for 
each category or subcategory, as appropriate, and the corresponding 
total production volumes determined under paragraph (c)(1) of this 
section. If you send us a report under this paragraph (c)(3), you must 
also include the total number of replacement engines you produced under 
paragraphs (b), (d), and (e) of this section. You may include this 
information in production reports required under the standard-setting 
part.
    (4) Add a permanent label as specified in paragraph (b)(5) of this 
section. For partially complete engines, you may alternatively add a 
permanent or removable label as specified in paragraph (d) of this 
section.
    (5) You may not use the provisions of this paragraph (c) for any 
engines in the following engine categories or subcategories:
    (i) Land-based nonroad compression-ignition engines we regulate 
under 40 CFR part 1039 with a per-cylinder displacement at or above 7.0 
liters.
    (ii) Marine compression-ignition engines we regulate under 40 CFR 
part 1042 with a per-cylinder displacement at or above 7.0 liters.
    (iii) Locomotive engines we regulate under 40 CFR part 1033.
    (d) Partially complete engines. The following requirements apply if 
you ship a partially complete replacement engine under this section:
    (1) Provide instructions specifying how to complete the engine 
assembly such that the resulting engine conforms to the applicable 
certificate of conformity or the specifications of Sec.  1068.265. 
Where a partially complete engine can be built into multiple different 
configurations, you must be able to identify all the engine models and 
model years for which the partially complete engine may properly be 
used for replacement purposes. Your instructions must make clear how 
the final assembler can determine which configurations are appropriate 
for the engine they receive.
    (2) You must label the engine as follows:
    (i) If you have a reasonable basis to believe that the fully 
assembled engine will include the original emission control information 
label, you may add a removable label to the engine with your corporate 
name and trademark and the statement: ``This replacement engine is 
exempt under 40 CFR 1068.240.'' This would generally apply if all the 
engine models that are compatible with the replacement engine were 
covered by a certificate of conformity and they were labeled in a 
position on the engine or equipment that is not included as part of the 
partially complete engine being shipped for replacement purposes. 
Removable labels must meet the requirements specified in Sec.  1068.45.
    (ii) If you do not qualify for using a removable label in paragraph 
(d)(1) of this section, you must add a permanent label in a readily 
visible location, though it may be obscured after installation in a 
piece of equipment. Include on the permanent label your corporate name 
and trademark, the engine's part number (or other identifying 
information), and the statement: ``THIS REPLACEMENT ENGINE IS EXEMPT 
UNDER 40 CFR 1068.240. THIS ENGINE MAY NOT BE INSTALLED IN EQUIPMENT 
THAT IS MORE THAN 40 YEARS OLD AT THE TIME OF INSTALLATION.''
    If there is not enough space for this statement, you may 
alternatively add: ``REPLACEMENT'' or ``SERVICE ENGINE.'' For purposes 
of this paragraph (d)(2), engine part numbers permanently stamped or 
engraved on the engine are considered to be included on the label.
    (e) Partially complete current-tier replacement engines. The 
provisions of paragraph (d) of this section apply for partially 
complete engines you produce from a current line of certified engines 
or vehicles. This applies for engine-based and equipment-based 
standards as follows:
    (1) Where engine-based standards apply, you may introduce into U.S. 
commerce short blocks or other partially complete engines from a 
currently certified engine family as replacement components for in-use 
equipment powered by engines you originally produced. You must be able 
to identify all the engine models and model years

[[Page 7087]]

for which the partially complete engine may properly be used for 
replacement purposes.
    (2) Where equipment-based standards apply, you may introduce into 
U.S. commerce engines that are identical to engines covered by a 
current certificate of conformity by demonstrating compliance with 
currently applicable standards where the engines will be installed as 
replacement engines. These engines might be fully assembled, but we 
would consider them to be partially complete engines because they are 
not yet installed in the equipment.
    (f) Emission credits. Replacement engines exempted under this 
section may not generate or use emission credits under the standard-
setting part nor be part of any associated credit calculations.

 Table 1 to Sec.   1068.240--Engine Categories and Subcategories for New
              Replacement Engines Exempted Without Tracking
------------------------------------------------------------------------
                                   Standard-setting         Engine
         Engine category               part \1\          subcategories
------------------------------------------------------------------------
Highway CI......................  40 CFR part 86....  disp. < 0.6 L/cyl.
                                                      0.6 <= disp. < 1.2
                                                       L/cyl.
                                                      disp. >= 1.2 L/
                                                       cyl.
Nonroad CI, Stationary CI, and    40 CFR part 1039,   disp. < 0.6 L/cyl.
 Marine CI.                        or 40 CFR part     0.6 <= disp. < 1.2
                                   1042.               L/cyl.
                                                      1.2 <= disp. < 2.5
                                                       L/cyl.
                                                      2.5 <= disp. < 7.0
                                                       L/cyl.
Marine SI.......................  40 CFR part 1045..  outboard.
                                                      personal
                                                       watercraft.
Large SI, Stationary SI, and      40 CFR part 1048    all engines.
 Marine SI (sterndrive/inboard     or 40 CFR part
 only).                            1045.
Recreational vehicles...........  40 CFR part 1051..  off-highway
                                                       motorcycle.
                                                      all-terrain
                                                       vehicle.
                                                      snowmobile.
Small SI and Stationary SI......  40 CFR part 1054..  handheld.
                                                      Class I.
                                                      Class II.
------------------------------------------------------------------------
\1\ Include an engine as being subject to the identified standard-
  setting part if it will eventually be subject to emission standards
  under that part. For example, if you certify marine compression-
  ignition engines under part 94, count those as if they were already
  subject to part 1042.

[FR Doc. 2014-02612 Filed 2-5-14; 8:45 am]
BILLING CODE 6560-50-P


