ecosystems due to nitrogen
                                          deposition.
                                         Ecosystem functions.
                                         Passive fertilization.
CO Health..............................  Behavioral effects.
HC/Toxics Health f.....................  Cancer (benzene, 1,3-butadiene,
                                          formaldehyde, acetaldehyde).
                                         Anemia (benzene).
                                         Disruption of production of
                                          blood components (benzene).
                                         Reduction in the number of
                                          blood platelets (benzene).
                                         Excessive bone marrow formation
                                          (benzene).
                                         Depression of lymphocyte counts
                                          (benzene).
                                         Reproductive and developmental
                                          effects (1,3-butadiene).
                                         Irritation of eyes and mucus
                                          membranes (formaldehyde).
                                         Respiratory irritation
                                          (formaldehyde).
                                         Asthma attacks in asthmatics
                                          (formaldehyde).
                                         Asthma-like symptoms in non-
                                          asthmatics (formaldehyde).
                                         Irritation of the eyes, skin,
                                          and respiratory tract
                                          (acetaldehyde).
                                         Upper respiratory tract
                                          irritation and congestion
                                          (acrolein).
HC/Toxics Welfare......................  Direct toxic effects to
                                          animals.
                                         Bioaccumulation in the food
                                          chain.
                                         Damage to ecosystem function.
                                         Odor.
------------------------------------------------------------------------
a The public health impact of biological responses such as increased
  airway responsiveness to stimuli, inflammation in the lung, acute
  inflammation and respiratory cell damage, and increased susceptibility
  to respiratory infection are likely partially represented by our
  quantified endpoints.
b The public health impact of effects such as chronic respiratory damage
  and premature aging of the lungs may be partially represented by
  quantified endpoints such as hospital admissions or premature
  mortality, but a number of other related health impacts, such as
  doctor visits and decreased athletic performance, remain unquantified.
c In addition to primary economic endpoints, there are a number of
  biological responses that have been associated with PM health effects
  including morphological changes and altered host defense mechanisms.
  The public health impact of these biological responses may be partly
  represented by our quantified endpoints.
d While some of the effects of short-term exposures are likely to be
  captured in the estimates, there may be premature mortality due to
  short-term exposure to PM not captured in the cohort studies used in
  this analysis. However, the PM mortality results derived from the
  expert elicitation do take into account premature mortality effects of
  short term exposures.
e May result in benefits or disbenefits.
f Many of the key hydrocarbons related to this action are also hazardous
  air pollutants listed in the CAA.

    While there would be impacts associated with air toxic pollutant
emission changes that result from the proposed standards, we do not
attempt to monetize those impacts (Section III presents the estimated
emission reductions associated with the proposal). This is primarily
because currently available tools and methods to assess air toxics risk
from mobile sources at the national scale are not adequate for
extrapolation to incidence estimations or benefits assessment. The best
suite of tools and methods currently available for assessment at the
national scale are those used in the National-Scale Air Toxics
Assessment (NATA). The EPA Science Advisory Board specifically
commented in their review of the 1996 NATA that these tools were not
yet ready for use in a

national-scale benefits analysis, because they did not consider the
full distribution of exposure and risk, or address sub-chronic health
effects.\486\ While EPA has since improved these tools, there remain
critical limitations for estimating incidence and assessing benefits of
reducing mobile source air toxics.
---------------------------------------------------------------------------

    \486\ Science Advisory Board. (2001). NATA--Evaluating the
National-Scale Air Toxics Assessment for 1996--an SAB Advisory.
http://www.epa.gov/ttn/atw/sab/sabrev.html.
---------------------------------------------------------------------------

    As part of the second prospective analysis of the benefits and
costs of the Clean Air Act,\487\ EPA conducted a case study analysis of
the health effects associated with reducing exposure to benzene in
Houston from implementation of the Clean Air Act. While reviewing the
draft report, EPA's Advisory Council on Clean Air Compliance Analysis
concluded that ``the challenges for assessing progress in health
improvement as a result of reductions in emissions of hazardous air
pollutants (HAPs) are daunting . . . due to a lack of exposure-response
functions, uncertainties in emissions inventories and background
levels, the difficulty of extrapolating risk estimates to low doses and
the challenges of tracking health progress for diseases, such as
cancer, that have long latency periods.'' \488\ EPA continues to work
to address these limitations; however, we did not have the methods and
tools available for national-scale application in time for the analysis
of the proposed standards.\489\
---------------------------------------------------------------------------

    \487\ U.S. Environmental Protection Agency (U.S. EPA). (2011).
The Benefits and Costs of the Clean Air Act from 1990 to 2020.
Office of Air and Radiation, Washington, DC. March. Available on the
Internet at <http://www.epa.gov/air/sect812/feb11/fullreport.pdf>.
    \488\ U.S. Environmental Protection Agency--Science Advisory
Board (U.S. EPA-SAB). (2008). Benefits of Reducing Benzene Emissions
in Houston, 1990-2020. EPA-COUNCIL-08-001. July. Available at
.
    \489\ In April, 2009, EPA hosted a workshop on estimating the
benefits or reducing hazardous air pollutants. This workshop built
upon the work accomplished in the June 2000 Science Advisory Board/
EPA Workshop on the Benefits of Reductions in Exposure to Hazardous
Air Pollutants, which generated thoughtful discussion on approaches
to estimating human health benefits from reductions in air toxics
exposure, but no consensus was reached on methods that could be
implemented in the near term for a broad selection of air toxics.
Please visit http://epa.gov/air/toxicair/2009workshop.html for more
information about the workshop and its associated materials.
---------------------------------------------------------------------------

B. Quantified Human Health Impacts

    Table VIII-3 and Table VIII-4 present the core estimates of annual
PM2.5 and ozone health impacts, respectively, in the 48
contiguous U.S. states associated with the proposed standards for 2030.
For each endpoint presented in Table VIII-3 and Table VIII-4, we
provide both the mean estimate and the 90 percent confidence interval.
    Using EPA's preferred estimates, based on the American Cancer
Society (ACS) and Six-Cities studies and no threshold assumption in the
model of mortality, we estimate that the proposed standards would
result in between 800 and 2,100 cases of avoided PM2.5-
related premature mortalities annually in 2030. A sensitivity analysis
was also conducted to understand the impact of alternative
concentration response functions suggested by experts in the field.
When the range of expert opinion is used, we estimate between 270 and
2,700 fewer premature mortalities in 2030 (see Table 8.8 in the RIA
that accompanies this action). For ozone-related premature mortality in
2030, we estimate a range of between 170 to 770 fewer premature
mortalities.

Table VIII-3--Estimated PM[ihel2].[ihel5]-Related Health Impacts \a\ \b\
------------------------------------------------------------------------
                                      2030 Annual reduction in incidence
            Health effect                       (5th%-95th%ile)
------------------------------------------------------------------------
Premature Mortality--Derived from
 epidemiology literature: \c\
    Adult, age 30+, ACS Cohort Study                     800 (310-1,300)
     (Pope et al., 2002)............
    Adult, age 25+, Six-Cities Study                 2,100 (1,100-3,000)
     (Laden et al., 2006)...........
    Infant, age <1 year (Woodruff et                             3 (0-8)
     al., 1997).....................
Chronic bronchitis (adult, age 26                        560 (100-1,000)
 and over)..........................
Non-fatal myocardial infarction                          980 (360-1,600)
 (adult, age 18 and over)...........
Hospital admissions--respiratory                            160 (77-230)
 (all ages) \d\.....................
Hospital admissions--cardiovascular                        380 (270-440)
 (adults, age >18) \e\..............
Emergency room visits for asthma                           600 (350-850)
 (age 18 years and younger).........
Acute bronchitis, (children, age 8-                      1,300 (0-2,500)
 12)................................
Lower respiratory symptoms                         16,000 (7,700-24,000)
 (children, age 7-14)...............
Upper respiratory symptoms                         12,000 (3,800-20,000)
 (asthmatic children, age 9-18).....
Asthma exacerbation (asthmatic                     27,000 (3,000-74,000)
 children, age 6-18)................
Work loss days......................            100,000 (88,000-110,000)
Minor restricted activity days                 600,000 (500,000-690,000)
 (adults age 18-65).................
------------------------------------------------------------------------
\a\ Benefits presented in this table include California emission
  reductions from the LEV III program. We will account for emissions in
  states that have adopted California's LEV III program in the baseline
  air quality modeling for the final rule.
\b\ Incidence is rounded to two significant digits. Estimates represent
  incidence within the 48 contiguous United States.
\c\ PM-related adult mortality based upon the American Cancer Society
  (ACS) Cohort Study (Pope et al., 2002) and the Six-Cities Study (Laden
  et al., 2006). Note that these are two alternative estimates of adult
  mortality and should not be summed. PM-related infant mortality based
  upon a study by Woodruff, Grillo, and Schoendorf, (1997).\490\
\d\ Respiratory hospital admissions for PM include admissions for
  chronic obstructive pulmonary disease (COPD), pneumonia and asthma.
\e\ Cardiovascular hospital admissions for PM include total
  cardiovascular and subcategories for ischemic heart disease,
  dysrhythmias, and heart failure.

---------------------------------------------------------------------------

    \490\ Woodruff, T.J., J. Grillo, and K.C. Schoendorf. (1997).
The Relationship Between Selected Causes of Postneonatal Infant
Mortality and Particulate Air Pollution in the United States.
Environmental Health Perspectives 105(6):608-612.

      Table VIII-4--Estimated Ozone-Related Health Impacts \a\ \b\
------------------------------------------------------------------------
                                      2030 Annual reduction in incidence
            Health effect                       (5th%-95th%ile)
------------------------------------------------------------------------
Premature Mortality, All ages \c\
Multi-City Analyses:
    Bell et al. (2004)--Non-                                170 (73-260)
     accidental.....................
    Huang et al. (2005)--                                  250 (120-380)
     Cardiopulmonary................
    Schwartz (2005)--Non-accidental.                       260 (110-410)
Meta-analyses:
    Bell et al. (2005)--All cause...                       540 (300-780)
    Ito et al. (2005)--Non-                              750 (500-1,000)
     accidental.....................
    Levy et al. (2005)--All cause...                       770 (560-970)
Hospital admissions--respiratory                       1,200 (160-2,200)
 causes (adult, 65 and older) \d\...
Hospital admissions--respiratory                           550 (290-810)
 causes (children, under 2).........
Emergency room visit for asthma (all                       580 (0-1,500)
 ages)..............................
Minor restricted activity days               970,000 (490,000-1,500,000)
 (adults, age 18-65)................
School absence days.................           350,000 (150,000-490,000)
------------------------------------------------------------------------
\a\ Benefits presented in this table include California emission
  reductions from the LEV III program. We will account for emissions in
  states that have adopted California's LEV III program in the baseline
  air quality modeling for the final rule.
\b\ Incidence is rounded to two significant digits. Estimates represent
  incidence within the 48 contiguous U.S.
\c\ Estimates of ozone-related premature mortality are based upon
  incidence estimates derived from several alternative studies: Bell et
  al. (2004); Huang et al. (2005); Schwartz (2005); Bell et al. (2005);
  Ito et al. (2005); Levy et al. (2005). The estimates of ozone-related
  premature mortality should therefore not be summed.
\d\ Respiratory hospital admissions for ozone include admissions for all
  respiratory causes and subcategories for COPD and pneumonia.

C. Monetized Benefits

    Table VIII-5 presents the estimated monetary value of changes in
the incidence of ozone and PM2.5-related health effects. All
monetized estimates are stated in 2010$. These estimates account for
growth in real gross domestic product (GDP) per capita between the
present and 2030. Our estimate of total monetized benefits in 2030 for
the program, using the ACS and Six-Cities PM mortality studies and the
range of ozone mortality assumptions, is $9.5 and $27 billion, assuming
a 3 percent discount rate, or between $8.7 and $25 billion, assuming a
7 percent discount rate. This represents the health benefits of the
Tier 3 program anticipated to occur annually when the program is fully
implemented and most of the fleet turned over.

Table VIII-5--Estimated Monetary Value of Changes in Incidence of Health
                       and Welfare Effects in 2030
                       [Millions of 2010$] \a\ \b\
------------------------------------------------------------------------
          Health endpoints              2030 (5th and 95th percentile)
------------------------------------------------------------------------
                      PM2.5-Related Health Effects
------------------------------------------------------------------------
Premature Mortality--Derived from
 Epidemiology Studies: c d
    Adult, age 30+--ACS study (Pope
     et al., 2002):
        3% discount rate............               $7,200 ($920-$18,000)
        7% discount rate............              $6,500 ($830--$17,000)
    Adult, age 25+--Six-Cities study
     (Laden et al., 2006):
        3% discount rate............            $18,000 ($2,600-$45,000)
        7% discount rate............            $17,000 ($2,300-$41,000)
    Infant Mortality, <1 year--                            $27 ($0-$100)
     (Woodruff et al. 1997).........
Chronic bronchitis (adults, 26 and                     $310 ($25-$1,000)
 over)..............................
Non-fatal acute myocardial
 infarctions:
     3% discount rate...............                     $110 ($24-$260)
     7% discount rate...............                      $90 ($19-$210)
Hospital admissions for respiratory                     $2.5 ($1.2-$3.6)
 causes.............................
Hospital admissions for                                  $5.5 ($1.2-$10)
 cardiovascular causes..............
Emergency room visits for asthma....                 $0.24 ($0.13-$0.36)
Acute bronchitis (children, age 8-                    $0.61 ($0.00-$1.5)
 12)................................
Lower respiratory symptoms                           $0.34 ($0.13-$0.63)
 (children, 7-14)...................
Upper respiratory symptoms (asthma,                  $0.40 ($0.12-$0.89)
 9-11)..............................
Asthma exacerbations................                   $1.6 ($0.17-$4.4)
Work loss days......................                       $16 ($14-$19)
Minor restricted-activity days                             $41 ($24-$59)
 (MRADs)............................
------------------------------------------------------------------------
                      Ozone-Related Health Effects
------------------------------------------------------------------------
Premature Mortality, All ages--
 Derived from Multi-city analyses:
    Bell et al., 2004...............                $1,700 ($220-$4,200)
    Huang et al., 2005..............                $2,500 ($340-$6,200)
    Schwartz, 2005..................                $2,600 ($330-$6,500)
Premature Mortality, All ages--
 Derived from Meta-analyses:
    Bell et al., 2005...............               $5,400 ($760-$13,000)
    Ito et al., 2005................             $7,400 ($1,100-$18,000)

    Levy et al., 2005...............             $7,600 ($1,100-$18,000)
Hospital admissions--respiratory                          $32 ($4.2-$56)
 causes (adult, 65 and older).......
Hospital admissions--respiratory                        $6.0 ($3.1-$8.9)
 causes (children, under 2).........
Emergency room visit for asthma (all                  $0.23 ($0.0-$0.57)
 ages)..............................
Minor restricted activity days                            $67 ($31-$110)
 (adults, age 18-65)................
School absence days.................                       $34 ($15-$48)
------------------------------------------------------------------------
\a\ Benefits presented in this table include California emission
  reductions from the LEV III program. We will account for emissions in
  states that have adopted California's LEV III program in the baseline
  air quality modeling for the final rule.
\b\ Monetary benefits are rounded to two significant digits for ease of
  presentation and computation. PM and ozone benefits are nationwide.
\c\ Monetary benefits adjusted to account for growth in real GDP per
  capita between 1990 and the analysis year (2030).
\d\ Valuation assumes discounting over the SAB recommended 20 year
  segmented lag structure. Results reflect the use of 3 percent and 7
  percent discount rates consistent with EPA and OMB guidelines for
  preparing economic analyses.

D. What are the limitations of the benefits analysis?

    Every benefit-cost analysis examining the potential effects of a
change in environmental protection requirements is limited to some
extent by data gaps, limitations in model capabilities (such as
geographic coverage), and uncertainties in the underlying scientific
and economic studies used to configure the benefit and cost models.
Limitations of the scientific literature often result in the inability
to estimate quantitative changes in health and environmental effects,
such as potential decreases in premature mortality associated with
decreased exposure to carbon monoxide. Deficiencies in the economics
literature often result in the inability to assign economic values even
to those health and environmental outcomes which can be quantified.
These general uncertainties in the underlying scientific and economics
literature, which can lead to valuations that are higher or lower, are
discussed in detail in the draft RIA and its supporting references. Key
uncertainties that have a bearing on the results of the benefit-cost
analysis of the proposed standards include the following:
     The exclusion of potentially significant and unquantified
benefit categories (such as health, odor, and ecological benefits of
reduction in air toxics, ozone, and PM);
     Errors in measurement and projection for variables such as
population growth;
     Uncertainties in the estimation of future year emissions
inventories and air quality (including future year climate
uncertainty);
     Uncertainty in the estimated relationships of health and
welfare effects to changes in pollutant concentrations including the
shape of the concentration-response function, the size of the effect
estimates, and the relative toxicity of the many components of the PM
mixture;
     Uncertainties in exposure estimation; and
     Uncertainties associated with the effect of potential
future actions to limit emissions.
    As Table VIII-5 indicates, total benefits are driven primarily by
the reduction in premature mortalities each year. Some key assumptions
underlying the premature mortality estimates include the following,
which may also contribute to uncertainty:
     Inhalation of fine particles is causally associated with
premature death at concentrations near those experienced by most
Americans on a daily basis. Although biological mechanisms for this
effect have not yet been completely established, the weight of the
available epidemiological, toxicological, and experimental evidence
supports an assumption of causality. The impacts of including a
probabilistic representation of causality were explored in the expert
elicitation-based results of the PM NAAQS RIA.\491\
---------------------------------------------------------------------------

    \491\ U.S. Environmental Protection Agency. (2006). Final
Regulatory Impact Analysis (RIA) for the Proposed National Ambient
Air Quality Standards for Particulate Matter. Prepared by: Office of
Air and Radiation. Retrieved March, 26, 2009 at http://www.epa.gov/ttn/ecas/ria.html
---------------------------------------------------------------------------

     All fine particles, regardless of their chemical
composition, are equally potent in causing premature mortality. This is
an important assumption, because PM produced via transported precursors
emitted from vehicle engines may differ significantly from PM
precursors released from electric generating units and other industrial
sources. However, no clear scientific grounds exist for supporting
differential effects estimates by particle type.
     The C-R function for fine particles is approximately
linear within the range of ambient concentrations under consideration.
Thus, the estimates include health benefits from reducing fine
particles in areas with varied concentrations of PM, including both
regions that may be in attainment with PM2.5 standards and
those that are at risk of not meeting the standards.
     There is uncertainty in the magnitude of the association
between ozone and premature mortality. The range of ozone benefits
associated with the coordinated strategy is estimated based on the risk
of several sources of ozone-related mortality effect estimates. In a
report on the estimation of ozone-related premature mortality published
by the National Research Council, a panel of experts and reviewers
concluded that short-term exposure to ambient ozone is likely to
contribute to premature deaths and that ozone-related mortality should
be included in estimates of the health benefits of reducing ozone
exposure.\492\ EPA has requested advice from the National Academy of
Sciences on how best to quantify uncertainty in the relationship
between ozone exposure and premature mortality in the context of
quantifying benefits.
---------------------------------------------------------------------------

    \492\ National Research Council (NRC), (2008). Estimating
Mortality Risk Reduction and Economic Benefits from Controlling
Ozone Air Pollution. The National Academies Press: Washington, DC.
---------------------------------------------------------------------------

    Despite the uncertainties described above, we believe this analysis
provides a conservative estimate of the estimated criteria pollutant-
related health and environmental benefits of the standards in future
years because of the exclusion of potentially significant benefit
categories that are not quantifiable at this time. Acknowledging
benefits omissions and uncertainties, we present a best estimate of the
total benefits based on our interpretation of the best available
scientific literature and methods supported by EPA's technical peer
review panel, the Science Advisory

Board's Health Effects Subcommittee (SAB-HES). The National Academies
of Science (NRC, 2002) has also reviewed EPA's methodology for
analyzing the health benefits of measures taken to reduce air
pollution. EPA addressed many of these comments in the analysis of the
final PM NAAQS.493 494 This analysis incorporates this work
to the extent possible.
---------------------------------------------------------------------------

    \493\ National Research Council (NRC). (2002). Estimating the
Public Health Benefits of Proposed Air Pollution Regulations. The
National Academies Press: Washington, DC.
    \494\ U.S. Environmental Protection Agency. (2006). Final
Regulatory Impact Analysis (RIA) for the Proposed National Ambient
Air Quality Standards for Particulate Matter. Prepared by: Office of
Air and Radiation. Available at http://www.epa.gov/ttn/ecas/ria.html.
---------------------------------------------------------------------------

E. Illustrative Analysis of Monetized Impacts Associated With the
Proposal in 2017

    For illustrative purposes, this section presents the total
estimated monetized benefits associated with the proposed standards in
2017. As presented in Section III.B, the emissions impacts of the
proposed standards in 2017 are primarily due to the effects of sulfur
on the existing (pre-Tier 3) fleet. For reasons explained in Chapter
<IP_ADDRESS>.2 of the draft RIA, our analysis of the air quality impacts in
2017 reflects an increase in direct PM emissions from vehicles (along
with reductions in NOX, VOCs and other pollutants). This
emissions increase results from a series of conservative assumptions
and uncertainties related to fuel parameters in 2017, and is not
expected to occur in reality. Because our air quality modeling assumes
this increase, as well as increased direct PM emissions due to an
emissions processing error (see Chapter <IP_ADDRESS>.2 of the draft RIA),
our illustrative benefits analysis in 2017 overestimates ambient
concentrations of PM2.5 and underestimates the benefits of
the proposed Tier 3 standards.
    Table VIII-6 presents total aggregate monetized benefits of the
program in 2017, which includes the modeled direct PM increase
described above. Monetized estimates are presented in 2010$. Our
estimate of total monetized benefits associated with the proposed
standards in 2017, using the ACS and Six-Cities PM mortality studies
and the range of ozone mortality assumptions, is between $1.0 and $3.4
billion, assuming a 3 percent discount rate, or between $1.0 and $3.3
billion, assuming a 7 percent discount rate. Had our ambient air
quality modeling of PM2.5 not included the increase in
direct PM emissions, we estimate that benefits would increase by a
range of $400 to $970 million (assuming a 3 percent discount rate) or
increase by a range of $360 to $880 million (assuming a 7 percent
discount rate), using current EPA benefit-per-ton estimates for direct
PM.\495\
---------------------------------------------------------------------------

    \495\ The PM2.5-related benefit-per-ton estimates
provide the total monetized human health benefits (the sum of
premature mortality and premature morbidity) of reducing one ton of
directly emitted PM2.5. The benefit per-ton technique has
been used in previous analyses, including the 2012-2016 Light-Duty
Greenhouse Gas Rule (U.S. EPA, 2010. Regulatory Impact Analysis,
Final Rulemaking to Establish Light-Duty Vehicle Greenhouse Gas
Emission Standards and Corporate Average Fuel Economy Standards.
Office of Transportation and Air Quality. April. Available at http://www.epa.gov/otaq/climate/regulations/420r10009.pdf. EPA-420-R-10-
009). The benefits-per-ton values are available at http://www.epa.gov/oaqps001/benmap/bpt.html. Note that the values on the
Web site are presented in year 2006$; the values underlying the
estimates here have been adjusted to 2010$ using the CPI-U ``all''
index.
---------------------------------------------------------------------------

    For a more detailed presentation of the quantified and monetized
impacts of the proposal in 2017, please refer to Chapter 8 of the RIA
that accompanies this preamble.

    Table VIII-6--Total Monetized Ozone and PM-Related Benefits Associated With the Proposed Program in 2017
----------------------------------------------------------------------------------------------------------------
     Total Ozone and PM Benefits (billions, 2010$)--PM mortality derived from the ACS and six-cities studies
-----------------------------------------------------------------------------------------------------------------
                       3% Discount rate                                         7% Discount rate
----------------------------------------------------------------------------------------------------------------
                                                  Mean total    Ozone mortality                     Mean total
   Ozone mortality function       Reference        benefits         function        Reference        benefits
----------------------------------------------------------------------------------------------------------------
Multi-city...................  Bell et al.,          $1.0-$1.8  Multi-city.....  Bell et al.,         $0.96-$1.7
                                2004.                                             2004.
                               Huang et al.,           1.2-1.9  ...............  Huang et al.,           1.2-1.9
                                2005.                                             2005.
                               Schwartz, 2005.         1.3-2.0  ...............  Schwartz, 2005.         1.2-1.9
Meta-analysis................  Bell et al.,            2.1-2.8  Meta-analysis..  Bell et al.,            2.0-2.7
                                2005.                                             2005.
                               Ito et al.,             2.6-3.4  ...............  Ito et al.,             2.6-3.3
                                2005.                                             2005.
                               Levy et al.,            2.7-3.4  ...............  Levy et al.,            2.6-3.3
                                2005.                                             2005.
----------------------------------------------------------------------------------------------------------------

 Total Ozone and PM Benefits (billions, 2010$)--PM mortality derived from expert elicitation (lowest and highest
                                                    estimate)
-----------------------------------------------------------------------------------------------------------------
                       3% Discount rate                                         7% Discount rate
----------------------------------------------------------------------------------------------------------------
                                                  Mean total    Ozone mortality                     Mean total
   Ozone mortality function       Reference        benefits         function        Reference        benefits
----------------------------------------------------------------------------------------------------------------
Multi-city...................  Bell et al.,         $0.68-$3.8  Multi-city.....  Bell et al.,         $0.67-$2.0
                                2004.                                             2004.
                               Huang et al.,          0.89-2.4  ...............  Huang et al.,          0.87-2.2
                                2005.                                             2005.
                               Schwartz, 2005.        0.93-2.4  ...............  Schwartz, 2005.        0.91-2.3
Meta-analysis................  Bell et al.,            1.7-3.2  Meta-analysis..  Bell et al.,            1.7-3.1
                                2005.                                             2005.
                               Ito et al.,             2.3-3.8  ...............  Ito et al.,             2.3-3.6
                                2005.                                             2005.
                               Levy et al.,            2.3-3.8  ...............  Levy et al.,            2.3-3.7
                                2005.                                             2005.
----------------------------------------------------------------------------------------------------------------

IX. Alternatives Analysis

    As described throughout this preamble, we have considered a number
of regulatory alternatives in the development of this proposal,
including alternatives related to timing and stringency of the proposed
standards, as well as program design (e.g., averaging, banking, and
trading). This section summarizes the alternatives considered for both
vehicle emission and fuel standards.

A. Vehicle Emission Standards

    The federal vehicle emission standards we are proposing are the
most stringent feasible considering anticipated developments in motor
vehicle emissions control technology.

As we considered options for these vehicle standards, one of the
important factors we considered was harmonization with the CARB LEV III
program. As a result, consideration of alternatives focused less on the
level of the per-vehicle standards themselves and more on the phase-in
schedule for the standards, which can have an important influence on
the cost of the standards. Phase-in schedules directly impact costs
depending on how they are aligned with other light-duty rules and
product design cycles. In addition, phase-in schedules can impact the
cost of available resources, specifically design, development and
testing resources within vehicle manufacturers and emission control
suppliers.
1. Shorter NMOG+NOX Standard Phase-in
    We originally considered requiring full implementation of the final
NMOG+NOX final fleet average standard by MY 2022. However,
we determined that this would have disrupted the manufacturer's normal
product design cycles,\496\ and it would not have allowed manufacturers
to use a consistent product design cycle for both the Tier 3 standards
and the 2017 LD GHG standards, which reach full implementation in MY
2025. We are proposing to extend the phase-in schedule to MY 2025 in
order to allow vehicle manufacturers to better integrate the compliance
with Tier 3 into their product design cycles, as well as take advantage
of additional learning to reduce costs. We believe this implementation
schedule for the Tier 3 NMOG+NOX standards would allow us to
achieve the environmental objectives without imposing unnecessary cost
and burden on the industry.
---------------------------------------------------------------------------

    \496\ A light-duty vehicle product design cycle is the number of
years between major redesigns of a vehicle. Typically, major
redesigns are completed every 5 to 6 years.
---------------------------------------------------------------------------

2. Longer NMOG+NOX Standards Phase-In Due to Early Credits
    In an effort to facilitate the step-down in fleet average
stringency in the initial model years of the Tier 3 program, we
considered allowing manufacturers to earn credits against the current
Tier 2 Bin 5 fleet average and use earned early credits without any
limits for the first five years of the Tier 3 program. CARB, along with
some vehicle manufacturers, noted that if a manufacturer were to
substantially over comply with the Tier 2 Bin 5 fleet average, these
early credits might not only delay achievement of the Tier 3 emission
levels, but also delay harmonization between the Tier 3 and LEV III
programs for many years. To address this potential misalignment, we are
proposing that the application of the early credits be capped starting
in MY 2018 at a manufacturer's LEV III credits adjusted by the ratio of
California and Section 177 state sales to federal sales. (See Section
IV.A.7.a for more details.) This proposed approach would balance the
need for some transition flexibility to avoid unnecessary costs, while
still ensuring expeditious harmonization with LEV III and achievement
of the environmental benefits of the Tier 3 standards.
3. Shorter PM Standards Phase-In
    As we considered potential PM phase-in schedules, we gave strong
consideration to manufacturers' PM testing capabilities and product
design cycles. We considered requiring manufacturers to certify 25
percent of their fleet to the Tier 3 p.m. standards in MY 2017, ramping
up to 100 percent by MY 2020. We initially believed that this schedule
would allow manufacturers to focus engineering resources on ensuring
their new products meet the proposed Tier 3 standards while other
product lines, which we expect would be phased out due to the 2017 LD
GHG standards, expire. However, based on further discussions with the
vehicle manufacturers, we recognized that they need time to improve and
expand their facilities to measure PM, not only for compliance
determination but also for product development work prior to
production. As a result, we are proposing a phase-in schedule for
meeting the proposed Tier 3 p.m. standards that starts with 20 percent
of the vehicles at or below 6000 lbs GVWR in MY 2017 and ramps up to
100 percent of the light-duty fleet in MY 2021. As with the
NMOG+NOX phase-in discussed above, we believe this proposed
phase-in schedule for the Tier 3 p.m. standards would allow us to
achieve the environmental objectives without imposing unnecessary cost
and burden on the industry.
4. NMOG+NOX Standards
    We believe that the fleet-average NMOG+NOX standards
that we are proposing reflect the greatest degree of emission reduction
achievable considering cost and technology, assuming that gasoline
sulfur levels are reduced to the proposed 10-ppm average. We also
believe the proposed implementation schedule for the NMOG+
NOX standards is as short as practicable, as explained
above. As a result, we believe more stringent standards would not be
justified based on the information currently available to EPA.
Therefore, given our goal to harmonize our program with CARB's at the
30 mg/mi level, we did not conduct any detailed analysis of a less
stringent fleet average standard. Based on the work done to quantify
the impacts of the 30 mg/mi standard, however, we can say that a fleet-
average standard of 50 mg/mi of NMOG+NOX would result in
NMOG+NOX emissions in 2030 that are about 100,000 tons
higher than the standards we are proposing. While costs would be lower
because the emissions controls discussed in Section VII.A would be
applied at a lower rate, such a standard would also not be harmonized
with CARB LEV III standards.
5. PM Standards
    The FTP PM standards that we are proposing are the most stringent
technically feasible standards within the implementation timeframe of
this proposal. Although CARB has finalized a 1 mg/mi standard which
will begin phasing in with MY 2025, they acknowledge that there is a
need for continuing PM measurement method development prior to
implementing this standard.\497\ The EPA believes that in order to
propose a federal PM standard at this level, there should be
established methods to reliably and consistently measure PM at levels
at and below that standard that would be needed for ensuring
compliance.
---------------------------------------------------------------------------

    \497\ California Air Resources Board (CARB) Initial Statement of
Reasons, Public Hearing to Consider LEV III, December 7, 2011.
---------------------------------------------------------------------------

B. Fuel Sulfur Standards

    As explained in Section V.A.2., we believe that a 10-ppm annual
average standard is sufficient to enable the vehicle fleet to meet the
proposed Tier 3 standards and appropriately balances feasibility with
costs. Other countries and California have also reduced the sulfur
content of their gasoline; California's gasoline is already meeting our
proposed 10-ppm average sulfur level, and Europe and Japan have a cap
on the sulfur content of gasoline at 10 ppm. Because vehicle emission
performance improves as sulfur is reduced, we considered imposing a 10-
ppm cap (i.e., no averaging, banking and trading), as well as lowering
gasoline sulfur content below the 10-ppm average (see Section V.A.6).
    We considered expressing the standard as a cap similar to the
standard in Europe and Japan. However, by allowing averaging to meet
10-ppm, we believe that the most challenged refiners would be able to
avoid what could be

cost-prohibitive investments, while still meeting 10 ppm across the
fuel pool. As discussed in Section VII.B., we estimate that allowing
averaging would reduce nationwide control costs by nearly 10 percent,
and would still be sufficient to enable vehicles to meet the proposed
Tier 3 standards.
    We also considered an even lower sulfur standard of 5 ppm. Based
upon the results of our test programs and associated modeling, a sulfur
standard of 5 ppm could reduce VOC+NOX emissions from the
existing fleet by an additional 80,000 tons in 2017.
    However, we believe a 5 ppm standard would significantly increase
both capital and operating costs. Such a standard would require: (1)
More severe treatment of FCC gasoline; (2) more overcapacity and
storage for reprocessing of off-specification product; (3) treatment of
additional (non-FCC) gasoline blendstocks; (4) essentially all
refineries to reduce sulfur to 5 ppm, thereby eliminating much of the
benefit of the ABT provisions, and (5) controlling the contribution to
gasoline sulfur from gasoline additives, transmix, ethanol denaturants,
and contamination in the distribution system.
    In our analysis of the 10-ppm average standard and refineries that
might reduce sulfur to 5 ppm in order to generate credits, we estimated
that the sulfur control costs to achieve 5 ppm would be more than 50
percent greater than for our proposed 10-ppm standard. This is more
than twice as high on a cost per ppm-gallon basis. Additionally, as
explained earlier, a 5 ppm standard would likely result in the
elimination of the ability for refineries to trade credits. Without a
viable trading program it could become prohibitively expensive for the
more challenged refineries to comply, creating a financial hardship
situation. Because the costs and other economic impacts rise
dramatically as sulfur is reduced below 10 ppm, we believe that a 10-
ppm sulfur standard is the most stringent feasible standard considering
technology and cost.
    In addition to lower average sulfur standards, we are also
considering lower per-gallon cap standards, which are currently set
under the Tier 2 program at 80 ppm sulfur at the refinery gate and 95
ppm sulfur downstream. As discussed in Section V.A.3., in addition to
proposing that these cap standards be maintained, we are co-proposing
lowering them to 50 ppm and 65 ppm respectively. Given the stringency
of the 10-ppm average standard, we do not anticipate that this would
have a meaningful impact on either program costs or emission
reductions. However, it would provide added assurance that individual
vehicles would not be exposed to higher sulfur levels and the resulting
impacts on emissions. Vehicle manufacturers have expressed concern that
such exposure could impact not only individual vehicle emissions, but
also vehicle operation, due to interference with sensors and feedback
controls. To further address concerns of vehicle manufacturers, we are
also requesting comment on the potential implementation of a refinery
gate sulfur cap as low as 20 ppm and a downstream sulfur cap as low as
25 ppm. This would further constrain downstream contamination and limit
the temporary exposure of vehicles in-use to sulfur levels that would
significantly degrade their emission performance.

X. Economic Impact Analysis

A. Introduction

    The proposed rule would affect two sectors directly: Vehicle
manufacturing and petroleum refining. For these two regulated sectors,
the economic impact analysis discusses the market impacts from the
proposed rule, the changes in price and quantity sold. In addition,
although analysis of employment impacts is not part of a benefit-cost
analysis (except to the extent that labor costs contribute to costs),
employment impacts of federal rules are of particular concern in the
current economic climate of sizeable unemployment. The recently issued
Executive Order 13563, ``Improving Regulation and Regulatory Review''
(January 18, 2011), states, ``Our regulatory system must protect public
health, welfare, safety, and our environment while promoting economic
growth, innovation, competitiveness, and job creation'' (emphasis
added). For this reason, we are examining the effects of this proposal
on employment in the regulated sectors.

B. Vehicle Sales Impacts

    This rule takes effect from MY 2017-2025. In the intervening years,
it is possible that the assumptions underlying a quantitative analysis,
as well as market conditions, might change. For this reason, we present
a qualitative discussion of the effects on vehicle sales of the
proposed standards at the aggregate market level. Vehicle manufacturers
are expected to comply with the proposed standards primarily through
technological changes to vehicles. These changes to vehicle design and
manufacturing are expected to increase manufacturers' costs of vehicle
production.
    Section VII.A estimates the increase in vehicle costs due to the
proposed standards. These costs differ across years and range from $71
to $102 for cars, $93 to $150 for trucks and $36 to $59 for Class 2b/3
vehicles (see Section VII.A). These costs are small relative to the
cost of a vehicle. In a fully competitive industry, these costs would
be entirely passed through to consumers. However in an oligopolistic
industry such as the automotive sector, these increases in cost may not
fully pass through to the purchase price, and the consumers may face an
increase in price that is less than the increased manufacturers' costs
of vehicle production.\498\ We do not quantify the expected level of
cost pass-through or the ultimate vehicle price increase consumers are
expected to face, apart from noting that prices are expected to
increase by an amount up to the increased manufacturers' costs.
---------------------------------------------------------------------------

    \498\ See, for instance, Gron, A., and Swenson, D. (2000). Cost
Pass-Through in the U.S. Automobile Market. Review of Economics and
Statistics 82, 316-324 () who found significantly less than full-
cost pass-through using data from 1984-1994. Using full-cost pass-
through overstates costs and thus contributes to lower vehicle sales
than using a lower estimate. To the extent that the auto industry
has become more competitive over time, full-cost pass-through may be
more appropriate than a result based on this older study.
---------------------------------------------------------------------------

    This increase in price is expected to lower the quantity of
vehicles sold. Given that we expect that vehicle prices will not change
by more than the cost increase, we expect that the decrease in vehicle
sales will be negligible.
    The effect of this rule on the use and scrappage of older vehicles
would be related to its effects on new vehicle prices and the total
sales of new vehicles. The increase in price is likely to cause the
``turnover'' of the vehicle fleet (i.e., the retirement of used
vehicles and their replacement by new models) to slow slightly, thus
reducing the anticipated effect of the rule on fleet-wide emissions.
Because we do not estimate the effect of the rule on new vehicle price
changes nor do we have a good estimate of the effect of new vehicle
price changes on vehicle turnover, we have not attempted to estimate
explicitly the effects of the rule on scrappage of older vehicles and
the turnover of the vehicle fleet.

C. Impacts on Petroleum Refinery Sector Production

    The key change for refiners from the proposed standards would be
more stringent sulfur requirements. This change to fuels is expected to
increase manufacturers' costs of gasoline production by about 0.9 cents
per gallon (see Section VII.B).
    In a perfectly competitive industry, this cost would be passed
along

completely to consumers. In an imperfectly competitive industry, as
noted above, full cost pass-through is not necessary: Firms may choose
to reduce impacts on sales by not passing along full costs. In 2004,
the Federal Trade Commission reported that ``concentration for most
levels of the petroleum industry has remained low to moderate.'' \499\
Thus the assumption of competitive markets has some foundation in this
industry. We do not estimate the price increase that consumers are
likely to face, though we note that it should be positive and up to the
increase in manufacturers' costs of gasoline production.
---------------------------------------------------------------------------

    \499\ Federal Trade Commission, Bureau of Economics. (2004). The
Petroleum Industry: Mergers, Structural Change, and Antitrust
Enforcement. Retrieved August 16, 2011 from Federal Trade Commission
Web site: http://www.ftc.gov/os/2004/08/040813mergersinpetrolberpt.pdf.
---------------------------------------------------------------------------

    The effect of higher gasoline prices on gasoline sales is expected
to be different over the short and long term. In the long run, in
response to the increase in fuel costs, consumers can more easily
change their driving habits, including where they live or what vehicles
they use. Because of this, we expect that gasoline sales will decrease
more in the long run compared to the short run as a result of the price
increase due to the proposed rule. However, because manufacturers'
costs are expected to increase less than one cent per gallon, we expect
that the decrease in gasoline sales will be negligible over all time
horizons.

D. Employment Impacts

    This section discusses changes in employment due to the proposed
rule. We focus on the auto manufacturing sector and the refinery sector
because they are directly regulated, and because they are likely to
bear a substantial share of changes in employment due to this proposed
rule. We partially quantify impacts in the auto sector, providing a mix
of qualitative and quantitative discussion, following the methods used
in the Final Rulemaking for 2017-2025 Model Year Light-Duty Vehicle
Greenhouse Gas Emissions and Corporate Average Fuel Economy
Standards.\500\ For the refinery sector we provide a qualitative
analysis. We also include discussion of effects on the motor vehicle
parts manufacturing sector because the auto manufacturing sector can
either produce parts internally or buy them from an external supplier,
and we do not have estimates of the likely breakdown of effort between
the two sectors. For the same reasons, we discuss effects on producers
of equipment that refiners would use to comply with the proposed
standards.
---------------------------------------------------------------------------

    \500\ 77 FR 62623 (October 15, 2012).
---------------------------------------------------------------------------

    When the economy is at full employment, an environmental regulation
is unlikely to have much impact on net overall U.S. employment;
instead, labor would primarily be shifted from one sector to another.
These shifts in employment impose an opportunity cost on society,
approximated by the wages of the employees, as regulation diverts
workers from other activities in the economy. In this situation, any
effects on net employment are likely to be transitory as workers change
jobs (e.g., some workers may need to be retrained or require time to
search for new jobs, while shortages in some sectors or regions could
bid up wages to attract workers).
    On the other hand, if a regulation comes into effect during a
period of high unemployment, a change in labor demand due to regulation
may affect net overall U.S. employment because the labor market is not
in equilibrium. Schmalansee and Stavins point out that net positive
employment effects are possible in the near term when the economy is at
less than full employment due to the potential hiring of idle labor
resources by the regulated sector to meet new requirements (e.g., to
install new equipment) and new economic activity in sectors related to
the regulated sector.\501\ In the longer run, the net effect on
employment is more difficult to predict and will depend on the way in
which the related industries respond to the regulatory requirements. As
Schmalansee and Stavins note, it is possible that the magnitude of the
effect on employment could vary over time, region, and sector, and
positive effects on employment in some regions or sectors could be
offset by negative effects in other regions or sectors. For this
reason, they urge caution in reporting partial employment effects since
it can ``paint an inaccurate picture of net employment impacts if not
placed in the broader economic context.''
---------------------------------------------------------------------------

    \501\ Schmalensee, R., & Stavins, R. (2011). A Guide to Economic
and Policy Analysis of EPA's Transport Rule'' White paper
commissioned by Excelon Corporation ().
---------------------------------------------------------------------------

    We follow the theoretical structure proposed in a study by
Morgenstern, Pizer, and Shih (2002) \502\ of the impacts of regulation
in employment in the regulated sectors. In particular, Morgenstern et
al. (2002) identify three separate ways that employment levels may
change in the regulated industry in response to a new or more stringent
regulation.
---------------------------------------------------------------------------

    \502\ Morgenstern, R., Pizer, W., & Shih, J. (2002). Jobs Versus
the Environment: An Industry-Level Perspective. Journal of
Environmental Economics and Management 43, 412-436.
---------------------------------------------------------------------------

    [ssquf] Demand effect: Higher production costs due to the
regulation will lead to higher market prices; higher prices in turn
reduce demand for the good, reducing the demand for labor to make that
good. In the authors' words, the ``extent of this effect depends on the
cost increase passed on to consumers as well as the demand elasticity
of industry output.''
    [ssquf] Cost effect: As costs go up, plants add more capital and
labor (holding other factors constant), with potentially positive
effects on employment; in the authors' words, as ``production costs
rise, more inputs, including labor, are used to produce the same amount
of output.''
    [ssquf] Factor-shift effect: Post-regulation production
technologies may be more or less labor-intensive (i.e., more/less labor
is required per dollar of output). In the authors' words,
``environmental activities may be more labor intensive than
conventional production,'' meaning that ``the amount of labor per
dollar of output will rise,'' though it is also possible that ``cleaner
operations could involve automation and less employment, for example.''
    The authors note that the demand effect is expected to have a
negative effect on employment, the cost effect to have a positive
effect on employment, and the factor-shift effect to have an ambiguous
effect on employment.
    Morgenstern et al. (2002) estimated the effects on employment of
spending on pollution abatement for four highly polluting/regulated
industries (pulp and paper, plastics, steel, and petroleum refining)
using data for six years between 1979 and 1991. They concluded that
increased abatement expenditures generally have not caused a
significant change in employment in those sectors. More specifically,
their results showed that, on average across the industries studied,
each additional $1 million (1987$) spent on pollution abatement
resulted in a (statistically insignificant) net increase of 1.5 jobs.
In the petroleum refining industry in particular, they found
statistically significant and positive cost and factor shift effects
and an insignificant demand effect, for a net (statistically
significant) increase of 2.17 jobs per $1 million (1987$).
1. Employment Impacts in the Auto Sector
    Following the Morgenstern et al. (2002) framework, we consider
three effects for the auto sector: The demand

effect, the cost effect, and the factor shift effect.
a. The Demand Effect
    The demand effect depends on the effects of this proposal on
vehicle sales. If vehicle sales decrease, employment associated with
these activities would decrease. As discussed in Section X.B, we do not
make a quantitative estimate on the effect of the proposed rule on
vehicle sales but we note that the decrease in vehicle sales is
expected to be negligible. Thus we expect any decrease in employment in
the auto sector through the demand effect to be small as well.
b. The Cost Effect
    The demand effect, above, measures the effect due to new vehicle
sales only. The cost effect measures the impacts due to the changes in
technologies for vehicles that would have been sold in the absence of
the rule. We estimate the cost effect by multiplying the ratio of
workers to each $1 million of expenditures in the auto sector by the
cost estimates for complying with the rule.
    Some of the costs of this proposal would be spent directly in the
auto manufacturing sector, but it is also likely that some of the costs
would be spent in the auto parts manufacturing sector. We separately
present the ratios for both the auto manufacturing sector and the auto
parts manufacturing sector.
    There are several public sources for estimates of employment per $1
million expenditures. The U.S. Bureau of Labor Statistics (BLS)
provides its Employment Requirements Matrix (ERM),\503\ which provides
direct estimates of the employment per $1 million in sales of goods in
202 sectors. The values considered here are for Motor Vehicle
Manufacturing (NAICS 3361) and Motor Vehicle Parts Manufacturing (NAICS
3363).
---------------------------------------------------------------------------

    \503\ Bureau of Labor Statistics. Employment Requirements
Matrix. http://www.bls.gov/emp/ep_data_emp_requirements.htm.
---------------------------------------------------------------------------

    The Census Bureau provides both the Annual Survey of Manufactures
\504\ (ASM) and the Economic Census. The ASM is a subset of the
Economic Census, based on a sample of establishments; though the Census
itself is more complete, it is conducted only every 5 years, while the
ASM is annual. Both include more sectoral detail than the BLS ERM: For
instance, while the ERM includes the Motor Vehicle Manufacturing
sector, the ASM and Economic Census have detail at the 6-digit NAICS
code level (e.g., light truck and utility vehicle manufacturing). While
the ERM provides direct estimates of employees/$1 million in
expenditures, the ASM and Economic Census separately provide number of
employees and value of shipments; the direct employment estimates here
are the ratio of those values. The values reported are for Motor
Vehicle Manufacturing (NAICS 3361), Automobile and Light Duty Motor
Vehicle Manufacturing (NAICS 33611), and Motor Vehicle Parts
Manufacturing (NAICS 3363).
---------------------------------------------------------------------------

    \504\ U.S. Census Bureau. Annual Survey of Manufactures. http://www.census.gov/manufacturing/asm/index.html.
---------------------------------------------------------------------------

    For the cost effect, we use estimates from the Bureau of Labor
Statistics and the Census Bureau of the number of workers per $1
million of expenditures in the sectors. The use of these ratios has
both advantages and limitations. It is often possible to estimate these
ratios for quite specific sectors of the economy: For instance, it is
possible to estimate the average number of workers in the light-duty
vehicle manufacturing sector per $1 million spent in the sector, rather
than use the ratio from another, more aggregated sector, such as motor
vehicle manufacturing. As a result, it is not necessary to extrapolate
employment ratios from possibly unrelated sectors. On the other hand,
these estimates are averages for the sectors, covering all the
activities in those sectors; they may not be representative of the
labor required when expenditures are required on specific activities,
as the factor-shift effect indicates. For instance, the ratio for the
motor vehicle manufacturing sector represents the ratio for all vehicle
manufacturing, not just for emissions reductions. In addition, these
estimates do not include changes in sectors that supply these sectors,
such as steel or electronics producers. They thus may best be viewed as
the effects on employment in the specific sectors due to the changes in
expenditures in those sectors, rather than as an assessment of all
employment changes due to these changes in expenditures.
    The values used here are adjusted to remove the employment effects
of imports through use of a ratio of domestic production to domestic
sales of 0.667.\505\ As discussed in the draft RIA, trends in the BLS
ERM are used to estimate productivity improvements over time that are
used to adjust these ratios over time.
---------------------------------------------------------------------------

    \505\ To estimate the proportion of domestic production affected
by the change in sales, we use data from Ward's Automotive Group for
total car and truck production in the U.S. compared to total car and
truck sales in the U.S. For the period 2001-2010, the proportion is
66.7 percent.
---------------------------------------------------------------------------

    Table X-1 provides estimates of the cost effect of this rule on
employment. Chapter 2.1 of the draft RIA discusses the vehicle cost
estimates developed for this rule, discussed in Section VII.A,
presented in the second column. The maximum value for employment
impacts per $1 million (before adjustments for changes in productivity,
after accounting for the share of domestic production) is 1.809 if all
the additional costs are in the parts sector; the minimum value is
0.402, if all the additional costs are in the light-duty vehicle
manufacturing sector. Increased costs of vehicles and parts would, by
itself, be expected to increase employment between 2017 and 2025 by
somewhere between a few hundred to a few thousand jobs.
    While we estimate employment impacts, measured in job-years,
beginning with program implementation, some of these employment gains
may occur earlier as auto manufacturers and parts suppliers hire staff
in anticipation of compliance with the standard. A job-year is a way to
calculate the amount of work needed to complete a specific task. For
example, a job-year is one year of work for one person.

            Table X-1--Employment Effects Due to Increased Costs of Vehicles and Parts, in Job-Years
----------------------------------------------------------------------------------------------------------------
                                                                                Minimum employment
                                                                          Maximum employment    effect (if all
                                                      Costs (millions of    effect (if all     expenditures are
                        Year                                2010$)         expenditures are    in the light duty
                                                                             in the parts         vehicle mfg
                                                                                sector)             sector)
----------------------------------------------------------------------------------------------------------------
2016................................................                $ 23                   0                   0
2017................................................                 709               + 900                +200
2018................................................               1,340              +1,700                +400

2019................................................               1,440              +1,800                +400
2020................................................               1,600              +1,900                +400
2021................................................               1,730              +2,000                +400
2022................................................               1,900              +2,100                +400
2023................................................               1,920              +2,000                +400
2024................................................               2,040              +2,100                +400
2025................................................               2,130              +2,100                +400
----------------------------------------------------------------------------------------------------------------

c. The Factor Shift Effect
    The factor shift effect looks at the changes in labor intensity
associated with a regulation. As noted above, the estimates of the cost
effect assume constant labor per $1 million in expenditures, though the
new technologies may be either more or less labor-intensive than the
existing ones. We have no evidence on the factor shift effect for the
compliance technologies and therefore do not quantify it. An estimate
of the factor shift effect would either increase or decrease the
estimate used for the cost effect.
d. Summary of Employment Effects in the Auto Sector
    The overall effect of the proposed rule on auto sector employment
depends on the relative magnitude of the cost effect, the demand effect
and the factor shift effect. Because we do not have quantitative
estimates of the demand and factor shift effects we cannot reach a
quantitative estimate of the overall employment effects of the proposed
rule on auto sector employment or even whether the total effect would
be positive or negative. However, given that the expected increase in
production costs to the auto manufacturers is relatively small, we
expect that the magnitudes of all these effects will be small as well.
Additionally, the cost and demand effects are expected to work in
opposite directions. Thus while we do not have an estimate of the
direction of the overall effect of the proposed rule on auto sector
employment, we expect it will be imperceptible.
    Additionally, the proposed rule is not expected to provide
incentives for manufacturers to shift employment between domestic and
foreign production. This is because the increased standards of the
proposed rule would apply to vehicles sold in the U.S. regardless of
where they are produced. If foreign manufacturers already have
increased expertise in satisfying the requirements of the proposal,
there may be some initial incentive for foreign production, but the
opportunity for the U.S. to sell in other markets might increase. To
the extent that the requirements of this proposal might lead to
installation and use of technologies that other countries may seek now
or in the future, developing this capacity for domestic production now
may provide some additional ability to serve those markets. This
potential benefit would not apply if other countries are not likely to
have similar standards.
2. Refinery Employment Impacts
    The Morgenstern et al. (2002) framework of demand effects, cost
effects and factor shift effects can also be applied to the impact of
the proposed rule on employment in the refinery sector. Here we use a
fully qualitative approach. A qualitative discussion allows for a wider
incorporation of additional considerations, such as timing of impacts
and the effects of the rule on imports and exports. Because the
discussion is qualitative, we do not sum the net effects on employment.
The demand effect on refining sector employment is expected to be
negative. The discussion in Section X.C above suggested that the
proposed rule would cause a small decrease in the quantity of gasoline
demanded due to higher production costs being passed through to
consumers. This slightly reduced level of sales would likely have a
negative impact on employment in the refining sector. While we do not
quantify the level of job losses that could be expected here, recall
that the quantity of gasoline sold as a result of the standards
proposed here is expected to decrease by only a very small amount over
any time horizon.
    The cost effect of the proposed rule on employment in the refining
sector is expected to be positive as usual in the Morgenstern et al.
(2002) framework. In order to satisfy the requirements of the proposed
rule, firms in the refining industry are expected to need to perform
additional work that will require hiring more employees, especially
perhaps in the short run. Section V.A.2.c discusses the expected
employment needed to reduce the sulfur content of fuels; as noted
there, to meet the proposed Tier 3 sulfur standards, refiners are
expected to invest $2.2 billion between 2014 and 2019 and utilize
approximately 1,000 front-end design and engineering jobs and 6,000
construction jobs. As the petroleum sector employed approximately
65,000 workers in 2009, this temporary increase in employment would be
comparable to an increase of over 10 percent when compared to 2009
levels.
    As with our analysis of the vehicle manufacturing sector, we do not
have information on the direction the factor shift effect might take.
It is unclear whether the refining industry would become more or less
capital intensive as a result of the proposed rule. Thus the direction
of the factor shift effect is ambiguous.
    This rule is not expected to provide incentives to shift employment
between domestic and foreign production. First, the proposed standards
would apply to gasoline sold in the U.S. regardless of where it has
been produced. U.S. gasoline demand is projected to continue to decline
for the foreseeable future in response to higher gasoline prices, more
stringent vehicle and engine greenhouse gas and fuel economy standards
as well as increased use of renewable fuels. As a result, this analysis
of incentives to shift employment between domestic and foreign
production focuses on investments for existing capacity instead of
expanding capacity.\506\ In this case, what is relevant is whether the
necessary modifications to comply with Tier 3 would be significantly
cheaper overseas than in the U.S.
---------------------------------------------------------------------------

    \506\ While refinery capacity has been increasing around the
world in recent years, it has been designed primarily to supply
foreign markets other than the U.S. (e.g., increasing demand in
China and India).
---------------------------------------------------------------------------

    The main impacts on capital and operating costs to comply with Tier
3

associated with adding hydrotreating capacity are likely to be similar
overseas as in the U.S. This is particularly true when analyzing likely
sources of U.S. imports. The majority of gasoline imported to the U.S.
today comes into the East Coast and is sourced out of either Europe or
refineries in Canada or the Caribbean that exist almost solely to
supply the U.S. market. These Canadian and Caribbean refineries, by
virtue of their focus on the U.S. market, are very similar to U.S.
based refineries and would be expected to have to incur similar capital
and operating costs as their U.S. based competitors meeting the 10 ppm
standard. Furthermore, the European refineries are already producing
gasoline to a 10 ppm sulfur cap for Europe. To the extent they have
refinery streams that are more difficult to hydrotreat, the U.S. market
currently serves as an outlet for their higher sulfur gasoline streams.
As a result, they may incur capital and operating costs on a per gallon
basis at least as high as for their U.S. based competitors for these
remaining higher sulfur gasoline streams. Alternatively, they may
instead choose to find markets outside the U.S., opening the way for
increased U.S. based refinery demand.
    Finally, despite refining industry projections that previously
imposed diesel rules would lead to greater U.S. reliance on imports
through major negative impacts on domestic refining, the reverse has
actually occurred. Over the last 8 years, imports of gasoline and
diesel fuel have continued to be the marginal supply, and have even
dropped precipitously so that the U.S. is now a net exporter of diesel
fuel and is importing half the gasoline that it did at its peak in
2006. With the projected decline in future gasoline demand in the U.S.
as vehicle fuel efficiency improves, gasoline imports are expected to
continue to decline.
    Thus it is expected that for the refining sector, the demand effect
would lower employment, the cost effect would raise employment, and the
factor shift effect would have an ambiguous effect on employment. As a
whole then, it is not evident whether the proposed rule would increase
or decrease employment in the refining sector. However, given the small
anticipated reduction in quantity sold, it appears that the rule would
not have major employment consequences for this sector.
    The petroleum industry is one of the four industries studied by
Morgenstern et al. (2002) when they look at the effect of environmental
expenditures on employment. They found a small but statistically
significant increase in employment in this sector (2.17 jobs per
million dollars of expenditures, using 1987$). Using this factor
(adjusted to 2010$), the estimated sulfur fuel control costs in 2017 of
$1,289 million would imply an increase of approximately 1,600 jobs in
the refinery sector. We note that the regulations that this estimate is
derived from are not directly comparable to the current proposed rule;
it is based on the costs of reductions in refinery emissions instead of
changing fuel properties, and therefore may not be applicable for the
standards proposed here.
    Section 5.3 of the draft RIA contains some historical discussion
regarding the impact on refineries and refining capacity of earlier
rules which resulted in higher costs for refiners. Over the period
2003-2011, when a number of rules were being implemented, EIA data show
a net of two net refinery closures on its Web site. Meanwhile, over
this same period the average size of U.S. refineries increased from
113,000 barrels per day to 123,000 barrels per day, and total U.S.
refining capacity increased by six percent. Thus, historically during a
time when rules with much larger expected impacts were being
implemented (the 2003 ultra-low sulfur nonroad diesel proposal alone
was expected to have a cost impact on refineries more than five times
greater than the current proposed rule), U.S. refining capacity
increased even as the number of U.S. refineries slightly fell. While
closing refineries has a negative effect on industry employment, it is
likely that the increased refining capacity at many of the remaining
plants had a positive effect on industry employment.
    The proposed rule is also likely to have a positive impact on
employment among producers of equipment that refiners will use to
comply with the standards. Section V.A.2.c notes that some refiners are
expected to need to revamp their current treatment units, and others
will need to add additional treatment units. Producers of this
equipment would be expected to hire additional labor to meet this
increased demand. We also note that the employment effects may be
different in the immediate implementation phase than in the ongoing
compliance phase. It is expected that the employment increases through
the cost effect from revamping old equipment and installing additional
equipment should occur in the near term, when current unemployment
levels are high, and the opportunity cost of workers is relatively low.
Meanwhile, the employment decreases in the refining sector from the
demand effect would not start until 2017, when compliance would be
required, and when unemployment is expected to be reduced; in a time of
full employment, any changes in employment levels in the regulated
sector are mostly expected to be offset by changes in employment in
other sectors.

XI. Public Participation

    We request comment on all aspects of this proposal. This section
describes how you can participate in this process.

A. How do I submit comments?

    Public comments on this proposal must be received on or before June
13, 2013. If you have an interest in the proposed program described in
this document, we encourage you to comment on any aspect of this
rulemaking. We also request comment on specific topics identified
throughout this proposal.
    Your comments will be most useful if you include appropriate and
detailed supporting rationale, data, and analysis. Commenters are
especially encouraged to provide specific suggestions for any changes
to any aspect of the regulations that they believe need to be modified
or improved. You should send all comments, except those containing
proprietary information, to our Air Docket (see ADDRESSES in the first
part of this proposal) before the end of the comment period.
    You may submit comments electronically, by mail, or through hand
delivery/courier. To ensure proper receipt by EPA, identify the
appropriate docket identification number in the subject line on the
first page of your comment. Please ensure that your comments are
submitted within the specified comment period. Comments received after
the close of the comment period will be marked ``late.'' EPA is not
required to consider these late comments. If you wish to submit
Confidential Business Information (CBI) or information that is
otherwise protected by statute, please follow the instructions in
Section XI.B.

B. How should I submit CBI to the agency?

    Do not submit information that you consider to be CBI
electronically through the electronic public docket,
www.regulations.gov, or by email. Send or deliver information
identified as CBI only to the following address:
    U.S. Environmental Protection Agency, Assessment and Standards
Division, 2000 Traverwood Drive, Ann Arbor, MI, 48105, Attention Docket
ID EPA-HQ- OAR-2011-0135. You may claim information that you submit to

EPA as CBI by marking any part or all of that information as CBI (if
you submit CBI on disk or CD-ROM, mark the outside of the disk or CD-
ROM as CBI and then identify electronically within the disk or CD-ROM
the specific information that is CBI). Information so marked will not
be disclosed except in accordance with procedures set forth in 40 CFR
part 2.
    In addition to one complete version of the comments that include
any information claimed as CBI, a copy of the comments that does not
contain the information claimed as CBI must be submitted for inclusion
in the public docket. If you submit the copy that does not contain CBI
on disk or CD-ROM, mark the outside of the disk or CD-ROM clearly that
it does not contain CBI. Information not marked as CBI will be included
in the public docket without prior notice. If you have any questions
about CBI or the procedures for claiming CBI, please consult the person
identified in the FOR FURTHER INFORMATION CONTACT section.

C. What should I consider as I prepare my comments for EPA?

    You may find the following suggestions helpful for preparing your
comments:
     Explain your views as clearly as possible.
     Describe any assumptions that you used.
     Provide any technical information and/or data you used
that support your views.
     If you estimate potential burden or costs, explain how you
arrived at your estimate.
     Provide specific examples to illustrate your concerns.
     Offer alternatives.
     Make sure to submit your comments by the comment period
deadline identified.
     To ensure proper receipt by EPA, identify the appropriate
docket identification number in the subject line on the first page of
your response. It would also be helpful if you provided the name, date,
and Federal Register citation related to your comments.

D. Will there be a public hearing?

    Public hearings for this proposal were held on April 24, 2013 and
April 29, 2013; EPA has announced more information regarding the public
hearing locations in a supplemental Federal Register Notice.

XII. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review and Executive
Order 13563: Improving Regulation and Regulatory Review

    Under section 3(f)(1) of Executive Order 12866 (58 FR 51735,
October 4, 1993), this action is an ``economically significant
regulatory action'' because it is likely to have an annual effect on
the economy of $100 million or more. Accordingly, EPA submitted this
action to the Office of Management and Budget (OMB) for review under
Executive Orders 12866 and 13563 (76 FR 3821, January 21, 2011) and any
changes made in response to OMB recommendations have been documented in
the docket for this action.
    In addition, EPA prepared an analysis of the potential costs and
benefits associated with this action. This analysis is contained in
Sections VII and VIII of this preamble and in Chapter 8 of the draft
RIA. A copy of the analysis is available in the docket for this action.

B. Paperwork Reduction Act

    The information collection requirements in this proposed rule have
been submitted for approval to the Office of Management and Budget
(OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The
Information Collection Request (ICR) documents prepared by EPA have
been assigned EPA ICR number 0783.63 for the vehicles provisions and
EPA ICR 2482.01 and ICR 2459.01 for the fuels provisions.
    This proposed rule also contains reporting and recordkeeping
requirements for refiners and importers of motor vehicle gasoline,
producers of gasoline additives, and producers of denatured fuel
ethanol and other oxygenates. The proposed recordkeeping and reporting
requirements for refiners and importers of motor vehicle gasoline are
the same requirements that exist under the Tier 2 sulfur program.\507\
The recordkeeping and Product Transfer Document (PTD) requirements for
gasoline additive producers and PTD retention requirements for
downstream parties under the proposed Tier 3 program are new but should
be minimal since we expect that they are already followed as part of
normal business practices. Finally, there are new recordkeeping and PTD
requirements for producers of denatured fuel ethanol under the proposed
Tier 3 program. EPA estimates the total number of respondents to be
2,675, the total burden hours to be 84,000 and the total cost to
respondents to be $6,300,000.
---------------------------------------------------------------------------

    \507\ 65 FR 6698, February 10, 2000; OMB Control Number: 2060-
0437; EPA ICR 1907.05.
---------------------------------------------------------------------------

    This proposed rule also contains reporting and recordkeeping
requirements for refiners and importers of motor vehicle gasoline. The
recordkeeping and reporting requirements for these entities under the
proposed Tier 3 program are the same requirements that exist under the
Tier 2 sulfur program.\508\ The recordkeeping and Product Transfer
Document (PTD) requirements for gasoline additive producers and PTD
requirements for downstream parties under the proposed Tier 3 program
are new but should be minimal since we expect that they are already
followed as part of normal business practices. Finally, there are new
recordkeeping and PTD requirements for producers of denatured fuel
ethanol under the proposed Tier 3 program. EPA estimates the total
number of respondents to be 1,500, the total burden hours to be 76,743
and the total cost to respondents to be $5,908,504.
---------------------------------------------------------------------------

    \508\ 65 FR 6698, February 10, 2000; OMB Control Number: 2060-
0437; EPA ICR 1907.05.
---------------------------------------------------------------------------

    Finally, this proposed rule also contains provisions for
qualifications of laboratories on test methods. We have proposed
recordkeeping and reporting requirements that would apply to fuel
testing laboratories. The collected data will permit EPA to: (1)
Qualify laboratories to use test methods based upon accuracy and
precision criteria supported by industry; and (2) Ensure that various
fuels meet the standards required under the regulations at 40 CFR part
80 and that the associated benefits to human health and the environment
are realized. We estimate that 750 laboratories may be subject to the
proposed information collection. This estimate is based upon our
experience with qualification of laboratories under the existing diesel
sulfur program. We estimate an annual reporting burden of 95 hours per
respondent and an annual recordkeeping burden of 104 hours, yielding a
total of 199 hours. For those laboratories that elect to be reference
installations, the annual reporting burden would be 95 hours and the
annual recordkeeping burden would be 128 hours.
    Supporting statements for all 3 ICRs can be found in Docket ID
number EPA-HQ-OAR-2011-0135.
    Burden is defined at 5 CFR 1320.3(b). An agency may not conduct or
sponsor, and a person is not required to respond to a collection of
information unless it

displays a currently valid OMB control number. The OMB control numbers
for EPA's regulations in 40 CFR are listed in 40 CFR part 9.
    To comment on the Agency's need for this information, the accuracy
of the provided burden estimates, and any suggested methods for
minimizing respondent burden, EPA has established a public docket for
this rule, which includes these ICR numbers, under Docket ID number
EPA-HQ-OAR-2011-0135. See the ADDRESSES section at the beginning of
this notice for where to submit comments to EPA. Send comments to OMB
at the Office of Information and Regulatory Affairs, Office of
Management and Budget, 725 17th Street NW., Washington, DC 20503,
Attention: Desk Office for EPA. Since OMB is required to make a
decision concerning the ICR between 30 and 60 days after May 21, 2013,
a comment to OMB is best assured of having its full effect if OMB
receives it by June 20, 2013. The final rule will respond to any OMB or
public comments on the information collection requirements contained in
this proposal.

C. Regulatory Flexibility Act

1. Overview
    The Regulatory Flexibility Act (RFA) generally requires an agency
to prepare a regulatory flexibility analysis of any rule subject to
notice and comment rulemaking requirements under the Administrative
Procedure Act or any other statute unless the agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities. Small entities include small businesses,
small organizations, and small governmental jurisdictions.
    For purposes of assessing the impacts of today's rule on small
entities, small entity is defined as: (1) A small business as defined
by the Small Business Administration's (SBA) regulations at 13 CFR
121.201 (see table below); (2) a small governmental jurisdiction that
is a government of a city, county, town, school district or special
district with a population of less than 50,000; and (3) a small
organization that is any not-for-profit enterprise which is
independently owned and operated and is not dominant in its field.
    The following table provides an overview of the primary SBA small
business categories potentially affected by this regulation:

------------------------------------------------------------------------
                                                       Defined as small
                                    NAICS \a\ Code     entity by SBA if
            Industry                    (2007)        less than or equal
                                                              to:
------------------------------------------------------------------------
Gasoline fuel refiners and        324110............  1,500 employees.
 importers.
Ethanol producers...............  325193............  1,000 employees.
Gasoline additive manufacturers.  325199............  1,000 employees.
                                  325998............  500 employees.
                                  424690............  100 employees.
Transmix processors.............  Varied............  1,500 employees.
Petroleum bulk stations and       424710............  100 employees.
 terminals.
Other warehousing and storage--   493190............  $25.5 million
 bulk petroleum storage.                               (annual
                                                       receipts).
Light-duty vehicle and light-     336111, 336112....  1,000 employees.
 duty truck manufacturers.
Independent commercial importers  811111, 811112,     $7 million (annual
                                   811198.             receipts).
Alternative fuel converters.....  335312............  1,000 employees.
                                  336312............  750 employees.
                                  336322............  ''
                                  336399............  ''
                                  811198............  $7 million (annual
                                                       receipts).
On-highway heavy-duty engine &    333618............  1,000 employees.
 vehicle (>8,500 lbs GVWR)        336120............  ''
 manufacturers.
                                  336211............  ''
                                  336312............  750 employees.
------------------------------------------------------------------------
Note:
\a\ North American Industrial Classification System.

2. Background
    EPA's Tier 2 Vehicle and Gasoline Sulfur Program, which was
finalized in February 2000, took a systems-based approach to motor
vehicle pollution by setting standards for both passenger vehicles and
their fuel (gasoline). The program set stricter tailpipe and
evaporative emissions standards for criteria pollutants from vehicles
beginning with model year (MY) 2004 and phasing in through 2009. The
program also lowered the sulfur content of gasoline, to a 30-ppm
refinery average, 80-ppm per-gallon cap, and 95-ppm downstream cap;
beginning in 2004 and phasing in through 2008. The potential to extend
the phase-in for small refiners and approved Gasoline Phase-In Area
(GPA) refiners through the end of 2010 was provided in the Highway
Diesel Rule \509\ in exchange for early compliance with the diesel
program. Similar to the Tier 2 rule, the Tier 3 rule being proposed
today is a comprehensive, systems-based approach to address the impact
of light-duty vehicles and certain heavy-duty vehicles on air quality
and health.
---------------------------------------------------------------------------

    \509\ 66 FR 5136 (January 18, 2001).
---------------------------------------------------------------------------

    Pursuant to section 603 of the RFA, EPA prepared an initial
regulatory flexibility analysis (IRFA) that examines the impact of the
proposed rule on small entities along with regulatory alternatives that
could reduce that impact. The IRFA is available for review in the
rulemaking docket (in Chapter 10 of the draft RIA) and is summarized
below.
    As required by section 609(b) of the RFA, as amended by SBREFA, EPA
also conducted outreach to small entities and convened a Small Business
Advocacy Review Panel to obtain advice and recommendations of
representatives of the small entities that potentially would be subject
to the rule's requirements.
    Consistent with the RFA/SBREFA requirements, the Panel evaluated
the assembled materials and small-entity comments on issues related to
elements of the IRFA. A copy of the Panel Report is included in the
docket for this proposed rule, and a summary of the Panel process, and
subsequent Panel recommendations, is summarized below.
3. Reason for Today's Proposed Rule
    This rule proposes to establish more stringent vehicle emissions
standards and reduce the sulfur content of

gasoline beginning in 2017, as part of a systems approach in addressing
the impacts of motor vehicles and fuels on air quality and public
health. The proposed gasoline sulfur standard would make emission
control systems more effective and enable more stringent vehicle
emissions standards, and the proposed vehicle standards would reduce
vehicle tailpipe and evaporative emissions. This would result in
significant reductions in pollutants such as ozone, particulate matter,
and air toxics. For a more detailed discussion of the reasoning for
today's proposed rule, please see Sections II and III of this preamble.
The proposed vehicle and fuel programs are further discussed in
Sections IV and V, respectively.
4. Legal Basis for Agency Action
    The Clean Air Act (CAA) authorizes EPA to establish emissions
standards for motor vehicles to address air pollution that may
reasonably be anticipated to endanger public health or welfare. EPA
also has authority to establish fuel controls to address such air
pollution. The authority for the proposed vehicle emission standards
comes from CAA section 202(a), Section 202(k) provides EPA with
authority to issue and revise regulations applicable to evaporative
emissions of hydrocarbons from gasoline-fueled motor vehicles, and
section 206(d) authorizes EPA to establish methods and procedures for
testing whether a motor vehicle or motor vehicle engine conforms with
section 202 requirements. The authority for the proposed fuel standards
comes from section 211(c).
    For more detailed information on our legal authority for today's
proposal, please see Sections II.A and V.G of this preamble.
5. Summary of Potentially Affected Small Entities
    The table above lists industries/sectors potentially affected by
the proposed rule. For businesses potentially impacted by the Tier 3
vehicle standards, this includes vehicle manufacturers, alternative
fuel converters, and independent commercial importers. For businesses
potentially impacted by the Tier 3 fuel standards, this includes
gasoline refiners and importers, distributors, fuel additive
manufacturers, transmix producers, and ethanol producers.
    EPA used a variety of sources to identify which entities are
appropriately considered ``small.'' EPA used the criteria for small
entities developed by the Small Business Administration under the North
American Industry Classification System (NAICS) as a guide. Information
about these entities comes from sources including the Energy
Information Administration (EIA) within the U.S. Department of Energy,
oil industry literature, EPA's certification data, and previous
rulemakings that have affected these industries. EPA then found
employment information for these companies using the business
information database Hoover's Online (a subsidiary of Dun and
Bradstreet). These entities fall under the categories listed in the
table.
    To gauge the impact of the proposed standards on small businesses,
EPA employed a cost-to-sales ratio test to estimate the number of small
businesses that would be impacted by less than one percent, between one
and three percent, and above three percent. Overall, EPA projects that
13 small businesses will be impacted by less than one percent, 13 small
businesses will be impacted by one to three percent, and 5 small
businesses will be impacted by more than three percent. A more detailed
description of the inputs used for each affected industry sector and
the methodology used to develop the estimated impact on small
businesses in each industry sector is included in the IRFA as presented
in Chapter 10 of the draft RIA for this rulemaking.
6. Potential Reporting, Recordkeeping, and Compliance
    For any emission control program, EPA must have assurances that the
regulated products will meet the standards. The program that EPA is
considering for manufacturers subject to this proposal will include
testing, reporting, and record keeping requirements for manufacturers
of vehicles covered by the proposed Tier 3 regulations. Testing
requirements for these manufacturers could include certification
emission (including deterioration factor) testing, in-use testing, and
production line testing. Reporting requirements would likely include
emission test data and technical data on the vehicles. Manufacturers
would have to keep records of this information.
    For any fuel control program, EPA must have assurance that fuel
produced, distributed, sold and used meets the applicable standard. EPA
expects that the recordkeeping, reporting, and compliance provisions of
the proposed rule would be fairly consistent with those in place today
for other fuel programs. Further, we expect to use existing
registration and reporting systems that parties in the fuel production
and distribution industry are already familiar with.
7. Related Federal Rules
    The primary federal rules that are related to the proposed Tier 3
rule under consideration are: The Tier 2 Vehicle/Gasoline Sulfur
rulemaking (65 FR 6698, February 10, 2000), the 2017 Light-duty
Greenhouse Gas (GHG) rule (77 FR 62623), and the Petroleum Refinery
Sector Risk and Technology Review and New Source Performance Standards
rule (RTR/NSPS; 77 FR 41051).
    The 2017 LD GHG rule is a coordinated effort by EPA and the
National Highway Traffic Safety Administration (NHTSA) taking steps to
enable the production of a new generation of clean vehicles, through
reduced GHG emissions and improved fuel efficiency from on-road
vehicles and engines.
    The rules to address Petroleum Refinery Sector Risk and Technology
Review (RTR) and New Source Performance Standards (NSPS) focus on
developing updated emissions standards for petroleum refineries for
multiple pollutants, including GHGs. The rules are based on results of
the RTR analyses for both Maximum Achievable Control Technology
standards (MACT 1 and 2). The technology review would be conducted to
identify any new practices, processes, or control technologies for the
industry and cost-effective emission control options. EPA is developing
uniform standards for some emission sources in the petroleum refining
sector that may serve as the basis for these technology reviews. The
rules also review the standards and rule provisions to determine
whether other changes may be needed during periods of start-up,
shutdown, and malfunction to ensure the standards are consistent with
recent court opinions and other CAA programs. With regard to NSPS, the
rules address remaining NSPS issues under reconsideration from the
promulgation of existing NSPS and other NSPS rules affecting the
refining sector, and include the regulation of GHGs and the development
of emission guidelines for existing sources.
8. Summary of SBREFA Panel Process and Panel Outreach
a. Significant Panel Findings
    The Small Business Advocacy Review Panel (SBAR Panel, or the Panel)
considered regulatory options and flexibilities to help mitigate
potential adverse effects on small businesses as a result of this rule.
During the SBREFA Panel process, the Panel sought out and received
comments on the regulatory options and flexibilities that were

presented to SERs and Panel members. The recommendations of the Panel
are described below and are also located in Section 9 of the SBREFA
Final Panel Report, which is available in the public docket.
b. Panel Process
    As required by section 609(b) of the RFA, as amended by SBREFA, we
also conducted outreach to small entities and convened an SBAR Panel to
obtain advice and recommendations of representatives of the small
entities that potentially would be subject to the rule's requirements.
On August 4, 2011, EPA's Small Business Advocacy Chairperson convened a
Panel under Section 609(b) of the RFA. In addition to the Chair, the
Panel consisted of the Division Director of the Assessment and
Standards Division of EPA's Office of Transportation and Air Quality,
the Chief Counsel for Advocacy of the Small Business Administration,
and the Administrator of the Office of Information and Regulatory
Affairs within the Office of Management and Budget. As part of the SBAR
Panel process, we conducted outreach with representatives of small
businesses that would potentially be affected by the proposed
rulemaking. We met with these Small Entity Representatives (SERs) to
discuss the potential rulemaking approaches and potential options to
decrease the impact of the rulemaking on their industries. We
distributed outreach materials to the SERs; these materials included
background on the rulemaking, possible regulatory approaches, and
possible rulemaking alternatives. The Panel met with SERs from the
industries that would be directly affected by the Tier 3 rule on August
18, 2011 to discuss the outreach materials and receive feedback on the
approaches and alternatives detailed in the outreach packet (the Panel
also met with SERs on June 28, 2011 for an initial outreach meeting).
The Panel received written comments from the SERs following the meeting
in response to discussions had at the meeting and the questions posed
to the SERs by the Agency. The SERs were specifically asked to provide
comment on regulatory alternatives that could help to minimize the
rule's impact on small businesses.
    The Panel's findings and discussions were based on the information
that was available during the term of the Panel and issues that were
raised by the SERs during the outreach meetings and in their comments.
It was agreed that EPA should consider the issues raised by the SERs
and discussions had by the Panel itself, and that EPA should consider
comments on flexibility alternatives that would help to mitigate
negative impacts on small businesses to the extent legally allowable by
the Clean Air Act. Alternatives discussed throughout the Panel process
included those offered in previous or current EPA rulemakings, as well
as alternatives suggested by SERs and Panel members. A summary of these
recommendations is detailed below, and a full discussion of the
regulatory alternatives and hardship provisions discussed and
recommended by the Panel can be found in the SBREFA Final Panel Report.
A complete discussion of the provisions for which we are requesting
comment and/or proposing in this action can be found in Sections IV.E
and V.D of this preamble. Also, the Panel Report includes all comments
received from SERs (Appendix B of the Report) and summaries of the two
outreach meetings that were held with the SERs. In accordance with the
RFA/SBREFA requirements, the Panel evaluated the aforementioned
materials and SER comments on issues related to the IRFA. The Panel's
recommendations from the Final Panel Report are discussed below.
    It should be noted that during the Panel process, two additional
issues were discussed with SERs that were under consideration by the
Agency for the Tier 3 proposal. As noted in Section IV.D.5, EPA was
considering extending the new certification fuel specifications to all
regulatory categories of engines, vehicles, equipment, and fuel system
components that use gasoline. This would have included a wide range of
additional applications, including small nonroad engines used in lawn
and garden applications, recreational vehicles such as ATVs and
snowmobiles, recreational marine applications, on-highway motorcycles,
and heavy-duty gasoline engines. In addition, EPA considered new
volatility (Reid Vapor Pressure, or RVP) standards for in-use gasoline.
Neither of these issues is being proposed in today's notice. Therefore,
the following discussion of the Panel recommendations does not address
these issues. The reader is directed to the Panel Report, located in
the rulemaking docket, for more information on both of these issues.
c. Panel Recommendations
i. Tier 3 Fuels
    The Panel discussed several regulatory flexibility alternatives
with SERs for small businesses in the gasoline production and
distribution, fuel additive manufacturing, and ethanol production
industries subject to the proposed fuel requirements. Panel
recommendations on these approaches are discussed below.
(1) Lead Time--Sulfur
    The Panel recommended that EPA propose a delay option, similar to
previous fuels rulemakings, in the Tier 3 proposed rule. The Panel
recommended that EPA allow small refiners to postpone their compliance
with the Tier 3 program for up to three years. Small refiners choosing
this flexibility option would have from January 1, 2017 through
December 31, 2019 to continue production of gasoline with an average
sulfur level of 30 ppm (per the Tier 2 gasoline sulfur program).
Compliance with the 10-ppm sulfur standard would begin on January 1,
2020. Any small refiner choosing this proposed option would be allowed
to continue use of their Tier 2 gasoline sulfur credits through
December 31, 2019 to meet the refiner average 30-ppm sulfur standard.
    The Panel also recommended that EPA request comment on case-by-case
hardship provisions that would provide additional relief for any
refiner experiencing extreme difficulty in compliance with the Tier 3
requirements, as discussed below in Section XII.C.6.c.i.(6).
(2) Provisions for Additive Manufacturers
    The Panel recommended that EPA provide flexibilities for gasoline
additive manufacturers. Following discussion with EPA, the Panel
suggested that EPA propose the following flexibilities:
     For additives used downstream of the refiner:
Differentiating bulk additives based on whether they meet a 20- or 25-
ppm sulfur standard.
     For aftermarket consumer additives: Allow for aftermarket
additives to meet either a 20-ppm or 25-ppm sulfur cap.
     For additives not meeting a 10-, 20-, or 25-ppm sulfur
limit: Allow for the use of volume accounting reconciliation (VAR)
records for additives that would not be able to meet a 25-ppm sulfur
cap to show that use of the additive would not cause the sulfur level
of the finished fuel to exceed 10 ppm (similar to the Nonroad Diesel
Rulemaking, 69 FR 39088, June 29, 2004), and require product labeling
for aftermarket additives.
(3) Refinery Gate and Downstream Caps
    With regard to the 20-ppm refinery gate cap discussed in Section 3
of the Panel Report, the Panel had concerns that such a standard could
cause operational problems for small refiners

during a refinery turnaround or an upset, because a cap of this level
could result in a refiner not being able to produce gasoline (as noted
in their comments in Section 8 of the Panel Report). The Panel likewise
had concerns that a downstream cap of 25 ppm could cause problems for
small downstream entities, such as transmix processors, because they
may not be able to reprocess finished gasoline down to this level (also
noted in their comments in Section 8 of the Panel Report).
    Thus, the Panel recommended that EPA assess and request comment on
retaining the current Tier 2 refinery gate and downstream caps of 80
and 95 ppm, respectively, to help provide maximum flexibility and avoid
system upsets for the entire refining and distribution system. Thus,
the SBA and OMB Panel members recommend that EPA propose retaining the
80-ppm and 95-ppm caps.
    The Panel also recommended that EPA request comment on additional
refinery gate and downstream caps above 20/25 ppm but below 80/95 ppm.
Additionally, the Panel recommended that EPA allow the current Tier 2
80-ppm sulfur refinery gate cap and 95-ppm sulfur downstream cap in
Alaska to remain at these levels indefinitely.
(4) Hardship Provisions
    During the Panel process, EPA stated its intent to propose hardship
provisions (for all gasoline refiners and importers) similar to those
in prior EPA fuels programs: (a) The extreme unforeseen circumstances
hardship provision, and (b) the extreme hardship provision. A hardship
based on extreme unforeseen circumstances is intended to provide short
term relief due to unanticipated circumstances beyond the control of
the refiner, such as a natural disaster or a refinery fire. An extreme
hardship is intended to provide short-term relief based on extreme
circumstances (e.g., extreme financial problems, extreme operational or
technical problems, etc.) that impose extreme hardship and thus
significantly affect a refiner's ability to comply with the program
requirements by the applicable dates. In the context of the proposal,
the Panel agrees that such relief could consider long-term relief on
the sulfur cap (similar to that for Alaska) if the circumstances both
warrant it and can be structured in a way to allow for it. The Panel
agrees with the proposal of such provisions and recommended that EPA
include them in the Tier 3 proposed rulemaking.
ii. Tier 3 Vehicles
    As discussed in Section 5 of the Panel Report, in addition to
vehicle manufacturers, two distinct categories of businesses relating
to highway light-duty vehicles and heavy-duty trucks would be covered
by the new vehicle standards: independent commercial importers (ICIs),
and alternative fuel vehicle converters. As discussed below, EPA's
expectation at the time of the Panel process was to propose a set of
flexibilities that would be available to all small entities in these
three business categories as well as any businesses in these categories
that sell less than 5,000 vehicles per year. The Panel identified a
number of entities covered by the vehicle standards that qualify as
small businesses under the SBA definition. Six of these companies
participated as SERs.
    The Panel discussed several regulatory flexibility alternatives
with SERs for small businesses that certify vehicles subject to the
proposed Tier 3 emission standards. As described in Appendix A (and
similar to provisions in the Tier 2 rule), EPA sought comment from the
SERs on allowing small entities to simply comply with the proposed
emission standards with 100 percent of their vehicles during the last
year of the phase-in period. In addition, EPA sought comment on the
following flexibilities: (1) A hardship provision that would allow
these businesses to apply for additional time to meet any of the 100
percent phase-in requirements, (2) use of assigned deterioration
factors for certification purposes, and (3) reduction in the number of
tests required in the manufacturer in-use verification testing program
(see 40 CFR 86.1845-04). SERs were generally supportive of these
flexibility provisions. However, one SER requested that EPA consider
providing relaxed standards for exhaust emissions in addition to the
delay and another SER requested that we consider eliminating some of
the evaporative emission testing requirements.
    Panel recommendations on these approaches are discussed below.
(1) Exhaust Emission Standards and Lead Time
    In the types of businesses subject to the potential Tier 3
standards, small businesses have limited resources available for
developing new designs to comply with new emission standards. In
addition, it is often necessary for these businesses to rely on vendor
companies for technology. Moreover, percentage phase-in requirements
pose a dilemma for a small manufacturer that has a limited product line
(e.g., the manufacturer certifies vehicles in only one or two test
groups). Thus, similar to the flexibility provisions implemented in
previous vehicle rules, the Panel recommended that EPA allow small
businesses the following flexibility options for meeting the potential
Tier 3 exhaust emissions standards.
    The Panel recommended that small businesses be given additional
lead time to comply with the potential Tier 3 exhaust standards and
allow small businesses to comply with the standards with 100 percent of
their vehicles starting in model year 2022. (This is similar to the
Tier 2 rule where EPA allowed small manufacturers to wait until the end
of the phase-in to comply with the Tier 2 standards.) During the Panel
process, the proposed Tier 3 rule was expected to have several
different phase-in schedules; with the final dates varying from model
year 2021 for the new exhaust PM standards and use of the new E15
certification fuel, to model year 2022 for the new evaporative emission
standards, to model year 2025 for the new exhaust gaseous pollutant
standards. The Panel noted that requiring all small businesses to
comply with the full slate of Tier 3 requirements in model year 2022
should provide sufficient lead time for manufacturers to plan for and
implement the technology changes needed to comply with the Tier 3
standards.
    One of the SERs recommended that EPA adopt relaxed exhaust
standards for small manufacturers. The SER noted that the exhaust
emission averaging program being proposed by EPA would allow large
manufacturers that have many engine families to certify their small,
niche products at levels numerically higher than the standards. Small
manufacturers that typically do not have more than one or two emission
families generally cannot use averaging to the same extent because of
their limited product offerings. The SER's concern was that the high-
performance vehicles produced by large manufacturers which they compete
against would be able to certify at numerically higher levels at less
cost than the SER would incur. While EPA was planning to propose the
same standards for all manufacturers, the Panel recommended that EPA
request comment on allowing small manufacturers to meet relaxed exhaust
emission standards. This could also be included as part of the hardship
provision discussed below. The Panel recommended that EPA request
comment on the relaxed standards recommended by the SER. The SER-
recommended relaxed NMOG+NOX

standards over the Federal Test Procedure (FTP) are 0.125 grams/mile in
model year 2020 and 0.070 grams/mile in model year 2025. In addition,
the Supplemental FTP standards would be the standards for the
corresponding bins which the manufacturer selected for complying with
the FTP standards. For example, if the manufacturer certified to the
proposed Tier 3 Bin 125 standards over the FTP, the manufacturer would
have to comply with the corresponding Tier 3 Bin 125 standards for the
Supplemental FTP.
(2) Evaporative Emission Standards and Lead Time
    The Panel recommended that small businesses comply with the Tier 3
evaporative emission standards, including the leak standard, with 100
percent of their vehicles starting in model year 2022. For evaporative
emissions, where the Tier 3 standards could begin as early as 2017 and
phase-in through 2022, this provision would allow small businesses and
SVMs to wait until the last year of the Tier 3 phase-in period for
evaporative emission standards for all of their vehicles. This start
date is consistent with the start date described above for the Tier 3
exhaust emission requirements being recommended by the Panel for small
businesses.
(3) Assigned Deterioration Factors
    Under EPA's regulations, manufacturers must demonstrate that their
vehicles comply with the emission standards throughout the ``useful
life'' period. This is generally done by testing vehicles at low-
mileage and then applying a deterioration factor to these emission
levels. The deterioration factors are determined by aging new emission
control systems and then testing the aged systems again to determine
how much deterioration in emissions has occurred. In order to reduce
the testing burden on small manufacturers, EPA suggested that small
manufacturers could use deterioration factor values assigned by EPA
instead of performing the extended testing. A manufacturer would apply
the assigned deterioration factors to its low-mileage emission level to
demonstrate whether it complied with the Tier 3 emission standards. EPA
currently allows this flexibility for small manufacturers. The Panel
recommended that EPA propose that small businesses be allowed the
option to use EPA-developed assigned deterioration factors in
demonstrating compliance with the Tier 3 exhaust and evaporative
emission standards. In the past, EPA has relied on deterioration factor
data from large manufacturers to develop the assigned DFs for small
manufacturers. EPA would expect to follow a similar procedure to
determine the assigned DFs for the Tier 3 standards once large
manufacturers start certifying their Tier 3 designs. Given that larger
manufacturers would begin phasing in to the Tier 3 standards in model
year 2017, EPA should have a significant set of emissions deterioration
data upon which to base the assigned DFs for small businesses within
the first few years of the Tier 3 program. EPA recognizes that assigned
DFs need to be determined well in advance of model year 2022 in order
to provide sufficient time for small businesses to decide whether or
not to use the assigned DFs for certification purposes.
(4) Reduced Testing Burden
    Under EPA's regulations, manufacturers must perform in-use testing
on their vehicles and demonstrate their in-use vehicles comply with the
emission standards. The current in-use testing regulations provide for
reduced levels of testing for small manufacturers, including no testing
in some cases. EPA suggested that these provisions should continue for
small manufacturers with the Tier 3 program. The Panel recommended that
EPA propose that small businesses be allowed to have reduced burden
under the in-use testing program for Tier 3 vehicles.
    One SER requested that EPA eliminate some of the evaporative
emission testing requirements for small businesses based on its belief
that some of the tests may be duplicative. While EPA noted (during the
Panel process) that it understood the reasons behind the manufacturer's
suggestion, EPA believed it may be premature to consider such an option
in the Tier 3 rule given the impact of the CO2 emission
standards on engine and fuel system development. Currently, it is
generally understood that the 2-day diurnal test drives the purge
characteristics of evaporative control systems, while the refueling
test, and to a lesser degree the 3-day test, drive the capacity
requirement of evaporative canisters. Prospectively, due to expected
changes in engine and fuel system designs in response to upcoming
CO2 emission standard requirements, this may not be the
case. Therefore, at the time of the Panel process, EPA noted its belief
that it is appropriate to retain all of the evaporative test
procedures. It can be noted that under current regulations, EPA does
allow manufacturers to waive 2-day diurnal testing for certification
purposes (see 40 CFR 86.1829-01(b)(2)(iii)) and perform only the 2-day
diurnal test as part of the in-use testing program (see 40 CFR 86.1845-
04(c)(5)(ii)). These provisions would continue in the Tier 3 program.
In general, EPA noted that it is open to changes that reduce test
burden while maintaining the environmental effectiveness of its
programs and could consider changes like those suggested by the SER in
the future as the impacts of the future regulations on engine and
vehicle design become clearer. EPA also stated that it intends to
request comment in the Tier 3 proposal on streamlining the current test
procedures for small businesses in ways that would still maintain the
overall stringency of the tests.
(5) Hardship Provisions
    The Panel recommended that hardship provisions be provided to small
businesses for the Tier 3 exhaust and evaporative emission standards.
Under the hardship provisions, small businesses would be allowed to
apply for additional time to meet the 100 percent phase-in requirements
for exhaust and evaporative emissions. All hardship requests would be
subject to EPA review and approval. Appeals for such hardship relief
would be required to be made in writing and submitted well before the
earliest date of noncompliance. The request should identify how much
time is being requested. It must also include evidence that the
noncompliance would occur despite the manufacturer's best efforts to
comply, and must contain evidence that severe economic hardship would
be faced by the company if the relief is not granted. The above
provision should effectively provide the opportunity for small
businesses to obtain more time to comply with the new Tier 3 standards.
(The existing hardship provisions limit the extra time that can be
requested to 1 year, but such a limit may or may not be included in the
proposed Tier 3 hardship provisions.)
(6) Applicability
    Under EPA's current Tier 2 regulations, EPA provides a number of
flexibilities for small volume manufacturers. The criteria for
determining if a company is a small volume manufacturer is based on the
annual production level of vehicles and is based on whether the company
produces less than 15,000 vehicles per year. Unlike EPA's small volume
manufacturer criteria noted above, SBA defines which manufacturers are
small businesses (and therefore should be considered under the SBAR
Panel process) based on the number of

employees for vehicle manufacturers and annual revenues for ICIs and
alternative fuel converters. For example, SBA defines small business
vehicle manufacturers as those who have less than 1,000 employees.
Similarly, SBA defines small business ICIs as those who have annual
revenues of less than $8 million per year.
    The Panel recommended that EPA propose to allow all small
businesses that meet the SBA criteria be eligible for the flexibilities
described above. In addition, in the Panel Report, EPA stated that it
is expecting to propose that manufacturers that meet a specified sales-
based criterion to be eligible for the flexibilities described above.
It is relatively easy for a manufacturer to project and ultimately
determine sales. Determining the annual revenues or number of employees
is less straightforward. In the recent rule setting the first light-
duty vehicle and truck CO2 emission standards, EPA adopted
provisions for small manufacturers based on a sales cutoff of 5,000
vehicles per year as opposed to the 15,000 level noted earlier that is
used in the Tier 2 program. In the Panel Report, EPA noted that it
expects to propose a small volume manufacturer definition based on the
5,000 vehicle per year level for the Tier 3 program. EPA believes the
5,000 unit cut-off for small volume manufacturers would include all of
the small business vehicle manufacturers, ICIs, and alternative fuel
converters that meet the applicable SBA definition as well as some
additional companies that have similar concerns to small businesses.
Lastly, EPA noted in the Panel Report that it expects to propose the
flexibilities described above to be available to any manufacturer that
meets either the SBA small business criteria or the sales-based
criteria.
    EPA invites comment on all aspects of the proposal and its impacts
on small entities.

D. Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), 2
U.S.C. 1531-1538, requires Federal agencies, unless otherwise
prohibited by law, to assess the effects of their regulatory actions on
State, local, and tribal governments and the private sector. This rule
contains a Federal mandate that may result in expenditures of $100
million or more for State, local, and tribal governments, in the
aggregate, or the private sector in any one year. Under section 202 of
the UMRA, EPA generally must prepare a written statement, including a
cost-benefit analysis, for proposed and final rules with ``Federal
mandates'' that may result in expenditures to State, local, and tribal
governments, in the aggregate, or to the private sector, of $100
million or more in any one year. Accordingly, EPA has prepared a
statement of the cost-benefit analysis as required by section 202 of
the UMRA; this statement can be found in Sections VII and VIII of this
preamble, and in Chapter 8 of the draft RIA. Before promulgating an EPA
rule for which a written statement is needed, section 205 of the UMRA
generally requires EPA to identify and consider a reasonable number of
regulatory alternatives and adopt the least costly, most cost-effective
or least burdensome alternative that achieves the objectives of the
rule. The provisions of section 205 do not apply when they are
inconsistent with applicable law. Moreover, section 205 allows EPA to
adopt an alternative other than the least costly, most cost-effective
or least burdensome alternative if the Administrator publishes with the
final rule an explanation why that alternative was not adopted.
    Before EPA establishes any regulatory requirements that may
significantly or uniquely affect small governments, including tribal