DRAFT 4/ 8/ 04 DRAFT 1 ENVIRONMENTAL PROTECTION AGENCY 40 CFR Parts 85 and 86 [ AMS FRL 7250 1]

RIN 0000 A000 Motor Vehicle and Engine Compliance Program Fees for: Light Duty Vehicles; Light Duty Trucks; Heavy Duty Vehicles and Engines; Nonroad Engines; and Motorcycles AGENCY: Environmental Protection Agency ( EPA).

ACTION: Final Rule.

SUMMARY: This final rule updates the Motor Vehicle and Engine Compliance Program ( MVECP) fees regulation promulgated in 1992 under which the Agency collects fees for certain Clean Air Act ( CAA) compliance programs administered by EPA including those for light duty vehicles and trucks, heavy duty highway vehicles and engines, and highway motorcycles. Today's action updates existing fees to reflect the increased costs of administering these compliance programs since the initial 1992 rulemaking. EPA is also adding a fee program for similar compliance programs for certain nonroad engines and vehicles for which emission standards have been finalized.

DATES: This final rule takes effect on [ Insert date 60 days after publication in the Federal Register].

ADDRESSES: All comments and materials relevant to this rulemaking are contained in EPA's Air Docket ID Number OAR 2003 0111 ( note that this is a change from the original docket number A 2001 09) at the following address: EPA Docket Center ( EPA/ DC), Public Reading Room, Room B102, EPA West Building, 1301 Constitution Avenue, NW, Washington, DC, 20460. The EPA Docket Center Public Reading Room is open from 8: 30 a. m. to 4: 30 p. m., Monday through Friday, except on government holidays. You can reach the Reading Room by telephone at ( 202) 566 1742, and by facsimile at ( 202) 566 1741. The telephone number for the Air Docket is ( 202) 566 1742. You may be charged a reasonable fee for photocopying docket materials, as provided in 40 CFR part 2.

FOR FURTHER INFORMATION CONTACT: Lynn Sohacki, Certification and Compliance Division, U. S. Environmental Protection Agency, 2000 Traverwood, Ann Arbor, Michigan 48105, Telephone 734 214 4851, Internet e mail DRAFT 4/ 8/ 04 DRAFT 2 " sohacki. lynn@ epa. gov," or Trina D. Vallion, 734 214 4449, Internet e mail " vallion. trina@ epa. gov."

SUPPLEMENTARY INFORMATION:

Regulated Entities Entities regulated by this rule are those which manufacture or seek certification (" manufacturer" or " manufacturers") of new motor vehicles and engines ( including both highway and nonroad). The table below shows the category, North American Industry Classification System ( NAICS) Codes, Standard Industrial Classification ( SIC) Codes and examples of the regulated entities: DRAFT 4/ 8/ 04 DRAFT 3 Category NAICS Codes ( 1) SIC Codes ( 2) Examples of Potentially Regulated Entities Industry 333111 3523 Farm Machinery and Equipment Manufacturing Industry 333112 3524 Lawn and Garden Tractor and Home Lawn and Garden Equipment Manufacturing Industry 333120 3531 Construction Machinery Manufacturing Industry 333131 3532 Mining Machinery and Equipment Manufacturing Industry 333132 3533 Oil & Gas Field Machinery Industry 333210 3553 Sawmill & Woodworking Machinery Industry 333924 3537 Industrial Truck, Tractor, Trailer, and Stacker Machinery Manufacturing Industry 333991 3546 Power Driven Handtool Manufacturing Industry 336111 3711 Automotive and Light Duty Motor Vehicle Manufacturing Industry 336120 3711 Heavy duty Truck Manufacturing Industry 336213 3716 Motor Home Manufacturing Industry 336311 3592 Motor Vehicle Gasoline Engine and Engine Parts Manufacturing Industry 336312 3714 Gasoline Engine & Engine Parts Manufacturing Industry 336991 3751 Motorcycle, Bicycle, and Parts Manufacturing Industry 336211 3711 Motor Vehicle Body Manufacturing Industry 333618 3519 Gasoline, Diesel & dual fuel engine Manufacturing Industry 811310 7699 Commercial & Industrial Engine Repair and Maintenance Industry 336999 3799 Other Transportation Equipment Manufacturing Industry 421110  Independent Commercial Importers of Vehicles and Parts Industry 333612 3566 Speed Changer, Industrial High speed Drive and Gear Manufacturing Industry 333613 3568 Mechanical Power Transmission Equipment Manufacturing Industry 333618 3519 Other Engine Equipment Manufacturing DRAFT 4/ 8/ 04 DRAFT 4 ( 1) North American Industry Classification System ( NAICS)

( 2) Standard Industrial Classification ( SIC) system code.

This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities EPA is now aware could potentially be regulated by this action. Other types of entities not listed in the table could also be regulated. To determine whether your product would be regulated by this action, you should carefully examine the applicability criteria in title 40 of the Code of Federal Regulations, Parts 86, 89, 90, 91, 92 and 94; also Parts 1048 and 1051 when those Parts are finalized. If you have questions regarding the applicability of this action to a particular product, consult the person listed in the preceding FOR FURTHER INFORMATION CONTACT section.

Obtaining Rulemaking Documents Through the Internet:

Electronic Access. You may access this Federal Register document electronically through the EPA Internet under the " Federal Register" listings at http:// www. epa. gov/ fedrgstr/.}

An electronic version of the public docket is available through EPA's electronic public docket and comment system, EPA Dockets. You may use EPA Dockets at http:// www. epa. gov/ edocket/ to view public comments, access the index listing of the contents of the official public docket, and to access those documents in the public docket that are available electronically. Once in the system, select " search," then key in the docket identification number: OAR 2003 0111.

The preamble, regulatory language and regulatory support documents are also available electronically from the EPA Internet Web site. This service is free of charge. The official EPA version is made available on the day of publication on the primary Web site listed below. The EPA Office of Transportation and Air Quality also publishes these notices on the secondary Web site listed below.

( 1) http:// www. epa. gov/ docs/ fedrgstr/ EPA AIR/

( either select desired date or use Search feature)

( 2) http:// www. epa. gov/ OTAQ/

( look in " What's New" or under the specific rulemaking topic) DRAFT 4/ 8/ 04 DRAFT 5 Please note that due to differences between the software used to develop the document and the software into which the document may be downloaded, changes in format, page length, etc. may occur.

Table of Contents I. Introduction II. What are the Requirements of This Final Rule?

A. What is the Finalized Fee Schedule?

B. Will the Fees Automatically Adjust to Reflect Future Inflation?

C. Will Fees Change to Reflect Changes in the Number of Certificates?

D. What is the Procedure for Paying Fees?

E. What is the Implementation Schedule for the New Fees?

F. What are the Reduced Fees Provisions?

G. What is the Finalized Policy for Refunds and Final Fee Payments?

III. What Are the Changes Made to the Proposed Cost Analysis?

A. Will There Be Fees for Yet to be Regulated Industries?

B. Is There a Change in Costs for Heavy duty Highway and Nonroad CI Engines from the Proposal?

C. Is There a Change in the Number of Certificates?

D. Indirect Changes IV. What Were the Opportunities for Public Participation?

V. What Were the Major Comments Received on the Proposed Rule?

A. Legal Authority B. Assessment of Costs C. Cost Study D. Automatic Adjustment of Fees E. Effective Date and Application of New Fees F. Reduced Fees G. ICI Issues H. Other Topics VI. What Is the Economic Impact of this Rule?

VII. What are the Administrative Requirements for this Rule?

A. Executive Order 12866: Regulatory Planning and Review B. Paperwork Reduction Act DRAFT 4/ 8/ 04 DRAFT 6 C. Regulatory Flexibility Act ( RFA), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 ( SBREFA), 5 USC 601 et. seq D. Unfunded Mandates Reform Act E. Executive Order 13132: Federalism F. Executive Order 13175: Consultation and Coordination with Indian Tribal Governments G. Executive Order 13045: Children's Health Protection H. Executive Order 13211: Energy Effects I. National Technology Transfer and Advancement Act J. Congressional Review Act I. Introduction Since 1992, EPA has assessed fees for the motor vehicle emissions compliance program ( MVECP). Since the initial MVECP fees regulation, EPA has incurred additional costs and will continue to incur costs in administering the light duty and heavyduty compliance programs for motor vehicles and engines, and new compliance programs for nonroad vehicles and engines. Today's final rule updates the MVECP fee provisions to reflect these changes.

Today's final rule establishes fees under the authority of section 217 of the Clean Air Act ( CAA) and the Independent Offices Appropriation Act ( IOAA) ( 31 U. S. C. 9701) to ensure that the MVECP is self sustaining to the extent possible. The services provided by EPA are described in the section II. B. of the Notice of Proposed Rulemaking ( NRPM) ( 67 FR 51402.) Because of comments received EPA has adjusted the fees collected per certificate for some industry categories and thus EPA has created several new worksheets and a further explanation of the changes in the worksheets and added this to the cost analysis that EPA conducted to determine the fees for the NPRM and this addition is available in Docket OAR 2003 0111.

On September 19, 2002, EPA held a public hearing concerning the proposed regulations. Comments from that hearing and written comments are included in the public docket. Today's final rule addresses comments received both before and after the close of the public comment period. A discussion of certain comments received is contained in section V below. You may also want to review the Response to Comments document in the Docket OAR 2003 0111 which contains a detailed discussion of many topics raised in this preamble and other comments received and EPA's responses. DRAFT 4/ 8/ 04 DRAFT 1 A spark ignition engine is an engine that uses a spark source, such as a spark plug, to initiate combustion in the combustion chamber. Examples of fuels used in spark ignition engines are: gasoline, compressed natural gas, liquid petroleum gas and alcohol based fuels.

2 A compression ignition engine is an engine that uses compression to initiate combustion in the combustion chamber. Diesel fuel is an examples of a fuel used in compression ignition engines.

7 II. What are the Requirements of This Final Rule?

EPA is adopting as final its proposed rule with a few changes. The most significant changes are pointed out in sections II. A through II. G below. Additional changes are listed in section III. A more detailed discussion of the comments received is in the Response to Comments Document in the docket for this rule.

A. What is the Finalized Fee Schedule?

The following table indicates fees for light duty vehicles ( LD), medium duty passenger vehicles ( MDPV), complete spark ignition1 heavy duty vehicles ( SI HDV), motorcycles ( MC), heavy duty engines ( HDE), nonroad compression ignition2 ( NR CI) engines , nonroad spark ignition ( NR SI) engines, marine engines ( excluding inboard and sterndrive engines), nonroad recreational vehicles and engines, and locomotives. The table distinguishes fees for vehicles and engines that are imported by independent commercial importers ( ICIs) and also distinguishes vehicles and engines certified for highway ( HW) and nonroad ( NR) use. The following is the final fee schedule for each certification request: DRAFT 4/ 8/ 04 DRAFT 8 Table II. A 1 Fee Schedule Category Certificate Typea Fee LD, excluding ICIs Fed Certificate $ 33,883 LD, excluding ICIs Cal only Certificate $ 16,944 MDPV, excluding ICIs Fed Certificate $ 33,883 MDPV, excluding ICIs Cal only Certificate $ 16,944 Complete SI HDVs, excluding ICIs Fed Certificate $ 33,883 Complete SI HDVs, excluding ICIs Cal only Certificate $ 16,944 ICIs for the following industries:

LD, MDPV, or Complete SI HDVs All Types $ 8,387 MC ( HW), including ICIs All Types $ 2,414 HDE ( HW), including ICIs Fed Certificate $ 21,578 HDE ( HW), including ICIs Cal only Certificate $ 826 HDV ( evap), including ICIs Evap Certificate $ 826 NR CI engines, including ICIs, but excluding Locomotives, Marine and Recreational engines. All Types $ 1,822 NR SI engines, including ICIs All Types $ 826 Marine engines, excluding inboard & sterndrive engines, including ICIs All Types and Annex VI $ 826 All NR Recreationalb, including ICIs, but excluding marine engines. All Types $ 826 Locomotives, including ICIs All Types $ 826 ( a) Fed and Cal only Certificate and Annex VI are defined in 40 CFR 85.2403 ( b) Recreational means the engines subject to 40 CFR 1051 which includes off road motorcycles, DRAFT 4/ 8/ 04 DRAFT 3 The light duty category is divided into subcategories, Cert/ FE and In use.

9 all terrain vehicles and snowmobiles This fee schedule will change in calendar year 2006 when the fees will be adjusted for inflation and to reflect changes in the number of certificates issued as explained in sections II. B and C.

B. Will the Fees Automatically Adjust to Reflect Future Inflation?

By function of today's rule fees will be automatically adjusted on a calendar year basis to reflect inflation. A formula created by today's rule will determine the fees each year by applying any change in the consumer price index ( CPI) to EPA's labor costs. The formula that will be used by EPA to determine the total cost for each fee category and subcategory3 is:

Category Fee cy= [ F + ( L* ( CPI CY 2/ CPI 2002))] * 1.169 Category Feecy = Fee per category for the calendar year of the fees to be collected.

F= Fixed costs within a category or subcategory.

L= Labor costs within a category or subcategory.

CPI CY 2 = the consumer price index for all United States ( U. S.) cities using the " U. S. city average" area , " all items" and " not seasonally adjusted" numbers calculated by the Department of Labor listed for the month of November of the year two years before the calendar year ( CY). ( e. g., for the 2006 CY use the CPI based on the date of November , 2004).

CPI 2002 = the consumer price index for all U. S. cities using the " U. S. city average" area , " all items" and " not seasonally adjusted" numbers calculated by the Department of Labor for December, 2002. The actual value for CPI 2002 is 180.9.

1.169 = Adds overall EPA overhead which is applied to all costs The LD category has been split into Cert/ FE and In use subcategories because not all LD certificates require direct EPA In use services. The costs were totaled from the labor and fixed costs of worksheets # 3 and # 4 of the Cost Analysis. The values of EPA's labor and fixed costs for the ICI, motorcycle, heavy duty highway engines, nonroad CI engines and Other categories were taken from worksheet # 1 of the Cost Analysis and are shown in the table below: DRAFT 4/ 8/ 04 DRAFT 4 The Other category includes: HD HW evap, including ICI; Marine ( excluding inboard & sterndrive ) including ICI & Annex VI; NR SI, including ICI; NR Recreational ( non marine), including ICI; Locomotives, including ICI.

10 Table II. B 1 Fixed and Labor Costs by Fee Category F L LD Cert/ FE $ 3,322,039 $ 2,548,110 LD In use $ 2,858,223 $ 2,184,331 LD ICI $ 344,824 $ 264,980 MC HW $ 225,726 $ 172,829 HD HW $ 1,106,224 $ 1,625,680 NR CI $ 486,401 $ 545,160 Other4 $ 177,425 $ 548,081 Light duty manufactures certifying vehicles for sale only in California will determine the category fee by using the fixed and labor values only for the LD Cert/ FE subcategory.

Light duty manufacturers certifying vehicles that will not be sold only in California ( federal vehicles) will determine a category fee that incorporates the costs for both Cert/ FE and In use subcategories. These manufacturers will determine the Cert/ FE portion of the fees using the above formula and LD Cert/ FE F and L values and then calculate the in use portion of the fees by using the LD In use F and L values. The lightduty federal category fee will be the total of the Cert/ FE and In use fees.

The fee amount per certificate will be determined by dividing the total cost for each certificate category by a rolling average of the number of certificates as discussed below in section II. C. The limitation of the applicability of the CPI to labor costs is a change from the proposal. The removal of the non labor costs from the portion of EPA's costs to which the CPI will apply is a response to comments received and is discussed in more detail in section 4 of the Response to Comments document. DRAFT 4/ 8/ 04 DRAFT 5 For purposes of this preamble, the regulations and the cost analysis, the term " total number of certificates" is used to represent the number of certificate applications for which fees are paid. This term is not intended to represent multiple certificates which are issued within a single engine family or test group.

11 EPA will calculate new fees based on this established formula for each certificate category in Table II. A 1 and publish the fees in a " Dear Manufacturer" letter or by similar means. The " Dear Manufacturer" letters are also located on EPA's website: http:// www. epa. gov/ otaq/ cert/ dearmfr/ dearmfr. htm The new fees will also be located on EPA's Fees website: http:// www. epa. gov/ otaq/ fees. htm. The fees will be applicable by calendar year rather than model year. The first year that the fees will be adjusted for inflation is calendar year 2006.

C. Will Fees Change to Reflect Changes in the Number of Certificates?

EPA will adjust fees based on the total number of certificates5 issued to reflect the change in the cost of services provided by EPA per certificate. As discussed in section II. B above, EPA will annually adjust the amount of the labor costs in each fee category by the CPI approximately 11 months before the new fees will apply. At the time that the adjustment based on CPI is made, EPA will also adjust fees based on the average of the total number of certificates issued in the two completed model years previous to the adjustment. The full formula that will be applied to adjust the fee amount for each category is:

Certificate Fee cy= [ F + L* ( CPI CY 2/ CPI 2002)] * 1.169 / [( cert# MY 2+ cert# MY 3) * .5]

Certificate Feecy = Fee per certificate for the calendar year of the fees to be collected F = the fixed costs, not to be adjusted by the CPI L = the labor costs, to be adjusted by the CPI CPI CY 2 = the consumer price index for all U. S. cities using the " U. S. city average" area , " all items" and " not seasonally adjusted" numbers calculated by the Department of Labor listed for the month of November of the year two years before the calendar year. ( e. g., for the 2006 CY use the CPI based on the date of November, 2004).

CPI 2002 = the consumer price index for all U. S. cities using the " U. S. city average" area , " all items" and " not seasonally adjusted" numbers calculated by the Department of Labor for December, 2002. The actual value for CPI 2002 is 180.9.

1.169 = Adds overall EPA overhead which is applied to all costs DRAFT 4/ 8/ 04 DRAFT 12 cert# MY 2 = the total number of certificates issued for a fee category or subcategory model year two years prior to the calendar year for applicable fees ( Feecy)

cert# MY 3 = the total number of certificates issued for a fee category or subcategory model year three years prior to the calendar year for the applicable fees ( Feecy)

Light duty manufactures certifying vehicles for sale only in California will pay a fee determined calculating the fees for the LD Cert/ FE subcategory and dividing by the average of the total number ( California and federal) of light duty vehicle certificates issued in the applicable model years.

Light duty manufacturers certifying federal vehicles will pay fees that incorporate the costs for both Cert/ FE and In use subcategories. These manufacturers will determine the Cert/ FE portion of the fees as described above and divide by the total number ( California and federal) of light duty certificates issued in the applicable model years. Manufacturers will then calculate the in use portion of the fees by dividing the LD In use by the average number of federal certificates issued in the applicable model years. Manufacturers will determine the total fee for light duty federal certificates by adding the Cert/ FE fees and the In use fees.

As an example, the first year for which the fees will be adjusted is calendar year 2006. In January, 2005, EPA will adjust the total for each fee category for the 2006 model year ( MY) based on the CPI published in November, 2004, and will divide the total fee amounts for each category by the average of certificates issued for model years 2003 and 2004 .

Fee 2006= [ F + L* ( CPI 2004/ CPI 2002)] * 1.169 / [( cert# MY 2004 + cert# MY 2003 ) * .5]

If an event such as a rulemaking occurs that causes a significant change in the number of certificate applications received, the Agency will reexamine the formula to determine whether adjusting the fees based upon the number of certificate applications is still applicable.

EPA will notify manufacturers within 11 months of the calendar year in which fees are adjusted by this section, with the new fees for each category, the number of certificates for the appropriate model years and the applicable CPI values after the November CPI values for each year are made available by the U. S. Department of Labor. This information will be available on EPA's Fees website: http:// www. epa. gov/ otaq/ fees. htm as well as EPA's " Dear Manufacturer" letter website: http:// www. epa. gov/ otaq/ cert/ dearmfr/ dearmfr. htm. DRAFT 4/ 8/ 04 DRAFT 13 This formula will result in an annual adjustment of fees to reflect the change in the number of certificates issued by the EPA. This change from the proposal to adjust fees as a result in a change in the number of certificates is discussed more fully in the response to comments document.

D. What is the Procedure for Paying Fees?

As with the current regulations, fees must be paid in advance of receiving a certificate. For each certification request manufacturers and ICIs will submit a MVECP Fee Filing Form ( filing form) and the appropriate fee in the form of a corporate check, money order, bank draft, certified check, or electronic funds transfer [ wire or Automated Clearing House ( ACH)], payable in U. S. dollars, to the order of the U. S. Environmental Protection Agency. A single fee will be paid when a manufacturer or ICI submits an application for a single engine family or test group that includes multiple evaporative families. It should be noted that separate fees must be paid for each heavy duty evaporative family certificate application. The filing form and accompanying fee will be sent to the address designated on the filing form. EPA will not be responsible for fees sent to any location other than the designated location. Applicants will continue to submit the application for certification to the National Vehicle and Fuel Emission Laboratory ( NVFEL) in Ann Arbor, Michigan or to the Engine Programs Group in Washington, DC.

To ensure proper identification and handling, the check or electronic funds transfer and the accompanying filing form will indicate the manufacturer's corporate name and the EPA standardized test group or engine family name. The full fee is to accompany the filing form. Partial payments or installment payments will not be permitted. A banking institution may add an extra charge for processing a wire or an ACH. The manufacturer is responsible for any extra fees a banking institution may charge to perform these services.

E. What is the Implementation Schedule for the New Fees?

The implementation date of the new fees is [ insert date 60 days after publication of the final rule in the Federal Register]. The final fee schedule adopted in this final rule applies to 2004 and later model year vehicles and engines where the certification application is received on or after [ insert date 60 days after publication of this rule in the Federal Register]. The new fees will not apply to 2004 and later model year certification applications received by EPA prior to the effective date of the regulations, provided that the applications are complete and include all required data. A description of the items DRAFT 4/ 8/ 04 DRAFT 14 needed to constitute a complete application, for the purposes of this fees rule, is included in section 5 of the Response to Comments Document.

F. What are the Reduced Fees Provisions?

EPA believes that an appropriate fee reduction policy can be consistent with the premise underlying section 217 of the CAA: to reimburse the government for the specific regulatory services provided to an applicant. EPA recognizes that there may be instances, in the case of small engine families, where the full fee may represent an unreasonable economic burden. Therefore, EPA will allow manufacturers to pay a fee based on 1.0 percent of the aggregate retail sales price ( or value) of the vehicles covered by a certificate. EPA believes this best represents the proper balance between recovering the MVECP costs without imposing an unreasonable economic burden. The reduced fees provisions will continue to use the current two part test which, if met, would qualify an applicant for a reduction of a portion of the certification fee. The reduced fee is available in cases where:

( 1) The certificate is to be used for the sale of vehicles or engines within the U. S.; and ( 2) The full fee for the certification request exceeds 1.0 percent of the projected aggregate retail price of all vehicles or engines covered by that certificate.

The reduced fee program for this rule provides two separate pathways by which a manufacturer can request and pay a reduced fee amount. The fee will be 1.0 percent of the aggregate retail price of the vehicles and engines covered by the certificate with a refundable minimum initial payment of $ 750. Each pathway specifies when manufacturers are required to determine the price of the vehicles or engines actually sold under a certificate and when to either pay additional fees or seek a refund. Under both pathways the manufacturer:

1) Pays a fully refundable initial payment of $ 750 or 1.0 percent of the aggregate retail price of the vehicles or engines, whichever is greater, with the request for a reduced fee.

2) Receives a certificate for an estimated number of vehicles or engines in the engine family to be covered by the certificate.

3) Requests a revised certificate if the number of vehicles or engines in the engine family exceeds that on the certificate. DRAFT 4/ 8/ 04 DRAFT 15 4) Is in violation of the Clean Air Act if the number of vehicles or engines made or imported is greater than the number indicated on the certificate.

The first pathway will be available for engine families having less than 6 vehicles, none of which have a retail price of more than $ 75,000 each. Manufacturers seeking a reduced fee shall include in their certification application a statement that the reduced fee is appropriate under the criteria. If 1.0 percent of the aggregate retail price of the vehicles or engines is greater than $ 750, the manufacturer must submit a calculation of the reduced fee and the actual fee. If 1.0 percent aggregate retail price of the vehicles or engines is less than $ 750 the manufacturer will submit a calculation of the reduced fee and an initial payment of $ 750. In the event that the manufacturer does not know the value of all of the vehicles to be imported under the certificate, it may use the values of the vehicles or engines that are available to determine the initial payment.

The manufacturer's evaluation and submission of a fee amount under this reduced fee provision is subject to EPA review or audit. If the manufacturer's statement of eligibility is accepted, the manufacturer will receive a certificate for 5 vehicles or engines.

If the manufacturer's statement of eligibility or request of a reduced fee is rejected by EPA then EPA may require the manufacturer to pay the full fee normally applicable to it or EPA may adjust the amount of the reduced fee that is due.

A manufacturer's statement that it is eligible for a reduced fee can be rejected by EPA before or after a certificate is issued if the Agency finds that manufacturer's evaluation does not meet the eligibility requirements for a reduced fee, the manufacturer failed to meet the requirements to calculate a final reduced fee using actual sales data, or the manufacturer failed to pay the net balance due between the initial and final reduced fee calculation ( see below for discussion of the final fee calculation, reporting and payment).

Within 30 days of the end of the model year, the applicant for a reduced fee will provide EPA with a report called a " report card" to aid our review of the applicant's statement of applicability. This report shall include the total number of vehicles ultimately covered by the certificate. The report card shall include information on all certificates held by the manufacturer that were issued with a reduced fee under the first pathway. For each certificate the report will include a calculation of the actual final reduced fee due for each certificate which is derived by adding up the total number of vehicles and their sales prices and calculating 1.0 percent of the total, a statement of the initial fees paid and the difference between the initial payment and the total final fee for the manufacturer. Manufacturers will be required to submit the report card within 30 days of the end of the DRAFT 4/ 8/ 04 DRAFT 6 Typically, this will be the first February 15 after a certificate expires. Certificates generally expire on December 31 of the model year.

16 model year6, EPA believes this is reasonable as manufacturers should have final figures for each certificate by this time.

A manufacturer may request a refund if the final fee is less than the initial payment. If the final fee is greater than the initial payment, manufacturers will be required to " trueup or submit the final reduced fee due as calculated in the report card within 45 days of the end of the model year. This is a change from the NPRM in which EPA proposed that manufacturers would only have to pay the final reduced fee if the difference between the final fee and the initial payment was greater than $ 500. The decision to eliminate a minimum final reduced fee was made as a result of comments regarding EPA's proposed refund policy. This is discussed more fully in the " What is the Finalized Policy for Refunds and Final Fee Payments?" section below and in section 8 of the Response to Comments Document.

In addition, EPA may require that manufacturers submit a report card, with the same or similar information as noted above, for previous model years. The purpose of such report card would be to give EPA assurance that the manufacturer has demonstrated a continuous capability of submitting the necessary year to year report cards and that appropriate fees have been paid. This will assist EPA in its determination as to whether a manufacturer is capable of adequately projecting its annual sales for reduced fee purposes and whether the manufacturer shall remain eligible for the reduced fee provisions.

Under this pathway, if a manufacturer fails to report within 30 days or pay the balance due by 45 days of the end of the model year, then EPA may refuse to approve future reduced fee requests from that manufacturer. In addition, if a manufacturer fails to report within 30 days and pay the balance due by 45 days of the end of the model year as noted above then the Agency may deem the applicable certificate void ab initio.

The second pathway is available for engine families that contain more than 5 vehicles or engines and/ or have at least one vehicle or engine with a retail price of more than $ 75,000. Manufacturers seeking a reduced fee under this pathway include in their applications a statement that the reduced fee is appropriate under the criteria and a calculation of the amount of the reduced fee ( 1.0 percent of the aggregate retail price of vehicles or engines) or an initial payment of $ 750, whichever is greater. As in the first pathway, the manufacturer's evaluation and submission of a fee amount under this reduced fee provision is subject to EPA review or audit. If the manufacturer's statement of DRAFT 4/ 8/ 04 DRAFT 17 eligibility is accepted, the manufacturer will receive a certificate for the number of vehicles or engines to be covered by the certificate.

If the manufacturer's statement of eligibility or request of a reduced fee is rejected by EPA then EPA may require the manufacturer to pay the full fee normally applicable to it or EPA may adjust the amount of the reduced fee that is due.

A manufacturer's statement that it is eligible for a reduced fee can be rejected by EPA before or after a certificate is issued if the Agency finds that the manufacturer's evaluation does not meet the eligibility requirements for a reduced fee.

At the end of the model year, the manufacturer may request a refund if the final fee is less than the initial payment. Manufacturers with certificates issued with reduced fees under this pathway will not be required to submit the report card and true up described above under the first pathway.

Under either pathway, if the manufacturer realizes that it will make or import more vehicles or engines than the number specified on the certificate, the manufacturer must revise the application for certification to reflect the new number of vehicles or engines to be covered and request a revised certificate with an increased number of vehicles or engines indicated. At the time of revision, the manufacturer must pay 1.0 percent of the aggregate retail price of the number of vehicles or engines that are being added to the certificate. The additional fee must be received by the Agency and the certificate must be revised and issued before the additional vehicles or engines may be sold or imported in the United States. If a manufacturer imports or sells more vehicles or engines than that indicated on the certificate, the manufacturer will be in violation of the CAA for selling or importing uncertified vehicles ( those over and above the number indicated on the original certificate.)

In the case of vehicles or engines which have originally been certified by an original equipment manufacturer ( OEM) but are being modified to operate on an alternative fuel, the cost basis for the reduced fee amount is the value added by the conversion, not the full cost of the vehicle or engine.

On the other hand, ICI vehicle or engine certificates cover vehicles or engines which are imported into the U. S. and that were not originally certified by an OEM. As such, EPA costs associated with providing various MVECP services for these vehicles has not yet been recovered. Since the Agency has not received a fee payment for the " base vehicle" or the vehicle imported before its conversion to meet U. S. emissions DRAFT 4/ 8/ 04 DRAFT 18 requirements, the cost basis for calculating a reduced fee for an ICI certification shall be based upon the full cost of the vehicle or engine rather than the cost or value of the conversion.

For ICI requests, EPA will continue the current requirement to calculate the full cost of a vehicle based on a vehicle's average retail price listed in the National Automobile Dealer's Association ( NADA) price guide. By using the NADA price guide to establish a vehicle's retail sales price ( or value), EPA ensures uniformity and fairness in charging fees. Further, it avoids certain problems such as falsification of entry documents, in particular, sales receipts. Where the NADA price guide does not provide the retail price of a vehicle, and in the case of engines, the applicant for a reduced fee must demonstrate to the satisfaction of the Administrator the actual market value of the vehicle or engine in the United States at the time of final importation. When calculating the aggregate retail sales price of vehicles or engines under the reduced fee provisions such calculation must not only include vehicles and engines actually sold but also those modified under the modification and test options in 40 CFR 85.1509 and 40 CFR 89.609 and those imported on behalf of a private or another owner. Furthermore, EPA is clarifying its policy such that importation of modification and test vehicles and engines will only be allowed under certificates that cover that type of vehicle or engine. For example, light duty modification and test vehicles must be imported only under light duty certificates, motorcycle modification and test vehicles must be imported only under motorcycle certificates.

EPA expected the new fees rule to apply during the 2003 model year and thus we did not anticipate any time gap between the existing fee provisions for alternative fuel conversion vehicles  which ran through the 2003 model year  and the implementation of the new reduced fees provisions for such vehicles. Therefore, by today's rule EPA is amending section 86.908 93( a)( 1)( iii) in order for those 2004 model year vehicles that are converted to dual or flexible fuel to still be eligible, under the existing fees rule, to the reduced fees provisions. Therefore, alternative fuel vehicle converters that received certificates of conformity for 2004 model year vehicles may, after [ 60 days after the publication of the final rule], request a refund for the difference between the fee that they paid and 1% of the value added by the vehicle conversion.

Previously EPA had an exemption of fees for small volume certification requests for vehicles using alternative fuels through the 2003 model year. EPA believes that this program has completed its purpose of providing a short term relief for alternative fuel conversion manufacturers. Therefore, starting with the 2004 model year, EPA is no longer including this exemption for alternative fuel convertors, and such convertors shall be subject to the same fee provisions as other manufacturers. This includes the reduced fee provisions. DRAFT 4/ 8/ 04 DRAFT 19 We believe that this fee reduction program will provide adequate relief for small entities that would otherwise encounter some economic hardship by a standardized fee. It is important to note that this fee reduction does not raise the fees for other manufacturers; EPA will simply collect less funds.

The change in the reduced fee provisions results from comments received regarding EPA's proposed reduced fee program as is discussed more fully in section 6 of the Response to Comments Document.

G. What is the Finalized Policy for Refunds and Final Fee Payments?

There are instances when an applicant submits a filing form with the appropriate fee, has an application undergo a portion of the certification process, but fails to receive a signed certificate. Under the current rule, the Agency offers the manufacturer a partial refund and retains a portion of the fee to pay for the work which has already been done. This policy has been difficult to administer and requires substantial Agency oversight. Consequently, we have finalized a simplified refund policy in today's rule. When a certificate has not been issued, for any reason, the applicant will be eligible to receive, upon request, a full refund of the fee paid. Optionally, in lieu of a refund, the manufacturer may apply the fee to another certification request.

EPA proposed that manufacturers would not have to pay a final fee if the difference between the final fee and the initial payment was less than $ 500. Conversely, EPA proposed that it would not issue refunds for amounts less than $ 500. EPA estimated that the reduction in fees received from the final fee payments of under $ 500 would be balanced by the refunds of less than $ 500 that would not be distributed. However, the decision to eliminate a minimum final reduced fee of $ 500 was made as a result of comments regarding EPA's proposed policy of only issuing refunds greater than $ 500. Therefore, since EPA will be paying full refunds, EPA is setting forth in today's rule that full payment must be submitted at true up to avoid an overall deficit in its recovery of MVECP costs and to continue to abide by the intent of the IOAA and CAA. The new refund policy will not reduce the money collected by the Agency because the fee schedule is based, in part, on the number of certificates actually issued rather than the number of certification requests.

EPA is continuing its retroactive refund policy wherein a manufacturer that paid the full fee for a certificate but would have qualified for a reduced fee, may request a refund for the difference between the fee paid and the amount of the calculated reduced fee. The Agency will also fully refund any fees if the manufacturer overpaid based on their DRAFT 4/ 8/ 04 DRAFT 20 own projections. This change in and clarification of the refund policy is the result of comments received an d are discussed more fully in section 6 of the Response to Comments Document.

III. What Are the Changes Made to the Proposed Cost Analysis?

EPA published in the Notice of Proposed Rule Making ( NPRM) fees that reflected our then projected test plans and associated costs for the regulated industries. In the time between the NPRM and the FRM, EPA has gathered additional information about the programs and tests that it plans to conduct and is in a better position to determine the actual costs of its compliance programs for 2004 and beyond than it was at the time of that the NPRM was written. As a result of an internal reassessment of testing capabilities and requisite levels of appropriate compliance oversight, along with comments received, EPA made several adjustments which have resulted in a change in costs of certificates for several industry categories. EPA has used the information on resources and lab capabilities to make the changes and, therefore, the current rulemaking more accurately represents the test program that EPA will put into place. EPA also notes that conducting a compliance program requires some flexibility to ensure that vehicles and engines are in fact meeting applicable standards throughout their useful lives. This flexibility requires that potentially more testing be conducted when problem areas arise, or perhaps a shift in the types of testing that EPA conducts. The program being finalized today provides a foundation for an adequate compliance program; however, EPA plans to continue assessing the requisite levels of testing to determine an appropriate compliance program. As EPA's programs mature and testing capabilities increase then the compliance testing program will likely adjust. Any further changes in costs based on such adjustments, beyond those made today, will be made through a future rulemaking. The changes are generally described below. The issues are discussed more fully in the Response to Comments document. The changes are also reflected in several new worksheets based on " Appendix C" which was attached to the " Motor Vehicle and Engine Compliance Program Cost Analysis" document. Thus several new worksheets have been generated from those originally found in Appendix C and EPA also provides an additional description of the changes to these worksheets. The new worksheets and description are available in the docket for this rule and are called " Updated Cost Analysis."

A. Will There Be Fees for Yet to be Regulated Industries?

The NPRM for this rule proposed establishing the level of fees for classes of nonroad engines and equipment where emissions regulations were under consideration by EPA but were not proposed at the time of the Fees NPRM. The final fees rule does not establish fees for classes of nonroad engines and equipment where EPA had not proposed DRAFT 4/ 8/ 04 DRAFT 21 emissions standards for these classes before the Fees NPRM was published on August 7, 2002. Although the fees proposal included fees for marine SI inboard / sterndrive engines, the final rule does not set fees for these engines. The final fees regulation does include fees for all other nonroad categories that were proposed. This change is a result of comments received. A more detailed discussion may be found in section 1 of the Response to Comments Document.

B. Is There a Change in Costs for Heavy duty Highway and Nonroad CI Engines from the Proposal?

In the NPRM, EPA projected an appropriate yet ambitious test program for heavyduty highway and nonroad CI engines that included in use and confirmatory certification testing for heavy duty highway engines that would be conducted in newly equipped HD test cells at its Ann Arbor laboratory, in use on vehicle testing for HD HW and NR CI engines, as well as testing that would take place at a contractor's facility that would include confirmatory certification testing, selective enforcement audits, and in use dyno testing. In its reassessment of the testing capabilities EPA adjusted its testing projections to a level that is more representative of the current amount of testing that may be accomplished with the new testing facility in Ann Arbor and the new enhanced engine compliance program testing that will be conducted at a contractor's facility. The programs set forth in this rulemaking more realistically represent the level of testing that EPA will accomplish as it acknowledges that the in use dyno testing at Ann Arbor and the enhanced engine compliance programs are new programs and will not reach the proposed level of testing for some time.

As part of the reassessment, EPA also reexamined the recoverable costs for the test equipment for HDE tests cells # 1 and # 2. As discussed below, the cost of the test equipment for these cells has been prorated to reflect the amount of time that the cells would be used for compliance testing. EPA believes that this is a more appropriate cost to be included in the cost study as it acknowledges that the cells are not used for compliance testing 100 percent of the time.

The reassessment resulted in changes in several elements of the cost study, specifically, a decrease in the number of FTE that would be conducting the testing, a decrease in the percentage of test cell time in the Ann Arbor laboratory, a reduction of the number of in use engines that would be procured for testing and, finally, a decrease in the tests to be conducted at a contracted facility. These reductions are discussed more fully below. The revised testing programs for heavy duty highway and nonroad CI are as follows: DRAFT 4/ 8/ 04 DRAFT 22 Table III. B 1 Number of Tests for HD HW and NR CI Confirmatory Cert at AA In Use at AA Confirmatory Cert at Contractors SEA In Use at Contractors HD HW 7 3 0 5 5 NR CI 0 0 6 10 5 The reduced number of tests requires fewer FTE to oversee the testing. Therefore, the number of direct FTE and indirect FTE listed under the heavy duty highway column has been decreased to 1.25 and .25 FTE, respectively, from 2.25 and .5 FTE. This is a net reduction of 1.25 FTE. The change is included on revised worksheet # 7.

EPA proposed that fees recover all costs identified as compliance costs. Worksheet # 10 of the Cost Analysis Document detailed the items identified in the laboratory modification budget request including the costs for various pieces of equipment within the heavy duty test engine sites. One hundred percent of the equipment identified for two heavy duty engine test cells, HDE # 1 and HDE # 2, related to compliance oriented activities was listed as recoverable and, therefore, was included in the fees for the heavyduty category. These cells, however, will not be used 100 percent of the time for compliance work as anticipated, rather, one cell will be used for one quarter of a year for compliance testing. Therefore, it is appropriate that the amount of the recoverable costs should reflect the actual amount of time that the cells are used for compliance work. The recoverable amount of the two cells listed on worksheet # 10 has been decreased to include only one quarter of the cost for the equipment identified solely for use in HDE cell # 2. In addition, some of the compliance oriented equipment will be used for both HDE cell # 2 and HDE cell # 1. Of this equipment EPA is only recovering one eighth of the cost based on evenly splitting the cost of such equipment between the two test cells and then recovering one quarter of the cost associated with HDE cell # 2. At this time EPA anticipates using HDE cell # 2 approximately one quarter of the year for compliance oriented activity. EPA plans to conduct three HD in use tests and seven certification confirmatory tests during that time. Accordingly, the recoverable total for worksheet # 10 has been reduced resulting in a decrease in the fees for heavy duty highway ( HDE HW) engine families. This decrease is reflected for this industry in the fees table, Table II. B 1 above. DRAFT 4/ 8/ 04 DRAFT 23 Although EPA is estimating that the amount of test cell time that will be dedicated to compliance testing is one quarter of the time of HDE # 2, this does not limit the testing that EPA may conduct. In the future, EPA may choose to conduct additional HDE compliance testing, however, fees will not increase to reflect this change until a new fees rulemaking is promulgated. This change responds to a comment received and is discussed in more detail in section V. C. below and section 2 of the Response to Comments Document. Additional changes in the cost for this industry are explained further below and include a change in the estimated number of certificates and the amount of compliance testing that EPA anticipates will be conducted.

Proposed engine procurement costs for heavy duty engines were shown in worksheet # 12. EPA had proposed to test 10 in use engines, two engine families of five engines per family. The cost to procure the engines is $ 25,240 for the first engine of the family and $ 21,860 for subsequent engines as explained in general terms in the Cost Analysis, page 52. The revised test plan consists of testing of three engines in one engine family. The new cost for procuring these engines, at the same cost per engine as proposed, is $ 68,960. The revised costs are shown on new worksheet # 12.

The costs for the proposed Enhanced Engine Compliance Program were shown on worksheet # 16. The number of tests were revised as follows: the number of confirmatory tests for certification at a contracted facility were decreased for NR CI and HD HW to 6 families and 0 families, respectively. EPA decided that it will conduct certification confirmatory tests at its Ann Arbor facility in test cell # 2 when in use tests are not being conducted. Five HD HW confirmatory certification tests are being planned per year in Ann Arbor. Furthermore, the number of selective enforcement audits of HD HW engines has been revised from 10 to 5 audits. The revised costs for the enhanced engine compliance program for NR CI and HD HW industries are $ 300,000 and $ 165,000, respectively. The revised costs are shown in new worksheet # 16.

C. Is There a Change in the Number of Certificates?

In order to determine the cost for each certificate EPA determine the total compliance costs associated with each industry and then divided that cost by its best estimate of the number of certificates that would be issued to that industry within a given model year. EPA received comment about the number of certificates for light duty vehicles, heavy duty highway engines and NR CI engines. EPA reexamined the number of certificates issued over the last three complete model years and used an average of the past two years of certification information to determine a divisor for the three industries noted above. The divisor for the light duty vehicles and trucks cert/ fuel economy portion of the light duty fee will remain 405 and the divisor for the in use portion of the light duty DRAFT 4/ 8/ 04 DRAFT 7 For more information on the FTE allocation method see the Cost Analysis, page 10.

24 fee will remain 348, as listed in the cost analysis. The divisor for the HDE HW category will be 148 ( the number used in the cost analysis was 130) and the divisor for the NR CI category is 662 as compared to 603 used in the cost analysis. As a result of this recalculation of the number of certificates only, the fee for heavy duty compression and spark ignition engines went from $ 30,437 to $ 25,819 and the fee for nonroad compression ignition engines went from $ 2,156 to $ 1,964. This change is a result of comments received and is discussed further in section 2 of the Response to Comments Document. The number of certificates will be adjusted and fees changed accordingly beginning in the 2006 calendar year as discussed above in section II. C.

D. Indirect Changes Program changes to one category may indirectly affect the fees in another category. Specifically, the decrease in the number of FTEs in worksheet # 7 to the heavyduty highway engine category resulted in slight changes to the rest of the categories. The change is a result of the use of the FTE method of allocating costs7 to the different categories. This change in FTE changed not only the allocation of indirect costs to the heavy duty industry but also changed the proportion of recoverable to nonrecoverable indirect costs. For this reason the costs for the light duty and highway motorcycles, and Other categories changed even though there were no changes made to the compliance programs for these industries. This change resulted in a slight decrease in fees for the light duty, motorcycle, ICI and Other industries.

IV. What Were the Opportunities for Public Participation?

On September 19, 2002, a public hearing was held. The public comment period was open until October 19, 2002. EPA received comments before and after the close of the comment period. All comments were fully addressed to the extent possible. We received several comments. Commenters included manufacturers, manufacturer trade associations and representatives, and an environmental consulting firm. For a list of commenters, see Response to Comments document contained in EPA Air Docket No. OAR 2003 0111.

V. What Were the Major Comments Received on the Proposed Rule? DRAFT 4/ 8/ 04 DRAFT 25 Comments on a wide range of issues concerning the proposed Fees rulemaking were received. Summarized here are the comments concerning the major or significant issues and the rationale behind EPA's final decisions. These issues are considered in more detail in the Response to Comments document prepared for this final rule and included in the docket noted earlier.

A. Legal Authority 1. Authority to Assess Nonroad Fees What We Proposed:

We proposed an update to our existing Motor Vehicle and Engine Compliance Program ( MVECP) fees regulations under which we assess fees for highway vehicle and engine's certification and compliance activities. We also proposed the collection of fees for nonroad engines certification and compliance activities which we have regulated since our initial fees rulemaking. The " nonroad engine category" includes: nonroad compression engines, marine spark ignition outboard/ personal water craft, locomotive, small spark ignition, recreational vehicles ( including, but not limited to, snowmobiles, offroad motorcycles and all terrain vehicles), recreational marine and compression ignition engines, large spark ignition engines ( over 19 kilowatts ( kW)) and marine sparkignition inboard sterndrive engines.

Our proposal examined: the Independent Offices Appropriation Act ( IOAA), several provisions of the Clean Air Act ( CAA or Act), the Office of Management and Budget's ( OMB's) Circular No. A 25, and various court decisions including Engine Manufacturers Association v. EPA, 20 F. 3d 1177 ( D. C. Cir. 1994) which considered the Environmental Protection Agency's ( EPA's or Agency's) initial fees rulemaking.

We explained that section 217 of the CAA authorizes the collection of fees for our new nonroad vehicle and engine certification and compliance activities. Section 217 allows the Agency to " recover reasonable costs" associated with: new vehicle or engine certification activities conducted under section 206( a) of the CAA, new vehicle or engine compliance monitoring and testing under section 206( b) of the CAA ( including such activities as selective enforcement audits ( SEA) and production line testing ( PLT)), and in use vehicle or engine compliance monitoring and testing under section 207( c) of the CAA. We also explained that section 213 creates a statutory enforcement program which generally mirrors that which Congress created for the regulation of new highway vehicles and engines. We noted that EPA's nonroad standards created under section 213 are subject to the same requirements ( e. g., sections 206, 207, 208, and 209) and implemented DRAFT 4/ 8/ 04 DRAFT 26 in the same manner ( including certification, SEA, and in use testing) and under the same sections ( as those referenced in section 217) as regulations for new highway vehicles and engines under section 202 ( with modifications to the implementing nonroad regulations as the Administrator deems appropriate). We then concluded that because the text of section 217 does not specify either highway or nonroad engines and vehicles, and because the certification and compliance activities related to both are pursuant to sections 206 and 207, we believed collecting fees for new nonroad vehicles and engines' certification and compliance activities under section 217 were appropriate as an additional compliance requirement.

We also stated that the IOAA creates additional and independent authority for EPA to collect fees due to the same special and unique benefits that manufacturers of both new highway and nonroad vehicle and engine manufacturers receive from EPA under the certification and compliance program.

What Commenters Said:

We received several comments that questioned our authority to assess and collect fees for our nonroad certification and compliance program activities. EMA argued that the IOAA neither overrides nor provides the EPA with expanded fee assessment authority since section 217 specifically sets out the Agency's authority to assess fees and also incorporates the IOAA by reference. EMA also argued that Congress would not have enacted the specific provisions of section 217 if the IOAA was still intended to apply to EPA's mobile source certification and compliance activities.

In addition, EMA argued that since section 217 is entitled: " Motor Vehicle Compliance Program Fees," Congress could not have intended that this section would authorize fees' assessment for nonroad compliance activities. The commenter further noted the distinction drawn between motor vehicle and nonroad vehicle in sections 216( 2) and ( 11) and the omission of nonroad vehicle and engine in section 217 even though both sections 213 and 217 were promulgated as part of the 1990 Amendments. EMA also pointed out that section 213( d) specifically subjects the nonroad standards to sections 206, 207, 208 and 209 but fails to incorporate or even mention section 217.

The Motorcycle Industry Council questioned the applicability of section 217 to off road motorcycles and all terrain vehicles ( ATVs) and further urged the Agency not to assess fees until clarification of the Agency's authority and issuance of applicable emission standards for these categories. DRAFT 4/ 8/ 04 DRAFT 27 Another commenter argued that EPA does not have the authority under section 213 to assess fees for nonroad engines and therefore, lacked authority to assess fees for lawn and garden engines. This commenter also considered our discussion of our authority to assess fees for non road engines and vehicles as " tortured."

Our Response:

EPA disagrees with these comments. EPA confirms its view that section 217 authorizes the Agency to recover all reasonable costs associated with certification and compliance activities for nonroad vehicles and engines, including nonroad equipment. EPA also believes that action taken under section 217 is to be consistent with the IOAA. We also believe that even if section 217 does not extend to nonroad vehicles and engines, then the IOAA separately provides the Agency with authority to assess and recover fees for nonroad and engine certification and compliance, and section 217 does not limit or override the IOAA.

A plain reading of section 217 indicates that EPA may recover the costs associated with all of its vehicle and engine certification and compliance programs conducted under sections 206 and 207 of the Act. Under section 217, the Agency may recover the reasonable costs associated with " new vehicle or engine certification" under section 206( a), " new vehicle or engine compliance monitoring and testing" under section 206( b), and " in use vehicle or engine compliance monitoring and testing" under section 207( c). 42 U. S. C. § 7522( a). Under section 213( d), the standards for new nonroad vehicles and engines are subject to all the applicable requirements of sections 206 through 209. The provisions of sections 206( a), 206( b) and 207( c) are therefore applicable to emissions standards for nonroad engines. Here, the nonroad certification and compliance activities for which EPA is adopting fees are actions taken pursuant to these specific provisions. These nonroad costs are clearly costs for " new vehicle or engine certification" under section 206( a), " new vehicle or engine compliance monitoring and testing" under section 206( b), and " in use vehicle or engine compliance monitoring and testing" under section 207( c).

Section 217 expressly allows for recovery of costs associated with " vehicle or engine" certification and compliance, and nonroad vehicles and engines are clearly " vehicles" and " engines." CAA section 216( 10), ( 11). The text of section 217 does not limit its scope to " motor vehicle or engine" certification and compliance programs. Congress was clearly aware that the terms motor vehicle or engine are different from the terms nonroad vehicle or engine, and in section 217 chose to use the more general terms " vehicle" and " engine" to identify the scope of authority under section 217. Congress DRAFT 4/ 8/ 04 DRAFT 8 See, for example, section 218: "[ t] he Administrator shall promulgate regulations applicable to motor vehicle engines and nonroad engines..." 42 USC § 7553 ( emphasis added).

28 defined motor vehicles and engines distinct from nonroad vehicles and engines, but subjected them both to sections 206( a), 206( b) and 207( c), as well as other provisions in Title II. Congress authorized the same fundamental certification and compliance framework for both nonroad and motor vehicle programs, and used language in section 217 that would then allow EPA to collect fees for its certification and compliance costs for both motor vehicles and engines and nonroad vehicles and engines. Congress likely would have expressly employed the term " motor vehicle or engine," 8 instead of " vehicle" or " engine," had it intended to limit the reach of section 217 to motor vehicle or engine certification and compliance activity. There also is no specific provision in section 217 that can be read as precluding EPA from assessing fees for nonroad engines and vehicles. Collecting fees to recover the certification and compliance costs associated with nonroad engines and vehicles therefore is within the plain meaning of the language Congress used in section 217.

Moreover, there is nothing in the legislative history for section 217 to support the commenters' narrow reading. Rather, legislative history only evinces an intent for the Agency to " recover the costs associated with operating" compliance and certification programs. [ H. R. 101 490, May 1990, 1990 U. S. C. C. A. N. 3355]. The terms used here are general in nature and reasonably indicate an intention to recover such certification and compliance costs. There is no indication in this text that Congress intended to recover only some of these costs, those associated with motor vehicles and engines. Congress likely would have at least identified or mentioned the limitation of section 217 to motor vehicles and engines and the inapplicability to nonroad vehicles and engines in this legislative history.

If, as the commenter suggests, EPA were to subject all nonroad engines and vehicles to the same applicable requirements as on highway vehicles and engines except for fees assessment, this narrow reading of section 217 would not comport with the stated congressional intent that we " recover the costs associated with operating" our certification and compliance programs. [ H. R. 101 490, May 1990, 1990 U. S. C. C. A. N 3355]. EPA's interpretation avoids this result and, consistent with the intent of section 217 and the IOAA, provides a reasonable mechanism to equitably collect fees for specific private benefits provided by the agency. DRAFT 4/ 8/ 04 DRAFT 29 Commenters argue that Congress adopted both sections 213 and 217 in the 1990 amendments, but failed to specifically identify nonroad certification and compliance costs in section 217, and failed to reference section 217 in section 213( d), both indicating that Congress did not intend to include nonroad engines and vehicles in section 217' s authority to collect fees. As noted above, this fails to account for the plain meaning of the language employed in section 217 and 213( d). In section 213( d), Congress specifically stated that nonroad engines and vehicles would be subject to the certification and compliance requirements of section 206 and 207, along with other provisions unrelated to fees. Congress also stated in section 217 that EPA could collect fees for costs related to engine and vehicles subject to these specific certification and compliance provisions in sections 206 and 207. Congress did not need to specifically mention nonroad engines and vehicles in section 217, and did not need to specifically mention section 217 in section 213( d) to authorize the collection of nonroad related fees, as the language it did use leads directly to that result. Similarly, Congress did not need to specifically mention motor vehicles or engines in the text of section 217 to authorize collection of fees for motor vehicle and engine certification and compliance costs under sections 206 and 207. The reference to section 206( a), 206( b) and 207( c) brings in both motor vehicle and nonroad related costs.

Clearly Congress could have made such specific references, but it instead used broader language in section 217 and a specific tie into actions under sections 206 and 207, where the plain meaning then covers both nonroad and motor vehicles and engines. It did not need to specifically refer to nonroad engines and vehicles to include them in section 217. The lack of specific references cited by commenters does not detract from the plain meaning of these provisions, and does not lead to the implication drawn by commenters. The plain text of section 217, read in combination with section 213( d), indicates that Congress intended to authorize collection of fees for both nonroad and motor vehicles and engines. There is no indication in the text of either section 217 or section 213( d) that Congress intended to limit section 217 to motor vehicles. This is not a tortured interpretation, but a reasonable reading of the language used by Congress.

The Agency also disagrees with the contention that the title of section 217  " Motor Vehicle Compliance Program Fees" indicates that Congress did not intend to authorize assessment of fees for nonroad vehicles and engines. " Headings and titles are not meant to take the place of the detailed provisions of the statutory text; nor are they necessarily designed to be a reference guide or a synopsis." Thistlethwaite v. Dowty Woodville Polymer, Ltd., 110 F. 3d 861, 866 ( 2d Cir. 1997) ( Internal quotation marks and alterations omitted), rather, "[ a] bsent a clearly expressed legislative intention to the contrary, [ statutory] language must ordinarily be regarded as conclusive." Consumer Product Safety Commission 447 U. S. 108, 100 S. Ct. 2055 ( 1980). Here, both the plain DRAFT 4/ 8/ 04 DRAFT 9 " It is the sense of Congress that each service or thing of value provided by an agency ( except a mixed ownership Government corporation) to a person ( except a person on official business of the United States Government) is to be self sustaining to the extent possible." 31 U. S. C. § 9701( a).

30 language of section 217 and it's legislative history indicate an intention to authorize collection of fees for all of the new vehicle and engine certification and compliance actions undertaken by EPA under section 206( a), ( c) and 207( c). They provide no indication of an intention to limit such authority to motor vehicles and engines. In these circumstances, the use of the term " motor vehicle" in the heading of section 217 does not support rejecting a conclusion based on the language actually used by Congress.

Regardless of whether section 217 authorizes the collection of fees for costs related to nonroad engines and vehicles, the IOAA does authorize EPA to assess and recover fees associated with implementing the nonroad engines and vehicles certification and compliance programs. The plain language of the IOAA allows Agencies to charge and recoup reasonable costs for services that confer specific benefits upon identifiable beneficiaries9. It authorizes federal agencies to " impose a fee only for a service that confers a specific benefit upon an identifiable beneficiary." Engine Manufacturers Association ( EMA) v. EPA, 20 F. 3d 1177, 1180 ( D. C. Cir. 1994). That case indicates that the certification and compliance actions for which EPA is collecting fees do in fact confer a specific private benefit. " In a regulated industry a certificate of approval [ such as a certificate of conformity] is deemed a benefit specific to the recipient." Id.

There is nothing in the text of the IOAA that indicates the IOAA does not apply to collection of nonroad related costs, assuming section 217 does not authorize such fees. The question then is whether section 217 itself limits the scope of the IOAA with respect to nonroad certification and compliance costs that are otherwise outside the scope of section 217.

Nothing in the text of section 217 indicates that it limits the IOAA in areas not covered by section 217. The introductory text of section 217 refers to the IOAA, stating that EPA's action under section 217 is to be " consistent with" the IOAA. The clear meaning of that phrase is that EPA is to apply the criteria of the IOAA in promulgating fees under section 217. It indicates an intention that action taken under section 217 is to be consistent with the IOAA. It does not indicate that Congress intended to deviate from, limit, or override the IOAA in areas outside the scope of section 217. DRAFT 4/ 8/ 04 DRAFT 31 It seems quite unlikely that Congress would limit the reach of the IOAA in such an oblique fashion in section 217. If Congress intended to amend or overrule the IOAA through section 217, Congress likely would have used language indicating that intent. Instead Congress just generally provided that section 217 is to be read " consistent" with the IOAA. See, Chisom v. Roemer, 501 U. S. 380, 111 S. Ct. 2354 ( 1991). Such an important limitation likely would be clearly discernable from the Act and the legislative history of section 217, and it is not.

The enactment of section 217 even though the IOAA was already in existence does not indicate otherwise. Section 217 serves several valid functions, none of which is related to or indicate an intention to limit or overrule the IOAA for areas not covered by section 217. For example, section 217 creates the fees fund and specifies that fees collected are to be deposited in a special account at the United States Treasury. It also resolves any doubt that a certification and compliance program can be basis for fees. The reference to the IOAA in section 217 is best read in this context. Moreover, reading section 217 as overriding the provisions of the IOAA would amount to a repeal by implication which is generally disfavored.

Commenter's argument would mean that EPA is precluded from recovering the costs associated with the nonroad vehicle or engine certification and compliance program under either the IOAA or section 217. This narrow reading of section 217, as overriding the IOAA, would result in our conferring the specific benefits of our certification and compliance program on non road engine manufacturers without the authority to recover associated costs for providing this service. Such an interpretation would be inconsistent with the overall purpose of the IOAA  that agencies be " self sustaining" by charging fees to recover costs associated with rendering services to identifiable beneficiaries. Commenter's interpretation also does not have any clearly limited boundaries. The interpretation begs the question of the extent to which section 217 limits the IOAA for areas outside the scope of the IOAA. Is it limited to nonroad certification and compliance activities? Is it limited to other activities under Title II of the Act? Does it extend to all other EPA actions under the Act? The lack of a clear boundary to the limits of IOAA authority under commenter's interpretation indicates it is neither a likely nor reasonable interpretation of Congressional intent underlying section 217.

EPA believes the best interpretation of section 217 and the IOAA is to read them as acting in harmony and in conjunction with each other. For areas covered by section 217, EPA's actions under that section are to be consistent with the IOAA. For areas not covered by section 217, the IOAA continues to be in effect as before section 217 was DRAFT 4/ 8/ 04 DRAFT 32 adopted. This will appropriately ensure that fees' assessment for all of the Agencies programs will be adequately addressed.

Since a nonroad engine manufacturer, similar to the on highway engine manufacturer, " obtains a benefit from the entire [ EPA] compliance program," we believe we may recover the reasonable costs of compliance testing, by a fee that does not exceed the value of the benefit derived by the manufacturer, under the IOAA. See, EMA, 20 F. 3d at 1181 ( D. C. Cir. 1994). Thus, we believe that if section 217 is inapplicable, and we do not believe so, the IOAA would provide authority to assess fees for nonroad engines and vehicles.

In light of the foregoing, we disagree with the commenters' narrow interpretation of section 217. Accordingly, we believe that it is reasonable to read section 217 as providing the requisite authority to collect fees associated with nonroad certification and compliance activities. EPA also believes it is reasonable to read the IOAA as providing independent authority for assessment of fees for nonroad engine compliance and certification activities, if section 217 does not authorize such assessment. EPA believes today's action is appropriate under either section 217 or the IOAA.

Similarly, with regard to comments asserting our lack of fees' assessment authority for other nonroad engines such as off road motorcycles, ATVs and lawn and garden engines, we believe as discussed above that both section 217 and the IOAA provide us with the requisite authority to " recover the reasonable costs" associated with the certification and compliance programs for these nonroad engines.

We also do not believe it is necessary to further " clarify" our authority to collect nonroad fees. We set forth the basis for our authority within the NPRM and today's action confirms that authority. We separately address the suggestion to defer fees' collection until issuance of the off road motorcycles and ATVs emission standards in the Authority to Recover Anticipated Costs for Proposed Programs section below.

2. Authority to Recover Anticipated Costs for Proposed Programs What We Proposed:

EPA published new fees for all industries in the fees rule NPRM, Table III. D 1, 67 FR 51410. EPA updated fees for light duty vehicles, motorcycles and heavy duty DRAFT 4/ 8/ 04 DRAFT 33 highway engines and vehicles that were covered by EPA's original fees rulemaking. The new fees for these industries are determined considering inflationary costs, additional costs associated with programmatic decisions, and some future costs known at the time of the proposal that were also known to be necessary to maintain an effective MVECP.

We also proposed fees for certain certification request types in the nonroad industry based on the fact that EPA has had emission regulations in place, prior to the fees proposal, covering such nonroad industries and thus an on going compliance program exists for these industries. These industries include nonroad ( NR) compression ignition ( CI), marine spark ignition ( SI) outboard/ personal water craft, small nonroad SI, and locomotives. Some of these industries have had emissions programs in place since the 1996 model year.

In addition, we proposed fees for certain nonroad industries ( marine CI > 37kW) where EPA had finalized the applicable emission regulations for that industry prior to the fees proposal but the compliance programs had not yet been implemented. Such industries would only pay a fee for certification at the time of their initial applications for certification.

Similarly, EPA also proposed fees for certain nonroad industries ( large nonroad SI > 19kW, recreational marine > 37kW, and recreational vehicles ( off road motorcycles ( MC), ATVs, snowmobiles, etc)) for which emission regulations had been proposed at the time of the fees proposal ( August 7, 2002) but for which no emission regulations had yet been finalized.

Lastly, for a certain nonroad industry ( marine SI inboard/ sterndrive) we proposed fees although the emission regulation and proposal was just under development at the time of the fees proposal.

What Commenters Said:

EMA maintains that it is improper for EPA to quantify fees for anticipated nonroad certification and compliance programs that have not been implemented and in some cases not even proposed. EMA asserts that section 217 only authorizes the Agency to " recover" the actual costs that it incurs for administering established certification and compliance programs  "[ T] he Administrator may ... recover ..." EMA provides what it feels to be the plain meaning of " recover" which is " to get back." EMA contends that for the industry categories noted above, there are no such actual costs for the Agency to tally DRAFT 4/ 8/ 04 DRAFT 34 and then seek to recover or get back. There is no proper basis for the Agency to merely anticipate expenses that will be incurred in the future. EMA maintains that EPA should not impose fees for nonroad categories that were not finalized before the NPRM, nor should EPA include fees associated with nonroad rulemakings that have not yet been finalized and published.

Additionally, EMA believes it is unlawful and improper to establish fees for programs that have not even been proposed as it presupposes the outcome of such rulemakings and so undermines and trivializes the administrative rulemaking process. Without knowledge of the final outcome of the predicate rulemaking the public cannot participate meaningfully in the rulemaking. EMA urges EPA to wait for the underlying regulatory measures to be finalized and implemented before charging manufacturers for anticipated costs.

The Alliance and the Association of International Automobile Manufacturers ( AIAM) state that EPA incorrectly bases its costs on " budget requests" and " plans" rather than actual " expenditures." It is inappropriate to base costs on projections. EPA should account for " actual expenditures" or where costs have occurred. In addition, EPA must account for each employee who works on MVECP activities and subtract out time not spent on such activities.

The Motorcycle Industry Council asserts that the compliance fees should not include anticipated or projected costs, future plans and services. The commenter further states that only when actual costs are determined should a fair fee be established and the costs recovered. The Council further requested that the Agency defer finalizing fees for off road motorcycles and ATVs until the Agency finalizes the applicable emissions requirements and at that time, issue the applicable fees or a " separate but concurrent fee rule."

The Outdoor Power Equipment Institute ( OPEI) supports EMA's comment stating that EPA lacks the statutory authority to recover anticipated costs for proposed programs prior to their adoption as final regulations.

Our Response:

As stated above, we believe section 217 authorizes the Agency to recover reasonable costs associated with vehicle and engine certification and compliance activities. We also believe that the IOAA authorizes the Agency to recover fees. We believe it is DRAFT 4/ 8/ 04 DRAFT 35 appropriate to recover all costs which EPA will incur to provide the necessary MVECP services to a manufacturer during the course of certification and in use compliance activities. For several reasons EPA also believes it is appropriate to collect such fees prior to issuing certificates. EPA disagrees with EMA's suggestion that the language in section 217 authorizing EPA to establish fees " to recover" all reasonable costs means that EPA should " tally" its costs and then " get back" such costs. EMA does not suggest that EPA change its current regulatory practice of collecting fees in advance of granting a certificate. As such, EMA tacitly recognizes that EPA is indeed projecting the actual future costs associated with certification and in use activities at the time it is adopting the fees rule and when it collects the fee with the application for a certificate. EPA believes it may project actual costs as long as the fee payers are on adequate notice through rulemaking of what those projected costs are and that EPA has a reasonable basis for deciding that such projections will be accurate. EPA's fees rule is designed to recover or get back its expected actual costs.

We believe this practice is consistent with the guidance provided by OMB Circular No. A 25, which states under its " General Policy" section 6( a)( 2)( c) that when determining the amount of user charges to assess that " User charges will be collected in advance of, or simultaneously with, the rendering of services unless appropriations and authority are provided in advance to allow reimbursable services." In this instance, EPA does not believe that section 217 of the CAA limits EPA's authority such that EPA could only seek reimbursement of past expenses. In addition, EPA's continued practice of collecting fees in advance is the most appropriate method and provides applicants with the best information regarding the fees that are owed at time of certification.

The Agency has finalized rules for certain nonroad categories that were proposed but not finalized at the time this fees rule was proposed. With the one exception noted below, we also no longer are " projecting" what our compliance activities will be for many of the nonroad industries included in the " Other" category as the rules regulating emissions for those industries have been finalized and our expected compliance activities will be implemented.

We agree with commenters that we should not finalize fees at this time for nonroad categories that were not proposed at the time that the fees rule NPRM was published. Although EPA also proposed fees for the marine SI inboard/ sterndrive industry, based on what we anticipated to be a modest compliance program, we agree with EMA that it is premature to require fees at this time. EPA believes that the cost study and analysis are proper for this industry but we choose to wait until the actual emission regulation for this industry is proposed, to provide ample opportunity for comment on potential fees. We DRAFT 4/ 8/ 04 DRAFT 36 anticipate finalizing fees for that industry in the final emission regulation. Therefore, in EPA's revised worksheet # 2, in the " Other" column, we have reduced the total cost of compliance activities by $ 20,645 to reflect that the marine SI category will not be covered by this regulation. The fees associated with the remaining regulated industries in the " Other" column remain the same  $ 826 per certificate. This change is reflected in section 85.2405 of the regulations, item 14 of the fees table, which indicates the fees for marine engines, excluding inboard and sterndrive engines.

As EPA has maintained throughout this rulemaking, we believe it is appropriate to recover all costs which EPA will incur to provide the necessary MVECP services to a manufacturer for certification and in use. For several reasons EPA also believes it is appropriate to collect such fees prior to issuing certificates. We also believe that when any significant budget changes occur that affect allocations of resources dedicated to any MVECP activity, or regulatory changes that affect MVECP activities, or EPA evaluations of the compliance rates and associated environmental impacts change, then it is likely appropriate for EPA to reexamine its updated MVECP activities and determine whether any changes in costs have occurred.

We believe it is appropriate within this rule to require fees for those industries that are in fact required to meet EPA's emission standards in order to receive certificates of conformity. EPA proposed fees for certain nonroad industries where the compliance date of the emission standards had not yet occurred ( meaning no applications for certification had been submitted), and we believe that such manufacturers had adequate notice of the regulatory emission requirements they would be required to meet in the future and how EPA intended to impose a fee related to EPA's services. Based on the regulatory structure of the emissions program for these industries, EPA also had a reasonable basis for deciding that the projected costs are accurate. As noted in the proposal, EPA intends to only conduct a modest MVECP program for these industries.

In addition, we also believe it is appropriate to require fees for those industries that are newly regulated since EPA issued the fees proposal. At the time of the fees proposal such industries ( large nonroad SI > 19kW, recreational marine > 37kW, and recreational vehicles) were on notice of the emission requirements they would likely face ( including the requirement of certification) due to existence of NPRMs for such industries prior to the fees proposal. Based on the regulatory structure of the emissions program for these industries, EPA also had a reasonable basis for deciding that the projected costs are accurate. The final emission regulations have since become effective for these industries and EPA anticipates no changes in its modest projections of the compliance activities and costs associated with these newly regulated industries. DRAFT 4/ 8/ 04 DRAFT 10 See Cost Analysis Document starting at page 16 ( step 5 of " general steps").

37 B. Assessment of Costs 1. Costs Apportioned to Industries What We Proposed:

Our proposed fees were based on past and projected actual costs of providing certification and compliance services to the various mobile source manufacturers and industries. We grouped these various manufacturers and industries into fee categories and we explained that separation of industries into groups with other similar industries was in order to ensure that each category pays fees only for the services that it receives. 10 We also explained that EPA conducted a cost analysis to determine the various compliance activities associated with each fee category and associated annual costs for each certification request type. We set forth our analyses in the Motor Vehicle and Engine Compliance Program Costs Analysis ( Cost Analysis Document). We further explained that where the level and type of EPA activity and costs were similar for each industry then those industries were grouped together, the total number of certificates were added together, and equal fees were allocated to each anticipated certificate. ( See Cost Analysis Document at p. 21.) In this way, EPA determined the portion of the MVECP costs dedicated to each certification request type.

We proposed three " fee categories": 1. Light Duty, which includes light duty vehicles and trucks, motorcycles, and because of similar compliance programs mediumduty passenger vehicles and certain heavy duty vehicles were included, with subcategories created where it was determined that a different level of services and costs were expected to be expended; 2. Engines, which includes heavy duty highway ( HDE HW) and nonroad compression ignition ( NR CI) engines ( excluding marine and locomotive), with subcategories created where it was determined that a different level of services and costs were expected to be expended; and 3. Other Engines and Vehicles, where currently EPA only plans to do certification review and includes marine CI and SI engines, nonroad SI engines, locomotive engines, large spark ignition engines, recreational marine engines, recreational vehicles, heavy duty engine evaporative systems and heavy duty engines certified for California only .

What Commenters Said: DRAFT 4/ 8/ 04 DRAFT 11 EMA cites EMA v EPA, 20 F. 3d 1177, 1180 ( D. C. Cir. 1994) for this proposition. The court held in this instance that " Under the IOAA an agency may impose a fee only for a service that confer a specific private benefit upon an identifiable beneficiary."

38 EMA maintains that the language of section 217( a) of the CAA relevant to heavyduty engine and vehicle manufacturers, which states in part, that EPA's fees for such manufacturers " shall not exceed a reasonable amount to recover an appropriate portion of [ the] reasonable costs [ of the MVECP]" requires EPA to only recover a portion and not all of the certification and compliance program costs. EMA believes such portion should be from the costs just associated with the heavy duty engine and vehicle manufacturers. Although EMA initially stated that they did not have a definitive percentage or portion that EPA should assess, EMA in a subsequent comment stated that the appropriate " portion" of EPA's certification and compliance costs for heavy duty engine and vehicle manufacturers to bear is 50 percent.

EMA states that the plain language of section 217( a) requires that only a " portion" of the costs associated with the heavy duty engine ( HDE) compliance program can be recoverable and thus 100 percent of such costs is not a portion. EMA suggests that EPA's interpretation ( that heavy duty manufacturers pay 100 percent of the costs allocated to that industry) would provide no purpose or effect to the last sentence in 217( a). Since the basic premise of fee collection is to impose fees for specific benefits conferred upon an identifiable beneficiary11, EMA suggests that it is self evident that EPA would only collect such appropriate fee even without the language in the last sentence. Further, EMA points to the EMA decision and claims it does not validate EPA's interpretation of 217( a). EMA suggests that the dicta from that decision only states that " Congress intended that the EPA charge manufacturers of heavy duty engines and vehicles something less than it charges other manufacturers" and the EPA must " do something that moves non trivially in the direction that Congress intended" and thus does not hold that EPA may assess HDE manufacturers 100 percent of all costs and yet still comply with the requirement in 217( a) which requires that only a portion of such reasonable costs be assessed.

Our Response:

EPA agrees with EMA's suggestion that the general principle of section 217 and of the IOAA is to generally recover all costs that are specifically tied to a specific benefit for an identifiable party. The introductory sentence on 217( a) suggests that " all reasonable costs" might appropriately be calculated for the all MVECP services as noted in 217( a)( 1 3) for all industries and then EPA is subsequently directed to charge the DRAFT 4/ 8/ 04 DRAFT 39 heavy duty engine and vehicle manufacturers its appropriate " portion" of the otherwise aggregated costs.

We disagree with EMA's interpretation of the EMA decision. The court discusses EMA's claim that heavy duty manufacturers should pay less than the " fair share" of costs occurs in section III C of the decision. The court noted that " According to EMA, the Congress intended that heavy duty manufacturers be charged a fee that recovers less than their fair share of the total cost of the Compliance Program because they face smaller sales volumes and more onerous compliance testing than do manufactures of light duty vehicles and engines." The cost methodology EPA used in the fees rule that the court reviewed, and used for the current rule, was to segregate the costs for each certificate type ( including HDE HW CI and SI) and divide such total costs by the number of certificates expected to be issued within that certificate type. As noted on worksheet # 2 of the original Cost Analysis, the total costs for HDE HW CI and SI is $ 3,956,759 and cost per certificate is $ 30,437. Worksheet # 2 of the revised Cost Analysis shows that this amount is now $ 3,193,596. The amount per certificate is $ 21,578, a reduction of $ 8,859 per certificate in the final rule ( this reduction is a result in a recalculation in the number of certificates expected to be issued, a reduction in the costs associated with the upgrades to the test cells in Ann Arbor, and other adjustments) whereas the fee per light duty vehicle certificate is $ 33,883.

The court in EMA ( page 1183) acknowledged EPA's methodology of and intent to give effect to section 217( a) by segregating the costs of heavy duty, light duty, and motorcycle certificates and by waiving the fee to the extent that it exceeds one percent of the projected sales revenue for any manufacturer. The court suggests that it is reasonably clear that Congress intended that the EPA charge manufacturers of heavy duty engines and vehicles " something less than it charges other manufacturers" although " the statute is silent as to both the means by which and the degree to which the agency is to do so." The court continued and found that what EPA had done, in segregating costs as noted above, was an appropriate way to implement section 217( a) for heavy duty manufacturers.

We also note that the discussion that EMA cites from EMA regarding the fact that the IOAA already provides the necessary authority and requirement that fees for service only be collected when a specific benefit falls upon an identifiable industry includes additional discussion of what is an " identifiable beneficiary" versus the general public. The court states that "[ a] general benefit conferred upon an industry, such as the public confidence that may attend the mere facts of its regulation, is insufficient to justify a fee." ( italics added). The court continues and states that "[ i] n a regulated industry, a certificate DRAFT 4/ 8/ 04 DRAFT 12 EMA at 1180.

13 Not to exceed requirements specify that engine emissions must not exceed a specified value for any of the regulated pollutants.

40 of approval is deemed a benefit specific to the recipient." ( italics added). 12 The court clearly differentiates between the regulated industry versus the general public.

All such manufacturers receive the specific benefit of a certificate from EPA and are otherwise regulated. However, we believe the language of section 217 authorizes us to use a methodology that identifies the costs directly associated or portioned by EPA that relate to the heavy duty engine and vehicle industry. We have in fact identified such costs for this industry and apply no other costs to the fees collected from it. Since the resulting fee levels and waiver provisions result in a fee for heavy duty engine manufacturers that is significantly lower than all other motor vehicle manufacturers except for motorcycle manufacturers and independent commercial importers ( ICIs), whose costs are segregated both from heavy duty and general light duty vehicle costs, and thus EPA believes this is an appropriate way to implement section 217( a).

What Commenters Said:

EMA then points to section 217' s use of the term " reasonable" and legislative history on section which is to the effect that "[ t] he authority granted to the Administrator under this section [ 217] must be carefully exercised so as to avoid proceeding with ` gold plated' compliance programs since the costs will not fall on the government." ( See H. R. 101 490, May 17, 1990). EMA suggests that a 50 percent allocation would also give recognition to the tremendous outlays of capital and man hours that HDE manufacturers already spend to conduct extensive certification and compliance testing and given the new costs to comply with the 2007 model year requirements and its own in use not to exceed ( NTE) 13 compliance testing.

EMA believes that 50 percent is the appropriate portion of the costs that should be collected in order to protect against " gold plated" programs and by ensuring that EPA maintains a meaningful role in funding such programs. It would also recognize the capital and man hours that heavy duty manufacturers spend to stay up with EPA requirements, including costs for additional data and new test cells in order to meet the 2007 standards. In addition, EMA again claims that the manufacturers face extensive in use NTE DRAFT 4/ 8/ 04 DRAFT 41 compliance testing in the future and thus in many ways are already paying more than their fair share of compliance cost burden.

Our Response:

EPA believes the best interpretation of section 217 is that the costs associated with heavy duty manufacturers be segregated from other types of manufacturers. In reaching this conclusion EPA is guided by the sentence in section 217 that EMA relies upon " In the case of heavy duty engine and vehicle manufacturers, such fees shall not exceed a reasonable amount to recover an appropriate portion of such reasonable costs" and the preceding sentence which states " The Administrator may establish for all foreign and domestic manufacturers a fee schedule based on such factors as the Administrator finds appropriate and equitable and nondiscriminatory, including the number of vehicles or engines produced under a certificate of conformity" ( italics added).

We believe it is appropriate to segregate the MVECP costs associated with each industry and then to divide the number of certificates within each respective industry by its segregated costs. In order to be nondiscriminatory we also believe that all industry groups ( or " fee categories") must reimburse the government for all the costs for their respective industry group. The costs that each industry group must incur to comply with EPA's emission requirements such as manufacturers' own NTE testing, test cell development, etc., is properly considered by EPA when it adopts such requirements, e. g. when it adopts emission standards. The cost to industry is taken into account in that rulemaking. This rule, however, focuses on EPA's actions and associated costs. We believe that is consistent with the directive in the IOAA that special benefit programs be self sustaining to the extent possible and the first sentence of section 217( a) authorizing EPA to "... establish fees to recover all reasonable costs."

Thus, we believe that the directive to recover " reasonable," " appropriate," and " equitable and nondiscriminatory" costs or fees means that EPA must use clear and explained accounting measures, make reasonable estimates of costs, and properly distribute its costs to specific programs where specific benefits are bestowed to a specific industry group.

Therefore, EPA believes the purposes of section 217 and IOAA are also best served by collecting all costs incurred by the Agency but only collecting the fair share of costs of HDE compliance that is associated with such activity and therefore EPA makes no adjustment of its fees based on commenters' suggestions. DRAFT 4/ 8/ 04 DRAFT 42 EPA believes that the certification and compliance program designed for the heavy duty industry is appropriate and reasonably correlates with the contribution of emissions from this sector to the overall inventory of emissions from mobile sources and also is very reasonable when compared to the level of activity and costs associated with other industry categories, including the light duty industry. EPA believes its certification and compliance program is reasonable, if not modest, for the heavy duty industry and in no respect can it be considered a " gold plated" program. From EPA's original proposed cost of $ 30,347 for each heavy duty certificate we have now reduced the cost in the final rule to $ 21,578.

2. Costs Unrelated to the MVECP What We Proposed:

We proposed recovery of those costs incurred by the Agency in conducting new vehicle and engine certification, new vehicle and engine compliance monitoring and testing and in use vehicle or engine compliance monitoring. The proposed fees are based on what EPA believes to be all recoverable direct and indirect costs associated with administering these activities. Recoverable costs include all labor, direct and indirect program operating costs associated with the activities listed above, and EPA's general overhead costs. Operating costs include such things as the purchase of equipment or property as that specified on worksheet # 10, which is the itemization of laboratory modernization budget request.

The Cost Analysis contains worksheets which further explain the associated costs. Several worksheets within the Cost Analysis set forth the costs that are applicable to the heavy duty highway certification type.

What Commenters Said:

In its initial comments, EMA expressed the concern that EPA was seeking to assess and recover fees for EPA's developmental test lab facilities and personnel in Ann Arbor. EMA stated that since these facilities were not utilized in connection with the MVECP for manufacturers' heavy duty on highway or nonroad engines compliance or certification activities but instead are used for general regulatory efforts and technological feasibility demonstrations, such efforts and demonstrations do not confer specific benefits on any identifiable beneficiary or manufacturer. DRAFT 4/ 8/ 04 DRAFT 43 OPEI supported EMA's comment and contended that EPA cannot impose certification fees on small spark ignition ( SSI) engine manufacturers for costs that are not directly related to processing SSI engine certification. Both commenters considered costs associated with EPA's developmental test lab facilities and personnel associated with such facilities in Ann Arbor, Michigan as " unrelated costs."

Our Response:

EPA agrees with commenters that fees should not be assessed for the costs associated with using Ann Arbor's test laboratory facilities and personnel for activities not related to the MVECP such as general regulatory efforts and technological feasibility demonstrations, or for other developmental purposes. As EPA noted in the NPRM, the costs of activities such as regulation development, emission factor testing, air quality assessment, support of state inspection programs and research were not included with the costs study nor are included in the fees proposed. ( See 67 FR at 51409). As noted on worksheet # 10, of the $ 14,130,000 associated with the laboratory modification budget, only $ 8,485,000 was deemed recoverable as a laboratory equipment associated with compliance testing activities. Specifically, those costs linked to the " advance engine test sites" and the " climate control test facility," which fall under the heading " Critical Regulatory Developmental Test Capability" are not labeled as recoverable and thus are not included in the fees proposed. Worksheet # 10 also reflects that other costs associated with developmental testing are not labeled as recoverable. As further noted below, EPA has further refined these costs and has eliminated other costs not determined to be MVECP related.

We did not include the costs of developmental lab facilities and personnel in Ann Arbor in our fees calculation. The lab facilities that were included as recoverable in the cost study are for engine testing that EPA plans to begin in the near future. Therefore, the costs are associated with compliance testing and are recoverable by fees.

What Commenters Said:

In its initial comments, EMA also contended that EPA does not currently conduct any HDE testing at Ann Arbor and therefore questioned both the need for such testing along with the additional labor costs of conducting such testing along with the other costs of such testing as summarized on worksheet # 3.

Our Response: DRAFT 4/ 8/ 04 DRAFT 44 EPA notes that the need for such testing partially arises from purely the emission contribution from heavy duty engines which is second only to light duty on highway vehicles for mobile sources and represents approximately one half of the emissions of light duty vehicles. Furthermore, EPA has experienced a relatively high degree of the use of defeat devices and non conformity of heavy duty vehicles in recent years. The discovery of the level of noncompliance in this industry led to the perception that EPA was not doing an adequate job of overseeing the HDE industry. In 1998 consent decrees were entered into with almost the entire HDE HW industry, to resolve claims of several cases of noncompliance. The Agency is only now beginning on its efforts to test some of these vehicles during in use operation over their useful lives. EMA's comment suggests that it may be unnecessary to implement a new HDE compliance program ( or that it is not necessary until the 2007 requirements commence), or that such a program is untenable in Ann Arbor. EPA believes these comments are misplaced. As noted from revised worksheet # 1, EPA's proposed fees program allocated a cost of $ 3.2 million for the HDE on highway industry. This amount has been further reduced by today's final rule.

EPA plans at this point to conduct dyno certification testing and in use testing on 9 families out of 150 families, and approximately 11 additional families using portable test equipment for in use surveillance testing. Thus, EPA believes that given the past rates of compliance with emissions standards of these industries, along with emissions contributions, demonstrates that creation of a reasonable compliance program for the heavy duty industry is reasonable.

EPA believes it has developed and is now in the process of implementing a cohesive and comprehensive compliance program, including a significant component in Ann Arbor, for HDE on highway engines. EMA is correct that a testing program in Ann Arbor did not exist at the time of the fees proposal, however, EPA has extensive experience in testing light duty vehicles and has identified a similar need for heavy duty in order to ensure that any emission problems are found in a timely manner. Similarly, EPA has extensive experience with procuring vehicles for testing and estimating costs and we note that commenters did not question the accuracy of such costs. EPA has invested the requisite resources to conduct a testing program in Ann Arbor and plans to use that facility along with testing conducted in the Washington, DC area and at any necessary outside contracted laboratories as explained at 2.2.4.

3. Costs for In use Programs What We Proposed: DRAFT 4/ 8/ 04 DRAFT 14 Note that the final costs for the HDE equipment costs is $ 77,000 per year, not $ 193,000 as proposed.

45 We proposed continuance of the Agency's current compliance methods for lightduty vehicles, motorcycles and heavy duty highway vehicles and engines which insure the overall compliance of a vehicle or engine with applicable emission standards throughout their useful life. EPA explained that this certification process may include confirmatory testing ( testing conducted by EPA in house to confirm manufacturer test data) and compliance inspections and investigations ( such as selective enforcement audits) and inuse testing. ( 67 FR at 51406 51408). Currently, EPA conducts testing of in use heavyduty highway engines and nonroad compression ignition engines at costs of $ 297,200 and $ 72,800, respectively. This testing is screening in nature, and uses portable test equipment on board the vehicle. This screening is used as an indicator of engines that may be noncompliant. To assist in this testing, EPA is planning to purchase commercial emission detection units that can monitor emissions from heavy duty engines and nonroad compression ignition engines during use at costs of $ 80,000 and $ 20,000, respectively. These costs are shown on worksheet # 13.

We also proposed fees for new compliance testing for in use heavy duty engines. Some of the testing will be conducted in the Ann Arbor laboratory at a test site that is being upgraded to conduct compliance level tests. The proposed14 costs for the in use testing conducted at EPA's Ann Arbor facility included the equipment costs listed in revised worksheet # 10 ($ 385,000 per year for heavy duty), the labor listed in revised worksheet # 7 ( 1.50 FTE), and the cost of procuring in use heavy duty engines listed under Engine Procurement  Heavy Duty, on revised worksheet # 12 ($ 68,960).

In addition to the new testing that will be conducted in Ann Arbor, we are planning an Enhanced Engine Compliance Program. Revised worksheet # 16 reflects the costs for this program. This will be conducted at a contracted facility ( with the exception of the selective enforcement testing) and includes selective enforcement testing and in use engine dyno testing for both heavy duty highway engines and nonroad CI engines and certification confirmatory testing for NR CI engines.

What Commenters Said:

EMA opposed fees based on EPA's expectation of conducting an enhanced in use compliance program when, at the same time, the Agency is in the process of developing and implementing a manufacturer run in use testing program. DRAFT 4/ 8/ 04 DRAFT 46 EMA states that EPA's current in use testing is just geared toward regulatory development and feasibility testing of its measurement equipment. EMA further contended that the fees are inappropriate because the NTE emissions standards and related testing and requirements do not become effective for HDE HW engines until 2007, much later than when the new fees become effective, and are not yet proposed for NR CI engines.

Our Response:

Regulatory development and feasibility testing were not included in the cost study, and were not included in the costs that will be recovered by fees. Furthermore, the cost study only assesses the costs of compliance and confirmatory testing.

EPA acknowledges that one purpose of the current in use testing has been developing the portable testing devices and related testing procedures, but the primary purpose now and certainly in the future of the enhanced engine compliance program will be compliance testing. This is to implement the prohibition against use of defeat devices and to conduct compliance testing of new emission control components based on both the 2004 HDE HW standards and the 2007 standards. Thus both our screening testing and laboratory testing will commence in 2004 and not await the additional requirements ( such as NTE standards) in 2007. Our current on vehicle testing has several compliance purposes, including: as a general screening tool to see how such vehicles might perform based on federal test procedure ( FTP) conditions, as a tool to insure that no heavy duty engine manufactures are employing defeat devices. As explained below, in addition to continuing surveillance like testing of small samples of vehicles per engine family, EPA plans to conduct more compliance testing to measure the durability of new emission components and to measure such vehicles or engines in laboratory conditions.

EPA has included the additional HDE HW compliance programs in its cost analysis and is recovering such costs by today's rule because such programs are part of EPA's plan to increase its compliance oversight for this industry.

We also note that the near term compliance testing will not be for " regulatory development" purposes but rather to insure the durability on new technologies being applied to heavy duty on highway and nonroad engines. These new technologies have not undergone extensive in use scrutiny and assurances of durability. As a result an in use compliance program is necessary now to ensure that the applicable new emission standards are being met. DRAFT 4/ 8/ 04 DRAFT 15 Not to exceed requirements specify that engine emissions must not exceed a specified value for any of the regulated pollutants.

47 What Commenters Said:

EMA states that manufacturers will be conducting a comprehensive in use not to exceed ( NTE) 15 testing program of on highway HDE during the 2005 and 2006 time period and will subsequently conduct a manufacturer run in use program. EMA maintains that as a result, EPA and the California Air Resources Board ( CARB) will not engage in routine in use testing of HDE engine families. Thus, EMA argues that EPA's in use testing will be minimized, not enhanced, due to the manufacturer run in use testing.

Our Response:

EPA agrees with EMA's comment that manufacturers will be conducting an inuse NTE pilot testing program during 2005 and 2006 yet we disagree with EMA's characterization of this testing as " comprehensive." In fact during this pilot period it is expected that EPA will be required to conduct its own testing if determination of the scope or causes of potential nonconformance was required and that EPA may be required to generate additional testing data should a remedial action for nonconformance be sought. EPA also expects, and therefore agrees with EMA's comment, that manufacturers will be conducting their own in use verification testing program in 2007, and thus EPA will not be conducting routine testing that is duplicative of manufacturer testing. Independent from the manufacturers' testing throughout this time period, EPA sees the need to conduct the projected levels in use testing to ensure compliance with all emission standards, including NTE standards. EPA believes that an EPA run in use presence will continue into the future at the levels projected.

The enhanced in use program is planned by EPA to address the Agency's compliance testing needs. New technologies, such as catalysts and traps, will soon be added to heavy duty on highway ( both for the 2004 and 2007 regulatory requirements) and nonroad compression ignition engines which have not undergone extensive in use scrutiny and assurances of durability. Thus we believe it is appropriate to establish an inuse compliance presence to ensure that the applicable new emission standards are being met. In terms of equity with other industries and in terms of the need for the compliance programs, we believe that EPA's proposed compliance program and the associated fees are appropriate. In addition, as noted above, EPA's in use testing will not be duplicative, but as envisioned by EPA's settlement agreement with EMA, EPA's testing will be used DRAFT 4/ 8/ 04 DRAFT 48 for purposes of verifying any manufacturer testing as necessary in order to make final compliance determinations and other separate testing to supplement the testing of engine families not tested by manufacturers.

As evidence of EPA's intent to conduct the current and future HDE HW and NR CI testing programs, EPA has formally requested an additional $ 8 million in the fiscal year 2004 budget request sent to Congress " to help ensure compliance with the more stringent and complex Tier II and Diesel regulations for cars, heavy duty diesel engines, and gasoline and diesel fuels that will take effect in FY 2004." Included in the request is the " development of a credible heavy duty compliance program" as Congress has previously questioned EPA's oversight of this industry. We believe it is appropriate to include the new testing program costs associated with heavy duty compliance in the budget request just as it was appropriate to include the $ 10 million associated with the recoverable portion of the $ 14 million spent on the laboratory modernization projections which, at the time, was based on both EPA's design plans and needs and a similar request to Congress for such funding which has since been funded in subsequent appropriations. We also note that much of the testing that will be conducted during the 2005 2006 pilot testing period will be for purposes of refining testing protocols, etc. and that EPA must maintain a reasonable level of compliance testing in order to ensure that emission standards are being met while vehicles are operating during their useful lives. Similar to EPA's in use verification program conducted by manufacturers in the light duty industry ( the Compliance Assurance Program ( CAP 2000)), EPA believes it will continue to test at projected levels beyond 2007 when manufacturers will be expected to be required to conduct their own in use testing as EPA testing in conjunction with manufacturer testing forms the basis for adequately determining the performance of engines during in use operation.

What Commenters Said:

The Alliance/ AIAM maintains that since CAP 2000 transferred the obligation of in use verification and confirmatory testing to manufacturers, EPA appears to be charging fees for costs that are already borne by manufacturers. They also cite to a statement regarding our authority to require SEA testing in the NPRM and contend that since CAP 2000 also reduced or transferred EPA's workload as it relates to SEA testing, that any costs associated with SEA testing is inappropriate.

Our Response: DRAFT 4/ 8/ 04 DRAFT 49 Although the Alliance/ AIAM maintains that CAP 2000 transferred the obligation of in use verification and confirmatory testing to manufacturers, in fact what CAP 2000 accomplished was the shift in emphasis that had been placed on certification to in use performance and in use testing. EPA neither transferred nor intended to transfer EPA's own in use verification and confirmatory testing to the manufacturers. Rather, after CAP 2000 was implemented, EPA began gradually increasing the amount of in use testing that it was conducting, initially at the Virginia test laboratory ( VTL) in Alexandria, Virginia, then transferred this testing ( during the time when testing at VTL was being phased out) to EPA's Ann Arbor laboratory where the in use testing program continues to operate and increase in scope. The costs of the in use testing program reflects our implementation of the new Tier 2 emission standards and associated new technology.

We did not propose any fees for SEA testing for the light duty program, therefore, the Cost Analysis Document does not reflect any light duty costs for SEA testing. However, this does not preclude EPA from increasing its in use testing program or conducting SEA testing if it deems it necessary in the future. Any related fee change would be through Notice and Comment rulemaking.

What Commenters Said:

EMA indicated that EPA should readdress the assessment of fees for in use testing once the manufacturer run program is up and running. EMA also stated that by the time EPA conducts a new rulemaking for HDE fees, the HDE manufacturers will have been making " double payments."

Our Response:

EPA believes that its initial modest compliance program that has been designed for the HDE industry, and for which costs will be recovered by today's rulemaking, is appropriate and is expected to continue for the foreseeable future. The Agency recognizes the significant role the HDE manufacturers will play in contributing to a comprehensive compliance program by conducting their own in use testing. As such EPA anticipates that it may re examine the scope of its own HDE HW in use compliance program and its effectiveness at a time when its new program is fully developed and can also be examined in the context of a mature manufacturer run in use program. This reexamination will focus on whether the manufacturer in use testing program as finally adopted and implemented indicates that changes are appropriate in the nature or extent of EPA testing. EPA will examine the scope of manufacturer run testing and determine whether any redundant or unnecessary in use testing is being done by EPA or whether additional EPA DRAFT 4/ 8/ 04 DRAFT 50 testing is required. EPA believes that this will timely address the concern of " double payments," in order to avoid manufacturers paying for testing that they are conducting and also paying fees for EPA to conduct the same testing.

4. Costs Too High for Industry What We Proposed:

In the Cost Analysis Document we explained that each request for a certificate of conformity within a certification request type is potentially subject to an equal amount of EPA expenditure related to the applicable certification, SEA, and in use compliance monitoring and audit programs, and where applicable, fuel economy. EPA believes it is fair and equitable to calculate fees in a manner whereby the fee for each certificate within a certification request type is approximately the same.

The Cost Analysis divided the various affected industries into three separate categories, light duty vehicles, heavy duty and nonroad compression ignition engines and " Other." Each category was further subdivided if the amount of testing or EPA services varied significantly. The " Other" category was not subdivided as it included vehicles and engines that would only receive certification review and some minimal testing. The fees were determined by dividing the total costs of services provided by EPA to this category by the projected number of certificate applications that would be received by manufacturers included in the category.

What Commenters Said:

Mercury Marine opposed the fee structure for marine engine manufacturers. It asserted that EPA's proposed fee of $ 827 per certificate would have a 2003 model year impact to Mercury Marine of over $ 23,000.

Mercury Marine stated that the marine industry agreed to redesign its products to meet EPA regulations in 1994 and 1995. They noted that the cost of this redesign is in excess of 500 million dollars industry wide. Mercury stated that the discussions at that time certainly did not include any additional costs for certification.

Mercury Marine stated that the marine industry is sensitive to changing costs and is unable to deal with the fees that EPA proposed. DRAFT 4/ 8/ 04 DRAFT 51 Our Response:

As mentioned above, both section 217 and the IOAA direct EPA to recover fees associated with the various engine and vehicle certification and compliance programs. Today's rulemaking is in compliance with the strictures of both provisions. Industries that have not had to pay fees until now will be charged fees to cover the services provided by the EPA. EPA understands that the new fees are an expense that many manufacturers have not had to pay and that this expense may be difficult to budget into a manufacturer's expenses. This is why EPA notified manufacturers of the new fees early in the rulemaking process to give manufacturers time to budget for the new fees.

To reduce their fees burden, EPA included liberal waiver provisions for small engine families to assure manufacturers that the cost of fees will never exceed one percent of the projected aggregate retail value of the vehicle or engines being certified. It should be noted that when a fee is reduced the cost of the compliance services are covered by the government and are not distributed among other fee payers.

Although we did not mention certification fees as part of the marine engines rulemaking, we believe that we have given adequate notice of the new fees in order for manufacturers to prepare for the new fees. Furthermore, since 1992 light duty vehicle and heavy duty engine manufacturers have been paying fees. Thus, we also believe that the new fees schedule will ensure the equitable treatment of all manufacturers that are certified by EPA.

What Commenters Said:

Briggs and Stratton stated that small engine applications are simple and straightforward, they require a minimum amount of review by EPA, there is no OBD II, fleet averaging, etc. Therefore, only a minimum fee should be set for certification, lower than those in the " Other" fee category. Because manufacturers of the small engine industry have a larger number of smaller engine families and the engines are of a low cost then this provides an additional justification for lower fees.

Outdoor Power Equipment Institute ( OPEI) suggested that lawn and garden engines should be treated differently than the other engines and vehicles in EPA's category for " other engines." OPEI asserted that EPA took the position that it incurs the same expense, whether processing a certificate for a very complex locomotive engine, or an engine used to power a hedge trimmer. Furthermore, OPEI comments that although it is DRAFT 4/ 8/ 04 DRAFT 52 not familiar with the intricacies of locomotive engine design and usage, EPA cannot possibly spend the same amount of time certifying a locomotive engines as a lawn and garden engine.

Our Response: