of complete engines and reassembly (such as for shipment) does not
affect the determination of model year; the provisions of this
paragraph (f) apply based on the date on which initial assembly is
complete.

Sec.  1068.105  What other provisions apply to me specifically if I
manufacture equipment needing certified engines?

    This section describes general provisions that apply to equipment
manufacturers for sources subject to engine-based standards. See the
standard-setting part for any requirements that apply for certain
applications. See Sec.  1068.101 for penalties associated with
violations under this section and for other prohibitions related to
your equipment.
    (a) Transitioning to new engine-based standards. If new engine-
based emission standards apply in a given model year, your equipment in
that calendar year must have engines that are certified to the new
standards, except that you may continue to use up your normal inventory
of earlier engines that were built before the date of the new or
changed standards. (Note: this paragraph (a) does not apply in the case
of new remanufacturing standards.) For example, if your normal
inventory practice is to keep on hand a one-month supply of engines
based on your upcoming production schedules, and a new tier of
standards starts to apply for the 2015 model year, you may order
engines consistent with your normal inventory requirements late in the
engine manufacturer's 2014 model year and install those engines in your
equipment, regardless of the date of installation. Also, if your model
year starts before the end of the calendar year preceding new
standards, you may use engines from the previous model year for those
units you produce before January 1 of the year that new standards
apply. If emission standards for the engine do not change in a given
model year, you may continue to install engines from the previous model
year without restriction. You may not circumvent the provisions of
Sec.  1068.101(a)(1) by stockpiling engines that were built before new
or changed standards take effect. Note that this allowance does not
apply for equipment subject to equipment-based standards. See 40 CFR
1060.601 for similar provisions that apply for equipment subject to
evaporative emission standards.
    (b) Installing engines or certified components. The provisions in
Sec.  1068.101(a)(1) generally prohibit you from introducing into U.S.
commerce any new equipment that includes engines not covered by a
certificate of conformity. In addition, you must follow the engine
manufacturer's emission-related installation instructions. For example,
you may need to constrain where you place an exhaust aftertreatment
device or integrate into your equipment models a device for sending
visual or audible signals to the operator. Similarly, you must follow
the emission-related installation instructions from the manufacturer of
a component that has been certified for controlling evaporative
emissions under 40 CFR part 1060. Not meeting the manufacturer's
emission-related installation instructions is a violation of one or
more of the prohibitions of

Sec.  1068.101. See Sec.  1068.261 for special provisions that apply
when the engine manufacturer delegates final assembly of emission
controls to you.
    (c) Attaching a duplicate label. If you obscure the engine's label,
you must do four things to avoid violating Sec.  1068.101(a)(1):
    (1) Send a request for duplicate labels in writing on your
company's letterhead to the engine manufacturer. Include the following
information in your request:
    (i) Identify the type of equipment and the specific engine and
equipment models needing duplicate labels.
    (ii) Identify the family (from the original engine label).
    (iii) State the reason that you need a duplicate label for each
equipment model.
    (iv) Identify the number of duplicate labels you will need.
    (2) Permanently attach the duplicate label to your equipment by
securing it to a part needed for normal operation and not normally
requiring replacement. Make sure an average person can easily read it.
    (3) Destroy any unused duplicate labels if you find that you will
not need them.
    (4) Keep the following records for at least eight years after the
end of the model year identified on the engine label:
    (i) Keep a copy of your written request.
    (ii) Keep drawings or descriptions that show how you apply the
duplicate labels to your equipment.
    (iii) Maintain a count of those duplicate labels you use and those
you destroy.

Sec.  1068.110  What other provisions apply to engines/equipment in
service?

    (a) Aftermarket parts and service. As the certifying manufacturer,
you may not require anyone to use your parts or service to maintain or
repair an engine or piece of equipment, unless we approve this in your
application for certification. It is a violation of the Clean Air Act
for anyone to manufacture any part if one of its main effects is to
reduce the effectiveness of the emission controls. See Sec.
1068.101(b)(2).
    (b) Certifying aftermarket parts. As the manufacturer or rebuilder
of an aftermarket engine or equipment part, you may--but are not
required to--certify according to 40 CFR part 85, subpart V, that using
the part will not cause engines/equipment to fail to meet emission
standards. Whether you certify or not, you must keep any information
showing how your parts or service affect emissions.
    (c) Compliance with standards. We may test engines and equipment to
investigate compliance with emission standards and other requirements.
We may also require the manufacturer to do this testing.
    (d) Defeat devices. We may test engines and equipment to
investigate potential defeat devices. We may also require the
manufacturer to do this testing. If we choose to investigate one of
your designs, we may require you to show us that it does not have a
defeat device. To do this, you may have to share with us information
regarding test programs, engineering evaluations, design
specifications, calibrations, on-board computer algorithms, and design
strategies. It is a violation of the Clean Air Act for anyone to make,
install or use defeat devices. See Sec.  1068.101(b)(2) and the
standard-setting part.
    (e) Warranty and maintenance. Owners are responsible for properly
maintaining their engines/equipment; however, owners may make warranty
claims against the manufacturer for all expenses related to diagnosing
and repairing or replacing emission-related parts, as described in
Sec.  1068.115. Manufacturers may ask to limit diagnosis and repair to
authorized service facilities, provided this does not limit their
ability to meet their warranty obligations under Sec.  1068.115. The
warranty period begins when the equipment is first placed into service.
See the standard-setting part for specific requirements. It is a
violation of the Clean Air Act for anyone to disable emission controls;
see Sec.  1068.101(b)(1) and the standard-setting part.

Sec.  1068.115  When must manufacturers honor emission-related warranty
claims?

    Section 207(a) of the Clean Air Act (42 U.S.C. 7541(a)) requires
certifying manufacturers to warrant to purchasers that their engines/
equipment are designed, built, and equipped to conform at the time of
sale to the applicable regulations for their full useful life,
including a warranty that the engines/equipment are free from defects
in materials and workmanship that would cause any engine/equipment to
fail to conform to the applicable regulations during the specified
warranty period. This section codifies the warranty requirements of
section 207(a) without intending to limit these requirements.
    (a) As a certifying manufacturer, you may deny warranty claims only
for failures that have been caused by the owner's or operator's
improper maintenance or use, by accidents for which you have no
responsibility, or by acts of God. For example, you would not need to
honor warranty claims for failures that have been directly caused by
the operator's abuse of the engine/equipment or the operator's use of
the engine/equipment in a manner for which it was not designed and are
not attributable to you in any way.
    (b) As a certifying manufacturer, you may not deny emission-related
warranty claims based on any of the following:
    (1) Maintenance or other service you or your authorized facilities
performed.
    (2) Engine/equipment repair work that an operator performed to
correct an unsafe, emergency condition attributable to you as long as
the operator tries to restore the engine/equipment to its proper
configuration as soon as possible.
    (3) Any action or inaction by the operator unrelated to the
warranty claim.
    (4) Maintenance that was performed more frequently than you
specify.
    (5) Anything that is your fault or responsibility.
    (6) The use of any fuel that is commonly available where the
equipment operates unless your written maintenance instructions state
that this fuel would harm the equipment's emission control system and
operators can readily find the proper fuel.

Sec.  1068.120  What requirements must I follow to rebuild engines?

    (a) This section describes the steps to take when rebuilding
engines to avoid violating the tampering prohibition in Sec.
1068.101(b)(1). These requirements apply to anyone rebuilding an engine
subject to this part, but the recordkeeping requirements in paragraphs
(j) and (k) of this section apply only to businesses. For maintenance
or service that is not rebuilding, including any maintenance related to
evaporative emission controls, you may not make changes that might
increase emissions of any regulated pollutant, but you do not need to
keep any records.
    (b) The term ``rebuilding'' refers to a rebuild of an engine or
engine system, including a major overhaul in which you replace the
engine's pistons or power assemblies or make other changes that
significantly increase the service life of the engine. It also includes
replacing or rebuilding an engine's turbocharger or aftercooler or the
engine's systems for fuel metering or electronic control so that it
significantly increases the service life of the engine. For these
provisions, rebuilding may or may not involve removing the engine from
the equipment. Rebuilding does not normally include the following:
    (1) Scheduled emission-related maintenance that the standard-
setting

part allows during the useful life period (such as replacing fuel
injectors).
    (2) Unscheduled maintenance that occurs commonly within the useful
life period. For example, replacing a water pump is not rebuilding an
engine.
    (c) [Reserved]
    (d) If you rebuild an engine or engine system, you must have a
reasonable technical basis for knowing that the rebuilt engine's
emission control system performs as well as, or better than, it
performs in its certified configuration. Identify the model year of the
resulting engine configuration. You have a reasonable basis if you meet
two main conditions:
    (1) Install parts--new, used, or rebuilt--so a person familiar with
engine design and function would reasonably believe that the engine
with those parts will control emissions of all pollutants at least to
the same degree as with the original parts. For example, it would be
reasonable to believe that parts performing the same function as the
original parts (and to the same degree) would control emissions to the
same degree as the original parts.
    (2) Adjust parameters or change design elements only according to
the original engine manufacturer's instructions. Or, if you differ from
these instructions, you must have data or some other technical basis to
show you should not expect in-use emissions to increase.
    (e) If the rebuilt engine remains installed or is reinstalled in
the same piece of equipment, you must rebuild it to the original
configuration or another certified configuration of the same or later
model year.
    (f) A rebuilt engine may replace another certified engine in a
piece of equipment only if the engine was rebuilt to a certified
configuration meeting equivalent or more stringent emission standards.
Note that a certified configuration would generally include more than
one model year. A rebuilt engine being installed that is from the same
model year or a newer model year than the engine being replaced meets
this requirement. The following examples illustrate the provisions of
this paragraph (f):
    (1) In most cases, you may use a rebuilt Tier 2 engine to replace a
Tier 1 engine or another Tier 2 engine.
    (2) You may use a rebuilt Tier 1 engine to replace a Tier 2 engine
if the two engines differ only with respect to model year or other
characteristics unrelated to emissions since such engines would be
considered to be in the same configuration. This may occur if the Tier
1 engine had emission levels below the Tier 2 standards or if the Tier
2 engine was certified with a Family Emission Limit for calculating
emission credits.
    (3) You may use a rebuilt engine that originally met the Tier 1
standards without certification, as provided under 40 CFR 1068.265, to
replace a certified Tier 1 engine. This may occur for engines produced
under a Transition Program for Equipment Manufacturers such as that
described in 40 CFR 1039.625.
    (4) You may never replace a certified engine with an engine rebuilt
to a configuration that does not meet EPA emission standards. Note that
a configuration is considered to meet EPA emission standards if it was
previously certified or was otherwise shown to meet emission standards
(see Sec.  1068.265).
    (g) Do not erase or reset emission-related codes or signals from
onboard monitoring systems without diagnosing and responding
appropriately to any diagnostic codes. This requirement applies
regardless of the manufacturer's reason for installing the monitoring
system and regardless of its form or interface. Clear any codes from
diagnostic systems when you return the rebuilt engine to service. Do
not disable a diagnostic signal without addressing its cause.
    (h) When you rebuild an engine, check, clean, adjust, repair, or
replace all emission-related components (listed in Appendix I of this
part) as needed according to the original manufacturer's recommended
practice. In particular, replace oxygen sensors, replace the catalyst
if there is evidence of malfunction, clean gaseous fuel-system
components, and replace fuel injectors (if applicable), unless you have
a reasonable technical basis for believing any of these components do
not need replacement.
    (i) If you are installing an engine that someone else has rebuilt,
check all emission-related components listed in Appendix I of this part
as needed according to the original manufacturer's recommended
practice.
    (j) Keep at least the following records for all engines except
spark-ignition engines with total displacement below 225 cc:
    (1) Identify the hours of operation (or mileage, as appropriate) at
the time of rebuild. These may be noted as approximate values if the
engine has no hour meter (or odometer).
    (2) Identify the work done on the engine or any emission-related
control components, including a listing of parts and components you
used.
    (3) Describe any engine parameter adjustments.
    (4) Identify any emission-related codes or signals you responded to
and reset.
    (k) You must show us or send us your records if we ask for them.
Keep records for at least two years after rebuilding an engine. Keep
them in any format that allows us to readily review them.
    (1) You do not need to keep information that is not reasonably
available through normal business practices. We do not expect you to
have information that you cannot reasonably access.
    (2) You do not need to keep records of what other companies do.
    (3) You may keep records based on families rather than individual
engines if that is the way you normally do business.

Sec.  1068.125  What happens if I violate the regulations?

    (a) Civil penalties and injunctions. We may bring a civil action to
assess and recover civil penalties and/or enjoin and restrain
violations in the United States District Court for the district where
you allegedly violated a requirement, or the district where you live or
have your main place of business. Actions to assess civil penalties or
restrain violations of Sec.  1068.101 must be brought by and in the
name of the United States. The selected court has jurisdiction to
restrain violations and assess civil penalties.
    (1) To determine the amount of a civil penalty and reach a just
conclusion, the court considers these factors:
    (i) The seriousness of your violation.
    (ii) How much you benefited or saved because of the violation.
    (iii) The size of your business.
    (iv) Your history of compliance with Title II of the Clean Air Act
(42 U.S.C. 7401-7590).
    (v) What you did to remedy the violation.
    (vi) How the penalty will affect your ability to continue in
business.
    (vii) Such other matters as justice may require.
    (2) Subpoenas for witnesses who must attend a district court in any
district may apply to any other district.
    (b) Administrative penalties. Instead of bringing a civil action,
we may assess administrative penalties if the total is less than
$270,000 against you individually. This maximum penalty may be greater
if the Administrator and the Attorney General jointly determine that a
greater administrative penalty assessment is appropriate, or if the
limit is adjusted under 40 CFR part 19. No court may review this
determination. Before we assess an administrative penalty, you may ask
for a hearing

(subject to 40 CFR part 22). The Administrator may compromise or remit,
with or without conditions, any administrative penalty that may be
imposed under this section.
    (1) To determine the amount of an administrative penalty, we will
consider the factors described in paragraph (a)(1) of this section.
    (2) An administrative order we issue under this paragraph (b)
becomes final 30 days after we issue it unless you ask for judicial
review by that time (see paragraph (c) of this section). You may ask
for review by any of the district courts listed in paragraph (a) of
this section. Send the Administrator a copy of the filing by certified
mail.
    (3) We will not pursue an administrative penalty for a particular
violation if either of the following two conditions is true:
    (i) We are separately prosecuting the violation under this subpart.
    (ii) We have issued a final order for a violation, no longer
subject to judicial review, for which you have already paid a penalty.
    (c) Judicial review. If you ask a court to review a civil or
administrative penalty, we will file in the appropriate court within 30
days of your request a certified copy or certified index of the record
on which the court or the Administrator issued the order.
    (1) The judge may set aside or remand any order issued under this
section only if one of the following is true:
    (i) Substantial evidence does not exist in the record, taken as a
whole, to support finding a violation.
    (ii) The Administrator's assessment of the penalty is an abuse of
discretion.
    (2) The judge may not add civil penalties unless our penalty is an
abuse of discretion that favors you.
    (d) Effect of enforcement actions on other requirements. Our
pursuit of civil or administrative penalties does not affect or limit
our authority to enforce any provisions of this chapter.
    (e) Penalties. In any proceedings, the United States government may
seek to collect civil penalties assessed under this section.
    (1) Once a penalty assessment is final, if you do not pay it, the
Administrator will ask the Attorney General to bring a civil action in
an appropriate district court to recover the money. We may collect
interest from the date of the final order or final judgment at rates
established by the Internal Revenue Code of 1986 (26 U.S.C.
6621(a)(2)). In this action to collect overdue penalties, the court
will not review the validity, amount, and appropriateness of the
penalty.
    (2) In addition, if you do not pay the full amount of a penalty on
time, you must then pay more to cover interest, enforcement expenses
(including attorney's fees and costs for collection), and a quarterly
nonpayment penalty for each quarter you do not pay. The quarterly
nonpayment penalty is 10 percent of your total penalties plus any
unpaid nonpayment penalties from previous quarters.

Subpart C--Exemptions and Exclusions

Sec.  1068.201  Does EPA exempt or exclude any engines/equipment from
the prohibited acts?

    We may exempt new engines/equipment from some or all of the
prohibited acts or requirements of this part under provisions described
in this subpart. We may exempt engines/equipment already placed in
service in the United States from the prohibition in Sec.
1068.101(b)(1) if the exemption for engines/equipment used solely for
competition applies (see Sec.  1068.235). In addition, see Sec.  1068.1
and the standard-setting parts to determine if other engines/equipment
are excluded from some or all of the regulations in this chapter.
    (a) This subpart identifies which engines/equipment qualify for
exemptions and what information we need. We may ask for more
information.
    (b) If you violate any of the terms, conditions, instructions, or
requirements to qualify for an exemption, we may void, revoke, or
suspend the exemption.
    (c) If you use an exemption under this subpart, we may require you
to add a permanent label to your exempted engines/equipment. You may
ask us to modify these labeling requirements if it is appropriate for
your engine/equipment.
    (d) If you produce engines/equipment we exempt under this subpart,
we may require you to make and keep records, perform tests, make
reports and provide information as needed to reasonably evaluate the
validity of the exemption.
    (e) If you own or operate engines/equipment we exempt under this
subpart, we may require you to provide information as needed to
reasonably evaluate the validity of the exemption.
    (f) Subpart D of this part describes how we apply these exemptions
to engines/equipment you import (or intend to import).
    (g) If you want to ask for an exemption or need more information,
write to the Designated Compliance Officer.
    (h) You may ask us to modify the administrative requirements for
the exemptions described in this subpart. We may approve your request
if we determine that such approval is consistent with the intent of
this part. For example, waivable administrative requirements might
include some reporting requirements, but would not include any
eligibility requirements or use restrictions.
    (i) If you want to take an action with respect to an exempted or
excluded engine/equipment that is prohibited by the exemption or
exclusion, such as selling it, you need to certify the engine/
equipment. We will issue a certificate of conformity if you send us an
application for certification showing that you meet all the applicable
requirements from the standard-setting part and pay the appropriate
fee. Alternatively, we may allow you to include in an existing
certified engine family those engines/equipment you modify (or
otherwise demonstrate) to be identical to engines/equipment already
covered by the certificate. We would base such an approval on our
review of any appropriate documentation. These engines/equipment must
have emission control information labels that accurately describe their
status.

Sec.  1068.210  What are the provisions for exempting test engines/
equipment?

    (a) We may exempt engines/equipment that you will use for research,
investigations, studies, demonstrations, or training. Note that you are
not required to get an exemption under this section for engines that
are exempted under other provisions of this part, such as the
manufacturer-owned exemption in Sec.  1068.215.
    (b) Anyone may ask for a testing exemption.
    (c) If you are a certificate holder, you may request an exemption
for engines/equipment you intend to include in test programs over a
two-year period.
    (1) In your request, tell us the maximum number of engines/
equipment involved and describe how you will make sure exempted
engines/equipment are used only for this testing.
    (2) Give us the information described in paragraph (d) of this
section if we ask for it.
    (d) If you are not a certificate holder, do all the following
things:
    (1) Show that the proposed test program has a valid purpose under
paragraph (a) of this section.
    (2) Show you need an exemption to achieve the purpose of the test
program (time constraints may be a basis for needing an exemption, but
the cost of certification alone is not).

    (3) Estimate the duration of the proposed test program and the
number of engines/equipment involved.
    (4) Allow us to monitor the testing.
    (5) Describe how you will ensure that you stay within this
exemption's purposes. Address at least the following things:
    (i) The technical nature of the test.
    (ii) The test site.
    (iii) The duration and accumulated engine/equipment operation
associated with the test.
    (iv) Ownership and control of the engines/equipment involved in the
test.
    (v) The intended final disposition of the engines/equipment.
    (vi) How you will identify, record, and make available the engine/
equipment identification numbers.
    (vii) The means or procedure for recording test results.
    (e) If we approve your request for a testing exemption, we will
send you a letter or a memorandum for your signature describing the
basis and scope of the exemption. The exemption does not take effect
until we receive the signed letter or memorandum from you. It will also
include any necessary terms and conditions, which normally require you
to do the following:
    (1) Stay within the scope of the exemption.
    (2) Create and maintain adequate records that we may inspect.
    (3) Add a permanent label to all engines/equipment exempted under
this section, consistent with Sec.  1068.45, with at least the
following items:
    (i) The label heading ``EMISSION CONTROL INFORMATION''.
    (ii) Your corporate name and trademark.
    (iii) Engine displacement, family identification, and model year of
the engine/equipment (as applicable), or whom to contact for further
information.
    (iv) One of these statements (as applicable):
    (A) ``THIS ENGINE IS EXEMPT UNDER 40 CFR 1068.210 OR 1068.215 FROM
EMISSION STANDARDS AND RELATED REQUIREMENTS.''
    (B) ``THIS EQUIPMENT IS EXEMPT UNDER 40 CFR 1068.210 OR 1068.215
FROM EMISSION STANDARDS AND RELATED REQUIREMENTS.''
    (4) Tell us when the test program is finished.
    (5) Tell us the final disposition of the engines/equipment.
    (6) Send us a written confirmation that you meet the terms and
conditions of this exemption.

Sec.  1068.215  What are the provisions for exempting manufacturer-
owned engines/equipment?

    (a) You are eligible for the exemption for manufacturer-owned
engines/equipment only if you are a certificate holder.
    (b) Engines/equipment may be exempt without a request if they are
nonconforming engines/equipment under your ownership, possession, and
control and you operate them to develop products, assess production
methods, or promote your engines/equipment in the marketplace. You may
not loan, lease, sell, or use the engine/equipment to generate revenue,
either by itself or for an engine installed in a piece of equipment.
Note that this paragraph (b) does not prevent the sale or shipment of a
partially complete engine to a secondary engine manufacturer that will
meet the requirements of this paragraph (b). See Sec.  1068.262 for
provisions related to shipping partially complete engines to secondary
engine manufacturers.
    (c) To use this exemption, you must do three things:
    (1) Establish, maintain, and keep adequately organized and indexed
information on all exempted engines/equipment, including the engine/
equipment identification number, the use of the engine/equipment on
exempt status, and the final disposition of any engine/equipment
removed from exempt status.
    (2) Let us access these records, as described in Sec.  1068.20.
    (3) Add a permanent label to all engines/equipment exempted under
this section, consistent with Sec.  1068.45, with at least the
following items:
    (i) The label heading ``EMISSION CONTROL INFORMATION''.
    (ii) Your corporate name and trademark.
    (iii) Family identification and model year of the engine/equipment
(as applicable), or whom to contact for further information.
    (iv) One of these statements (as applicable):
    (A) ``THIS ENGINE IS EXEMPT UNDER 40 CFR 1068.210 OR 1068.215 FROM
EMISSION STANDARDS AND RELATED REQUIREMENTS.''
    (B) ``THIS EQUIPMENT IS EXEMPT UNDER 40 CFR 1068.210 OR 1068.215
FROM EMISSION STANDARDS AND RELATED REQUIREMENTS.''

Sec.  1068.220  What are the provisions for exempting display engines/
equipment?

    (a) Anyone may request an exemption for display engines/equipment.
    (b) Nonconforming display engines/equipment will be exempted if
they are used only for displays in the interest of a business or the
general public. This exemption does not apply to engines/equipment
displayed for private use, private collections, or any other purpose we
determine is inappropriate for a display exemption.
    (c) You may operate the exempted engine/equipment, but only if we
approve specific operation that is part of the display.
    (d) You may sell or lease the exempted engine/equipment only with
our advance approval; you may not use it to generate revenue.
    (e) To use this exemption, you must add a permanent label to all
engines/equipment exempted under this section, consistent with Sec.
1068.45, with at least the following items:
    (1) The label heading ``EMISSION CONTROL INFORMATION''.
    (2) Your corporate name and trademark.
    (3) Engine displacement, family identification, and model year of
the engine/equipment (as applicable), or whom to contact for further
information.
    (4) One of these statements (as applicable):
    (i) ``THIS ENGINE IS EXEMPT UNDER 40 CFR 1068.220 FROM EMISSION
STANDARDS AND RELATED REQUIREMENTS.''
    (ii) ``THIS EQUIPMENT IS EXEMPT UNDER 40 CFR 1068.220 FROM EMISSION
STANDARDS AND RELATED REQUIREMENTS.''
    (f) We may set other conditions for approval of this exemption.

Sec.  1068.225  What are the provisions for exempting engines/equipment
for national security?

    (a) You are eligible for the exemption for national security only
if you are a manufacturer.
    (b) Your engine/equipment is exempt without a request if it will be
used or owned by an agency of the federal government responsible for
national defense, where the equipment has armor, permanently attached
weaponry, or other substantial features typical of military combat.
    (c) You may request a national security exemption for engines/
equipment not meeting the conditions of paragraph (b) of this section
as long as your request is endorsed by an agency of the federal
government responsible for national defense. In your request, explain
why you need the exemption.
    (d) Add a permanent label to all engines/equipment exempted under
this section, consistent with Sec.  1068.45, with at least the
following items:
    (1) The label heading ``EMISSION CONTROL INFORMATION''.

    (2) Your corporate name and trademark.
    (3) Engine displacement, family identification, and model year of
the engine/equipment (as applicable), or whom to contact for further
information.
    (4) One of these statements (as applicable):
    (i) ``THIS ENGINE HAS AN EXEMPTION FOR NATIONAL SECURITY UNDER 40
CFR 1068.225.''
    (ii) ``THIS EQUIPMENT HAS AN EXEMPTION FOR NATIONAL SECURITY UNDER
40 CFR 1068.225.''

Sec.  1068.230  What are the provisions for exempting engines/equipment
for export?

    The provisions of this section apply differently depending on the
country to which the engines/equipment are being exported.
    (a) We will not exempt new engines/equipment if you export them to
a country with emission standards identical to ours, in which case they
must be covered by a certificate of conformity. Where we determine that
such engines/equipment will not be placed into service in the United
States, the following provisions apply for special export-only
certification:
    (1) The engines/equipment must be covered by a certificate of
conformity or equivalent approval issued by the destination country.
    (2) To get an export-only certificate of conformity, send the
Designated Compliance Officer a request. We may require you to provide
information such as documentation of the foreign certification and
related test data.
    (3) No fees apply for export-only certification.
    (4) The engines/equipment must be labeled as specified in paragraph
(d) of this section.
    (5) This export-only certificate is not considered a valid
certificate of conformity with respect to the prohibition in Sec.
1068.101(a)(1) for sale to ultimate purchasers in the United States.
These engines/equipment also may not reenter the United States unless
the regulations of this chapter otherwise allow it.
    (b) Engines/equipment exported to a country not covered by
paragraph (a) of this section are exempt from the prohibited acts in
this part without a request. If you produce exempt engines/equipment
for export and any of them are sold or offered for sale to an ultimate
purchaser in the United States, we will void the exemption for those
engines/equipment.
    (c) Except as specified in paragraph (d) of this section, label
exempted engines/equipment (including shipping containers if the label
on the engine/equipment will be obscured by the container) with a label
showing that they are not certified for sale or use in the United
States. This label may be permanent or removable. See Sec.  1068.45 for
provisions related to the use of removable labels and applying labels
to containers without labeling individual engines/equipment. The label
must include your corporate name and trademark and one of the following
statements (as applicable):
    (1) ``THIS ENGINE IS SOLELY FOR EXPORT AND IS THEREFORE EXEMPT
UNDER 40 CFR 1068.230 FROM U.S. EMISSION STANDARDS AND RELATED
REQUIREMENTS.''
    (2) ``THIS EQUIPMENT IS SOLELY FOR EXPORT AND IS THEREFORE EXEMPT
UNDER 40 CFR 1068.230 FROM U.S. EMISSION STANDARDS AND RELATED
REQUIREMENTS.''
    (d) You must apply a permanent label as specified in this paragraph
(d) for engines/equipment certified under paragraph (a) of this
section. You may apply a permanent label as specified in this paragraph
(d) instead of the label specified in paragraph (c) of this section for
exempted engines/equipment. Add a permanent label meeting the
requirements of the destination country and include in the bill of
lading a statement that the engines/equipment must be exported to avoid
violating EPA regulations. We may modify applicable labeling
requirements to align with the labeling requirements that apply for the
destination country.
    (e) We may set other reasonable conditions to ensure that engines/
equipment exempted under this section are not placed into service in
the United States.
    (f) Exemptions under this section expire once engines are no longer
in the United States. Therefore exemptions under this section do not
allow engines to be imported back into the United States.

Sec.  1068.235  What are the provisions for exempting engines/equipment
used solely for competition?

    (a) New engines/equipment you produce that are used solely for
competition are generally excluded from emission standards. See the
standard-setting parts for specific provisions where applicable.
    (b) If you modify any engines/equipment after they have been placed
into service in the United States so they will be used solely for
competition, they are exempt without request. This exemption applies
only to the prohibition in Sec.  1068.101(b)(1) and is valid only as
long as the engine/equipment is used solely for competition. You may
not use the provisions of this paragraph (b) to circumvent the
requirements that apply to the sale of new competition engines under
the standard-setting part.
    (c) If you modify any engines/equipment under paragraph (b) of this
section, you must destroy the original emission labels. If you loan,
lease, sell, or give any of these engines/equipment to someone else,
you must tell the new owner (or operator, if applicable) in writing
that they may be used only for competition.

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). Paragraphs (b) and (c) describe two different approaches
for exempting new replacement engines where the engines are specially
built to correspond to 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). Paragraphs (d) and
(e) describe 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.
    (b) Previous-tier replacement engines with tracking. You may
produce any number of new replacement engines under this section if all
the following conditions are true:
    (1) You produce a new engine to replace an engine already placed
into service in a piece of equipment.
    (2) The engine being replaced was not originally subject to
emission standards or was originally subject to less stringent emission
standards than those that would otherwise apply to the new engine. 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.
    (3) You 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. You must
keep records to document your basis for making this determination.
    (4) You or your agent takes possession of the old engine or
confirms that the old engine has been destroyed.
    (5) 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.
    (6) You 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 engine being replaced was
not subject to any emission standards under this chapter:

THIS ENGINE DOES NOT COMPLY WITH U.S. EPA NONROAD EMISSION
REQUIREMENTS. SELLING OR INSTALLING THIS ENGINE FOR ANY PURPOSE OTHER
THAN TO REPLACE A NONROAD ENGINE BUILT BEFORE JANUARY 1, [Insert
appropriate year reflecting when the earliest tier of standards began
to apply to engines of that size and type] MAY BE A VIOLATION OF
FEDERAL LAW SUBJECT TO CIVIL PENALTY.

    (ii) Add the following statement if the engine being replaced was
subject to emission standards:

THIS ENGINE COMPLIES WITH U.S. EPA NONROAD 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.
    (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). 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. 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 this paragraph (c). 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. Include only those stationary engines from
your U.S.-directed production volume that are certified under one of
the standard-setting parts identified in Table 1 to this section. Do
not include any exempted engines you produce as part of your U.S.-
directed production volume, even if those engines must meet emission
standards as a condition of the exemption. 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 (d) or (e)
of this section.
    (3) Send the Designated Compliance Officer a report by February 15
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)(6) of this
section. For partially complete engines, you may alternatively add a
permanent or removable label as specified in paragraph (d) of this
section, except that the appropriate regulatory cite is 40 CFR
1068.240(c).
    (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) Current-tier replacement engines for engine-based standards.
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 for which the partially complete engine may properly be
used for replacement purposes. You must label the engine as follows:
    (1) 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(d).'' 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.
    (2) 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(d).'' 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) Current-tier replacement engines for equipment-based standards.
In the case of equipment subject to equipment-based standards, you may
introduce into U.S. commerce engines that are identical to engines
covered by a current certificate of conformity 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. You must be able to identify all
the engine and equipment models and model years for which such an
engine may properly be used for replacement purposes. Add a permanent
or removable label to these engines as described in paragraph (d) of
this section, except that the appropriate regulatory cite is 40 CFR
1068.240(e).
    (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.
    (g) Circumvention. The provisions of this section may not be used
to circumvent emission standards that apply to new engines under the
standard-setting part.
    (1) The provisions of this section are intended to allow for
replacement of engines that fail prematurely if none of the following
is true:
    (i) The engine can reasonably be repaired or rebuilt.
    (ii) A different used engine (including rebuilt engines) can be
used, consistent with applicable regulations. Note that the regulations
limit the use of used engines from certain categories, such as
converting land-based engines for use in marine vessels.
    (iii) A new certified engine is available with the appropriate
physical and performance characteristics.
    (2) Anyone installing an exempted new replacement engine is deemed
to be a manufacturer of a new engine with respect to the prohibitions
of Sec.  1068.101(a)(1). This applies to all engines exempted under
this section.
    (3) The stockpiling restrictions specified in Sec.  1068.103(f) do
not apply for engines that will be introduced into U.S. commerce only
as allowed by this section. The model year restrictions specified in
Sec.  1068.103(f) do not apply for engines produced under paragraphs
(d) and (e) of this section if you can demonstrate that the engines
will be used only as replacement engines.

  Table 1 to Sec.   1068.240--Engine Categories and Subcategories for Streamlined Compliance Provisions for New
                                               Replacement Engines
----------------------------------------------------------------------------------------------------------------
            Engine category               Standard-setting part \1\              Engine 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 Marine    40 CFR part 1039, or 40     disp. < 0.6 L/cyl
 CI.                                      CFR part 1042.             0.6 <= disp. < 1.2 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 Marine SI   40 CFR part 1048 or 40 CFR  all engines.
 (sterndrive/ inboard only).              part 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.

Sec.  1068.245  What temporary provisions address hardship due to
unusual circumstances?

    (a) After considering the circumstances, we may permit you to
introduce into U.S. commerce engines/equipment that do not comply with
emission-related requirements for a limited time if all the following
conditions apply:
    (1) Unusual circumstances that are clearly outside your control
prevent you from meeting requirements from this chapter.
    (2) You exercised prudent planning and were not able to avoid the
violation; you have taken all reasonable steps to minimize the extent
of the nonconformity.
    (3) No other allowances are available under the regulations in this
chapter to avoid the impending violation, including the provisions of
Sec.  1068.250.
    (4) Not having the exemption will jeopardize the solvency of your
company.

    (b) If your unusual circumstances are only related to compliance
with the model-year provisions of Sec.  1068.103(f), we may grant
hardship under this section without a demonstration that the solvency
of your company is in jeopardy as follows:
    (1) You must demonstrate that the conditions specified in
paragraphs (a)(1) through (3) of this section apply.
    (2) Your engines/equipment must comply with standards and other
requirements that would have applied if assembly were completed on
schedule.
    (3) You may generally request this exemption only for engines/
equipment for which assembly has been substantially completed; you may
not begin assembly of any additional engines/equipment under this
exemption after the cause for delay has occurred. We may make an
exception to this general restriction for secondary engine
manufacturers.
    (4) As an example, if your normal production process involves
purchase of partially complete engines and a supplier fails to deliver
all the ordered engines in time for your assembly according to your
previously established schedule as a result of a fire at its factory,
you may request that we treat those engine as if they had been
completed on the original schedule. Note that we would grant relief
only for those engines where you had a reasonable basis for expecting
the engines to be delivered on time based on past performance and terms
of purchase.
    (c) To apply for an exemption, you must send the Designated
Compliance Officer a written request as soon as possible before you are
in violation. In your request, show that you meet all the conditions
and requirements in paragraph (a) of this section.
    (d) Include in your request a plan showing how you will meet all
the applicable requirements as quickly as possible.
    (e) You must give us other relevant information if we ask for it.
    (f) We may include reasonable additional conditions on an approval
granted under this section, including provisions to recover or
otherwise address the lost environmental benefit or paying fees to
offset any economic gain resulting from the exemption. For example, in
the case of multiple tiers of emission standards, we may require that
you meet the standards from the previous tier whether or not your
hardship is granted under paragraph (b) of this section.
    (g) Add a permanent label to all engines/equipment exempted under
this section, consistent with Sec.  1068.45, with at least the
following items:
    (1) The label heading ``EMISSION CONTROL INFORMATION''.
    (2) Your corporate name and trademark.
    (3) Engine displacement (in liters or cubic centimeters), and model
year of the engine/equipment, (as applicable); or whom to contact for
further information. We may also require that you include maximum
engine power.
    (4) A statement describing the engine's status as an exempted
engine:
    (i) If the engine/equipment does not meet any emission standards,
add one of the following statements:
    (A) ``THIS ENGINE IS EXEMPT UNDER 40 CFR 1068.245 FROM EMISSION
STANDARDS AND RELATED REQUIREMENTS.''
    (B) ``THIS EQUIPMENT IS EXEMPT UNDER 40 CFR 1068.245 FROM EMISSION
STANDARDS AND RELATED REQUIREMENTS.''
    (ii) If the engines/equipment meet alternate emission standards as
a condition of an exemption under this section, we may specify a
different statement to identify the alternate emission standards.

Sec.  1068.250  What are the provisions for extending compliance
deadlines for small businesses under hardship?

    (a) After considering the circumstances, we may extend the
compliance deadline for you to meet new or revised emission standards
as long as you meet all the conditions and requirements in this
section.
    (b) You must be a small business to be eligible for this exemption.
    (c) Send the Designated Compliance Officer a written request for an
extension. In your request, show that all the following conditions and
requirements apply:
    (1) You have taken all possible business, technical, and economic
steps to comply.
    (i) In the case of importers of engines/equipment produced by other
companies, show that you attempted to find a manufacturer capable of
supplying complying products as soon as you became aware of the
applicable requirements but were unable to do so.
    (ii) For all other manufacturers, show that the burden of
compliance costs prevents you from meeting the requirements of this
chapter.
    (2) Not having the exemption will jeopardize the solvency of your
company.
    (3) No other allowances are available under the regulations in this
chapter to avoid the impending violation.
    (d) In describing the steps you have taken to comply under
paragraph (c)(1) of this section, include at least the following
information:
    (1) Describe your business plan, showing the range of projects
active or under consideration.
    (2) Describe your current and projected financial status, with and
without the burden of complying fully with the applicable regulations
in this chapter.
    (3) Describe your efforts to raise capital to comply with
regulations in this chapter (this may not apply for importers).
    (4) Identify the engineering and technical steps you have taken or
those you plan to take to comply with regulations in this chapter.
    (5) Identify the level of compliance you can achieve. For example,
you may be able to produce engines/equipment that meet a somewhat less
stringent emission standard than the regulations in this chapter
require.
    (e) Include in your request a plan showing how you will meet all
the applicable requirements as quickly as possible.
    (f) You must give us other relevant information if we ask for it.
    (g) An authorized representative of your company must sign the
request and include the statement: ``All the information in this
request is true and accurate to the best of my knowledge.''
    (h) Send your request for this extension at least nine months
before the relevant deadline. If different deadlines apply to companies
that are not small-volume manufacturers, do not send your request
before the regulations in question apply to the other manufacturers.
Otherwise, do not send your request more than three years before the
relevant deadline.
    (i) We may include reasonable requirements on an approval granted
under this section, including provisions to recover or otherwise
address the lost environmental benefit. For example, we may require
that you meet a less stringent emission standard or buy and use
available emission credits.
    (j) We may approve extensions of the compliance deadlines as
reasonable under the circumstances up to one model year at a time, and
up to three years total.
    (k) Add a permanent label to all engines/equipment exempted under
this section, consistent with Sec.  1068.45, with at least the
following items:
    (1) The label heading ``EMISSION CONTROL INFORMATION''.
    (2) Your corporate name and trademark.
    (3) Engine displacement (in liters or cubic centimeters), and model
year of the engine/equipment (as applicable); or

whom to contact for further information. We may also require that you
include maximum engine power.
    (4) A statement describing the engine's status as an exempted
engine:
    (i) If the engine/equipment does not meet any emission standards,
add one of the following statements:
    (A) ``THIS ENGINE IS EXEMPT UNDER 40 CFR 1068.250 FROM EMISSION
STANDARDS AND RELATED REQUIREMENTS.''
    (B) ``THIS EQUIPMENT IS EXEMPT UNDER 40 CFR 1068.250 FROM EMISSION
STANDARDS AND RELATED REQUIREMENTS.''
    (ii) If the engine/equipment meets alternate emission standards as
a condition of an exemption under this section, we may specify a
different statement to identify the alternate emission standards.

Sec.  1068.255  What are the provisions for exempting engines and fuel-
system components for hardship for equipment manufacturers and
secondary engine manufacturers?

    This section describes how, in unusual circumstances, we may
approve an exemption to prevent hardship to an equipment manufacturer
or a secondary engine manufacturer. This section does not apply to
products that are subject to equipment-based exhaust emission
standards.
    (a) Equipment exemption. As an equipment manufacturer, you may ask
for approval to produce exempted equipment for up to 12 months. We will
generally limit this to the first year that new or revised emission
standards apply. Send the Designated Compliance Officer a written
request for an exemption before you are in violation. In your request,
you must show you are not at fault for the impending violation and that
you would face serious economic hardship if we do not grant the
exemption. This exemption is not available under this paragraph (a) if
you manufacture the engine or fuel-system components you need for your
own equipment, or if complying engines or fuel-system components are
available from other manufacturers that could be used in your
equipment, unless we allow it elsewhere in this chapter. We may impose
other conditions, including provisions to use products meeting less
stringent emission standards or to recover the lost environmental
benefit. In determining whether to grant the exemptions, we will
consider all relevant factors, including the following:
    (1) The number of engines or fuel-system components involved.
    (2) The size of your company and your ability to endure the
hardship.
    (3) The amount of time you had to redesign your equipment to
accommodate complying products.
    (4) Whether there was any breach of contract by a supplier.
    (5) The potential for market disruption.
    (b) Engine and fuel-system component exemption. As an engine
manufacturer or fuel-system component manufacturer, you may produce
nonconforming products for the equipment we exempt in paragraph (a) of
this section. You do not have to request this exemption but you must
have written assurance from equipment manufacturers that they need a
certain number of exempted products under this section. Label engines
or fuel-system components as follows, consistent with Sec.  1068.45:
    (1) Engines. Add a permanent label to all engines/equipment
exempted under this section with at least the following items:
    (i) The label heading ``EMISSION CONTROL INFORMATION''.
    (ii) Your corporate name and trademark.
    (iii) Engine displacement (in liters or cubic centimeters) and
model year of the engine, or whom to contact for further information.
We may also require that you include maximum engine power.
    (iv) If the engine does not meet any emission standards: ``THIS
ENGINE IS EXEMPT UNDER 40 CFR 1068.255 FROM EMISSION STANDARDS AND
RELATED REQUIREMENTS.'' If the engine meets alternate emission
standards as a condition of an exemption under this section, we may
specify a different statement to identify the alternate emission
standards.
    (2) Fuel-system components. Add a permanent label to all engines/
equipment exempted under this section with at least the following
items:
    (i) Your corporate name and trademark.
    (ii) The statement ``EXEMPT UNDER 40 CFR 1068.255''.
    (c) Secondary engine manufacturers. As a secondary engine
manufacturer, you may ask for approval to produce exempted engines
under this section for up to 12 months. We may require you to certify
your engines to compliance levels above the emission standards that
apply. For example, in the case of multiple tiers of emission
standards, we may require you to meet the standards from the previous
tier.
    (1) The provisions in paragraph (a) of this section that apply to
equipment manufacturers requesting an exemption apply equally to you
except that you may manufacture the engines. Before we approve an
exemption under this section, we will generally require that you commit
to a plan to make up the lost environmental benefit.
    (i) If you produce uncertified engines under this exemption, we
will calculate the lost environmental benefit based on our best
estimate of uncontrolled emission rates for your engines.
    (ii) If you produce engines under this exemption that are certified
to a compliance level less stringent than the emission standards that
would otherwise apply, we will calculate the lost environmental benefit
based on the compliance level you select for your engines.
    (2) The labeling requirements in paragraph (b) of this section
apply to your exempted engines; however, if you certify engines to
specific compliance levels, state on the label the compliance levels
that apply to each engine.

Sec.  1068.260  What general provisions apply for selling or shipping
engines that are not yet in their certified configuration?

    Except as specified in paragraph (e) of this section, all new
engines in the United States are presumed to be subject to the
prohibitions of Sec.  1068.101, which generally require that all new
engines be in a certified configuration before being introduced into
U.S. commerce. All emission-related components generally need to be
installed on an engine for such an engine to be in its certified
configuration. This section specifies clarifications and exemptions
related to these requirements for engines. Except for paragraph (c) of
this section, the provisions of this section generally apply for
engine-based standards but not for equipment-based standards.
    (a) You may ship engines with emission-related components that are
not yet assembled to the engine in circumstances where the final
assembly depends on equipment design parameters and shipment of the
fully assembled engine is impractical. For example, you may generally
ship aftertreatment devices along with engines rather than installing
them on the engine before shipment. You do not need an exemption to
ship an engine under this paragraph (a) but we may require you to
describe how you plan to use this provision in your application for
certification.
    (b) You do not need an exemption to ship engines without specific
components if they are not emission-related components identified in
Appendix I of this part. For example, you may generally ship engines
without radiators needed to cool the engine. You may ask us at the time
of certification to allow you to ship your engines without other
equipment-related

components (such as a vehicle speed sensor) that are described in your
application for certification. If we allow it, we may specify
conditions that we determine are needed to ensure that shipping the
engine without such components will not result in the engine being
operated outside of its certified configuration.
    (c) If you are a certificate holder, you may ask us to provide a
temporary exemption to allow you to ship or transport partially
complete engines between two of your facilities as long as you maintain
ownership and control of the engines until they reach their
destination. We may also allow this where you do not maintain actual
ownership and control of the engines (such as hiring a shipping company
to transport the engines) but only if you demonstrate that the engines
will be transported only according to your specifications. See Sec.
1068.261(b) for the provisions that apply instead of this paragraph (c)
for the special case of integrated manufacturers using the delegated-
assembly exemption. Send your request for this exemption to the
Designated Compliance Officer in your application for certification, if
applicable; in this case, your exemption is approved when we grant your
certificate. You may send your request in a separate submission if you
will not be the certificate holder for the engines in question. We may
require you to take specific steps to ensure that such engines are in a
certified configuration before reaching the ultimate purchaser. Note
that since this is a temporary exemption, it does not allow you to sell
or otherwise distribute to ultimate purchasers an engine in an
uncertified configuration. Note also that the exempted engine remains
new and subject to emission standards (see definition of ``exempted''
in Sec.  1068.30) until its title is transferred to the ultimate
purchaser or it otherwise ceases to be new.
    (d) See Sec.  1068.261 for delegated-assembly provisions in which
certificate-holding manufacturers introduce into U.S. commerce engines
that are not yet equipped with certain emission-related components. See
Sec.  1068.262 for provisions related to manufacturers introducing into
U.S. commerce partially complete engines for which a secondary engine
manufacturer holds the certificate of conformity.
    (e) Engines used in hobby vehicles are not presumed to be engines
subject to the prohibitions of Sec.  1068.101. Hobby vehicles are
reduced-scale models of vehicles that are not capable of transporting a
person. Other engines that do not have a valid certificate of
conformity or exemption when introduced into U.S. commerce are presumed
to be engines subject to the prohibitions of Sec.  1068.101 unless we
determine that such engines are excluded from the prohibitions of Sec.
1068.101.
    (f) While we presume that new nonhobby engines are subject to the
prohibitions of Sec.  1068.101, we may determine that a specific engine
is not subject to these prohibitions based on information you provide
or other information that is available to us. For example, the
provisions of this part 1068 and the standard-setting parts provide for
exemptions in certain circumstances. Also, some engines are subject to
separate prohibitions under subchapter C instead of the prohibitions of
Sec.  1068.101 (see for example, 40 CFR 89.1003).

Sec.  1068.261  What provisions apply for selling or shipping certified
engines that are not yet in the certified configuration?

    This section describes an exemption that allows certificate holders
to sell or ship engines that are missing certain emission-related
components if those components will be installed by an equipment
manufacturer. This section does not apply to equipment subject to
equipment-based standards. See the standard-setting part to determine
whether and how the provisions of this section apply. (Note: See Sec.
1068.262 for provisions related to manufacturers introducing into U.S.
commerce partially complete engines for which someone else holds the
certificate of conformity.) This exemption is temporary as described in
paragraph (f) of this section.
    (a) Shipping an engine separately from an aftertreatment component
that you have specified as part of its certified configuration will not
be a violation of the prohibitions in Sec.  1068.101(a)(1) subject to
the provisions in this section.
    (b) If you manufacture engines and install them in equipment you
also produce, you must take steps to ensure that your facilities,
procedures, and production records are set up to ensure that equipment
and engines are assembled in their proper certified configurations. For
example, you may demonstrate compliance with the requirements of this
section by maintaining a database showing how you pair aftertreatment
components with the appropriate engines such that the final product is
in its certified configuration.
    (c) If you include the price of all aftertreatment components in
the price of the engine and ship the aftertreatment components directly
to the equipment manufacturer, or arrange for separate shipment by the
component manufacturer to the equipment manufacturer, all the following
conditions apply:
    (1) Apply for and receive a certificate of conformity for the
engine and its emission control system before shipment as described in
the standard-setting part. For an existing certificate of conformity,
amend the application for certification by describing your plans to use
the provisions of this section as described in paragraph (c)(8) of this
section.
    (2) Provide installation instructions in enough detail to ensure
that the engine will be in its certified configuration if someone
follows these instructions. Provide the installation instructions in a
timely manner, generally directly after you receive an order for
shipping engines or earlier. If you apply removable labels as described
in paragraph (c)(7)(i) of this section, include an instruction for the
equipment manufacturer to remove the label after installing the
appropriate aftertreatment component.
    (3) Have a contractual agreement with the equipment manufacturer
obligating the equipment manufacturer to complete the final assembly of
the engine so it is in its certified configuration when final assembly
is complete. This agreement must also obligate the equipment
manufacturer to provide the affidavits required under paragraph (c)(4)
of this section.
    (4) Take appropriate additional steps to ensure that all engines
will be in a certified configuration when installed by the equipment
manufacturer. At a minimum, you must obtain annual affidavits from
every equipment manufacturer to which you sell engines under this
section. Include engines that you sell to distributors or dealers. The
affidavits must list the part numbers of the aftertreatment devices
that equipment manufacturers install on each engine they purchase from
you under this section and include confirmation that the number of
aftertreatment devices received were sufficient for the number of
engines involved.
    (5) Describe in your application for certification how you plan to
use the provisions of this section and any steps you plan to take under
paragraph(c)(4) of this section.
    (6) Keep records to document how many engines you produce under
this exemption. Also, keep records to document your contractual
agreements under paragraph (c)(3) of this section. Keep all these
records for five years after

the end of the applicable model year and make them available to us upon
request.
    (7) Make sure the engine has the emission control information label
we require under the standard-setting part. Include additional labeling
using one of the following approaches:
    (i) Apply an additional removable label in a way that makes it
unlikely that the engine will be installed in equipment other than in
its certified configuration. The label must identify the engine as
incomplete and include a clear statement that failing to install the
aftertreatment device, or otherwise failing to bring the engine into
its certified configuration, is a violation of federal law subject to
civil penalty.
    (ii) Add the statement ``DELEGATED ASSEMBLY'' to the permanent
emission control information label. You may alternatively add the
abbreviated statement ``DEL ASSY'' if there is not enough room on the
label.
    (8) Describe the following things in your application for
certification:
    (i) How you plan to use the provisions of this section.
    (ii) A detailed plan for auditing equipment manufacturers, as
described in paragraph (d)(3) of this section, if applicable.
    (iii) All other steps you plan to take under paragraph (c)(4) of
this section.
    (9) If one of your engines produced under this section is selected
for production-line testing or a selective enforcement audit, you must
arrange to get a randomly selected aftertreatment component from either
the equipment manufacturer or the equipment manufacturer's supplier.
You may keep an inventory of these randomly selected parts, consistent
with good engineering judgment and the intent of this section. You may
obtain such aftertreatment components from any point in the normal
distribution from the aftertreatment component manufacturer to the
equipment manufacturer. Keep records describing how you randomly
selected these aftertreatment components, consistent with the
requirements specified in the standard-setting part.
    (10) Note that for purposes of importation, you may itemize your
invoice to identify separate costs for engines and aftertreatment
components that will be shipped separately. A copy of your invoice from
the aftertreatment manufacturer may be needed to avoid payment of
importation duties for the engine that also include the value of
aftertreatment components.
    (d) If you do not include the price of all aftertreatment
components in the price of the engine, you must meet all the conditions
described in paragraphs (c)(1) through (9) of this section, with the
following additional provisions:
    (1) The contractual agreement described in paragraph (c)(3) of this
section must include a commitment that the equipment manufacturer will
do the following things:
    (i) Purchase the aftertreatment components you have specified in
your application for certification and keep records to document these
purchases.
    (ii) Cooperate with the audits described in paragraph (d)(3) of
this section.
    (2) You must have written confirmation that the equipment
manufacturer has ordered the appropriate type of aftertreatment
components for an initial shipment of engines under this section. For
the purpose of this paragraph (d)(2), initial shipment means the first
shipment of engines that are subject to new or more stringent emissions
standard (or the first shipment of engines using the provisions of this
section) to a given equipment manufacturer for a given engine family.
For the purpose of this paragraph (d)(2), you may treat as a single
engine family those engine families from different model years that
differ only with respect to model year or other characteristics
unrelated to emissions. You must receive the written confirmation
within 30 days after shipment. If you do not receive written
confirmation within 30 days, you may not ship any more engines from
that engine family to that equipment manufacturer until you have the
written confirmation. Note that it may be appropriate to obtain
subsequent written confirmations to ensure compliance with this
section, as described in paragraph (c)(4) of this section.
    (3) You must perform or arrange for audits of equipment
manufacturers as follows:
    (i) If you sell engines to 16 or more equipment manufacturers under
the provisions of this section, you must annually perform or arrange
for audits of four equipment manufacturers to whom you sell engines
under this section. To select individual equipment manufacturers,
divide all the affected equipment manufacturers into quartiles based on
the number of engines they buy from you; select a single equipment
manufacturer from each quartile each model year. Vary the equipment
manufacturers selected for auditing from year to year, though you may
repeat an audit in a later model year if you find or suspect that a
particular equipment manufacturer is not properly installing
aftertreatment devices.
    (ii) If you sell engines to fewer than 16 equipment manufacturers
under the provisions of this section, set up a plan to perform or
arrange for audits of each equipment manufacturer on average once every
four model years.
    (iii) Starting with the 2019 model year, if you sell engines to
fewer than 40 equipment manufacturers under the provisions of this
section, you may ask us to approve a reduced auditing rate. We may
approve an alternate plan that involves audits of each equipment
manufacturer on average once every ten model years as long as you show
that you have met the auditing requirements in preceding years without
finding noncompliance or improper procedures.
    (iv) To meet these audit requirements, you or your agent must at a
minimum inspect the assembling companies' procedures and production
records to monitor their compliance with your instructions, investigate
some assembled engines, and confirm that the number of aftertreatment
devices shipped were sufficient for the number of engines produced.
    (v) You must keep records of these audits for five years after the
end of the applicable model year.
    (e) The following provisions apply if you ship engines without air
filters or other portions of the air intake system that are
specifically identified by part number (or other specific part
reference) in the application for certification such that the shipped
engine is not in its certified configuration. You do not need an
exemption under this section to ship engines without air intake system
components if you instead describe in your installation instructions
how equipment manufacturers should use components meeting certain
functional specifications.
    (1) If you are using the provisions of this section to ship an
engine without aftertreatment, apply all the provisions of this section
to ensure that each engine, including its intake system, is in its
certified configuration before it reaches the ultimate purchaser.
    (2) If you are not using the provisions of this section to ship an
engine without aftertreatment, shipping an engine without air-intake
components that you have specified as part of its certified
configuration will not be a violation of the prohibitions in Sec.
1068.101(a) if you follow the provisions specified in paragraph (b) or
paragraphs (c)(1) through (9) of this section. If we find there is a
problem, we may require you to perform audits as specified in paragraph
(d)(3) of this section.
    (f) Once the equipment manufacturer takes possession of an engine
exempted under this section and the engine

reaches the point of final equipment assembly, the exemption expires
and the engine is subject to all the prohibitions in Sec.  1068.101.
Note that the engine's model year does not change based on the date the
equipment manufacturer adds the aftertreatment device and/or air filter
under this section.
    (g) You may use the provisions of this section for engines you sell
to a distributor as described in this paragraph (g) using one of the
following approaches:
    (1) You may sell engines through a distributor if you comply with
the provisions of paragraph (d) of this section with respect to the
equipment manufacturer.
    (2) You may treat the distributor as the equipment manufacturer as
described in this paragraph (g)(2) for all applicable requirements and
prohibitions. Such distributors must bring engines into their final
certified configuration. This may include shipping the engine with the
appropriate aftertreatment device and/or air filter, but without
completing the assembly with all the components. The exemptions expire
for such engines when the distributor no longer has control of them.
    (h) You must notify us within 15 days if you find from an audit or
another source that engines produced under this section are not in a
certified configuration at the point of final assembly or that an
equipment manufacturer has otherwise failed to meet its obligations
under this section. If this occurs, send us a report describing the
circumstances related to the noncompliance within 75 days after you
notify us.
    (i) We may suspend, revoke, or void an exemption under this
section, as follows:
    (1) We may suspend or revoke your exemption for a specific
equipment manufacturer if any of the engines are not in a certified
configuration after installation in that manufacturer's equipment, or
if we determine that the equipment manufacturer has otherwise failed to
comply with the requirements of this section. We may also suspend or
revoke your exemption for other engine families with respect to the
equipment manufacturer unless you demonstrate that the noncompliance is
limited to a specific engine family. You may not use this exemption for
future shipments to the affected equipment manufacturer without taking
action beyond the minimum steps specified in this section, such as
performing on-site audits. We will approve further use of this
exemption only if you convince us that you have adequately addressed
the factors causing the noncompliance.
    (2) We may suspend or revoke your exemption for the entire engine
family if we determine that you have failed to comply with the
requirements of this section. If we make an adverse decision with
respect to the exemption for any of your engine families under this
paragraph (i), this exemption will not apply for future certificates
unless you convince us that the factors causing the noncompliance do
not apply to the other engine families. We may also set additional
conditions beyond the provisions specified in this section.
    (3) We may void your exemption for the entire engine family if you
intentionally submit false or incomplete information or fail to keep
and provide to EPA the records required by this section. Note that all
records and reports required under this section (whether generated by
the engine manufacturer, equipment manufacturer, or others) are subject
to the prohibition in Sec.  1068.101(a)(2), which prohibits the
submission of false or incomplete information. For example, the
affidavits required by this section are considered a submission.
    (j) You are liable for the in-use compliance of any engine that is
exempt under this section.
    (k) It is a violation of Sec.  1068.101(a)(1) for any person to
introduce into U.S. commerce a previously exempted engine, including as
part of a piece of equipment, without complying fully with the
installation instructions.

Sec.  1068.262  What are the provisions for temporarily exempting
engines for shipment to secondary engine manufacturers?

    This section specifies when manufacturers may introduce into U.S.
commerce partially complete engines that have an exemption or a
certificate of conformity held by a secondary engine manufacturer and
are not yet in a certified configuration. See the standard-setting part
to determine whether and how the provisions of this section apply.
(Note: See Sec.  1068.261 for provisions related to manufacturers
introducing into U.S. commerce partially complete engines for which
they hold the certificate of conformity.) This exemption is temporary
as described in paragraph (g) of this section.
    (a) The provisions of this section generally apply where the
secondary engine manufacturer has substantial control over the design
and assembly of emission controls. In determining whether a
manufacturer has substantial control over the design and assembly of
emission controls, we would consider the degree to which the secondary
engine manufacturer would be able to ensure that the engine will
conform to the regulations in its final configuration. Such secondary
engine manufacturers may finish assembly of partially complete engines
in the following cases:
    (1) You obtain an engine that is not fully assembled with the
intent to manufacture a complete engine.
    (2) You obtain an engine with the intent to modify it before it
reaches the ultimate purchaser.
    (3) You obtain an engine with the intent to install it in equipment
that will be subject to equipment-based standards.
    (b) Manufacturers may introduce into U.S. commerce partially
complete engines as described in this section if they have a written
request for such engines from a secondary engine manufacturer that has
certified the engine and will finish the engine assembly. The written
request must include a statement that the secondary engine manufacturer
has a certificate of conformity for the engine and identify a valid
engine family name associated with each engine model ordered (or the
basis for an exemption if applicable, as specified in paragraph (e) of
this section). The original engine manufacturer must apply a removable
label meeting the requirements of Sec.  1068.45 that identifies the
corporate name of the original manufacturer and states that the engine
is exempt under the provisions of Sec.  1068.262. The name of the
certifying manufacturer must also be on the label or, alternatively, on
the bill of lading that accompanies the engines during shipment. The
original engine manufacturer may not apply a permanent emission control
information label identifying the engine's eventual status as a
certified engine.
    (c) The manufacturer that will hold the certificate must include
the following information in its application for certification:
    (1) Identify the original engine manufacturer of the partially
complete engine or of the complete engine you will modify.
    (2) Describe briefly how and where final assembly will be
completed. Specify how you have the ability to ensure that the engines
will conform to the regulations in their final configuration. (Note:
Paragraph (a) of this section prohibits using the provisions of this
section unless you have substantial control over the design and
assembly of emission controls.)
    (3) State unconditionally that you will not distribute the engines
without conforming to all applicable regulations.

    (d) If you are a certificate holder, you may receive shipment of
partially complete engines after you apply for a certificate of
conformity but before the certificate's effective date. In this case,
all the provisions of Sec.  1068.103(c)(1) through (3) apply. This
exemption allows the original manufacturer to ship engines after you
have applied for a certificate of conformity. Manufacturers may
introduce into U.S. commerce partially complete engines as described in
this paragraph (d) if they have a written request for such engines from
a secondary engine manufacturer stating that the application for
certification has been submitted (instead of the information we specify
in paragraph (b) of this section). We may set additional conditions
under this paragraph (d) to prevent circumvention of regulatory
requirements. Consistent with Sec.  1068.103(c), we may also revoke an
exemption under this paragraph (d) if we have reason to believe that
the application for certification will not be approved or that the
engines will otherwise not reach a certified configuration before
reaching the ultimate purchaser. This may require that you export the
engines.
    (e) The provisions of this section also apply for shipping
partially complete engines if the engine is covered by a valid
exemption and there is no valid engine family name that could be used
to represent the engine model. Unless we approve otherwise in advance,
you may do this only when shipping engines to secondary engine
manufacturers that are certificate holders. In this case, the secondary
engine manufacturer must identify the regulatory cite identifying the
applicable exemption instead of a valid engine family name when
ordering engines from the original engine manufacturer.
    (f) If secondary engine manufacturers determine after receiving an
engine under this section that the engine will not be covered by a
certificate or exemption as planned, they may ask us to allow for
shipment of the engines back to the original engine manufacturer or to
another secondary engine manufacturer. This might occur in the case of
an incorrect shipment or excess inventory. We may modify the provisions
of this section as appropriate to address these cases.
    (g) Both original and secondary engine manufacturers must keep the
records described in this section for at least five years, including
the written request for engines and the bill of lading for each
shipment (if applicable). The written request is deemed to be a
submission to EPA and is thus subject to the reporting requirements of
40 CFR 1068.101(a)(2).
    (h) These provisions are intended only to allow you to obtain or
transport engines in the specific circumstances identified in this
section so any exemption under this section expires when the engine
reaches the point of final assembly identified in accordance paragraph
(c)(2) of this section.
    (i) For purposes of this section, an allowance to introduce engines
into U.S. commerce includes a conditional allowance to sell, introduce,
or deliver such partially complete engines into commerce in the United
States or import them into the United States. It does not include a
general allowance to offer such partially complete engines for sale
because this exemption is intended to apply only for cases in which the
certificate holder already has an arrangement to purchase the engines
from the original engine manufacturer. This exemption does not allow
the original engine manufacturer to subsequently offer the engines for
sale to a different manufacturer who will hold the certificate unless
that second manufacturer has also complied with the requirements of
this part. The exemption does not apply for any individual engines that
are not labeled as specified in this section or which are shipped to
someone who is not a certificate holder.
    (j) We may suspend, revoke, or void an exemption under this
section, as follows:
    (1) We may suspend or revoke your exemption if you fail to meet the
requirements of this section. We may suspend or revoke your exemption
for a specific secondary engine manufacturer if that manufacturer sells
engines that are in not in a certified configuration in violation of
the regulations. We may disallow this exemption for future shipments to
the affected secondary engine manufacturer or set additional conditions
to ensure that engines will be assembled in the certified
configuration.
    (2) We may void your exemption for all the affected engines if you
intentionally submit false or incomplete information or fail to keep
and provide to EPA the records required by this section.
    (3) The exemption is void for an engine that is shipped to a
company that is not a certificate holder or for an engine that is
shipped to a secondary engine manufacturer that is not in compliance
with the requirements of this section.
    (k) No exemption is needed to import equipment that does not
include an engine. No exemption is available under this section for
equipment subject to equipment-based standards if the engine has been
installed.

Sec.  1068.265  What provisions apply to engines/equipment that are
conditionally exempted from certification?

    In some cases, exempted engines may need to meet alternate emission
standards as a condition of the exemption. For example, replacement
engines exempted under Sec.  1068.240 in many cases need to meet the
same standards as the engines they are replacing. The standard-setting
part may similarly exempt engines/equipment from all certification
requirements, or allow us to exempt engines/equipment from all
certification requirements for certain cases, but require the engines/
equipment to meet alternate standards. In these cases, all the
following provisions apply:
    (a) Your engines/equipment must meet the alternate standards we
specify in (or pursuant to) the exemption section, and all other
requirements applicable to engines/equipment that are subject to such
standards.
    (b) You need not apply for and receive a certificate for the exempt
engines/equipment. However, you must comply with all the requirements
and obligations that would apply to the engines/equipment if you had
received a certificate of conformity for them unless we specifically
waive certain requirements.
    (c) You must have emission data from test engines/equipment using
the appropriate procedures that demonstrate compliance with the
alternate standards unless the engines/equipment are identical in all
material respects to engines/equipment that you have previously
certified to standards that are the same as, or more stringent than,
the alternate standards. Note that ``engines/equipment that you have
previously certified'' does not include any engines/equipment initially
covered by a certificate that was later voided or otherwise
invalidated, or engines/equipment that we have determined did not fully
conform to the regulations.
    (d) See the provisions of the applicable exemption for labeling
instructions, including those related to the compliance statement and
other modifications to the label otherwise required in the standard-
setting part. If we do not identify specific labeling requirements for
an exempted engine, you must meet the labeling requirements in the
standard-setting part, with the following exceptions:
    (1) Modify the family designation by eliminating the character that
identifies the model year.

    (2) We may also specify alternative language to replace the
compliance statement otherwise required in the standard-setting part.
    (e) You may not generate emission credits for averaging, banking,
or trading with engines/equipment meeting requirements under the
provisions of this section.
    (f) Keep records to show that you meet the alternate standards as
follows:
    (1) If your exempted engines/equipment are identical to previously
certified engines/equipment, keep your most recent application for
certification for the certified family.
    (2) If you previously certified a similar family, but have modified
the exempted engines/equipment in a way that changes them from their
previously certified configuration, keep your most recent application
for certification for the certified family, a description of the
relevant changes, and any test data or engineering evaluations that
support your conclusions.
    (3) If you have not previously certified a similar family, keep all
the records we specify for the application for certification and any
additional records the standard-setting part requires you to keep.
    (g) We may require you to send us an annual report of the engines/
equipment you produce under this section.

Subpart D--Imports

Sec.  1068.301  What general provisions apply?

    (a) This subpart applies to you if you import into the United
States engines or equipment subject to EPA emission standards or
equipment containing engines subject to EPA emission standards.
    (b) In general, engines/equipment that you import must be covered
by a certificate of conformity unless they were built before emission
standards started to apply. This subpart describes the limited cases
where we allow importation of exempt or excluded engines/equipment. For
equipment not subject to equipment-based exhaust emission standards, an
exemption of the engine allows you to import the equipment.
    (c) U.S. Customs and Border Protection may prevent you from
importing engines or equipment if you do not meet the requirements of
this subpart. In addition, U.S. Customs and Border Protection
regulations may contain other requirements for engines/equipment
imported into the United States (see 19 CFR Chapter I).
    (d) Complete the appropriate EPA declaration form before importing
any engines or equipment. These forms are available on the Internet at
http://www.epa.gov/OTAQ/imports/ or by phone at<PHONE_NUMBER>. Importers
must keep the forms for five years and make them available promptly
upon request.

Sec.  1068.305  How do I get an exemption or exclusion for imported
engines/equipment?

    (a) You must meet the requirements of the specific exemption or
exclusion you intend to use, including any labeling requirements that
apply, and complete the appropriate declaration form described in Sec.
1068.301(d).
    (b) If we ask for it, prepare a written request in which you do the
following:
    (1) Give your name, address, telephone number, and taxpayer
identification number.
    (2) Give the engine/equipment owner's name, address, telephone
number, and taxpayer identification number.
    (3) Identify the make, model, identification number, and original
production year of all engines/equipment.
    (4) Identify which exemption or exclusion in this subpart allows
you to import nonconforming engines/equipment and describe how your
engine/equipment qualifies.
    (5) Tell us where you will keep your engines/equipment if you might
need to store them until we approve your request.
    (6) Authorize us to inspect or test your engines/equipment as the
Clean Air Act allows.
    (c) We may ask for more information.
    (d) You may import the nonconforming engines/equipment you identify
in your request if you get prior written approval from us. U.S. Customs
and Border Protection may require you to present the approval letter.
We may temporarily or permanently approve the exemptions or exclusions,
as described in this subpart.

Sec.  1068.310  What are the exclusions for imported engines/equipment?

    If you show us that your engines/equipment qualify under one of the
paragraphs of this section, we will approve your request to import such
excluded engines/equipment. You must have our approval before importing
engines/equipment under paragraph (a) of this section. You may, but are
not required to request our approval to import the engines/equipment
under paragraph (b) through (c) of this section. The following engines/
equipment are excluded:
    (a) Engines/equipment used solely for competition. Engines/
equipment that you demonstrate will be used solely for competition are
excluded from the restrictions on imports in Sec.  1068.301(b), but
only if they are properly labeled. See the standard-setting part for
provisions related to this demonstration. Section 1068.101(b)(4)
prohibits anyone from using these excluded engines/equipment for
purposes other than competition.
    (b) Stationary engines. The definition of nonroad engine in Sec.
1068.30 does not include certain engines used in stationary
applications. Such engines (and equipment containing such engines) may
be subject to the standards of 40 CFR part 60. Engines that are
excluded from the definition of nonroad engine in this part and are not
required to be certified to standards under 40 CFR part 60 are not
subject to the restrictions on imports in Sec.  1068.301(b), but only
if they are properly labeled and there is clear and convincing evidence
that each engine will be used in a stationary application (see
paragraph (2)(iii) of the definition of ``Nonroad engine''). Section
1068.101 restricts the use of stationary engines for non-stationary
purposes unless they are certified under 40 CFR part 60 to the same
standards that would apply to nonroad engines for the same model year.
    (c) Hobby engines. The standard-setting parts exclude engines used
in reduced-scale models of vehicles that are not capable of
transporting a person.
    (d) Other engines/equipment. The standard-setting parts may exclude
engines/equipment used in certain applications. For example, engines
used in aircraft are generally excluded. Engines/equipment used in
underground mining are excluded if they are regulated by the Mine
Safety and Health Administration.
    (e) Labeling. For engines/equipment imported under paragraph (a) or
(b) of this section, you must add a permanent label, consistent with
Sec.  1068.45, with at least the following items unless the standard-
setting part includes other specific labeling requirements or we
approve alternate label language that is more accurate for your engine/
equipment:
    (1) Include the heading ``EMISSION CONTROL INFORMATION''.
    (2) Include your full corporate name and trademark.
    (3) State the engine displacement (in liters or cubic centimeters).
We may also require that you include maximum engine power. If the
engine's power is not established, state the approximate power.
    (4) State: ``THIS ENGINE IS EXEMPT FROM THE REQUIREMENTS OF
[identify the part referenced in Sec.  1068.1(a) that would otherwise
apply],

AS PROVIDED IN [identify the paragraph authorizing the exemption (for
example, ``40 CFR 1068.315(a)'')]. INSTALLING THIS ENGINE IN ANY
DIFFERENT APPLICATION MAY BE A VIOLATION OF FEDERAL LAW SUBJECT TO
CIVIL PENALTY.''

Sec.  1068.315  What are the permanent exemptions for imported engines/
equipment?

    We may approve a permanent exemption from the restrictions on
imports under Sec.  1068.301(b) under the following conditions:
    (a) National security exemption. You may import an engine or piece
of equipment under the national security exemption in Sec.  1068.225,
but only if it is properly labeled.
    (b) Manufacturer-owned engine/equipment exemption. You may import
manufacturer-owned engines/equipment, as described in Sec.  1068.215.
    (c) Replacement engine exemption. You may import a nonconforming
replacement engine as described in Sec.  1068.240. To use this
exemption, you must be a certificate holder for a family we regulate
under the same part as the replacement engine.
    (d) Extraordinary circumstances exemption. You may import a
nonconforming engine or piece of equipment if we grant hardship relief
as described in Sec.  1068.245.
    (e) Small-volume manufacturer exemption. You may import a
nonconforming engine or piece of equipment if we grant hardship relief
for a small-volume manufacturer, as described in Sec.  1068.250.
    (f) Equipment-manufacturer hardship exemption. You may import a
nonconforming engine if we grant an exemption for the transition to new
or revised emission standards, as described in Sec.  1068.255.
    (g) [Reserved]
    (h) Identical configuration exemption. Unless specified otherwise
in the standard-setting part, you may import nonconforming engines/
equipment if they are identical to certified engines/equipment produced
by the same manufacturer, subject to the following provisions:
    (1) You must meet all the following criteria:
    (i) You have owned the engines/equipment for at least six months.
    (ii) You agree not to sell, lease, donate, trade, or otherwise
transfer ownership of the engines/equipment for at least five years.
During this period, the only acceptable way to dispose of the engines/
equipment is to destroy or export them.
    (iii) You use data or evidence sufficient to show that the engines/
equipment are in a configuration that is identical to engines/equipment
the original manufacturer has certified to meet emission standards that
apply at the time the manufacturer finished assembling or modifying the
engines/equipment in question. If you modify the engines/equipment to
make them identical, you must completely follow the original
manufacturer's written instructions.
    (2) We will tell you in writing if we find the information
insufficient to show that the engines/equipment are eligible for this
exemption. In this case, we will not consider your request further
until you address our concerns.
    (i) Ancient engine/equipment exemption. If you are not the original
engine/equipment manufacturer, you may import nonconforming engines/
equipment that are subject to a standard-setting part and were first
manufactured at least 21 years earlier, as long as they are still in
their original configurations.

Sec.  1068.325  What are the temporary exemptions for imported engines/
equipment?

    You may import engines/equipment under certain temporary
exemptions, subject to the conditions in this section. We may ask U.S.
Customs and Border Protection to require a specific bond amount to make
sure you comply with the requirements of this subpart. You may not sell
or lease one of these engines/equipment while it is in the United
States. You must eventually export the engine/equipment as we describe
in this section unless it conforms to a certificate of conformity or it
qualifies for one of the permanent exemptions in Sec.  1068.315.
    (a) Exemption for repairs or alterations. You may temporarily
import nonconforming engines/equipment under bond solely for repair or
alteration, subject to our advance approval as described in paragraph
(j) of this section. You may operate the engine/equipment in the United
States only as necessary to repair it, alter it, or ship it to or from
the service location. Export the engine/equipment directly after
servicing is complete.
    (b) Testing exemption. You may temporarily import nonconforming
engines/equipment under bond for testing if you follow the requirements
of Sec.  1068.210, subject to our advance approval as described in
paragraph (j) of this section. You may operate the engines/equipment in
the United States only as needed to perform tests. This exemption
expires one year after you import the engine/equipment unless we
approve an extension. The engine/equipment must be exported before the
exemption expires.
    (c) Display exemption. You may temporarily import nonconforming
engines/equipment under bond for display if you follow the requirements
of Sec.  1068.220, subject to our advance approval as described in
paragraph (j) of this section. This exemption expires one year after
you import the engine/equipment, unless we approve your request for an
extension. We may approve an extension of up to one more year for each
request, but no more than three years total. The engine/equipment must
be exported by the time the exemption expires or directly after the
display concludes, whichever comes first.
    (d) Export exemption. You may temporarily import nonconforming
engines/equipment to export them, as described in Sec.  1068.230. You
may operate the engine/equipment in the United States only as needed to
prepare it for export. Label the engine/equipment as described in Sec.
1068.230.
    (e) Diplomatic or military exemption. You may temporarily import
nonconforming engines/equipment without bond if you represent a foreign
government in a diplomatic or military capacity. In your request to the
Designated Compliance Officer (see Sec.  1068.305), include either
written confirmation from the U.S. State Department that you qualify
for this exemption or a copy of your orders for military duty in the
United States. We will rely on the State Department or your military
orders to determine when your diplomatic or military status expires, at
which time you must export your exempt engines/equipment.
    (f) Delegated-assembly exemption. You may import a nonconforming
engine for final assembly under the provisions of Sec.  1068.261.
    (g) Partially complete engine exemption. You may import an engine
if another company already has a certificate of conformity and will be
modifying the engine to be in its final, certified configuration under
the provisions of Sec.  1068.262. You may also import a partially
complete engine by shipping it from one of your facilities to another
under the provisions of Sec.  1068.260(c).
    (h) [Reserved]
    (i) Approvals. For the exemptions in this section requiring our
approval, you must send a request to the Designated Compliance Officer
before importing the engines/equipment. We will approve your request if
you meet all the applicable requirements and conditions. If another
section separately requires that you request approval for the

exemption, you may combine the information requirements in a single
request. Include the following information in your request:
    (1) Identify the importer of the engine/equipment and the
applicable postal address, e-mail address, and telephone number.
    (2) Identify the engine/equipment owner and the applicable postal
address, e-mail address, and telephone number.
    (3) Identify the engine/equipment by model number (or name), serial
number, and original production year.
    (4) Identify the specific regulatory provision under which you are
seeking an exemption.
    (5) Authorize EPA enforcement officers to conduct inspections or
testing as allowed under the Clean Air Act.
    (6) Include any additional information we specify for demonstrating
that you qualify for the exemption.

Sec.  1068.335  What are the penalties for violations?

    (a) All imported engines/equipment. Unless you comply with the
provisions of this subpart, importation of nonconforming engines/
equipment violates sections 203 and 213(d) of the Clean Air Act (42
U.S.C. 7522 and 7547(d)). You may then have to export the engines/
equipment, pay civil penalties, or both. U.S. Customs and Border
Protection may seize unlawfully imported engines and equipment.
    (b) Temporarily imported engines/equipment. If you do not comply
with the provisions of this subpart for a temporary exemption under
Sec.  1068.325, you may forfeit the total amount of the bond in
addition to the sanctions we identify in paragraph (a) of this section.
We will consider an engine or piece of equipment to be exported if it
has been destroyed or delivered to U.S. Customs and Border Protection
for export or other disposition under applicable Customs laws and
regulations. EPA or U.S. Customs and Border Protection may offer you a
grace period to allow you to export temporarily exempted engines/
equipment without penalty after the exemption expires.

Sec.  1068.360  What restrictions apply to assigning a model year to
imported engines and equipment?

    This section includes limitations on assigning a model year to
engines and equipment that are imported in a year later than the model
year in which they were manufactured, except as specified in paragraph
(e) of this section.
    (a) The term ``model year'' is defined in each of the standard-
setting parts. These definitions may vary slightly to address the
different categories of engines and equipment. Except as specified in
paragraphs (b) and (c) of this section, the emission standards and
other emission-related requirements that apply for an imported engine
or piece of equipment are determined by the model year as defined in
the applicable standard-setting part and the provisions of 40 CFR
1068.105(a).
    (b) This paragraph (b) applies for the importation of new engines
and new equipment in any calendar year that is more than one year after
the named model year of the engine or equipment when emission control
requirements applying to current engines are different than for engines
or equipment in the named model year, unless they are imported under
special provisions for Independent Commercial Importers as allowed
under the standard-setting part. Regardless of what other provisions of
this subchapter U specify for the model year of the engine or
equipment, such engines and equipment are deemed to have an applicable
model year no more than one year earlier than the calendar year in
which they are imported. For example, a new engine identified as a 2007
model-year product that is imported on January 31, 2010 will be treated
as a 2009 model-year engine; the same engine will be treated as a 2010
model-year engine if it is imported any time in calendar year 2011.
    (c) If you claim that an engine or piece of equipment is not
subject to standards-or is subject to standards less stringent than
those currently in place--based on its original manufacture date
because it has already been placed into service, you must provide clear
and convincing evidence that it has already been placed into service.
Such evidence must generally include, but not be limited to,
documentary evidence of purchase and maintenance history and visible
wear that is consistent with the reported manufacture date. Importing
products for resale or importing more than one engine or piece of
equipment at a time would generally require a greater degree of
evidence under this paragraph (c). If you do not satisfactorily
demonstrate that the engine or equipment has already been placed into
service, the provisions of paragraph (b) of this section apply.
    (d) Nothing in this section should be interpreted to allow
circumvention of the requirements of this part by mis-stating or mis-
labeling the model year of engines or equipment. For example, this
section does not permit engines imported in the same year that they are
manufactured to be treated as an engine manufactured in the previous
year. To verify compliance with the provisions of this section, we may
require you to verify the original manufacture date of the engine or
equipment based on manufacturing records, title-transfer documents,
service records, or other documentation.
    (e) If all the current emission control requirements are the same
as in the named model year, the provisions of this section do not
apply.

Subpart E--Selective Enforcement Auditing

Sec.  1068.401  What is a selective enforcement audit?

    (a) We may conduct or require you to conduct emission tests on your
production engines/equipment in a selective enforcement audit. This
requirement is independent of any requirement for you to routinely test
production-line engines/equipment. For products subject to equipment-
based standards, but tested using engine-based test procedures, this
subpart applies to the engines and/or the equipment, as applicable.
Otherwise this subpart applies to engines for products subject to
engine-based standards and to equipment for products subject to
equipment-based standards.
    (b) If we send you a signed test order, you must follow its
directions and the provisions of this subpart. We may tell you where to
test the engines/equipment. This may be where you produce the engines/
equipment or any other emission testing facility.
    (c) If we select one or more of your families for a selective
enforcement audit, we will send the test order to the person who signed
the application for certification or we will deliver it in person.
    (d) If we do not select a testing facility, notify the Designated
Compliance Officer within one working day of receiving the test order
where you will test your engines/equipment.
    (e) You must do everything we require in the audit without delay.

Sec.  1068.405  What is in a test order?

    (a) In the test order, we will specify the following things:
    (1) The family and configuration (if any) we have identified for
testing.
    (2) The engine/equipment assembly plant, storage facility, or (if
you import the engines/equipment) port facility from which you must
select engines/equipment.
    (3) The procedure for selecting engines/equipment for testing,
including a selection rate.
    (4) The test procedures, duty cycles, and test points, as
appropriate, for testing the engines/equipment to show that they meet
emission standards.

    (b) We may state that we will select the test engines/equipment.
    (c) We may identify alternate families or configurations for
testing in case we determine the intended engines/equipment are not
available for testing or if you do not produce enough engines/equipment
to meet the minimum rate for selecting test engines/equipment.
    (d) We may include other directions or information in the test
order.
    (e) We may ask you to show us that you meet any additional
requirements that apply to your engines/equipment (closed crankcases,
for example).
    (f) In anticipation of a potential audit, you may give us a list of
your preferred families and the corresponding assembly plants, storage
facilities, or (if you import the engines/equipment) port facilities
from which we should select engines/equipment for testing. The
information would apply only for a single model year so it would be
best to include this information in your application for certification.
If you give us this list before we issue a test order, we will consider
your recommendations, but we may select different engines/equipment.
    (g) If you also do routine production-line testing with the
selected family in the same time period, the test order will tell you
what changes you might need to make in your production-line testing
schedule.

Sec.  1068.410  How must I select and prepare my engines/equipment?

    (a) Selecting engines/equipment. Select engines/equipment as
described in the test order. If you are unable to select test engines/
equipment this way, you may ask us to approve an alternate plan as long
as you make the request before you start selecting engines/equipment.
    (b) Assembling engines/equipment. Produce and assemble test
engines/equipment using your normal production and assembly process for
that family.
    (1) Notify us directly if you make any change in your production,
assembly, or quality control processes that might affect emissions
between the time you receive the test order and the time you finish
selecting test engines/equipment.
    (2) If you do not fully assemble engines/equipment at the specified
location, we will describe in the test order how to select components
to finish assembling the engines/equipment. Assemble these components
onto the test engines/equipment using your documented assembly and
quality control procedures.
    (c) Modifying engines/equipment. Once an engine or piece of
equipment is selected for testing, you may adjust, repair, prepare, or
modify it or check its emissions only if one of the following is true:
    (1) You document the need for doing so in your procedures for
assembling and inspecting all your production engines/equipment and
make the action routine for all the engines/equipment in the family.
    (2) This subpart otherwise allows your action.
    (3) We approve your action in advance.
    (d) Engine/equipment malfunction. If an engine/equipment
malfunction prevents further emission testing, ask us to approve your
decision to either repair the engine or delete it from the test
sequence.
    (e) Setting adjustable parameters. Before any test, we may adjust
or require you to adjust any adjustable parameter to any setting within
its physically adjustable range.
    (1) We may adjust or require you to adjust idle speed outside the
physically adjustable range as needed until the engine has stabilized
emission levels (see paragraph (f) of this section). We may ask you for
information needed to establish an alternate minimum idle speed.
    (2) We may make or specify adjustments within the physically
adjustable range by considering their effect on emission levels. We may
also consider how likely it is that someone will make such an
adjustment with in-use engines/equipment.
    (f) Stabilizing emission levels. (1) Before you test production-
line engines/equipment for exhaust emission, you may operate the
engine/equipment to stabilize the exhaust emission levels. Using good
engineering judgment, operate your engines/equipment in a way that
represents the way production engines/equipment will be used. You may
operate each engine or piece of equipment for no more than the greater
of two periods:
    (i) 50 hours.
    (ii) The number of hours you operated your emission-data engine/
equipment for certifying the family (see 40 CFR part 1065, subpart E).
    (2) Use good engineering judgment and follow the standard-setting
part to stabilize equipment for evaporative emissions, where
appropriate.
    (g) Damage during shipment. If shipping the engine/equipment to a
remote facility for testing under a selective enforcement audit makes
necessary an adjustment or repair, you must wait until after the
initial emission test to do this work. We may waive this requirement if
the test would be impossible or unsafe or if it would permanently
damage the engine/equipment. Report to us, in your written report under
Sec.  1068.450, all adjustments or repairs you make on test engines/
equipment before each test.
    (h) Shipping engines/equipment. If you need to ship engines/
equipment to another facility for testing, make sure the test engines/
equipment arrive at the test facility within 24 hours after being
selected. You may ask that we allow more time if you are unable to do
this.
    (i) Retesting after invalid tests. You may retest an engine or
piece of equipment if you determine an emission test is invalid under
the standard-setting part. Explain in your written report reasons for
invalidating any test and the emission results from all tests. If you
retest an engine or piece of equipment and, within ten days after
testing, ask to substitute results of the new tests for the original
ones, we will answer within ten days after we receive your information.
    (j) Retesting after reaching a fail decision. You may retest your
engines/equipment once a fail decision for the audit has been reached
based on the first test on each engine or piece of equipment under
Sec.  1068.420(c). You may test each engine or piece of equipment up to
a total of three times, but you must perform the same number of tests
on each engine or piece of equipment. You may further operate the
engine/equipment to stabilize emission levels before testing, subject
to the provisions of paragraph (f) of this section. We may approve
retesting at other times if you send us a request with satisfactory
justification.

Sec.  1068.415  How do I test my engines/equipment?

    (a) Use the test procedures specified in the standard-setting part
for showing that your engines/equipment meet emission standards. The
test order will give further testing instructions.
    (b) If no test cells are available at a given facility, you may
make alternate testing arrangements with our approval.
    (c) Test at least two engines/equipment in each 24-hour period
(including void tests). However, if your projected U.S. nonroad sales
within the family are less than 7,500 for the year, you may test a
minimum of one per 24-hour period. If you request and justify it, we
may approve a lower testing rate.
    (d) For exhaust emissions, accumulate service on test engines/
equipment at a minimum rate of 6 hours per engine or piece of equipment
during each 24-hour period. The first 24-hour period for service
accumulation begins when you

finish preparing an engine or piece of equipment for testing. The
minimum service accumulation rate does not apply on weekends or
holidays. You may ask us to approve a lower service accumulation rate.
We may require you to accumulate hours more rapidly than the minimum
rate, as appropriate. Plan your service accumulation to allow testing
at the rate specified in paragraph (c) of this section. Select
operation for accumulating operating hours on your test engines/
equipment to represent normal in-use operation for the family.
    (e) Test engines/equipment in the same order you select them.