they have taken all possible business, technical, and economic steps to
comply, but the burden of compliance costs will have a major impact on
their company's solvency. As part of its application of hardship, a
company is required to provide a compliance plan detailing when and how
it plans to achieve compliance with the standards. Hardship relief
could include requirements for interim emission reductions and/or
purchase and use of emission credits. The length of the hardship relief
decided during initial review is up to one year, with the potential to
extend the relief as needed. We anticipate that one to two years is
normally sufficient. Also, for PMMs and SVMs, if a certified base
engine is available, they must generally use this

engine. We believe this provision will protect PMMs and SVMs from undue
hardship due to certification burden. Also, some emission reduction can
be gained if a certified base engine becomes available. See the
regulatory text in 40 CFR 1068.250 for additional information.
    Second, under the unusual circumstances hardship provision, PMMs,
SVMs, and vessel operators (or marine remanufacturers) may also apply
for hardship relief if circumstances outside their control cause the
failure to comply and if the failure to sell the subject engines will
have a major impact on their company's solvency. An example of an
unusual circumstance outside a manufacturer's control may be an ``Act
of God,'' a fire at the manufacturing plant, or the unforeseen shut
down of a supplier with no alternative available (the second example is
mainly for PMMs and SVMs). The terms and time frame of the relief
depend on the specific circumstances of the company and the situation
involved. As part of its application for hardship, a company is
required to provide a compliance plan detailing when and how it will
achieve compliance with the standards. We consider this relief
mechanism to be an option of last resort. We believe this provision
will protect PMMs, SVMs, and vessel operators (or marine
remanufacturers) from circumstances outside their control. We, however,
do not envision granting hardship relief if contract problems with a
specific company prevent compliance for a second time. See the
regulatory text in 40 CFR 1068.245 for additional information.
    Small-volume boat builders: As proposed, we are continuing the
unusual circumstances hardship provision for small-volume boat builders
(those with less than 500 employees and worldwide production of fewer
than 100 boats). Small-volume boat builders may apply for hardship
relief if circumstances outside their control cause the failure to
comply and if the failure to sell the subject vessels will have a major
impact on the company's solvency. An example of an unusual circumstance
outside a boat builder's control may be an ``Act of God,'' a fire at
the boat building facility, or the unforeseen breakdown of a supply
contract with an engine supplier. This relief allows the boat builder
to use an uncertified engine and is considered a mechanism of last
resort. The terms and time frame of the relief depend on the specific
circumstances of the company and the situation involved. As part of its
application for hardship, a company is required to provide a compliance
plan detailing when and how it plans to achieve compliance with the
standards. See the regulatory text in 40 CFR 1068.250 for additional
information.
    In addition, as described in the proposal, small-volume boat
builders generally depend on engine manufacturers to supply certified
engines in time to produce complying vessels by the date emission
standards begin to apply. We are aware of other applications where
certified engines have been available too late for equipment
manufacturers to adequately accommodate changing engine size (for
engines meeting Tier 4 standards, which are described in section
III.B.2 of today's rule) \164\ or performance characteristics. To
address this concern, we are allowing small-volume boat builders to
request up to one extra year before using certified engines if they are
not at fault and will face serious economic hardship without an
extension. See the regulatory text in 40 CFR 1068.255 for additional
information.
---------------------------------------------------------------------------

    \164\ Tier 3 engine-out standards are not expected to change the
physical characteristics of marine engines. Tier 3 standards will
not result in a larger engine or otherwise require any more space
within a vessel. For Tier 4 standards, we expect that vessels will
be designed to accommodate emission components that engine
manufacturers specify as necessary to meet these new standards
(e.g., ensure adequate space is available to package aftertreatment
components).
---------------------------------------------------------------------------

(14) Alternate Tier 4 NOX+HC Standards
    We proposed to continue our existing emission averaging programs
for the new Tier 4 NOX and HC standards for locomotives and
marine engines. However, the existing averaging programs do not allow
manufacturers to show compliance with HC standards using averaging.
Because we are concerned that this could potentially limit the benefits
of our averaging program as a phase-in tool for manufacturers, we are
establishing an alternate NOX+HC standard of 1.4 g/bhp-hr
that could be used as part of the averaging program. Manufacturers that
were unable to comply with the Tier 4 HC standard would be allowed to
certify to a NOX+HC FEL, and use emission credits to show
compliance with the alternate standard instead of the otherwise
applicable NOX and HC standards. For example, a manufacturer
may choose to use banked emission credits to gradually phase in its
Tier 4 1200 kW marine engines by producing a mix of Tier 3 and Tier 4
engines during the early part of 2014. NOX+HC credits and
NOX credits could be averaged together without discount.
    The value of this alternate standard (1.4 g/bhp-hr) is the rounded
sum of the Tier 4 NOX and HC standards. We proposed to set
this value at the level of the NOX standard (1.3 g/bhp-hr).
However, based on the comments received, we no longer believe this to
be appropriate. See the Summary and Analysis of Comments for more
discussion of this issue.
(15) Other Issues
    We are finalizing other minor changes to the compliance program.
For example, engine manufacturers will be required to provide
installation instructions to vessel manufacturers and kit installers to
ensure that engine cooling systems, aftertreatment exhaust emission
controls, and other emission controls are properly installed. Proper
installation of these systems is critical to the emission performance
of the equipment. Vessel manufacturers and kit installers will be
required to follow the instructions to avoid improper installation that
could render emission controls inoperative. Improper installation would
subject them to penalties equivalent to those for tampering with the
emission controls.
    We are also clarifying the general requirement that no emission
controls for engines subject to this final rule may cause or contribute
to an unreasonable risk to public health, welfare, or safety,
especially with respect to noxious or toxic emissions that may increase
as a result of emission-control technologies. The regulatory language,
which addresses the same general concept as the existing Sec. Sec.
92.205 and 94.205, implements sections 202(a)(4) and 206(a)(3) of the
Act and clarifies that the purpose of this requirement is to prevent
control technologies that would cause unreasonable risks, rather than
to prevent trace emissions of any noxious compounds. This requirement
prevents the use of emission-control technologies that produce
pollutants for which we have not set emission standards but
nevertheless pose a risk to the public. As is described in Section III
and the Summary and Analysis of Comments document, this provision does
not preclude the use of urea-based SCR emission controls.
    Some marine engine manufacturers have expressed concern over the
current provisions in our regulation for selection of an emission data
engine. Part 94 specifies that a marine manufacturer must select for
testing from each engine family the engine configuration which is
expected to be worst-case for exhaust emission compliance on in-use
engines. Some manufacturers have interpreted this to

mean that they must test all the ratings within an engine family to
determine which is the worst-case. Understandably, this interpretation
could cause production problems for many manufacturers due to the lead
time needed to test a large volume of engines. Our view is that the
current provisions do not necessitate testing of all ratings within an
engine family. Rather, manufacturers are allowed to base their
selection on good engineering judgment, taking into consideration
engine features and characteristics which, from experience, are known
to produce the highest emissions. This methodology is consistent with
the provisions for our on-highway and nonroad engine programs.
Therefore, we are keeping essentially the same language in part 1042 as
is in part 94. We are adopting similar language for locomotives and
will apply it in the same manner as we do for marine engines.

B. Compliance Issues Specific to Locomotives

(1) Refurbished Locomotives
    Section 213(a)(5) of the Clean Air Act directs EPA to establish
emission standards for ``new locomotives and new engines used in
locomotives.'' In the previous rulemaking, we defined ``new
locomotive'' to mean a freshly manufactured or remanufactured
locomotive.\165\ We defined ``remanufacture'' of a locomotive as a
process in which all of the power assemblies of a locomotive engine are
replaced with freshly manufactured (containing no previously used
parts) or reconditioned power assemblies. In cases where all of the
power assemblies are not replaced at a single time, a locomotive is
considered to be ``remanufactured'' (and therefore ``new'') if all of
the power assemblies from the previously new engine had been replaced
within a five year period.
---------------------------------------------------------------------------

    \165\ As is described in this section, freshly manufactured
locomotives, repowered locomotives, refurbished locomotives, and all
other remanufactured locomotives are all ``new locomotives'' in both
the previous and new regulations.
---------------------------------------------------------------------------

    Our new regulations clarify the definition of ``freshly
manufactured locomotive'' when an existing locomotive is substantially
refurbished including the replacement of the old engine with a freshly
manufactured engine. The existing definition in Sec.  92.12 states that
freshly manufactured locomotives are locomotives that do not contain
more than 25 percent (by value) previously used parts. We allowed
freshly manufactured locomotives to contain up to 25 percent used parts
because of the current industry practice of using various combinations
of used and unused parts. This 25 percent value applies to the dollar
value of the parts being used rather than the number because it more
properly weights the significance of the various used and unused
components. We chose 25 percent as the cutoff because setting a very
low cutoff point would have allowed manufacturers to circumvent the
more stringent standards for freshly manufactured locomotives by
including a few used parts during the final assembly. On the other
hand, setting a very high cutoff point could have required
remanufacturers to meet standards applicable to freshly manufactured
locomotives, but such standards may not have been feasible given the
technical limitations of the existing chassis.
    We are adding to Sec.  1033.901 a definition of ``refurbish'' which
will mean the act of modifying an existing locomotive such that the
resulting locomotive contains less than 50 percent (by value)
previously used parts (but more than 25 percent). We believe that where
an existing locomotive is improved to this degree, it is appropriate to
consider it separately from locomotives that are simply remanufactured
in a conventional sense. As described below, we are specifying
provisions for refurbished locomotives that vary by application (switch
or line-haul) and model year (before or after 2015). See also section
IV.B(2), which describes minimum credit proration factors for
refurbished locomotives.
    We are also clarifying that any locomotives built before 1973
become ``new'' and thus subject to our emission standards when
refurbished. In the 1998 rulemaking, we determined that pre-1973
locomotives should not be considered ``new'' when remanufactured.\166\
An important policy consideration in making that determination was our
analysis of the feasibility of such locomotives to meet the Tier 0
emission standards. However, that analysis is not valid for refurbished
locomotives. Given the degree to which such locomotives are redesigned
and reconfigured, there is no reason that they should be considered
differently from 1973 locomotives simply because their frames (or some
other parts) were originally manufactured earlier.
---------------------------------------------------------------------------

    \166\ U.S. EPA (2004) National Coastal Condition Report II.
Office of Research and Development/ Office of Water. EPA-620/R-03/
002. This document is available in Docket EPA-HQ-OAR-2003-0190.
---------------------------------------------------------------------------

    We requested comment on setting more stringent standards for
refurbished locomotives, considering that these locomotives are
restored to a condition likely to allow for many years of continued
service. Industry commenters expressed concern that our subjecting
refurbished locomotives to more stringent standards could prove
counterproductive, because state and local programs that currently help
fund voluntary refurbishments to very clean emission levels could lose
their incentive to continue doing so, given that these refurbishments
would now just be meeting EPA standards. It was further argued that
these refurbishments would also lose any opportunity to generate
valuable ABT credits, given the challenge just in meeting the
standards.
    We believe that the need for financial incentives will be just as
clear and just as strong under the new program as before. Refurbishing
a locomotive effectively removes an old, high-emitting locomotive from
the fleet and replaces it with a clean one. The substantial cost of
doing so and the potential that, absent incentives, old locomotives
(especially switchers) would continue in operation almost indefinitely
are the true drivers for creating incentives, regardless of the
standards involved. We expect that state and local government officials
involved in this process are well aware of this and will act
accordingly. The ABT credits that can be gained from these
refurbishments have not been a major factor to date and, considering
that the credits can subsequently be used to produce other, less clean
locomotives, we do not believe that state and local governments would
or should be satisfied to help finance clean locomotives that result in
dirtier locomotives elsewhere. As detailed below, we are therefore
adopting more stringent standards for refurbished locomotives and
phasing in these standards in a way that we believe best facilitates
continued refurbishment of existing locomotives, while recognizing
differences between the switch and line-haul locomotive fleets and the
emission reduction trends resulting from our tiered approach to
standards-setting.
    Currently, small numbers of old low-horsepower locomotives are
being refurbished as significantly lower-emitting switch locomotives.
The regulations in part 92 subject these locomotives to the Tier 0
standards (unless they contain less than 25 percent previously used
parts) and allow them to generate emission credits if they are cleaner
than required. The regulations in part 1033 will continue this approach
through model year 2014. It is important to note that since most of
these locomotives were originally

manufactured before 1973, simply by meeting the Tier 0 standards they
will achieve significant emission reductions.
    For similar reasons, we are adopting an interim program for
slightly larger locomotives with power between 2300 and 3000 horsepower
refurbished through model year 2014. These locomotives, which are
frequently used as road switchers, would also be subject to the Tier 0
standards for this period.
    We do not believe, however, that it would be appropriate to allow
switch locomotives to be refurbished to the Tier 0+ standards in the
long term. Once the Tier 4 standards begin to apply, we will allow
these locomotives to be certified to the Tier 3 switch locomotive
standards, which will still provide the opportunity to generate some
emission credits as an incentive.
    The story is slightly different for higher power line-haul
locomotives, which are currently not being refurbished. Nearly all of
these remaining in the Class I railroad fleets were originally
manufactured in or after 1973 and are already subject to the Tier 0 or
later standards. Therefore there will be less of an air quality
incentive to fund their refurbishment, and so we are specifying that
refurbished line-haul locomotives be subject to the same standards as
freshly manufactured locomotives. The regulations would treat them the
same except for emission credit proration factors, which are described
in section IV.B.(2)
    Another important consideration is the potential for refurbishment
to be used as a loophole to circumvent the freshly manufactured
standards for line-haul locomotives. Railroads currently turn over
their line-haul fleets much faster than their switch fleets. However,
it is not hard to envision a scenario in which railroads began
refurbishing their locomotives rather than buying freshly manufactured
locomotives, especially as the Tier 4 standards went into effect. A
long-term program requiring that refurbished line-haul locomotives meet
the same standards as freshly manufactured locomotives prevents
refurbishment from being used as such a loophole.

       Table IV-2.--Provisions for Refurbished Switch Locomotives
------------------------------------------------------------------------
                                                              Minimum
                                    Applicable tier of       proration
                                        standards             factor
------------------------------------------------------------------------
Locomotives refurbished before    Tier 0+...............            0.60
 2015.
Locomotives refurbished in 2015   Tier 3................            0.60
 or later.
------------------------------------------------------------------------

      Table IV-3.--Provisions for Refurbished Line-Haul Locomotives
------------------------------------------------------------------------
                                                              Minimum
                                    Applicable tier of       proration
                                        standards             factor
------------------------------------------------------------------------
Locomotives refurbished before    Tier 2+/3.............            0.60
 2015.
Locomotives refurbished in 2015   Tier 4................            0.60
 or later.
------------------------------------------------------------------------

(2) Averaging, Banking and Trading
    For the most part, our new regulations will continue the existing
averaging banking and trading provisions for locomotives. This section
only highlights the provisions that are most significant in the context
of this Final Rule. The reader is encouraged to read subpart H of part
1033 for details of this program.
    In order to ensure that the ABT program is not used to delay the
implementation of the Tier 4 technology, we are applying a restriction
similar to the averaging restriction that was adopted for Tier 2
locomotives in the previous locomotive rulemaking. We are restricting
the number of Tier 4 locomotives that could be certified using credits
to no more than 50 percent of a manufacturer's annual production. As
was true for the earlier restriction, this is intended to ensure that
progress is made toward compliance with the advanced technology
expected to be needed to meet the Tier 4 standards. This will encourage
manufacturers to make every effort toward meeting the Tier 4 standards,
while allowing some use of banked credits to provide needed lead time
in implementing the Tier 4 standards by 2015, allowing them to
appropriately focus research and development funds.
    We proposed to allow the carryover of all Part 92 credits except
for PM credits generated from Tier 0 or Tier 1 locomotives. The Tier 0
and Tier 1 PM standards under part 92 were set above the average
baseline level to act as caps on PM emissions rather than technology-
forcing standards. While Part 92 allows credits generated only relative
the estimated average baseline rather than the standards, we were still
concerned that such credits might have been windfall credits. However,
as is described in the Summary and Analysis of Comments document, after
further analysis we now believe that allowing the carryover of all part
92 PM credits is appropriate and will allow such credits to be used
under part 1033.
    We are also updating the proration factors for credits generated or
used by remanufactured locomotives. The updated proration factors
better reflect the difference in service time for line-haul and switch
locomotives. The ABT program is based on credit calculations that
assume as a default that a locomotive would remain at a single FEL for
its full service life (from the point it is originally manufactured
until it is scrapped). However, when we established the existing
standards, we recognized that technology would continue to evolve and
that locomotive owners may wish to upgrade their locomotives to cleaner
technology and certify the locomotive to a lower FEL at a subsequent
remanufacture. We established proration factors based on the age of the
locomotive to make calculated credits for remanufactured locomotives
consistent with credits for freshly manufactured locomotives in terms
of lifetime emissions. These proration factors are shown in Sec.
1033.705 of the new regulations. These replace the existing proration
factors of Sec.  92.305. For example, using the new proration factors,
a 15-year-old line-haul locomotive certified to a new FEL that was 1.00
g/bhp-hr below the applicable standard would generate the same amount
of credit as a freshly manufactured locomotive that was certified to an
FEL that was 0.43 g/bhp-hr below the applicable standard because the
proration factor would be 0.43. For comparison, under the old
regulations, the proration factor would have been 0.50.

    We are correcting how the proration factors apply for refurbished
locomotives to more appropriately give credits to railroads for
upgrading old locomotives to use clean engines, rather than to continue
using the old high emission engines indefinitely. As with the rest of
the program, credits will be calculated from the difference between the
applicable standard and the emissions of the new refurbished
locomotive, adjusted to account for the projected time the locomotive
would remain in service. The correction creates a floor for the credit
proration factor for refurbished locomotives of 0.60. This is equal to
the proration factor for 20-year-old switchers and would also be
equivalent to a proration factor for a locomotive that was just over 10
years old. For example, refurbishing a 35-year-old switch locomotive to
an FEL 1.0 g/bhp-hr below the Tier 0 standard would generate the same
amount of credit as a conventional remanufacture of a 20-year-old
switch locomotive to an FEL 1.0 g/bhp-hr below the Tier 0 standard.
This is because we believe that such refurbished switch locomotives
will almost certainly operate as long as a 20-year-old locomotive that
was remanufactured at the same time. Similarly, we believe that
refurbished line-haul locomotives would likely operate as long as a 10-
year-old locomotive that was remanufactured at the same time.
    Finally, we are finalizing special provisions for credits generated
and used by Tier 3 and later locomotives. Under the current part 92 ABT
program, credits are segregated based on the cycle over which they are
generated but not by how the locomotive is intended to be used (switch,
line-haul, passenger, etc.). Line-haul locomotives can generate credits
for use by switch locomotives, and vice versa, because both types of
locomotives are subject to the same standards. However, for the Tier 3
and Tier 4 programs, switch and line-haul locomotives are subject to
different standards with emissions generally measured only for one test
cycle. We will allow credits generated by Tier 3 or later switch
locomotives over the switch cycle to be used by line-haul locomotives
to show compliance with line-haul cycle standards. As proposed, we are
not allowing such cross-cycle use of line-haul credits (or switch
credits generated by line-haul locomotives) by Tier 3 or later switch
locomotives.
    To make this approach work without double-counting of credits, we
are also adopting a special calculation method where the credit using
locomotive is subject to standards over only one duty cycle while the
credit generating locomotive is subject to standards over both duty
cycles (and can thus generate credits over both cycles). In such cases,
we would require the use of credits under both cycles. For example, for
a Tier 4 line-haul engine family needing 1.0 megagram of NOX
credits to comply with the line-haul emission standard, the
manufacturer would have to use 1.0 megagram of line-haul NOX
credits and 1.0 megagram of switch NOX credits if the line-
haul credits were generated by a locomotive subject to standards over
both cycles.
(3) Phase-In and Reasonable Cost Limit
    The new Tier 0 and 1 emission standards become applicable on
January 1, 2010. We also proposed a requirement for 2008 and 2009 when
a remanufacturing system is certified to these new standards. If such a
system is available before 2010 for a given locomotive model at a
reasonable cost, remanufacturers of those locomotives may no longer
remanufacture them to the previously applicable standards. They must
instead comply with the new Tier 0 or 1 emission standards when they
are remanufactured. Similarly, we are requiring them to use certified
Tier 2 systems for 2008 through 2012 when a remanufacturing system is
certified to the new Tier 2 standards. For the purposes of this
provision, ``reasonable cost'' means that the total incremental cost to
the operators of the locomotive (including initial hardware, increased
fuel consumption, and increased maintenance costs) during the useful
life of the locomotive must be less than $250,000. This cost limit is
based on the upper cost we think likely to be required to meet these
standards and reflects comments on our NPRM from remanufacturers.
    As part of this phase-in requirement, we are requiring certifiers
to notify customers that they are applying for certificate such that
their locomotives will become subject to the new standards. We would
then allow owners/operators a minimum 90-day grace period (after we
issue the certificate) in which they could remanufacture their
locomotives to the previously applicable standards once they are
notified by the certificate holder that such systems are available.
This allows them to use up inventory of older parts. However, where the
certifiers do not immediately notify them, railroads would be allowed a
grace period of at least 120 days after they are notified. This
combined approach allows sufficient time to find out about the
availability of kits and to make appropriate plans for compliance. We
are also adding a new provision for owners/operators that limits the
total number of locomotives that would need to meet the new standards
during 2008 and 2009 to a fraction of the total number of
remanufactures they do between October 3, 2008 and December 31, 2009
that are subject to either the old or new standards.
    We are adding provisions that would allow Tier 0/1 remanufacturers
to use during the phase-in period an assigned deterioration factor of
0.03 g/bhp-hr for PM and assume that all other deterioration factors
are zero. We will also apply an in-use PM add-on of 0.03 g/bhp-hr.
These two provisions are intended to address lead time concerns raised
by commenters. The commenters correctly point out that the available
lead time is not sufficient to allow remanufacturers to verify
durability of the emission controls in a more conventional way. By
addressing this lead time issue, we will make it more likely that the
low emission kits will be brought to market early.
(4) Recertification Without Testing
    Once manufacturers have certified an engine family, we have
historically allowed them to obtain certificates for subsequent model
years using the same test data if the engines remain unchanged from the
previous model year. We refer to this type of certification as
``carryover.'' We are also extending this allowance to owner/operators.
Specifically, we are adding the following paragraph to the end of Sec.
1033.240:

    (c) An owner/operator remanufacturing its locomotive to be
identical to the previously certified configuration may certify by
design without new emission test data. To do this, submit the
application for certification described in Sec.  1033.205, but
instead of including test data, include a description of how you
will ensure that your locomotives will be identical in all material
respects to their previously certified condition. You have all of
the liabilities and responsibilities of the certificate holder for
locomotives you certify under this paragraph.
(5) Railroad Testing
    Section 92.1003 requires Class I freight railroads to annually test
a small sample of their locomotives. We proposed to adopt the same
requirements in Sec.  1033.810, but asked for comments on whether this
program should be changed. In particular, we requested suggestions to
better specify how a railroad selects which locomotives to test, which
has been a source of some confusion in recent years. In this final
rule, we are adopting a revised approach that should reduce this
confusion. The regulations provide four options for railroads to select

locomotives for testing and require EPA to notify the railroad by
January 1st for any year in which we choose to specify which
locomotives should be tested.
    In addition, the maximum annual testing rate is being lowered to
0.075 percent, from the previously applicable rates of 0.15 to 0.10
percent. This new rate will require Class I railroads to test
approximately 20 locomotives per year. We believe that this number of
tests (in addition to the testing required for certificate holders)
will be enough to allow us to appropriately monitor the emission
performance of in-use locomotives.
(6) Test Conditions and Corrections
    In our previous rule, we established test conditions that are
representative of in-use conditions. Specifically, we required that
locomotives comply with emission standards when tested at temperatures
from 45[deg]F to 105[deg]F and at both sea level and altitude
conditions up to about 4,000 feet above sea level. One of the reasons
we established such a broad range was to allow outdoor testing of
locomotives. While we only required that locomotives comply with
emission standards when tested at altitudes up to 4,000 feet for
purposes of certification and in-use liability, we also required
manufacturers to submit evidence with their certification applications,
in the form of an engineering analysis, that shows that their
locomotives were designed to comply with emission standards at
altitudes up to 7,000 feet. We included correction factors that are
used to account for the effects of ambient temperature and humidity on
NOX emission rates.
    We are now changing how the regulations deal with the test
temperatures. We are specifying that testing without correction may be
performed down to a lower limit of 60[deg]F. In implementing the prior
regulations, we found that the broad temperature range with correction,
which was established to make testing more practical, was problematic.
Given the uncertainty with the existing correction, manufacturers have
generally tried to test in the narrower range being adopted today.
However, we will still allow manufacturers to test at lower
temperatures but will require them to develop correction factors
specific to their locomotive designs.
    We are also changing the altitude requirements for switch
locomotives in response to a comment noting that switch locomotives
will rarely operate above 5,500 feet. For switch locomotives, we will
only require manufacturers to show that their locomotives comply with
emission standards at altitudes up to 5,500 feet.
(7) Duty Cycles and Calculations
(a) Idle Weighting Adjustments
    While we did not propose any changes to the weighting factors for
the locomotive duty cycles, we did request comment on whether such
changes would be appropriate in light of the proposed idle reduction
requirements. The regulations specify an alternate calculation for
locomotive equipped with idle shutdown features. This provision allows
a manufacturer to appropriately account for the inclusion of idle
reduction features as part of its emission control system. There are
three primary reasons why we are not changing the calculation
procedures with respect to the idle requirements. First, different
shutdown systems will achieve different levels of idle reduction in
use. Thus, no single adjustment to the cycle would appropriately
reflect the range of reductions that will be achieved. Second, the
existing calculation provides an incentive for manufacturers to design
shutdown systems that achieve in the greatest degree of idle reduction
that is practical. Finally, our feasibility analysis is based in part
on the emission reductions achievable relative to the existing
standards. Since some manufacturers already rely on the calculated
emission reductions from shutdown features incorporated into many of
their locomotive designs, our feasibility is based in part on allowing
such calculations.
    We are adopting a slight change to the way this adjustment works as
compared to the previous regulations. We are specifying that idle
emission rates for locomotives meeting our minimum shutdown
requirements in Sec.  1033.115 be reduced by 25 percent, unless the
manufacturer demonstrates that greater idle reduction will be achieved.
(b) Representative Cycles
    We also recognize that the potential exists for locomotives to
include additional power notches, or even continuously variable
throttles, and that the standard FTP sequence for such locomotives
would result in an emissions measurement that does not accurately
reflect their in-use emissions performance. Moreover, some locomotives
may not have all of the specified notches, making it impossible to test
them over the full test. Under the previous regulations, we handled
such locomotives under our discretion to allow alternate calculations
(40 CFR 92.132(e)). We are now adopting more specific provisions in
Sec.  1033.520. In general, for locomotives missing notches, we believe
the existing duty cycle weighting factors should be reweighted without
the missing notches. For locomotives without notches or more than 8
power notches, the regulations reference following information provided
to us by manufacturers for the previous rulemaking that shows typical
notch power levels expressed as a percentage of the rated power of the
engine.
    In response to comments we are also adding provisions to address
locomotives that include new design features that will result in
changes to the in-use duty cycle. Specifically, the regulations state
that manufacturers must notify us if they are adding design features
that will make the expected average in-use duty cycle of their engine
family significantly different from the otherwise applicable test
cycle. They must also recommend an alternate test cycle that represents
the expected average in-use duty cycle. We will specify whether to use
the default duty cycle, the recommended cycle, or a different cycle,
depending on which cycle we believe best represents expected in-use
operation. For locomotives subject to both line-haul and switch cycle
standards, the regulations specify that a single set of standards would
apply for the representative cycle.
(c) Energy Saving Design Features
    We are adopting special provisions for locomotives equipped with
energy-saving design features, such as sophisticated electronic
optimization of throttle and brake settings based on route data or
locomotive operation in a consist, electronically controlled pneumatic
(ECP) brakes, and hybrid technology. The provisions we are adopting
recognize that to whatever degree the total work done by a locomotive
is reduced, the mass emissions would likely also be reduced. For
example, if certain design features reduced by three percent the amount
of work needed to pull a typical train, then the mass emission rate (g/
hr) would generally also be reduced by three percent. Under the new
provisions, manufacturers will be allowed to adjust their locomotives'
emissions to reflect this, based on data gathered prior to
certification.
    Manufacturers choosing to adjust emissions under these provisions
must present a test plan to EPA for approval prior generating the in-
use data necessary to estimate their emissions reductions. The degree
to which manufacturers would be allowed to take

a credit at certification would be determined from a statistical
analysis of their supporting data to address the uncertainty in their
estimate. This would minimize the possibility that manufacturers would
be given credit for emission reductions that did not actually occur.
Later, additional data on the in-use fleet using the feature could be
gathered to improve the statistical certainty and this could then be
factored into subsequent certifications. In concept, however, if we had
perfect data, we would grant the manufacturers full credit for the
savings.
    Since our standards are specified as brake-specific emission
limits, no credit or adjustment will be allowed for features that only
improve the engine's brake-specific fuel consumption. The nature of the
test procedure itself already properly credits such features. Thus,
allowing additional credits to be calculated would be double-counting
of credits.
(8) Non-OEM Remanufacturing Parts
    We are adopting measures in Sec.  1033.645 to help provide for the
continued participation in remanufacturing by parts manufacturers
willing to take responsibility for the long-term emissions performance
of their parts but who lack the wherewithal to design and certify
entire locomotive remanufacture systems that may include complex
emissions control systems far beyond their expertise. Under this
program, we would determine, based on an upfront engineering analysis,
that the part supplier has a reasonable basis for concluding that use
of their part would be equivalent to the OEM part in use. We would
later verify its emission performance through in-use emission testing.
    The exact nature of the engineering analysis necessary to
demonstrate that the part supplier has a reasonable basis for
concluding that use of their part (or parts) will not cause emissions
to increase beyond the level expected from the OEM part in use, is
expected to vary. We see four possible paths to accomplish this.
     The part is shown to be identical to the original part in
all material respects.
     The part differs physically from the original in a small
number of ways and each of these is evaluated to show that the
aftermarket part will be as good as or better than the original with
respect to emissions performance.
     Measurable emission-critical parameters such as fuel
injection profile or engine oil consumption rate are established and an
engine (or relevant engine subsystem) using the aftermarket part is
shown through testing to perform as good or better than one with the
original part with respect to these parameters.
     Emissions testing and durability demonstration is
performed in essentially the same manner as for remanufactured system
certification.
    For example, cylinder liners differing only in color and part
number from the OEM liners would be identical in all material respects.
Those having different bore groove patterns would not be considered
identical, but an analysis of the difference this makes in the oil's
interaction with the cylinder wall and rings (which could have an
impact on PM emissions) could suffice to make the demonstration.
Chrome-plated cylinder liners in combination with a specified piston
ring set used in place of original rings and non-plated liners could be
expected to affect the emission-critical parameter of oil consumption,
especially later in the locomotive useful life due to differences in
wear rates. Bench or field testing over time demonstrating lower oil
consumption trends than original equipment could provide a sufficient
demonstration, provided no other emission-critical parameters are
involved. We do not believe it is necessary or even possible to specify
in the regulations the appropriate emission-critical parameters for all
of the locomotive aftermarket components identified in this provision
or to specify the test procedures and criteria by which these
parameters are evaluated. Instead, we are establishing broad criteria
and requiring the part suppliers to propose the appropriate emission-
critical parameters and corresponding test or analytical methods
appropriate to the part they produce.
    We would allow railroads to use the non-OEM part during
remanufacturing once we have approved the supplier's engineering
analysis. Once the part has been installed in at least 250 locomotives,
we would require one of them to be tested. One additional locomotive
would need to be tested from the next additional 500 locomotives that
use the part. If any locomotives fail to meet all standards, we
generally require one additional locomotive to be tested for each
locomotive that fails. We would generally allow the supplier to include
testing performed by others. For example, if a railroad tests a
locomotive with the part under Sec.  1033.810, the supplier could
submit those test data as fulfillment of its test obligations.
    We are adopting these provisions to address the specific issue of
parts that are typically replaced during remanufacturing and for which
there is an active aftermarket. Therefore, we are only specifying
cylinder liners, cylinder heads, pistons, rings, and fuel injectors as
being covered by this program. We reserve the authority to expand the
program to cover other parts.
(9) Use of Nonroad Engines Certified Under 40 CFR Parts 89 and 1039
    Section 92.907 currently allows the use of a limited number of
nonroad engines in locomotive applications without certification under
the locomotive program. We believe a similar allowance should also be
included in the new regulations. However, we are making some changes to
these procedures. In general, manufacturers have not taken advantage of
these previously existing provisions. In some cases, this was because
the manufacturer wanted to produce more locomotives than allowed under
the exemption. However, in most cases, it was because the customer
wanted a full locomotive certification with the longer useful life and
additional compliance assurances. We are adopting new separate
approaches for the long term (Sec.  1033.625) and the short term (Sec.
1033.150), each of which addresses at least one of these issues.
    For the long term, we are replacing the existing allowance that
relies on part 89 certificates with a design-certification program that
makes the locomotives subject to the locomotive standards in use but
does not require new testing to demonstrate compliance at
certification. Specifically, this program allows switch locomotive
manufacturers using nonroad engines to introduce up to 30 locomotives
of a new model prior to completing the traditional certification
requirements. While the manufacturer would be able to certify without
new testing, the locomotives would have locomotive certificates. Thus,
purchasers would have the compliance assurances they desire.
    As is described in section III B (1)(b), the short-term program is
more flexible and does not require that the locomotives comply with the
switch cycle standards; instead the engines would be subject to the
part 1039 standards. The manufacturers would be required to use good
engineering judgment to ensure that the engines' emission controls
would function properly when installed in the locomotives. For example,
the locomotive manufacturer would need to ensure that sufficient
cooling capacity was available to cool the engine intake air. Given the
relative levels of the part 1039 standards and those being

proposed in 1033, we do believe there is little environmental risk with
this short-term allowance and thus are not including any limits of the
sales of such locomotives. Nevertheless, we are limiting this allowance
to model years through 2017. This provides sufficient time to develop
these new switchers. These locomotives would not be exempt from the
part 1033 locomotive standards when remanufactured, unless the
remanufacturing of the locomotive took place prior to 2018 and involved
replacement of the engines with certified new nonroad engines.
Otherwise, the remanufactured locomotive will be required to be covered
by a part 1033 remanufacturing certificate.
(10) Mexican and Canadian Locomotives
    Under the prior regulations, Mexican and Canadian locomotives are
subject to the same requirements as U.S. locomotives if they operate
extensively within the U.S. The regulation 40 CFR 92.804(e) states:
    Locomotives that are operated primarily outside of the United
States, and that enter the United States temporarily from Canada or
Mexico are exempt from the requirements and prohibitions of this part
without application, provided that the operation within the United
States is not extensive and is incidental to their primary operation.
    We are changing this exemption to make it subject to our prior
approval, since we have found that the current language has caused some
confusion. When we created this exemption, it was our understanding
that Mexican and Canadian locomotives rarely operated in the U.S. and
the operation that did occur was limited to within a short distance of
the border. We are now aware that there are many Canadian locomotives
that do operate extensively within the U.S. and relatively few that
meet the conditions of the exemption. We have also learned that some
Mexican locomotives may be operating more extensively in the United
States. Thus, it is appropriate to make this exemption subject to our
prior approval. To obtain this exemption, a railroad will be required
to submit a detailed plan for our review prior to using uncertified
locomotives in the U.S. We will grant an exemption for locomotives that
we determine will not be used extensively in the U.S. and that such
operation will be incidental to their primary operation. Mexican and
Canadian locomotives that do not have such an exemption and do not
otherwise meet EPA regulations may not enter the United States.
(11) Other Locomotive Issues
    The regulations in part 92 allow locomotive owners to voluntarily
subject their pre-1973 locomotives to the Tier 0 standards or to
include in the locomotive program low-horsepower locomotives that would
otherwise be excluded based on their rated power. We are also including
these options in the new part 1033. We will also provide two additional
options. First, we will allow Tier 0 switch locomotives, which are
normally not subject to line-haul cycle standards, to be voluntarily
certified to the line-haul cycle standards. Second, we will allow any
locomotives to be voluntarily certified to a more stringent tier of
standards. An example of where these options may be desirable would be
a case in which a customer wants to purchase a refurbished switch
locomotive that meets the Tier 2 standards. While it may seem obvious
that it would be allowed, the old regulations are unclear. The part
1033 regulations eliminate this confusion.
    The existing and proposed regulations both specified that railroads
are required to perform emission-related maintenance. In response to
comments, we have added to the regulations a clarification that
unscheduled maintenance has to be performed in a timely manner, no
later than at the next ``92-day'' inspection required by the Federal
Railroad Administration. Railroads expressed concern that the
regulations, as previously written, would have required them to
immediately remove a locomotive from service to make emission-related
repairs. This was not our intent. Rather, the maintenance provision was
intended to merely require that the maintenance be performed in a
timely manner. For many repairs, it may be appropriate to wait until
the next 92-day inspection. However, for many others it would be
appropriate to make the repair sooner to the extent practical.
    In response to comments, we are adding an interim allowance to
simplify certification testing of locomotive engines. Specifically, for
model years before 2014, we will allow manufacturers to test locomotive
engines for certification without replicating the transient behavior in
the locomotive. This will make it easier for manufacturers to certify
new cleaner remanufacturing systems for the full range of locomotive
models.

C. Compliance Issues Specific to Marine Engines

(1) Remanufacturing
    As discussed in Section III, above, we are adopting a marine
remanufacture program for marine diesel engines over 600 kW built from
1973 through Tier 2 that requires the use of a certified remanufacture
system when such an engine is remanufactured, if one is available.
Certified remanufacture systems must achieve at least a 25 percent
reduction in PM emissions. This section briefly describes several
certification and compliance provisions for the marine remanufacture
program; the full program is contained in the regulations for this
rule.
    In general, the normal certification requirements for new marine
diesel engines would apply, with minor variations as needed to
accommodate the characteristics of remanufactured engines. For example,
engine families are based on the same criteria as for freshly
manufactured engines, and testing, reporting, the application for
certification, and warranty requirements closely follow the provisions
that apply for freshly manufactured engines.
    In general, remanufactured engines are considered to be ``new''
engines, and they remain new until sold or placed back into service
after the replacement of the last cylinder liner. The standards do not
apply for engines that are rebuilt without removing cylinder liners.
For a new engine to be placed into service, it must be covered by a
certificate of conformity.
    As is the case with our other emission control programs,
certification testing for conformity demonstration will be performed on
the most common configuration within an engine family. An engine family
is a group of engines that have the same characteristics with respect
to combustion cycle and fuel, cooling system, method of air aspiration,
method of exhaust aftertreatment, combustion chamber design, bore and
stroke, and mechanical or electronic controls. Other configurations may
be included if it can be shown based on good engineering judgment that
they are likely to provide a PM reduction similar to the configuration
tested. Compliance for these other configurations is based on an
engineering demonstration that the remanufacturing system reduces PM
emissions by 25 percent without increasing NOX emissions.
Engine families may also include remanufacturing systems corresponding
to engines that were originally produced over multiple model years, as
long as the configuration does not change in a

way that affects the validity of certification for the remanufacturing
system.
    To certify a remanufacture system, a manufacturer must measure
baseline emissions and emissions from an engine remanufactured using
its system. A baseline emission rate would be established by
remanufacturing an engine following normal procedures. That engine or a
second engine of the same configuration is then tested for emissions
after remanufacturing with the expected emission controls. The
remanufacturing system meets the emission standards of the program by
demonstrating a minimum 25 percent reduction in PM emissions and no
increase in NOX emissions (within 5 percent). The
remanufacturer must also demonstrate that the remanufacturing system
does not adversely affect engine reliability or power.
    The remanufacturer must also demonstrate that the total marginal
cost of the remanufacturing system is less than $45,000 per ton of PM
reduction. For the purpose of this demonstration, marginal cost means
the difference in costs between remanufacturing the engine using the
remanufacture system and remanufacturing the engine conventionally.
Total marginal costs over the period of one useful life are divided by
the projected PM emissions over one useful life to obtain the cost of
the remanufacture system per ton of PM reduced. Costs to be considered
include hardware costs, labor costs, operating costs over one useful
life period, and other costs (such as shipping).
    The useful life provisions established for freshly manufactured
engines would apply equally to remanufactured engines. In general,
remanufacturers would be responsible for meeting emission standards for
10 years or 10,000 hours of operation for Category 1 engines, and 10
years or 20,000 hours of operation for Category 2 engines.
    Certification will rely on a deterioration factor, similar to
freshly manufactured engines. The certifying company may either use an
assigned value of 0.015 g/kW-hr for PM or develop a new deterioration
factor based on engine testing. For Tier 2 engines, the certifying
company needs to add the deterioration factor to measured emission
levels for certification. The deteriorated number must be less than the
applicable PM standard. For Tier 1 and earlier engines, the
deterioration factor is added to the emission level established for the
certified configuration and that higher emission level serves as the
emission standard for any in-use testing after certification.
    The regulations allow for simplified certification requirements for
remanufacture systems that are already certified under the locomotive
program. This would require only an engineering analysis demonstrating
that the system would achieve emission reductions from marine engines
similar to those from locomotives. Because the marine remanufacture
program requires only a PM reduction, locomotive remanufacture system
manufacturers may modify those locomotive systems with respect to
NOX emissions. In that case, the system will have to be
recertified as a marine remanufacture system based on measured values
and subject to all of the other certification requirements of the
marine remanufacture program.
     Remanufactured engines are not eligible for generating or using
emission credits for averaging, banking, or trading. This is
appropriate because the program we are finalizing is only mandatory if
a system has been certified for the relevant engine. We will reconsider
allowing systems to be based on emission credits when we consider
whether to adopt a mandatory marine remanufacture program (Part 2 of
the proposed program) at a later date.
    Not-to-exceed standards do not apply to remanufacturing. This is
appropriate because the base engine in most cases is not subject to NTE
requirements. In addition, NTE is most appropriately considered in the
initial engine design phase; requiring remanufactured engines to meet
the NTE requirements would likely require more intensive engine
redesign than is anticipated by the simpler program we are finalizing.
    Finally, other provisions such as those governing maintenance
intervals, warranties, duty cycles, test fuel, labeling, recordkeeping,
etc. are the same as or similar to those for freshly manufactured
engines.
(2) Replacement Engines
    We are revising certain aspects of our existing provisions with
regard to replacement engines, as described below. These requirements
apply to all marine diesel engines, propulsion or auxiliary, regardless
of marine application. Section 1042.601(c) provisions apply instead of
the provision of section 1068.240(b)(3) that applies for other nonroad
engines.
    (a) Replacement With a Freshly Manufactured Engine
    Under the current marine diesel engine program, an engine
manufacturer is generally prohibited from selling a marine engine that
does not meet the standards that are in effect when that engine is
produced. However, we recognize that there may be situations in which a
vessel owner may require an engine certified to an earlier tier of
standards. The two most likely situations are (1) when a vessel has
been designed to use a particular engine such that it cannot physically
accommodate a different engine due to size or weight constraints (e.g.,
a new engine model will not fit into the existing engine compartment);
or (2) when the engine is matched to key vessel components such as the
propeller, or when a vessel has a pair of engines that must be matched
for the vessel to function properly.
    To address these extreme situations, we amended existing regulation
40 CFR 94.1103(b)(3) to allow a manufacturer to produce a new engine
which meets an earlier tier of standards if the Administrator
determined that no new engine certified to the emission limits in
effect at that time is produced by any manufacturer with the
appropriate physical or performance characteristics needed to repower
the vessel. An engine manufactured pursuant to this provision is
subject to certain conditions: The replacement engine must meet
standards at least as stringent as those of the original engine; the
engine manufacturer must take possession of the original engine or
confirm it is destroyed; and the replacement engine must be clearly
labeled to show that it does not comply with the standards and that
sale or installation of the engine for any purpose other than as a
replacement engine is a violation of federal law and subject to civil
penalty.
    We subsequently revised this provision to allow the engine
manufacturer to make the determination of whether an engine compliant
with the current standards would fit a vessel, but solely in cases of
catastrophic failure (see 70 CFR 40419, July 13, 2005). This change was
made to reflect industry concerns that obtaining prior EPA approval
would take too long. The engine manufacturer may make the determination
in catastrophic failure situations provided that the following
conditions are met: The manufacturer must determine that no certified
engine is available, either from its own product lineup or that of the
manufacturer of the original engine (if different); and the engine
manufacturer must document the reasons why an engine of a newer tier is
not usable, and this report must be made available to us upon request.
We also specified in Sec.  94.1103(a)(8) that no other significant
modifications to the vessel can be made as part of the process of
replacing the engine, or for a period of 6 months thereafter.
    In response to comments on the proposal for this rulemaking, we are

finalizing three additional revisions to the replacement engine
provisions. First, engine manufacturers may now make the determination
with respect to the feasibility of using a current tier engine in both
noncatastrophic and catastrophic situations. This is a significant
change to the program. Engine manufacturers and user groups were
concerned about the amount of time that would be needed to obtain prior
EPA approval, even in these noncatastrophic cases. Even though the
noncatastrophic engine replacement is more typically planned in
advance, it is still the case that the determination must be made in a
timely manner to ensure the engine manufacturer has time to produce the
engine before the vessel is taken out of service for the replacement.
Therefore, we are revising the program to allow the engine manufacturer
to make such determinations, provided certain additional conditions are
met: The engine manufacturer must examine the suitability of
replacement with any current tier engine, either produced by that
manufacturer or any other manufacturer; the engine manufacturer must
make a record of each determination, which must be kept for eight years
and contain specific information; the record must be submitted to EPA
within 30 days after shipping each engine along with a statement
certifying that the information contained in that record is true. We
may reduce the reporting and recordkeeping requirements in this section
after a manufacturer has established a consistent level of compliance
with the requirements of this section.
    These records will be used by EPA to evaluate whether engine
manufacturers are properly making the feasibility determination and
applying the replacement engine provisions. We may void any exemptions
we determine do not conform to the applicable requirements. When
assessing penalties under this provision we would consider whether the
manufacturer acted in good faith. Thus manufacturers are encouraged to
keep additional records to support their good faith attempt to comply
with the regulations. For example, manufacturers could keep records of
requests for replacement engines that are denied.
    In making the determination that a current tier engine is not a
feasible replacement engine for a vessel, we expect the engine
manufacturer will evaluate not just engine dimensions and weight but
may also include other pertinent vessel characteristics. These
pertinent characteristics would include downstream vessel components
such as drive shafts, reduction gears, cooling systems, exhaust and
ventilation systems, and propeller shafts; electrical systems for
diesel generators (indirect drive engines); and such other ancillary
systems and vessel equipment that would affect the choice of an engine.
At the same time, there are differences between the new tier and
original tier engines that should not affect this determination, such
as the warranty period or life expectancy of a newer tier engine, or
its cost or production lead time. These characteristics should not be
part of the determination of whether or not a new tier engine can be
used as a replacement engine. With regard to the warranty period or
life expectancy for the new tier engine, an exception may be if these
are significantly shorter for the new tier engine than for an older
tier engine or the original engine and the shorter warranty period or
life expectancy for the newer model is consistent with industry
practices.
    In addition, in the case of a vessel with two or more paired
engines, if the engine not in need of replacement has accumulated
service in excess of 75 percent of its useful life we specify that the
determination must consider replacement of both engines in the pair.
This requirement is necessary to prevent circumvention of the freshly
manufactured engine requirements by replacing one engine at a time and
relying on the need to pair the engines as the sole justification for
producing an engine to an earlier tier. We are also specifying that no
additional modifications may be made to a vessel for six months after
installing a new replacement engine made to a previous tier. This is to
avoid circumvention of the requirement to use a freshly manufactured
engine when a vessel is refurbished such that it becomes a new vessel.
    The second change to the replacement engine provision is necessary
to accommodate the new tiers of standards we are adopting in this
rulemaking. Specifically, in making the feasibility determination the
engine manufacturer is now required to consider all previous tiers and
use any of their own engine models from the most recent tier that meets
the vessel's physical and performance requirements. If an engine
manufacturer can produce an engine that meets a previous tier of
standards representing better control of emissions than that of the
engine being replaced, the manufacturer would need to supply the engine
meeting the tier of standards with the lowest emission levels. For
example, if a Tier 1 engine is being replaced after the Tier 3
standards go into effect, the engine manufacturer would have to
demonstrate why a Tier 2 as well as a Tier 3 engine cannot be used
before a Tier 0 engine can be produced and installed. Similarly, for an
engine built prior to 2004, the engine manufacturer would have to
demonstrate why a Tier 1, Tier 2, or a Tier 3 engine cannot be used. It
should be noted, in the case of Tier 0 engines, that MARPOL Annex VI
prohibits replacing an existing engine at or above 130 kW with a
freshly manufactured engine unless it meets the Tier 1 standards.
    The third change to the replacement engine provisions pertains to
Tier 4 engines. We are making the advance determination that Tier 4
engines equipped with aftertreatment technology to control either
NOX or PM are not required for use as replacement engines
for engines from previous tiers in accordance with this regulatory
replacement engine provision. Note, however, that Tier 4 engines will
be required to be used as replacement engines if the original engine
being replaced is a Tier 4 engine. We are making this determination in
advance because we expect that installing such a Tier 4 engine in a
vessel that was originally designed and built with a previous tier
engine could require extensive vessel modifications (e.g., addition of
a urea tank and associated plumbing; extra room for a SCR or PM filter;
additional control equipment) that may affect important vessel
characteristics (e.g., vessel stability). It should be noted that by
making this advance determination, EPA is not implying that Tier 4
engines are never appropriate for use as replacement engines for
engines from previous tiers; this determination is intended to simplify
the search across engines and is based on the presumption that Tier 4
engines may not fit in most cases. We are also not intending to prevent
states or local entities from including Tier 4 engines in incentive
programs that encourage vessel owners to replace previous tier existing
engines with new Tier 4 engines or to retrofit control technologies on
existing engines, since those incentive programs often are designed to
offset some of the costs of installing and/or using advanced emission
control technology solutions. This advance determination is being made
solely for Tier 4 marine diesel replacement engines that comply with
the Tier 4 standards through the use of catalytic aftertreatment
systems. Should an engine manufacturer develop a Tier 4 compliant
engine solution that does not require the use of such technology, then
this automatic determination will

not apply. Instead our existing provision will apply and it will be
necessary to show that a non-catalytic Tier 4 engine would not meet the
required physical or performance needs of the vessel.
(b) Replacement With an Existing Engine
    Our current marine diesel engine program does not contain
provisions that address the case in which an engine is replaced with an
existing used engine. This means that if a vessel owner replaces an
existing engine with a used engine, then that replacement engine is not
required to be certified to our marine standards. It should be noted,
however, that engines greater than 600 kW that are built after 1973
would still be subject to the remanufacture program described in
Section III(C)(2)(b). This means if the existing engine that is the
replacement engine has all of its cylinder liners replaced, it will be
required to be remanufactured using a certified remanufacture system if
one is available for that engine. It is our expectation that a vessel
owner would not replace an existing engine above 600 kW with a
partially-rebuilt engine, and therefore we do not expect to see
replacement engines that are not remanufactured if there is a certified
remanufacture system available.
    These remanufacture requirements would apply whether the owner is
obtaining an identical existing (used) replacement engine due to an
engine failure or through an engine exchange for a periodic engine
rebuild. These requirements would also apply if a vessel owner is
obtaining a different model existing (used) replacement engine, for
whatever reason.
    It should be noted that pursuant to the definition of ``new marine
engine,'' used engines brought into the marine market from other
segments (e.g., locomotive, land-based nonroad, or highway sectors) are
considered to be new marine diesel engines when they are marinized or
modified for use on a vessel, and must meet the standards for newly
manufactured engines in effect when such an engine is marinized or
modified for installation on a vessel.
(c) Swing Engines
    A swing engine is an additional engine that is purchased at the
time the vessel is constructed as part of a rebuild strategy. When an
engine is due for rebuild, that engine is removed from the vessel and
replaced with the swing engine. The removed engine is rebuilt and then
becomes the swing engine. Note that a swing engine is not meant to be a
replacement engine in case of engine failure. Rather, it is a
maintenance practice.
    It is our expectation that the swing engine would undergo a
complete rebuild, including cylinder liner replacement, before it is
made available as the swing engine. That would constitute
remanufacturing, and the engine would be required to comply with the
engine remanufacture requirements. In general, this means that all
engines that are part of a swing engine rebuild practice are expected
to comply with the remanufacture requirements over time, providing a
certified remanufacture system is available.
(d) Vessel Refurbishing
    Our current program specifies that in addition to newly
manufactured vessels, a vessel is considered to be ``new'' if it is
modified such that the value of the modifications exceeds 50 percent of
the value of the modified vessel. Such a refurbished vessel would be
required to have an engine that is compliant with the standards in
place when the vessel is modified. We expect that most vessel
modifications will not trigger this threshold, but the requirement is
necessary to accommodate those cases where a major structural change is
done to a vessel that make it like-new.
    We are revising this provision to specify how temporary
modifications will be treated under this provision. In general,
temporary modifications to a vessel would not be considered to be
vessel refurbishing for the purpose of the ``new vessel'' definition.
We are defining temporary modifications as modifications to a vessel
that are made pursuant to a written contract between the vessel owners
and the purchaser of the vessel's services and that are made for the
purpose of fulfilling the purchaser's marine service requirements. To
be considered to be temporary, the modifications must be removed from
the vessel upon expiration of the contract or after a period of one
year, whichever is shorter. While we will allow a vessel owner to
petition EPA for a longer period of time, we will generally assume that
changes that are necessary for longer than one year are quasi-
permanent. We do not expect there to be many petitions for longer
periods of time because temporary modifications that exceed 50 percent
of the vessel's value would be considerable and would likely involve
the vessel's power plant.
(3) Personal Use Exemption
    The current marine diesel engine emission control program contains
certain exemptions from the standards, including the following: test
engines; manufacturer-owned engines; display engines; competition
engines; export engines; and certain military engines. We also provide
an engine dresser exemption that applies to marine diesel engines that
are produced by marinizing a certified highway, nonroad, or locomotive
engine without changing it in any way that may affect the emissions
characteristics of the engine.
    In addition to these existing exemptions we are also adding a new
provision that exempts an engine installed on a vessel manufactured by
a person for his or her own use (see 40 CFR 1042.630). This is intended
to address the hobbyists and fishermen who make their own vessel (from
a personal design, for example, or to replicate a vintage vessel) and
who would otherwise be considered to be a manufacturer subject to the
full set of emission standards by introducing a vessel into commerce.
The exemption is intended to allow such a person to install a rebuilt
engine, an engine that was used in another vessel owned by the person
building the new vessel, or a reconditioned vintage engine (to add
greater authenticity to a vintage vessel). The exemption is not
intended to allow such a person to order a new uncontrolled engine from
an engine manufacturer. We expect this exemption to involve a very
small number of vessels, so the environmental impact of this exemption
will be negligible, while the cost would otherwise be high to install a
certified compliant engine.
    Because the exemption is intended for hobbyists and fishermen, we
are setting additional constraints. First, the vessel may not be used
for general commercial purposes. The one exception to this is that the
exemption allows a fisherman to use the vessel for his or her own
commercial fishing. Second, the exemption is limited to one such vessel
over a ten-year period and does not allow exempt engines to be sold for
at least five years. We believe these restrictions are not unreasonable
for a true hobby builder or comparable fisherman. Moreover, we require
that the vessel generally be built from unassembled components, rather
than simply completing assembly of a vessel that is otherwise similar
to one that must use a freshly manufactured engine certified to meet
the applicable emission standards. The person also must be building the
vessel him- or herself, and not simply ordering parts for someone else
to assemble. Finally, the vessel must be a vessel that is not classed
or subject to Coast Guard inspections or surveys.

(4) Lifeboat/Rescue Boat Exemption
    Our current marine diesel engine program does not exempt lifeboats
or rescue boats, and we did not propose to revise that approach. This
approach was developed for the Tier 2 marine diesel engine standards.
As we explained in our 1999 FRM, the technologies that would meet Tier
2 standards would not have inherent negative effect on the performance
or power density of an engine, and we expected that manufacturers would
be able to use the range of technologies available to maintain or even
improve the performance capabilities and reliability of their engines.
We also note that land-based emergency engines such as standby
generators are not exempt from our emission control requirements in
either highway or nonroad applications.
    We received several comments from manufacturers of lifeboats and
rescue boats requesting that we reconsider this approach and exempt
engines on lifeboats and rescue boats from the Tier 3 and Tier 4
standards. They noted that engines on lifeboats and rescue boats are
not regularly used as they are intended for use only during
emergencies, and they are generally only operated for 3 minutes once a
week and are water tested for a short period only a few times a year.
Boat manufacturers were also concerned about the reliability of
electronic controls and advanced technology aftertreatment systems in
these situations, especially when the boats are stored on deck and
exposed to the elements.
    We've also learned that at least some engine manufacturers that
have certified engines in the past for use on Coast Guard approved
lifeboats and rescue boats pursuant to Coast Guard and international
(International Convention for the Safety of Life at Sea--SOLAS)
requirements have not yet done so for Tier 2 engines and may elect not
to do so at all.\167\ The Coast Guard and SOLAS certification
requirements are meant to ensure that an engine will perform after it
is inverted, will operate when submerged up to the crankshaft, and will
readily start at temperatures as low as -15 degrees C. This
certification is expensive and time-consuming, and those costs may be
difficult to recover over the limited U.S. market for lifeboats and
rescue boats (100 to 150 boats per year). Manufacturers of those
lifeboats that use those engines must either find an alternative engine
for their product, and recertify the boats to the Coast Guard and SOLAS
requirements, or exit the market.
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    \167\ See http://www.uscg.mil/hq/g-m/mse4/boatlb.htm#LIFEBOAT--
FOR--MERCHANT--VESSELS for/Coast/Guard requirements for lifeboats
and rescue boats.
---------------------------------------------------------------------------

    After considering these comments, we conclude that it is reasonable
to modify our program for engines used on Coast Guard approved
lifeboats and rescue boats. First, our final program exempts engines
intended to be used on lifeboats and rescue boats from the Tier 4
standards. This exemption is appropriate for technological reasons. We
expect the Tier 4 standards to be met through the application of
aftertreatment technology. While we believe these technologies will be
durable and reliable, it is also the case the additional complexity
could possibly affect engine performance in an emergency, which is the
sole situation in which these engines would be used. For example, it
would be necessary to ensure the engines on the lifeboat or rescue boat
have onboard at all times an adequate supply of urea that meets the
quality requirements of an SCR system. In addition, if the engine on
the lifeboat or rescue boat is only run for very short periods of time
for periodic onboard tests, the PM filter may not have time to
regenerate. This could result in a small risk of plugging. Therefore,
it is reasonable to exempt these engines from the Tier 4 requirements.
It is worth noting that most lifeboat engines are less than 600 kW and
thus would not be subject to Tier 4 standards.
    Second, to avoid a situation in which an engine certified to the
Coast Guard and SOLAS requirements is not available for use in a
lifeboat or rescue boat application, we are providing an exemption that
would have the effect of delaying the date of the emission standards
for engines used on those boats until SOLAS certified engines of the
respective emissions tier become available. Specifically, we will grant
exemptions for engines not complying with the Tier 3 requirements for
use in a Coast Guard approved lifeboat or rescue boat until such time
as a comparable Tier 3 engine that meets the weight, size, and
performance requirements of the boat is certified under the Coast Guard
and SOLAS requirements. Once such an engine becomes available, the non
Tier 3 compliant engines may not be sold for use in these applications.
This provision is necessary because the Coast Guard has observed a
precipitous drop in available SOLAS certified engines with the
emissions tier change from the Tier 1 emissions standards to the Tier 2
emissions standards. Given the high cost of SOLAS certification and the
low sales of SOLAS certified engines, engine manufacturers have delayed
SOLAS certification of new emission tier engines. After considering the
high cost of SOLAS certification, the need for additional lead time to
complete the SOLAS certification process and the importance of
lifeboats and rescue boats to safety, we have concluded it is
appropriate to provide this exemption. We are not requiring engine
manufacturers to certify these engines by a specified date. However, we
anticipate that engine manufacturers will over time certify their Tier
3 engines to the Coast Guard and SOLAS requirements, or modify their
existing Coast Guard certified engines as necessary to comply with the
Tier 3 requirements. Most of the marine diesel engines used on
lifeboats and rescue boats are derived from land-based highway or
nonroad engines. Once the Tier 3 requirements for those engines go into
effect and the Tier 2 or Tier 1 counterparts are retired from the
fleet, it will become more expensive to continue to provide parts and
service for these older engines, and engine manufacturers will prefer
to provide newer tier engines for lifeboats and rescue boats globally.
Because it is not possible to determine when that change will take
place, the final program specifies that when they do become available,
they must be used.
    Finally, we are extending this exemption to Tier 2 engines as well.
We have learned that some lifeboat and rescue boat manufacturers are
having trouble obtaining engines that meet the Tier 2 standards. Note
that because Tier 2 engines are not regulated under part 1042, this
exemption is included in a new section in part 94 (94.914). As with the
Tier 3 exemption, once a Tier 2 engine becomes available that meets the
weight, size, and performance requirements of the boat and is certified
under the Coast Guard and SOLAS requirements the exemption will no
longer be available for freshly manufactured engines.
    Engines that are produced to an earlier tier pursuant to these
provisions must be labeled to make clear that their use is limited to
lifeboats or rescue boats approved by the U.S. Coast Guard under
approval series 160.135 or 160.156. Using such a vessel as for a
purpose other than a lifeboat or rescue boat is a violation of the
regulations.
    The above provisions are applicable only to engines in lifeboats
and rescue boats used solely for emergency purposes. This is an
important distinction because there are cases in which a lifeboat may
serve dual use on a vessel, both for general transportation (e.g.,
tenders) and for emergencies. Engines in lifeboats and rescue boats
that are not used solely for emergency purposes are not exempt. These
engines

are not expected to remain idle long enough for urea storage or PM trap
regeneration to be a problem. For all these reasons, the Tier 2 and 3
flexibility and Tier 4 exemption will apply only to engines intended
for installation on lifeboats approved by the U.S. Coast Guard under
approval series 160.135 (except those which are also approved for use
as launches or tenders) and rescue boats approved by the U.S Coast
Guard under series 160.156.
(5) Stand-By Emergency Auxiliary Engines
    We are exempting certain stand-by emergency auxiliary engines from
the Tier 4 standards. This exemption is necessary due to the fact that
these engines are rarely used, their operation being limited to
periodic testing of several minutes duration. While the technologies
that will be used to achieve the Tier 4 standards are expected to be
durable, it is also the case that operation for such short periods of
time may not be enough to engage the aftertreatment regeneration
strategy. In addition, these auxiliary engines would need separate urea
tanks, rendering them more complicated to maintain and use in an
emergency situation.
    This exemption is limited to dedicated stand-by emergency auxiliary
engines subject to United States Coast Guard requirements set out in 46
CFR part 112. In general, these stand-by emergency auxiliary engines
are supplemental to the ships' main auxiliary engines. They are located
away from the main engine compartment, have separate fuel tanks, and
are connected to the ships' power system in such a way as to provide
for emergency power only to emergency equipment and not the ship's
power grid generally. These engines must be labeled for use as marine
stand-by emergency auxiliary engines only.
    Marine stand-by emergency engine means any marine auxiliary engine
whose operation is limited to unexpected emergency situations on a
vessel; these engines are subject to testing and maintenance required
by the United States Coast Guard. They are generally used to produce
power for critical networks or equipment (including power supplied to
portions of a vessel) when electric power from the main auxiliary
engine(s) is interrupted. Marine auxiliary engines used to supply power
to the vessel's general electric grid or that are operated on a
constant basis are not considered to be emergency marine auxiliary
engines.
    Exempted engines are required to meet the applicable Tier 3
standards (in part 89 or part 94, as applicable). See 40 CFR 1068.265
for the provisions that apply for such exempt engines. The engines must
also be labeled to make clear that they are exempt and their use is
limited to emergency stand-by auxiliary power as specified in United
States Coast Guard requirements set out in 46 CFR part 112.
(6) Gas Turbine Engines
    While gas turbine engines\168\ are used extensively in naval ships,
they are not used very often in commercial ships. Because of this and
because we do not currently have sufficient information, we are not
including marine gas turbines in this rulemaking. Nevertheless, we
believe that gas turbines could likely meet the new standards (or
similar standards) since they generally have lower emissions than
diesel engines and may reconsider gas turbines in a future rulemaking.
---------------------------------------------------------------------------

    \168\ Gas turbine engines are internal combustion engines that
can operate using diesel fuel, but do not operate on a compression-
ignition or other reciprocating engine cycle. Power is extracted
from the combustion gas using a rotating turbine rather than
reciprocating pistons.
---------------------------------------------------------------------------

(7) Natural Gas Engines
    The increasing deployment of tankers carrying liquefied natural gas
has led to greater numbers of large marine engines running on natural
gas instead of diesel fuel. Depending on the technological approach
engine manufacturers take, these engines could fall under our
definition for spark-ignition engines even though their design and
development is more like compression-ignition engines. Without some
clarifying provision, these engines would therefore be subject to the
standards that we are developing for inboard spark-ignition engines,
which are based on automotive technologies. Since this is clearly not
appropriate, we are adopting a provision to specify that natural gas
engines above 250 kW are subject to standards for marine compression-
ignition engines regardless of our regulatory definitions for spark-
ignition and compression-ignition engines. Since the analysis of
control technology and the estimated costs and emission reductions are
very similar to that for diesel-fueled engines, we have made no effort
to separately analyze these engines relative to the new emission
standards.
(8) Residual Fuel Engines
    The vast majority of Category 1 and 2 marine diesel engines subject
to EPA's emission standards operate on distillate diesel fuel. There
are cases, however, in which the owner of a vessel may prefer to
operate a Category 2 engine on another type of diesel fuel. This is
mainly the case for auxiliary engines on ocean-going vessels, to allow
them to use the same fuel that is used in the propulsion engine
(typically residual fuel). There are also a few vessels operated on the
Great Lakes that use residual fuel or residual fuel blends.
    Our marine diesel engine program requires engine manufacturers to
perform certification testing using the same type of fuel that will be
used in actual engine operation. This requirement, which was also
included in our 1999 Tier 2 rule, is intended to ensure that engines
meet the emission limits in operation. In our proposal, we noted that
engine manufacturers have not certified Category 1 or 2 engines that
can be operated on residual fuel to the Tier 2 standards. Manufacturers
explained that it is not profitable to do so due to the small size of
the U.S. market for these engines. They also informed us that it would
be difficult to meet EPA's PM standards on residual fuel.
    Some owners expressed concern to EPA about the unavailability of
large auxiliary engines certified to the Tier 2 standards on residual
fuel. These owners expressed a preference for auxiliary engines run on
the same fuel as propulsion engines to simplify ship operations. To
respond to this concern, we asked for comment on a compliance
consisting of an alternative PM standard and a tighter NOX
standard. The alternative standards would be available for auxiliary
engines to be installed on vessels with Category 3 propulsion engines.
Certification testing would still be required on residual fuel but we
would allow alternative PM measurement procedures. To ensure that
questions of test fuel and PM measurement are resolved before
certification testing, manufacturers would have to apply to EPA to
exercise this flexibility.
    The alternative of exempting residual fuel engines from the test
fuel requirement and allowing them to be tested on distillate fuel is
not appropriate. All of our mobile source emission control programs are
predicated on an engine meeting the emission standards in use. The test
fuel requirement is one of several provisions that help ensure in-use
compliance, including useful life periods, emission deterioration
factors, durability testing, and not-to-exceed zone. Amending the test
fuel provisions to allow manufacturers to certify residual fuel engines
using distillate fuel would introduce considerable uncertainty into the
in-use performance of these engines,

would weaken the emission standards, and would be contrary to the goals
of our program.
    We received no comments supporting the compliance flexibility
described above, and therefore we are not revising our program with
respect to test fuels or the standards that apply to engines with per
cylinder displacement below 30 liters that use residual fuel. We expect
to revisit this issue in the context of our upcoming rulemaking for
Category 3 marine diesel engines.
(9) Duty Cycles for Marine Engines
    Manufacturers pointed out two inconsistencies between the proposal
and existing requirements for marine engines related to the proposed
duty cycles for marine propulsion engines less than 37 kW and the
proposed duty cycle for propeller-law auxiliary engines. We agree that
the existing 4-mode duty cycle (E3) should be used for these
applications and have corrected this in the final rule.
    We received comment that the 8-mode (C1) duty cycle was not
designed to represent variable-speed propulsion engines intended for
use with variable-pitch or electrically-coupled propellers. Caterpillar
provided an example of a power curve for a variable-speed engine
designed to operate with a controllable pitch propeller where the
operation is limited at low and mid-range speeds. In this case, we
agree that the constant speed (E2) test duty cycle, combined with the
NTE requirements, is more representative of the operation of this
engine than the proposed C1 cycle. For this engine, the power and
torque at the C1 intermediate speed is relatively low, leading to a
heavy weighting of low power operation. In addition, the power limit
curve, for overload protection, is at lower power than even the E3 duty
cycle.
    Controllable pitch propellers are also used with variable speed
engines that have power curves that are more similar to those seen for
nonroad engines or marine engines used with fixed pitch propellers. We
are concerned that the E2 duty cycle would not be representative of the
operation of these engines. Therefore, we are finalizing the E3 duty
cycle for variable-speed propulsion engines intended for use with
variable-pitch or electrically-coupled propellers. In the case where
the engine is not capable of operating over the E3 duty cycle in-use,
the E2 duty cycle would be used. For the purposes of this requirement,
we consider an engine capable of operating over the E3 duty cycle if
the engine can safely achieve more than 1.15 times the power specified
in the E3 duty cycle at 63, 80, and 91 percent of maximum test speed.
(10) Definition of Recreational Marine Diesel Vessel
    We are adopting a revised the definition of recreational marine
diesel vessel in part 1042 that will essentially return to the
definition we originally adopted in 1999. This revision will
effectively rescind that change we made in our 2003 recreational engine
rule (68 FR 9745, February 28, 2003). As is described later, in that
rulemaking we revised the definition of recreational vessel by adding a
reference to the Coast Guard definition in 46 U.S.C. 2101. However,
since then, it has become clear that the revision resulted in
significant confusion for industry.
    As described above, the Tier 3 standards that apply to recreational
marine diesel engines are different than those that apply to standard
power density commercial engines and recreational engines are not
subject to the Tier 4 standards. Recreational engines are also subject
to different compliance requirements, notably the duty cycle for
certification testing and their useful life. These programmatic
differences reflect the different way in which these engines are used,
with recreational engines generally having a higher power/density
ratio, operating at a higher load, and being used for fewer hours over
their life than commercial engines.
    Recreational engines are defined based on whether or not they are
intended by the engine manufacturer to be installed on a recreational
vessel. In our 1999 Tier 2 marine diesel engine rule, we defined
recreational vessel as a vessel intended by the vessel operator to be
operated primarily for pleasure or leased to another for the latter's
pleasure, with the exception of (i) vessels less than 100 gross tons
that carry more than six passengers; and (ii) vessels more than 100
gross tons that carry one or more passengers, where passenger means
someone who pays to be on the vessel.
    The goal of this definition was to exclude so-called recreational
vessels that are in fact operated like commercial vessels: Those that
are operated many hours a year (for example, charter fishing vessels
and smaller tour vessels that are rented on an individual basis, with
or without a crew). A personal vessel owned by an individual for his
personal use and not for hire was intended to be considered to be a
recreational vessel. For smaller vessels, this is achieved by requiring
that there be fewer than six paying passengers; this allows an
individual to invite friends onboard his or her vessel in return for
some pecuniary arrangement (e.g., paying for the gas). For larger
vessels, above 100 gross tons, the presence of any paying passenger
prevents the vessel from being characterized as recreational; this is
intended to cover luxury yachts that recover costs by taking paying
passengers onboard. The specified paying passenger thresholds are high
enough to make them likely to be known at the time the vessel is
purchased.
    In the 2003 rule, we revised the definition of recreational vessel,
by adding a reference to the Coast Guard definition. However, the Coast
Guard definition and EPA's definition have different intents. Coast
Guard's requirements are safety related to ensure adequate lifesaving
equipment is onboard a recreational vessel. For example, the Coast
Guard definitions differentiate between charter and noncharter vessels
based on whether vessels are operated with or without a crew. The
intent of EPA's approach is to identify those vessels that are intended
for pleasure as opposed to commercial applications. Thus our definition
needs to rely on features that can be known at the time of manufacture.
For example, by setting a six passenger threshold for small vessels our
intent was to identify those vessels clearly identified by the
manufacturer as being intended for charter use and not used as a
charter either incidentally or unintentionally.
    Since the Coast Guard definitions do not reflect the intent of
EPA's program and are inconsistent with EPA's definitions, we are
revising the definitions to remove the references to the Coast Guard
definitions and reverting back to the original definitions adopted in
1999. While the new definition is being adopted in part 1042, Sec.
94.12(i) of part 94 will allow manufacturers to use this new definition
for certification under part 94. Commercial vessels that were
categorized as recreational prior to that time due to confusion about
the meaning of the definitions will not be affected by the revised
definitions.
(11) Engine Stockpiling by Vessel Builders
    Our existing marine diesel engine program specifies in Sec.
94.1103(a)(5) that it is a prohibited act to introduce into commerce a
new vessel containing an engine not covered by a certificate of
conformity applicable for an engine model year the same as or later
than the calendar year in which the manufacture

of the new vessel is initiated.\169\ However, as an exception, we allow
vessel manufacturers to use up their normal inventory of engines not
certified to new, more stringent emission standards if they were built
before the date on which the new standards apply (subject to
stockpiling prohibitions). With the adoption of the Tier 3 and 4
emission standards, the location of this provision transfers to Sec.
1068.101(a)(1), including the exception noted above, now being located
in Sec.  1068.105(a).
---------------------------------------------------------------------------

    \169\ The manufacture of a vessel is initiated when the keel is
laid, or the vessel is at a similar stage of construction. ``A
similar stage of construction'' means: (1) the stage at which
construction identifiable with a specific vessel begins, and (2)
assembly of that vessel has commenced comprising at least 50 tons or
one percent of the estimated mass of all structural material,
whichever is less.
---------------------------------------------------------------------------

    The normal inventory approach above was developed in response to
traditional business practice in automotive and other industries where
vehicles and equipment are serially manufactured. Although this scheme
works well for most manufacturers of small, serially-produced marine
vessels, its application to manufacturers of large, commercial marine
vessels may not be so straightforward. In this latter case there are
typically long lead-time build schedules and low production volumes,
which translate to vessel manufacturers maintaining lean inventory
onsite at the shipyard. Vessel manufacturers usually order engines from
dealers upon entering into a vessel construction agreement with an end
customer. Due to lengthy build schedules, which for many projects can
be counted in years, and the location of some shipyards in low-lying
coastal areas subject to seasonal flooding, engines are often delivered
and warehoused at the dealers' offsite location until such time as the
vessels are ready to receive them for installation. Especially in
projects where construction agreements involve multiple vessels,
engines for all vessels may be ordered and delivered to the dealer
during the same year in which construction of the first vessel is
initiated. Due to this type of business practice, we will allow vessel
manufacturers to consider as part of their normal inventory those
engines that are warehoused at offsite dealerships and for which the
vessel manufacturer entered into a purchase agreement prior to a change
in applicable emission standards, provided this practice is consistent
with the vessel manufacturers past engine ordering practices. We will
allow this normal inventory of engines to be used up after new emission
standards apply. It should be noted, however, that this clarification
does not extend to engines that are not the subject of a prior purchase
agreement, and would not allow a vessel manufacturer to search for a
previous tier engine among engine dealers to evade the standards. Also,
if a dealer has previous tier engines that are not the subject of a
prior purchase agreement after a new tier of standards goes into
effect, those engines may be used only as replacement engines, subject
to Sec.  1042.615; those engines may not be sold for use in new
vessels.
(12) Other Issues
    Several commenters, including the United States Coast Guard, raised
questions regarding the possibility that advanced aftertreatment based
emission control systems for marine diesel engines may need to be by-
passed or otherwise modified or disabled in order to guarantee safe
operation under emergency conditions. In general terms, the commenters
speculated that the catalyst systems could fail in such a manner as to
restrict exhaust flow reducing engine power and potentially endangering
vessel safety.
    Marine vessels that lose power to a main propulsion engine or
generating engine providing essential power to main propulsion engine
auxiliaries could go adrift with almost no control. Unlike trucks and
locomotives, marine vessels have no brakes and can literally ``coast''
for miles and due to their enormous tonnage have an incredible amount
of momentum and can cause catastrophic damage via collisions,
allisions, and groundings. In the past, main propulsion failures on
marine vessels have resulted in severe loss of life, property, and
damage to the marine environment. Due to this precedent, a loss of main
propulsion is defined as a ``marine casualty or accident'' in 46 CFR
4.03-1(b)(2)(ix) and 46 CFR 4.05-1 requires the occurrence to be
immediately reported to the Coast Guard. To avoid potential loss of
propulsion 46 CFR 58.01-35 effectively requires that main propulsion
auxiliary machinery be provided in duplicate to prevent single point of
failure.
    Our discussions with the engine manufacturers regarding the
technologies they expect to use to comply with the rules we are
finalizing today, lead us to conclude that such failure mechanisms are
extremely unlikely given the robust nature of the technologies.\170\
However, reflecting the high priority everyone places on safety and the
reality that no one can say today with absolute certainty how emission
control systems will be designed in the future, we are continuing
several regulatory provisions that further ensure safe vessel operation
under all circumstances. Consistent with Coast Guard's requirements for
main propulsion auxiliary machinery, we feel these provisions address
the single point of failure concern in the design of emission control
systems.
---------------------------------------------------------------------------

    \170\ We should note here that the standards in our rules are
performance-based rather than a prescription for the application of
a specific technology. Our rules do not prevent a manufacturer from
developing and applying new or different technology at some future
time as long as it meets the performance basis in the rules (e.g., a
0.04 g/kW-hr standard PM).
---------------------------------------------------------------------------

    First, we are continuing our general regulatory requirement found
in Sec.  1042.115(e) stating that a manufacturer may not design engines
with emission-control devices, systems, or elements of design that
cause or contribute to an unreasonable risk to public health, welfare,
or safety while operating. Likewise, our regulations continue to make
clear that actions taken by the operators of marine vessels in order to
respond to a temporary emergency will not be considered tampering under
Sec.  1068.101(b)(1) provided the system is returned to its proper
function as soon as possible. Lastly, in evaluating auxiliary emission
control devices (AECDs) for marine diesel engines we will continue to
recognize that AECDs, such as those that eliminate a single point of
failure, are not defeat devices as defined under Sec.  1042.115(f) if
the AECDs are necessary to prevent engine (or vessel) damage or
accidents. In the case of AECD approval, we will continue our current
practice of reviewing manufacturer certification applications to ensure
that these provisions are only used when necessary. Further, it is our
general expectation that engine manufacturers will provide diagnostic
systems to alert vessel operators when such AECDs are active and if the
AECD requires the operator to take an action, the diagnostic system
should give the vessel operator as much advance warning as reasonably
possible.

V. Costs and Economic Impacts

    In this section, we present the projected cost impacts and cost
effectiveness of the standards, and our analysis of the expected
economic impacts on affected markets. The projected benefits and
benefit-cost analysis are presented in Section VI. The benefit-cost
analysis explores the net yearly economic benefits to society of the
reduction in mobile source emissions expected to be achieved by

this rulemaking. The economic impact analysis explores how the costs of
the rule will likely be shared across the manufacturers and users of
the engines and equipment that will be affected by the standards.
Unless noted otherwise, all costs are in 2005 dollars.
    The annual monetized health benefits of this rule in 2030 will
range from $9.2 and $11 billion, assuming a 3 percent discount rate, or
between $8.4 billion to $10 billion, assuming a 7 percent discount
rate. The social costs of the new standards are estimated to be
approximately $738 million in 2030.\171\ The impact of these costs on
society are estimated to be small, with the prices of rail and marine
transportation services estimated to increase by about 1 percent.
---------------------------------------------------------------------------

    \171\ The estimated 2030 social welfare cost of $738 million is
based on draft compliance costs for this final rule of $740 million
for that year. The final compliance cost estimate for 2030 is
somewhat higher, at $759 million; see section VI.C for an
explanation. This difference is not expected to have an impact on
the results of the market analysis or on the expected distribution
of social costs among stakeholders.
---------------------------------------------------------------------------

    Further information on these and other aspects of the economic
impacts of our final rule are summarized in the following sections and
are presented in more detail in the Final RIA for this rulemaking.

A. Engineering Costs

    The following sections briefly discuss the various engine and
equipment cost elements considered for this cost analysis and present
the total engineering costs we have estimated for this rulemaking; the
reader is referred to Chapter 5 of the final RIA for a complete
discussion of our engineering cost estimates. When referring to
``equipment'' costs throughout this discussion, we mean the locomotive
and/or marine vessel related costs as opposed to costs associated with
the diesel engine being placed into the locomotive or vessel. Estimated
freshly manufactured engine and equipment engineering costs depend
largely on both the size of the piece of equipment and its engine, and
on the technology package being added to the engine to ensure
compliance with the standards. The wide size variation of engines
covered by this program (e.g., small marine engines with less than 37
kW (50 horsepower, or hp) through locomotive and marine C2 engines with
over 3000 kW (4000 hp) and the broad application variation (e.g., small
pleasure crafts through large line haul locomotives and cargo vessels)
that exists in these industries makes it difficult to present an
estimated cost for every possible engine and/or piece of equipment.
Nonetheless, for illustrative purposes, we present some example per
engine/equipment engineering cost impacts throughout this discussion.
This engineering cost analysis is presented in detail in Chapter 5 of
the final RIA.
    Note that the engineering costs here do not reflect changes to the
fuel used to power locomotive and marine engines. Our Nonroad Tier 4
rule (69 FR 38958) controlled the sulfur level in all nonroad fuel,
including that used in locomotives and marine engines. The sulfur level
in the fuel is a critical element of the locomotive and marine program.
However, since the costs of controlling locomotive and marine fuel
sulfur have been considered in our Nonroad Tier 4 rule, they are not
considered here. This analysis considers only those costs associated
with the locomotive and marine program being finalized today. Also, the
engineering costs presented here do not reflect any savings that are
expected to occur because of the engine ABT program and the various
flexibilities included in the program which are discussed in section IV
of this preamble. As discussed there, these program features have the
potential to provide savings for both engine and locomotive/vessel
manufacturers.
(1) Freshly Manufactured Engine and Equipment Variable Engineering
Costs
    Engineering costs for exhaust emission control devices (i.e.,
catalyzed DPFs, SCR systems, and DOCs) were estimated using a
methodology consistent with the one used in our 2007 heavy-duty highway
rulemaking. In that rule, surveys were provided to nine engine
manufacturers seeking information relevant to estimating the
engineering costs for and types of emission-control technologies that
might be enabled with ultra low-sulfur diesel fuel (15 ppm S). The
survey responses were used as the first step in estimating the
engineering costs of advanced emission control technologies anticipated
for meeting the 2007 heavy-duty highway standards. We then built upon
these engineering costs using input from members of the Manufacturers
of Emission Controls Association (MECA). We also used this information
in our recent nonroad Tier 4 (NRT4) rule. Because the anticipated
emission control technologies expected to be used on locomotive and
marine engines are the same as or similar to those expected for highway
and nonroad engines, and because the expected suppliers of the
technologies are the same for these engines, we have used that analysis
as the starting point for estimating the engineering costs of these
technologies in this rule.\172\ Importantly, the analysis summarized
here and detailed in the final RIA takes into account specific
differences between the locomotive and marine products when compared to
on-highway trucks (e.g., engine size).
---------------------------------------------------------------------------

    \172\ ``Economic Analysis of Diesel Aftertreatment System
Changes Made Possible by Reduction of Diesel Fuel Sulfur Content,''
Engine, Fuel, and Emissions Engineering, Incorporated, December 15,
1999, Public Docket No. A-2001-28, Docket Item II-A-76.
---------------------------------------------------------------------------

    Engineering costs of control include variable costs (for new
hardware, its assembly, and associated markups) and fixed costs (for
tooling, research, redesign efforts, and certification). We are
projecting that the Tier 3 standards will be met by optimizing the
engine and emission controls that will exist on locomotive and marine
engines in the Tier 3 timeframe. Therefore, we have estimated no
hardware costs associated with the Tier 3 standards. For the Tier 4
standards, we are projecting that SCR systems and DPFs will be the most
likely technologies used to comply. Upon installation in a new
locomotive or a new marine vessel, these devices would require some new
equipment related hardware in the form of brackets, new sheet metal,
and a reductant storage and delivery system. The annual variable costs
for example years, the PM/NOX split of those engineering
costs, and the net present values that would result are presented in
Table V-1.\173\ As shown, we estimate the net present value for the
years 2006 through 2040 of all variable costs at $1.5 billion using a
three percent discount rate, with $1.3 billion of that being engine-
related variable costs.\174\ Using a seven percent discount rate, these
costs are $674 million and $575 million, respectively.
---------------------------------------------------------------------------

    \173\ The PM/NOX+NMHC cost allocations for variable
costs used in this cost analysis are as follows: SCR systems
including marinization costs on marine applications are 100%
NOX+NMHC; DPF systems including marinization costs on
marine applications are 100% PM; and, equipment hardware costs are
split evenly.
    \174\ Throughout our cost and economic impact analyses, net
present value (NPV) calculations are based on the period 2006-2040,
reflecting the period when the NPRM analysis was completed. This has
the consequence of discounting the current year costs, effectively
2007, and all subsequent years are discounted by an additional year.
The result is a slightly smaller NPV of engineering costs than by
calculating the NPV over 2007-2040 (3% smaller for 3% NPV and 7%
smaller for 7% NPV). The same convention applies for the emission
inventories as shown in Table V-7. We have used 2006 because we
intended to publish the proposal in 2006. For the final analysis, we
have chosen to continue with 2006 to make comparisons between
proposal and final analyses more clear.

                Table V-1.--Freshly Manufactured Engine and Equipment Variable Engineering Costs
                                           [Millions of 2005 dollars]
----------------------------------------------------------------------------------------------------------------
                                      Engine         Equipment
                                     variable        variable     Total variable                     Total for
              Year                  engineering     engineering     engineering    Total for PM      NOX+NMHC
                                       costs           costs           costs
----------------------------------------------------------------------------------------------------------------
2008............................              $0              $0              $0              $0              $0
2009............................              $0              $0              $0              $0              $0
2010............................              $0              $0              $0              $0              $0
2011............................              $0              $0              $0              $0              $0
2012............................              $0              $0              $0              $0              $0
2015............................             $60             $11             $71             $37             $34
2020............................             $82             $14             $96             $50             $46
2030............................             $99             $18            $117             $61             $56
2040............................             $98             $17            $115             $60             $55
NPV at 3%.......................          $1,255            $220          $1,475            $772            $703
NPV at 7%.......................            $575            $100            $674            $353            $321
----------------------------------------------------------------------------------------------------------------

    We can also look at these variable engineering costs on a ``per
engine'' and a ``per piece of equipment'' basis rather than an annual
total basis. Doing so results in the costs summarized in Table V-2. The
costs shown represent the total engine-related and equipment-related
engineering hardware costs associated with all of the new emissions
standards to which the given power range and market segment would need
to comply. For example, a commercial marine engine below 600 kW (805
hp) would need to comply with the Tier 3 standards as its final tier
and would, therefore, incur no new hardware costs. In contrast, a
commercial marine engine over 600 kW is expected to comply with both
Tier 3 and then Tier 4 and would, therefore, incur hardware costs
associated with the Tier 4 standards. The costs also represent long
term costs or those costs after expected learning effects have occurred
and warranty costs have stabilized.
[GRAPHIC] [TIFF OMITTED] TR06MY08.005

(2) Freshly Manufactured Engine and Equipment Fixed Engineering Costs
    Because these technologies are being researched for implementation
in the highway and nonroad markets well before the locomotive and
marine emission standards take effect, and because engine manufacturers
will have had several years complying with the highway and nonroad
standards, we believe that the technologies used to comply with the
locomotive and marine standards will have undergone significant
development before reaching locomotive and marine production, and

we have considered this in estimating the costs for research and
development. Chapter 5 of the final RIA details our approach which
differs from our approach in the draft RIA. We anticipate that engine
manufacturers would introduce a combination of primary technology
upgrades to meet the new emission standards. Achieving very low
NOX emissions requires basic research on NOX
emission-control technologies and improvements in engine management.
There would also have to be some level of tooling expenditures to make
possible the fitting of new hardware on locomotive and marine engines.
We also expect that locomotives and marine vessels being fitted with
Tier 4 engines would have to undergo some level of redesign to
accommodate the aftertreatment devices expected to meet the Tier 4
standards. The total of fixed engineering costs and the net present
values of those costs are shown in Table V-3.\175\ As shown, we have
estimated the net present value for the years 2006 through 2040 of all
fixed engineering costs at $549 million using a three percent discount
rate, with $471 million of that being engine-related research costs.
Using a seven percent discount rate, these costs are $422 million and
$371 million, respectively.
---------------------------------------------------------------------------

    \175\ The PM/NOX+NMHC cost allocations for fixed
costs used in this cost analysis are as follows: Engine research
expenditures are 67% NOX+NMHC and 33% PM; engine tooling
and certification costs are split evenly; and, equipment redesign
costs are split evenly.

                                      Table V-3.--Freshly Manufactured Engine and Equipment Fixed Engineering Costs
                                                               [Millions of 2005 dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Total fixed
                  Year                        Engine      Engine tooling      Engine         Equipment      engineering    Total for PM    Total for NOX
                                             research                      certification     redesign          costs                           +NMHC
--------------------------------------------------------------------------------------------------------------------------------------------------------
2008....................................             $34              $0              $0              $0             $34             $11             $23
2009....................................              34               0               0               0              34              11              23
2010....................................              68               0               0               0              68              23              46
2011....................................             114              19               5               0             138              50              88
2012....................................              80               0               0               0              80              27              54
2015....................................              46              17               1              13              76              30              46
2020....................................               0               0               0               3               3               1               1
2030....................................               0               0               0               3               3               1               1
2040....................................               0               0               0               0               0               0               0
NPV at 3%...............................             471              33               6              39             549             194             354
NPV at 7%...............................             371              24               5              22             422             148             274
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Some of the estimated fixed engineering costs would occur in years
prior to the Tier 3 standards taking affect in 2012. Engine
manufacturers would need to invest in engine tooling and certification
prior to selling engines that meet the standards. Engine research is
expected to begin five years in advance of the standards for which the
research is done. We have estimated some engine research for both the
Tier 3 and Tier 4 standards, although the research associated with the
Tier 4 standards is expected to be higher since it involves work on
aftertreatment devices which only the Tier 4 standards would require.
By 2016, the Tier 4 standards would be fully implemented and engine
research toward the Tier 4 standards would be completed. Similarly,
engine tooling and certification efforts would be completed. We have
estimated that equipment redesign, driven mostly by marine vessel
redesigns, would continue for many years given the nature of the marine
market. Therefore, by 2017 all engine-related fixed engineering costs
would be zero, and by 2033 all equipment-related fixed engineering
costs would be zero.
(3) Freshly Manufactured Engine Operating Costs
    We anticipate an increase in costs associated with operating
locomotives and marine vessels. We anticipate three sources of
increased operating costs: Reductant use; DPF maintenance; and a fuel
consumption impact. Increased operating costs associated with reductant
use would occur only in those locomotives/vessels equipped with a SCR
engine using a reductant like urea. Maintenance costs associated with
the DPF (for periodic cleaning of accumulated ash resulting from
unburned material that accumulates in the DPF) would occur in those
locomotives/vessels that are equipped with a DPF engine. The fuel
consumption impact is anticipated to occur more broadly--we expect that
a one percent fuel consumption increase would occur for all new Tier 4
engines, locomotive and marine, due to higher exhaust backpressure
resulting from aftertreatment devices. These costs and how the fleet
cost estimates were generated are detailed in Chapter 5 of the final
RIA and are summarized in Table V-4.\176\
---------------------------------------------------------------------------

    \176\ The PM/NOX+NMHC cost allocations for operating
costs used in this cost analysis are as follows: Reductant costs are
100% NOX+NMHC; DPF maintenance costs are 100% PM; and,
fuel consumption impacts are split evenly.

                                       Table V-4.--Freshly Manufactured Engine Estimated Increased Operating Costs
                                                               [Millions of 2005 dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Fuel            Total
                          Year                             Reductant use        DPF         consumption      operating     Total for PM      Total for
                                                                            maintenance       impact           costs                         NOX+NMHC
--------------------------------------------------------------------------------------------------------------------------------------------------------
2008....................................................              $0              $0              $0              $0              $0              $0
2009....................................................               0               0               0               0               0               0
2010....................................................               0               0               0               0               0               0
2011....................................................               0               0               0               0               0               0