[Federal Register Volume 82, Number 10 (Tuesday, January 17, 2017)]
[Notices]
[Pages 4867-4873]
[FR Doc No: 2017-00940]

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ENVIRONMENTAL PROTECTION AGENCY

[EPA-HQ-OAR-2016-0017; FRL9958-38-OAR]

California State Motor Vehicle Pollution Control Standards;
Amendments to On-Highway Heavy-Duty Vehicle In-Use Compliance Program,
Amendments to 2007 and Subsequent Model Year On-Highway Heavy-Duty
Engines and Vehicles, and Amendments to Truck Requirements; Notice of
Decision

AGENCY: Environmental Protection Agency.

ACTION: Notice of decision.

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SUMMARY: The Environmental Protection Agency (``EPA'') is granting the
California Air Resources Board's (``CARB's'') request for a waiver of
Clean Air Act preemption for its On-Highway Heavy-Duty Vehicle In-Use
Compliance program (``In-Use Regulation''). EPA is also confirming that
CARB's amendments to its 2007 and Subsequent Model Year On-Highway
Heavy-Duty Engines and Vehicles regulation (``2007 Amendments'') and
CARB's amendments to its Truck Idling requirements (``Truck Idling
Amendments'') are within the scope of previous waivers issued by EPA.
The In-Use Regulation establishes a manufacturer-run in-use compliance
program using portable emission measurement systems (``PEMS''). The
2007 Amendments specify the NOX emission standard for heavy-
and medium-duty diesel engines to two significant figures and provide
manufacturers the option to certify chassis-certified diesel vehicles
within the phase-in compliance provisions of the 2007 and Subsequent
Model Year On-Highway Heavy-Duty Engines and Vehicles regulation. The
Truck Idling Amendments exempt armored cars and workover rigs (a mobile
self-propelled rig used to perform remedial operations on producing oil
or gas wells to restore or increase well production) from the new
engine requirements of the preexisting California Truck Idling
regulation. This decision is issued under the authority of the Clean
Air Act (``CAA'' or ``the Act'').

DATES: Petitions for review must be filed by March 20, 2017.

ADDRESSES: EPA has established a docket for this action under Docket ID
EPA-HQ-OAR-2016-0017. All documents relied upon in making this
decision, including those submitted to EPA by CARB, are contained in
the public docket. Publicly available docket materials are available
either electronically through www.regulations.gov or in hard copy at
the Air and Radiation Docket in the EPA Headquarters Library, EPA West
Building, Room 3334, 1301 Constitution Avenue NW., Washington, DC. The
Public Reading Room is open to the public on all federal government
working days from 8:30 a.m. to 4:30 p.m.; generally, it is open Monday
through Friday, excluding holidays. The telephone number for the
Reading Room is<PHONE_NUMBER>. The Air and Radiation Docket and
Information Center's Web site is http://www.epa.gov/oar/docket.html.
The email address for the Air and Radiation Docket is<EMAIL_ADDRESS>the telephone number is<PHONE_NUMBER>, and the fax
number is<PHONE_NUMBER>. An electronic version of the public docket is
available through the federal government's electronic public docket and
comment system at http://

www.regulations.gov. After opening the www.regulations.gov Web site,
enter EPA-HQ-OAR-2016-0017 in the ``Enter Keyword or ID'' fill-in box
to view documents in the record. Although a part of the official
docket, the public docket does not include Confidential Business
Information (``CBI'') or other information whose disclosure is
restricted by statute.
    EPA's Office of Transportation and Air Quality (``OTAQ'') maintains
a Web page that contains general information on its review of
California waiver and authorization requests. Included on that page are
links to prior waiver Federal Register notices, some of which are cited
in today's notice; the page can be accessed at http://www.epa.gov/otaq/cafr.htm.

FOR FURTHER INFORMATION CONTACT: David Dickinson, Office of
Transportation and Air Quality, U.S. Environmental Protection Agency,
1200 Pennsylvania Ave. NW., Telephone:<PHONE_NUMBER>. Email:
<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

I. Background

    On August 19, 2005, EPA granted California a waiver of preemption
pursuant to section 209(b) of the CAA, 42 U.S.C. 7543(b), for CARB's
amendments to its heavy-duty diesel engine standards for 2007 and
subsequent model year (MY) vehicles and engines and related test
procedures, including not-to-exceed (``NTE'') and supplemental steady-
state tests to determine compliance with applicable standards (``2007
California HDDE standards'').\1\ Those standards apply to all heavy-
duty diesel engines, and align California's standards and test
procedures with corresponding federal standards and test procedures. In
2010 EPA granted California a waiver of preemption for CARB's adoption
of amendments applicable to 2008 and subsequent MY heavy-duty Otto-
cycle engines.\2\ In 2005, CARB adopted truck idling requirements,
including an element whereby new California-certified 2008 and
subsequent MY on-road diesel engines in trucks with a gross vehicle
weight rating (``GVWR'') greater than 14,000 pounds were required to be
equipped with a system that automatically shuts down the engine after
five minutes of continuous idling (``Truck Idling regulation''). In
lieu of the automatic engine shutdown systems, manufacturers are
allowed to optionally certify engines to a NOX idling
emission standard. EPA granted a waiver for the Truck Idling regulation
in 2012.\3\
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    \1\ 70 FR 50322 (August 26, 2005).
    \2\ 75 FR 70237 (November 17, 2010).
    \3\ 77 FR 9239 (February 16, 2012).
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    CARB's In-Use Regulation establishes a manufacturer-run in-use
compliance program that is largely identical to EPA's previously
adopted heavy-duty in-use testing program (``HDIUT program'')
originally adopted in 2005.\4\ The regulation applies to 2007 and
subsequent MY engine-dynamometer certified heavy-duty diesel engines
installed in a motor vehicle with GVWR greater than 8,500 pounds.
CARB's initial In-Use Regulation, adopted in 2006, included
requirements for manufacturers screening test vehicles with portable
emission measurement systems (PEMS) and testing the vehicles by
operating them over typical driving routes, and under the same vehicle
loads and environmental conditions that the vehicles routinely
encounter. The in-use compliance program is comprised of two phases.
The first phase, Phase 1, involves testing a designated engine family
for conformity with the applicable NTE requirements. In the second
phase, if the engine family does not pass the Phase 1 requirements then
testing, under more narrowly defined test conditions, may be required
to target specific noncomplying operating conditions. The initial
regulation incorporated temporary measurement allowances when testing
for compliance using PEMS. In 2007, CARB amended the In-Use Regulation
to set forth new measurement allowances for gaseous emissions.\5\ In
2011, CARB approved additional amendments to the In-Use Requirements to
establish a new particulate matter (``PM'') measurement allowance. EPA
similarly amended its federal HDIUT program in 2010 to incorporate this
same measurement allowance.\6\
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    \4\ 70 FR 34594 (June 14, 2005).
    \5\ See the California Air Resources Board's Waiver Request
Support Document (``Waiver Support Document''), dated December 31,
2015 at EPA-HQ-OAR-2016-0017-0018, at 7-8.
    \6\ Waiver Support Document at 9, citing 75 FR 68448 (November
8, 2010).
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    CARB initially adopted the 2007 California HDDE standards in 2001
to fully align California's NOX emission standards for 2007
and subsequent MY HDDEs and medium-duty diesel engines (``MDDEs'')
certified to ultra-low-emission vehicle (``ULEV'') standards to the
corresponding federal NOX emission standard of 0.20 gram per
brake-horsepower hour (g/bhp-hr) (two significant figures). CARB also
established a more stringent NOX standard for MDDEs
certified to optional ultra-low-emission vehicle (``SULEV'') emission
standards of 0.10 g/bhp-hr). CARB's 2007 Amendments clarify that the
NOX ULEV emission standard for HDDEs is the same as the
federal NOX emission standard of 0.20 g/bhp-hr and amended
the NOX SULEV standard to 0.10 g/bhp-hr (CARB had
inadvertently specified these NOX emission standards to only
one significant figure (0.2 and 0.1 g/bhp-hr r, respectively)). CARB
had also inadvertently failed to include a provision that provided
manufacturers the option to include chassis-certified 2007 through 2009
MY heavy-duty diesel vehicles under 14,000 pounds GVWR within the
phase-in compliance provision of the 2007 HDDE standards. The 2007
Amendments incorporate this optional provision. In addition, the 2007
Amendments incorporate the flexibility provided by EPA in 2006, whereby
manufacturers may apply multiplicative deterioration factors if, based
on good engineering judgment, multiplicative deterioration factors are
more appropriate for a particular engine family (as opposed to an
adjustment by the addition of appropriate deterioration factors).\7\
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    \7\ Id. at 11, citing 71 FR 51481 (August 30, 2006).
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    In 2008 CARB adopted amendments to the new engine requirements
within the Truck Idling regulation to address specific issues regarding
armored cars and workover rigs. Specifically, the Truck Idling
Amendments provide that new 2008 and subsequent MY heavy-duty diesel
engines used in armored cars and workover rigs are exempt from the new
engine idling requirements. In addition, in 2011 CARB provided
additional regulatory clarification of the exemption.\8\
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    \8\ Id.
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    By letter dated January 27, 2016, CARB submitted to EPA a request
for a waiver of the preemption found at section 209(a) of Clean Air
Act, 42 U.S.C. 7543(a), for the In-Use Regulation. CARB's submission
provided analysis and evidence to support its finding that the In-Use
Regulation satisfies the CAA section 209(b) criteria and that a waiver
of preemption should be granted. CARB's request also sought
confirmation that its 2007 Amendments and the Truck Idling Amendments
are within the scope of waivers of preemption previously granted by
EPA.\9\
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    \9\ Id.
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II. Principles Governing This Review

A. Scope of Review

    Section 209(a) of the CAA provides:

    No State or any political subdivision thereof shall adopt or
attempt to enforce any

standard relating to the control of emissions from new motor
vehicles or new motor vehicle engines subject to this part. No State
shall require certification, inspection or any other approval
relating to the control of emissions from any new motor vehicle or
new motor vehicle engine as condition precedent to the initial
retail sale, titling (if any), or registration of such motor
vehicle, motor vehicle engine, or equipment.\10\
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    \10\ CAA Sec.  209(a). 42 U.S.C. 7543(a).

    Section 209(b)(1) of the Act requires the Administrator, after an
opportunity for public hearing, to waive application of the
prohibitions of section 209(a) for any state that has adopted standards
(other than crankcase emission standards) for the control of emissions
from new motor vehicles or new motor vehicle engines prior to March 30,
1966, if the state determines that its state standards will be, in the
aggregate, at least as protective of public health and welfare as
applicable federal standards.\11\ However, no such waiver shall be
granted if the Administrator finds that: (A) The protectiveness
determination of the state is arbitrary and capricious; (B) the state
does not need such state standards to meet compelling and extraordinary
conditions; or (C) such state standards and accompanying enforcement
procedures are not consistent with section 202(a) of the Act.\12\
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    \11\ CAA Sec.  209(b)(1). 42 U.S.C. 7543(b)(1). California is
the only state that meets section 209(b)(1)'s requirement for
obtaining a waiver. See S. Rep. No. 90-403 at 632 (1967).
    \12\ CAA Sec.  209(b)(1). 42 U.S.C. 7543(b)(1).
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    Key principles governing this review are that EPA should limit its
inquiry to the specific findings identified in section 209(b)(1) of the
Clean Air Act, and that EPA will give substantial deference to the
policy judgments California has made in adopting its regulations. In
previous waiver decisions, EPA has stated that Congress intended the
Agency's review of California's decision-making to be narrow. EPA has
rejected arguments that are not specified in the statute as grounds for
denying a waiver:

    The law makes it clear that the waiver requests cannot be denied
unless the specific findings designated in the statute can properly
be made. The issue of whether a proposed California requirement is
likely to result in only marginal improvement in California air
quality not commensurate with its costs or is otherwise an arguably
unwise exercise of regulatory power is not legally pertinent to my
decision under section 209, so long as the California requirement is
consistent with section 202(a) and is more stringent than applicable
Federal requirements in the sense that it may result in some further
reduction in air pollution in California.\13\
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    \13\ ``Waiver of Application of Clean Air Act to California
State Standards,'' 36 FR 17458 (Aug. 31, 1971). Note that the more
stringent standard expressed here, in 1971, was superseded by the
1977 amendments to section 209, which established that California
must determine that its standards are, in the aggregate, at least as
protective of public health and welfare as applicable federal
standards.

    This principle of narrow EPA review has been upheld by the U.S.
Court of Appeals for the District of Columbia Circuit.\14\ ``[T]he
statute does not provide for any probing substantive review of the
California standards by federal officials.'' Ford Motor Co. v. EPA, 606
F.2d 1293, 1300 (D.C. Cir. 1979). Thus, EPA's consideration of all the
evidence submitted concerning a waiver decision is circumscribed by its
relevance to those questions that may be considered under section
209(b)(1).
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    \14\ See, e.g., Motor and Equip. Mfrs Assoc. v. EPA, 627 F.2d
1095 (D.C. Cir. 1979) (``MEMA I'').
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B. Within-the-Scope Determinations

    If California amends regulations that have been previously
authorized by EPA, California may ask EPA to determine that the
amendments are within the scope of the earlier authorization. A within-
the-scope determination for such amendments is permissible without a
full authorization review if three conditions are met. First, the
amended regulations must not undermine California's previous
determination that its standards, in the aggregate, are as protective
of public health and welfare as applicable federal standards. Second,
the amended regulations must not affect consistency with section 209 of
the Act, following the same criteria discussed above in the context of
full authorizations. Third, the amended regulations must not raise any
new issues affecting EPA's prior waiver or authorization decisions.\15\
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    \15\ See ``California State Motor Vehicle Pollution Control
Standards; Amendments Within the Scope of Previous Waiver of Federal
Preemption,'' 46 FR 36742 (July 15, 1981).
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C. Burden and Standard of Proof

    As the U.S. Court of Appeals for the D.C. Circuit has made clear in
MEMA I, opponents of a waiver request by California bear the burden of
showing that the statutory criteria for a denial of the request have
been met:

    [T]he language of the statute and its legislative history
indicate that California's regulations, and California's
determinations that they must comply with the statute, when
presented to the Administrator are presumed to satisfy the waiver
requirements and that the burden of proving otherwise is on whoever
attacks them. California must present its regulations and findings
at the hearing and thereafter the parties opposing the waiver
request bear the burden of persuading the Administrator that the
waiver request should be denied.\16\
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    \16\ MEMA I, note 19, at 1121.

    The Administrator's burden, on the other hand, is to make a
reasonable evaluation of the information in the record in coming to the
waiver decision. As the court in MEMA I stated: ``here, too, if the
Administrator ignores evidence demonstrating that the waiver should not
be granted, or if he seeks to overcome that evidence with unsupported
assumptions of his own, he runs the risk of having his waiver decision
set aside as `arbitrary and capricious.' '' \17\ Therefore, the
Administrator's burden is to act ``reasonably.'' \18\
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    \17\ Id. at 1126.
    \18\ Id. at 1126.
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    With regard to the standard of proof, the court in MEMA I explained
that the Administrator's role in a section 209 proceeding is to:

[. . .]consider all evidence that passes the threshold test of
materiality and . . . thereafter assess such material evidence
against a standard of proof to determine whether the parties
favoring a denial of the waiver have shown that the factual
circumstances exist in which Congress intended a denial of the
waiver.\19\
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    \19\ Id. at 1122.

In that decision, the court considered the standards of proof under
section 209 for the two findings related to granting a waiver for an
``accompanying enforcement procedure.'' Those findings involve: (1)
Whether the enforcement procedures impact California's prior
protectiveness determination for the associated standards, and (2)
whether the procedures are consistent with section 202(a). The
principles set forth by the court are similarly applicable to an EPA
review of a request for a waiver of preemption for a standard. The
court instructed that ``the standard of proof must take account of the
nature of the risk of error involved in any given decision, and it
therefore varies with the finding involved. We need not decide how this
standard operates in every waiver decision.'' \20\
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    \20\ Id.
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    With regard to the protectiveness finding, the court upheld the
Administrator's position that, to deny a waiver, there must be ``clear
and compelling evidence'' to show that proposed enforcement procedures
undermine the protectiveness of California's standards.\21\ The court
noted that this standard of proof also accords with the congressional
intent to provide California with the broadest

possible discretion in setting regulations it finds protective of the
public health and welfare.\22\
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    \21\ Id.
    \22\ Id.
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    With respect to the consistency finding, the court did not
articulate a standard of proof applicable to all proceedings, but found
that the opponents of the waiver were unable to meet their burden of
proof even if the standard were a mere preponderance of the evidence.
Although MEMA I did not explicitly consider the standards of proof
under section 209 concerning a waiver request for ``standards,'' as
compared to a waiver request for accompanying enforcement procedures,
there is nothing in the opinion to suggest that the court's analysis
would not apply with equal force to such determinations. EPA's past
waiver decisions have consistently made clear that: ``[E]ven in the two
areas concededly reserved for Federal judgment by this legislation--the
existence of `compelling and extraordinary' conditions and whether the
standards are technologically feasible--Congress intended that the
standards of EPA review of the State decision to be a narrow one.''
\23\
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    \23\ See, e.g., ``California State Motor Vehicle Pollution
Control Standards; Waiver of Federal Preemption,'' 40 FR 23102 (May
28, 1975), at 23103.
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D. Deference to California

    In previous waiver decisions, EPA has recognized that the intent of
Congress in creating a limited review based on specifically listed
criteria was to ensure that the federal government did not second-guess
state policy choices. As the Agency explained in one prior waiver
decision:

    It is worth noting . . . I would feel constrained to approve a
California approach to the problem which I might also feel unable to
adopt at the federal level in my own capacity as a regulator. . . .
Since a balancing of risks and costs against the potential benefits
from reduced emissions is a central policy decision for any
regulatory agency under the statutory scheme outlined above, I
believe I am required to give very substantial deference to
California's judgments on this score.\24\
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    \24\ 40 FR 23102, 23103-04 (May 28, 1975).

    Similarly, EPA has stated that the text, structure, and history of
the California waiver provision clearly indicate both a congressional
intent and appropriate EPA practice of leaving the decision on
``ambiguous and controversial matters of public policy'' to
California's judgment.\25\ This interpretation is supported by relevant
discussion in the House Committee Report for the 1977 amendments to the
CAA. Congress had the opportunity through the 1977 amendments to
restrict the preexisting waiver provision, but elected instead to
expand California's flexibility to adopt a complete program of motor
vehicle emission controls. The report explains that the amendment is
intended to ratify and strengthen the preexisting California waiver
provision and to affirm the underlying intent of that provision, that
is, to afford California the broadest possible discretion in selecting
the best means to protect the health of its citizens and the public
welfare.\26\
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    \25\ 40 FR 23102, 23104 (May 28, 1975); 58 FR 4166 (January 13,
1993).
    \26\ MEMA I, 627 F.2d at 1110 (citing H.R. Rep. No. 294, 95th
Cong., 1st Sess. 301-02 (1977)).
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E. EPA's Administrative Process in Consideration of California's
Request

    On August 9, 2016, EPA published a notice of opportunity for public
hearing and comment on California's waiver request.\27\ In that notice,
EPA requested comments on whether the 2007 Amendments and the Truck
Idling Amendments, each individually assessed, should be considered
under the within-the-scope analysis or whether they should be
considered under the full waiver criteria. For the In-Use Regulation,
and to the degree the 2007 Amendments or the Truck Idling Amendments
should not be considered under the within-the-scope criteria, EPA
sought comment under the following three criteria: Whether (a)
California's determination that its motor vehicle emissions standards
are, in the aggregate, at least as protective of public health and
welfare as applicable federal standards is arbitrary and capricious,
(b) California needs such State standards to meet compelling and
extraordinary conditions, and (c) California's standards and
accompanying enforcement procedures are consistent with section 202(a)
of the Clean Air Act.
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    \27\ 81 FR 52678 (August 9, 2016).
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    EPA received no comments and no requests for a public hearing.
Consequently, EPA did not hold a public hearing.

III. Discussion

A. Within-the-Scope Analysis

    EPA initially evaluates California's 2007 Amendments and Truck
Idling Amendments by application of our traditional within-the-scope
analysis, as CARB requested. If we determine that CARB's request does
not meet the requirements for a within-the-scope determination, we then
evaluate the request based on a full authorization analysis. In
determining whether amendments can be viewed as within the scope of
previous waivers, EPA looks at whether CARB's revision is either
limited to minor technical amendments to previously waived regulations
or modifying regulations in order to provide additional compliance
flexibility without significantly reducing the overall stringency of
previously waived regulations. The amendments at issue in this request
provide regulatory clarity and corrections, and provide limited
exemptions in order to provide for compliance flexibility
    EPA sought comment on a range of issues, including those applicable
to a within-the-scope analysis as well as those applicable to a full
authorization analysis. No party submitted a comment that California's
2007 Amendments or Truck Idling Amendments require a full authorization
analysis. Given the lack of comments on this issue, and EPA's
assessment of the nature of the amendments, I will evaluate
California's 2007 amendments and Truck Idling Amendments by application
of the traditional within-the-scope analysis, as CARB requested.
    As noted above, EPA can confirm that the amended regulations are
within the scope of a previously granted waiver of preemption if three
conditions are met. First, the amended regulations do not undermine
California's determination that its standards, in the aggregate, are as
protective of public health and welfare as applicable federal
standards. Second, the amended regulations do not affect consistency
with section 202(a) of the Act. Third, the amended regulations do not
raise any ``new issues'' affecting EPA's prior authorizations.

B. Full Authorization Analysis

    CARB's waiver request also included the In-Use Regulation. EPA must
grant a waiver for the In-Use Regulation unless the Administrator
finds: (1) California's determination that its standards will be, in
the aggregate, as protective of public health and welfare as applicable
federal standards is arbitrary and capricious; (2) California does not
need such California standards to meet compelling and extraordinary
conditions; or (3) California's standards and accompanying enforcement
procedures are not consistent with this section.
    EPA's evaluation of the 2007 Amendments, the Truck Idling
Amendments, and the In-use Regulation is set forth below. Because of
the similarity of the within-the-scope criteria and the full waiver
criteria, a discussion of all three sets of respective amendments take
place within each waiver criterion. To the extent that the

criteria are applied uniquely, or that additional criteria apply under
either the within-the-scope analysis or the full waiver analysis, such
application is also addressed below.

C. Whether California's Protectiveness Determination Was Arbitrary and
Capricious

    As stated in the background, section 209(b)(1)(A) of the Act sets
forth the first of the three criteria governing a new waiver request--
whether California was arbitrary and capricious in its determination
that its motor vehicle emissions standards will be, in the aggregate,
at least as protective of public health and welfare as applicable
federal standards. Section 209(b)(1)(A) of the CAA requires EPA to deny
a waiver if the Administrator finds that California's protectiveness
determination was arbitrary and capricious. However, a finding that
California's determination was arbitrary and capricious must be based
upon clear and convincing evidence that California's finding was
unreasonable.\28\
    CARB notes that in its initial adoption and amendments to the In-
Use Regulation in 2006, 2007, and 2011, the CARB Board approved
Resolutions 06-27, 07-56 and 11-19 in which it declared:

    Be it further resolved that the Board hereby determines that the
regulations adopted herein will not cause California motor vehicle
emission standards, in the aggregate, to be less protective of the
public health and welfare than applicable federal standards.\29\
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    \28\ MEMA I, 627 F.2d at 1122, 1124 (``Once California has come
forward with a finding that the procedures it seeks to adopt will
not undermine the protectiveness of its standards, parties opposing
the waiver request must show that this finding is unreasonable.'');
see also 78 FR 2112, at 2121 (January. 9, 2013).
    \29\ Waiver Support Document at 17. See EPA-HQ-OAR-2016-0017-
0027, EPA-HQ-OAR-2016-0017-0047, and EPA-HQ-OAR-2016-0017-0056.

CARB also notes that EPA has previously granted California a waiver for
California's 2007 California HDDE standards (which included the NTE
test procedures), and the addition of the In-Use Regulation will help
ensure that the emission control systems on HDDEs are properly designed
and sufficiently durable to ensure compliance with the emission
requirements during their useful life. CARB further noted that the In-
Use Regulation provisions are ``essentially identical to the
requirements of EPA's corresponding HDIUT program.\30\ CARB also notes
that the 2007 Amendments in no way undermine the stringency of the
underlying exhaust emission standards or the associated test procedures
(which is the criterion under the within-the-scope analysis), but
instead ensure that California's standards remain as, or more
protective than, applicable federal standards.\31\ Similarly, CARB
notes that with regard to the Truck Idling Amendments that EPA's
regulations do not require new heavy-duty diesel engines to be equipped
with idling shutdown systems or to optionally comply with
NOX idling emission standards.\32\
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    \30\ Id.
    \31\ Id. at 21.
    \32\ Id. at 24, citing Resolution 11-19.
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    As it is clear that California's standards are at least as
protective of public health and welfare as applicable federal
standards, and that no evidence is in the record suggesting otherwise
(and EPA is not otherwise aware of any information), I find that
California's respective protectiveness determinations are not arbitrary
and capricious for purposes of the In-Use Regulation, the 2007
Amendments, and the Truck Idling Amendments.

D. Whether the Standards Are Necessary To Meet Compelling and
Extraordinary Conditions

    Section 209(b)(1)(B) instructs that EPA cannot grant a waiver if
the Agency finds that California ``does not need such State standards
to meet compelling and extraordinary conditions.'' EPA's inquiry under
this second criterion has traditionally been to determine whether
California needs its own motor vehicle emission control program (i.e.,
set of standards) to meet compelling and extraordinary conditions, and
not whether the specific standards that are the subject of the waiver
request are necessary to meet such conditions.\33\ In recent waiver
actions, EPA again examined the language of section 209(b)(1)(B) and
reiterated this longstanding traditional interpretation as the better
approach for analyzing the need for ``such State standards'' to meet
``compelling and extraordinary conditions.'' \34\
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    \33\ See California State Motor Vehicle Pollution Control
Standards; Notice of Decision Granting a Waiver of Clean Air Act
Preemption for California's 2009 and Subsequent Model Year
Greenhouse Gas Emission Standards for New Motor Vehicles,'' 74 FR
32744 (July 8, 2009), at 32761; see also ``California State Motor
Vehicle Pollution Control Standards; Waiver of Federal Preemption
Notice of Decision,'' 49 FR 18887 (May 3, 1984), at 18889-18890.
    \34\ See 78 FR 2112, at 2125-26 (Jan. 9, 2013) (``EPA does not
look at whether the specific standards at issue are needed to meet
compelling and extraordinary conditions related to that air
pollutant.''; see also EPA's July 9, 2009 GHG Waiver Decision
wherein EPA rejected the suggested interpretation of section
209(b)(1)(B) as requiring a review of the specific need for
California's new motor vehicle greenhouse gas emission standards as
opposed to the traditional interpretation (need for the motor
vehicle emission program as a whole) applied to local or regional
air pollution problems. See also 79 FR 46256, 46261 (August 7,
2014).
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    In conjunction with the initial adoption and subsequent amendments
of the In-Use Regulation in 2006, 2007, and 2011, respectively (see
Resolutions 06-27, 07-56, and 11-19 noted above), the CARB's Board
confirmed California's longstanding position that California continues
to need its own motor vehicle emission program to meet serious air
pollution problems. CARB notes that the geographical and climatic
conditions and the tremendous growth in vehicle population and use that
moved Congress to authorize California to establish separate vehicle
standards in 1967 still exist today.\35\ ``Nothing in these conditions
has changed to warrant a change in EPA's confirmation, and therefore
there can be no doubt of the continuing existence of compelling and
extraordinary conditions justifying California's need for its own motor
vehicle emissions control program.'' \36\
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    \35\ Waiver Support Request Support Document at 18.
    \36\ Id.
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    There has been no evidence submitted to indicate that California's
compelling and extraordinary conditions do not continue to exist.
California, particularly in the South Coast and San Joaquin Valley air
basins, continues to experience some of the worst air quality in the
nation, and many areas in California continue to be in non-attainment
with national ambient air quality standards for fine particulate matter
and ozone.\37\ As California has previously stated, ``nothing in
[California's unique geographic and climatic] conditions has changed to
warrant a change in this determination.'' \38\
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    \37\ 74 FR 32744, 32762-63 (July 8, 2009), 76 FR 77515, 77518
(December 13, 2011), 81 FR 95982 (December 29, 2016). EPA
continually evaluates the air quality conditions in the United
States, including California. California continues to experience
some of the worst air quality in the country and continues to be in
nonattainment with National Ambient Air Quality Standards for fine
particulate matter and ozone, see ``Notice of Availability of the
Environmental Protection Agency's Preliminary Interstate Ozone
Transport Modeling Data for the 2015 Ozone National Ambient Air
Quality Standard (NAAQS)'' at EPA-HQ-OAR-2016-0751.
    \38\ Id.
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    Based on the record before us, including EPA's prior waiver
decisions, I am unable to identify any change in circumstances or
evidence to suggest that the conditions that Congress identified as
giving rise to serious air quality problems in California no longer
exist. Therefore, EPA cannot find that California does not need its
state standards, including its In-Use

Regulation, to meet compelling and extraordinary conditions in
California.

E. Consistency With Section 202(a)

    For the third and final criterion, EPA evaluates the program for
consistency with section 202(a) of the CAA. Under section 209(b)(1)(C)
of the CAA, EPA must deny California's waiver request if EPA finds that
California's standards and accompanying enforcement procedures are not
consistent with section 202(a). Section 202(a) requires that
regulations ``shall take effect after such period as the Administrator
finds necessary to permit the development and application of the
relevant technology, considering the cost of compliance within that
time.''
    EPA has previously stated that the determination is limited to
whether those opposed to the waiver have met their burden of
establishing that California's standards are technologically
infeasible, or that California's test procedures impose requirements
inconsistent with the federal test procedure. Infeasibility would be
shown here by demonstrating that there is inadequate lead time to
permit the development of technology necessary to meet the In-Use
Amendments, the 2007 Amendments, or the Truck Idling Amendments that
are the subject of the waiver request, giving appropriate consideration
to the cost of compliance within that time.\39\ California's
accompanying enforcement procedures would also be inconsistent with
section 202(a) if the federal and California test procedures
conflicted, i.e., if manufacturers would be unable to meet both the
California and federal test requirements with the same test
vehicle.\40\
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    \39\ See, e.g., 38 FR 30136 (November 1, 1973) and 40 FR 30311
(July 18, 1975).
    \40\ See, e.g., 43 FR 32182 (July 25, 1978).
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    Regarding test procedure conflict, CARB notes both EPA and CARB
utilize essentially identical test procedures in certifying 2007 and
subsequent MY heavy-duty engines and that the 2007 Amendments also do
not preclude manufacturers from conducting one set of tests on a heavy-
duty engines or vehicle to determine compliance with both the
California and federal requirements.\41\ For the reasons set forth
above, and because there is no evidence in the record or other
information that EPA is aware of, I cannot find that CARB's In-Use
Compliance Regulation, 2007 Amendments, and Truck Idling Amendments are
inconsistent with section 202(a) based upon test procedure
inconsistency.
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    \41\ Id. at 20, 22.
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    In addition, EPA did not receive any comments arguing that the
CARB's In-Use Regulation, 2007 Amendments, and Truck Idling Amendments
were technologically infeasible or that the cost of compliance would be
excessive, such that California's standards might be inconsistent with
section 202(a).\42\ In EPA's review of CARB's In-Use Regulation, I find
that CARB's statements about the capability of PEMS technology to
measure gaseous pollutants as well as PM emissions is accurate.\43\
With regard to the 2007 Amendments, I find that the amendments do not
raise any new issues regarding technological feasibility given that the
amendments regarding how the NOX standard is expressed is a
regulatory clarification and the amendment regarding the new option for
certain chassis-certified 2007 through 2009 model year heavy-duty
vehicles provides additional compliance flexibility. Similarly, the
Truck Idling Amendments merely provide compliance flexibility to a
previously waived program by setting forth limited compliance
exemptions (i.e., the exemptions for armored vehicles and workover
rigs).
---------------------------------------------------------------------------

    \42\ See, e.g., 78 FR 2134 (January 9, 2013), 47 FR 7306, 7309
(February 18, 1982), 43 FR 25735 (June 17, 1978), and 46 FR 26371,
26373 (May 12, 1981).
    \43\ Waiver Support Document at 19 (CARB explains that several
PEMS capable of measuring gaseous emissions are commercially
available and that the further development needed (at the time of
CARB's initial adoption of the In-Use Regulation) for PM emissions
monitoring by PEMS has been resolved.
---------------------------------------------------------------------------

    I therefore cannot find that California standards, which include
the CARB's In-Use Regulation, 2007 Amendments, and Truck Idling
Amendments are inconsistent with section 202(a).

F. New Issues

    EPA has stated in the past that if California promulgates
amendments that raise new issues affecting previously granted waivers,
we would not confirm that those amendments are within the scope of
previous waivers.\44\ I do not believe that either the 2007 Amendments
or the Truck Idling Amendments raise any new issues with respect to our
prior waivers governing their underlying regulations. Moreover, EPA did
not receive any comments that CARB's 2007 Amendments or Truck Idling
Amendments raised new issues affecting the previously granted waivers.
Therefore, I cannot find that CARB's 2007 Amendments and Truck Idling
Amendments raise new issues and consequently, cannot deny CARB's
within-the-scope requests based on this criterion.
---------------------------------------------------------------------------

    \44\ See, e.g., 78 FR 38970 (June 28, 2013), 75 FR 8056
(February 23, 2010), and 70 FR 22034 (April 28, 2005).
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IV. Decision

    After evaluating CARB's In-Use Regulation and CARB's submissions
for EPA review, I am hereby granting a waiver for the In-Use
Regulation. After evaluating CARB's 2007 Amendments and Truck Idling
Amendments and CARB's submissions for EPA review, I am hereby
confirming that such amendments are within the scope of prior EPA
waivers.
    This decision will affect persons in California and those
manufacturers and/or owners/operators nationwide who must comply with
California's requirements. In addition, because other states may adopt
California's standards for which a section 209(b) waiver has been
granted under section 177 of the Act if certain criteria are met, this
decision would also affect those states and those persons in such
states. For these reasons, EPA determines and finds that this is a
final action of national applicability, and also a final action of
nationwide scope or effect for purposes of section 307(b)(1) of the
Act. Pursuant to section 307(b)(1) of the Act, judicial review of this
final action may be sought only in the United States Court of Appeals
for the District of Columbia Circuit. Petitions for review must be
filed by March 20, 2017. Judicial review of this final action may not
be obtained in subsequent enforcement proceedings, pursuant to section
307(b)(2) of the Act.

V. Statutory and Executive Order Reviews

    As with past waiver and authorization decisions, this action is not
a rule as defined by Executive Order 12866. Therefore, it is exempt
from review by the Office of Management and Budget as required for
rules and regulations by Executive Order 12866.
    In addition, this action is not a rule as defined in the Regulatory
Flexibility Act, 5 U.S.C. 601(2). Therefore, EPA has not prepared a
supporting regulatory flexibility analysis addressing the impact of
this action on small business entities.
    Further, the Congressional Review Act, 5 U.S.C. 801, et seq., as
added by the Small Business Regulatory Enforcement Fairness Act of
1996, does not apply because this action is not a rule for purposes of
5 U.S.C. 804(3).

    Dated: January 9, 2017.
Gina McCarthy,
Administrator.
[FR Doc. 2017-00940 Filed 1-13-17; 8:45 am]
 BILLING CODE 6560-50-P


[Federal Register Volume 82, Number 37 (Monday, February 27, 2017)]
[Notices]
[Pages 11956-11957]
[FR Doc No: 2017-03742]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. IC-32484; 812-14656]

Morgan Stanley ETF Trust, et al.; Notice of Application

February 21, 2017.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1
under the Act, under sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and 17(a)(2) of the Act, and under
section 12(d)(1)(J) for an exemption from sections 12(d)(1)(A) and
12(d)(1)(B) of the Act. The requested order would permit (a) index-
based series of certain open-end management investment companies
(``Funds'') to issue shares redeemable in large aggregations
(``Creation Units''); (b) secondary market transactions in Fund shares
to occur at negotiated market prices rather than at net asset value
(``NAV''); (c) certain Funds to pay redemption proceeds, under certain
circumstances, more than seven days after the tender of shares for
redemption; (d) certain affiliated persons of a Fund to deposit
securities into, and receive securities from, the Fund in connection
with the purchase and redemption of Creation Units; (e) certain
registered management investment companies and unit investment trusts
outside of the same group of investment companies as the Funds (``Funds
of Funds'') to acquire shares of the Funds; (f) certain Funds (``Feeder
Funds'') to create and redeem Creation Units in-kind in a master-feeder
structure; and (g) certain Funds to issue Shares in less than Creation
Unit size to investors participating in a distribution reinvestment
program.

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Applicants: Morgan Stanley ETF Trust (the ``Trust''), a Delaware
statutory trust, which will register under the Act as an open-end
management investment company with multiple series, Morgan Stanley
Investment Management Inc. (the ``Initial Adviser''), a Delaware
corporation registered as an investment adviser under the Investment
Advisers Act of 1940, and Morgan Stanley Distribution, Inc. (the
``Distributor''), a Pennsylvania corporation and broker-dealer
registered under the Securities Exchange Act of 1934 (``Exchange
Act'').

Filing Dates: The application was filed on June 3, 2016 and amended on
November 7, 2016.

Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on March 20, 2017, and should be accompanied by proof of
service on applicants, in the form of an affidavit, or for lawyers, a
certificate of service. Pursuant to rule 0-5 under the Act, hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the
Commission's Secretary.

ADDRESSES: Brent J. Fields, Secretary, Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090; Applicants:
Morgan Stanley Investment Management Inc., 522 Fifth Avenue, New York,
New York 10036.

FOR FURTHER INFORMATION CONTACT: Erin C. Loomis, Senior Counsel, at
(202) 551-6721, or Parisa Haghshenas, Branch Chief at<PHONE_NUMBER>
(Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION:  The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or for an
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling<PHONE_NUMBER>.

Summary of the Application

    1. Applicants request an order that would allow Funds to operate as
index exchange traded funds (``ETFs'').\1\ Fund shares will be
purchased and redeemed at their NAV in Creation Units (other than
pursuant to a distribution reinvestment program), as described in the
application. All orders to purchase Creation Units and all redemption
requests will be placed by or through an ``Authorized Participant'',
which will have signed a participant agreement with the Distributor.
Shares will be listed and traded individually on a national securities
exchange, where share prices will be based on the current bid/offer
market. Certain Funds may operate as Feeder Funds in a master-feeder
structure. Any order granting the requested relief would be subject to
the terms and conditions stated in the application.
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    \1\ Applicants request that the order apply to the initial fund
and any additional series of the Trust, and any other existing or
future open-end management investment company or existing or future
series thereof (each, included in the term ``Fund''), each of which
will operate as an ETF and will track a specified index comprised of
domestic and/or foreign equity securities and/or domestic and/or
foreign fixed income securities (each, an ``Underlying Index''). Any
Fund will (a) be advised by the Initial Adviser or an entity
controlling, controlled by, or under common control with the Initial
Adviser (each, an ``Adviser'') and (b) comply with the terms and
conditions of the application.
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    2. Each Fund will hold investment positions selected to correspond
closely to the performance of an Underlying Index. In the case of Self-
Indexing Funds, an affiliated person, as defined in section 2(a)(3) of
the Act (``Affiliated Person''), or an affiliated person of an
Affiliated Person (``Second-Tier Affiliate''), of the Trust or a Fund,
of the Adviser, of any sub-adviser to or promoter of a Fund, or of the
Distributor will compile, create, sponsor or maintain the Underlying
Index.\2\
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    \2\ Each Self-Indexing Fund will post on its Web site the
identities and quantities of the investment positions that will form
the basis for the Fund's calculation of its NAV at the end of the
day. Applicants believe that requiring Self-Indexing Funds to
maintain full portfolio transparency will help address, together
with other protections, conflicts of interest with respect to such
Funds.
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    3. Shares will be purchased and redeemed in Creation Units and
generally on an in-kind basis, or issued in less than Creation Unit
size to investors participating in a distribution reinvestment program.
Except where the purchase or redemption will include cash under the
limited circumstances specified in the application, purchasers will be
required to purchase Creation Units by depositing specified instruments
(``Deposit Instruments''), and shareholders redeeming their shares will
receive specified instruments (``Redemption Instruments''). The Deposit
Instruments and the Redemption Instruments will each

correspond pro rata to the positions in the Fund's portfolio (including
cash positions) except as specified in the application.
    4. Because shares will not be individually redeemable, applicants
request an exemption from Section 5(a)(1) and Section 2(a)(32) of the
Act that would permit the Funds to register as open-end management
investment companies and issue shares that are redeemable in Creation
Units (other than pursuant to a dividend reinvestment program).
    5. Applicants also request an exemption from section 22(d) of the
Act and rule 22c-1 under the Act as secondary market trading in shares
will take place at negotiated prices, not at a current offering price
described in a Fund's prospectus, and not at a price based on NAV.
Applicants state that (a) secondary market trading in shares does not
involve a Fund as a party and will not result in dilution of an
investment in shares, and (b) to the extent different prices exist
during a given trading day, or from day to day, such variances occur as
a result of third-party market forces, such as supply and demand.
Therefore, applicants assert that secondary market transactions in
shares will not lead to discrimination or preferential treatment among
purchasers. Finally, applicants represent that share market prices will
be disciplined by arbitrage opportunities, which should prevent shares
from trading at a material discount or premium from NAV.
    6. With respect to Funds that effect creations and redemptions of
Creation Units in kind and that are based on certain Underlying Indexes
that include foreign securities, applicants request relief from the
requirement imposed by section 22(e) in order to allow such Funds to
pay redemption proceeds within fifteen calendar days following the
tender of Creation Units for redemption. Applicants assert that the
requested relief would not be inconsistent with the spirit and intent
of section 22(e) to prevent unreasonable, undisclosed or unforeseen
delays in the actual payment of redemption proceeds.
    7. Applicants request an exemption to permit Funds of Funds to
acquire Fund shares beyond the limits of section 12(d)(1)(A) of the
Act; and the Funds, and any principal underwriter for the Funds, and/or
any broker or dealer registered under the Exchange Act, to sell shares
to Funds of Funds beyond the limits of section 12(d)(1)(B) of the Act.
The application's terms and conditions are designed to, among other
things, help prevent any potential (i) undue influence over a Fund
through control or voting power, or in connection with certain
services, transactions, and underwritings, (ii) excessive layering of
fees, and (iii) overly complex fund structures, which are the concerns
underlying the limits in sections 12(d)(1)(A) and (B) of the Act.
    8. Applicants request an exemption from sections 17(a)(1) and
17(a)(2) of the Act to permit persons that are Affiliated Persons, or
Second Tier Affiliates, of the Funds, solely by virtue of certain
ownership interests, to effectuate purchases and redemptions in-kind.
The deposit procedures for in-kind purchases of Creation Units and the
redemption procedures for in-kind redemptions of Creation Units will be
the same for all purchases and redemptions and Deposit Instrument and
Redemption Instruments will be valued in the same manner as those
investment positions currently held by the Funds. Applicants also seek
relief from the prohibitions on affiliated transactions in section
17(a) to permit a Fund to sell its shares to and redeem its shares from
a Fund of Funds, and to engage in the accompanying in-kind transactions
with the Fund of Funds.\3\ The purchase of Creation Units by a Fund of
Funds directly from a Fund will be accomplished in accordance with the
policies of the Fund of Funds and will be based on the NAVs of the
Funds.
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    \3\ The requested relief would apply to direct sales of shares
in Creation Units by a Fund to a Fund of Funds and redemptions of
those shares. Applicants, moreover, are not seeking relief from
section 17(a) for, and the requested relief will not apply to,
transactions where a Fund could be deemed an Affiliated Person, or a
Second-Tier Affiliate, of a Fund of Funds because an Adviser or an
entity controlling, controlled by or under common control with an
Adviser provides investment advisory services to that Fund of Funds.
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    9. Applicants also request relief to permit a Feeder Fund to
acquire shares of another registered investment company managed by the
Adviser having substantially the same investment objectives as the
Feeder Fund (``Master Fund'') beyond the limitations in section
12(d)(1)(A) and permit the Master Fund, and any principal underwriter
for the Master Fund, to sell shares of the Master Fund to the Feeder
Fund beyond the limitations in section 12(d)(1)(B).
    10. Section 6(c) of the Act permits the Commission to exempt any
persons or transactions from any provision of the Act if such exemption
is necessary or appropriate in the public interest and consistent with
the protection of investors and the purposes fairly intended by the
policy and provisions of the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may exempt any person, security, or
transaction, or any class or classes of persons, securities, or
transactions, from any provision of section 12(d)(1) if the exemption
is consistent with the public interest and the protection of investors.
Section 17(b) of the Act authorizes the Commission to grant an order
permitting a transaction otherwise prohibited by section 17(a) if it
finds that (a) the terms of the proposed transaction are fair and
reasonable and do not involve overreaching on the part of any person
concerned; (b) the proposed transaction is consistent with the policies
of each registered investment company involved; and (c) the proposed
transaction is consistent with the general purposes of the Act.

    For the Commission, by the Division of Investment Management,
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-03742 Filed 2-24-17; 8:45 am]
 BILLING CODE 8011-01-P