1 Response to Comments Document Motor Vehicle and Engine Compliance Program Fees for: Light Duty Vehicles; Light Duty Trucks; Heavy Duty Vehicles and Engines;

Nonroad Engines and Motorcycles Table of Contents I. Introduction II. List of Commenters and Abbreviations III. Comments and Responses SECTION 1: Legal Authority 1.1. Authority to Assess Nonroad Fees 1.2. Authority to Recover Anticipated Costs for Proposed Programs 1.3. Authority to Collect Fees for Manufacturers 1.4. Other Authority Issues SECTION 2: Assessment of Costs 2.1. Costs Apportioned to Industries 2.2. Costs Unrelated to the MVECP 2.3. Costs for In use Programs 2 2.4. Costs Too High for Industry SECTION 3: Cost Study 3.1. Number of Engine Families 3.2. Heavy duty Highway and Nonroad Compressionignition Compliance Activities 3.3. General Cost Study Comments SECTION 4: Automatic Adjustment of Fees SECTION 5: Effective Date and Application of New Fees SECTION 6: Reduced Fees 6.1. Reduced Fee of One Percent Aggregate Retail Price 6.2. Retroactive Payment Under Reduced Fee Program 6.3. Year End Report 6.4. ICI Owner Imported Vehicles ( Not for Resale)

6.5 $ 300 Minimum Fee Payment SECTION 7: ICI Issues 7.1. Fee Provisions Specific to ICIs 7.2. ICI Vehicles Imported for Resale 7.3. Modification and Test Cars 7.4. ICI Licensing 7.5. ICIs and SBREFA SECTION 8: Other Topics 3 8.1. EPA Services 8.2. Fee Payment Timing 8.3. Running Changes and Carryovers 8.4. Refunds Less than $ 500 and Final Fee Payments Less than $ 500 8.5. $ 300 Minimum Fee Payment 8.6. Reduced Costs for California only 8.7 Fee Payment Suggestions I. Introduction On August 7, 2002, EPA published in the Federal Register ( 67 FR 51402) a Notice of Proposed Rulemaking ( NPRM) titled the Motor Vehicle and Engine Compliance Program Fees for: Light Duty Vehicles; Light Duty Trucks; Heavy Duty Vehicles and Engines;

Nonroad Engines and Motorcycles. A public hearing on the proposal was held in Ann Arbor, Michigan on September 19, 2002.

The proposal announced the opportunity for written public comment 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.

Complete transcripts of the public hearing and the full text of each comment letter, along with supporting information used in developing the regulation, are found in Docket No. OAR 2002 0023 ( this docket was originally referenced as A 2001 09). The docket 4 is available for public viewing at the following address: EPA Docket Center ( EPA/ DC), Public Reading Room, Room B102, EPA West Building, 1301 Constitution Avenue, NW, Washington, D. C. 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 appropriate docket identification number.

EPA received several comments. A copy of each comment letter is included in the rulemaking docket. All of the comments have been carefully considered, and where determined to be appropriate, changes have been made to the final regulations.

This document summarizes the written and oral comments submitted at the public hearing and delivered to EPA during and after the comment period.

This document is divided into eight sections. Each section comprises issues which address the section heading or topic.

EPA published in the Notice of Proposed Rule Making ( NPRM)

fees that reflected our projected test plans for the regulated 5 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 project 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. The changes are described in detail in the preamble to the final rule, section III, What Are the Changes Made to the Proposed Cost Analysis? The issues are discussed more fully in the sections 2 and 3 below. 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."

II. List of Commenters and Abbreviations Below is a list of commenters that submitted substantive comments to the notice of proposed rulemaking. It is not a complete list of the commenters. All commenters and comments submitted are available in the above mentioned docket. 6 Commenters Abbreviati ons Alliance of Automobile Manufacturers Alliance Association of International Automobile Manufacturers AIAM Briggs and Stratton Echo Incorporated Echo Engine Manufacturers Association* EMA Motorcycle Industry Council MIC Mercury Marine*

Outdoor Power Equipment Institute OPEI Sierra Research SR Vehicle Services Consulting, Inc.* VSC * Organization presented oral testimony at the public hearing 7 III. Comments and Responses Section 1: Legal Authority 1.1 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, off road motorcycles and all terrain vehicles), recreational marine and compression ignition engines,

large spark ignition engines ( over 19 kilowatts ( kW)) and marine spark ignition/ 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 8 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 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 9 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: 10 " 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.

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: 11 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 12 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 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 1 See, for example, section 218: "[ t] he Administrator shall promulgate regulations applicable to motor vehicle engines and nonroad engines..." 42 USC § 7553 ( emphasis added).

13 have expressly employed the term " motor vehicle or engine," 1 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. 14 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.

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 15 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 16 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 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 2 " 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).

17 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 beneficiaries2. 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. 18 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.

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 19 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 20 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 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 onhighway 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 21 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 offroad 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 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 section 1.2. below.

1.2 Authority to Recover Anticipated Costs for Proposed Programs 22 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 lightduty vehicles, motorcycles and heavy duty 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 23 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.

We explained that for those regulatory programs with proposed but not yet finalized emissions standards and regulatory programs with yet to be proposed emissions standards, the associated fees would only apply after the applicable regulations became effective or in other words, at the time a manufacturer requests certification ( 67 FR at 51408). We also explained that we knew enough of the Agency's anticipated costs for these programs. Id. We further explained that we did not believe our fees proposal for these programs would prejudge the outcome of those ongoing rulemakings. Id. We also indicated we were considering where to finalize fees for those programs with no 24 emissions standards. [ 67 FR at 51410]

To determine our projected costs, we explained that the Agency conducted an in depth analysis of the costs incurred in operating the MVECP ( 67 FR at 51409). We also set forth in greater detail all of our associated direct and indirect costs in the Cost Analysis Document, which is included in the docket of this rulemaking.

For many of the certification request types in the " Other"

fee category, which primarily consists of nonroad groups, EPA projected its cost based on a minimum level of effort needed to effectively review and process certification applications and some limited testing. It should be noted that EPA also recognized that many of the emission regulations for these industries include the authority to conduct other MVECP type activities beyond certification but EPA chose to not charge for such activities as none are yet envisioned by the Agency.

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 25 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 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 26 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 27 it is 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 28 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.

As noted above and within the proposal, EPA has based its costs on actual 2001 budget expenditures and then evaluated what the same levels of effort would cost in 2003 or later. EPA is in fact no longer " projecting" what its lab modernization costs will be and whether it will receive necessary appropriation for the upgrades. We have received a budget allocation in fiscal year ( FY) 2003 and plan to fully fund the test cell upgrades to make them compliance testing ready. To some extent EPA recognizes that it continues to project some of its actual costs. However,

EPA anticipates that it will receive the necessary budget for fiscal year 2004 ( during which time this new fees rule will now become effective) and will spend the actual amount associated with its " expanded programs." Some of these expanded programs include new certification activities which EPA must perform in order to grant certificates to newly regulated industries. In addition EPA will also be conducting some new certification confirmatory and in use testing for the heavy duty industry.

These costs and EPA's expected level of activities are further 29 discussed in sections 2 and 3. EPA's budget request to Congress includes the budget for these new testing levels and EPA continues to believe this expected level of activity of cost and activity is reasonable.

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 anticipate finalizing fees for that industry in the final emission regulation. Therefore, in EPA's revised worksheet # 2, in the 30 " 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 almost 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 31 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. 32 1.3 Authority to Collect Fees for Manufacturers What We Proposed:

Currently, EPA requires all manufacturers to pay fees for certification applications. We proposed the continuation of the fees' requirement. We defined " manufacturer" as " all entities or individuals requesting certification, including, but not limited to, Original Equipment Manufacturers ( OEMs), Independent Commercial Importers ( ICIs), and vehicle or engine converters."

[ 67 FR 51403].

What Commenters Said:

Section 1.3.1. Vehicle Services Consulting ( VSC) argues that section 217 does not grant the Agency authority to assess fees for " used vehicles," because it references " new vehicles" and not " new motor vehicles," as defined in section 216. VSC further contends that it is unclear whether all ICI motor vehicle importations are subject to " certification" and hence to certification fees.

VSC notes that the Agency's certification assessment fees authority may derive from sections 203( b)( 2), 206( a), 216( 1) and 217, and argues that section 203( b)( 2) does not require " certification" for ICI vehicles but instead that such vehicles 33 be " brought into conformity with the standards." VSC also asserts that in some instances, such as where there is no " resale," an ICI may not be a " manufacturer," as contemplated by section 216, and therefore should not be subject to fees.

Our Response:

As noted in EPA's response in section 1.1 above, EPA believes that it is appropriate to recover the costs incurred when it provides unique and special benefits identified with a private entity as opposed to the general public. Similarly, EPA also believes that the costs EPA incurs to ensure that vehicles imported in to the United States meet the requirements of the Clean Air Act and regulations thereunder should also be recovered both under the authority of section 217 of the CAA and the IOAA.

Because EPA is also guided by section 213( d) when it has implemented emission regulations for nonroad engines and vehicles and the enforcement scheme under section 206, 207 and 208 that are noted in section 213( d), we have also applied the definition of " new" in the same manner to the nonroad sector and thus believe the requirements for certification of all imported nonroad vehicles is the same as for motor vehicles and engines.

Thus the definition of " new" found at 40 CFR § 89.2, etc. is similar to that at Section 216( 3).

Under section 217, EPA is authorized to assess fees for 3 For example, a 1995 motor vehicle imported in 2003 by an ICI ( for resale or on behalf of current owner) is a " new motor vehicle."

34 " new vehicle" or " engine" certification and compliance activities pursuant to section 206( a), 206( b) and 207( c). In section 216( 3), Congress defined " a new motor vehicle," as meaning " with respect to imported vehicles or engines, . . . a motor vehicle and engine, respectively, manufactured after [ September 25,

1987]." 42 U. S. C. § 7550( 3). 3 ( Emphasis added). Sections 206( a), 206( b) and 207( c) are applicable to " new motor vehicles"

and " engines," and as noted above to nonroad as well. Thus,

contrary to VSC's contention, imported vehicles and engines are subject to the provisions of sections 206( a), 206( b) and 207( c)

and therefore, fees' assessment under section 217. As set forth at 40 CFR § 85.1503( a), any "... nonconforming vehicle or engine offered for importation into the United States must be imported by an ICI who is a current holder of a valid certificate of conformity ...." Section 85.1502( a)( 3) defines a certificate of conformity as that document issued by EPA under section 206( a) of the Act.

In addition, Congress defined a " manufacturer," in section 216( 1), as " any person engaged in. . . . importing [ new motor or nonroad] vehicles or [ new motor or nonroad] engines for sale,

or who acts for and is under the control of any such person in connection with the distribution of [ such] vehicles or engines .

. . " 42 U. S. C. § 7550( 1). Thus, an ICI is a " manufacturer," 35 to the extent it imports and is involved in the " distribution" of imported vehicles in the United States. Also, EPA has historically considered ICIs as manufacturers under section 216( 1). Consequently, we have also historically considered ICIs eligible to make certification applications. ( See for example, 52 FR 36136, 36142). Further, this definition contains no exclusion of " used vehicles" or vehicles that are not for resale.

Legislative history also indicates that Congress intended Title II to apply to all imported vehicles " whether or not new and whether or not imported for sale or resale." 1970 U. S. C. C. A. N.

5356, 5368. Because these new imported vehicles and engines are covered by certificates then the vehicles are also subject to the other protections and requirements provided by the CAA including warranty and recall, selective enforcement audits, etc. and in this way EPA insures that such vehicles and engines do in fact conform with the requirements of the Act as required under section 203( b).

Legislative history of section 217 also indicates that the Agency is to " recover the costs associated with operating"

compliance and certification programs from " foreign and domestic manufacturers." ( H. R. 101 490, May 1990, 1990 U. S. C. C. A. N. 3355).

Clearly, Congress would have expressly limited the reach of section 217 had it intended that imported but used vehicles not be subject to the fee requirement. However, there is no apparent intention to limit either our certification and compliance 36 program or our fees' authority. As previously stated in section 1.1. above, section 217 authorizes EPA to recover the costs of its certification and compliance program activities from manufacturers. See also, EMA, 20 F. 3d 1177 ( D. C. Cir 1994).

Therefore, we believe we are authorized to recoup the costs associated with imported vehicles and engine certification activities from ICIs. Thus, the Agency disagrees with the contention that section 217 does not grant EPA authority to assess fees for certification and other compliance activities that goes with the importation of " used vehicles." Further, we believe that VSC's reading of section 217 would result in imported vehicles and engines being subject to the certification and compliance requirements under section 206( a), 206( b) and 207( c) but not certification fees. Allowing such a reading would not comport with Congressional directive that EPA recover the costs of compliance and certification activities.

VSC also argues that it is unclear whether imported vehicles are subject to the certification requirements and therefore certification fees. Section 203( a) bars the importation of motor vehicles or engines into the United States unless covered by a certificate of conformity issued by EPA. "[ T] he importation into the United States, of any new motor or new motor vehicle engine,

manufactured after the effective date of regulations under this part which are applicable to such vehicle or engine unless such vehicle or engine is covered by a certificate of conformity [ is 37 prohibited]." 42 U. S. C. § 7522( a) ( emphasis added). This section expressly prohibits the importation of vehicles unless covered by a certificate of conformity. There is no other limitation on this prohibition that can be discerned in section 203( a).

In addition, section 206( a)( 3)( A) states, in pertinent part,

that in the case of an imported vehicle or engine, "[ a]

certificate of conformity may be issued only if the Administrator determines that [ a] person has established . . . that any emission control device, system, or element of design installed on or incorporated in such a vehicle conforms to the applicable requirements of [ section 202]." 42 U. S. C. § 7525( a)( 3)( A). This section authorizes the Agency to issue a certificate of conformity for only imported vehicles or engines that comply with the applicable standards prescribed under section 202. In this section, the requirement for coverage by a certificate of conformity for imported vehicles is also readily apparent.

There is no other specific provision in the Act that can be read as precluding EPA from issuing a certificate of conformity for imported vehicles and engines. Rather, the relevant provisions indicate that imported vehicles and engines must be covered by a certificate of conformity. Also, as previously stated above, EPA has always considered ICIs as manufacturers and therefore,

eligible to make certification applications. 38 In addition, "[ t] he 1970 amendments made the requirements of Title II applicable to any imported vehicle or engine ( whether or not new and whether or not imported for sale or resale) if the vehicle or engine was subject to the standards when manufactured ( or would have been so subject had it been manufactured for importation)." 1970 U. S. C. C. A. N. 5356, 5368 ( emphasis added).

Therefore, all imported vehicles, " whether or not new, or imported for sale or resale" must meet Title requirements which includes coverage by a certificate of conformity and fees'

assessment.

Thus, even though VSC argues that applicability of the certification requirements to imported vehicles is unclear, both sections 203 and 206 explicitly require coverage by a certificate of conformity of imported vehicles and engines. We believe this requirement is clearly discernable from the plain text of these provisions. Also, the coverage by a certificate of conformity requirement is intended to ensure that imported vehicles meet federal emissions standards. VSC's contention would mean that an imported vehicle, as compared to vehicles manufactured in the United States, need not meet emissions standards prior to introduction into commerce and during the useful life of the vehicle. This would not be consistent with the statutory objective to address and control mobile source emissions.

VSC further argues that section 203( b) only requires that 39 vehicles be " brought into conformity with the standards," and does not authorize EPA to require certification for ICI vehicles.

Section 203( b) grants EPA discretion to allow importation of nonconforming vehicles. "[ T] he Secretary of the Treasury and the Administrator may . . . provide for deferring final determination as to admission and authorizing the delivery of a [ new motor vehicle or new motor vehicle engine offered for importation into the United States in violation of the applicable standards] . . .

upon such terms and conditions . . . to insure that any such vehicle or engine will be brought into conformity with the standards. . . ." 42 U. S. C. 7522( b)( emphasis added). This section merely allows for our deferment of the final determination as to admission of an imported vehicle pending the vehicle being brought into conformity with applicable emissions standards. Bringing an uncertified vehicle into conformity with standards includes an ICI applying for and receiving a certificate of conformity pursuant to section 206. Therefore,

this section also does not lend support to VSC's contention that an issuance of a certificate of conformity to an ICI is not required for used vehicles or imported vehicles that are not for resale.

Section 1.3.2. The Motorcycle Industry Counsel ( MIC) contends that there is nothing in the CAA, its legislative history, or in EPA regulations to show that the MVECP benefits motorcycle manufacturers. MIC also contends that the " benefits" 40 manufacturers derive from EPA's certification and compliance program, if any, is not unlike a tariff or tax, in other words one must pay in order to play, or receive a certificate.

Our Response:

EPA disagrees with this comment. As stated in section 1.1.

above, section 217 authorizes the Agency to collect fees associated with our certification and compliance activities. As also earlier mentioned, EMA indicates that the certification and compliance activities for which EPA is collecting fees do confer a specific private benefit to on highway vehicle and engine manufacturers. Because " the [ Agency's] Compliance Program confers a specific, private benefit upon the manufacturers, EPA can lawfully recoup . . . the reasonable costs of the program."

EMA, 20 F. 3d at 1180.

As also previously mentioned in section 1.1. above,

governmental agencies are authorized by the IOAA, to recover costs whenever an identifiable recipient derives a benefit from services rendered by the Agency. " A certificate of approval is deemed a benefit specific to the recipient." Id. Thus, MIC is wrong in asserting that our certification and compliance activities do not confer benefits on manufacturers and as a result that we have no authority to collect fees for such activities. 41 Further, contrary to MIC's contention, fees assessed and recovered by a governmental agency under the IOAA, is neither a tax nor a tariff. " It would be such a sharp break with our traditions to conclude that Congress had bestowed on a federal agency the taxing power that we read the [ IOAA] narrowly as authorizing not a ` tax' but a ` fee.'" National Cable Television Association, Inc., v. U. S., 415 U. S. 336, 341, 94 S. Ct. 1146,

1149.

Section 1.3.3. EMA considers the Agency's in use testing for " older model engines that are no longer produced or sold,"

improper and " gold plating," since manufacturers do not derive any benefits from such engines.

Our Response:

EPA disagrees with this comment. Our emission standards apply over the useful life of the engine. Our compliance programs, which include certification, selective enforcement audits and in use testing, seek to ensure that the emission requirements are met over the life of the engine.

"[ M] anufacturer[ s] benefit[] from second and third stage compliance testing because, . . . such testing is integral to the regulatory scheme under which each engine or vehicle model must be recertified annually." EMA, 20 F. 3d at 1181. Consequently,

EPA believes that manufacturers benefit from the in use testing 42 requirements of the Agency's MVECP. "[ S] elective enforcement audits and in use compliance testing are . . . services that the EPA renders to each manufacturer in order for the manufacturer to comply with the Clean Air Act [ and] it follows that the manufacturer obtains a benefit from the entire compliance program not just from the annual certification." Id. at 1180. This service applies whether or not the manufacturer retools an engine model and produces a different engine for future model years.

Although EMA specifically mentioned a benefit for on highway vehicles, the reasoning used would also lend itself to nonroad vehicles and engines. Thus, similar to highway vehicles, nonroad vehicles and engine manufacturers also derive a benefit for the latter phases of our certification and compliance programs.

1.4. Other Authority Issues What We Proposed:

Section 1.4.1. EPA's current fees regulation at 40 CFR 86.903 93 states in part that "[ n] othing in this subpart shall be construed to limit the Administrator's authority to require manufacturer or confirmatory testing as provided in the Clean Air Act, including authority to require manufacturer in use testing as provide in section 208 of the Clean Air Act." In the proposal to today's rule the same language can be found at 40 CFR 85.2401( d). 43 What Commenters Said:

EMA states that the Act does not authorize EPA to compel manufacturers to conduct in use testing and therefore that proposed 85.2401( d) is superfluous and should be deleted.

Our Response:

We believe the existing language in section 208( a) of the CAA gives EPA the authority to reasonably require certain things in order for EPA to determine whether a manufacturer or other person has acted or is acting in compliance with Part A and Part C of Title II of the CAA, and regulations issued thereunder. We also believe that nothing in today's rulemaking in any manner affects EPA's authority under section 208( a) or other authority found elsewhere within the CAA. For this reason EPA chooses to keep the language in 85.2401( d) for the final rule.

What We Proposed:

Section 1.4.2. We proposed recovery of all costs incurred by the Agency in conducting the MVECP. These costs included labor,

operating and program costs. ( See, section III of the NPRM, ( 67 FR 51409) and the Cost Analysis Document, section III. A.).

What Commenters Said: 44 MIC asserts that EPA may recover only the reasonable amount to cover the appropriate portion of reasonable costs of the services that benefit manufacturers. It then describes as too liberal EPA's interpretation of the associated costs that can be collected for our certification and compliance activities. MIC also states that the acquisition of real property, laboratory facilities or equipment are cost items that are more appropriately handled by the Congressional budget process and scrutiny.

Our Response:

Under section 217, EPA is " to recover all reasonable costs to the Administrator associated with [ the MVECP]." 42 U. S. C. § 7552( a) ( emphasis added). In addition, the IOAA authorizes "[ t] he head of each agency . . . to establish[] the charge for a service or thing of value provided by the agency . . . based on the costs to the government, value to the recipient, public policy or interest served and other relevant facts." 31 U. S. C. § 9701( b).

We believe these provisions authorize us to recover the reasonable costs that are associated with our activities for the certification and compliance requirements mentioned in section 217( a). Further, in EMA, the court found that " EPA must calculate the cost basis for the fee by allocating its direct and 45 indirect expenses to the smallest practical units of service."

EMA, 20 F. 3d at 1181. We consider our labor, operating and program costs that are associated with these requirements as recoverable costs. Thus, the costs of real property and laboratory equipment are recoverable to the extent they are associated with the services EPA provides to manufacturers as part of the certification and compliance program.

Further, OMB Circular No. A 25 ( Circular), which was issued pursuant to the IOAA, provides guidance on fees assessment for services rendered by Agencies. It directs Agencies to ensure that fees are sufficient to recover the " full cost" to the Government of providing services to identifiable beneficiaries.

It explains " full cost" as including all direct and indirect costs. It also includes physical overhead, materials and supplies, utilities, rents or imputed rents on land, buildings,

and equipment as indirect costs. ( Circular at p. 4). Therefore,

we believe the costs of acquiring real property, laboratory facilities or equipment that are associated with the MVECP are recoverable costs.

Section 2: Assessment of Costs 2.1 Costs Apportioned to Industries What We Proposed: 4 See Cost Analysis Document starting at page 16 ( step 5 of " general steps").

46 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. 4 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 medium duty passenger vehicles and certain heavy duty vehicles were included, with subcategories 47 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 sparkignition engines, recreational marine engines, recreational vehicles, heavy duty engine evaporative systems and heavy duty engines certified for California only .

What Commenters Said:

Section 2.1.1. EMA maintains that the language of section 217( a)

of the CAA relevant to heavy duty 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 heavyduty 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 5 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."

48 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 beneficiary5, 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 49 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 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 50 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 as explained in section 2.2 ( 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 6 EMA at 1180.

51 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 of approval is deemed a benefit specific to the recipient." ( italics added). 6 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 7 Not to exceed requirements specify that engine emissions must not exceed a specified value for any of the regulated pollutants.

52 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:

Section 2.1.2 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 manhours 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) 7 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 53 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 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 54 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 selfsustaining 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 55 compliance that is associated with such activity and therefore EPA makes no adjustment of its fees based on commenters suggestions.

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. As further explained in section 2.2 below, 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.

2.2 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 56 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 heavyduty highway certification type.

Worksheet # 1 shows a total recoverable cost for HD HW of $ 3,956,759 of which $ 769,448 is designated as Certification and Compliance Division ( CCD) direct program costs and $ 275,431 of Laboratory Operations Division ( LOD) direct program costs.

Various costs are included within the indirect program costs including $ 193,000 for lab modernization. The labor costs include $ 1,404,646 of direct costs and $ 345,509 of indirect costs.

Worksheet # 3 ( the summary sheet for LOD which is located in Ann Arbor) shows an additional ( or projected) direct labor cost of $ 224,055 and an indirect total of $ 249,785 for HD HW. Worksheet # 4 ( the summary sheet for CCD which is located both in Ann Arbor and DC) shows that no costs for labor are incurred in Ann Arbor 57 and $ 1,276,315 of labor costs in DC. Worksheet # 7 breaks down LOD's additional labor needs and shows that 1.50 total full time equivalent employees ( FTEs) will be required to perform and process tests in Ann Arbor.

The Cost Analysis at page 33 explains the Laboratory Modernization ( Lab Mod) costs on worksheet # 10. Included was a total cost estimate of $ 14,130,000 of which $ 10,030,00 was deemed recoverable. This recoverable portion was amortized over 10 years for an annual recoverable cost of $ 1,003,000. These costs were allocated to the light duty and the heavy duty highway industries using the actual cost allocation method according to the program for which the equipment was purchased. The " actual cost" allocation method, as explained further at page 110 of the Cost Analysis, is used when the costs can be directly attributable to an industry category. For example, for the HDE HW category, EPA attributed $ 193,000 per year in lab modernization costs for the test cells associated with testing such engines. Thus worksheet # 10 breaks down the costs by various pieces of equipment and their purpose. For example,

under the Heavy Duty Test Engine Sites various pieces of equipment are listed, whether such equipment will be used in test cell number 1 or number 2 ( HDE # 1 and HDE # 2), and whether the costs of such equipment are recoverable or not. The total costs associate with the Lab Mod for the two heavy duty test cells is $ 3,030,000 of which EPA proposed $ 1,930,000 as recoverable, and, 58 amortized over 10 years, resulted in annual cost ( and proposed fee collection) of $ 193,000. At the time of the proposal EPA anticipated using both test cells for MVECP activities as well as other activities and proposed recovering the full costs of any equipment related to MVECP activities regardless of their potential use for non MVECP activities. Worksheet # 3 and worksheet # 1 both include the $ 193,000 figure for the lab mod costs associated with the heavy duty test cells.

The core testing operations costs for LOD as noted on worksheet # 1 are further explained on worksheet # 12, including a breakdown of HDE HW costs of $ 275,431 of which $ 225,360 will be used on engine procurement. Separate from the LOD costs for lab modification and core testing operations costs are CCD's programs costs as listed on worksheet # 13. These costs include " In use on vehicle testing" at $ 297,200 and " enhanced engine compliance programs" at $ 380,000. The enhanced engine compliance program costs are further broken down in worksheet # 16 including $ 200,000 for confirmatory testing for certification, $ 30,000 for selective enforcement audits, and $ 150,000 for in use engine dyno testing.

This program's costs are discussed again and further clarified within section 2.3.

What Commenters Said:

Section 2.2.1. In its initial comments, EMA expressed the 59 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 onhighway 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.

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 60 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 revised 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. Revised 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: 61 Section 2.2.2. 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:

Section 2.2.3 addresses the issue of whether EPA's proposal included sufficient information regarding whether EPA planned to conduct HDE compliance testing in Ann Arbor. This section addresses EMA's concern whether EPA actually would do testing at Ann Arbor and the need for such testing, along with an explanation for why EPA believes the cost estimates associated with such testing are reasonable.

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 nonconformity 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 62 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.

As also explained at section 2.2.4, 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 63 at 2.2.4.

Section 2.2.3. On December 10, 2002, EPA met with EMA. At that time, EMA once more sought an explanation of the costs attributed to HDE testing at Ann Arbor which are reflected in LOD's summarized costs on worksheet # 3 and the description of LOD's core testing operations description on worksheet # 12. As explained on page 30 of the Cost Analysis, LOD's direct program costs include the costs of testing and vehicle and engine procurement for such tests, including those costs at worksheet # 12. EMA sought clarification of worksheet # 10 ( the laboratory modernization costs for the two heavy duty test engine sites) and how those costs were coordinated with the LOD costs noted above and with LOD's FTE costs.

In response to our explanation, EMA submitted additional comments contending there was an inadequate explanation on the HDE testing at Ann Arbor, and more specifically the use of test cells at Ann Arbor. EMA further contended that EPA wrongly seeks to recover 100 percent of the costs associated with the advance engine test cells when EPA would be utilizing, at most, only 25 percent of the cells for compliance activities. EMA stated that only 25 percent of the costs should be assessed to reflect the actual amount of time the dyno would be used for compliance activities. EMA also contended that our proposal does not evince an intent to conduct HDE testing at Ann Arbor. 64 Our Response EPA's original cost analysis for the lab modernization plan assessed the entire cost of any equipment that would be used for MVECP services and this plan included specifically the upgrading of two heavy duty engine test cells ( HDE # 1 and HDE # 2 on worksheet # 10) and the allocation of the upgrade costs to the heavy duty highway industry which EMA now questions. At the time of the proposal EPA's intent was to use each of two test cells approximately only 25 percent of the time for compliance activity purposes. In their pre modernization condition these cells were not suitable to perform testing that could be used for compliance or certification type activities. Since the two cells were to be utilized for compliance activities, the lab equipment and facilities of each test cell needed to be upgraded to deliver data that would meet requirements for certification or recall purposes. Since the upgrade was not necessary for the noncompliance test activities that were conducted in these test cells, the entire costs of the test cells were included in the fees proposal as compliance related costs.

EPA has reexamined its plans for the use of the two HDE test cells and has determined that most compliance testing will occur in test cell HDE # 2. Although EPA had originally planned to use both test cells, HDE # 1 and HDE # 2, approximately 25 percent of the time for compliance testing, EPA has determined that it will 65 be using HDE # 2 approximately 25 percent for compliance testing.

Although it may be appropriate to assess the full costs of the test equipment in the Ann Arbor HDE # 2 ( and to some extent that equipment shared with HDE # 1 that is used in HDE # 2) to fees because the equipment is necessary for EPA's enforcement activities, EPA has allocated the costs as noted below.

EPA is guided by the language of section 217( a) ( and in general by the IOAA) which states that the Administrator may establish fees based on such factors as she finds appropriate and equitable, and in this instance we find it equitable to only prorate for that approximate percentage of the time that the equipment related to compliance purposes will be used in comparison to all of its uses. We believe that prorating the costs result in more accurate costs than those presented in the notice of proposed rulemaking.

Most of the HDE HW testing will take place in HDE # 2 test cell which requires the additional equipment outlined on revised worksheet # 10. In cases where there was an equipment cost solely for HDE # 2, such as the heavy duty engine cell controller replacement, the analytical/ sampling system and the selective catalytic reduction ( SCR) load controller, one quarter of the cost was assessed to the heavy duty fees as this cell will be used for compliance purposes one quarter of the time. Therefore,

instead of $ 1,150,000 being recovered by EPA for these pieces of 66 equipment as proposed, EPA will now only recover $ 287,500.

In cases where there was an equipment cost common to both HDE # 1 and HDE # 2, such as the diesel engine cell cooling control and the oxides of nitrogen ( NOx) and particulate matter ( PM)

measurement methods and equipment, one eighth of the cost was assessed to determine the recoverable portion.

EPA disagrees with the comment that our proposal does not evince an intent to conduct HDE testing at Ann Arbor. EMA also suggests that EPA is not currently conducting any such testing in Ann Arbor and questions the need for such testing in light of EPA's other enhanced compliance programs as spelled out in worksheet # 16 and because the manufacturers themselves will be conducting their own in use testing program. We address those concerns in section 2.3 Our Cost Analyses Document contains extensive demonstration of costs associated with HDE HW testing at Ann Arbor such as to place the public on notice of our intent to conduct a heavy duty compliance program. For example, we defined " direct program costs" as those costs for compliance work, including the costs of testing either at EPA's lab or a contracted test facility,

procurement of vehicles or engines and equipment needed to conduct the tests ( see page 14 of the Cost Analysis). EPA explained that in some cases new compliance programs are being 67 planned. We also explained that the cost of testing ( as a direct program cost) to be performed at EPA's lab is included in LOD's portion of the Cost Analysis and are not included in CCD's portion ( see page 40 of Cost Analysis). EPA provided an explanation that within LOD several groups exist, including the " Compliance Development and Testing Group" and the " Advance Testing Group" and that recoverable FTE were only from the former group as the latter group conducts work based on developmental testing and research in vehicle technology, thus EPA clearly differentiated between the two and provided notice for the types of labor associated with compliance testing at the Ann Arbor facility. ( See page 44 of the Cost Analysis). In addition,

additional labor needs which would be necessary for heavy duty compliance testing in Ann Arbor are reflected on worksheet # 7 ( now replaced by revised worksheet # 7) and explained at page 46

47 of the Cost Analysis. EPA notes that in its revised test plan fewer FTE will be required to conduct compliance testing in test cell # 2.

We explained that the NVFEL laboratory modernization plan includes three critical testing support areas requiring new instrumentation and upgrades, including critical diesel engine standards test capability ( including testing to the new 2004 HDE standards  see page 49 of the Cost Analysis). We also explained that the " critical regulatory development" test capability is not involved in compliance testing, and in fact the intent of the 68 proposal was to not charge fees for developing that capability.

We provided further information that the Ann Arbor heavy duty engine test sites will be required to test not only the 2007 NTE standards but also both the current emission levels and the new 2004 model year standards ( see page 50 of the Cost Analysis).

EPA also disagrees with EMA's contention that there was no notice of the amount of compliance testing to be conducted at the upgraded cells since we clearly set forth the procurement cost of HDE HW engines as a component of LOD's core testing operations costs, including the number of engines to be procured and at what costs ( see page 52 of the Cost Analysis).

What Commenters Said:

Section 2.2.4. EMA also contends that EPA's computation of expenses at Ann Arbor are replicated elsewhere and thus result in " double dipping." EMA points to the Agency costs for conducting HDE confirmatory tests, by outside contractors, which is reflected as $ 20,000 or $ 30,000 per engine family on worksheet # 16 of the Cost Analysis, and questions what additional certification/ compliance activity will take place at the two test cells in Ann Arbor. In addition, EMA asserts that the use of contractors renders EPA's attempt to collect additional facility and labor costs ( direct program costs) for such testing improper since EPA will not incur such costs when outside contractors are 69 used.

Our Response:

The testing listed on worksheets # 10 and # 16 is not double counting of the same testing but represents different sets of testing and related costs. This testing will allow EPA to meet its testing goals for the heavy duty industry. See further discussion of this in section 2.3.

The cost analysis reflects the costs associated with EPA's comprehensive strategy to ensure compliance and the various components of the testing plans included within such strategy.

EPA plans to continue with the heavy duty screening of engines in use by using portable emission measuring equipment that is currently being conducted. This testing is designed to survey the industry and to detect possible compliance issues.

Independent of this screening testing, we will also be conducting confirmatory certification dyno testing ( and potentially in use dyno testing to the extent it is not conducted elsewhere, any costs estimated to be incurred at Ann Arbor will also be incurred if testing is conducted elsewhere) at the laboratory in Ann Arbor. This testing will consist of both certification confirmatory testing and some testing of in use engines. Because of possible limitations in lab accessibility in Ann Arbor, and as likely follow up testing to the screening testing, we will also 70 conduct testing at a contracted facility. Although in many instances EPA believes that the screening testing will provide a sufficient basis for making compliance determinations, we also recognize the likely necessity of continuing to test engines in laboratory conditions. This is further explained in section 2.3.

We believe that this testing is necessary as a review of the current testing plans indicated that the testing for the heavyduty industry lags behind the testing that is conducted on the light duty industry. EPA took into account the discrepancy between the current compliance programs for the two industries,

the need for additional heavy duty testing based on recent noncompliance in its testing plans for the industry and on the degree to which manufacturer run compliance activities programs are or will be in place for these industries. The test plans include the screening that is currently being conducted as well as additional testing that would be conducted at the Ann Arbor facility and testing at a contracted facility.

2.3 Costs for In use Programs What We Proposed:

We proposed continuance of the Agency's current compliance methods for light duty vehicles, motorcycles and heavy duty highway vehicles and engines which insure the overall compliance 8 Note that the final costs for the HDE equipment costs is $ 38,500 per year, not $ 193,000 as proposed.

71 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 in use testing. ( 67 FR at 51406 51408).

Currently, EPA conducts testing of in use heavy duty highway engines and nonroad compression ignition engines at costs of $ 297,200 and $ 72,800, respectively as indicated on worksheet #

13. 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 proposed8 costs for the inuse testing conducted at EPA's Ann Arbor facility included the equipment costs listed in worksheet # 10 ($ 193,000 per year for 72 heavy duty), the labor listed in worksheet # 7 ( 2.75 FTE), and the cost of procuring in use heavy duty engines listed under Engine Procurement  Heavy Duty, on worksheet # 12 ($ 225,360).

In addition to the new testing that will be conducted in Ann Arbor, we are planning an Enhanced Engine Compliance Program.

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 certification confirmatory testing, selective enforcement testing, and in use engine dyno testing for both heavy duty highway engines and nonroad CI engines at costs of $ 200,000, $ 30,000 and $ 150,000 respectively.

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.

Section 2.3.1. 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 73 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 9 Not to exceed requirements specify that engine emissions must not exceed a specified value for any of the regulated pollutants.

74 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 onhighway 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.

What Commenters Said:

Section 2.3.2.

EMA states that manufacturers will be conducting a comprehensive in use not to exceed ( NTE) 9 testing program of onhighway HDE during the 2005 and 2006 time period and will subsequently conduct a manufacturer run in use program. EMA 75 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 in use 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 76 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 in use 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 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, 77 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. 78 What Commenters Said:

Section 2.3.3. 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:

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 79 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 lightduty 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:

Section 2.3.4. 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:

As noted above in section 2.3.2, 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 80 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 manufacturerrun 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 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.

2.4 Costs Too High for Industry What We Proposed:

As earlier mentioned in section 2.1, the Cost Analysis Document contains EPA's in depth analysis of the recoverable costs associated with running the MVECP. 81 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:

Section 2.4.1. 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 82 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.

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. 83 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:

Section 2.4.2. 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 84 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 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:

To reflect the services we provide to industries within a category ( see worksheet # 2 for the categories " LDV and Highway Motorcycles," HDE Highway and Nonroad CI," and " Other") in some instances we further subcategorized the fee categories. In addition to assessing the time that may be spent reviewing certification applications within a category or subcategory, we also assessed whether the applicable industry type would receive a similar level of compliance testing and associated costs. The goal of this is to develop subcategories that are expected to receive similar compliance activity and related costs. EPA's 85 cost analysis for the fees rule divided categories into subcategories whenever there was a substantial difference between the level of services given to a subcategory. For example, EPA conducts pre certification testing and in use testing for lightduty vehicle and trucks. Conversely, EPA plans to conduct much less motorcycle testing within that same category. Therefore,

the fees for the motorcycles are less than the light duty vehicle and light duty truck fees. EPA plans, for the industries in the " Other" category, to conduct the same level of effort for certification review and also plans only a minimal amount of testing. Testing is a major cost that separates subcategories and is not a significant cost for this category. Therefore, the industries in the " Other" category remained grouped together.

The certification information submitted by the individual industries largely consists of test data, descriptions of engines or vehicles in the engine family, and forms indicating the standards that the vehicles or engines meet. This information does not vary significantly whether the engines are large and complex or small and less complex. Certification review of all industries in the " Other" category consists of a review of the information that the manufacturer submits. The review includes determining that the engine or vehicle is being certified in the correct certification category, that the certification tests were conducted on the worst case engine or vehicle, that the forms were filled out correctly, and that the vehicle or engine meets 86 EPA's emission standards. In this respect, all of the certificate applications submitted by the industries included in the " Other" category are the same.

In the course of EPA's review of certification applications,

certain items may be reviewed more closely for one application than for another application, items such as defeat devices,

auxiliary control devices or new technology. EPA decides whether these items should be reviewed depending upon the history of the industry, the manufacturer and other factors. Although the level of review of these items may change the total time spent on an individual or an industry's applications, the difference is not significant and does not merit a separate subcategory.

Furthermore, other factors such as assisting new manufactures and reviewing incomplete applications require more time than the average difference in review time for industries' applications.

For these reasons, EPA decided that the applications in the " Other" category are provided basically the same review and testing services and, therefore, should be assessed the same fee.

What Commenters Said:

Section 2.4.3. OPEI stated that EPA had an overly simplistic arithmetic system of evenly dividing the certification costs between such disparate industries ( as locomotive and trimmers)

and OPEI finds this inappropriate and inequitable. OPEI 87 asserted that, using the figures generated by EPA, more than half ( 546) of the 1,027 engine families in the Other Industries category are lawn and garden engines. In addition, OPEI stated that the simple arithmetic used by EPA results in unfairly loading the " lion's share" of the certification costs onto a single industry which should only be responsible for its own share of certification costs.

Our Response:

As described in 2.4.2 above, EPA divided the costs attributed to the services provided to the " Other" category by the number of projected certification applications from the industries included in this category since each application entails approximately the same amount of review or effort by the Agency. Regardless of the disparity of the applications, the amount of time spent on locomotive applications and trimmer applications will be about the same.

The projected number of applications for the lawn and garden industry constitutes more than half of the applications that will be received and processed by the Agency. Over half of resources that EPA spends on the " Other" category will be spent on lawn and garden engines. For this reason, we believe it is appropriate,

equitable and nondiscriminatory for the lawn and garden industry to pay more than half of the costs for the " Other" category. 88 What Commenters Said:

Section 2.4.4. OPEI and ECHO stated that there are a lot of small business in the lawn and garden engine industry and these businesses may be unable to absorb fees costs as easily as other industries. OPEI suggested that certification fees for lawn and garden engines be set at no more than $ 300 as this would take into account the industries' razor thin profit margin. OPEI further stated that most certificate applications are carried over from year to year which, OPEI suggests, costs EPA a fraction to process relative to a new certification application.

Our Response:

EPA does recognize that in some cases the full fee for certification may present an unreasonable burden and established a reduced fee to provide relief to manufacturers of smaller engine families. The reduced fee provision should help small business that certify smaller engine families for a limited market. Therefore, EPA does not see fit to reduce the fee for the lawn and garden industry to $ 300.

For EPA's response to the relative cost of carryover applications, see section 8.3 below.

What Commenters Said: 89 Section 2.4.5. The Motorcycle Industry Council stated that the proposed motorcycle testing is adequately funded by the Agency's existing fee and that even considering inflation, EPA's increased costs would not equal the proposed fee.

Our Response:

EPA's future plans for motorcycle compliance include more that the certification screening testing that is being conducted today. Worksheet # 13 in the Cost Analysis includes an in use motorcycle compliance program which includes the costs of motorcycle procurement, testing and computer support. The cost of the proposed motorcycle compliance program is $ 118,400. The motorcycle fees include this cost as well as the costs of the labor, certification and other services all outlined in the Cost Analysis that are dedicated to the motorcycle industry.

Section 3: Cost Study 3.1 Number of Engine Families What We Proposed:

As previously mentioned in section 2.1, we grouped industries into three fee categories ( industry groups): 1) Light

Duty, consisting of light duty vehicles and highway motorcycles; 90 2) Engines, consisting of heavy duty highway and nonroad compression ignition engines; and 3) " Other", which contains other vehicles and engines. We proposed a fee schedule based upon the recoverable costs for each certificate type under each fee category and the number of known and projected certificates issued annually for that certificate type. We then divided our recoverable costs by the number of certificates expected to be issued to manufacturers within that certification request type.

Thus, for example, in the proposal we determined the recoverable costs for the nonroad CI industry as $ 1,300,155 and the number of certificates issued as 603 and the resulting fee is $ 2,156.

( Worksheet # 2 of the revised Cost Analysis available in Docket OAR 2002 0023 updated the cost for the nonroad CI industry to $ 1,205,895, number of certificates to 662 and the resulting fee for that industry is $ 1,822.)

We determined the number of certificates expected to be issued by examining EPA's certification database. For currently active certification programs, we listed the number of certificates based on the latest information at the time of the proposal which was for the 2001 model year ( 67 FR at 51406). For other newly regulated industries for which certificates have not yet been issued, we projected the number of certificates based on discussions with manufacturers and information presented to EPA during the emission standards rulemakings for such industries.

Id. 91 What Commenters Said:

Section 3.1.1. EMA states that EPA significantly understated the number of HDE on highway and nonroad CI engine certificates that are issued annually which resulted in an overstatement of the fees that should be allocated to each certificate. EMA stated that in 2001, we issued 159 HDE HW and 661 nonroad CI certificates. EMA also asked for an explanation as to why more current years and certification data should not be used since that would be more reflective of the increase in engine families.

The Alliance/ AIAM stated that the Agency did not provide an explanation for the estimated number of certification requests used in calculating the fees. The Alliance/ AIAM expresses concern that the number of light duty certificates appears to be based on CAP 2000 assumptions; assumptions that they maintain have not materialized. In addition, they contended that EPA's Tier 2 and heavy duty regulations, as well as CARB's low emission vehicle ( LEV II) regulation, will likely result in creation of more certification requests than projected and lead to collection of more fees by EPA. As a result, EPA may collect more fees than it is entitled to if it receives more certification requests than projected.

The Alliance/ AIAM submitted further comment that they 92 expected 35 additional certificates to be issued for light duty vehicles for model year ( MY) 2004 and that the number of certificates would either remain the same or increase as a result of Tier 2. The Alliance/ AIAM was hesitant to predict the effect of the CAP 2000 rule on the number of certificate requests.

The Alliance/ AIAM suggests that EPA should base its fee calculation on the most current number of issued certificates.

Because this number may fluctuate and because it may be difficult to project future certification trends, they suggest that EPA keep track of the trends and assess a fee based on the average taken from several years. Lastly, they suggest that this process be done by rulemaking to prevent EPA collecting more fees than appropriate.

Our Response:

EPA's intention throughout this rulemaking process is to determine with a reasonable level of certainty the recoverable costs of implementing its MVECP and assessing fees per certificate to cover such costs. Thus, we agree with the comment that we should use the most current and accurate number of issued certificates. However, EPA does not agree with the comments of EMA that the number of certificates used in the cost determination should remain the same regardless of the impact on fees collected. Simply put, EPA believes it should only recover 93 what it anticipates to be its actual costs and should devise a reasonable system in order to charge a fee that most closely matches its final actual costs and final number of certificates to be issued in a given year. As explained below, EPA is including a " rolling average" formula to be applied in 2006 and thereafter in order to more accurately reflect the number of certificates issued each year and the corresponding fee that is owed per certificate.

In light of the comments that we received, EPA gathered information regarding the number of certificates for HDE HW,

nonroad CI, and light duty vehicles and trucks, motorcycles and ICIs from several databases, and reexamined its certification numbers for the last three years, 2000, 2001 and 2002 which comprise EPA's most recent and complete information.

Using an average of the past two years of the most recent complete certification information ( 2001 and 2002) we determined the average number of certificates for HDE HW, nonroad CI, and light duty vehicles and trucks certification request types. For the other types EPA saw no need to reexamine its projected number of certificates nor did EPA receive any comment. For the lightduty vehicles and truck category we have chosen to keep the number 405 as used in the proposal. Although the actual average is 382 for the 2001 and 2002 model years, we believe it is likely that there will be at least a modest increase in the number of 94 light duty vehicle and truck certificates given the complexity of Tier 2 standards. In addition, information submitted by the Alliance/ AIAM states that the number of additional certificates for 2004 may be as high as 35. This would bring our projection to 417 for 2004. However, this is a projection and we do not have complete confidence in this number. Therefore, we have decided to retain the proposed 405 certificates in the final rule.

For the HDE HW category we have determined, based on a reexamination of our database and discussions with representatives from EMA, that 148 certificates is a more accurate projection,

rather than the 130 in the proposal. This will result in a reduction of fees for such certificates. For NR CI we have also revised the number slightly upward to reflect a more accurate projection of 662 rather than the proposed. We have recalculated the fees amount for each of these categories and the change is included in the new fees shown in the table in new revised worksheet # 2 of the Revised Cost Analysis available in Docket OAR 2002 0023 and at 40 CFR § 85.2405( a).