Results of EPA's Section 610 Review of Emission Standards for Heavy-Duty Engines and Vehicles and Highway Diesel Fuel Sulfur Control
                                       
                 EPA Office of Transportation and Air Quality
                                November, 2013

	On January 18, 2001 (66 FR 5002), EPA published emission standards for heavy-duty highway engines and vehicles and engine manufacturers to reduce tailpipe emissions.  Specifically, EPA implemented this rule to significantly reduce emissions of diesel particulate matter (PM) emissions and of nitrogen oxides, a contributor to ozone formation.  The rulemaking also required oil refiners to very significantly reduce the sulfur content of the diesel fuel they produce, to minimize the damaging effects of diesel sulfur content on the new catalytic systems manufacturers would be using to meet the stringent emission standards.  

       Pursuant to Section 610 of the Regulatory Flexibility Act, EPA has completed a review of this rule to determine whether the provisions that could affect small entities should be continued without change, or should be rescinded or amended to minimize adverse economic impacts on small entities.  As discussed below, we have concluded that no changes in the rule are warranted. 
 
 Background
       
      Early in the development of the rule, EPA formally evaluated the potential impacts of the program on small businesses according to the requirements of the Small Business Regulatory Enforcement Fairness Act (SBREFA), which is part of the Regulatory Flexibility Act.  During this process, we assessed the companies comprising the two industries that would be directly affected by the rule being considered  -  the heavy-duty highway engine manufacturing industry and the oil refining industry.  
      
      In our assessment of the potentially-affected engine manufacturing industry, EPA determined that none of the engine manufacturers that would be directly affected by the prospective engine emission standards met the criteria for small entities established by the Small Business Administration (SBA) (i.e., less than 1000 employees).  As a result, EPA did not propose or finalize any special small-business provisions for the engine-manufacturing industry, although the final rule did include numerous provisions to ease the compliance burden on all manufacturers.   
      
      At the same time, EPA determined that several refining companies subject to the prospective diesel fuel sulfur requirements did meet the SBA criteria for refiners (less than 1500 employees).  Therefore, we took the additional steps specified by SBREFA to identify and address concerns of small refiners.  As was the case with the Tier 2 gasoline sulfur program established one year earlier, an informal coalition of small refining companies formed to participate as "Small Entity Representatives" (SERs) in the rulemaking and to advise the federal interagency SBREFA panel.  In the final rule, EPA adopted the recommendations of the panel, providing a temporary extension of compliance dates for small refiners and an opportunity for small refiners to stagger their investments in gasoline sulfur control (as required under the earlier Tier 2 program) and the new diesel sulfur requirements.
      
Discussion of the Five Statutory Factors
      
      As discussed below, EPA has reviewed the Heavy-Duty Engine and Diesel Sulfur rule with respect to the five factors set forth in Section 610 of the RFA.  
      
      1.  Continued Need for the Rule
      
      One of the factors that must be considered in a Section 610 review is the continued need for the rule under review.  Emissions from heavy duty vehicles and their fuels contribute to ambient levels of ozone and particulate matter (PM), pollutants for which EPA has established health-based National Ambient Air Quality Standards (NAAQS).  These pollutants are linked with respiratory and/or cardiovascular problems and other adverse health impacts leading to increased medication use, hospital admissions, emergency department visits, and premature mortality.  Over 158 million people currently live in areas designated nonattainment for one or more of the current NAAQS.  Pollutant reductions from this rule are very large and continue to protect public health, improve air quality, and help states meet national air quality standards.  Specifically, we projected that by 2030, when the fleet will have largely turned over, the rule will reduce NOx annually by over 2.6 million tons, NMHC by 115,000 tons, and PM by 109,00 tons.
      
      The provisions of the rule applying to all engine manufacturers and oil refiners have proven to be feasible and effective.  Most small refiners took advantage of the special provisions, and we are not aware of any that wished to use these provisions (or separate hardship relief provisions available to all refiners) and yet were unable to.  EPA concludes that the rule continues to be necessary, feasible, and effective.
      
      2.  Nature of Complaints or Comments Received Concerning the Rule
      
      EPA received three sets of comments during the public comment period for this Section 610 review.  None of these comments appear to be from or on behalf of small entities that are directly affected by this rule, as discussed above.  However, to the extent that an assessment of these comments may be valuable, we will summarize and discuss the merits of each of the comments here.
      
	National Automobile Dealers Association 

      The National Automobile Dealers Association (NADA) commented on behalf of its American Truck Dealer Division (ATD).  NADA submitted a previously-published February 2012 study, "A Look Back at EPA's Cost and Other Impact Projections for MY 2004-2010 Heavy-Duty Truck Emissions Standards," along with comments based on that study.  The comments argue that two EPA rulemakings setting new emissions standards for heavy-duty (HD) trucks, including the rule that is the subject of this Section 610 evaluation, "have had a dramatic negative impact on thousands of small entities, including small business truck dealerships and their employees."  

	NADA submitted this study to EPA previously, as a basis for NADA comments on EPA's rulemaking for greenhouse gas (GHG) emissions from 2017 and later light-duty vehicles.  (See letter from Douglas I. Greenhaus, NADA, to EPA and NHTSA public dockets, February 13, 2012).  EPA responded to the NADA study in the Response to Comments document for that rule.  In addition to laying out points specific to the light-duty GHG rule, that response essentially concludes that the NADA study does little to inform the HD rule cost discussion.  This is because the study takes at face value the manufacturer-provided emissions surcharges to customers, with no attempt to determine or evaluate how these costs were calculated or even whether or not the manufacturers claim them to be the actual cost of emissions controls.  A breakout of such surcharges is not something the Agency requires or provides guidance on, and manufacturers that use them are free to set them at whatever level they feel best serves their marketing goals.    

	Recreation Vehicle Industry Association 

	Comments submitted by the Recreation Vehicle Industry Association (RVIA) argued that the rule incorrectly concluded that the only small entities affected by the heavy-duty engine and fuels standards were small refiners.  In EPA's extensive assessment of the industry, we did not find any manufacturers of the affected vehicles or engines that met the SBA definition of small entities (1,000 or fewer employees).   EPA deemed that entities not directly regulated but indirectly affected in some way by the rule -- such as RV dealers, RV manufacturers (none of whom currently apply for emissions certification), and their customers  -  do not to fit this criterion and so were not included in the SBREFA process.  This conclusion has not changed.  

	RVIA also commented that EPA greatly underestimated the cost of diesel emissions controls required to meet the new standards, claiming that the rule typically adds at least $23,000 to the cost of a motorhome, and that manufacturer and dealer markups could add an additional $23,000 for the purchaser.  As discussed above, RV manufacturers do not need an EPA certificate of compliance with the vehicle/engine standards and thus are not directly affected by this rule.  However, even if it were appropriate for us to assess indirect impacts as a part of this Section 610 review, including costs, we believe that we would conclude that RVIA's estimated costs are much too high.  

	Based on the discussion in the RVIA comments, it appears that the $23,000 additional cost is comprised of $6,000 for medium-duty diesel engine/aftertreatment hardware,  $12,000 for addition of a third axle to accommodate the added weight of emissions controls, and $5,000 or more to lengthen the coach.  The $6000 engine/aftertreatment hardware cost appears in turn to be derived from engine manufacturer statements about the surcharges they assess their customers in response to emission control costs.  As discussed above, EPA does not evaluate OEM-applied surcharges in its program cost analyses.  

	EPA has not performed a comprehensive reanalysis of the cost of this rule.  However, it may be of interest that EPA made a limited cost determination for a different purpose  -  that is, for setting nonconformance penalties (NCPs).  This analysis led to cost estimates that, although not exactly comparable to the timeframe of this rule, would indicate that the RVIA estimate for engine/aftertreatment hardware is likely somewhat high for a medium-duty truck. 

	Also, RVIA provided no details on the $17,000 additional coach and axle costs.  EPA has not performed its own analysis of these costs, but we do note that new two-axle diesel motorhomes are still widely available.  We also question the $23,000 combined manufacturer/dealer markups for emissions controls, noting that most of the indirect costs of the new emissions controls would be borne by the engine manufacturers, which are responsible for such items as added engine warranty claims.  These indirect costs would already be included in the RVIA's estimated $6000 addition to the purchase price of the engine.  We further note that such large dealer markups seem inconsistent with RVIA's claim of dealer hardship.

	Apart from the accuracy of RVIA's cost estimates, the key points of the RVIA comments appear to be that the cost increase, whatever its true magnitude, drove some potential buyers away, thus contributing to the demise of small business RV dealers, and that it continues to restrict sales growth today.  RVIA concludes that, given that application of the HD standards to motorhomes involves high costs and low benefits (they operate an average of only 27 days per year), EPA should consider whether or not continuation of these standards can be justified for motorhomes.  We do not agree that exempting engines used in motorhomes from the 2007/2010 HD standards (or subjecting them to modified standards) would lower their cost.  To substitute for the cleaner engines, engine manufacturers would presumably have to re-establish certification and production of pre-2007 engine designs or their equivalent for the U.S. market.  This would involve considerable costs and could greatly narrow the range of available options for the motorhome manufacturers, since it is by no means clear that the limited sales volumes involved would justify this investment for current engine suppliers.  

	Finally, the Agency appreciates RVIA comments directed at future EPA standards-setting efforts, and we expect to fully consider any concerns about the impacts on motorhome manufacturers they arise in the context of such future rulemakings.

	Northeast States for Coordinated Air Use Management (NESCAUM)

	The Northeast States for Coordinated Air Use Management (NESCAUM) provided comments that were supportive of a continuation of the rule as finalized.  NESCAUM presented estimates of the benefits of the rule consistent with EPA's.  NESCAUM's comments focused on "how the regulations have accommodated small refiners over the course of their implementation to ensure a continued, adequate supply of diesel fuel to the on-highway market."  NESCAUM concluded that the environmental need for the program continues and that the measures EPA included to minimize potential burdens on small refiners were successful.
	
      3.  Complexity of the Rule
      
      The Agency must also consider the complexity of the rule under review.  Although cost-effectively achieving the air pollution improvements of the program required us to establish a number of regulatory provisions, we carefully coordinated the various requirements and worked with industry participants, large and small, to facilitate implementation.  The rule also included a number of provisions aimed at easing the burden of compliance for all affected engine manufacturers and refiners, including small refiners. 
      
       By providing additional lead time and greater flexibility for small refiners, these companies were able to minimize or postpone actions that they would have otherwise been required to take.  For example, the rule allowed small refiners to choose their preferred sequencing of the overlapping gasoline and diesel sulfur programs.  These transitional provisions thus mitigated the implementation complexity of the rule, allowing for more "organic" compliance by small refiners while the program met its statutory objectives.
      
      4.  Extent to which the rule overlaps, duplicates, or conflicts with other Federal, State, or local government rules
      
      The Agency must also consider the extent to which the rule overlaps, duplicates, or conflicts with other Federal, State, or local government rules.  We specifically designed the requirements and phase-in schedule for the heavy-duty diesel engine and vehicle program to build on the existing Federal programs and to mesh with and complement diesel engine related programs in California and other states.  Similarly, we designed the phase-in for the diesel fuel sulfur requirements and the small refiner provisions to transition smoothly and to coexist with the earlier Tier 2 gasoline sulfur requirements, so that refiners could integrate the implementation of both programs.  We are not aware of any overlap, duplication, or conflict with other similar programs administered by EPA or other agencies.
      
      5.  Relevant Changes to Technology, Economic Conditions, or Other Factors
      
      Finally, the Agency must consider the degree to which technology, economic conditions, or other factors have changed in the area affected by the rule under review.  Refinery diesel sulfur reduction technology has continued to evolve over the past decade.   In addition, heavy-duty engine manufacturers have continuously improved their engine technologies, including emission-related technologies, over the years.  EPA does not believe that these changes, or the general economic fluctuations that the refining and engine/vehicle manufacturing industries have faced, have introduced any significant additional burdens on small entities subject to this rule.
      
Conclusion
      
      Based on EPA's Section 610 review of the 2001 Heavy-Duty Engine and Vehicle and Diesel Fuel Sulfur final rule and the comments we received, as discussed in this document, EPA is not making any amendments to the rule.  As part of any future rulemakings in related to these industries, EPA will continue to work with small-entity representatives to minimize any potential unfavorable impacts on these companies while meeting the need for emission reductions.
      
      

