determined (and applied) separately for each notch, and whether a
specific test procedure is necessary.
(7) In-Use Compliance for SCR Operation
    As discussed in section III.D, we are projecting that manufacturers
would use urea-based SCR systems to comply with the proposed Tier 4
emission standards. These systems are very effective at controlling
NOX emissions as long as the operator continues to supply
urea of acceptable quality. Thus we have considered concepts put
forward by manufacturers in other mobile source sectors in dealing with
this issue that include design features to prevent an engine from being
operated without urea if an operator ignores repeated warnings and
allows the urea level to run too low. EPA has recently issued a
proposed guidance document for urea SCR systems discussing the use of
such features on highway diesel vehicles.
    Although we request comment on our adopting requirements for
manufacturers on the design of SCR systems to ensure use of urea, we

believe that the nature of the locomotive and large commercial marine
sectors supports a different in-use compliance approach. This approach
would focus on requirements for operators of locomotives and marine
diesel engines that depend on urea SCR to meet EPA standards, aided by
onboard alarm and logging mechanisms that engine manufacturers would be
required to include in their engine designs. Except in the rare
instance that operation without urea may be necessary, the regulatory
provisions proposed here put no burden on the end-user beyond simply
filling the urea tank with appropriate quality urea. Specifically, we
are proposing:
     That it be illegal to operate without acceptable quality
urea when the urea is needed to keep the SCR system functioning
properly.
     That manufacturers must include clear and prominent
instructions to the operator on the need for, and proper steps for,
maintaining urea, including a statement that it is illegal to operate
the engine without urea.
     That manufacturers must include visible and audible alarms
at the operator's console to warn of low urea levels or inadequate urea
quality.
     That engines and locomotives must be designed to track and
log, in nonvolatile computer memory, all incidents of engine operation
with inadequate urea injection or urea quality.
     That operators must report to EPA in writing any incidence
of operation with inadequate urea injection or urea quality within 30
days of each incident.
     That, when requested, locomotive and vessel operators must
provide EPA with access to, and assistance in obtaining information
from, the electronic onboard incident logs.
    We understand that in extremely rare circumstances, such as during
a temporary emergency involving risk of personal injury, it may be
necessary to operate a vessel or locomotive without adequate urea. We
would intend such extenuating circumstances to be taken into account
when considering what penalties or other actions are appropriate as a
result of such operation. The information from SCR compliance
monitoring systems described above may also be useful for state and
local air quality agencies and ports to assist them in any marine
engine compliance programs they implement. States and localities could
require operators to make this information available to them in
implementing such programs.
    We propose that what constitutes acceptable urea solution quality
be specified by the manufacturers in their maintenance instructions,
with the requirement that the certified emission control system must
meet the emissions standards with any urea solution within stated
specifications. This will be facilitated by an industry standard for
urea quality, which we expect will be generated in the future as these
systems move closer to market. We recognize that requiring onboard
detection of inadequate urea quality implies the need for automated
sensing of some characteristic indicator such as urea concentration or
exhaust NOX concentration. We request comment on how this
can be best managed to minimize the complexity and cost while at the
same time precluding tampering through such means as adding water to
the urea tank. We request comment on additional compliance provisions,
such as mandatory recordkeeping of fuel and urea consumption for each
SCR-equipped locomotive or vessel, with periodic reporting
requirements.
    We believe these proposed provisions can be an effective tool in
ensuring urea use for locomotives and large commercial marine vessels
because of the relatively small number of railroads and operators of
large commercial vessels in the U.S., especially considering that the
number of SCR-equipped locomotives and vessels will ramp up quite
gradually over time. In-use compliance provisions of the sort we are
proposing for locomotives and large commercial marine engines would be
much less effective in other mobile source sectors such as highway
vehicles because successful enforcement involving millions of vehicle
owners would be extremely difficult. The incident logging or
recordkeeping requirements could be effective tools for detecting in-
use problems besides no-urea or poor-quality urea, such as other
tampering or malmaintenance, or operation with broken or frozen urea
dosing systems. We request comment on all aspects of the urea
maintenance issue, including other measures we should require of
manufacturers and operators of SCR-equipped engines, and on the
definition of a temporary emergency.
(8) Fuel Labels and Misfueling
    In our previous regulation of in-use locomotive and marine diesel
fuel, we established a 15 ppm sulfur standard at the refinery gate for
locomotive and marine (LM) diesel fuel beginning June 1, 2012. However,
we set the downstream standard for LM diesel fuel at 500 ppm sulfur. In
this way the LM diesel fuel pool could remain an outlet for off-
specification distillate product and interface/transmix material.
Because refiners cannot intentionally produce off-specification fuel
for locomotives, most in-use locomotive and marine diesel fuel will be
ULSD (which contains less than 15 ppm sulfur). Nevertheless, we expect
that some fuel will be available with sulfur levels between 15 and 500
ppm.
    The advance emission controls that would be used to comply with
many of the new standards will require the use of ULSD. Therefore, we
are proposing a requirement that manufacturers notify each purchaser of
a Tier 4 locomotive or marine engine that it must be fueled only with
the ultra low-sulfur diesel fuel meeting our regulations. We also
propose to apply this requirement for locomotives and engines having
sulfur-sensitive technology and certified using ULSD. We are also
proposing that all of these locomotives and vessels must be labeled
near the refueling inlet to say: ``Ultra-Low Sulfur Diesel Fuel Only''.
These labels would be required to be affixed or updated any time any
engine on a vessel is replaced after the proposed program goes into
effect.
    We are proposing to require the use of ULSD in locomotives and
vessels labeled as requiring such use, including all Tier 4 locomotives
and marine engines. More specifically, we are proposing that use of the
wrong fuel for locomotives or marine engines would be a violation of 40
CFR 1068.101(b)(1) because use of the wrong fuel would have the effect
of disabling the emission controls. We request comment on the need for
these measures and on additional ideas for preventing misfueling.
(9) Emission Data Engine Selection
    Some marine manufacturers have expressed concern over the current
provisions in our regulation for selection of an emission data engine.
Part 94 specifies that a marine manufacturer must select for testing
from each engine family the engine configuration which is expected to
be worst-case for exhaust emission compliance on in-use engines. Some
manufacturers have interpreted this to mean that they must test all the
ratings within an engine family to determine which is the worst-case.
Understandably, this interpretation could cause production problems for
many manufacturers due to the lead time needed to test a large volume
of engines. Our view is that the current provisions do not necessitate
testing of all ratings within an engine family. Rather, manufacturers
are allowed to base their selection on good engineering judgment,
taking into consideration

engine features and characteristics which, from experience, are known
to produce the highest emissions. This methodology is consistent with
the provisions for our on-highway and nonroad engine programs.
Therefore, we are proposing to keep essentially the same language in
part 1042 as is in part 94.
    We are proposing to adopt similar language for locomotives and
apply it in the same manner as we do for marine engines.
(10) Deterioration Factor Plan Requirements
    In this rulemaking, we are proposing to amend our deterioration
factor (DF) provisions to include an explicit requirement that DF plans
be submitted by manufacturers for our approval in advance of conducting
engine durability testing, or in the case where no new durability
testing is being conducted, in advance of submitting the engine
certification application. We are not proposing to fundamentally change
either the locomotive or marine engine DF requirements other than to
require advance approval.
    An advance submittal and approval format would allow us sufficient
time to ensure consistency in DF procedures, without the need for
manufacturers to repeat any durability testing or for us to deny an
application for certification should we find the procedures to be
inconsistent with the regulatory provisions. We would expect that the
DF plan would outline the amount of service accumulation to be
conducted for each engine family, the design of the representative in-
use duty cycle on which service will be accumulated, and the quantity
of emission tests to be conducted over the service accumulation period.
We request comment on other items that should be included in the DF
plan.
(11) Labeling Simplification
    Our current engine regulations (i.e., Part 86, Part 89, Part 94,
etc.) have similar but not identical provisions for emission
certification labels. These requirements can vary from regulation to
regulation and in many cases may request labeling information that
manufacturers feel is either not relevant for modern electronic engines
or can be made readily available through other sources. In response to
manufacturer concerns, we request comment on the concept of developing
a common labeling regulation, similar to our consolidation of testing
and compliance provisions into part 1068. Commenters supporting a
common labeling requirement for diesel engines, should address in
detail the requirements of 40 CFR 1039.135 and 86.007-35 (including
reserved text) along with the labeling sections being proposed in this
notice (1033.135 and 1042.135).
(12) Production Line Testing
    We propose to continue the existing production line testing
provisions that apply to manufacturers. Some manufacturers have
suggested that we should eliminate this requirement on the basis that
very low noncompliance rates are being detected at a high expense. We
disagree. As we move toward more stringent emission standards with this
rulemaking, we anticipate that the margin of compliance with the
standards for these engines is likely to decrease. Consequently, this
places an even greater significance on the need to ensure little
variation in production engines from the certification engine, which is
often a prototype engine. For this reason, it is important to maintain
our production line testing program. However, the existing regulations
allow manufacturers to develop alternate programs that provide
equivalent assurance of compliance on the production line, and to use
such programs instead of the specified production line testing program.
For example, given the small sales volumes associated with marine
engines it may be appropriate to include a production verification
program for marine engines as part of a manufacturer's broader
production verification programs for its nonmarine engines. We believe
these existing provisions already address the concerns raised to us by
the manufacturers. Nevertheless, we welcome comments regarding the
appropriateness of the current provisions.
    We are asking for comment on whether manufacturers should be
allowed to use special procedures for production line testing of
catalyst-equipped engines. For example, should we allow the use of a
previously stabilized catalyst instead of an unstabilized (or green)
catalyst? If we allow this approach, should we require some additional
procedure for ensuring proper in-use operation of the production
catalysts? Should we allow manufacturers to demonstrate that the
diagnostic system is capable of verifying proper function of the
emission controls? Alternatively for locomotives, should we allow a
locomotive selected for testing to be introduced into service before
testing, provided that it is tested within the first 10,000 miles of
operation?
(13) Evaporative Emission Requirements
    While nearly all locomotives currently subject to part 92 are
fueled with diesel fuel, Sec.  92.7 includes evaporative emission
provisions that would apply for locomotives fueled by a volatile liquid
fuel such as gasoline or ethanol. These regulations do not specify test
procedures or specific numerical limits, but rather set a ``good
engineering'' requirements. We propose to adopt these same requirements
in part 1033 and request comment on the need to specify a test
procedure and specific numerical limits.
    We are also proposing to adopt similar requirements for marine
engines and vessels that run on volatile fuels. We are not aware of any
marine engines currently being produced that would be subject to these
requirements, but believe that it would be appropriate to adopt these
requirements now, rather than waiting until such engines are produced
because it would provide manufacturers certainty. Specifically, we are
proposing that if someone were to build a marine vessel to use a
compression-ignition engine that runs on a volatile liquid fuel, the
engine would be subject to the exhaust standards of part 1042, but the
fuel system would be subject to the evaporative emission requirements
of the recently proposed part 1045.\125\
---------------------------------------------------------------------------

    \125\ Part 1045 is scheduled to be proposed just before this
proposed rule.
---------------------------------------------------------------------------

(14) Small Business Provisions
    There are a number of small businesses that would be subject to
this proposal because they are locomotive manufacturers/
remanufacturers, railroads, marine engine manufacturers, post-
manufacture marinizers, or vessel builders. We are proposing to largely
continue the existing provisions that were adopted previously for these
small businesses in the 1998 Locomotive and Locomotive Engines Rule
(April 16, 1998; 63 FR 18977); our 1999 Commercial Marine Diesel
Engines Rule (December 29, 1999; 64 FR 73299); and our 2002
Recreational Diesel Marine program (November 8, 2002; 67 FR 68304).
These provisions, which are discussed below, are designed to minimize
regulatory burdens on small businesses needing added flexibility to
comply with emission standards while still ensuring the greatest
emissions reductions achievable. (See section VIII.C of this proposed
rule for discussion of our outreach efforts with small entities.) We
request comment on whether continuing these provisions is appropriate.
We also request comment

on whether additional flexibilities are needed.
(a) Locomotive Sector
    A significant portion of the locomotive remanufacturing and
railroad industry is made up of small businesses. As such, these
companies do not tend to have the financial resources or technical
expertise to quickly respond to the requirements contained in today's
proposed rule. Therefore, as mentioned earlier, we would continue the
existing provisions described below.
(i) Production-Line and In-Use Testing Does Not Apply
    Production-line and in-use testing requirements would not apply to
small locomotive remanufacturers until January 1, 2013, which would be
up to five calendar years after this proposed program becomes
effective. The advantage of this approach would be to minimize
compliance testing during the first five calendar years.
    In the 1998 Locomotive Rule (April 16, 1998; 63 FR 18977), the in-
use testing exemption was provided to small remanufacturers with
locomotives or locomotive engines that became new during the 5-year
delay, and this exemption was applicable to these locomotives or
locomotive engines for their entire useful life (the exemption was
based on model years within the delay period, but not calendar years as
we are proposing today). As an amendment to the existing in-use testing
exemption, we are proposing that small remanufacturers with these new
locomotives or locomotive engines would be required to begin complying
with the in-use testing requirements after the five-year delay, January
1, 2013 (exemption based on calendar years). Thus, they would no longer
have an exemption from in-use testing for the entire useful life of a
locomotive or a locomotive engine. We want to ensure that small
remanufacturers would comply with our standards in-use, and
subsequently, the public can be assured they are receiving the air
quality benefits of the proposed standards. In addition, this proposed
amendment would provide a date certain for small remanufacturers on
when the in-use testing requirements would begin to apply.
(ii) Small Railroads Exempt From New Standards for Existing Fleet
    For locomotives in their existing fleets, the Tier 0
remanufacturing requirements would not apply to railroads qualifying as
small businesses. The definition of small business currently used by
EPA is same as the definition used by the Small Business
Administration, which is based on employment. For line-haul railroads
the threshold is 1,500 or fewer employees, and for short-haul railroads
it is 500 or fewer employees. Previously we believed that small
railroads were not likely to remanufacture their locomotives to ``as
new'' condition in most cases, so their locomotives would be generally
excluded from the definition of ``new''.
    We are requesting comment on whether the current provisions for
railroads qualifying as small businesses have been effective and
appropriate, on whether they should continue under the new program,
and, if so, on whether the existing employee thresholds are appropriate
for the purpose of this rulemaking or whether a new threshold based on
revenue would be appropriate. Based on the increased efficiencies
associated with railroad operations, we believe a railroad with 500 or
fewer employees can be viewed as a medium to large business. We believe
a different approach based on annual revenues may be more appropriate.
For example, should we limit the category of ``small railroad'' to only
those railroads that qualify as Class III railroads and that are not
owned by a larger company? Under the current classification system,
this would limit the exemption to railroads having total revenue less
than $25 million per year.
    We are clarifying in our definition that intercity passenger or
commuter railroads are not included as railroads that are small
businesses because they are typically governmental or are large
businesses. Due to the nature of their business, these entities are
largely funded through tax transfers and other subsidies. Thus, the
only passenger railroads that could qualify for the small railroad
provisions would be small passenger railroads related to tourism. We
invite comment on whether any intercity passenger or commuter railroads
would need this exemption for locomotives in their existing fleet.
(iii) Small Railroads Excluded From In-Use Testing Program
    The railroad in-use testing program would continue to only apply to
Class I freight railroads, and thus, no small railroads would be
subject to this testing requirement. It is important to note that most,
but not all Class II and III freight railroads qualify as small
businesses. This provision provides flexibility to all Class II and III
railroads, which includes small railroads. All Class I freight
railroads are large businesses. \126\
---------------------------------------------------------------------------

    \126\ U.S. EPA, Assessment and Standards Division, Memorandum
from Chester J. France to Alexander Cristofaro of U.S. EPA's Office
of Policy, Economics, and Innovation, Locomotive and Marine Diesel
RFA/SBREFA Screening Analysis, September 25, 2006.
---------------------------------------------------------------------------

(iv) Hardship Provisions
    Section 1068.245 of the existing regulations in title 40 contains
hardship provisions for engine and equipment manufacturers, including
those that are small businesses. We are proposing to apply this section
for locomotives as described below.
    Under this unusual circumstances hardship provision, locomotive
manufacturers may apply for hardship relief if circumstances outside
their control cause the failure to comply and if the failure to sell
the subject locomotives would have a major impact on the company's
solvency. An example of an unusual circumstance outside a
manufacturer's control may be an ``Act of God,'' a fire at the
manufacturing plant, or the unforeseen shut down of a supplier with no
alternative available. The terms and time frame of the relief would
depend on the specific circumstances of the company and the situation
involved. As part of its application for hardship, a company would be
required to provide a compliance plan detailing when and how it would
achieve compliance with the standards.
(b) Marine Sector
    There are numerous small businesses that marinize engines for
marine use or build vessels. These businesses do not necessarily have
the financial resources or technical expertise to quickly respond to
the requirements contained in today's proposed rule. To address this
issue, we propose to continue most of the existing provisions, as
described below.
(i) Revised Definitions of Small-Volume Manufacturer and Small-Volume
Boat Builder
    We propose to revise the definitions of small-volume manufacturer
(SVM) and small-volume boat builder to include worldwide production.
Currently, an SVM is defined as a manufacturer with annual U.S.-
directed production of fewer than 1,000 engines (marine and nonmarine
engines), and a small-volume boat builder is defined as a boat
manufacturer with fewer than 500 employees and with annual U.S.-
directed production of fewer than 100 boats. By proposing to include
worldwide production in these

definitions, we would prevent a manufacturer or boat builder with a
large worldwide production of engines or boats, or a large worldwide
presence, from receiving relief from the requirements of this program.
As discussed above, the provisions that apply to small-volume
manufacturers and small-volume boat builders as described below are
intended to minimize the impact of this rule for those entities that do
not have the financial resources to quickly respond to requirements in
the proposed rule.
(ii) Broader Engine Families and Testing Relief
    Broader engine families: Post-manufacture marinizers (PMMs) and
SVMs would be allowed to continue to group all commercial Category 1
engines into one engine family for certification purposes, all
recreational engines into one engine family, and all Category 2 engines
into one family. As with existing regulations, these entities would be
responsible for certifying based on the ``worst-case'' emitting engine.
The advantage of this approach is that it would minimize certification
testing because the marinizer and SVMs can use a single engine in the
first year to certify their whole product line. In addition, marinizers
and SVMs could then carry-over data from year to year until changing
engine designs in a way that might significantly affect emissions.
    We understand that this broad engine family provision still would
require a certification test and the associated burden for small-volume
manufacturers. We realize that the test costs are spread over low sales
volumes, and we recognize that it may be difficult to determine the
worst-case emitter without additional testing. We would require testing
because we need a reliable, test-based technical basis to issue a
certificate for these engines. However, manufacturers would be able to
use carryover to spread costs over multiple years of production.
    Production-line and deterioration testing: In addition, SVMs
producing engines less than or equal to 800 hp (600 kW) would be
exempted from production-line and deterioration testing for the
proposed Tier 3 standards. We would assign a deterioration factor for
use in calculating end-of-useful life emission factors for
certification. This approach would minimize compliance testing since
production-line and deterioration testing would be more extensive than
a single certification test. The Tier 3 standards proposed for these
engines are expected to be engine-out standards and would not require
the use of aftertreatment--similar to the existing Tier 1 and Tier 2
standards. The Tier 4 standards proposed for engines greater than 800
hp (600 kW) are expected to require aftertreatment emission-control
devices. Currently, we are not aware of any SVMs that produce engines
greater than 800 hp (600 kW), except for one marinizer that plans to
discontinue their production in the near future.\127\ As a proposed
revision to the existing provisions, we would not apply these
production-line and deterioration testing exemptions to SVMs that begin
producing these larger engines in the future due to the sophistication
of manufacturers that produce engines with aftertreatment technology.
These manufacturers would have the resources to conduct both the design
and development work for the aftertreatment emission-control
technology, along with production-line and deterioration testing. We
invite comments on this proposed revision.
---------------------------------------------------------------------------

    \127\ U.S. EPA, Assessment and Standards Division, Memorandum
from Chester J. France to Alexander CristoFaro of the U.S. EPA's
Office of Policy, Economics, and Innovation, Locomotive and Marine
Diesel RFA/SBREFA Screening Analysis, September 25, 2006.
---------------------------------------------------------------------------

(iii) Delayed Standards
    One-year delay: Post-manufacture marinizers generally depend on
engine manufacturers producing base engines for marinizing. This can
delay the certification of the marinized engines. There may be
situations in which, despite its best efforts, a marinizer cannot meet
the implementation dates, even with the provisions described in this
section. Such a situation may occur if an engine supplier without a
major business interest in a marinizer were to change or drop an engine
model very late in the implementation process, or was not able to
supply the marinizer with an engine in sufficient time for the
marinizer to recertify the engine. Based on this concern, we propose to
allow a one-year delay in the implementation dates of the Tier 3
standards for post-manufacture marinizers qualifying as small
businesses (the definition of small business used by EPA for these
provisions for manufacturers of new marine diesel engines--or other
engine equipment manufacturing--is 1,000 or fewer employees) and
producing engines less than or equal to 800 hp (600 kW). As described
earlier, the Tier 4 standards proposed for engines greater than 800 hp
(600 kW) are expected to require aftertreatment emission-control
devices. We would not apply this one-year delay to small PMMs that
begin marinizing these larger engines in the future due to the
sophistication of entities that produce engines with aftertreatment
technology. We would expect that the large base engine manufacturer
(with the needed resources), not the small PMM, would conduct both the
design and development work for the aftertreatment emission-control
technology, and they would also take on the certification
responsibility in the future. Thus, the small PMM marinizing large
engines would not need a one-year delay. We invite comments on this
proposed revision.
    Three-year delay for not-to-exceed (NTE) requirements: Additional
lead time is also appropriate for PMMs to demonstrate compliance with
NTE requirements. Their reliance on another company's base engines
affects the time needed for the development and testing work needed to
comply. Thus, PMMs qualifying as small businesses and producing engines
less than or equal to 800 hp (600 kW) could also delay compliance with
the NTE requirements by up to three years, for the Tier 3 standards.
Three years of extra lead time (compared to one year for the primary
certification standards) would be appropriate considering their more
limited resources. As described earlier, the Tier 4 standards proposed
for engines greater than 800 hp (600 kW) are expected to require
aftertreatment emission-control devices. We would not apply this three-
year delay to small PMMs that begin marinizing these larger engines in
the future due to the sophistication of entities that produce engines
with aftertreatment technology. We would expect that the large base
engine manufacturer (with the needed resources), not the small PMM,
would conduct both the design and development work for the
aftertreatment emission-control technology, and they would also take on
the certification responsibility in the future. Thus, the small PMM
marinizing large engines would not need a three-year delay for
compliance with the NTE requirements. We invite comments on this
proposed revision.
    Five-year delay for recreational engines: For recreational marine
diesel engines, the existing regulations (2002 Recreational Diesel
Marine program; November 8, 2002, 67 FR 68304) allow small-volume
manufacturers up to a five-year delay for complying with the standards.
However, we do not plan to continue this provision. As discussed
earlier, the Tier 3 standards proposed for these engines are expected
to be engine-out standards and would not require the use of
aftertreatment--similar to the existing Tier 1 and Tier 2 standards.
The Tier 4 standards

proposed for engines greater than 800 hp (600 kW) are expected to
require aftertreatment emission-control devices. For the recreational
marine sector, most of the engines are less than or equal to 800 hp
(kW). To meet the Tier 3 standards, the design and development effort
is expected to be for recalibration work, which is much less than the
work for Tier 4 standards. Also, Tier 3 engines are expected to require
far less in terms of new hardware, and in fact, are expected to only
require upgrades to existing hardware (i.e., new fuel systems). In
addition, manufacturers have experience with engine-out standards from
the existing Tier 1 and Tier 2 standards, and thus, they have learned
how to comply with such standards. Thus, small-volume manufacturers of
recreational marine diesel engines do not need more time to meet the
new standards. For small PMMs of recreational marine diesel engines,
the one-year delay described earlier would provide enough time for
these entities to meet the proposed standards. We invite comment on
discontinuing this provision for a 5-year delay.
(iv) Engine Dressing Exemption
    Marine engine dressers would continue to be exempted from
certification and compliance requirements. Many marine diesel engine
manufacturers take a new, land-based engine and modify it for
installation on a marine vessel. Some of the companies that modify an
engine for installation on a vessel make no changes that might affect
emissions. Instead, the modifications may consist of adding mounting
hardware and a generator or reduction gears for propulsion. It can also
involve installing a new marine cooling system that meets original
manufacturer specifications and duplicates the cooling characteristics
of the land-based engine, but with a different cooling medium (such as
sea water). In many ways, these manufacturers are similar to nonroad
equipment manufacturers that purchase certified land-based nonroad
engines to make auxiliary engines. This simplified approach of
producing an engine can more accurately be described as dressing an
engine for a particular application. Because the modified land-based
engines are subsequently used on a marine vessel, however, these
modified engines would be considered marine diesel engines, which would
then fall under these requirements.
    To clarify the responsibilities of engine dressers under this
proposed rule, while we would continue to consider them to be
manufacturers of a marine diesel engine, they would not be required to
obtain a certificate of conformity (as long as they ensure that the
original label remains on the engine and report annually to EPA that
the engine models that are exempt pursuant to this provision). This
would be an extension of Sec.  94.907 of the existing regulations. For
further details of engine dressers responsibilities see Sec.  1042.605
of the proposed regulations.
(v) Vessel Builder Provisions
    For recreational marine engines, the existing regulations (2002
Recreational Diesel Marine program; November 8, 2002, 67 FR 68304)
allow manufacturers with a written request from a small-volume boat
builder to produce a limited number of uncertified engines (over a
five-year period)--an amount equal to 80-percent of the vessel
manufacturer's sales for one year. For boat builders with very small
production volumes, this 80-percent allowance could be exceeded, as
long as sales do not exceed 10 engines in any one year nor 20 total
engines over five years and applies only to engines less than or equal
to 2.5 liters per cylinder. However, we do not plan to continue this
provision. The vast majority of the recreational marine engines would
be subject only to the Tier 3 engine-out standards that are not
expected to change the physical characteristics of engines (Tier 3
standards would not result in a larger engine or otherwise require any
more space within a vessel). This is similar to the Tier 2 engine-out
standards, and thus, we believe this provision is not necessary anymore
as boat builders are not expected to need to redesign engine
compartments of boats, for engines meeting Tier 3 standards. We invite
comment on discontinuing this provision for boat builders.
(vi) Hardship Provisions
    Sections 1068.245, 1068.250 and 1068.255 of the existing
regulations in title 40 contain hardship provisions for engine and
equipment manufacturers, including those that are small businesses. We
are proposing to apply these sections for marine applications which
would effectively continue existing hardship provisions as described
below.
    PMMs and SVMs: We are proposing to continue two existing hardship
provisions for PMMs and SVMs. They may apply for this relief on an
annual basis. First, under an economic hardship provision, PMMs and
SVMs may petition us for additional lead time to comply with the
standards. They must show that they have taken all possible business,
technical, and economic steps to comply, but the burden of compliance
costs will have a major impact on their company's solvency. As part of
its application of hardship, a company would be required to provide a
compliance plan detailing when and how it would achieve compliance with
the standards. Hardship relief could include requirements for interim
emission reductions and/or purchase and use of emission credits. The
length of the hardship relief decided during initial review would be up
to one year, with the potential to extend the relief as needed. We
anticipate that one to two years would normally be sufficient. Also, if
a certified base engine is available, the PMMs and SVMs must generally
use this engine. We believe this provision would protect PMMs and SVMs
from undue hardship due to certification burden. Also, some emission
reduction can be gained if a certified base engine becomes available.
See the proposed regulatory text in 40 CFR 1068.250 for additional
information.
    Second, under the unusual circumstances hardship provision, PMMs
and SVMs may also apply for hardship relief if circumstances outside
their control cause the failure to comply and if the failure to sell
the subject engines would have a major impact on their company's
solvency. An example of an unusual circumstance outside a
manufacturer's control may be an ``Act of God,'' a fire at the
manufacturing plant, or the unforeseen shut down of a supplier with no
alternative available. The terms and time frame of the relief would
depend on the specific circumstances of the company and the situation
involved. As part of its application for hardship, a company would be
required to provide a compliance plan detailing when and how it would
achieve compliance with the standards. We consider this relief
mechanism to be an option of last resort. We believe this provision
would protect PMMs and SVMs from circumstances outside their control.
We, however, would not envision granting hardship relief if contract
problems with a specific company prevent compliance for a second time.
See the proposed regulatory text in 40 CFR 1068.245 for additional
information.
    Small-volume boat builders: We are also continuing the unusual
circumstances hardship provision for small-volume boat builders (those
with less than 500 employees and worldwide production of fewer than 100
boats). Small-volume boat builders may apply for hardship relief if
circumstances

outside their control cause the failure to comply and if the failure to
sell the subject vessels would have a major impact on the company's
solvency. An example of an unusual circumstance outside a
manufacturer's control may be an ``Act of God,'' a fire at the
manufacturing plant, or the unforeseen shut down of a supplier with no
alternative available. This relief would allow the boat builder to use
an uncertified engine and is considered a mechanism of last resort. The
terms and time frame of the relief would depend on the specific
circumstances of the company and the situation involved. As part of its
application for hardship, a company would be required to provide a
compliance plan detailing when and how it would achieve compliance with
the standards. See the proposed regulatory text in 40 CFR 1068.245 for
additional information.
    In addition, small-volume boat builders generally depend on engine
manufacturers to supply certified engines in time to produce complying
vessels by the date emission standards would begin to apply. We are
aware of other applications where certified engines have been available
too late for equipment manufacturers to adequately accommodate changing
engine size or performance characteristics. To address this concern, we
are proposing to allow small-volume boat builders to request up to one
extra year before using certified engines if they are not at fault and
would face serious economic hardship without an extension. See the
proposed regulatory text in 40 CFR 1068.255 for additional information.
(15) Alternate Tier 4 NOX+HC Standards
    We are proposing new Tier 4 NOX and HC standards for
locomotives and marine engines, and proposing to continue our existing
emission averaging programs. However, the existing averaging programs
do not allow manufacturers to show compliance with HC standards using
averaging. Because we are concerned that this could potentially limit
the benefits of our averaging program as a phase-in tool for
manufacturers, we are proposing an alternate NOX+HC standard
of 1.3 g/bhp-hr that could be used as part of the averaging
program.\128\ Manufacturers that were unable to comply with the Tier 4
HC standard would be allowed to certify to a NOX+HC FEL, and
use emission credits to show compliance with the alternate standard
instead of the otherwise applicable NOX and HC standards.
For example, a manufacturer may choose to use banked emission credits
to gradually phase in its Tier 4 1200 kW marine engines by producing a
mix of Tier 3 and Tier 4 engines during the early part of 2014. We are
proposing that NOX+HC credits and NOX credits
could be averaged together without discount.
---------------------------------------------------------------------------

    \128\ For model year 2015 and 2016 the alternate standard would
b3 5.5 g/bhp-hr NOX+HC. In all cases the alternate
standard would be equal to the otherwise applicable NOX
standard.
---------------------------------------------------------------------------

(16) Other Issues
    We are also proposing other minor changes to the compliance
program. For example, we are proposing that engine manufacturers be
required to provide installation instructions to vessel manufacturers
and kit installers to ensure that engine cooling systems,
aftertreatment exhaust emission controls, and other emission controls
are properly installed. Proper installation of these systems is
critical to the emission performance of the equipment. Vessel
manufacturers and kit installers would be required to follow the
instructions to avoid improper installation that could render emission
controls inoperative. Improper installation would subject them to
penalties equivalent to those for tampering with the emission controls.
    We are also clarifying the general requirement that no emission
controls for engines subject to this final rule may cause or contribute
to an unreasonable risk to public health, welfare, or safety,
especially with respect to noxious or toxic emissions that may increase
as a result of emission-control technologies. The proposed regulatory
language, which addresses the same general concept as the existing
Sec. Sec.  92.205 and 94.205, implements sections 202(a)(4) and
206(a)(3) of the Act and clarifies that the purpose of this requirement
is to prevent control technologies that would cause unreasonable risks,
rather than to prevent trace emissions of any noxious compounds. This
requirement prevents the use of emission-control technologies that
produce pollutants for which we have not set emission standards, but
nevertheless pose a risk to the public.

B. Compliance Issues Specific to Locomotives

(1) Refurbished Locomotives
    Section 213(a)(5) of the Clean Air Act directs EPA to establish
emission standards for ``new locomotives and new engines used in
locomotives.'' In the previous rulemaking, we defined ``new
locomotive'' to mean a freshly manufactured or remanufactured
locomotive.\129\ We defined ``remanufacture'' of a locomotive as a
process in which all of the power assemblies of a locomotive engine are
replaced with freshly manufactured (containing no previously used
parts) or reconditioned power assemblies. In cases where all of the
power assemblies are not replaced at a single time, a locomotive is
considered to be ``remanufactured'' (and therefore ``new'') if all of
the power assemblies from the previously new engine had been replaced
within a five-year period.
---------------------------------------------------------------------------

    \129\ As is described in this section, freshly manufactured
locomotives, repowered locomotives, refurbished locomotives, and all
other remanufactured locomotive3s are all ``new locomotives'' in
both the existing and proposed regulations.
---------------------------------------------------------------------------

    The proposed regulations clarify the definition of ``freshly
manufactured locomotive'' when an existing locomotive is substantially
refurbished including the replacement of the old engine with a freshly
manufactured engine. The existing definition in Sec.  92.12 states that
freshly manufactured locomotives are locomotives that do not contain
more than 25 percent (by value) previously used parts. We allowed
freshly manufactured locomotives to contain up to 25 percent used parts
because of the current industry practice of using various combinations
of used and unused parts. This 25-percent value applies to the dollar
value of the parts being used rather than the number because it more
properly weights the significance of the various used and unused
components. We chose 25 percent as the cutoff because setting a very
low cutoff point would have allowed manufacturers to circumvent the
more stringent standards for freshly manufactured locomotives by
including a few used parts during the final assembly. On the other
hand, setting a very high cutoff point could have required
remanufacturers to meet standards applicable to freshly manufactured
locomotives, but such standards may not have been feasible given the
technical limitations of the existing chassis.
    We are proposing to add a definition of ``refurbish'' which would
mean the act of modifying an existing locomotive such that the
resulting locomotive contains less than 50 percent (by value)
previously used parts, (but more than 25 percent). We believe that
where an existing locomotive is improved to this degree, it is
appropriate to consider it separately from locomotives that are simply
remanufactured in a conventional sense. As described in section
IV.B.(3) we are proposing to set the credit proration factor for

refurbished switch locomotives equal to the proration factor for 20-
year old switchers (0.60).
    We are requesting comment on whether refurbished locomotives should
be required to meet more stringent standards than locomotives that are
simply remanufactured. For example, would it be feasible and cost-
effective to require refurbished switch locomotives to meet latest
applicable emission standards (i.e., the highest tier of standards that
is applicable to freshly manufactured switch locomotives at the time of
the remanufacture) rather than the old standards? If not, should they
be required to at least meet the Tier 1 or Tier 2 standards?
    We recognize that the issues are somewhat different for refurbished
line-haul locomotives because of different design constraints that are
not present with switchers. If we required refurbished line-haul
locomotives to meet very stringent standards, should we allow railroads
to refurbish a limited number of line-haul locomotives to less
stringent standards? For example, if we required refurbished line-haul
locomotives to meet the Tier 3 standards, should we allow railroads to
refurbish up to 10 line-haul locomotives per year to the Tier 2
standards.
(2) Averaging, Banking and Trading
    We are proposing to continue the existing averaging banking and
trading provisions for locomotives. In general, we will continue the
historical practice of capping family emission limits (FELs) at the
level of the previously applicable standard. However, we are requesting
comment on whether we should set lower caps for Tier 4 locomotives
similar to what was done for highway engines.\130\ We recognize that it
would be appropriate to allow the use of emission credits to smooth the
transition from Tier 3 to Tier 4, and this requires the FELs to be set
at the level of the Tier 3 standards.
---------------------------------------------------------------------------

    \130\ 66 FR 5109-5111, January 18, 2001.
---------------------------------------------------------------------------

    In order to ensure that the ABT program is not used to delay the
implementation of the Tier 4 technology, we are also proposing to carry
over an averaging restriction that was adopted for Tier 2 locomotives
in the previous locomotive rulemaking. We would restrict to number of
Tier 4 locomotives that could be certified using credits to no more
than 50 percent of a manufacturer's annual production. As was true for
the earlier restriction, this would be intended to ensure that progress
is made toward compliance with the advanced technology expected to be
needed to meet the Tier 4 standards. This would encourage manufacturers
to make every effort toward meeting the Tier 4 standards, while
allowing some use of banked credits to provide needed lead time in
implementing the Tier 4 standards by 2015, allowing them to
appropriately focus research and development funds. We request comment
on the need for this or other restriction on the application of credits
to Tier 4 locomotives.
    We are proposing to prohibit the carryover of PM credits generated
from Tier 0 or Tier 1 locomotives under part 92. The Tier 0 and Tier 1
PM standards under part 92 were set above the average baseline level to
act as caps on PM emissions rather than technology-forcing standards.
Thus, credits generated against these standards can be considered to be
windfall credits. We believe that allowing the carryover of such PM
credits would not be appropriate. We would allow credits generated from
Tier 2 locomotives to be used under part 1033. We request comment on
this prohibition as well as an alternative approach in which part 92 PM
credits are discounted significantly rather than prohibited completely.
    We are also proposing to update the proration factors for credits
generated or used by remanufactured locomotives. The updated proration
factors better reflect the difference in service time for line-haul and
switch locomotives. The ABT program is based on credit calculations
that assume as a default that a locomotive will remain at a single FEL
for its full service life (from the point it is originally manufactured
until it is scrapped). However, when we established the existing
standards, we recognized that technology will continue to evolve and
that locomotive owners may wish to upgrade their locomotives to cleaner
technology and certify the locomotive to a lower FEL at a subsequent
remanufacture. We established proration factors based on the age of the
locomotive to make calculated credits for remanufactured locomotives
consistent with credits for freshly manufactured locomotive in terms of
lifetime emissions. The proposed proration factors are shown in Sec.
1033.705 of the proposed regulations. These would replace the existing
proration factors of Sec.  92.305. For example, using the proposed
proration factors, a 15 year old line-haul locomotive certified to a
new FEL that was 1.00 g/bhp-hr below the applicable standard would
generate the same amount of credit as a freshly manufactured locomotive
that was certified to an FEL that was 0.43 g/bhp-hr below the
applicable standard because the proration factor would be 0.43. For
comparison, under the existing regulations, the proration factor would
be 0.50. See section IV.B.(3) for additional discussion of proration
factor issues related to refurbished switchers.
    We are also requesting comment on how to assign emission credits.
Under the current regulations, credits can be held by the manufacturer,
railroad, or other entities. Since remanufacturing is frequently a
collaborative process between the railroad and either a manufacturer or
other remanufacturer, there can be multiple entities that are
considered to be remanufacturers, and thus allowed to hold the
certificate for the remanufactured locomotive. The regulations presume
that credits are held by the certificate holder, but they can be
transferred to the railroad at the point of sale or the point of
remanufacture. We are requesting comment on whether it would be more
appropriate to require that credits be transferred to the railroads for
some or all cases. Automatically transferring credits to the railroad
at the time of remanufacture would be a way of applying the standards
on a fleet-average basis. Would this be a better approach for ensuring
that the industry applies low emission technology in the most equitable
and cost effective manner? Would it reduce the potential for market
disruptions? Would it have any other beneficial or adverse consequences
not discussed here?
    Finally, we are requesting comment on how to treat credits
generated and used by Tier 3 and later locomotives. Under the current
part 92 ABT program, credits are segregated based on the cycle over
which they are generated but not by how the locomotive is intended to
be used (switch, line-haul, passenger, etc.). Line-haul locomotives can
generate credits for use by switch locomotives, and vice versa, because
both locomotives are subject to the same standards. However, for the
Tier 3 and Tier 4 programs, switch and line-haul locomotives would be
subject to different standards with emissions generally measured only
for one test cycle. We are proposing to allow credits generated by Tier
3 or later switch locomotives over the switch cycle to be used by line-
haul locomotives to show compliance with line-haul cycle standards. We
are requesting comment on (but not proposing) allowing such cross-cycle
use of line-haul credits (or switch credits generated by line-haul
locomotives) by Tier 3 or later switch locomotives.
    To make this approach work, we are also proposing a special
calculation

method where the credit using locomotive is subject to standards over
only one duty cycle while the credit generating locomotive is subject
to standards over both duty cycles (and can thus generate credits over
both cycles). In such cases, we would require the use of credits under
both cycles. For example, for a Tier 4 line-haul engine family needing
1.0 megagrams of NOX credits to comply with the line-haul
emission standard, the manufacturer would have to use 1.0 megagrams of
line-haul NOX credits and 1.0 megagrams of switch
NOX credits if the line-haul credits were generated by a
locomotive subject to standards over both cycles.
    Commenters supporting cross-cycle credit averaging should also
address uncertainty due to cycle differences and the different ways in
which switch and line-haul locomotives are likely to be used. For
example, the two cycles are very different and reflect average duty
cycles for the two major types of operation. Moreover, because switch
locomotive generally spend more time in low-power operation than line-
haul locomotives, they tend to last much longer in terms of years. This
means that the full benefits of emission reductions from switch
locomotives will likely occur further into the future than will the
benefits of emission reductions from line-haul locomotives. Should such
credits be adjusted to account for this difference? If so, how? Are
there other factors that would warrant applying some adjustment to the
credits to make them more equivalent to one another?
(3) Switch Credit Calculation
    We are proposing to correct the existing ABT program to more
appropriately give credits to railroads for upgrading old switchers to
use clean engines, rather than to continue using the old high emission
engines indefinitely. As with the existing program, credits would be
calculated from the difference between the emissions of the old
switcher and the emissions of the new replacement switcher, adjusted to
account for the projected time the old switcher would have otherwise
remained in service. We are also requesting comment on whether other
changes need to be made to the switch credit calculation.
    The proposed correction would affect the proration factor that is
used in the credit calculation to account for the locomotive's
emissions projected for the remainder of its service life, relative to
a freshly manufactured locomotive. More specifically, the correction we
are proposing would create a floor for the credit proration factor for
refurbished switch locomotives equal to the proration factor for 20
year old switchers (0.60). For example, under the proposed program,
refurbishing a 35 year old switch locomotive to an FEL 1.0 g/bhp-hr
below the Tier 0 standard would generate the same amount of credit as a
conventional remanufacture of a 20 year old switch locomotive to an FEL
1.0 g/bhp-hr below the Tier 0 standard. This is because we believe that
such refurbished switch locomotives will almost certainly operate as
long as a 20 year old locomotive that was remanufactured at the same
time. Such credits can be generated under the existing program, but not
to the full degree that they should be. That original program was
designed to address line-haul locomotives, and no special consideration
was made for switchers or for substantially refurbishing the
locomotive. Most significantly, the existing regulations assume that
any locomotive 32 years old or older would only be remanufactured one
additional time (i.e., only have one remaining useful life). This is
true without regard to how many additional improvements are made to the
locomotive to extend its service life. Based on this assumption, any
credits generated by such a locomotive are discounted by 86 percent
relative to credits generated or used by a freshly manufactured
locomotive. While this kind of discount appropriately reflected the
differences in future emissions for line-haul locomotives, it greatly
underestimates the emission reduction achieved by refurbishing switch
locomotives.
    The existing and proposed credit programs allow for remanufacturers
to generate emission credits by refurbishing an existing old switch
locomotive so that it will use engines meeting the standards for
freshly manufactured locomotives. However, they do not allow for any
credits to be generated by simultaneously creating a freshly
manufactured locomotive and scrapping an existing old switch
locomotive, even though the emissions impact of the two scenarios may
be identical. We request comment on whether it is appropriate to
maintain this distinction. Commenters supporting allowing credits to be
generated by scrapping old locomotives should address how to ensure
that allowing it would not result in windfall credits being generated
from old locomotives that would have been scrapped anyway.
(4) Phase-in and Reasonable Cost Limit
    We are proposing that the new Tier 0 and 1 emission standards
become applicable on January 1, 2010. We are also proposing a
requirement for 2008 and 2009 when a remanufacturing system is
certified to these new standards. If such system is available before
2010 for a given locomotive at a reasonable cost, remanufacturers of
those locomotives may no longer remanufacture them to the previously
applicable standards. They must instead comply with the new Tier 0 or 1
emission standards. Similarly, we are proposing a requirement to use
certified Tier 2 systems for 2008 through 2012 when a remanufacturing
system is certified to the new Tier 2 standards. We are requesting
comment on how best to define reasonable cost.
    As part of this phase-in requirement, we would allow owners/
operators a 90-day grace period in which they could remanufacture their
locomotives to the previously applicable standards. This would allow
them to use up inventory of older parts. It would also allow sufficient
time to find out about the availability of kits and to make appropriate
plans for compliance.
    We are also requesting comment on whether this requirement will
cause any disadvantage to non-OEM remanufacturers who may be unable to
develop remanufacture systems in time.
(5) Recertification Without Testing
    Once manufacturers have certified an engine family, we have
historically allowed them to obtain certificates for subsequent model
years using the same test data if the engines remain unchanged from the
previous model year. We refer to this type of certification as
``carryover.'' We are proposing to continue this allowance. We are also
requesting comment on extending this allowance to owner/operators.
Specifically, we request comment on adding the following paragraph to
the end of the proposed Sec.  1033.240:

    An owner/operator remanufacturing its locomotives to be
identical to its previously certified configuration may certify by
design without new emission test data. To do this, submit the
application for certification described in Sec.  1033.205, but
instead of including test data, include a description of how you
will ensure that your locomotives will be identical in all material
respects to their previously certified condition. You have all of
the liabilities and responsibilities of the certificate holder for
locomotives you certify under this paragraph.

    Several railroads have expressed concern that once they purchase a
compliant locomotive, they are at the mercy of the original
manufacturer at the time of remanufacture if there are no other
certified kits available for that model. The regulatory provision shown

above would make it somewhat simpler for a railroad to obtain the
certificate because it would eliminate the need to certification
testing.
(6) Railroad Testing
    Section 92.1003 requires Class I freight railroads to annually test
a small sample of their locomotives. We are proposing to adopt the same
requirements in Sec.  1033.810. We are requesting comments on whether
this program should be changed. In particular, we request suggestions
to better specify how a railroad selects which locomotives to test,
which has been a source of some confusion in recent years. Commenters
suggesting changes should also address when such changes should take
effect.
(7) Test Conditions and Corrections
    In our previous rule, we established test conditions that are
representative of in-use conditions. Specifically, we required that
locomotives comply with emission standards when tested at temperatures
from 45 [deg]F to 105 [deg]F and at both sea level and altitude
conditions up to about 4,000 feet above sea level. One of the reasons
we established such a broad range was to allow outdoor testing of
locomotives. While we only required that locomotives comply with
emission standards when tested at altitudes up to 4,000 feet for
purposes of certification and in-use liability, we also required
manufacturers to submit evidence with their certification applications,
in the form of an engineering analysis, that shows that their
locomotives were designed to comply with emission standards at
altitudes up to 7,000 feet. We included correction factors that are
used to account for the effects of ambient temperature and humidity on
NOX emission rates.
    We are proposing to change the lower limit for testing to 60 [deg]F
and eliminate the correction for the effects of ambient temperature. In
implementing the current regulations, we have found that the broad
temperature range with correction, which was established to make
testing more practical, was not workable. Given the uncertainty with
the existing correction, manufacturers have generally tried to test in
the narrower range being proposed today. However, under the proposed
regulations, we would allow manufacturers to test at lower
temperatures, but would require them to develop correction factors
specific to their locomotive designs. We would continue the other
existing test condition provisions in the proposed regulations.
(8) Duty Cycles
    We are not proposing any changes to the weighting factors for the
locomotive duty cycles. However, we are requesting comment on whether
such changes would be appropriate in light of the proposed idle
reduction requirements. The existing regulations (Sec.  92.132(a)(4))
specifies an alternate calculation for locomotive equipped with idle
shutdown features. Specifically, the regulatory language states:

    For locomotives equipped with features that shut the engine off
after prolonged periods of idle, the measured mass emission rate
Mi1 (and Mi1a as applicable) shall be
multiplied by a factor equal to one minus the estimated fraction
reduction in idling time that will result in use from the shutdown
feature. Application of this adjustment is subject to the
Administrator's approval.

    This provision allows a manufacturer to appropriately account for
the inclusion of idle reduction features as part of its emission
control system. There are three primary reasons why we are not
proposing to change the calculation procedures with respect to the
proposed idle requirements. First, different shutdown systems will
achieve different levels of idle reduction in use. Thus, no single
adjustment to the cycle would appropriately reflect the range of
reductions that will be achieved. Second, the existing calculation
provides an incentive for manufacturers to design shutdown systems that
will achieve in the greatest degree of idle reduction that is
practical. Finally, our feasibility analysis is based in part on the
emission reductions achievable relative to the existing standards.
Since some manufacturers already rely on the calculated emission
reductions from shutdown features incorporated into many of their
locomotive designs, our feasibility is based in part on allowing such
calculations.
    While we are proposing to continue this approach, we are requesting
comment on whether we should be more specific in our regulations about
what level of adjustment is appropriate. For example, should we specify
that idle emission rates for locomotives meeting our proposed minimum
shutdown requirements in Sec.  1033.115 be reduced by 20 percent,
unless the manufacturer demonstrates that greater idle reduction will
be achieved?
    We also recognize that the potential exists for locomotives to
include additional power notches, or even continuously variable
throttles and that the standard FTP sequence for such locomotives would
result in an emissions measurement that does not accurately reflect
their in-use emissions performance. Moreover, some locomotives may not
have all of the specified notches, making it impossible to test them
over the full test. Under the existing regulations, we handle such
locomotives under our discretion to allow alternate calculations (40
CFR 92.132(e)). We are requesting comment on whether we need detailed
regulations to specify duty cycles for such locomotives. In general,
for locomotives missing notches, we believe the existing duty cycle
weighting factors should be reweighted without the missing notches. For
locomotives without notches or more than 8 power notches, commenters
should consider the following information provided to us by
manufacturers for the previous rulemaking that shows that typical notch
power levels expressed as a percentage of the rated power of the engine
as shown in Table IV-below.

                               Table IV-1.--Typical Locomotive Notch Power Levels
----------------------------------------------------------------------------------------------------------------
                                                                          Notch
                                        ------------------------------------------------------------------------
                                            1        2        3        4        5        6        7         8
----------------------------------------------------------------------------------------------------------------
Percent of Rated Power.................      4.5     11.5     23.5     35.0     48.5     64.0     85.0     100.0
----------------------------------------------------------------------------------------------------------------

(9) Use of Engines Certified Under 40 CFR Parts 89 and 1039
    Section 92.907 currently allows the use of a limited number of
nonroad engines in locomotive applications without certifying under the
locomotive program. We placed limits on the number of nonroad engines
that can be used for four primary reasons:
     The locomotive program is uniquely tailored to the
railroad industry to ensure emission reductions for actual locomotive
operation over 30-60 year service lives.

     At sufficiently high sales levels, the per locomotive cost
of certifying under part 92 become less significant.
     It is somewhat inequitable to allow nonroad engine
manufacturers the option of certifying the engines in whichever program
they believe to be more advantageous to them, considering factors such
as compliance testing requirements.
     States and localities have much less ability to regulate
locomotives than other engine types, and thus EPA has an obligation to
monitor locomotive performance more closely.
    We believe that these reasons remain valid and are proposing to
continue this type of allowance. However, we are proposing some changes
to these procedures. In general, manufacturers have not taken advantage
of these existing provisions. In some cases, this was because the
manufacturer wanted to produce more locomotives than allowed under the
exemption. However, in most cases, it was because the customer wanted a
full locomotive certification with the longer useful life and
additional compliance assurances. We are proposing new separate
approaches for the long term (Sec.  1033.625) and the short term (Sec.
1033.150), each of which addresses at least one of these issues.
    For the long term, we are proposing to replace the existing
allowance to rely on part 89 certificates with a design-certification
program that would make the locomotives subject to the locomotive
standards in-use, but not require new testing to demonstrate compliance
at certification. Specifically, this program would allow switch
manufacturers using nonroad engines to introduce up to 15 locomotives
of a new model prior to completing the traditional certification
requirements. While the manufacturer would be able to certify without
new testing, the locomotives have locomotive certificates. Thus,
purchasers would have the compliance assurances that they seem to
desire.
    The short term program is more flexible and would not require that
the locomotives comply with the switch cycle standards, and instead the
engines would be subject to the part 1039 standards. The manufacturer
would be required to use good engineering judgment to ensure that the
engines' emission controls will function properly when installed in a
locomotive. Given the relative levels of the part 1039 standards and
those being proposed in 1033, we do believe there is little
environmental risk with this short-term allowance, and thus propose to
not have any limits of the sales of such locomotives. Nevertheless, we
are proposing that this allowance be limited to model years through
2017. This will provide sufficient time to develop these new switchers.
We are not proposing that these locomotives would be exempt from the
part 1033 locomotive standards when remanufactured, unless the
remanufacturing of the locomotive took place prior to 2018 and involved
replacement of the engines with certified new nonroad engines.
Otherwise, the remanufactured locomotive would be required to be
covered by a part 1033 remanufacturing certificate.
    We are also requesting comment on whether specific regulatory
language is needed to describe how to test locomotives that have
multiple propulsion engines, and when it is appropriate to allow single
engine testing for certification.
(10) Auxiliary Emission Control Devices Triggered by GPS Data
    Some manufacturers have developed software which can use latitude
and longitude to change engine operating characteristics including
emissions. Such software fits our definition of an auxiliary emission
control device (AECD). If for example, the software were to increase
emissions when the locomotive was operated in Mexico; this would cause
the locomotive to fail emission standards when in Mexico. Moreover, the
emissions from such a locomotive would likely be harmful to both
Mexican and U.S. citizens due to emissions transport. AECDs (except
those approved during certification) which cause emission exceedences
when a locomotive crosses the U.S. border into a foreign country are
considered defeat devices and are not permitted. When a locomotive is
certified, it should comply with U.S. standards and requirements during
all operation. It does not matter where the locomotive goes after it is
introduced into commerce. In addition, since emission labels have to
contain an unconditional statement of compliance, non-compliant
operation in any area, including a foreign country, would render the
label language false, and this is not allowed.
(11) Mexican and Canadian Locomotives
    Under the existing regulations, Mexican and Canadian locomotives
are subject to the same requirements as U.S. locomotives if they
operate extensively within the U.S. The regulations 40 CFR 92.804(e)
states:

    Locomotives that are operated primarily outside of the United
States, and that enter the United States temporarily from Canada or
Mexico are exempt from the requirements and prohibitions of this
part without application, provided that the operation within the
United States is not extensive and is incidental to their primary
operation.

    We are proposing to change this exemption to make it subject to our
prior approval, since we have found that the current language has
caused some confusion. When we created this exemption, it was our
understanding that Mexican and Canadian locomotives rarely operated in
the U.S. and the operation that did occur was limited to within a short
distance of the border. We are now aware that there are many Canadian
locomotives that do operate extensively within the U.S. and relatively
few that would meet the conditions of the exemption. We have also
learned that some Mexican locomotives may be operating more extensively
in the United States. Thus, it is appropriate to make this exemption
subject to our prior approval. To obtain this exemption, a railroad
would be required to submit a detailed plan for our review prior to
using uncertified locomotives in the U.S. We would grant an exemption
for locomotives that we determine will not be used extensively in the
U.S. and that such operation would be incidental to their primary
operation. Mexican and Canadian locomotives that do not have such an
exemption and do not otherwise meet EPA regulations may not enter the
United States.
(12) Temporary In-Use Compliance Margins and Assigned Deterioration
Factors
    The Tier 4 standards would be challenging for manufacturers to
achieve, and would require manufacturers to develop and adapt new
technologies. Not only would manufacturers be responsible for ensuring
that these technologies would allow engines to meet the standards at
the time of certification, they would also have to ensure that these
technologies continue to be highly effective in a wide range of in-use
environments so that their engines would comply in use when tested by
EPA. However, in the early years of a program that introduces new
technology, there are risks of in-use compliance problems that may not
appear in the certification process or during developmental testing.
Thus, we believe that for a limited number of model years after new
standards take effect it is appropriate to adjust the compliance levels
for assessing in-use compliance for diesel engines equipped with
aftertreatment. This would provide assurance to the manufacturers that
they would not face recall if they exceed

standards by a small amount during this transition to clean
technologies. This approach is very similar to that taken in the
highway heavy-duty rule (66 FR 5113-5114) and general nonroad rule (69
FR 38957), both of which involve similar approaches to introducing the
new technologies.
    Table IV-2 shows the in-use adjustments that we propose to apply.
These adjustments would be added to the appropriate standards or FELs
in determining the in-use compliance level for a given in-use hours
accumulation. Our intent is that these add-on levels be available only
for highly-effective advanced technologies such as particulate traps
and SCR. Note that these in-use add-on levels apply only to engines
certified through the first few model years of the new standards.
During the certification demonstration, manufacturers would still be
required to demonstrate compliance with the unadjusted Tier 4
certification standards using deteriorated emission rates. Therefore,
the manufacturer would not be able to use these in-use standards as the
design targets for the engine. They would need to project that engines
would meet the standards in-use without adjustment. The in-use
adjustments would merely provide some assurance that they would not be
forced to recall engines because of some small miscalculation of the
expected deterioration rates.
    To put these levels in context, the difference between the
NOX standard with and without the end of life add-on is
equivalent to the end of life catalyst efficiency being about 20
percent lower than expected. Our feasibility analysis projects that the
SCR catalyst would need to be approximately 80 percent efficient over
the locomotive duty cycle at the end of the locomotive's useful life to
comply with the 1.3 g/bhp-hr standard. However, if this efficiency
dropped to 60 percent, the cycle-weighted emissions would essentially
double, increasing by up to 1.3 g/bhp-hr.

                  Table IV-2.--Proposed In-Use Add-Ons
                               [g/bhp-hr]
------------------------------------------------------------------------
                                            NOX  (2017-     PM  (2015-
        For useful life fractions              2019)           2017)
------------------------------------------------------------------------
< 50% UL.................................             0.7            0.01
50%-75% UL..............................             1.0
>75% UL.................................             1.3
------------------------------------------------------------------------

C. Compliance Issues Specific to Marine Engines

(1) Useful Life
    We specify in 40 CFR 94.9 minimum values for the useful life
compliance period. We require manufacturers to specify longer useful
lives for engines that are designed to last longer than these minimum
values. We also allow manufacturers to ask for shorter useful lives
where they can demonstrate that the engines will rarely exceed the
requested value in use. Some manufacturers have proposed that the
useful life scheme in our regulation be modified to more closely
reflect the design lives of current marine engines and the fact that
design life inherently varies with engine cylinder size and power
density. Our existing regulations do account for this variation by
specifying nominal minimum useful life values which most engines are
certified to. Manufacturers are required to certify to longer useful
lives if their engines are designed to last significantly longer than
this minimum. The regulations also include provisions for a
manufacturer to request a shorter useful life. This was recently
amended to include a more prescriptive basis for manufacturers to
demonstrate that a shorter useful life is more appropriate.\131\
Specifically, our regulations used to require that the demonstration
include data from in-use engines. Manufacturers were concerned that
they generally do not (and cannot) have the data from in-use engines
that is needed to justify an alternate useful life prior to obtaining
certification and putting engines into service. The amended regulations
allow manufacturers to use information equivalent to in-use data, such
as data from research engines or similar engine models that are already
in production. Additionally, the demonstration currently required must
include recommended overhaul intervals, any mechanical warranties
offered for the engine or its components, and any relevant customer
design specifications. Given the above amendments, we do not feel that
a sweeping change to our useful life scheme is warranted at this time.
We would be willing to consider modifying our scheme in the future
should manufacturers provide data for characteristics used to design
engine overhaul intervals (e.g., compression loss, oil consumption
increase, engine component wear, etc.) in specific cylinder size and
power density categories.
---------------------------------------------------------------------------

    \131\ 70 FR 40458, July 13, 2005.
---------------------------------------------------------------------------

(2) Replacement Engines
    Under the provisions of our current marine diesel engine program,
when an engine on an existing vessel is replaced with a new engine,
that new engine must be certified to the standards in existence when
the vessel is repowered. These repower requirements apply to both
propulsion and auxiliary engines. We are proposing to apply this
approach under the new regulations rather than the provisions of Sec.
1068.240.
    We provided an exemption in 40 CFR 94.1103(b)(3) which allows a
vessel owner to replace an existing engine with a new uncertified
engine or a new engine certified to an earlier standard engine in
certain cases. This is only allowed, however, if it can be demonstrated
that no new engine that is certified to the emission limits in effect
at that time is produced by any manufacturer with the appropriate
physical or performance characteristics needed to repower the vessel.
In other words, if a new certified engine cannot be used, an engine
manufacturer may produce a new replacement engine that does not meet
all of the requirements in effect at that time. For example, if a
vessel has twin Tier 1 propulsion engines and it becomes necessary to
replace one of them after the Tier 3 standards go into effect, the
vessel owner can request approval for an engine manufacture to produce
a new Tier 1 engine if it can be demonstrated that the vessel would not
function properly if the engines are not identically matched.
    There are certain conditions for this exemption. The replacement
engine must meet standards at least as stringent as those of the
original engine. So, for example, if the original engine is a pre-Tier
1 engine, then the replacement engine need not meet any emission
limits. If the old engine was a Tier 1 engine, the new engine must meet
at

least the Tier 1 limits. As described in this section, the new engine
does not necessarily need to meet stricter limits that may otherwise
apply when the replacement occurs. Also as a condition for the
exemption, the engine manufacturer must take possession of the original
engine or make sure it is destroyed. In addition, the replacement
engine must be clearly labeled to show that it does not comply with the
standards and that sale or installation of the engine for any purpose
other than as a replacement engine is a violation of federal law and
subject to civil penalty. Our regulations specify the information that
must be on the label. In this proposal, we are adding a provision to
cover the case where the engine meets a previous tier of standards.
    As described above, this provision requires EPA to make the
determination that no certified engine would meet the required physical
or performance needs of the vessel. However, we recently revised this
provision to allow the engine manufacturer to make this determination
in cases of catastrophic engine failure. In these cases, the vessel is
not usable until a replacement engine is found and installed. The
engine manufacturers and vessel owners were concerned that our review
would take a considerable amount of time. In addition, they were also
concerned that reviewing all potential replacement engines for
suitability would also take a lot of time. Note that in cases where a
vessel owner simply wants to replace an engine with a new version of
the same engine as part of a vessel overhaul for example, it would
still be necessary to obtain our approval.
    In catastrophic failure situations, our regulations now allow an
engine manufacturer to determine that no compliant engine can be used
for a replacement engine, provided that certain conditions are met.
First, the manufacturer must determine that no certified engine is
available, either from its own product lineup or that of the
manufacturer of the original engine (if different). Second, the engine
manufacturer must document the reasons why an engine of a newer tier is
not usable, and this report must be made available to us upon request.
Finally, no other significant modifications to the vessel can be made
as part of the process of replacing the engine, or for a period of 6
months thereafter. This is to avoid the situation where an engine is
replaced prior to a vessel modification that would otherwise result in
the vessel becoming ``new'' and its engines becoming subject to the new
engine standards. In addition, the replacement of important navigation
systems at the same time may actually allow the use of a newer tier
engine.
    We are returning to this provision to add an additional
requirement. Specifically, the determination (either by the engine
manufacturer in the case of a catastrophic failure or by us in all
other cases) must show that no engine of the current or any previous
tier would meet the physical or performance requirements of the engine.
In other words, after the Tier 4 standards go into effect, it must be
demonstrated that no other Tier 4, or Tier 3, Tier 2, or Tier 1 engines
would work. Similarly, when the Tier 3 standards are in effect it must
be demonstrated that no other Tier 3, or Tier 2 or Tier 1 engine would
work. If there are engines from two or more previous tiers of standards
that would meet the performance requirements, then the requirement
would be to use the engine from the cleanest tier of standards.
(3) Personal Use Exemption
    The existing control program provides for exemptions from the
standards, including testing, manufacturer-owned engines, display
engines, competition engines, national security, and export. We also
provide an engine dresser exemption that applies to marine diesel
engines that are produced by marinizing a certified highway, nonroad,
or locomotive engine without changing it in any way that may affect the
emissions characteristics of the engine.
    In addition to these existing exemptions we are also proposing a
new provision that would exempt an engine installed on a vessel
manufactured by a person for his or her own use (see 40 CFR 1042.630).
This proposal is intended to address the hobbyists and fishermen who
make their own vessel (from a personal design, for example, or to
replicate a vintage vessel) and who would otherwise be considered to be
a manufacturer subject to the full set of emission standards by
introducing a vessel into commerce. The exemption is intended to allow
such a person to install a rebuilt engine, an engine that was used in
another vessel owned by the person building the new vessel, or a
reconditioned vintage engine (to add greater authenticity to a vintage
vessel). The exemption is not intended to allow such a person to order
a new uncontrolled engine from an engine manufacturer. We expect this
exemption to involve a very small number of vessels, so the
environmental impact of this proposed exemption would be negligible.
    Because the exemption is intended for hobbyists and fishermen, we
are setting additional requirements for it. First, the vessel may not
be used for general commercial purposes. The one exception to this is
that the exemption allows a fisherman to use the vessel for his or her
own commercial fishing. Second, the exemption would be limited to one
such vessel over a ten-year period and would not allow exempt engines
to be sold for at least five years. We believe these restrictions would
not be unreasonable for a true hobby builder or comparable fisherman.
Moreover, we would require that the vessel generally be built from
unassembled components, rather than simply completing assembly of a
vessel that is otherwise similar to one that will be certified to meet
emission standards. The person also must be building the vessel him- or
herself, and not simply ordering parts for someone else to assemble.
Finally, the vessel must be a vessel that is not classed or subject to
Coast Guard inspections or surveys.
    We are requesting comment on all aspects of this proposed
exemption. We also request comment on whether this application of the
exemption should be limited to fishing vessels under a certain length
(e.g., 36 feet), to ensure that it is limited to small operators, and/
or whether it should be limited to vessels that are engaged only in
seasonal fishing and not used year-round.
(4) Gas Turbine Engines
    While gas turbine engines \132\ are used extensively in naval
ships, they are not used very often in commercial ships. Because of
this and because we do not currently have sufficient information, we
are not proposing to regulate marine gas turbines in this rulemaking.
Nevertheless, we believe that gas turbines could likely meet the
proposed standards (or similar standards) since they generally have
lower emissions than diesel engines and will reconsider gas turbines in
a future rulemaking. We are requesting that commenters familiar with
gas turbines provide to us any emissions information that is available.
We would also welcome comments on whether it would be appropriate to
regulate turbines and diesels together. Commenters supporting the
regulation of turbines should also address whether any special
provisions would be needed for the testing and certification of
turbines.
---------------------------------------------------------------------------

    \132\ Gas turbine engines are internal combustion engines that
can operate using diesel fuel, but do not operate on a compression-
ignition or other reciprocating engine cycle. Power is extracted
from the combustion gas using a rotating turbine rather than
reciprocating pistons.

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

(5) Residual Fuel Engines
    Our Category 1 and Category 2 marine diesel engine standards, both
the existing emission limits (Tiers 1 and 2) and the proposed emission
limits (Tiers 3 and 4) apply to all newly built marine diesel engines
regardless of the fuel they are designed to use. In the vast majority
of cases, this fuel would be distillate diesel fuel similar to diesel
fuel used in highway or land-based nonroad applications. However, there
are a small number of Category 1 and Category 2 auxiliary engines that
are designed to use residual fuel. Residual fuel is a by-product of
distilling crude oil to produce lighter petroleum products such as
gasoline, DM-grade diesel fuel (also called ``distillate diesel'' which
is used in on-highway, land-based nonoroad, and marine diesel engines),
and kerosene. Residual fuel possesses a high viscosity and density,
which makes it harder to handle (usage requires special equipment such
as heaters, centrifuges, and purifiers). It typically has a high ash,
nitrogen, and sulfur content compared to distillate diesel fuels. It is
not produced to a set of narrow specifications, and so fuel parameters
can be highly variable. All of these characteristics of residual fuel
make it difficult to handle, and it is typically used only in Category
3 engines on ocean-going vessels or in very large (above 30 l/cylinder)
generators used in land-based power plants. Residual fuel is
traditionally not used in Category 1 or Category 2 propulsion engines
because of the fuel handling equipment required onboard and because it
can affect engine responsiveness. However, it may be used in Category 1
or Category 2 auxiliary engines used on ocean-going vessels, to
simplify the fuel requirements for the vessel (both propulsion and
auxiliary engines would operate on the same fuel).
    In contrast to the federal program, the engine testing and
certification provision in Annex VI allow manufacturers to test engines
on distillate fuel even if they are intended to operate on residual
fuel. This approach was adopted because it was thought that the use of
residual fuel would not affect NOX, and the Annex VI
standards are NOX only. At the same time, however, the
NOX Technical Code allows a ten percent allowance for in-use
testing on residual fuel, to accommodate any marginal impact on
NOX and also to reflect the fact that the engine would be
adjusted differently to operate on residual fuel.
    The Annex VI approach was rejected for our national Category 1 and
Category 2 engines standards. We noted in our 1999 FRM that residual
fuel is sufficiently different from distillate as to be an alternative
fuel. We also noted that changes to an engine to make it operable on
residual fuel could constitute a violation of the tampering prohibition
in Sec.  94.1103(a)(3). More importantly, however, all of our emission
control programs are predicated on an engine meeting the emission
standards in use. We have a variety of provisions that help ensure this
outcome, including specifying the useful life of an engine,
specification of an emission deterioration factor, durability testing,
and not-to-exceed zone requirements to ensure compliance over the range
of operations an engine is likely to see in-use. These provisions are
necessary to ensure that the emission reductions we expect from the
emission limits actually occur. This would not be the case with the
Annex VI approach. While an engine may pass the certification
requirements using distillate fuel, it is unclear what emission
reductions would actually occur from engines using residual fuel. So,
for example, while the Annex VI NOX limits were expected to
achieve a 30 percent reduction from uncontrolled levels for marine
diesel engines, we estimated the actual reduction for residual fuel
Category 3 engines to be closer to 20 percent (see 68 FR 9777, February
28, 2003).
    For these reasons, our existing requirements for engines less than
30 l/cyl displacement require certification that specifies that if a
Category 1 or Category 2 engine is designed to be capable of using a
fuel other than or in addition to distillate fuel (e.g., natural gas,
methanol, or nondistillate diesel, or a mixed fuel), exhaust emission
testing must be performed using a commercially available fuel of that
type, with fuel specifications approved by us (40 CFR 94.108(b)(1)).
    In recent months, shipbuilders have notified us that they are
unable to obtain certified Category 1 or Category 2 residual fuel
auxiliary engines for installation on newly built vessels with Category
3 propulsion engines. The standard building practice for these vessels
is to install auxiliary engines that use the same fuel, residual fuel,
as the propulsion engine. This approach is common throughout the
industry because it simplifies the fuel handling systems for the vessel
(only one grade of fuel is required for the vessel's primary power
plants, although there may be one or two smaller distillate fuel
auxiliary engines for emergency purposes) and it reduces the costs of
operating the vessel (residual fuel is less expensive than distillate
fuel). Shipbuilders indicated they have been unable to find Category 1
or Category 2 auxiliary engines certified to the Tier 2 standards on
residual fuel. Engine manufacturers have indicated that they have not
certified these engines on residual fuel because it is not profitable
to do this for only the U.S. market (according to the U.S. Maritime
Administration, while the U.S. fleet of ocean-going vessels above
10,000 deadweight tons is 13th largest in the world with 295 vessels,
there were only 13 vessels built in 2005).\133\ Engine manufacturers
also informed us that they are not sure they could meet the PM limits
for the Category 1 engines on residual fuel.
---------------------------------------------------------------------------

    \133\ See Top 25 Merchant Fleets of the World--Major world
fleets by vessel type, listed by Flag of Registry and Country of
Ownership. U.S. ranks 13th by flag, but 5th by ownership. (Updated
11/21/06) accessed at http://www.marad.dot.gov/MARAD_statistics/index.html#Fleet%20Statistics
 and World Merchant Fleet 2001-2005

(July 2006) accessed at http://www.marad.dot.gov/MARAD_statistics/2005%20STATISTICS/World%20Merchant%20Fleet%202005.pdf
.

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

    The most obvious solution for vessels in this situation is to
install and use certified distillate fuel engines. Ship builders have
indicated that this option would be prohibitively expensive for ship
owners and have asked EPA to reconsider the control program for these
engines. We are requesting comment on this issue, and especially on the
costs associated with installing and using distillate auxiliary engines
instead of residual auxiliary engines on these vessels. We are
particularly interested in data that would indicate whether such
additional costs would represent an undue burden to the owners of these
vessels and whether the additional cost in terms of tons of PM and
NOX reduced would be significantly higher than what is
required of users of non-residual fuel auxiliary engines.
    One possibility to address the shipbuilders' concerns would be to
create a compliance flexibility for auxiliary engines intended to be
installed on vessels with Category 3 propulsion engines. The
flexibility could consist of pulling ahead NOX
aftertreatment for these engines by setting a tighter NOX
limit (1.8 g/kW-hr) while setting an alternative PM limit (0.5 g/kW-hr)
equivalent to the Tier 2 Category 2 limit. These engines would still be
required to be certified on residual fuel, for the reasons described
above. However, we could allow alternative PM measurement procedures,
such as a two-step approach that would remove the water component of
the exhaust, which would take into account the difficulty in measuring
PM

when the sulfur levels of the test fuel are high.
    Controlling emissions from residual fuelled engines is inherently
difficult due to the characteristics of residual fuels. In particular,
the high levels of sulfur and other metals present in residual fuel
lead to high levels of PM emissions and can damage catalyst based
emission control technologies. Urea SCR catalyst systems have been
developed to work under similar conditions for coal fired power plants
and some marine applications. We project that these solutions could be
used to enable a residual fuelled marine diesel engine to meet the same
emission NOX emission standard as distillate fuelled engines
of 1.8 g/kWhr. Unfortunately, the high levels of sulfur and other
metals in residual fuels make it impossible to apply catalyst based
emission control systems to reduce PM emissions. Stationary residual
fuelled engines have demonstrated that PM emission levels around 0.5 g/
kWhr are possible, and we believe similar solutions can be applied to
these same engines in marine applications.
    Such a compliance flexibility would not be automatic; engine
manufacturers would have to apply for it. This is necessary to ensure
that the questions of test fuel and PM measurement are resolved before
the certification testing begins. In addition, engines would have to be
labeled as intended for use only as auxiliary engines onboard vessels
with Category 3 propulsion engines.
    We are requesting comment on all aspects of this compliance
flexibility, including the need for it and how it should be structured.

V. Costs and Economic Impacts

    In this section, we present the projected cost impacts and cost
effectiveness of the proposed standards, and our analysis of potential
economic impacts on affected markets. The projected benefits and
benefit-cost analysis are presented in Section VI. The benefit-cost
analysis explores the net yearly economic benefits to society of the
reduction in mobile source emissions likely to be achieved by this
rulemaking. The economic impact analysis explores how the costs of the
rule will likely be shared across the manufacturers and users of the
engines and equipment that would be affected by the standards.
    The total monetized benefits of the proposed standards, when based
on published scientific studies of the risk of PM-related premature
mortality, these benefits are projected to be more than $12 billion in
2030, assuming a 3 percent discount rate (or $11 billion assuming a 7
percent discount rate). Our estimate of total monetized benefits based
on the PM-related premature mortality expert elicitation is between
$4.6 billion and $33 billion in 2030, assuming a 3 percent discount
rate (or $4.3 and $30 billion assuming a 7 percent discount rate). The
social costs of the proposed program are estimated to be approximately
$600 million in 2030.\134\ The impact of these costs on society are
estimated to be minimal, with the prices of rail and marine
transportation services estimated to increase by less about 0.4 percent
for locomotive transportation services and about 0.6 percent for marine
transportation services.
---------------------------------------------------------------------------

    \134\ The estimated 2030 social welfare cost of 567.3 million is
based on an earlier version of the engineering costs of the rule
which estimated $568.3 million engineering costs in 2030 (see table
V-15). The current engineering cost estimate for 2030 is $605
million. See section V.C.5 for an explanation of the difference. The
estimated social costs of the program will be updated for the final
rule.
---------------------------------------------------------------------------

    Further information on these and other aspects of the economic
impacts of our proposal are summarized in the following sections and
are presented in more detail in the Draft RIA for this rulemaking. We
invite the reader to comment on all aspects of these analyses,
including our methodology and the assumptions and data that underlie
our analysis.

A. Engineering Costs

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

those expected for highway and nonroad engines, and because the
expected suppliers of the technologies are the same for these engines,
we have used that analysis as the starting point for estimating the
engineering costs of these technologies in this rule.\135\ Importantly,
the analysis summarized here and detailed in the draft RIA takes into
account specific differences between the locomotive and marine products
when compared to on-highway trucks (e.g., engine size).
---------------------------------------------------------------------------

    \135\ ``Economic Analysis of Diesel Aftertreatment System
Changes Made Possible by Reduction of Diesel Fuel Sulfur Content,''
Engine, Fuel, and Emissions Engineering, Incorporated, December 15,
1999, Public Docket No. A-2001-28, Docket Item II-A-76.
---------------------------------------------------------------------------

    Engineering costs of control include variable costs (for new
hardware, its assembly, and associated markups) and fixed costs (for
tooling, research, redesign efforts, and certification). We are
projecting that the Tier 3 standards will be met by optimizing the
engine and emission controls that will exist on locomotive and marine
engines in the Tier 3 timeframe. Therefore, we have estimated no
hardware costs associated with the Tier 3 standards. For the Tier 4
standards, we are projecting that SCR systems and DPFs will be the most
likely technologies used to comply. Upon installation in a new
locomotive or a new marine vessel, these devices would require some new
equipment related hardware in the form of brackets and new sheet metal.
The annual variable costs for example years, the PM/NOX
split of those engineering costs, and the net present values that would
result are presented in Table V-1.\136\ As shown, we estimate the net
present value for the years 2006 through 2040 of all variable costs at
$1.4 billion using a three percent discount rate, with $1.3 billion of
that being engine-related variable costs. Using a seven percent
discount rate, these costs are $630 million and $586 million,
respectively.
---------------------------------------------------------------------------

    \136\ The PM/NOX+NMHC cost allocations for variable
costs used in this cost analysis are as follows: Urea SCR systems
including marinization costs on marine applications are 100%
NOX+NMHC; DPF systems including marinization costs on
marine applications are 100% PM; and, equipment hardware costs are
split evenly.

                         Table V-1.--New Engine and Equipment Variable Engineering Costs
                                                   [$Millions]
----------------------------------------------------------------------------------------------------------------
                                      Engine         Equipment
                                     variable        variable     Total variable                     Total for
              Year                  engineering     engineering     engineering    Total for PM      NOX+NMHC
                                       costs           costs           costs
----------------------------------------------------------------------------------------------------------------
2011............................               0               0               0               0               0
2012............................               0               0               0               0               0
2015............................              32               4              36              34               2
2020............................              87               6              94              49              45
2030............................             105               8             113              59              54
2040............................             104               8             112              59              53
NPV at 3%.......................           1,297              99           1,395             749             646
NPV at 7%.......................             586              44             630             342             288
----------------------------------------------------------------------------------------------------------------

    We can also look at these variable engineering costs on a per
engine basis rather than an annual total basis. Doing so results in the
costs summarized in Table V-2. These costs represent the engineering
costs for a typical engine placed into a piece of equipment within each
of the given market segments and, where applicable, power ranges on a
one-to-one basis (i.e., one engine per locomotive or vessel). For a
vessel using two engines, the costs would be double those shown. The
costs shown represent the total engine-related engineering hardware
costs associated with all of the proposed emissions standards (Tier 3
and Tier 4) to which the given power range and market segment would
need to comply. For example, a commercial marine engine below 600 kW
(805 hp) would need to comply with the Tier 3 standards as its final
tier and would, therefore, incur no new hardware costs. In contrast,
while a commercial marine engine over 600 kW is expected to comply with
both Tier 3 and then Tier 4 and would, therefore, incur engine hardware
costs associated with the Tier 4 standards. The costs also represent
long term costs or those costs after expected learning effects have
occurred and warranty costs have stabilized.

                       Table V-2.--2 Long-Term Variable Engineering Cost per New Engine to Comply With the Final Tier of Standards
                                                                       [$/engine]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Locomotive      Locomotive                                     Recreational
                       Power range                           line haul     switcher \a\      C1 Marine       C2 Marine      marine \b\     Small marine
--------------------------------------------------------------------------------------------------------------------------------------------------------
< 50 Hp (< 37 kW).........................................           \(c)\  ..............  ..............  ..............  ..............           \d\$0
50< =hp< 75 (37< =kW< 56)...................................  ..............  ..............               0  ..............               0  ..............
75< =hp< 200 (56< =kW< 149).................................  ..............  ..............               0  ..............               0  ..............
200< =hp< 400 (149< =kW< 298)...............................  ..............  ..............               0  ..............               0  ..............
400< =hp< 800 (298< =kW< 597)...............................  ..............  ..............               0  ..............               0  ..............
800< =hp< 2000 (597< =kW< 1492).............................  ..............  ..............          11,560          29,980               0  ..............
>=2000 Hp (>=1492 kW)...................................          54,650          13,640          20,550          55,770               0  ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Locomotive switchers generally use land based nonroad engines (i.e., NRT4 engines); therefore, we have used NRT4 cost estimates for locomotive
  switchers in this rulemaking.
\b\ Recreational marine engines >2000 kW are considered within the C1 Marine category.
\c\ A blank entry means there are no engines in that market segment/power range.
\d\ $0 means costs are estimated at $0.

(2) New Engine and Equipment Fixed Engineering Costs
    Because these technologies are being researched for implementation
in the highway and nonroad markets well before the locomotive and
marine emission standards take effect, and because engine manufacturers
will have had several years complying with the highway and nonroad
standards, we believe that the technologies used to comply with the
locomotive and marine standards will have undergone significant
development before reaching locomotive and marine production. In fact,
we believe that this transfer of learning--from highway to nonroad to
locomotive and marine--is real and have quantified it. Chapter 5 of the
draft RIA details our approach and we seek comment on the 10 percent
and 70 percent factors we have employed at each transfer step. We
anticipate that engine manufacturers would introduce a combination of
primary technology upgrades to meet the new emission standards.
Achieving very low NOX emissions requires basic research on
NOX emission-control technologies and improvements in engine
management. There would also have to be some level of tooling
expenditures to make possible the fitting of new hardware on locomotive
and marine engines. We also expect that locomotives and marine vessels
being fitted with Tier 4 engines would have to undergo some level of
redesign to accommodate the aftertreatment devices expected to meet the
Tier 4 standards. The total of fixed engineering costs and the net
present values of those costs are shown in Table V-3.\137\ As shown, we
have estimated the net present value for the years 2006 through 2040 of
all fixed engineering costs at $424 million using a three percent
discount rate, with $381 million of that being engine-related fixed
costs. Using a seven percent discount rate, these costs are $324
million and $297 million, respectively.
---------------------------------------------------------------------------

    \137\ The PM/NOX+NMHC cost allocations for fixed
costs used in this cost analysis are as follows: Engine research
expenditures are 67% NOX+NMHC and 33% PM; engine tooling
and certification costs are split evenly; and, equipment redesign
costs are split evenly.

                            Table V-3.--Engine and Equipment Fixed Engineering Costs
                                                   ($Million)
----------------------------------------------------------------------------------------------------------------
                                                                               Total fixed
                                 Engine     Engine       Engine     Equipment                 Total    Total for
             Year               research   tooling   certification   redesign  engineering    for PM    NOX+NMHC
                                                                                costs
----------------------------------------------------------------------------------------------------------------
2011.........................         75         19            5            0          99          39         59
2012.........................         55          0            0            0          55          18         37
2015.........................         51         17            1           22          90          34         56
2020.........................          0          0            0            4           4           2          2
2030.........................          0          0            0            0           0           0          0
2040.........................          0          0            0            0           0           0          0
NPV at 3%....................        341         33            7           43         424         155        269
NPV at 7%....................        267         24            6           27         324         118        206
----------------------------------------------------------------------------------------------------------------

    Some of the estimated fixed engineering costs would occur in years
prior to the Tier 3 standards taking affect in 2012. Engine
manufacturers would need to invest in engine tooling and certification
prior to selling engines that meet the standards. Engine research is
expected to begin five years in advance of the standards for which the
research is done. We have estimated some engine research for both the
Tier 3 and Tier 4 standards, although the research associated with the
Tier 4 standards is expected to be higher since it involves work on
aftertreatment devices which only the Tier 4 standards would require.
By 2017, the Tier 4 standards would be fully implemented and engine
research toward the Tier 4 standards would be completed. Similarly,
engine tooling and certification efforts would be completed. We have
estimated that equipment redesign, driven mostly by marine vessel
redesigns, would continue for many years given the nature of the marine
market. Therefore, by 2017 all engine-related fixed engineering costs
would be zero, and by 2024 all equipment-related fixed engineering
costs would be zero.
(3) Engine Operating Costs
    We anticipate an increase in costs associated with operating
locomotives and marine vessels. We anticipate three sources of
increased operating costs: urea use; DPF maintenance; and a fuel
consumption impact. Increased operating costs associated with urea use
would occur only in those locomotives/vessels equipped with a urea SCR
engine. Maintenance costs associated with the DPF (for periodic
cleaning of accumulated ash resulting from unburned material that
accumulates in the DPF) would occur in those locomotives/vessels that
are equipped with a DPF engine. The fuel consumption impact is
anticipated to occur more broadly--we expect that a one percent fuel
consumption increase would occur for all new Tier 4 engines, locomotive
and marine, due to higher exhaust backpressure resulting from
aftertreatment devices. We also expect a one percent fuel consumption
increase would occur for remanufactured Tier 0 locomotives due to our
expectation that the tighter NOX standard would be met using
retarded timing. These costs and how the fleet cost estimates were
generated are detailed in Chapter 5 of the draft RIA and are summarized
in Table V-4.\138\
---------------------------------------------------------------------------

    \138\ The PM/NOX+NMHC cost allocations for operating
costs used in this cost analysis are as follows: Urea costs are 100%
NOX+NMHC; DPF maintenance costs are 100% PM; and, fuel
consumption impacts are split evenly.

                                 Table V-4.--Estimated Increased Operating Costs
                                                   ($Millions)
----------------------------------------------------------------------------------------------------------------
                                                                        Fuel       Total
                   Year                     Urea  use      DPF      consumption  operating    Total    Total for
                                                       maintenance     impact       costs     for PM     NOX+MHC
----------------------------------------------------------------------------------------------------------------
2011......................................          0           0           11          11          5          5
2012......................................          0           0           13          13          6          6
2015......................................          4           0           21          25         11         15
2020......................................         85           3           50         137         28        110
2030......................................        300           8           99         407         57        350
2040......................................        458          11          142         611         82        528
NPV at 3%.................................      2,850          74        1,116       4,039        631      3,408
NPV at 7%.................................      1,090          29          477       1,595        267      1,328
----------------------------------------------------------------------------------------------------------------

    As shown, we have estimated the net present value for the years
2006 through 2040 of the annual operating costs at $4 billion using a
three percent discount rate and $1.6 billion using a seven percent
discount rate. The urea and DPF maintenance costs are zero until Tier 4
engines start being sold since only the Tier 4 engines are expected to
add these technologies. Urea use represents the largest source of
increased operating costs. Because urea use is meant for controlling
NOX emissions, most of the operating costs are associated
with NOX+NMHC control.
(4) Engineering Costs Associated With the Remanufacturing Program
    We have also estimated engineering costs associated with the
locomotive remanufacturing program. The remanufacturing process is not
a low cost endeavor. However, it is much less costly than purchasing a
new engine. The engineering costs we have estimated associated with the
remanufacturing program are not meant to capture the remanufacturing
process but rather the incremental engineering costs to that process.
Therefore, the remanufacturing costs estimated here are only those
engineering costs resulting from the proposed requirement to meet a
more stringent standard than the engine was designed to meet at its
original sale. These engineering costs and how the fleet cost estimates
were generated are detailed in Chapter 5 of the draft RIA and are
summarized in Table V-5.\139\ As shown, we have estimated the net
present value for the years 2006 through 2040 of the annual engineering
costs associated with the locomotive remanufacturing program at $1.4
billion using a three percent discount rate and $682 million using a
seven percent discount rate.
---------------------------------------------------------------------------

    \139\ Costs associated with the remanufacturing program are
split evenly between NOX+NMHC and PM.

 Table V-5.--Estimated Engineering Costs Associated With the Locomotive
                         Remanufacturing Program
                               ($Millions)
------------------------------------------------------------------------
                                        Remanu-
                                       facturing   Total for   Total for
                Year                    Program       PM       NOX+NMHC
                                         Costs
------------------------------------------------------------------------
2011................................          97          49          49
2012................................          75          37          37
2015................................          31          15          15
2020................................          15           8           8
2030................................          85          43          43
2040................................         153          77          77
NPV at 3%...........................       1,374         687         687
NPV at 7%...........................         682         341         341
------------------------------------------------------------------------

(5) Total Engineering Costs
    The total engineering costs associated with today's proposal are
the summation of the engine and equipment engineering costs, both fixed
and variable, the operating costs, and the engineering costs associated
with the locomotive remanufacturing program. These costs are summarized
in Table V-6.

                                                   Table V-6.--Total Engineering Costs of the Proposal
                                                                       [$Millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Equipment                      Engineering
                                         Engine related      related        Operating      costs of the        Total                      Total NOX+NMHC
                  Year                     engineering     engineering        costs      remanufacturing    engineering   Total PM costs       costs
                                              costs           costs                          program           costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011...................................              99               0              11               97             207              93             113