Fuel Only Control Programs: We used the same methodology to estimate the potential price impacts for stand alone 500 ppm and 15 ppm NRLM fuel programs. The potential price impacts of long term 500 ppm and 15 ppm NRLM caps would be the same as those shown in table VI. A 8 above for the 500 ppm NRLM cap in 2007 and for the 15 ppm NRLM cap in 2014 and beyond, respectively.

B. Cost Savings to the Existing Fleet from the Use of Low Sulfur Fuel We estimate that reducing fuel sulfur to 500 ppm would reduce engine wear and oil degradation to the existing nonroad diesel equipment fleet and that a further reduction to 15 ppm sulfur would result in even greater reductions. This reduction in wear and oil degradation would provide a dollar savings to users of nonroad equipment. The cost savings would also be realized by the owners of future nonroad engines that are subject to the standards in this proposal. As discussed below, these maintenance savings have been conservatively estimated to be greater than 3 cents per gallon for the use of 15 ppm sulfur fuel when compared to the use of today's unregulated nonroad diesel fuel. A summary of the range of benefits from the use of low sulfur fuel is presented in Table VI. B 1.219 377 Table VI. B 1.   Engine Components Potentially Affected by Lower Sulfur Levels in Diesel Fuel a Affected Components Effect of Lower Sulfur Potential Impact on Engine System Piston Rings Reduced corrosion wear Extended engine life and less frequent rebuilds Cylinder Liners Reduced corrosion wear Extended engine life and less frequent rebuilds Oil Quality Reduced deposits,

reduced acid build up,

and less need for alkaline additives Reduce wear on piston ring and cylinder liner and less frequent oil changes Exhaust System ( tailpipe) Reduced corrosion wear Less frequent part replacement Exhaust Gas Recirculation System Reduced corrosion wear Less frequent part replacement Notes: a The degree to which all of these benefits may occur for any specific engine will vary. For example, the impact of high sulfur fuel on piston rings, cylinder liners and oil quality are somewhat interdependent. To the extent an end user lengthens the oil drain interval, the benefit of the low sulfur fuel on piston ring and cylinder liner wear will be lessened ( though not eliminated).

For users who do not alter oil drain intervals, the benefit of low sulfur fuel on extending piston ring and cylinder liner wear will be greater. The benefit of low sulfur fuel on reducing exhaust system and EGR system corrosion are independent of oil drain intervals.

The monetary value of these benefits over the life of the equipment will depend upon the length of time that the equipment operates on low sulfur diesel fuel and the degree to which engine and equipment manufacturers specify new maintenance practices and the degree to which equipment operators change engine maintenance patterns to take advantage of these benefits. For equipment near the end of its life in the 2008 time frame, the benefits will be quite small. However, for equipment produced in the years immediately preceding the introduction of 500 ppm 378 sulfur fuel, the savings would be substantial. Additional savings would be realized in 2010 when the 15 ppm sulfur fuel would be introduced We estimate the single largest savings would be the impact of lower sulfur fuel on oil change intervals. The RIA presents our analysis for the oil change interval extension which would be realized by the introduction of 500 ppm sulfur fuel in 2007, as well as the additional oil extension which would be realized with the introduction of 15 ppm sulfur nonroad diesel fuel in 2010. As explained in the RIA, these estimates are based on our analysis of publically available information from nonroad engine manufacturers. Due to the wide range of diesel fuel sulfur which today's nonroad engines may see around the world, engine manufacturers specify different oil change intervals as a function of diesel sulfur levels. We have used this data as the basis for our analysis. Taken together, when compared to today's relatively high nonroad diesel fuel sulfur levels, we estimate the use of 15 ppm sulfur fuel will enable an oil change interval extension of 35 percent from today's products.

We received comments on our estimated maintenance savings primarily from a number of end user groups ( e. g., equipment dealers, equipment rental organizations, farming organizations). Several commenters believed our estimates were too high, and one commenter believed the estimate was too low. However, all of the commenters who believed our cost savings estimates were too high provided no data to support their comments, beyond unsubstantiated opinions, nor did they comment on EPA's substantial related technical analysis. The commenter who suggested the estimates were too low provided an example cost estimate for existing oil change intervals which, if used in our analysis, would have resulted in an estimated cost savings 4 times EPA's estimate. We have not changed our estimate based on the comments we received.

We present here a fuel operating cost savings attributed to the oil change interval extension in terms of a cents per gallon operating cost. We estimate that an oil change interval extension of 31 percent, as would be enabled by the use of 500 ppm sulfur fuel in 2007, results in a fuel operating costs savings of 2.9 cents per gallon for the nonroad fleet. We estimate an additional cost savings of 0.3 cents per gallon for the oil change interval extension which would be enabled by the use of 15 ppm sulfur beginning in 2010. Thus, for the nonroad fleet as a whole, beginning in 2010 nonroad equipment users can realize an operating cost savings of 3.2 cents per gallon compared to today's engine. This means that the end cost to the typical user for 15 ppm sulfur fuel is approximately 3.8 cents per gallon ( 7.0 cent per gallon cost for fuel minus 3.2 cent per gallon maintenance savings). For a typical 100 horsepower nonroad engine this represents a net present value lifetime savings, excluding the higher fuel costs, of more than $ 500.

These savings will occur without additional new cost to the equipment owner beyond the incremental cost of the low sulfur diesel fuel, although these savings are dependent on changes to existing maintenance schedules. Such changes seem likely given the magnitude of the savings. There are many mechanisms by which end users could become aware of the opportunity to extend oil drain intervals. First, it is typical practice for engine and equipment manufacturers to issue 220 For example, Appendix A of EPA Memorandum " Estimate of the Impact of Low Sulfur Fuel on Oil Change Intervals for Nonroad Diesel Equipment" contains a service bulletin from a nonroad diesel engine manufacturer. Copy of memo available in EPA Air Docket A 2001 28, item II A 194.

221 For example, Appendix C of EPA Memorandum " Estimate of the Impact of Low Sulfur Fuel on Oil Change Intervals for Nonroad Diesel Equipment", which indicates Caterpillar recommends owners use Scheduled Oil Sampling analysis as the best means to for users to determine appropriate oil change intervals. Copy of memo available in EPA Air Docket A 2001 28, item II A 194.

379 service bulletins regarding lubrication and fueling guidance for end users. 220 Manufacturers provide these service bulletins to equipment dealerships and large equipment customers ( such as rental companies). In addition, the equipment and end user industries have a number of annual conferences which are used to share information, including information regarding appropriate engine and equipment maintenance practices. The end user conferences are also designed to help specific industries and business reduce operating costs and maximize profits, which would include information on equipment maintenance practices. There are trade journals and publications which provide information and advice to their users regarding proper equipment maintenance. Finally, some nonroad users perform routine oil sample analysis in order to determine appropriate oil drain intervals, and in some cases to monitor overall engine wear rates in order to determine engine rebuild needs. 221 We have not estimated the value of the savings from all of the benefits listed in table VI. B 1, and therefore we believe the 3.2 cents per gallon savings is conservative as it only accounts for the impact of low sulfur fuel on oil change intervals. While some of these benefits are impacted by changes in oil change interval, a number are independent and not included in our cost savings estimate.

C. Engine and Equipment Cost Impacts The following sections briefly discuss the various engine and equipment cost elements considered for this final rule and present the total costs we have estimated. The reader is referred to the RIA for a complete discussion. Estimated engine and equipment 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 new Tier 4 standards. The wide size variation ( e. g., engines under 4 horsepower through engines above 2500 horsepower) and the broad application variation ( e. g., lawn equipment through large mining trucks) that exists in the nonroad industry makes it difficult to present here an estimated cost for every possible engine and/ or piece of equipment. Nonetheless, for illustrative purposes, we present some examples of engine and equipment cost impacts throughout this discussion. Note that the costs presented here are for those nonroad engines and equipment that are mobile nonroad equipment and are, therefore, subject to nonroad engine standards. These costs would not apply for that equipment that is stationary   some portion of some equipment segments such as generator sets, pumps, compressors   and not subject to nonroad engine standards. The analysis summarized here is presented in detail in chapter 6 of the RIA. 222 In order to avoid inconsistencies in the way our emission reductions, and cost effectiveness estimates are calculated, our cost methodology for engines and equipment relies on the same projections of new nonroad engine growth as those used in our emissions inventory projections. Our NONROAD emission inventory model includes estimates of future engine populations that are consistent with the future engine sales used in our cost estimates. The NONROAD model inputs include an estimate of what percentage of generator sets sold in the U. S. are " mobile" and, thus, subject to the nonroad standards, and what percentage are " stationary" and not subject to the nonroad standards. These percentages vary by power category and are documented in " Nonroad Engine Population Estimates," EPA Report 420 P 02

004, December 2002. For generator sets above 750 horsepower, NONROAD assumes 100 percent are stationary and, therefore, not subject to the new nonroad standards. For generator sets under 750 horsepower, we have assumed other percentages of mobile versus stationary. During our discussions with engine manufacturers after the proposal, it became apparent not only that our estimate for generator sets above 750 horsepower may not be correct and many are indeed mobile, but also that some of our estimates for generator sets above 750 horsepower may also not be correct and many more than we estimate may 380 Note that the costs presented here do not reflect any savings that are expected to occur because of the engine ABT program and/ or the equipment manufacturer transition program, which are discussed in sections III. A and B. These optional programs have the potential to provide significant savings for both engine and equipment manufacturers. As a result, we consider our cost estimates to be conservative, in the sense that they likely overstate total engine and equipment costs.

In general, the final engine and equipment cost analysis is the same as that done for our proposal. We have made the following changes:

° In response to a comment, we have increased our engine research and development ( R& D) costs. In the proposal, we estimated the R& D expenditure that each engine manufacturer would make to comply with the Tier 4 standards. In response to the comment, we have refined that analysis and increased our estimate of engine R& D by roughly 50 percent. We did not receive any other comments with respect to our estimates for engine R& D.

° Because the final standards for engines above 750 horsepower have changed from the proposed standards, we have made changes to the engine R& D expenditures attributed to those engines. For costing purposes, the NO X portion of the engine R& D expenditures are no longer shared by engines above 750 horsepower. This increases NO X R& D attributed to other engines because a significant portion of engine R& D costs are costs shared across a wide range of products. We have also reduced the engine variable costs for engines above 750 horsepower since we are no longer projecting that NO X adsorbers will be added to them. 222 This has no impact on the engine variable costs for other engines. We have indeed be mobile. If true, this increased percentage of mobile generator sets will be subject to the new nonroad standards. Unfortunately, we have not received sufficient data to make a conclusive change to the NONROAD model to include the potentially increased percentages of mobile generator sets and,

therefore, for the above described purpose of maintaining consistency, we have not included their costs or their emissions reductions in our official estimates for this final rule ( costs and emissions reductions for the current percentages in the NONROAD model are included in our estimates for the final rule). Instead,

we present a sensitivity analysis in Chapter 8 of the RIA that includes both an estimate of the costs and emissions reductions that would result from including a higher percentage of generator sets as mobile equipment and subject to the new standards.

381 also reduced the equipment redesign costs for engines above 750 horsepower since less redesign effort is projected to accommodate only a catalyzed diesel particulate filter ( CDPF). This has no impact on the redesign costs of other equipment. Lastly, we have decreased the equipment variable costs for engines above 750 horsepower for the same reason as was done for engine variable costs.

° We have changed the engine operating costs for engines above 750 horsepower to reflect a different fuel economy impact than was associated with the proposed standards and to reflect the new timing for adding the CDPF and therefore incurring the maintenance costs associated with it.

° We have included costs for additional cooling on engines adding cooled EGR systems ( engines of 25 to 50 horsepower and greater than 750 horsepower). These costs include the larger radiator and/ or engine cooling fan that may be required on engines expected to add cooled EGR to meet the new standards. In the proposal, we had estimated the costs for the EGR system but not the costs for additional cooling.

° We have expressed all costs in 2002 dollars for the final rule rather than the proposal's use of 2001 dollars.

We received comments on other aspects of the proposed engine and equipment cost analysis that are not reflected in the final analysis. Some of the comments were:

° Some commenters claimed that we had underestimated costs for engines under 75 horsepower, and in the 75 to 100 horsepower range. For the engines under 75 horsepower, one commenter suggested the costs were higher than EPA estimated. Please see section 5.4.1 of the Summary and Analysis of Comments for a detailed discussion of the comments and our response. In the 75 to 100 horsepower range, one commenter suggested that we were incorrect in our assumption that those engines would have electronic fuel systems in the NRT4 baseline case, maintaining the electronic fuel systems would have to be added to these engines to comply with the Tier 4 standards and, 382 therefore, are a cost of the Tier 4 rule. From this premise, the commenter argued that the costs for 75 to 100 horsepower engines will be disproportionately high.

We disagree. In the proposal, we estimated that by 2012, engines in this power range would already have electronic fuel injection systems. This estimate was based on our engineering assessment of what technologies would be required to comply with the Tier 2 and Tier 3 emission standards, as well as technical discussions we had with engine manufacturers regarding future product plans. Therefore, the costs of these electronic fuel injection systems are not attributable to the Tier 4 rule. Our assessment at proposal is consistent with our projections in the Tier2/ 3 rulemaking where we estimated costs for electronic fuel injection systems as a cost of complying with those standards. In the preamble to the proposed Tier 4 rule, we presented estimates of the penetration of various engine technologies into several power ranges, including 75 to 100 horsepower, based on engine manufacturers' 2001 model year certification data. See 68 FR 28386, May 23, 2003. Since then, model year certification data for 2004 are available, and these data substantiate our earlier prediction. These model year 2004 data represent implementation of the Tier 2 standards so these data illustrate the technologies engine manufacturers are using to comply with those standards. These data show that nearly 20 percent of the engines that will be produced in this power range will have electronically controlled fuel systems, while the model year 2001 data show no engines in this power range had electronic fuel systems. This dramatic increase in electronics as a result of the Tier 2 standards, let alone the Tier 3 standards, gives us confidence that our projections regarding 2012 are reasonable. Section 4.1.4 of the RIA contains a detailed discussion of this information; see also the discussions in sections II. B. 4. b. i and II. B. 5 above. Thus, we continue to believe that we have properly attributed costs of electronic fuel systems to the Tier 3 rule, or, put another way, that the cost of an electronic fuel system is not a cost attributable to this Tier 4 rule for engines in the 75 to 100 horsepower category. Since the cost of electronic fuel systems is the essential difference in the costs we attribute to the Tier 4 rule for these engines versus the costs the commenter would attribute, we therefore disagree with the comment and believe our estimates to be reasonable. See also section II. A. 5 above.

° One commenter took exception to our method of amortizing fixed costs over a period of years following implementation of the new standards. The commenter suggested that we used such a method to imply to the regulated industries that they would not only recover their investments but would also make a gain on those investments. This is not the case. We use this method of amortization, briefly described here and more fully in the RIA, only to reflect the time value of money so that we can get a more accurate estimate of the cost to the companies.

The Summary and Analysis of Comments document contains the details of all comments and our responses. 383 1. Engine Cost Impacts Estimated engine costs are broken into fixed costs ( for research and development, retooling, and certification), variable costs ( for new hardware and assembly time), and life cycle operating costs. Total operating costs include the estimated incremental cost for low sulfur diesel fuel, any expected increases in maintenance costs associated with new emission control devices, any costs associated with increased fuel consumption, and any decreases in operating cost ( i. e., maintenance savings) expected due to low sulfur fuel. Cost estimates presented here represent an expected incremental cost of engines in the model year of their introduction. Costs in subsequent years will be reduced by several factors, as described below. All engine and equipment costs are presented in 2002 dollars since producer price indexes for 2003 were not available in time for use in this analysis.

a. Engine Fixed Costs i. Engine and Emission Control Device R& D The technologies described in Section II represent those technologies we believe will be used to comply with the Tier 4 emission standards. For many manufacturers, these technologies are part of an ongoing research and development effort geared toward compliance with the 2007 heavy duty diesel highway emission standards. The engine manufacturers making R& D expenditures toward compliance with highway emission standards will have to undergo some additional R& D effort to transfer emission control technologies to engines they wish to sell into the nonroad market. These R& D efforts will allow engine manufacturers to develop and optimize these new technologies for maximum emission control effectiveness with minimum negative impacts on engine performance, durability, and fuel consumption.

Many nonroad engine manufacturers are not part of the ongoing R& D effort toward compliance with highway emissions standards because they do not sell engines into the highway market. Nonetheless, these manufacturers are expected to benefit from the R& D work that has already occurred and will continue through the coming years through their contact with highway manufacturers, emission control device manufacturers, and the independent engine research laboratories conducting relevant R& D.

We project the use of several technologies for complying with the Tier 4 emission standards. We are projecting that NO X adsorbers and catalyzed diesel particulate filters ( CDPFs) will be the most likely technologies applied by industry to meet our new emissions standards for engines above 75 horsepower. The fact that these technologies are being developed for implementation in the highway market before the Tier 4 implementation dates, and the fact that engine manufacturers will have several years before implementation of the Tier 4 standards, ensures that the technologies used to comply with the nonroad standards will undergo significant development before reaching production. This ongoing development could lead to reduced costs in three ways. First, we expect research will lead to enhanced effectiveness for individual 384 technologies, allowing manufacturers to use simpler packages of emission control technologies than we would predict given the current state of development. Similarly, we anticipate that the continuing effort to improve the emission control technologies will include innovations that allow lower cost production. Finally, we believe that manufacturers will focus research efforts on any drawbacks, such as fuel economy impacts or maintenance costs, in an effort to minimize or overcome any potential negative effects.

We anticipate that, in order to meet the Tier 4 standards, industry will introduce a combination of primary technology upgrades. Achieving very low NO X emissions will require basic research on NO X exhaust emission control technologies and improvements in engine management to take advantage of the new exhaust emission control system capabilities. The manufacturers are expected to address the challenge by optimizing the engine and new exhaust emission control system to realize the best overall performance. This will entail optimizing the engine and emission control system for both emissions and fuel economy performance in light of the presence of the new exhaust emission control devices and their ability to control pollutants previously controlled only via in cylinder means or with exhaust gas recirculation. Since most research to date with exhaust emission control technologies for nonroad applications has focused on retrofit programs which typically add an exhaust emission control device without making engine control changes, there remains room for significant improvements by taking such a systems approach. The NO X adsorber technology in particular is expected to benefit from re optimization of the engine management system to better match the NO X adsorber's performance characteristics. The majority of the dollars we have estimated for research is expected to be spent on developing this synergy between the engine and NO X exhaust emission control systems. Therefore, for engines where we project use of both a CDPF and a NO X adsorber ( i. e., 75 to 750 horsepower), we have attributed two thirds of the R& D expenditures to NO X control, and one third to PM control.

As we mentioned earlier, we have further refined our estimate of engine R& D costs since our proposal. We have taken these R& D costs and have broken them into two components. The first of these components estimates the corporate R& D applicable across all engine lines. The second of these estimates the engine line by engine line R& D cost. The estimates of line by line R& D correlate to power range   $ 1 million for under 75 horsepower engine lines, $ 3 million for 75 to 750 horsepower engine lines, and $ 6 million for above 750 horsepower engine lines. We estimated these expenditures based on the confidential information provided by the commenter and our analysis of that information. The end result is consistent with the commenter's suggested expenditure levels. We have applied these engine line R& D estimates only where CDPFs and/ or CDPF/ NO X adsorber systems are expected to be implemented ( i. e., this R& D is not applied for the under 75 horsepower engines in 2008 because the R& D already estimated for complying with those standards should not require the same effort to tailor it to each engine). We have also applied these estimates only for those engines without a highway counterpart ( note that only 16 of a total 133 nonroad engine lines had a highway counterpart). 223 In the 2007 rule, we estimated a value of $ 35 million in 1999 dollars. Here we have adjusted that value to express it in 2002 dollars.

224 In the proposal, we estimated a value of $ 3.5 million in 1999 dollars. Here we have adjusted that value to express it in 2002 dollars.

225 In the proposal, we estimated a value of $ 24.5 million in 1999 dollars. Here we have adjusted that value to express it in 2002 dollars.

385 In the 2007 HD highway rule, we estimated that each engine manufacturer would expend $ 36.1 million for R& D to redesign their engines and apply catalyzed diesel particulate filters ( CDPF) and NO X adsorbers. 223 For their nonroad R& D efforts on engines where we project that compliance will require CDPFs and NO X adsorbers ( i. e., 75 to 750 horsepower) and on greater than 750 horsepower engines requiring a CDPF, engine manufacturers that also sell into the highway market will incur some level of R& D effort but not at the level incurred for the highway rule. In many cases, the engines used by highway manufacturers in nonroad products are based on the same engine platform as those used in highway products. However, horsepower and torque characteristics are often different so some effort will have to be expended to accommodate those differences. For these manufacturers, we have estimated that they will incur an average R& D expense of $ 3.6 million224 not including the nonroad engine line R& D noted above. This $ 3.6 million R& D expense will allow for the transfer of R& D knowledge from their highway experience to their nonroad engine product line. For the reasons stated above, two thirds of this R& D is attributed to NO X control and one third to PM control for 75 to 750 horsepower engines; for engines above 750 horsepower, all of this R& D is attributed to PM control.

For those manufacturers that sell larger engines only into the nonroad market, and where we project those engines will add a CDPF and a NO X adsorber ( 75 to 750 horsepower) or a CDPF only ( above 750 horsepower), we believe that they will incur an R& D expense nearing that incurred by highway manufacturers for the highway rule although not quite at the same level. Nonroad manufacturers will be able to learn from the R& D efforts already underway for both the highway rule and for the Tier 2 light duty highway rule ( 65 FR 6698, February 10, 2000). This learning could be done via seminars, conferences, and contact with highway manufacturers, emission control device manufacturers, and the independent engine research laboratories conducting relevant R& D. Therefore, for these manufacturers, we have estimated an average expenditure of $ 25.3 million225 not including the nonroad engine line R& D noted above. This lower number   $ 25.3 million versus $ 36.1 million in the highway rule   reflects the transfer of knowledge to nonroad manufacturers that will occur from the many stakeholders in the diesel industry. Two thirds of this R& D is attributed to NO X control and one third to PM control.

Note that the $ 3.6 million and $ 25.3 million estimates represent our estimate of the average R& D expected by manufacturers to gain knowledge about the anticipated emission control devices. These estimates will be different for each manufacturer   some higher, some lower   depending on product mix and the number of engine lines in their product line. 226 In the proposal, we estimated values of $ 1.2 million and $ 8 million in 1999 dollars. Here we have adjusted those values to express them in 2002 dollars.

227 In the proposal, we estimated values of $ 600,000 and $ 4 million in 1999 dollars. Here we have adjusted those values to express them in 2002 dollars.

386 For those engine manufacturers selling smaller engines that we project will add a CDPFonly ( i. e., 25 to 75 horsepower engines in 2013), we have estimated that the average R& D they will incur will be roughly one third that incurred by manufacturers conducting CDPF/ NO X adsorber R& D. We believe this is a good estimate because CDPF technology is further along in its development than is NO X adsorber technology and, therefore, a 50/ 50 split is not appropriate. Using this estimate, the R& D incurred by manufacturers that already have been selling any engines into both the highway and the nonroad markets will be $ 1.2 million not including their nonroad engine line R& D, and the R& D for manufacturers selling engines into only the nonroad market will be roughly $ 8.3 million226 not including their nonroad engine line R& D. All of this R& D is attributed to PM control.

For those engine manufacturers selling engines that we project will add only a DOC or make some engine out modifications ( i. e., engines under 75 horsepower in 2008), we have estimated that the average R& D they will incur will be roughly one half the amount estimated for their CDPF only R& D. Using this estimate, the R& D incurred by manufacturers selling any engines into both the highway and nonroad markets will be roughly $ 600,000, and the R& D for manufacturers selling engines into only the nonroad market will be roughly $ 4.2 million. 227 All of this R& D is attributed to PM control.

We have assumed that all R& D expenditures occur over a five year span preceding the first year any emission control device is introduced into the market. There is one exception to this assumption in that the expenditures for DOC only R& D are assumed to occur over the four year span between the final rule and the 2008 standards. Where a phase in exists ( e. g., for NO X standards on 75 to 750 horsepower engines), expenditures are assumed to occur over the five year span preceding the first year NO X adsorbers will be introduced, and then to continue during the phase in years. The expenditures will be incurred in a manner consistent with the phase in of the standard. All R& D expenditures are then recovered by the engine manufacturer over an identical time span following the introduction of the technology, with the exception that expenditures for DOC only R& D are recovered over a five year span rather than a four year span. We assume an opportunity cost of capital of seven percent for all R& D. We have apportioned these R& D costs across all engines that are expected to use these technologies, including those sold in other countries or regions that are expected to have similar standards. We have estimated the fraction of the U. S. sales to this total sales at 42 percent. Therefore, we have attributed this amount to U. S. sales. Note that all engine R& D costs for engines under 25 horsepower have been attributed to U. S. sales since other countries are not expected to have similar standards on these engines. 228 In the 2007 rule, we estimated a value of $ 1.6 million in 1999 dollars. Here we have adjusted that value to express it in 2002 dollars.

387 Using this methodology, we have estimated the total R& D expenditures attributable to the new standards at $ 323 million with $ 206 million spent on corporate R& D and $ 118 million spent on engine line R& D. For comparison, our proposal estimated $ 199 million for basic R& D and none for engine line R& D. The amount for corporate R& D is higher here solely due to the change to 2002 dollars.

ii. Engine Related Tooling Costs Once engines are ready for production, new tooling will be required to accommodate the assembly of the new engines. We have indicated below where our tooling cost estimates have changed from the proposal. In the 2007 highway rule, we estimated approximately $ 1.65 million per engine line for tooling costs associated with CDPF/ NO X adsorber systems. 228 For the nonroad Tier 4 standards, we have estimated that nonroad only manufacturers will incur the same $ 1.65 million per engine line requiring a CDPF/ NO X adsorber system and that these costs will be split evenly between NO X control and PM control. For those systems requiring only a CDPF, we have estimated one half that amount, or $ 825,000 per engine line. For those systems requiring only a DOC or some engine out modifications, we have applied a one half factor again, or $ 412,500 per engine line. Tooling costs for CDPF only and for DOC engines are attributed solely to PM control. None of these estimates have changed since our proposal, with the exception of being expressed in 2002 dollars. We received no comments on our tooling cost estimates.

For those manufacturers selling into both the highway and nonroad markets, we have estimated one half the baseline tooling cost, or $ 825,000, for those engine lines requiring a CDPF/ NO X adsorber system. We believe this is reasonable since many nonroad engines are produced on the same engine line with their highway counterparts. For such lines, we believe very little to no tooling costs will be incurred. For engine lines without a highway counterpart, something approaching the $ 1.65 million tooling cost is applicable. For this analysis, we have assumed a 50/ 50 split of engine product lines for highway manufacturers and, therefore, a 50 percent factor applied to the $ 1.65 million baseline. These tooling costs will be split evenly between NO X control and PM control. For engine lines under 75 horsepower and above 750 horsepower, we have used the same tooling costs as the nonroad only manufacturers because these engines tend not to have a highway counterpart. Therefore, for those engine lines requiring only a CDPF ( i. e., those between 25 and 75 horsepower and those above 750 horsepower), we have estimated a tooling cost of $ 825,000. Note that this is a change from the proposal for engines above 750 horsepower; the proposal used the full $ 1.65 million since both a CDPF and a NO X adsorber were being projected. The tooling costs for DOC and/ or engine out engine lines has also been estimated to be $ 412,500. Tooling costs for CDPF only and for DOC engines are attributed solely to PM control. With the exception of the greater than 750 horsepower change, none of these tooling estimates have changed since our proposal, with the exception of being expressed in 2002 dollars. 388 We expect engines in the 25 to 50 horsepower range to apply EGR systems to meet the Tier 4 NO X standards for 2013. For these engines, we have included an additional tooling cost of $ 41,300 per engine line, consistent with the EGR related tooling cost estimated for 50 100 horsepower engines in our Tier 2/ 3 rulemaking. The EGR tooling costs are applied equally to all engine lines in that horsepower range regardless of the markets into which the manufacturer sells. We have applied this tooling cost equally because engines in this horsepower range tend not to have highway counterparts. Tooling costs for EGR systems are attributed solely to NO X control.

We have also estimated some tooling costs for engines above 750 horsepower to meet the 2011 standards. We have estimated this amount at ten times the amount for 25 to 50 horsepower engines, or $ 413,000 per engine line. This cost was not in the proposal since NO X adsorbers were being projected for engines above 750 horsepower. We have applied this tooling to all engine lines above 750 horsepower, regardless of what markets into which a manufacturer sells, since such engines clearly have no highway counterpart. For the purpose of allocating costs, we have attributed this cost entirely to NO X control. Note that there is a new 2011 PM standard for engines above 750 horsepower. However, we believe that PM standard could be met via engineout control which would result in no new tooling costs associated with that standard.

We have applied all the above tooling costs to all manufacturers that appear to actually make engines. We have not eliminated joint venture manufacturers because these manufacturers will still need to invest in tooling to make the engines even if they do not conduct any R& D. We have assumed that all tooling costs are incurred one year in advance of the new standard and are recovered over a five year period following implementation of the new standard; all tooling costs include a capital opportunity cost of seven percent. As done for R& D costs, we have attributed a portion of the tooling costs to U. S. sales and a portion to sales in other countries expected to have similar levels of emission control. Note that all engine tooling costs for under 25 horsepower engines have been attributed to U. S. sales since other countries are not expected to have similar standards on these engines. More information is contained in chapter 6 of the RIA.

Using this methodology, we estimate the total tooling expenditures attributable to the new Tier 4 standards at $ 74 million. For comparison, our proposal estimated $ 67 million. The higher value here is a result of: expressing values in 2002 dollars rather than 2001 dollars; attributing all under 25 horsepower tooling costs to U. S. sales while the proposal attributed 42 percent of those costs to U. S. sales; and, above 750 horsepower tooling is slightly higher because of the proposal's phase in ( 50/ 50/ 50/ 100) of one set of standards while the final rule has two sets of standards.

iii. Engine Certification Costs The comments we received with respect to our estimated certification costs noted that we had underestimated costs associated with new test procedures, especially transient testing for engines above 750 horsepower. For the final rule, we have tripled the costs associated with new test procedures. Because we are not finalizing transient test procedures for engines above 750 229 In the proposal we added a certification fee to this cost. In the final rule we have not included the certification fee because that cost will be accounted for in the certification fees rulemaking ( see 67 FR 51402 for the proposed rule). Including in the proposal was essentially double counting that fee. Similarly, if we were to include it in this final rule, we would be double counting that fee.

230 Note that the transport refrigeration unit ( TRU) test cycle is an optional duty cycle for steadystate certification testing specifically tailored to the operation of TRU engines. Likewise, the ramped modal cycles are available test cycles that can be used to replace existing steady state test requirements for nonroad constant speed engines, generally. Manufacturers of these engines who opt to use one of these test cycles would incur no new costs above those estimated here and may incur less cost.

231 Note that the proposal incorrectly used a value of $ 10,500 for costs associated with the new test procedures. Here, we have corrected this error by using a value of $ 31,500. Note also that the proposal erroneously did not include certification costs associated with transient testing and the NTE for engines under 25 horsepower. We have corrected that error in the final analysis.

389 horsepower, comments about the cost of these engines certifying using the transient test are now moot.

Manufacturers will incur more than the normal level of certification costs during the first few years of implementation because engines will need to be certified to the new emission standards using new test procedures ( at least in some instances). Consistent with our recent standard setting regulations, we have estimated engine certification costs at $ 60,000 per new engine certification to cover existing testing and administrative costs. 229 The $ 60,000 certification cost per engine family was used for 25 to 75 horsepower engines certifying to the 2008 standards. For 25 to 75 horsepower engines certifying to the 2013 standards, and for 75 to 750 horsepower engines certifying to their new standards, we have added costs to cover the new test procedures for nonroad diesel engines ( e. g., the transient test, the NTE); 230 these costs are estimated at $ 31,500 per engine family. 231 For engines under 25 horsepower, we have assumed ( for cost purposes) that all engines will certify to the transient test and the NTE in 2008. We believe manufacturers may choose to do this rather than certifying all engines again in 2013 when the transient test and NTE requirements actually begin for those engines. This assumption results in higher certification costs in 2008 than if these engines certified only to the steady state standard. However, we believe manufacturers may choose to do this because it would avoid the need to recertify all engines under 25 horsepower again in 2013. These certification costs   whether it be the $ 60,000 or the $ 91,500 per engine family   apply equally to all engine families for all manufacturers regardless of into what markets the manufacturer sells. For engines above 750 horsepower, the certification costs used were $ 87,000 per family since these engines will not be certifying over the new transient test procedure. We have applied these certification costs to all U. S. sold engine families and then spread the total over U. S. sales. In other words, we have not 390 presumed that certification conducted for U. S. engines would fulfill the certification requirements of other countries and have, therefore, not spread total costs over engine sales outside the U. S..

Applying these costs to each of the 665 engine families as they are certified to a new emissions standard results in total costs of $ 91 million expended during implementation of the Tier 4 standards. These costs are attributed to NO X and PM control consistent with the phase in of the new emissions standards   where new NO X and PM standards are introduced together, the certification costs are split evenly; where only a new PM standard is introduced, the certification costs are attributed to PM only; where a NO X phase in becomes 100 percent in a year after full implementation of a PM standard, the certification costs are attributed to NO X only. All certification costs are assumed to occur one year prior to the new emission standard and are then recovered over a five year period following compliance with the new standard; all certification costs include a capital opportunity cost of seven percent. For comparison, our proposal estimated certification costs at $ 72 million. The increase here is a result of using a higher cost associated with the new test procedures than was used in the proposal.

We also received comment that we should estimate certification costs based on use of the ABT program rather than based on the phase in. Doing this would result in higher certification costs because all engine families would be certified in year one of the phase in and all families would again be certified in the final year of the phase in. In contrast, since we have based certification costs on the phase in, all engine families are certified in year one ( PM standards have no phase in) and only half are again certified in the final year ( the 50 percent not meeting the new NO X standard in year one). We have chosen not to estimate certification or any costs based on use of the ABT program ( or the TPEM program) since it is so difficult to predict how this program will be used. Furthermore, we must remain consistent throughout our cost analysis so that, if we estimated certification costs based on use of the ABT program, we should also base engine variable costs and equipment variable costs on use of the ABT program. Doing so, we believe, would decrease engine variable costs since that is the primary reason manufacturers choose to make use of the ABT program. Since engine variable costs, as discussed below, are a much greater fraction of the overall program costs, we believe that we are being conservative by generating our costs based on use of the phase in. Therefore, we believe that use of the ABT program ( and the TPEM program) will provide substantial net savings to industry even though widespread use of ABT might cause certification costs to be higher.

b. Engine Variable Costs This section summarizes the detailed analysis presented in chapter 6 of the RIA. For our analysis, we have used the 2002 annual average costs for platinum and rhodium ( the two platinum group metals ( PGMs) we expect will be used) because we believe they represent a better estimate of the cost for PGM than other metrics. In the RIA, we present a cost sensitivity that estimates the recovery value of precious metals returned to the open market upon retirement of an aftertreatment device. We present that analysis to gauge the true social cost of these devices when new. 232 Note that the change to 2002 dollars had different effects on different pieces of hardware.

We have used two different PPI adjustments in the analysis: one for motor vehicle catalytic converters which was used to adjust costs for DOCs, NOX adsorbers, and CDPFs; and another for motor vehicle parts and accessories which was used for all other pieces of hardware. The former of these adjustments actually caused costs to decrease relative to the proposal while the latter caused costs to increase slightly.

391 We have not made any changes to our engine variable costs as a result of public comments. Some commenters ( engine manufacturers) claimed that we had underestimated these costs but did not provide any detailed information about where they believed we had erred or what they believed the costs should be. Other commenters ( emission control device manufacturers) claimed that we had done a fair job with our estimates. Some commenters ( equipment manufacturers) claimed that our assumptions with respect to baseline engine configurations were not accurate. However, as discussed earlier, based on our own engineering judgement and the positive comments of the engine manufacturers   who we consider a better source for such information than equipment manufacturers since engine manufacturers are the directly affected entities   we have maintained our original assumptions for baseline engine configurations. Further, our assumed Tier 4 baseline engine configurations are consistent with our assumed compliant technology packages for T2/ 3, and those packages included the things equipment manufacturers are claiming will not be present in the Tier 4 baseline. As a result, we have already considered the costs associated with reaching our Tier 4 baseline engine configurations in the context of the T2/ 3 rule.

We have made changes to engine variable costs to remain consistent with the final program   i. e., we have changed our greater than 750 horsepower cost estimates since the final standards differ from those that were proposed. We have also changed the costs by expressing them in 2002 dollars rather than 2001 dollars. 232 i. NO X Adsorber System Costs The NO X adsorber system that we are anticipating will be used to comply with Tier 4 engine standards will be the same as that used for highway applications. In order for the NO X adsorber to function properly, a systems approach that includes a reductant metering system and control of engine A/ F ratio is also necessary. Many of the new air handling and electronic system technologies developed in order to meet the Tier 2/ 3 nonroad engine standards can be applied to accomplish the NO X adsorber control functions as well ( these costs were accounted for in our T2/ 3 rule). Some additional hardware for exhaust NO X or O 2 sensing and for fuel metering will likely be required. The cost estimates include a DOC for clean up of hydrocarbon emissions that occur during NO X adsorber regeneration events. We have also estimated that warranty costs will increase due to the application of this new hardware. Chapter 6 of the RIA contains the details for how we estimated costs associated with the new NO X control technologies required to meet the Tier 4 emission standards. These costs are estimated to increase engine costs by roughly $ 670 in the near term for a 150 horsepower engine, and $ 2,040 in the near term for a 500 horsepower engine. In the long term, we estimate these costs to be $ 550 and $ 1,650 for the 150 horsepower and 500 233 This is particularly true with respect to engines above 750 horsepower where we believe that manufacturers may in fact use a wire mesh substrate rather than the SiC substrate we have costed and,

indeed, we have based the level of the 2015 PM standard on this use of wire mesh substrates ( see section II. B. 3. b). We have chosen to remain conservative in our cost estimates by assuming use of a SiC substrate for all engines.

392 horsepower engines, respectively. These costs may differ slightly from the proposal due to the adjustments to 2002 dollars. Note that we have estimated costs for all engines in all horsepower ranges, and these estimates are presented in detail in the RIA. Throughout this discussion of engine and equipment costs, we present costs for a 150 and a 500 horsepower engine for illustrative purposes.

ii. Catalyzed Diesel Particulate Filter ( CDPF) Costs CDPFs can be made from a wide range of filter materials including wire mesh, sintered metals, fibrous media, or ceramic extrusions. The most common material used for CDPFs for heavy duty diesel engines is cordierite. Here we have based our cost estimates on the use of silicon carbide ( SiC) even though it is more expensive than other filter materials. 233 We estimate that the CDPF systems will add $ 760 to engine costs in the near team for a 150 horsepower engine and $ 2,710 in the near term for a 500 horsepower engine. In the long term, we estimate these CDPF system costs to be $ 580 and $ 2,070 for the 150 horsepower and the 500 horsepower engines, respectively. These costs may differ slightly from the proposal due to the adjustments to 2002 dollars.

iii. CDPF Regeneration System Costs Application of CDPFs in nonroad applications may present challenges beyond those of highway applications. For this reason, we anticipate that some additional hardware beyond the diesel particulate filter itself may be required to ensure that CDPF regeneration occurs. For some engines this may be new fuel control strategies that force regeneration under some circumstances, while in other engines it might involve an exhaust system fuel injector to inject fuel upstream of the CDPF to provide necessary heat for regeneration under some operating conditions. We estimate the near term costs of a CDPF regeneration system to be $ 200 for a 150 horsepower engine and $ 330 for a 500 horsepower engine. In the long term, we estimate these costs at $ 150 and $ 250, respectively. These costs may differ slightly from the proposal due to the adjustments to 2002 dollars.

iv. Closed Crankcase Ventilation System ( CCV) Costs Today's final rule eliminates the exemption that allows turbo charged nonroad diesel engines to vent crankcase gases directly to the environment. Such engines are said to have an open crankcase system. We project that this requirement to close the crankcase on turbo charged 234 We refer here to PM standards. There also is a NOX+ NMHC standard for 25 50 horsepower engines that takes effect in 2013 and is equivalent to the Tier 3 NOX+ NMHC standard for 50 75 horsepower engines ( see section II. A).

393 engines will force manufacturers to rely on engineered closed crankcase ventilation systems that filter oil from the blow by gases prior to routing them into either the engine intake or the exhaust system upstream of the CDPF. We have estimated the initial cost of these systems to be roughly $ 30 for low horsepower engines and up to $ 90 for very high horsepower engines. These costs are incurred only by turbo charged engines because today's naturally aspirated engines already have CCV systems. These costs may differ slightly from the proposal due to the adjustments to 2002 dollars.

v. Variable Costs for Engines Below 75 Horsepower and Above 750 Horsepower The Tier 4 program includes standards for engines under 25 horsepower that begin in 2008, and two sets of standards for 25 to 75 horsepower engines   one set that begins in 2008 and another that begins in 2013.234 The 2008 standards for all engines under 75 horsepower are of similar stringency and are expected to result in use of similar technologies ( i. e., the possible addition of a DOC). The 2013 standards for 25 to 75 horsepower engines are considerably more stringent than the 2008 standards and are expected to force the addition of a CDPF along with some other engine hardware to enable the proper functioning of that new technology. More detail on the mix of technologies expected for all engines under 75 horsepower is presented in section II. B. 4 and 5. As discussed there, if changes are needed to comply, we expect manufacturers to comply with the 2008 standards through either engine out improvements or through the addition of a DOC. From a cost perspective, we have projected that engines will add a DOC. Presumably, the manufacturer will choose the least costly approach that provides the necessary reduction. If engine out modifications are less costly than a DOC, our estimate here is conservative. If the DOC proves to be less costly, then our estimate is representative of what most manufacturers will do. Therefore, we have assumed that, beginning in 2008, all engines below 75 horsepower add a DOC. Note that this estimate is made more conservative since we have assumed this cost for all engines when, in fact, some engines below 75 horsepower currently meet the Tier 4 PM standard ( for 2008) and will not, therefore, incur any incremental costs to meet it. We have estimated this added hardware to result in an increased engine cost of $ 143 in the near term and $ 136 in the long term for a 30 horsepower engine. These costs may differ slightly from the proposal due to the adjustments to 2002 dollars.

We have also projected that some engines in the 25 to 75 horsepower range will have to upgrade their fuel systems to accommodate the CDPF. We have estimated the incremental costs for these fuel systems at roughly $ 870 for a three cylinder engine in the 25   50 horsepower range, and around $ 450 for a four cylinder engine in the 50 75 horsepower range. This difference reflects a different base fuel system, with the smaller engines assumed to have mechanical fuel systems and the larger engines assumed to already be electronic. The electronic systems will incur lower costs 235 For example, see, " Learning Curves in Manufacturing," Linda Argote and Dennis Epple,

Science, February 23, 1990, Vol. 247, pp. 920 924.

394 because they already have the control unit and electronic fuel pump. Also, we have assumed these fuel changes will occur for only direct injection ( DI) engines; indirect injection engines ( IDI) are assumed to remain IDI but to add more hardware as part of their CDPF regeneration system to ensure proper regeneration under all operating conditions. Such a regeneration system, described above, is expected to cost roughly twice that expected for DI engines, or around $ 320 for a 30 horsepower IDI engine versus $ 160 for a DI engine. These costs may differ slightly from the proposal due to the adjustments to 2002 dollars.

We have also projected that engines in the 25   50 horsepower range will add cooled EGR to comply with their new NO X standard in 2013. Additionally, we have estimated, for cost purposes, that engines above 750 horsepower will add cooled EGR to comply with their new NO X standard in 2011. This represents a conservative estimate since we do not necessarily anticipate that cooled EGR will be applied to all, if any, engines above 750 horsepower. Nonetheless, we do expect some changes to be made ( most probably some form of engine out emission control) and, consistent with our approach to costing DOCs for engines below 75 horsepower in 2008, we have conservatively costed cooled EGR for engines above 750 horsepower in 2011. We have estimated that the EGR system will add $ 100 in the near term and $ 70 in the long term to the cost of a 30 horsepower engine, and $ 550 and $ 420, respectively, for engines above 750 horsepower. These costs may differ slightly from the proposal due to the adjustments to 2002 dollars. To these costs, we have added costs associated with additional cooling that may be needed to reject the heat generated by the cooled EGR system or other in cylinder technologies. These costs were not included in the proposal. Such additional cooling might take the form of a larger radiator and/ or a larger or more powerful cooling fan. Based on cost estimates from our Nonconformance Penalty rule ( 67 FR 51464), we have estimated that the costs associated with additional cooling will add $ 40 in the near term and $ 30 in the long term to the cost of a 30 horsepower engine, and $ 710 in the near term and $ 560 in the long term for engine above 750 horsepower. Note that we are also projecting use of a CDPF for engines above 750 horsepower, as was discussed above.

We believe there are factors that will cause variable hardware costs to decrease over time, making it appropriate to distinguish between near term and long term costs. Research in the costs of manufacturing has consistently shown that as manufacturers gain experience in production, they are able to apply innovations to simplify machining and assembly operations, use lower cost materials, and reduce the number or complexity of component parts. 235 Our analysis, as described in more detail in the RIA, incorporates the effects of this learning curve by projecting that the variable costs of producing the low emitting engines decreases by 20 percent starting with the third year of production. For this analysis, we have assumed a baseline that represents such learning already having occurred once due to the 2007 highway rule ( i. e., a 20 percent reduction in emission control device costs is reflected in our near term costs). We have then applied a single learning step from that point in this analysis. Additionally, manufacturers are expected to apply ongoing research to make emission controls more effective and to have lower operating costs over 395 time. However, because of the uncertainty involved in forecasting the results of this research, we conservatively have not accounted for it in this analysis.

c. Engine Operating Costs We are projecting that a variety of new technologies will be introduced to enable nonroad engines to meet the new Tier 4 emissions standards. Primary among these are advanced emission control technologies and low sulfur diesel fuel. The technology enabling benefits of low sulfur diesel fuel are described in Section II, and the incremental cost for low sulfur fuel is described in section VI. A. The new emission control technologies are themselves expected to introduce additional operating costs in the form of increased fuel consumption and increased maintenance demands. Operating costs are estimated in the RIA over the life of the engine and are expressed in terms of cents/ gallon of fuel consumed. In section VI. C. 3, we present these lifetime operating costs as a net present value ( NPV) in 2002 dollars for several example pieces of equipment.

Total operating cost estimates include the following elements: the change in maintenance costs associated with applying new emission controls to the engines; the change in maintenance costs associated with low sulfur fuel such as extended oil change intervals; the change in fuel costs associated with the incrementally higher costs for low sulfur fuel, and the change in fuel costs due to any fuel consumption impacts associated with applying new emission controls to the engines. This latter cost is attributed to the CDPF and its need for periodic regeneration which we estimate may result in a one percent fuel consumption increase where a NO X adsorber is also applied, or a two percent fuel consumption increase where no NO X adsorber is applied ( refer to chapter 6, section <IP_ADDRESS> of the RIA). Maintenance costs associated with the new emission controls on the engines are expected to increase since these devices represent new hardware and, therefore, new maintenance demands. For CDPF maintenance, we have used a maintenance interval of 3,000 hours for smaller engines and 4,500 hours for larger engines and a cost of $ 65 through $ 260 for each maintenance event. For closed crankcase ventilation ( CCV) systems, we have used a maintenance interval of 675 hours for all engines and a cost per maintenance event of $ 8 to $ 48 for small to large engines. Offsetting these maintenance cost increases will be a savings due to an expected increase in oil change intervals because low sulfur fuel will be far less corrosive than is current nonroad diesel fuel. Less corrosion will mean a slower acidification rate ( i. e., less degradation) of the engine lubricating oil and, therefore, more operating hours between needed oil changes. As discussed in section VI. B, the use of 15 ppm sulfur fuel can extend oil change intervals by as much as 35 percent for both new and existing nonroad engines and equipment. We have used a 35 percent increase in oil change interval along with costs per oil change of $ 70 through $ 400 to arrive at estimated savings associated with increased oil change intervals.

These operating costs are expressed as a cent/ gallon cost ( or savings). As a result, operating costs are directly proportional to the amount of fuel consumed by the engine. We have estimated these operating costs   fuel related refining and distribution costs, maintenance related costs, and fuel economy impacts   to be 5.4 cents/ gallon for a 150 horsepower engine and 6.5 396 cents/ gallon for a 500 horsepower engine. More detail on operating costs can be found in Chapter 6 of the RIA.

The existing fleet will also benefit from lower maintenance costs due to the use of low sulfur diesel fuel. The operating costs for the existing fleet are discussed in section VI. B. We did receive comments with respect to our oil change maintenance savings estimates. These comments were address in section VI. B. We received no comments on our CDPF and CCV maintenance costs or our CDPF regeneration costs.

2. Equipment Cost Impacts In addition to the costs directly associated with engines that incorporate new emission controls to meet new standards, costs will increase due to the need to redesign the nonroad equipment in which these engines are used. Such redesigns will probably be necessary due to the expected addition of new emission control systems, but could also occur if the engine has a different shape or heat rejection rate, or is no longer made available in the configuration previously used. We have accounted for these potential changes in establishing the lead time for the Tier 4 emissions standards. The transition flexibility provisions for equipment manufacturers that are included in this final rule are an element of that lead time. These flexibility provisions are described in detail in section III. B.

In assessing the economic impact of the new emission standards, EPA has made a best estimate of the modifications to equipment that relate to packaging ( installing engines in equipment engine compartments). The incremental costs for new equipment will be comprised of fixed costs ( for redesign to accommodate new emission control devices) and variable costs ( for new equipment hardware to affix the new emission control devices and for labor to install those emission control devices). Note that the fixed costs do not include certification costs because the equipment is not certified to emission standards. The engine is certified by the engine manufacturer; therefore, the related certification costs are counted as an engine fixed cost. We have also attributed all changes in operating costs ( e. g., additional maintenance) to the cost estimates for engines. Included in section VI. C. 3 is a discussion of several example pieces of equipment ( e. g., skid/ steer loader, dozer, etc.) and the costs we have estimated for these specific example pieces of equipment Full details of our equipment cost analysis can be found in chapter 6 of the RIA. All costs are presented in 2002 dollars.

We have made only limited changes relative to the proposal with respect to our estimated equipment costs, as discussed below. We did receive comment that we underestimated costs for equipment redesign and for markups on equipment variable costs. The commenters making these claims relative to equipment redesign costs tended to be those that have relative high equipment sales volumes. Such manufacturers tend to expend levels higher than we estimated in our proposal for equipment redesign because they sell into highly competitive markets and they can spread costs over many units. However, some equipment manufacturers we have met with, most notably those with small sales volumes, do not appear to expend nearly the level we estimated in the proposal. 236 " Meeting between Staff of Eagle Crusher Company, Inc., and EPA," memorandum from Todd Sherwood to Air Docket A 2001 28, Docket Item IV E 40, EDOCKET OAR 2003 0012 0868,

March 16, 2004.

397 These manufacturers tend to sell into markets with few competitors, produce machines by hand, and expend less redesign effort relative to a high sales volume manufacturer. 236 Our goal in the proposal was to estimate the redesign costs spent by industry ( i. e., the average cost per piece of equipment multiplied by all equipment resulting in an estimated total industry cost), rather than estimating the maximum cost to be spent by any particular manufacturer. As a result, our equipment redesign estimates per model may be too low for some manufacturers, but they are also too high for others. We believe this cost methodology provides as accurate an estimate as can be made. We have used the same methodology for the final cost estimates presented here.

As for the comments with respect to equipment variable costs, we did indeed include a markup of 29 percent and disagree with the commenter that a two to one markup would be more appropriate. Such a high markup on equipment variable costs is not sustainable in a competitive market, at least on average, and the commenter provided no data nor study that supported the comment.

We have made minor changes to the proposed numbers to express them in 2002 dollars and to reflect where the program has changed ( i. e., greater than 750 horsepower mobile machines). We have also attributed all under 25 horsepower redesign costs to U. S. sales since we do not expect other countries to have similar emission standards for these engines/ equipment. Lastly, we have corrected some minor errors made in the proposal in determining motive versus non motive models and determining the number of unique equipment models needing redesign. We now estimate that a total of over 4,500 equipment models will be redesigned as compared to the proposal's estimate of just over 4,100 equipment models. Further discussion of these changes can be found in Chapter 6 of the RIA.

a. Equipment Fixed Costs As we noted in the proposal, the most significant changes anticipated for equipment redesign are changes to accommodate the physical changes to engines, especially for those engines that add PM traps and NO X adsorbers. The costs for engine development and the emission control devices are included as costs to the engines, as described above. Equipment manufacturers must still incur the effort and expense of integrating the engine and emissions control devices into the piece of equipment. Therefore, we have allocated extensive engineering time for this effort.

The costs we have estimated are based on engine power and whether an application is nonmotive ( e. g., a generator set) or motive ( e. g., a skid steer loader). The designs we have considered to be non motive are those that lack a propulsion system. In addition, the new emission standards for engines rated under 25 horsepower and the 2008 standards for 25   75 horsepower engines are 237 Note that the equipment redesign estimates, and all other equipment related costs, have been adjusted from the NPRM to express them in 2002 dollars.

398 projected to require no significant equipment redesign beyond that done to accommodate the Tier 2 standards. As explained earlier, we expect that these engines will comply with the new Tier 4 standards through either engine modifications to reduce engine out emissions or through the addition of a DOC. We have projected that engine modifications will not affect the outer dimensions of the engine and that a DOC will replace the existing muffler. Therefore, either approach taken by the engine manufacturer should have limited to no impact on the equipment design. Nonetheless, we have conservatively estimated their redesign costs at $ 53,100 per model. 237 A number of equipment manufacturers have shared detailed information with us regarding the investments made for Nonroad Tier 2 equipment redesign efforts, as well as redesign estimates for significant changes such as installing a new engine design. These estimates range from approximately $ 53,100 for some lower powered equipment models to well over $ 1 million dollars for high horsepower equipment with very challenging design constraints. We believe that the equipment redesign efforts undertaken for the T2/ 3 are representative of the effort that will be required for Tier 4 because the changes needed are the same in nature   increasing available space within the machine to accommodate new hardware. We have based our Tier 4 estimates, in part, on that industry input and have estimated that equipment redesign costs will range from $ 53,100 per model for 25 horsepower equipment up to $ 796,500 per model for 300 horsepower equipment and above. For mobile machines greater than750 horsepower, we have used a new redesign cost of $ 106,000 associated with the 2011 standards which is consistent in scale with the estimate used for 25 to 50 horsepower equipment that add both EGR and a CDPF in the 2013 timeframe. This estimate was not in the proposal. For this larger equipment, we have continued with an estimate of $ 796,500 associated with the 2015 standards even though we project no need to accommodate a NO X adsorber. We have attributed only a portion of the equipment redesign costs to U. S. sales in a manner consistent with that taken for engine R& D costs and engine tooling costs. In addition, we expect manufacturers to incur some fixed costs to update service and operation manuals to address the maintenance demands of new emission control technologies and the new oil service intervals; we estimate these service manual updates to cost between $ 2,660 and $ 10,620 per equipment model.

These equipment fixed costs ( redesign and manual updates) were then allocated appropriately to each new model to arrive at a total equipment fixed cost of $ 828 million. We have assumed that these costs will be recovered over a ten year period with a seven percent opportunity cost of capital. By comparison, our proposal estimated equipment fixed costs at $ 698 million. The costs are higher now because of the changes mentioned above   expressing costs in 2002 dollars; attributing all under 25 horsepower redesign costs to U. S. sales; and, correcting upward the number of equipment models to be redesigned. 399 b. Equipment Variable Costs Equipment variable cost estimates are based on costs for additional materials to mount the new hardware ( i. e., brackets and bolts required to secure the aftertreatment devices) and additional sheet metal assuming that the body cladding of a piece of equipment ( i. e., the hood) might change to accommodate the aftertreatment system. Variable costs also include the labor required to install these new pieces of hardware. For engines above 75 horsepower   those expected to incorporate CDPF and NO X adsorber technology   the amount of sheet metal is based on the size of the aftertreatment devices.

For equipment of 150 horsepower and 500 horsepower, respectively, we have estimated the costs to be roughly $ 60 to $ 150. Note that we have estimated costs for equipment in all horsepower ranges, and these estimates are presented in detail in the RIA. Throughout this discussion of engine and equipment costs, we present costs for a 150 and a 500 horsepower engine for illustrative purposes.

3. Overall Engine and Equipment Cost Impacts To illustrate the engine and equipment cost impacts we are estimating for the Tier 4 standards, we have chosen several example pieces of equipment and have presented the estimated costs for them. Using these examples, we can calculate the costs for a specific piece of equipment in several horsepower ranges and better illustrate the cost impacts of the new standards. These costs along with information about each example piece of equipment are shown in table VI. C 1. Costs presented are near term and long term costs for the final standards to which each piece of equipment will comply. Long term costs are only variable costs and, therefore, represent costs after all fixed costs have been recovered and all projected learning has taken place. Included in the table are estimated prices for each piece of equipment to provide some perspective on how our estimated control costs relate to existing equipment prices. 400 Table VI. C 1.   Near Term and Long Term Costs for Several Example Pieces of Equipmenta ($ 2002, for the final emission standards to which the equipment must comply)

Gen

Set Skid/ Steer Loader Backhoe Dozer Ag Tractor Dozer Off

Highway Truck Horsepower 9 hp 33 hp 76 hp 175 hp 250 hp 503 hp 1000 hp Incremental Engine & Equipment Cost Long Term Near Term $ 120 $ 180 $ 790 $ 1,160 $ 1,200 $ 1,700 $ 2,560 $ 3,770 $ 1,970 $ 3,020 $ 4,140 $ 6,320 $ 4,670 $ 8,610 Estimated Equipment Price when Newb $ 4,000 $ 20,000 $ 49,000 $ 238,000 $ 135,000 $ 618,000 $ 840,000 Incremental Operating Costsc $ 80 $ 70 $ 610 $ 2,480 $ 2,110 $ 7,630 $ 20,670 Baseline Operating Costs ( Fuel & Oil only) c $ 940 $ 2,680 $ 7,960 $ 27,080 $ 23,750 $ 77,850 $ 179,530 Notes: a Near term costs include both variable costs and fixed costs; long term costs include only variable costs and represent those costs that remain following recovery of all fixed costs. b " Price Database for New Nonroad Equipment,"

memorandum from Zuimdie Guerra to EDOCKET OAR 2003 0012 0960. c Present value of lifetime costs.

More detail and discussion regarding what these costs and prices mean from an economic impact perspective can be found in section VI. E.

D. Annual Costs and Cost Per Ton One tool that can be used to assess the value of the Tier 4 standards for NRLM fuel and nonroad engines is the costs incurred per ton of emissions reduced. This analysis involves a comparison of our new program to other measures that have been or could be implemented. As summarized in this section and detailed in the RIA, the program being finalized today represents a highly cost effective mobile source control program for reducing PM, NO X, and SO 2 emissions.

We have calculated the cost per ton of our Tier 4 program based on the net present value of all costs incurred and all emission reductions generated over a 30 year time window following implementation of the program ( i. e., calendar years 2007 through 2036). This approach captures all of the costs and emissions reductions from our new program including those costs incurred and 238 We are not analyzing a scenario involving just the engine standards because the nonroad engine standards involving advanced emissions control technologies require the use of the 15ppm fuel.

401 emissions reductions generated by the existing fleet. The baseline for this evaluation is the existing set of fuel and engine standards ( i. e., unregulated NRLM fuel and the Tier 2/ Tier 3 program). The 30 year time window chosen is meant to capture both the early period of the program when very few new engines that meet the new standards will be in the fleet, and the later period when essentially all engines will meet the new standards.

We have analyzed the cost per ton reduced of several different scenarios. The costs and emissions reductions of each of these scenarios are presented in detail in chapter 8 of the RIA. Here, we present information of the cost and cost effectiveness for the following two scenarios: ( 1) the full NRLM fuel and nonroad engine program, meaning two steps of fuel control ( to 500 ppm and then to 15 ppm) for both NR and L& M fuel and all of the nonroad engine standards; and, ( 2) the NRLM fuel only program, meaning two steps of fuel control ( to 500 ppm and then to 15 ppm) for both NR and L& M fuel but without any new nonroad engine standards. 238 For the first of these scenarios, the discussion illustrates the costs and relative cost effectiveness of the final NRT4 program to other programs. For the second of these scenarios, the discussion illustrates the costs and cost effectiveness associated with the fuel program as if implemented as a stand alone program without new engine standards.

In sections VI. D. 1 and 2, we present the cost of the full NRLM fuel and nonroad engine program and the cost per ton of PM, NO X+ NMHC, and SO 2 reductions that will be realized. The analysis presented in sections VI. D. 1 and 2 represents the total Tier 4 program for nonroad diesel engines and NRLM fuel being finalized today. In sections VI. D. 3 and 4, we summarize the cost for the NRLM fuel only scenario and the cost per ton of PM and SO 2 reductions that would be realized.

1. Annual Costs for the Full NRLM Fuel and Nonroad Engine Program The costs of the full NRLM fuel and nonroad engine program include costs associated with both steps in the NRLM fuel program   the NR fuel reduction to 500 ppm sulfur in 2007 and to 15 ppm sulfur in 2010 and the L& M fuel reduction to 500 ppm sulfur in 2007 and to 15 ppm sulfur in 2012. Also included are costs for the 2008 nonroad engine standards for engines less than 75 horsepower, the 2013 standards for 25 to 75 horsepower engines, and costs for the nonroad engine standards for engines above 75 horsepower. All maintenance and operating costs are included along with maintenance savings realized by both the existing fleet ( nonroad, locomotive, and marine) and the new fleet of engines complying with the Tier 4 standards. 402 Figure VI. D 1 presents these results. All capital costs for NRLM fuel production and nonroad engine and equipment fixed costs have been amortized at seven percent. The figure shows that total annual costs are estimated to be $ 50 million in the first year the new engine standards apply, increasing to a peak of $ 2.2 billion in 2036 as increasing numbers of engines become subject to the new nonroad standards and an ever increasing amount of NRLM fuel is consumed. The net present value of the annualized costs over the period from 2007 to 2036 is $ 27 billion using a 3 percent discount rate and $ 14 billion using a 7 percent discount rate.

Figure VI. D 1.   Annual Costs of the Full NRT4 Fuel and Engine Program $ 1,000 $ 500 $ 0 $ 500 $ 1,000 $ 1,500 $ 2,000 $ 2,500 2004 2008 2012 2016 2020 2024 2028 2032 2036 Year Program Costs ($ Millions)

Engine Costs Equipment Costs Fuel Costs Other Operating Costs Total Program Costs 2. Cost per Ton of Emissions Reduced for the Full NRLM Fuel and Nonroad Engine Program We have calculated the cost per ton of emissions reduced associated with the NRT4 engine and NRLM fuel program. The resultant cost per ton numbers depend on how the costs presented above are allocated to each pollutant. Therefore, we have carefully allocated costs according to 403 the pollutants for which they are incurred. Where fuel changes occur in conjunction with new engine standards ( engine standards enabled by those fuel changes), we allocate one half of the fuelrelated costs to fuel derived emissions reductions ( PM and SO 2, with one third of that half allocated to PM and two thirds to SO 2) and one half to engine derived emissions reductions ( NO X+ NMHC and PM, with that half split 50/ 50 between each pollutant). Where fuel changes occur without new engine standards on which fuel changes are premised ( i. e., 500ppm NRLM fuel and 15ppm L& M fuel), we have allocated costs associated with fuel derived emissions reductions one third to PM and two thirds to SO 2. We have allocated costs associated with engine derived emissions reductions ( i. e., engine/ equipment costs) directly to the pollutant for which the cost is incurred. These engine and equipment cost allocations are noted throughout the discussion in section VI. C, and are detailed in full in chapter 8 of the RIA.

We have calculated the costs per ton using the net present value of the annualized costs of the program through 2036 and the net present value of the annual emission reductions through 2036. We have also calculated the cost per ton of emissions reduced in the year 2030 using the annual costs and emissions reductions in that year alone. This number represents the long term cost per ton of emissions reduced. The cost per ton numbers include costs and emission reductions that will occur from the existing fleet ( i. e., those pieces of nonroad equipment that were sold into the market prior to the new emission standards). These results are shown in Table VI. D 1 using both a three percent and a seven percent social discount rate.

Table VI. D 1.   Total Fuel and Engine Program 30 Year Aggregate Cost per Ton and Long Term Annual Cost Per Ton ($ 2002)

Pollutant 30 Year Discounted Lifetime Cost per ton at 3% 30 Year Discounted Lifetime Cost per ton at 7% Long Term Cost per Ton in 2030 NOX+ NMHC $ 1,010 $ 1,160 $ 680 PM $ 11,200 $ 11,800 $ 9,300 SOX $ 690 $ 620 $ 810 3. Annual Costs for the NRLM Fuel only Scenario Cent per gallon costs for the new 500 ppm NRLM fuel, the new 500 ppm L& M fuel, the new 15 ppm NR fuel, and the new 15 ppm NRLM fuel were presented in section IV. A. Having this fuel will result in maintenance savings associated with increased oil change intervals for both the new and the existing fleet of nonroad, locomotive, and marine engines. These maintenance savings were discussed in section VI. B. There are no engine and equipment costs associated with the NRLM fuel only scenario because new engine emissions standards are not included in that scenario. Figure VI. D 2 shows the annual costs associated with the NRLM fuel only program. 404 As can be seen in figure VI. D 1, the costs for refining and distributing the fuel range from $ 250 million in 2008 to nearly $ 1.3 billion in 2036. The increase in fuel costs in 2010 reflect the change to higher cost 15 ppm NR fuel. Fuel costs continue to grow as more fuel is consumed by the increasing number of engines and equipment. The fuel costs are largely offset by the maintenance savings that range from $ 250 million in 2008 to $ 500 million in 2036. As a whole, the net cost of the program in each year ranges from a small net savings in 2008 to around $ 780 million in 2036. The net present value ( i. e., the value in 2004) of the net costs associated with the NRLM fuel only program during the 30 year period from 2007 to 2036 is estimated at $ 9.2 billion using a 3 percent discount rate and $ 4.6 billion using a 7 percent discount rate.

Figure VI. D 2.   Annual Costs of the NRLM Fuel only Scenario $( 1,000) $( 500) $ $ 500 $ 1,000 $ 1,500 $ 2,000 $ 2,500 2004 2008 2012 2016 2020 2024 2028 2032 2036 Year Program Costs ($ Million)

Fuel Costs Other Operating Costs Net Costs 4. Cost Per Ton of Emissions Reduced for the NRLM Fuel only Scenario The fuel borne sulfur reduction under the NRLM fuel only scenario will result in significant reductions of both SO 2 and PM emissions. Since there are no new engine standards associated 405 with the NRLM fuel only scenario, the emissions reductions that result are entirely fuel derived. Roughly 98 percent of fuel borne sulfur is converted to SO 2 in the engine with the remaining two percent being exhausted as sulfate PM. We have allocated one third of the costs of this program to PM control and two thirds to SO 2 control. This is consistent with the cost accounting we have used throughout our analysis in that costs associated with fuel derived emissions reductions are attributed one third to PM control and two thirds to SO 2 control.

As discussed above, the 30 year net present value of costs associated with the fuel only program are estimated at $ 9.2 billion using 3 percent discounting and $ 4.6 billion using 7 percent discounting. We have estimated the 30 year net present value of the SO 2 emission reductions at 5.7 million tons and PM emission reductions at 462,000 tons using 3 percent discounting, 3.2 million tons and 255,000 tons, respectively, using 7 percent discounting.

Table VI. D 1 shows the cost per ton of emissions reduced as a result of the NRLM fuelonly scenario. The cost per ton numbers include costs and emissions reductions that will occur from both the new and the existing fleet ( i. e., those pieces of nonroad equipment that were sold into the market prior to the new fuel standards) of nonroad, locomotive, and marine engines.

Table VI. D 2.   NRLM Fuel only Scenario 30 year Aggregate Cost per Ton and Long Term Annual Cost Per Ton ($ 2002)

Pollutant 30 Year Discounted Lifetime Cost per ton at 3% 30 Year Discounted Lifetime Cost per ton at 7% Long Term Cost per Ton in 2030 PM $ 6,600 $ 6,000 $ 7,900 SO2 $ 1,070 $ 970 $ 1,270 We also considered the cost per ton of the NRLM fuel only scenario without including the expected maintenance savings associated with low sulfur fuel. Without the maintenance savings, the 30 year discounted cost per ton of PM reduced would be $ 11,800 and of SO 2 reduced would be $ 1,900 using 3 percent discounting and $ 11,200 and $ 1,800, respectively, using 7 percent discounting. More detail on how the costs and cost per ton numbers associated with the NRLM fuel only scenario were calculated can be found in the RIA.

5. Comparison With Other Means of Reducing Emissions In comparison with other emissions control programs, we believe that the Tier 4 programs represent a cost effective strategy for generating substantial NO X+ NMHC, PM, and SO 2 reductions. This can be seen by comparing the cost per ton of emissions reduced by the NRLM fuel only scenario ( i. e., reducing fuel sulfur to 500 ppm in 2007 and 15 ppm in 2010 without any new nonroad engine standards) and the cost per ton of emissions reduced by the full NRLM fuel 406 and nonroad engine program ( i. e., fuel control and new engine standards) with a number of standards that EPA has adopted in the past. Tables VI. D 3 and VI. D 4 summarize the cost per ton of several past EPA actions to reduce emissions of NO X+ NMHC and PM from mobile sources, all of which were considered by EPA to be appropriate. 407 Table VI. D 3.   NRT4 Cost Per Ton comparison to Previous Mobile Source Programs for NOX + NMHC Program $/ ton Tier 4 Nonroad Diesel ( full program)

Tier 2 Nonroad Diesel Tier 3 Nonroad Diesel Tier 2 vehicle/ gasoline sulfur 2007 Highway HD 2004 Highway HD Tier 1 vehicle NLEV Marine SI engines On board diagnostics Marine CI engines Large SI Exhaust Recreational Marine 1,010 630 430 1,400  2,350 2,240 220  430 2,150  2,910 2,020 1,220  1,930 2,410 30  190 80 670 Note: Costs adjusted to 2002 dollars using the Producer Price Index for Total Manufacturing Industries.

Table VI. D 4.   NRT4 Cost Per Ton Comparison To Previous Mobile Source Programs for PM Program $/ ton Tier 4 Nonroad Diesel ( full program)

Tier 4 NRLM fuel only ( fuel only scenario)

Tier 1/ Tier 2 Nonroad Diesel 2007 Highway HD Marine CI engines 1996 urban bus Urban bus retrofit/ rebuild 1994 highway HD diesel 11,200 6,800 2,390 14,180 4,040  5,440 12,780  20,450 31,530 21,780  25,500 Note: Costs adjusted to 2002 dollars using the Producer Price Index for Total Manufacturing Industries.

To compare the cost per ton of SO 2 emissions reduced, we looked at the cost per ton for the Title IV ( acid rain) SO 2 trading programs. This information is found in EPA report 430/ R 02 408 004, " Documentation of EPA Modeling Applications ( V. 2.1) Using the Integrated Planning Model", in Figure 9.11 on page 9 14 ( www. epa. gov/ airmarkets/ epaipm index. html# documentation). The SO 2 cost per ton results of the full Tier 4 program presented in table VI. D 2 compare very favorably with the program shown in table VI. D 5.

Table VI. D 5.   NRT4 Cost Per Ton Comparison to SO2 from both the EPA Base Case 2000 for the Title IV SO2 Trading Programs and the Proposed Interstate Air Quality Rule Program $/ ton Tier 4 Nonroad Diesel ( full program)

Tier 4 Nonroad Diesel ( fuel only scenario)

Title IV SO 2 Trading Programs Interstate Air Quality Rule ( average cost) $ 690 $ 1,070 $ 490 in 2010 to $ 610 in 2020 $ 730 in 2010 to $ 830 in 2015 Note: Costs adjusted to 2002 dollars using the Producer Price Index for Total Manufacturing Industries.

As the above comparisons show, both the NRLM fuel only scenario, when viewed by itself, and the combination of NRLM fuel and nonroad engine standards, are both cost effective strategies to achieve the associated emissions reductions.

E. Do the Benefits Outweigh the Costs of the Standards?

Our analysis of the health and environmental benefits to be expected from this final rule are presented in this section. Briefly, the analysis projects major benefits throughout the period from initial implementation of the rule over a 30 year period through 2036. As described below, thousands of deaths and other serious health effects would be prevented, yielding a net present value in 2004 of those benefits we could monetize of approximately $ 805 billion dollars using a 3 percent discount rate and $ 352 billion using a 7 percent discount rate. These benefits exceed the net present value of the social cost of the proposal ($ 27 billion using a 3 percent discount rate and $ 14 billion using a 7 percent discount rate) by $ 780 billion using a 3 percent discount rate and $ 340 billion using a 7 percent discount rate.

1. What Were the Results of the Benefit Cost Analysis?

Table VI. E 1 presents the primary estimate of reduced incidence of PM related health effects for the years 2020 and 2030. In interpreting the results, it is important to keep in mind the limited set of effects we are able to monetize. Specifically, the table lists the PM related benefits associated with the reduction of several health effects. In 2030, we estimate that there will be 239 While we did not include separate estimates of the number of premature deaths that would be avoided due to reductions in ozone levels, recent evidence has been found linking short term ozone exposures with premature mortality independent of PM exposures. Recent reports by Thurston and Ito ( 2001) and the World Health Organization ( WHO) support an independent ozone mortality impact, and the EPA Science Advisory Board has recommended that EPA reevaluate the ozone mortality literature for possible inclusion in the estimate of total benefits. Based on these new analyses and recommendations,

EPA is sponsoring three independent meta analyses of the ozone mortality epidemiology literature to inform a determination on inclusion of this important health endpoint. Upon completion and peer review of the meta analyses, EPA will make its determination on whether and how benefits of reductions in ozone related mortality will be included in the benefits analysis for future rulemakings.

240 Our PM related estimate in 2030 incorporates significant reductions of 160,000 fewer cases of lower respiratory symptoms in children ages 7 to 14 each year, 120,000 fewer cases of upper respiratory symptoms ( similar to cold symptoms) in asthmatic children each year, and 13,000 fewer cases of acute bronchitis in children ages 8 to 12 each year. In addition, we estimate that this rule will reduce almost 6,000 emergency room visits for asthma attacks in children each year from reduced exposure to particles.

Additional incidents would be avoided from reduced ozone exposures. Asthma is the most prevalent chronic disease among children and currently affects over seven percent of children under 18 years of age.

409 12,000 fewer fatalities in adults239 and 20 fewer fatalities in infants per year associated with fine PM, and the rule will result in about 5,600 fewer cases of chronic bronchitis, 8,900 fewer hospitalizations ( for respiratory and cardiovascular disease combined), and result in 1 million days per year when adults miss work because of their respiratory symptoms and 5.9 million days of when adults must restrict their activity due to respiratory illness. We also estimate substantial health improvements for children from reduced upper and lower respiratory illness, acute bronchitis, and asthma attacks. 240 We were unable to quantify the benefits related to ozone and other pollutants for the final rule, although we do present some preliminary ozone modeling in Chapter 9 of the RIA.

Table VI. E 2 presents the total monetized benefits for the years 2020 and 2030. This table also indicates with a " B" those additional health and environmental effects which we were unable to quantify or monetize. These effects are additive to estimate of total benefits, and EPA believes there is considerable value to the public of the benefits that could not be monetized. A full listing of the benefit categories that could not be quantified or monetized in our estimate are provided in table VI. E 6.

In summary, EPA's primary estimate of the benefits of the rule are $ 83 + B billion in 2030 using a 3 percent discount rate and $ 78 + B billion using a 7 percent discount rate. In 2020, total monetized benefits are $ 42 + B billion using a 3 percent discount rate and $ 41 + B billion using a 7 410 percent discount rate. These estimates account for growth in real gross domestic product ( GDP) per capita between the present and the years 2020 and 2030. As the table indicates, total benefits are driven primarily by the reduction in premature fatalities each year, which account for over 90 percent of total benefits.

Table VI. E 1.   Reductions in Incidence of PM related Adverse Health Effects Associated with the Final Nonroad Diesel Engine and Fuel Standards Full Program Endpoint Avoided Incidencea ( cases/ year)

2020 2030 Premature mortalityb: Long term exposure ( adults, 30 and over) 6,500 12,000 Infant mortality ( infants under one year) 15 22 Chronic bronchitis ( adults, 26 and over) 3,500 5,600 Non fatal myocardial infarctions ( adults, 18 and older) 8,700 15,000 Hospital admissions   Respiratory ( adults, 20 and older) c 2,800 5,100 Hospital admissions   Cardiovascular ( adults, 20 and older) d 2,300 3,800 Emergency Room Visits for Asthma ( 18 and younger) 3,800 6,000 Acute bronchitis ( children, 8 12) 8,400 13,000 Asthma exacerbations ( asthmatic children, 6 18) 120,000 200,000 Lower respiratory symptoms ( children, 7 14) 100,000 160,000 Upper respiratory symptoms ( asthmatic children, 9 11) 76,000 120,000 Work loss days ( adults, 18 65) 670,000 1,000,000 Minor restricted activity days ( adults, age 18 65) 4,000,000 5,900,000 Notes: a Incidences are rounded to two significant digits. b Premature mortality associated with ozone is not separately included in this analysis. c Respiratory hospital admissions for PM includes admissions for COPD, pneumonia, and asthma. d Cardiovascular hospital admissions for PM includes total cardiovascular and subcategories for ischemic heart disease, dysrhythmias, and heart failure. 411 Table VI. E 2.   EPA Primary Estimate of the Annual Quantified and Monetized Benefits Associated with Improved PM Air Quality Resulting from the Final Nonroad Diesel Engine and Fuel Standards Full Program Endpoint Monetary Benefitsa, b ( millions 2000$, Adjusted for Income Growth)

2020 2030 Premature mortalityc: ( adults, 30 and over)

3% discount rate $ 41,000 $ 77,000 7% discount rate $ 38,000 $ 72,000 Infant mortality ( infants under one year) $ 97 $ 150 Chronic bronchitis ( adults, 26 and over) $ 1,500 $ 2,400 Non fatal myocardial infarctionsd 3% discount rate $ 750 $ 1,200 7% discount rate $ 720 $ 1,200 Hospital Admissions from Respiratory Causese $ 49 $ 92 Hospital Admissions from Cardiovascular Causesf $ 51 $ 83 Emergency Room Visits for Asthma $ 1.1 $ 1.7 Acute bronchitis ( children, 8 12) $ 3.2 $ 5.2 Asthma exacerbations ( asthmatic children, 6 18) $ 5.7 $ 9.2 Lower respiratory symptoms ( children, 7 14) $ 1.7 $ 2.7 Upper respiratory symptoms ( asthmatic children, 9 11) $ 2.0 $ 3.2 Work loss days ( adults, 18 65) $ 92 $ 130 Minor restricted activity days ( adults, age 18 65) $ 210 $ 320 Recreational visibility ( 86 Class I Areas) $ 1,000 $ 1,700 Monetized Totalg 3% discount rate 7% discount rate $ 44,000+ B $ 42,000+ B $ 83,000+ B $ 78,000+ B Notes: a Monetary benefits are rounded to two significant digits. b Monetary benefits are adjusted to account for growth in real GDP per capita between 1990 and the analysis year ( 2020 or 2030). c Valuation of base estimate assumes discounting over the lag structure described in the RIA Chapter 9. d Estimates assume costs of illness and lost earnings in later life years are discounted using either 3 or 7 percent. e Respiratory hospital admissions for PM includes admissions for COPD, pneumonia, and asthma. f Cardiovascular hospital admissions for PM includes total cardiovascular and subcategories for ischemic heart disease, dysrhythmias, and heart failure. g B represents the monetary value of the unmonetized health and welfare benefits. A detailed listing of unquantified PM, ozone, CO, and NMHC related health effects is provided in Table VI. E 6. 412 The estimated social cost ( measured as changes in consumer and producer surplus) in 2030 to implement the final rule from table VI. E 3 is $ 2.0 billion ( 2000$). Thus, the net benefit ( social benefits minus social costs) of the program at full implementation is approximately $ 81 + B billion using a 3 percent discount rate and $ 78 + B billion using a 7 percent discount rate. In 2020, partial implementation of the program yields net benefits of $ 42 + B billion using a 3 percent discount rate and $ 41 + B billion using a 7 percent discount rate. Therefore, implementation of the final rule is expected to provide society with a net gain in social welfare based on economic efficiency criteria. Table VI. E 3 presents a summary of the benefits, costs, and net benefits of the final rule's full program. Figure VI E. 1 displays the stream of benefits, costs, and net benefits of the Nonroad Diesel Vehicle Rule from 2007 to 2036 using two different discount rates. In addition, table VI. E 4 presents the net present value of the stream of benefits, costs, and net benefits associated with the rule for this 30 year period. The total net present value in 2004 of the stream of net benefits ( benefits minus costs) is $ 780 billion using a 3 percent discount rate and $ 340 billion using a 7 percent discount rate. 413 Table VI. E 3.   Summary of Benefits, Costs, and Net Benefits of the Final Nonroad Diesel Engine and Fuel Standards Full Program 2020a ( Billions of 2000 dollars) 2030a ( Billions of 2000 dollars)

Social Costsb $ 1.8 $ 2.0 Social Benefits: b, c, d CO, VOC, Air Toxic related benefits Not monetized Not monetized Ozone related benefits Not monetized Not monetized PM related Welfare benefits $ 1.0 $ 1.7 PM related Health benefits [ 3% discount] $ 43 + B $ 81 + B PM related Health benefits [ 7% discount] $ 41 + B $ 78 + B Net Benefits ( Benefits Costs) [ 3% discount] c $ 44 + B $ 81 + B Net Benefits ( Benefits Costs) [ 7% discount] c $ 42 + B $ 78 + B Notes: a All costs and benefits are calculated using 3 and 7 percent discount rates and are rounded to two significant digits. Numbers may appear not to sum due to rounding. b Note that costs are the total costs of reducing all pollutants, including CO, VOCs and air toxics, as well as NOX and PM. Costs were converted to 2000$ using the PPI for Total Manufacturing Industries. Benefits in this table are associated only with PM endpoints related to direct PM, NOX and SO2 reductions in 48 states. c Not all possible benefits or disbenefits are quantified and monetized in this analysis. Potential benefit categories that have not been quantified and monetized are listed in table VI. E 6. B is the sum of all unquantified benefits and disbenefits. 414 $( 20,000) $ $ 20,000 $ 40,000 $ 60,000 $ 80,000 $ 100,000 $ 120,000 2005 2010 2015 2020 2025 2030 2035 Millions dollars Total Social Benefits Total Social Costs Net Benefits Figure VI. E 1.   Stream of Benefits, Costs, and Net Benefits of the Final Nonroad Diesel Engine and Fuel Standards Full Program 415 Table VI. E 4.   Net Present Value in 2004 of the Stream of 30 years of Benefits, Costs, and Net Benefits for the Full Nonroad Diesel Engine and Fuel Standards ( Billions of 2000$)

Billions of 2000$ 3% Discount Rate Billions of 2000$ 7% Discount Rate Social Costs $ 27 $ 14 Social Benefits $ 805 $ 352 Net Benefits a $ 780 $ 340 Notes: a Numbers do not add due to rounding. Benefits represent 48 state benefits and exclude home heating oil sulfur reduction benefits, whereas costs include 50 state estimates.

In addition, we analyzed the social benefits and costs of the fuel only components of the program, as discussed in the RIA. EPA's primary estimate of the benefits of the fuel only component of the final rule are approximately $ 28 + B billion in 2030 using a 3 percent discount rate and $ 25 + B billion using a 7 percent discount rate. In 2020, total monetized benefits are approximately $ 18 + B billion using a 3 percent discount rate and $ 16 + B billion using a 7 percent discount rate. These estimates account for growth in real gross domestic product ( GDP) per capita between the present and the years 2020 and 2030. We present the engineering costs of implementing the fuel only components of the rule. Engineering compliance costs are very similar to the total social costs for the entire program. The net benefit ( social benefits minus engineering costs) of the fuel only program at full implementation is approximately $ 330 + B billion using a 3 percent discount rate and $ 160 + B billion using a 7 percent discount rate. Therefore, implementation of the fuel only components of the final rule is expected to provide society with a net gain in social welfare based on economic efficiency criteria. Table VI. E 5 presents a summary of the social benefits, engineering costs, and net benefits of the final rule's fuel only program for a 30 year period. 416 Table VI. E 5.   Net Present Value in 2004 of the Stream of Benefits, Costs, and Net Benefits for the Fuel Only Standards ( Billions of 2000$)

3% Discount Rate 7% Discount rate Costs $ 9.2 $ 4.6 Social Benefits $ 340 $ 160 Net Benefits $ 330 $ 160 Notes: A Results are rounded to two significant digits. Sums may differ because of rounding. B Engineering costs are presented instead of social costs. As discussed in previous chapters, total engineering costs include fuel costs ( refining, distribution, lubricity) and other operating costs ( oil change maintenance savings). C Note that costs are the total costs of reducing all pollutants, including CO, VOCs and air toxics, as well as NOX and PM. Benefits in this table are associated only with PM, NOX and SO2 reductions. The estimates do not include the benefits of reduced sulfur in home heating oil or benefits in Alaska or Hawaii.

2. What Was Our Overall Approach to the Benefit Cost Analysis?

The basic question we sought to answer in the benefit cost analysis was, " What are the net yearly economic benefits to society of the reduction in mobile source emissions likely to be achieved by this proposed rulemaking?" In designing an analysis to address this question, we selected two future years for analysis ( 2020 and 2030) that are representative of the stream of benefits and costs at partial and full implementation of the program.

To quantify benefits, we evaluated PM related health effects ( including directly emitted PM and sulfate, as well as SO 2 and NO X contributions to fine particulate matter). Our approach requires the estimation of changes in air quality expected from the rule and then estimating the resulting impact on health. In order to characterize the benefits of today's action, given the constraints on time and resources available for the analysis, we adopted a benefits transfer technique that relies on air quality and benefits modeling for a preliminary control option for nonroad diesel engines and fuels. Results from this modeling conducted for 2020 and 2030 are then scaled and transferred to the emission reductions expected from the final rule. We also transferred modeled results by using scaling factors associated with time to examine the stream of benefits in years other than 2020 and 2030.

More specifically, our health benefits assessment is conducted in two phases. Due to the time requirements for running the sophisticated emissions and air quality models, it is often 241 The section 812 studies include: ( 1) U. S. EPA, Report to Congress: The Benefits and Costs of the Clean Air Act, 1970 to 1990, October 1997 ( also known as the    Section 812 Retrospective Report''); and ( 2) the first in the ongoing series of prospective studies estimating the total costs and benefits of the Clean Air Act ( see EPA report number: EPA 410 R 99 001, November 1999). See Docket A 99 06, Document II A 21.

242 Interested parties may want to consult the webpage: http:// www. epa. gov/ science1 regarding components of our analytical blueprint.

417 necessary to select an example set of emission reductions to use for the purposes of emissions and air quality modeling early in the development of the proposal. In phase one, we evaluate the PMand ozone related health effects associated with a modeled preliminary control option that was a close approximation of the standards in the years 2020 and 2030. Using information from the modeled preliminary control option on the changes in ambient concentrations of PM and ozone, we then estimate the number of reduced incidences of illnesses, hospitalizations, and premature fatalities associated with this scenario and estimate the total economic value of these health benefits. Based on public comment and other data described in the RIA, the standards we are finalizing in this rulemaking are slightly different in the amount of emission reductions expected to be achieved in 2020 and 2030 relative to the modeled scenario. Thus, in phase two of the analysis, we apportion the results of the phase one analysis to the underlying NO X, SO 2, and PM emission reductions and scale the apportioned benefits to reflect differences in emissions reductions between the modeled preliminary control option and the proposed standards. The sum of the scaled benefits for the PM, SO 2, and NO X emission reductions provide us with the total benefits of the rule.

The benefit estimates derived from the modeled preliminary control option in phase one of our analysis uses an analytical structure and sequence similar to that used in the benefits analyses for the Heavy Duty Engine/ Diesel Fuel final rule and in the " section 812 studies" to estimate the total benefits and costs of the full Clean Air Act. 241 We used many of the same models and assumptions used in the Heavy Duty Engine/ Diesel Fuel analysis as well as other Regulatory Impact Analyses ( RIAs) prepared by the Office of Air and Radiation. By adopting the major design elements, models, and assumptions developed for the section 812 studies and other RIAs, we have largely relied on methods which have already received extensive review by the independent Science Advisory Board ( SAB), by the public, and by other federal agencies. In addition, we will be working through the next section 812 study process to enhance our methods. 242 The benefits transfer method used in phase two of the analysis is similar to that used to estimate benefits in the recent analysis of the Nonroad Large Spark Ignition Engines and Recreational Engines standards ( 67 FR 68241, November 8, 2002). A similar method has also been used in recent benefits analyses for the proposed Industrial Boilers and Process Heaters NESHAP and the Reciprocating Internal Combustion Engines NESHAP. 418 On September 26, 2002, the National Academy of Sciences ( NAS) released a report on its review of the Agency's methodology for analyzing the health benefits of measures taken to reduce air pollution. The report focused on EPA's approach for estimating the health benefits of regulations designed to reduce concentrations of airborne PM.

In its report, the NAS panel said that EPA has generally used a reasonable framework for analyzing the health benefits of PM control measures. It recommended, however, that the Agency take a number of steps to improve its benefits analysis. In particular, the NAS stated that the Agency should:

° Include benefits estimates for a range of regulatory options;

° Estimate benefits for intervals, such as every five years, rather than a single year;

° Clearly state the projected baseline statistics used in estimating health benefits, including those for air emissions, air quality, and health outcomes;

° Examine whether implementation of proposed regulations might cause unintended impacts on human health or the environment;

° When appropriate, use data from non U. S. studies to broaden age ranges to which current estimates apply and to include more types of relevant health outcomes; and ° Begin to move the assessment of uncertainties from its ancillary analyses into its Base analyses by conducting probabilistic, multiple source uncertainty analyses. This assessment should be based on available data and expert judgment.

Although the NAS made a number of recommendations for improvement in EPA's approach, it found that the studies selected by EPA for use in its benefits analysis were generally reasonable choices. In particular, the NAS agreed with EPA's decision to use cohort studies to derive benefits estimates. It also concluded that the Agency's selection of the American Cancer Society ( ACS) study for the evaluation of PM related premature mortality was reasonable, although it noted the publication of new cohort studies that should be evaluated by the Agency.

EPA has addressed many of the NAS comments in our analysis of the final rule. We provide benefits estimates for each year over the rule implementation period for a wide range of regulatory alternatives, in addition to our final emission control program. We use the estimated time path of benefits and costs to calculate the net present value of benefits of the rule. In the RIA, we provide baseline statistics for air emissions, air quality, population, and health outcomes. We have examined how our benefits estimates might be impacted by expanding the age ranges to which epidemiological studies are applied, and we have added several new health endpoints, including non fatal heart attacks, which are supported by both U. S. studies and studies conducted in Europe. We have also improved the documentation of our methods and provided additional details about model assumptions. 419 Several of the NAS recommendations addressed the issue of uncertainty and how the Agency can better analyze and communicate the uncertainties associated with its benefits assessments. In particular, the Committee expressed concern about the Agency's reliance on a single value from its analysis and suggested that EPA develop a probabilistic approach for analyzing the health benefits of proposed regulatory actions. The Agency agrees with this suggestion and is working to develop such an approach for use in future rulemakings.

EPA plans to continue to refine its plans for addressing uncertainty in its analyses. EPA conducted a pilot study to address uncertainty in important analytical parameters such as the concentration response relationship for PM related premature mortality. EPA is also conducting longer term elements intended to provide scientifically sound, peer reviewed characterizations of the uncertainty surrounding a broader set of analytical parameters and assumptions, including but not limited to emissions and air quality modeling, demographic projections, population health status, concentration response functions, and valuation estimates.

3. What Are the Significant Limitations of the Benefit Cost Analysis?

Every benefit cost analysis examining the potential effects of a change in environmental protection requirements is limited to some extent by data gaps, limitations in model capabilities ( such as geographic coverage), and uncertainties in the underlying scientific and economic studies used to configure the benefit and cost models. Deficiencies in the scientific literature often result in the inability to estimate quantitative changes in health and environmental effects, such as potential increases in premature mortality associated with increased exposure to carbon monoxide. Deficiencies in the economics literature often result in the inability to assign economic values even to those health and environmental outcomes which can be quantified. While these general uncertainties in the underlying scientific and economics literatures, which can cause the valuations to be higher or lower, are discussed in detail in the Regulatory Support Document and its supporting documents and references, the key uncertainties which have a bearing on the results of the benefit cost analysis of this final rule include the following:

° The exclusion of potentially significant benefit categories ( such as health, odor, and ecological benefits of reduction in CO, VOCs, air toxics, and ozone);

° Errors in measurement and projection for variables such as population growth;

° Uncertainties in the estimation of future year emissions inventories and air quality;

° Uncertainties associated with the scaling of the results of the modeled benefits analysis to the proposed standards, especially regarding the assumption of similarity in geographic distribution between emissions and human populations and years of analysis;

° Variability in the estimated relationships of health and welfare effects to changes in pollutant concentrations;

° Uncertainties in exposure estimation; and 420 ° Uncertainties associated with the effect of potential future actions to limit emissions.

Despite these uncertainties, we believe the benefit cost analysis provides a reasonable indication of the expected economic benefits of the final rulemaking in future years under a set of assumptions. Accordingly, we present a primary estimate of the total benefits, based on our interpretation of the best available scientific literature and methods and supported by the SABHES and the NAS.

Some of the key assumptions underlying the primary estimate for the premature mortality which accounts for 90 percent of the total benefits we were able to quantify include the following:

( 1) Inhalation of fine particles is causally associated with premature death at concentrations near those experienced by most Americans on a daily basis. Although biological mechanisms for this effect have not yet been definitively established, the weight of the available epidemiological evidence supports an assumption of causality. ( 2) All fine particles, regardless of their chemical composition, are equally potent in causing premature mortality. This is an important assumption, because PM produced via transported precursors emitted from EGUs may differ significantly from direct PM released from diesel engines and other industrial sources, but no clear scientific grounds exist for supporting differential effects estimates by particle type. ( 3) The impact function for fine particles is approximately linear within the range of ambient concentrations under consideration. Thus, the estimates include health benefits from reducing fine particles in areas with varied concentrations of PM, including both regions that are in attainment with fine particle standard and those that do not meet the standard. ( 4) The forecasts for future emissions and associated air quality modeling are valid. Although recognizing the difficulties, assumptions, and inherent uncertainties in the overall enterprise, these analyses are based on peer reviewed scientific literature and up to date assessment tools, and we believe the results are highly useful in assessing this rule.

We provide sensitivity analyses to illustrate the effects of uncertainty about key analytical assumptions in the RIA.

In addition, one significant limitation to the benefit transfer method applied in this analysis is the inability to scale ozone related benefits. Because ozone is a homogeneous gaseous pollutant, it is not possible to apportion ozone benefits to the precursor emissions of NO X and VOC. Coupled with the potential for NO X reductions to either increase or decrease ambient ozone levels, this prevents us from scaling the benefits associated with a particular combination of VOC and NO X emissions reductions to another. Because of our inability to scale ozone benefits, we do 421 not include ozone benefits as part of the monetized benefits of the proposed standards. For the most part, ozone benefits contribute substantially less to the monetized benefits than do benefits from PM, thus their omission will not materially affect the conclusions of the benefits analysis. Although we expect economic benefits to exist, we were unable to quantify or to value specific changes in ozone, CO or air toxics because we did not perform additional air quality modeling.

There are also a number of health and environmental effects which we were unable to quantify or monetize. A full appreciation of the overall economic consequences of the proposed rule requires consideration of all benefits and costs expected to result from the new standards, not just those benefits and costs which could be expressed here in dollar terms. A complete listing of the benefit categories that could not be quantified or monetized in our estimate are provided in Table VI. E 6. These effects are denoted by " B" in Table VI. E 3 above, and are additive to the estimates of benefits. 422 Table VI. E 6.   Additional, Non monetized Benefits of the Nonroad Diesel Engine and Fuel Standards Pollutant Unquantified Effects Ozone Health Premature mortalitya Respiratory hospital admissions Minor restricted activity days Increased airway responsiveness to stimuli Inflammation in the lung Chronic respiratory damage Premature aging of the lungs Acute inflammation and respiratory cell damage Increased susceptibility to respiratory infection Non asthma respiratory emergency room visits Increased school absence rates Ozone Welfare Decreased yields for commercial forests Decreased yields for fruits and vegetables Decreased yields for non commercial crops Damage to urban ornamental plants Impacts on recreational demand from damaged forest aesthetics Damage to ecosystem functions PM Health Low birth weight Changes in pulmonary function Chronic respiratory diseases other than chronic bronchitis Morphological changes Altered host defense mechanisms Cancer Non asthma respiratory emergency room visits PM Welfare Visibility in many Class I areas Residential and recreational visibility in non Class I areas Soiling and materials damage Damage to ecosystem functions Nitrogen and Sulfate Deposition Welfare Impacts of acidic sulfate and nitrate deposition on commercial forests Impacts of acidic deposition to commercial freshwater fishing Impacts of acidic deposition to recreation in terrestrial ecosystems Reduced existence values for currently healthy ecosystems Impacts of nitrogen deposition on commercial fishing, agriculture, and forests Impacts of nitrogen deposition on recreation in estuarine ecosystems Damage to ecosystem functions CO Health Premature mortalitya Pollutant Unquantified Effects 243 This analysis is based on an earlier version of the engineering costs developed for this rule.

The final cost estimates for the engine program are slightly higher ($ 142 million) and the final fuel costs are slightly lower ($ 246 million), resulting in a 30 year net present value of $ 27.1 billion ( 30 year net present values in the year 2004, using a 3 percent discount rate, $ 2002) or $ 104 million less than the engineering costs used in this analysis. We do not expect that the revised engineering costs would change the overall results of this economic impact analysis given the small portion of engine, equipment, and fuel costs to total production costs for goods and services using these inputs and given the inelastic value of the estimated demand elasticities for the application markets.

423 HC Healthb Cancer ( benzene, 1,3 butadiene, formaldehyde, acetaldehyde) Anemia ( benzene) Disruption of production of blood components ( benzene) Reduction in the number of blood platelets ( benzene) Excessive bone marrow formation ( benzene) Depression of lymphocyte counts ( benzene) Reproductive and developmental effects ( 1,3 butadiene) Irritation of eyes and mucus membranes ( formaldehyde) Respiratory irritation ( formaldehyde) Asthma attacks in asthmatics ( formaldehyde) Asthma like symptoms in non asthmatics ( formaldehyde) Irritation of the eyes, skin, and respiratory tract ( acetaldehyde) Upper respiratory tract irritation and congestion ( acrolein)

HC Welfare Direct toxic effects to animals Bioaccumulation in the food chain Damage to ecosystem function Odor Notes: a Premature mortality associated with ozone and carbon monoxide is not separately included in this analysis. In this analysis, we assume that the Pope, et al. C R function for premature mortality captures both PM mortality benefits and any mortality benefits associated with other air pollutants. b Many of the key hydrocarbons related to this rule are also hazardous air pollutants listed in the Clean Air Act.

F. Economic Impact Analysis We prepared a draft Economic Impact Analysis ( EIA) for this rule to estimate the economic impacts of the proposed control program on producers and consumers of nonroad engines, equipment, fuel, and related industries. 243 We received comments on our draft analysis from stakeholders representing agricultural interests, equipment rental and dealer interests, and equipment manufacturers. The commenters conveyed their concerns about our general analytic 244 EPA Guidelines for Preparing Economic Analyses, EPA 240 R 00 003, September 2000, p 113.

424 approach and some of the model assumptions. As explained in our responses to these comments, which can be found in the Summary and Analysis of Comments document prepared for this final rule, we do not believe these comments require us to adjust our EIA methodology. We did adjust the methodology, however, to estimate the economic impacts of the fuel sulfur content requirements on the locomotive and marine sectors. As explained below, this revision was necessary to correct an oversight in the draft EIA. We also revised the price and quantity data inputs to the model to make them consistent with the revised engine and fuel cost analyses described earlier in this section.

This section briefly describes the methodology we used to estimate the economic impacts of this final rule, including the model revisions for the marine and locomotive fuel sectors, and the results of that analysis. A detailed description of the Nonroad Diesel Economic Impact Model ( NDEIM) prepared for this analysis, the model inputs, and several sensitivity analyses can be found in Chapter 10 of Final Regulatory Impact Analysis prepared for this rule.

1. What is an Economic Impact Analysis?

An Economic Impact Analysis is prepared to inform decision makers within the Agency about the potential economic consequences of a regulatory action. The analysis contains estimates of the social costs of a regulatory program and explores the distribution of these costs across stakeholders. These estimated social costs can then be compared with estimated social benefits ( as presented in Section VI. E). As defined in EPA's Guidelines for Preparing Economic Analyses, social costs are the value of the goods and services lost by society resulting from a) the use of resources to comply with and implement a regulation and b) reductions in output. 244 In this analysis, social costs are explored in two steps. In the first step, called the market analysis, we estimate how prices and quantities of good directly and indirectly affected by the emission control program can be expected to change once the emission control program goes into effect. The estimated price and quantity changes for engines, equipment, fuel, and goods produced using these inputs are examined separately. In the second step, called the economic welfare analysis, we look at the total social costs associated with the program and their distribution across stakeholders. The analysis is based on compliance cost estimates and baseline market conditions for prices and quantities of engines, equipment, and fuel produced presented earlier in this section.