The second criteria tracks a facility's receipts and distribution of both No. 2 15 ppm sulfur fuel and No. 2 500 ppm sulfur highway diesel fuel, and limits deliveries of No. 2 500 ppm sulfur highway diesel fuel to no more than what was received plus 20 percent of the No. 2 15 ppm sulfur highway diesel fuel volume received. This allows more flexibility than the first criteria by not constraining downgrades to NRLM diesel fuel or heating oil, but does so by requiring tracking and records of volumes of No. 2 15 ppm sulfur highway diesel fuel received and the products to which it is downgraded.

The third and fourth criteria provide even more flexibility, especially for wintertime blending of No. 1 15 ppm sulfur highway diesel fuel, and also for any temporary shifts that might occur between NRLM diesel fuel and highway diesel fuel markets from 2007 2010. However, a facility will have to meet more extensive criteria to demonstrate compliance.

Today's final rule does not change any other aspects of the anti downgrading provisions finalized in the 2007 highway diesel final rule, such as the provisions unique to fuel retailers.

2. Requirements During the Second Step of Today's Sulfur Control Program Beginning June 1, 2010, all NR diesel fuel and beginning June 1, 2012 all LM diesel fuel produced or imported must meet a 15 ppm sulfur standard except for fuel manufactured under the credit and small refiner provisions in today's rule. This credit and small refiner diesel fuel must meet a 500 ppm sulfur level. From June 1, 2010 to June 1, 2012, all LM diesel fuel must meet a 500 ppm sulfur standard. Today's rule also allows 500 ppm sulfur diesel fuel generated in the 120 The use of 500 ppm fuel in nonroad equipment is restricted to 2011 model year and earlier equipment.

121 Unless, in the case of Alaska, the refiner segregates its fuel through to the end user as discussed in section IV. D. 1. b. ii.

249 pipeline distribution system to be used in NRLM equipment through May 31, 2014120 and in locomotive and marine equipment thereafter. After May 31, 2014, the credit and small refiner provisions expire.

We proposed that once refiners were no longer able to produce 500 ppm sulfur diesel fuel for use in nonroad engines and such fuel had a few months to work its way through the distribution system, that 500 ppm sulfur diesel fuel could no longer be used in nonroad equipment. Today's rule adopts this proposed prohibition. Although today's rule extends the 15 ppm sulfur nonroad diesel standard to locomotive and marine diesel fuel, we have elected not to extend the prohibition against the use of 500 ppm sulfur diesel fuel in locomotive and marine equipment after refiners and importers are no longer allowed to produce/ import such fuel. Diesel fuel with a maximum sulfur concentration of 500 ppm that is generated in the pipeline distribution system can continue to be used in locomotive and marine equipment after June 1, 2014, as discussed in section IV. A above.

Providing for the continued use of 500 ppm sulfur diesel fuel in NRLM equipment through May 31, 2014, means that without adequate controls similar to those under the first step of today's program, a refiner could manufacture 500 ppm sulfur diesel fuel ostensibly for use as heating oil which could actually be sold downstream into the NRLM market through May 31, 2014. Similarly, the continued use of 500 ppm fuel in locomotive and marine engines after May 31, 2014, means that without adequate controls, a refiner could continue to manufacture 500 ppm sulfur diesel fuel ostensibly for use as heating oil which could actually be sold downstream into the locomotive and marine market indefinitely. To prevent this possibility, we have elected to continue the designate and track and marker requirements for heating oil applicable under the first step of today's program indefinitely with some simplifications. It is a significantly smaller program during the second step, since only heating oil needs to be tracked, and we expect that by then very little heating oil will be produced for sale outside of the Northeast/ Mid Atlantic area. Consistent with the approach taken during the first step of today's program, these designate and track provisions would not be applicable in the Northeast/ Mid Atlantic area or Alaska, since the flexibility to sell greater than 15 ppm sulfur diesel fuel into the NRLM market there does not exist under this final rule. 121 Any diesel fuel with a sulfur content greater than 500 ppm beginning June 1, 2007, any NR diesel fuel with greater than 15 ppm sulfur beginning June 1, 2010, and any LM diesel fuel with greater than 15 ppm sulfur beginning June 1, 2012 in the Northeast/ Mid Atlantic area can only be sold as heating oil, and if shipped outside of the Northeast/ Mid Atlantic area must be marked as heating oil.

While today's rule does not contain an end date for the downstream distribution of 500 ppm sulfur locomotive and marine fuel, we will review the appropriateness of allowing this 250 flexibility based on experience gained from implementation of the 15 ppm sulfur NRLM diesel fuel standard. We expect to conduct such an evaluation in 2011. Were we to discontinue the downstream provision for downgraded fuel, we would also evaluate discontinuing the designate and track and marker requirements for heating oil, as is the case now for the Northeast/ Mid Atlantic area.

Providing for the continued production and import of 500 ppm sulfur LM diesel fuel from June 1, 2010 to June 1, 2012 means that without adequate controls similar to those under the first step of today's program, a refiner could manufacture 500 ppm sulfur diesel fuel ostensibly for use as LM diesel fuel which could actually be sold downstream into the NR market. To prevent this possibility, we have adopted designate and track and marker requirements similar to those applicable to heating oil under the first step of today's program. For these two years, 500 ppm sulfur NR and LM diesel fuel would be tracked, and the 500 ppm sulfur LM fuel would be marked in the same manner as heating oil. The same provisions that apply to marking of heating oil, such as the Northeast/ Mid Atlantic area, would also apply to the marking of 500 ppm sulfur LM fuel. The tracking and marking provisions would not apply to any 15 ppm sulfur LM diesel fuel.

3. Summary of the Designate and Track Requirements The designate and track program requires refiners and importers to designate the volumes of diesel fuel they produce and/ or import. Refiners/ importers will identify whether their diesel fuel is highway or NRLM and the applicable sulfur level. They may then mix and fungibly ship highway and NRLM diesel fuels that meet the same sulfur specification without dyeing their NRLM diesel fuel at the refinery gate. The volume designations will follow the fuel through the distribution system with limits placed on the ability of downstream parties to change the designation. These limits are designed to restrict the inappropriate sale of 500 ppm sulfur NRLM diesel fuel into the highway market; from 2007 to 2010, the inappropriate sale of 500 ppm sulfur LM diesel fuel into the 500 ppm sulfur NR market from 2010 to 2012; and the inappropriate sale of heating oil into the NRLM market. The designate and track approach includes record keeping and reporting requirements for all parties in the fuel distribution system, associated with tracking designated fuel volumes through each custodian in the distribution chain until the fuel exits the terminal. The program also includes enforcement and compliance assurance provisions to enable the Agency to rapidly and accurately review for discrepancies the large volume of data collected on fuel volume hand offs.

a. Registration Each entity in the fuel distribution system, up through and including the point where fuel is loaded onto trucks for distribution to retailers or wholesale purchaser consumers, must register each of its facilities with EPA no later than December 31, 2005, or six months prior to 122 This requirement also applies to parties inside of the Northeast/ Mid Atlantic area who handle heating oil.

123 Transmix operators that produce diesel fuel from transmix and terminal operators that produce from segregated interface will be treated as a refiner for the purposes of compliance with these requirements.

251 commencement of producing, importing, generating, or distributing any designated diesel fuel. 122 A facility is defined as the physical location( s) where a party has custody of designated fuel, from when it was produced, imported, or received from one party to when it is delivered to another party. The definition also include mobile components, such as the vessels in a barge facility. Examples of facilities include refineries, import terminals, pipelines, terminals, bulk plants, and barge systems. Where the same entity owns and operates a series of locations in the distribution system ( e. g., refiner to pipeline to terminal), it may choose to register them as a single aggregated facility, provided the entity maintains custody of the fuel throughout the facility. However, if the aggregated facility includes a refinery, then it may not receive any diesel fuel from another entity at any place within the aggregated facility. Under this approach, a pipeline could be treated as one facility from the point where it receives fuel to the point where it either delivers it to a terminal, or into a tank truck after passing through their terminal. The choice made by the entity to treat these places as a single facility or separate facilities may not change during any applicable compliance period. These same definitions for facility will apply for both the designate and track provisions, as well as the anti downgrading provisions of the highway rule. Therefore, if a proprietary system chooses to aggregate into one facility for purposes of the designate and track provisions, it will also be treated as one facility for determining compliance with the 20 percent anti downgrading limit of the highway rule. EPA will provide a unique registration number to each custodial facility of designated fuels. In addition, EPA intends to work with industry subsequent to this final rule to provide guidance regarding facility boundary and aggregation decisions that will address the many unique situations.

The designation provisions described below require refiners and importers to designate all distillates they produce or import consistent with the production and end use requirements in today's rule. These designations serve as the foundation upon which the fuel distributors are able to properly track, designate, redesignate, and label the fuel they receive.

b. Designation by Refiners and Importers i. Designation of 500 ppm and 15 ppm Sulfur Diesel Fuel From June 1, 2006, through May 31, 2010, any refiner123 or importer that produces or imports 15 ppm sulfur diesel fuel, and/ or 500 ppm sulfur diesel fuel must designate all batches of such fuel as one of the following. The purpose of this designation requirement is to ensure that 252 500 ppm sulfur NRLM diesel fuel is not shifted into the highway market, and to evaluate compliance with the highway program's anti downgrade requirements.

° 15 ppm sulfur No. 2 highway diesel fuel; ° 15 ppm sulfur No. 1 highway diesel fuel; ° 500 ppm sulfur No. 2 highway diesel fuel; ° 500 ppm sulfur No. 1 highway diesel fuel; ° 500 ppm sulfur No. 2 NRLM diesel fuel; ° 500 ppm sulfur No. 1 NRLM diesel fuel; ° 500 ppm sulfur jet fuel; or ° 500 ppm sulfur kerosene.

The start date for these requirements coincides with the start date for the early credit program under today's final rule, and the start date for the highway diesel program for the purposes of anti downgrading. The end date for these requirements coincides with the end date for the highway program's Temporary Compliance Option and today's NRLM diesel fuel early credit program.

Any batch of 15 ppm or 500 ppm No. 1 diesel fuel which is also suitable for use as kerosene or jet fuel ( referred to as dual purpose kerosene) may be considered kerosene or jet fuel and need not be designated as highway or NRLM diesel fuel, even if it may later be blended into highway or NRLM diesel fuel downstream of the refinery to improve the cold flow properties of the fuel. Upon such blending, the kerosene or jet fuel takes on the designation of the diesel fuel into which it was blended. We expect refiners and importers will elect to designate all of their 15 ppm sulfur No. 1 diesel fuel as highway fuel, since this will aid in their compliance with the highway program's 80/ 20 highway fuel production requirement. Designation as highway diesel fuel by the refiner will also help avoid downstream blending from causing a violation by the downstream party under the tracking and compliance calculations finalized today. We also expect that refiners and importers will elect to designate their 500 ppm sulfur No. 1 fuel as kerosene or jet fuel since this will be the predominant use for such fuel, and designating it as highway would hinder their compliance with the 80/ 20 highway requirements. As with 15 ppm sulfur kerosene or jet fuel, downstream parties would later redesignate it as highway or NRLM diesel fuel if blended in or used for these purposes. Any 500 ppm sulfur diesel fuel containing visible evidence of red dye must be designated as NRLM diesel fuel or heating oil unless it is tax exempt highway diesel fuel ( e. g., fuel for use in school buses or certain municipal fleets).

The reported volumes of designated fuels must be the volumes delivered to the first downstream party. This is typically a pipeline facility, a marine barge/ tanker loading dock that accepts product from a refiner/ importer, or the refiner's/ importer's truck loading rack. This is consistent with normal business practices. Refiners, importers, and transmix processors are not required to add red dye to NRLM diesel fuel unless the fuel is distributed over their truck loading rack such that the IRS requires the addition of red dye for the assessment of taxes. 253 Fuel designated by a refiner or importer as highway diesel fuel must comply with the highway program's 80/ 20 requirement for 15 ppm/ 500 ppm sulfur highway diesel fuel. The volume of fuel designated as NRLM early credit fuel must be consistent with the credit provisions in today's rule. Since highway diesel fuel volumes are determined at the point of delivery from the refiner/ importer to another party, the anti downgrade requirements do not apply to refiners and importers. Under the highway diesel fuel program, refiners that are required to produce 100 percent of their highway diesel fuel to a 15 ppm sulfur standard are provided with an allowance to deliver a small percentage of 500 ppm sulfur diesel fuel to the pipeline ( e. g., small refiners and GPA refiners who exercise an option under the 2007 highway rule to delay compliance with gasoline sulfur standards). This allowance is provided because a small volume of " line wash" is typically generated in the feed line from the refiner's facility to the pipeline. This line wash will often be suitable for use as 500 ppm sulfur highway diesel fuel. Under the provisions of the highway rule this line wash could have been excluded from compliance with the 15 ppm standard if the refiner accounted for their production volume prior to shipment. However, in this rule, all volume related requirements are keyed to the volume actually delivered. As a result of this change in the point of fuel volume measurement ( delivered versus produced), we are amending the highway diesel fuel program requirements such that refiner who was previously required to produce 100 percent of its highway diesel fuel to the 15 ppm sulfur standard may now produce 95 percent to the 15 ppm sulfur standard ( in order to avail itself of the extended gasoline sulfur interim standards).

ii. Designation of High Sulfur NRLM Diesel Fuel, Heating Oil, and Jet Fuel/ Kerosene From June 1, 2007 through May 31, 2010, any refiner, or importer not located in the Northeast/ Mid Atlantic area or Alaska, that produces or imports unmarked high sulfur distillate fuel must designate all batches of such fuel as one of the following: heating oil, high sulfur NRLM diesel fuel, or jet fuel/ kerosene. Any heating oil distributed from a refiner's or importer's rack not located in the Northeast/ Mid Atlantic area or Alaska must contain the designated marker and red dye. Any heating oil distributed from a refiner/ importer rack inside of the Northeast/ Mid Atlantic area or Alaska is exempted from the marker requirement except any heating oil that is delivered outside the Northeast/ Mid Atlantic area must be marked.

As discussed previously, 500 ppm sulfur diesel fuel may be used in NRLM equipment through May 31, 2014 and in locomotive and marine equipment thereafter. Therefore, designate and track provisions for heating oil will be needed to ensure that heating oil is not shifted into the NRLM market from June 1, 2007 through May 31, 2014, and to the locomotive and marine market thereafter. Consequently, from June 1, 2010 through May 31, 2014, refiners and importers must continue to designate any heating oil they produce as such as well as any 500 ppm sulfur NRLM diesel fuel produced under the small refiner, transmix/ segregated interface, and credit provisions. 254 Beginning June 1, 2014, refiners and importers may no longer produce or import 500 ppm sulfur diesel fuel for use in NRLM equipment. Therefore, beginning June 1, 2014, all diesel fuel with a sulfur level greater than 15 ppm must be designated as heating oil, jet fuel, or kerosene. The one exception to this is transmix processors and terminals acting as refiners which will be permitted to produce 500 ppm sulfur diesel fuel for use in locomotive and marine equipment from transmix and segregated interface.

iii. Designation of 500 ppm NR and 500 ppm LM Sulfur Diesel Fuel From June 1, 2010, through May 31, 2012, any refiner or importer that produces or imports 500 ppm sulfur NR diesel fuel ( small refiner and credit) and/ or 500 ppm sulfur LM diesel fuel must designate all batches of such fuel. The purpose of this designation requirement is to ensure that 500 ppm sulfur LM diesel fuel is not shifted into the NR market. Any 500 ppm sulfur LM diesel fuel distributed from a refiner's or importer's rack not located in the Northeast/ Mid Atlantic area or Alaska must contain the designated marker and red dye, along with heating oil. Any 500 ppm sulfur LM diesel fuel distributed from a refiner/ importer rack inside of the Northeast/ Mid Atlantic area or Alaska is exempted from the marker requirement except any 500 ppm sulfur LM fuel that is delivered outside the Northeast/ Mid Atlantic area must be marked.

c. Designation and Tracking Requirements Downstream of the Refinery or Importer The result of the refiner/ importer designation provisions is that all of the diesel fuel received by distributors will be clearly and accurately designated. The distributors are then subject to their own designation and tracking requirements. The downstream provisions are designed to ensure that certain fuel shifts do not occur, such as the inappropriate shifting of 500 ppm sulfur NRLM diesel fuel to the highway market, the inappropriate shifting of 500 ppm sulfur LM diesel fuel into the nonroad market, the inappropriate downgrading of 15 ppm sulfur to 500 ppm sulfur highway diesel fuel, and the inappropriate shifting of heating oil to the NRLM market. The downstream provisions are designed to ensure these results in a readily enforceable manner while maximizing downstream flexibility to address changing market conditions.

In general, each time custody of designated fuel is transferred from one facility to another facility, the transferor must designate the fuel and record it's volume. The party who receives custody must record the same information, to ensure that each party relies on the same designation and volume for its own compliance purposes. This process occurs each time custody of diesel fuel is transferred. Each distributor may redesignate fuel while in its custody or when it is delivered, subject to certain basic requirements. First, any re designation must be accurate. For example, 500 ppm sulfur NRLM diesel fuel can not be redesignated as 15 ppm unless it in fact meets the 15 ppm standard. The sulfur standard applicable to downstream fuel is based on the fuel's designation. Second, there are limits on the fuel volumes that can be redesignated, calculated as a volume balance over a specified compliance period. Specifically, the volumes of 15 ppm and 500 ppm sulfur highway received must be compared to the volumes of these fuels delivered, to ensure that the amount of 15 ppm sulfur highway diesel fuel that is downgraded to 500 ppm sulfur 124 Any party is free to redesignate highway diesel fuel to NRLM diesel fuel or heating oil at any time. The required volume balance does not limit such designations.

255 highway diesel fuel complies with the highway program's anti downgrading requirements. The volumes of 500 ppm sulfur highway and NRLM diesel fuel that a distributor receives must also be compared to the volumes of 500 ppm sulfur highway and NRLM diesel fuel delivered, to ensure that NRLM diesel fuel was not inappropriately transferred to the highway market. The volumes of 500 ppm sulfur NR and LM diesel fuel received must be compared to the volumes of 500 ppm sulfur NR and LM diesel fuel delivered, to ensure that the 500 ppm sulfur LM fuel was not inappropriately transferred to the NR market. In addition, the volumes of heating oil received must be compared to the volumes distributed to ensure it was not inappropriately transferred to the NRLM market. These volume balances are calculated over a compliance period, providing distributor's the day to day flexibility to redesignate fuel based on market conditions, as long as the required volume balance is achieved over the compliance period. Finally, once NRLM diesel fuel is dyed, 500 ppm sulfur LM diesel fuel is marked ( 2010 2012), or heating oil is marked, the dye and marker may be used to ensure the fuels are not inappropriately shifted to other markets, and the designation, tracking and volume balance requirements are no longer needed; just the PTD, labeling, and record keeping provisions typical of our other fuel regulations ( e. g., highway diesel) apply.

In large part, the designate and track provisions are structured to be compatible with the normal business practices currently used by the industry to record and reconcile volume transactions between parties. As such, EPA expects that these downstream provisions can be implemented in a fairly straightforward manner.

i. Designation and Tracking of 500 ppm and 15 ppm Sulfur Diesel Fuel From June 1, 2006 through May 31, 2010, facilities downstream of the refiner or importer must designate and maintain records of all volumes of fuel designated as 15 ppm sulfur highway diesel fuel, 500 ppm sulfur highway diesel fuel, or 500 ppm sulfur NRLM diesel fuel that they receive and deliver. In many cases, we expect that downstream facilities will not change the designation of 500 ppm sulfur diesel fuel from NRLM diesel fuel to highway while the fuel is in their custody. However, to accommodate fluctuations in the demand for highway designated versus NRLM designated 500 ppm sulfur fuel, today's rule allows terminals and other distributors to change the designation of 500 ppm sulfur fuel from NRLM diesel fuel to highway diesel fuel on a daily basis, as long as the required volume balance is achieved over the compliance period. 124 Terminal operators must ensure that the running balance of total highway designated fuel that they discharged from the beginning of today's program does not exceed the volume of highway fuel that they received since, and had in their possession at the beginning of today's program ( adjusted for changes in inventory). This simple one sided test allows 15 ppm sulfur highway diesel fuel to flow to 500 ppm sulfur highway diesel fuel ( subject to anti downgrading limits), 500 ppm sulfur NRLM diesel fuel, or heating oil. It also allows 500 ppm sulfur highway diesel fuel to flow to NRLM diesel fuel or heating oil. However, the flow of NRLM diesel fuel to highway diesel fuel 256 must first have been offset by shifts from highway to NRLM diesel fuel. In this way we can have assurance that the 500 ppm sulfur fuel sold for highway purposes was in fact produced pursuant to the 80/ 20 requirements of the highway rule. Since any 500 ppm sulfur diesel fuel in the possession of parties downstream of the refiner at the beginning of today's program will be considered as highway diesel fuel, each custodian will begin today's program with a positive volumetric account balance regarding their input/ output of highway designated 500 ppm sulfur. Conformity with this requirement will be evaluated by EPA at the end of each quarterly compliance period.

In order to accommodate volumetric fluctuations due to such factors as thermal expansion of the fuel, facilities such as pipelines upstream of the terminal can use the same volumetric balance. However, since these facilities typically do not, and should not change designations, the compliance periods can be annual. In addition, to ensure that there are no significant redesignations, we are also requiring that the volume of highway designated 500 ppm sulfur diesel fuel that a facility discharges from its custody must be no greater than 102 percent of the volume of such fuel that it received during each annual compliance period. All parties downstream of the refiner, importer, or transmix processor also must demonstrate that over any given compliance period, they did not downgrade more than 20 percent of the 15 ppm highway diesel fuel that they received to 500 ppm sulfur highway diesel fuel.

From June 1, 2006 through May 31, 2010, distributors must maintain records regarding each transfer of a designated fuel into and out of their facility on a batch by batch basis. These records must include the EPA registration number of the source or recipient facility, and the volume of each designated fuel transfer. However, for transfers of dyed NRLM and highway diesel fuel on which taxes have been assessed, the recipient or source facility need not be specifically identified. In such cases, records must be kept regarding the total volume of dyed and tax assessed fuel that is received, discharged, and in inventory during each compliance period. After May 31, 2010, unique records for these designate and track provisions are no longer required, but the normal records and PTDs must still be kept regarding compliance with the fuel standards.

ii. Designation and Tracking of High Sulfur NRLM Diesel Fuel and Heating Oil The requirements regarding the designation and tracking of heating oil and high sulfur or 500 ppm sulfur NRLM diesel fuel parallel those regarding the designation and tracking of 500 ppm sulfur highway and NRLM diesel fuel discussed above. However, the requirements described below pertain only to facilities not in the Northeast/ Mid Atlantic area or Alaska, and to facilities inside of the Northeast/ Mid Atlantic area that transport heating oil outside of the Northeast/ Mid Atlantic area.

From June 1, 2007 through May 31, 2010, facilities downstream of the refiner or importer must designate all high sulfur diesel fuel they distribute as NRLM diesel fuel and all heating oil they distribute as heating oil, and must keep records of all volumes of fuel designated as high sulfur NRLM diesel fuel or heating oil. In many cases, we expect that downstream facilities will not 125 As discussed in section V, these records must be kept for five years.

257 change the designation of diesel fuel from heating oil to high sulfur NRLM diesel fuel while the fuel is in their custody. However, today's final rule provides the flexibility to make this change in designation provided that volume balance requirements for high sulfur NRLM diesel fuel are met.

The volume balance for heating oil requires that the volumes of high sulfur NRLM diesel fuel and heating oil received must be compared to the volumes of high sulfur NRLM diesel fuel and heating oil delivered over a compliance period. The volume of high sulfur NRLM diesel fuel may not increase by a greater proportion than the volume of heating oil over a compliance period. There are many reasons why the combined pool of high sulfur fuel will increase in volume such as the inevitable downgrades from 15 ppm and 500 ppm when these fuels are shipped by pipeline. The volume balance allows for this to occur while keeping fuel produced as heating oil from being shifted to NRLM diesel fuel. The volume balance calculation allows high sulfur NRLM diesel fuel and heating oil to increase proportionately, satisfying both needs. As discussed previously, high sulfur NRLM diesel fuel and heating oil compliance will be required on a quarterly basis for terminal facilities that add marker/ dye ( and are more likely to change designations on a day to day basis), while compliance for other entities ( e. g., pipelines) will be on an annual basis. Compliance with the volume balance requirement is determined by comparing volumes received and delivered during that compliance period. There is no need to have a running total volume of high sulfur NRLM diesel fuel delivered from the beginning of the program since we do not expect any party will need to redesignate heating oil to high sulfur NRLM diesel fuel, even on a day to day basis. Further, we are not providing any tolerance since sufficient flexibility already exists due to the many sources of downgrade to heating oil.

Facilities must maintain records regarding each transfer of heating oil and high sulfur NRLM diesel fuel that they receive and discharge from June 1, 2007 through May 31, 2010 on a batch by batch basis125. These records must include the EPA registration number of the source or recipient facility, and the volume of each fuel transfer. However, for transfers of marked heating oil, the recipient or source facility need not be specifically identified. In such cases, records must be kept regarding the total volume of marked heating oil that is received, discharged, and in inventory during each compliance period. For transfers of dyed high sulfur NRLM diesel fuel from a truck loading rack, the specific recipients also do not need to be identified. In such cases, records must be kept regarding the total volume of high sulfur NRLM diesel fuel that is received, discharged, and in inventory during each compliance period.

From June 1, 2010 through May 31, 2014, facilities downstream of the refiner or importer must continue to designate heating oil and any 500 ppm sulfur NRLM diesel fuel that they distribute. Beyond June 1 2014, they must designate 500 ppm sulfur LM diesel fuel in addition to heating oil. Designations for heating oil are subject to the volume balance requirements and records must be kept on the designations. 258 Beginning June 1, 2010, the volume balance requirement for heating oil is simply that the volume of heating oil may not decrease. As discussed previously, there are many reasons why the volume could increase. Consequently, if the volume decreases it would mean that heating oil is being shifted to NRLM or locomotive and marine uses, thereby allowing refiners to circumvent the NRLM diesel fuel sulfur standards. Given the likely increase in heating oil volume for other reasons, there should be ample flexibility provided with this one sided test to account for minor variations due to volume swell/ shrinkage related to temperature, meter differences, or other causes, so no additional tolerance or flexibility is necessary.

iii. Designation and Tracking of 500 ppm Sulfur NR and LM Diesel Fuel The requirements regarding the designation and tracking of 500 ppm sulfur NR and LM diesel fuel parallel those regarding the designation and tracking of 500 ppm sulfur highway and NRLM diesel fuel discussed above. However, the requirements described below pertain only to facilities not in the Northeast/ Mid Atlantic area or Alaska, and to facilities inside of the Northeast/ Mid Atlantic area that transport 500 ppm sulfur NR and LM diesel fuel outside of the Northeast/ Mid Atlantic area.

From June 1, 2010 through May 31, 2012, facilities downstream of the refiner or importer must continue to designate 500 ppm sulfur NR and LM diesel fuel that they distribute, and must keep records of all volumes of fuel designated as these fuels. In many cases, we expect that downstream facilities will not change the designation of diesel fuel from 500 ppm sulfur LM to 500 ppm sulfur NR diesel fuel while the fuel is in their custody. However, today's final rule provides the flexibility to make this change in designation provided that volume balance requirements for 500 ppm sulfur NR diesel fuel are met.

The volume balance for 500 ppm sulfur NR and LM diesel fuel requires that the volumes of 500 ppm sulfur NR and LM diesel fuel received must be compared to the volumes of 500 ppm sulfur NR and LM diesel fuel delivered over a compliance period. The volume of 500 ppm sulfur NR diesel fuel may not increase by a greater proportion than the volume of 500 ppm sulfur LM diesel fuel over a compliance period. The combined pool of 500 ppm sulfur diesel fuel may increase in volume such as the inevitable downgrades from 15 ppm and 500 ppm sulfur diesel fuel when these fuels are shipped by pipeline. The volume balance allows for this to occur while keeping fuel produced as 500 ppm sulfur LM diesel fuel from being shifted to NR fuel. The volume balance calculation allows 500 ppm sulfur NR and LM diesel fuel to increase proportionately, satisfying both needs. 500 ppm sulfur NR and LM diesel fuel compliance will be required on an annual basis, for terminal facilities as well as other entities. Compliance with the volume balance requirement is determined by comparing volumes received and delivered during that compliance period.

Facilities must maintain records regarding each transfer of 500 ppm sulfur NR and LM diesel fuel that they receive and discharge from June 1, 2010 through May 31, 2012 on a batch bybatch basis. These records must include the EPA registration number of the source or recipient 259 facility, and the volume of each fuel transfer. However, for transfers of marked 500 ppm sulfur LM diesel fuel, the recipient or source facility need not be specifically identified. In such cases, records must be kept regarding the total volume of marked 500 ppm sulfur LM diesel fuel that is received, discharged, and in inventory during each compliance period. For transfers of dyed 500 ppm sulfur NR diesel fuel from a truck loading rack, the specific recipients also do not need to be identified. In such cases, records must be kept regarding the total volume of 500 ppm sulfur NR diesel fuel that is received, discharged, and in inventory during each compliance period.

EPA plans to work closely with members of the diesel fuel refining and distribution industry, to provide clear and comprehensive guidance on what is expected of the various parties under the designate and track and volume balance provisions adopted in this rule. EPA invites suggestions from these parties on the most useful ways to provide such guidance.

d. Reporting Requirements i. Compliance and Reporting Periods We believe that any regulatory program should promote compliance and deter noncompliance Today's program includes compliance and reporting provisions to deter noncompliance and to detect and correct instances of noncompliance in a timely fashion. Under today's program entities must submit to the Agency compliance reports containing information on the diesel fuel volumes they handle, separately by fuel designation category. Compliance with these volume designation and tracking requirements will be determined on an annual basis for refiners and pipelines and a quarterly basis for terminals during the first step of today's program. Compliance will be determined on an annual basis for everyone after 2010. To demonstrate compliance, refiners, pipelines, and terminals will be required to submit reports on a quarterly basis during the first step of today's program and then on an annual basis every year thereafter.

We are requiring the submission of volume reports on a quarterly basis during the first step of today's program for several reasons. First, and most importantly, today's program allows entities to change the designations of 500 ppm sulfur diesel fuel from NRLM diesel fuel to highway diesel fuel and heating oil to NRLM diesel fuel on a daily basis ( provided that they later redesignate the same volume of 500 ppm diesel fuel from highway diesel fuel to NRLM diesel fuel and the same volume of NRLM diesel fuel to heating oil). Second, quarterly reporting coupled with quarterly compliance by terminals will constrain the magnitude of any noncompliance. Finally, during the start up of the designate and track system, there may also be a greater potential for errors in the transmission of records between custodians of designated fuels, in the calculations related to compliance with the volume account balance requirements, and in the materials provided in reports.

Today's program establishes quarterly compliance periods which are based on standard industry practices. Specifically, the quarterly compliance periods finalized in today's rule are as follows: 260 ° 1st quarter: July 1  September 30; ° 2nd quarter: October 1  December 31; ° 3rd quarter: January 1  March 31; ° 4th quarter: April 1  June 30.

Where the start and end dates of the program do not line up with these dates, the quarters are lengthened or shortened accordingly ( e. g., June 1, 2007  September 30, 2007, and April 1, 2010  May 31, 2010). Quarterly reports are due two months following the end of the quarterly compliance period ( i. e., December 1, March 1, June 1, and September 1). Annual compliance periods begin on July 1 and end June 30 of the following year. Again, certain annual compliance periods were lengthened or shortened to match the significant dates of the program ( e. g., June 1, 2007  June 30, 2008). Annual reports are due by August 31 following the annual compliance period. For the sake of simplifying compliance and record keeping, the compliance periods for the highway final rule have been adjusted to match these.

Reports must be submitted electronically, or in a form which facilitates direct entry into an electronic database. Without reliance on an electronic database and reporting system to cross check and verify reported information, the designate and track provisions would become so cumbersome as to be virtually unenforceable by EPA staff given projected resource availability.

ii. Reporting Requirements During the First Step of Today's Program During the first step of today's program, from June 1, 2007 through May 31, 2010, entities must report to EPA for each of their facilities regarding the total volume of each of the designated fuels that they receive from, or discharge to, another entity's facility in the fuel distribution system. If a facility is a refiner as well as a distributor ( e. g., a blender of biodiesel or blendstocks from unfinished diesel fuel or heating oil or otherwise both accepts previously designated fuel and also produces fuel), it must also report both volumes produced and released to other entities in its capacity as refiner and also report the volumes received and released for each designation like any other terminal or pipeline.

For example, an entity that operates a pipeline may have multiple points where it discharges fuel, and at each of these points it may supply multiple terminals. The pipeline operator must report on the receipt of designated fuel from each party that transfers fuel to it, and on the designated fuel transferred by the pipeline at each discharge point which specifies the fuel transferred, separately for each of its terminal customers. Entities must report for each of their facilities the total volumes of the designated fuels that were either dyed red, marked, or on which taxes were assessed tax while in their custody. Reports regarding these volumes do not need to include details on the recipients of the fuel ( but product transfer documents must be kept to facilitate EPA's ability to compare the outgoing transfers and to fuel received).

Entities that handle only dyed NRLM diesel fuel, dyed and marked 500 ppm sulfur LM diesel fuel ( 2010 2012) and heating oil, or highway diesel fuel on which taxes have been assessed 126 500 ppm sulfur NR diesel fuel, and starting June 1, 2012, 500 ppm sulfur NRLM diesel fuel,

is not permitted in the Northeast/ Mid Atlantic area and only in the State of Alaska in limited circumstances.

261 do not need to report to EPA. Information from such entities is not needed for compliance purposes, because there is no chance of violating the prohibitions against the shifting of fuel from one pool to another contained in today's rule without also violating either the requirement that highway diesel fuel contain no red dye, or the requirement that NRLM diesel fuel contain no heating oil marker. Furthermore, consistent with the highway rule, there are no periodic reporting requirements regarding the demonstration of compliance with the highway program's antidowngrading requirements in today's rule. Maintenance of records should be sufficient for EPA to adequately monitor compliance with these requirements, as insufficient 15 ppm sulfur diesel fuel availability in an area should highlight potential anti downgrading violations.

Quarterly reports from facilities downstream of the refinery and importer must also include data on the total volume of the designated fuels received, discharged, and in inventory during the quarterly reporting period. Using these data, the reporting party must demonstrate compliance with the volume account balance requirements regarding highway diesel fuel and high sulfur NRLM.

iii. Reporting Requirements During the Second Step of Today's Program We believe that we may safely dispense with quarterly reporting and compliance evaluations starting June 1, 2010 and instead rely on annual reports. During the second step of today's rule, the designate and track requirements will be focused on preventing the use of heating oil in NRLM equipment, and during 2010 2012 preventing the use of 500 ppm sulfur LM diesel fuel in nonroad equipment. By 2010, all reporting parties in the system will have had experience in complying with the program's designate and track provisions. In addition, the Agency will have had ample experience in administering the system. Consequently, we expect that there will be few errors or omissions in reports and that EPA will have determined how best to detect and remedy instances of noncompliance. We believe an annual reporting period is therefore sufficient and appropriate.

Beginning June 1, 2010, entities that produce, import, or take custody of 500 ppm sulfur NRLM diesel fuel, marked heating oil, or unmarked heating oil outside of the Northeast/ Mid Atlantic area and Alaska, must submit an annual report to EPA that provides summary information regarding the transfer of these fuels. 126 Entities must report for each of their facilities the total volume of each of these fuels that they received from, or discharge to, another entity's facility in the fuel distribution system during each annual compliance period. For batches of heating oil that are delivered marked, the reports do not need to indicate the entities to which the batches were delivered   only the total volume of marked heating oil delivered during each compliance period must be reported. If an entity only receives marked heating oil ( i. e., it does not receive any 127 During this time period, 500 ppm sulfur NR diesel fuel is not permitted in the Northeast/ Mid Atlantic area and only in the State of Alaska in limited circumstances.

128 See 66 FR 36543, July 12, 2001 ( notice proposing approval of Houston SIP revisions). See also letter from Carl Edlund, Director, Multimedia Planning and Permitting Division, U. S. Environmental Protection Agency, Region VI, to Jeffrey Saitas, Executive Director, Texas Natural Resources Conservation Commission, dated September 25, 2000, providing comments on proposed revisions to the Texas State Implementation Plan for the control of ozone, specifically the Post 99 Rate of Progress Plan and Attainment Demonstration for the Houston/ Galveston area. This letter noted that preemption under section 211( c)( 4) of the CAA did not apply to controls on nonroad diesel fuel.

262 unmarked heating oil), it does not need to report at all. If a facility received marked heating oil in addition to unmarked heating oil, it must report the volume of marked heating oil separately and indicate the facility from which the marked heating oil was received.

Beginning June 1, 2010 to June 1, 2012, entities that produce, import, or take custody of 500 ppm sulfur NR and LM diesel fuel outside of the Northeast/ Mid Atlantic area and Alaska, must submit an annual report to EPA that provides summary information regarding the transfer of these fuels. 127 Entities must report for each of their facilities the total volume of each of these fuels that they received from, or discharge to, another entity's facility in the fuel distribution system during each annual compliance period. For batches of 500 ppm sulfur LM diesel fuel that are delivered marked, the reports do not need to indicate the entities to which the batches were delivered   only the total volume of marked 500 ppm sulfur LM diesel fuel delivered during each compliance period must be reported. If an entity only receives marked 500 ppm sulfur LM diesel fuel ( i. e., it does not receive any unmarked 500 ppm sulfur LM diesel fuel), it does not need to report at all. If a facility received marked in addition to unmarked 500 ppm sulfur LM diesel fuel, it must report the volume of marked 500 ppm sulfur LM diesel fuel separately and indicate the facility from which the marked 500 ppm sulfur LM diesel fuel was received.

E. How Are State Diesel Fuel Programs Affected by the Sulfur Diesel Program?

Section 211( c)( 4)( A) of the CAA prohibits states and political subdivisions of states from prescribing or attempting to enforce, for purposes of motor vehicle emission control, " any control or prohibition respecting any characteristic or component of a fuel or fuel additive in a motor vehicle or motor vehicle engine," if EPA has prescribed " a control or prohibition applicable to such characteristic or component of the fuel or fuel additive" under section 211( c)( 1). This prohibition applies to all states except California, as explained in section 211( c)( 4)( B). This express preemption provision in section 211( c)( 4)( A) applies only to controls or prohibitions respecting any characteristics or components of fuels or fuel additives for motor vehicles or motor vehicle engines, that is, highway vehicles. It does not apply to controls or prohibitions respecting any characteristics or components of fuels or fuel additives for nonroad engines or nonroad vehicles. 128 263 Section 211( c)( 4)( A) specifically mentions only controls respecting characteristics or components of fuel or fuel additives in a " motor vehicle or motor vehicle engine," adopted " for purposes of motor vehicle emissions control," and the definitions of motor vehicle and nonroad engines and vehicles in CAA section 216 are mutually exclusive. This is in contrast to sections 211( a) and ( b), which specifically mention application to fuels or fuel additives used in nonroad engines or nonroad vehicles, and with section 211( c)( 1) which refers to fuel used in motor vehicles or engines or nonroad engines or vehicles.

Thus, today's action does not preempt state controls or prohibitions respecting characteristics or components of fuel or fuel additives used in nonroad, locomotive, or marine engines or nonroad, locomotive, or marine vehicles under the provisions of section 211( c)( 4)( A). At the same time, a state control that regulates both highway fuel and nonroad fuel is preempted to the extent that the state control respects a characteristic or component of highway fuel regulated by EPA under section 211( c)( 1).

A court may consider whether a state control for fuels or fuel additives used in nonroad engines or nonroad vehicles is implicitly preempted under the supremacy clause of the U. S. constitution. Courts have determined that a state law is preempted by federal law where the state requirement actually conflicts with federal law by preventing compliance with the federal requirement, or by standing as an obstacle to accomplishment of congressional objectives. A court could thus consider whether a given state standard for sulfur in nonroad, locomotive or marine diesel fuel is preempted if it places such significant cost and investment burdens on refiners that refiners cannot meet both state and federal requirements in time, or if the state control would otherwise meet the criteria for conflict preemption.

F. Technological Feasibility of the 500 and 15 ppm Sulfur Diesel Fuel Program This section summarizes our assessment of the feasibility of refining and distributing 500 ppm NRLM diesel fuel starting in 2007 and 15 ppm nonroad diesel fuel in 2010 and locomotive and marine diesel fuel in 2012. Based on this evaluation, we believe it is technologically feasible for refiners and distributors to meet both sulfur standards in the lead time provided with the desulfurization technology available. We begin this section by describing the nonroad, locomotive and marine diesel fuel market and how these fuels differ from current highway diesel fuel. We discuss desulfurization technologies, both conventional and advanced, which are available for complying with the 500 ppm and 15 ppm NRLM standards. We then present what mix of technologies we believe will be used. Next we provide our analysis of the lead time for complying with either standard. Finally, we analyze the feasibility of distributing low sulfur NRLM diesel fuel. We refer the reader to the Final RIA for more details regarding these assessments.

1. What Is the Nonroad, Locomotive and Marine Diesel Fuel Market Today?

Nonroad, locomotive and marine ( NRLM) engines almost exclusively use No. 2 distillate fuel. No. 2 distillate fuel is a class of fuel defined by its boiling range. It boils at a higher average 129 " Standard Specification for Diesel Fuel Oils," ASTM D 975 98b and " Standard Specifications for Fuel Oils," ASTM D 396 98.

130 These ASTM requirements were formed after and are consistent with the EPA regulations for highway diesel fuel.

131 Some states, particularly those in the Northeast, limit the sulfur content of No. 2 fuel oil to 2000  3000 ppm.

264 temperature than gasoline, No. 1 distillate, jet fuel and kerosene, and at a lower average temperature than residual fuel ( or bunker fuel). ASTM defines three No. 2 distillate fuels: 1) low sulfur No. 2 diesel fuel ( No. 2 D); 2) high sulfur No. 2 D; and 3) No. 2 fuel oil. 129 Low sulfur No. 2 D fuel must contain 500 ppm sulfur or less, have a minimum cetane number of 40, and have a minimum cetane index limit of 40 ( or a maximum aromatic content of 35 volume percent)( i. e., meet the EPA standard for highway diesel fuel). 130 Both high sulfur No. 2 D and No. 2 fuel oil must contain no more than 5000 ppm sulfur, 131 and currently averages 3000 ppm nationwide. The ASTM specification for high sulfur No. 2 D fuel also includes a minimum cetane number of 40. Practically, since most No. 2 fuel oil meets this minimum cetane number specification, pipelines which ship fuel fungibly need only carry one high sulfur No. 2 distillate fuel which meets both sets of specifications. Currently, nonroad, locomotive and marine engines can be and are fueled with both low and high sulfur No. 2 D fuels. If No. 1 distillate is blended into highway diesel fuel, as is sometimes done to prevent gelling in the winter, the final blend must meet the 500 ppm EPA cap.

No. 1 distillate ( e. g., jet fuel and kerosene) meets lower boiling point and viscosity specifications requirements than No. 2 distillate. No. 1 distillate, or any of these other similar boiling distillates, added to No. 2 NRLM distillate becomes NRLM diesel fuel and thus, must meet the applicable specifications for No. 2 distillate.

For the purpose of this rule, we split the No. 2 distillate market into three pieces, according to the sulfur standard which each must meet: 1) highway diesel fuel, 2) NRLM diesel fuel, and heating oil, which is used in both furnaces and boilers, as well as in stationary diesel engines to generate power.

In the NPRM, EPA estimated current production and demand for NRLM fuel from studies conducted by the U. S. Energy Information Administration ( EIA). We projected growth in nonroad fuel demand using EPA's NONROAD emission model. We based the growth in locomotive and marine fuel demand from analyses supporting EPA's locomotive and marine engine rulemaking. These future levels of NRLM fuel demand differed from those implicit in our projection of the emission reductions associated with the rule, which were based primarily on EPA's NONROAD emission model. We pointed out this inconsistency in the rule and indicated that we would resolve this inconsistency for the final rule. 265 In their comments on the NPRM, the American Petroleum Institute ( API), the Engine Manufacturers Association ( EMA) and others highlighted this inconsistency and suggested that EPA resolve it by basing its projection of future NRLM fuel demand using information developed by EIA and not from the NONROAD emission model. API pointed to a lower estimate of nonroad fuel demand developed in a contracted study performed by Baker and O'Brien. A detailed analysis of these comments and additional technical analyses of distillate fuel demand are described in Section <IP_ADDRESS> of the Summary and Analysis document to this rule. In summary, we decided to continue using the NONROAD emission model to project the emission benefits of this rule. To eliminate the inconsistency in the NPRM, we also use the NONROAD model to determine demand for nonroad fuel and project the economic impacts of this final rule. However, the analyses presented in Section <IP_ADDRESS> of the Summary and Analysis document to this rule identified uncertainties in the current and future level of nonroad fuel demand. To insure that these uncertainties did not affect the outcome of this rulemaking process, we evaluate the emissions, costs and cost effectiveness of the standards contained in this rule using an alternative estimate of nonroad fuel demand derived from EIA information. This alternative analysis is presented in Appendix 8A of the Final RIA. In addition to use of the NONROAD model to project nonroad fuel demand, we also updated our projections of the production of and demand for highway fuel and heating oil using more recent versions of the same EIA reports used in the NPRM analysis.

In 2001, nationwide outside of California, nonroad diesel fuel comprised about 18 percent of all No. 2 distillate fuel, while locomotive and marine diesel fuel comprised about eight percent of all No. 2 distillate fuel. Diesel fuel consumed by highway vehicles/ engines comprised about 56 percent of all No. 2 distillate fuel. Heating oil comprised about 19 percent of No. 2 distillate. Because of limitations in the fuel distribution system and other factors, about 18 percent of all non highway distillate met the 500 ppm highway diesel fuel cap. Thus, about 64 percent of No. 2 distillate pool met the 500 ppm sulfur cap, not just the 56 percent used in highway vehicles. We project that this spillover of highway fuel to the NRLM diesel fuel market will continue under the highway diesel fuel program. Thus, today's rule will only materially affect about 19 percent of today's distillate market. The remaining 17 percent of No. 2 distillate which is high sulfur heating oil is estimated to remain at higher sulfur levels.

This rule will also affect any No. 1 distillate which is blended into wintertime NRLM fuel. Because gelling can also be prevented through the use of pour point additives, the current and future level of this of No. 1 distillate blending is uncertain. However, the feasibility of desulfurizing and distributing this No. 1 distillate will also be addressed below.

2. What Technology Will Refiners Use to Meet the 500 ppm Sulfur Cap?

Refiners currently hydrotreat most or all of their distillate blendstocks using what is commonly referred to as " conventional" hydrotreating technology to meet the 500 ppm sulfur and cetane limits applicable to highway diesel fuel. This conventional technology has been available and in use for many years. U. S. refiners have nearly ten years of experience with this technology in producing highway diesel fuel. The distillate blendstocks comprising NRLM fuel do not differ 132 These refiners have said that they will leave the highway market in 2006 in their precompliance reports for complying with the Highway Diesel Rule, thus freeing up their existing hydrotreaters to produce 500 ppm NRLM diesel fuel.

266 substantially from those comprising highway diesel fuel. Thus, the technology to produce 500 ppm sulfur NRLM diesel fuel has clearly been demonstrated and optimized over the last decade. Additionally, this technology continues to evolve primarily through the development of more active catalysts and motivated by the 15 ppm cap applicable to most highway diesel fuel starting in 2006.

Several advanced desulfurization technologies are being developed and are discussed in more detail in the next section. However, the fact that none of these technologies have been demonstrated commercially for a typical catalyst life ( i. e., two years) makes it unlikely that they would be selected by many refiners for use in mid 2007. Also, these advanced technologies promise the greatest cost savings in achieving 15 ppm levels, rather than 500 ppm. These advanced technologies can also be combined with a conventional hydrotreater to meet the 15 ppm standard in 2010 and 2012. EPA therefore projects that the 500 ppm sulfur cap NRLM standard will be met using conventional hydrotreating technology. We made this same projection in the NPRM and no comments to the contrary were received.

In some cases, refiners will also need to install or expand several ancillary processes related to sulfur removal ( e. g., hydrogen production and purification, sulfur processing, and sour water treatment). These technologies are all commercially demonstrated, as nearly all refineries already have such units.

3. Is the Leadtime Sufficient to Meet the 2007 500 ppm NRLM Sulfur Standard?

After the highway diesel fuel program is implemented, we project that 92 refineries in U. S. will be producing high sulfur distillate fuel. We project that 36 of these refineries will likely produce 500 ppm sulfur NRLM diesel fuel in 2007. Of those 36, 30 will have to build new hydrotreaters while the other 6 are expected to use existing hydrotreaters to produce 500 ppm NRLM diesel fuel. 132 The remaining 56 refineries are projected to continue to produce high sulfur distillate fuel, with 26 of the 56 refineries producing heating oil. The other 30 refineries are owned by small refiners and will likely produce high sulfur NRLM diesel fuel. The 56 refineries continuing to produce high sulfur distillate will not have to add or modify any equipment to continue producing this fuel.

This rule will provide refiners and importers 37 months before they will have to begin producing 500 ppm NRLM diesel fuel on June 1, 2007. Our lead time analysis projects that 27 39 133 " Highway Diesel Progress Review," USEPA, EPA420 R 02 016, June 2002. The leadtime analysis in the RIA can be found in section 5.3.

267 months are typically needed to design and construct a diesel fuel hydrotreater. 133 As discussed below, we believe that 37 months will be sufficient for all refiners of NRLM fuel.

Easing the task is the fact that we project that essentially all refiners will use conventional hydrotreating to comply with the 500 ppm sulfur NRLM diesel fuel cap. This technology has been used extensively for more than 10 years and its capabilities to process a wide range of diesel fuel blendstocks are well understood. Thus, the time necessary to apply this technology for a specific refiner's situation should be relatively short.

Twenty six out of the 36 refineries projected to produce 500 ppm NRLM diesel fuel in 2007 have indicated that they will produce highway diesel fuel in their highway diesel fuel pre compliance reports, see RIA section <IP_ADDRESS>.4.1, Table 7.2.1 38 and following discussion for description of these refineries. Thus, roughly 70% of the refiners likely to produce 500 ppm sulfur NRLM diesel fuel in 2007 are already well into their planning for meeting the 15 ppm highway diesel fuel standard, effective June 1, 2006. It is likely that these refiners have already chemically characterized their high sulfur diesel fuel blendstocks, as well as their highway diesel fuel, in assessing how to meet produce 15 ppm fuel. They will also have already assessed the various technologies for producing 15 ppm diesel fuel. This provides an extensive base of information on how to design a hydrotreater to produce 500 ppm NRLM fuel, as well as how to revamp this hydrotreater to produce 15 ppm NRLM diesel fuel in 2010 and 2012. Those refiners only producing high sulfur distillate fuel today will be able to take advantage of the significant experience that technology vendors have obtained in assisting refiners of highway diesel fuel meet the 15 ppm cap in 2006.

We also expect that roughly 20 percent of the 101 refineries in the U. S. and its territories will build a new hydrotreater to produce 15 ppm highway fuel. Those which also produce high sulfur distillate will be able to produce 500 ppm NRLM fuel with their existing highway hydrotreater. In 2007, we conservatively assumed that 20% of the 500 ppm NRLM production from refineries that produce highway and high sulfur distillate could be produced with these existing treaters at no capital costs ( existing highway treater capacity available for 500 ppm NRLM production would be higher if based on highway treater capacity). Thus, in 2007 we project that four refineries will be able to use their recently idled highway treater due to building a new highway treater unit for 2006. Furthermore, the highway diesel program pre compliance reports indicate that another 7 refineries currently producing 500 ppm highway fuel will likely leave the highway fuel market in 2006. We project that 2 of these would use their existing treater to produce 500 ppm NRLM with no investment costs. Another three of these 101 refineries produce relatively small volumes of high sulfur distillate compared to highway diesel fuel today. We project that they will be able to produce 500 ppm sulfur NRLM fuel from their high sulfur distillate with only minor modification to their existing highway diesel fuel hydrotreater. 268 Refiners not planning on producing 100 percent highway fuel in 2006 will also need some time to assess which distillate market in which to participate starting in 2007, NRLM or heating oil. While this is a decision which requires some amount of time for analysis, refiners also needed to assess what market they would participate in for the 1993 500 ppm highway diesel fuel sulfur cap. In all, we project that the task of producing 500 ppm sulfur NRLM fuel in 2007 will be less difficult than the task refiners faced with the implementation of the 500 ppm highway diesel fuel cap in 1993. Refiners had just over three years of lead time for complying with the 1993 500 ppm highway diesel fuel cap, as is the case here, and this proved sufficient.

No explicit comments were made by refiners on the lead time needed for complying with the proposed NRLM 500 ppm sulfur standard. However, their comments supported the two step approach, preferring it over a one step, 15 ppm NRLM cap starting in 2008.

4. What Technology Will Refiners Use to Meet the 15 ppm Sulfur Cap?

In the highway diesel rule, we projected that refiners producing 15 ppm fuel in 2006 would utilize extensions of conventional hydrotreating technology. We also projected that refiners first producing 15 ppm fuel in 2010 would use a mix of extensions of conventional and advanced technologies. Based on the refiners' highway pre compliance reports, it appears that 95% of highway fuel could meet the 15 ppm cap in 2006. We expect that virtually all of this 15 ppm fuel will be produced with conventional hydrotreating. Thus, it appears that conventional hydrotreating will be used to produce the vast majority of 15 ppm highway diesel fuel.

In the nonroad NPRM, we projected that refiners would use advanced desulfurization technologies to produce 80 percent of 15 ppm nonroad diesel fuel in 2010, with the balance using conventional hydrotreating. At the time of the NPRM, all of the advanced technologies appeared to be progressing rapidly. Since the proposal, we have learned that a couple of these technologies, Unipure and S Zorb, are not going to be commercially demonstrated as soon as expected. However, one refiner is already using Process Dynamics' IsoTherming technology to commercially produce 15 ppm diesel fuel. Thus, we continue to believe that advanced technologies will be used to produce a large percentage of 15 ppm NRLM fuel. However, the number of advanced technologies used may be smaller. Because of the more limited choices, we project that the penetration of advanced technologies will be only 60 percent. The remainder of this section discusses the production of 15 ppm diesel fuel using conventional and advanced technologies.

One approach to produce 15 ppm NRLM fuel would be to revamp the conventional hydrotreater built to produce 500 ppm NRLM fuel in 2007. Knowing that the 500 ppm NRLM cap will only be in effect for three years for nonroad refiners and five years for locomotive and marine refiners ( four years for small refiners), we expect that refiners will design their 500 ppm hydrotreater to allow the production of 15 ppm fuel through the addition of reactor volume or a second hydrotreating stage. Refiners might also shift to a more active catalyst in the existing reactor, as the life of that catalyst might be nearing its end. Equipment to further purify its hydrogen supply could also be added. Producing 15 ppm NRLM fuel via these steps will be 134 " Highway Diesel Progress Review," USEPA, EPA420 R 02 016, June 2002.

269 feasible as they are essentially the same steps refiners will be using in 2006 to produce 15 ppm highway diesel fuel.

EPA recently reviewed the progress being made by refining technology vendors and refiners in meeting the 2006 highway diesel sulfur cap. 134 All evidence available confirms EPA's projection that conventional hydrotreating will be capable of producing diesel fuel containing less than 10 ppm sulfur. Furthermore, as part of the highway program's reporting requirements, refiners are required to report their progress in complying with the 15 ppm highway diesel fuel standard. In those reports they indicated that they primarily will be applying extensions of conventional hydrotreating. NRLM fuel refiners will have the added advantage of being able to design their 500 ppm hydrotreater with the production of 15 ppm fuel in mind. Additionally, refiners producing 15 ppm NRLM fuel will be able to take advantage of the experience gained from those producing 15 ppm highway fuel.

As mentioned above, several advanced technologies are presently being developed to produce 15 ppm diesel fuel at lower cost. One of these advanced technologies, Process Dynamics IsoTherming, improves the contact between hydrogen, diesel fuel and the desulfurization catalyst. The IsoTherming process dissolves the hydrogen in the liquid fuel phase prior to passing the liquid over the catalyst, eliminating the need for a two phase ( gas and liquid) reactor. The liquid, plug flow reactor design also avoids the poor liquid distribution over the catalyst bed often present in a two phase reactor design. Process Dynamics projects that their IsoTherming process could reduce the hydrotreater volume required to achieve sub 15 ppm sulfur levels by roughly a factor of two.

Process Dynamics has already built a commercial sized demonstration unit ( 5000 barrels per day) at a refinery in New Mexico. They have been operating the unit since September 2002, and demonstrating the capability to meet a 15 ppm cap since the spring of 2003. Thus, refiners will have 4 5 years of operating data on this process before they would have to select a technology to produce 15 ppm nonroad diesel fuel in 2010, and 6 7 years before producing 15 ppm locomotive and marine diesel fuel in 2012. This should be more than sufficient for essentially all refiners to consider this process for 2010 or 2012. Based on information received from Process Dynamics, we estimate that this technology could reduce the cost of meeting the 15 ppm cap for many refiners by about 30 percent. This savings arises from a smaller reactor, less catalyst and avoiding the need for a recycle gas compressor and reactor distributor. Refineries facing poorer economies of scale, such as small refineries, would particularly benefit from this desulfurization process.

A second process being developed to produce 15 ppm diesel fuel is the Unipure oxidation process. This process oxidizes the sulfur in distillate molecules, facilitating its removal. Unipure Corporation installed a small ( 50 barrels per day), continuous flow demonstration unit at Valero's Krotz Spring refinery in the spring of 2003. It appears that this technology could reduce the cost 270 of producing 15 ppm diesel fuel for some refiners compared to conventional hydrotreating. However, the small size of the demonstration unit may make the risk associated with a new technology too large. Thus, we believe that this technology needs be demonstrated further before most refiners will seriously considered it for commercial application. This technology, however, may be ideal for use at transmix processing plants or large terminals to reprocess 15 ppm diesel fuel which have become contaminated during shipment. We discuss this distillate downgrade in greater detail in Section VI. A. 2 of this preamble. This oxidation process avoids the need for high pressure hydrogen, which is usually not economically available at these smaller facilities.

Finally, Conoco Phillips has adapted their S Zorb adsorption technology which was originally designed for gasoline desulfurization, for diesel fuel desulfurization. At the time of the NPRM, Conoco Phillips had signed 23 licensing agreements with refiners in North America regarding the use of S Zorb to comply with the Tier 2 gasoline sulfur standards. Furthermore, Conoco Phillips had plans for the quick installation of an S Zorb unit to demonstrate the production of 15 ppm diesel fuel. However, we have since learned that Conoco Phillips has dropped its plans to build a commercial demonstration unit for desulfurizing diesel fuel. Without a commercial unit operating in the 2006 time frame, we do not believe that many refiners will seriously consider S Zorb to produce 15 ppm NRLM diesel fuel in 2010 and 2012.

Due to the fact that the Process Dynamics IsoTherming process is already operating commercially and operational data indicate a 30 percent reduction in the cost of producing 15 ppm fuel relative to conventional hydrotreating, we project that 60 percent of the new volume of 15 ppm NRLM diesel fuel will be produced using this technology. We project that the remaining 40 percent of 15 ppm NRLM diesel fuel will use extensions of conventional hydrotreating. We assume this 60/ 40 mix of Isotherming and extensions of conventional hydrotreating, respectively, for 2010, 2012 and even for 2014 when the small refiners exemptions expire.

API commented that the advanced desulfurization technologies have not been commercially demonstrated and thus should not be used as the basis for estimating the cost of desulfurizing NRLM diesel fuel to 15 ppm. While this is true for the Unipure oxidation and Conoco Phillip's SZorb processes, the Process Dynamics IsoTherming process has been commercially demonstrated. It is therefore appropriate for use as a partial basis for the refining costs associated with today's final rule. To indicate the effect that this projection for the use of IsoTherming has on the rule's cost, in Section 7.2.2 of the Final RIA, we estimate the cost of producing 15 ppm NRLM fuel with only the use of conventional hydrotreating technology.

5. Is the Leadtime Sufficient to Meet the 2010 and 2012 15 ppm NRLM Sulfur Cap?

We project that 32 refineries will produce 15 ppm nonroad diesel fuel in 2010, with two of these being owned by small refiners. In 2012, we project that 15 refineries will produce 15 ppm locomotive and marine diesel fuel. We project that an additional 15 refineries will produce 500 ppm nonroad diesel fuel in 2010 under the small refiner provisions included in the today's final 271 rule. Then in 2014, we project that the 15 refineries exempted under the small refiner provisions will begin producing 15 ppm NRLM diesel fuel in 2014.

The timing of this rule provides refiners and importers with more than six years before they will have to produce 15 ppm nonroad diesel fuel, and two years more for producing 15 ppm locomotive and marine diesel fuel. Our leadtime analysis, which is presented in Section 5.4.2 of the Final RIA, projects that 30 39 months are typically needed to design and construct a diesel fuel hydrotreater, perhaps less if it is a Process Dynamics unit. Thus, refiners will have about three years before they would have to begin detailed design and construction for 2010, and five years before 2012. This will allow sufficient time to consult with vendors, test their diesel fuel in pilot plants to assess the difficulty of its desulfurization via a variety of technologies, and to select its technology for 2010 and 2012. In addition, these refiners will also have the chance to observe the performance of the hydrotreaters being used to produce 15 ppm highway diesel fuel for at least one year for those complying in 2010, and two years more for those complying in 2012. While not a full catalyst cycle, any unusual degradation in catalyst performance should be apparent within the first year. Based on the pre compliance reports, some refineries in the U. S. will be producing 15 ppm sulfur highway diesel fuel earlier than 2006. Some refineries are expected to produce complying fuel earlier than the compliance date in Europe as well. The refineries which are complying early will accrue experience earlier and longer providing refiners a better sense of the reliability of producing 15 ppm diesel fuel. Thus, we project that the 2010 and 2012 start dates will allow refiners to be quite certain that the designs they select in mid 2007 will perform adequately in 2010 and 2012.

In addition, refiners will have three to four years or more to observe the performance of the Process Dynamics IsoTherming process before having to make their technology selections for 2010 and 2012 . This should be more than adequate to fully access the costs and capabilities of this technology for all but the most cautious refiners.

Considering the amount of leadtime available and the desulfurization technologies which will be available and proven for complying with a 15 ppm sulfur standard, we do not expect that the leadtime for complying with the 15 ppm NRLM cap standard in 2010 and 2012 will be an issue for refiners.

6. Feasibility of Distributing 500 and 15 ppm NRLM Fuel There are two considerations with respect to the feasibility of distributing non highway diesel fuels meeting the sulfur standards in today's rule. The first pertains to whether sulfur contamination can be adequately managed throughout the distribution system so that fuel delivered to the end user does not exceed the specified maximum sulfur concentration. The second pertains to the physical limitations of the system to accommodate any additional segregation of product grades. 272 a. Limiting Sulfur Contamination With respect to limiting sulfur contamination during distribution, the physical hardware and distribution practices for non highway diesel fuel do not differ significantly from those for highway diesel fuel. Therefore, we do not anticipate any new issues with respect to limiting sulfur contamination during the distribution of non highway fuel that would not have already been accounted for in distributing highway diesel fuel. Highway diesel fuel has been required to meet a 500 ppm sulfur standard since 1993. Thus, we expect that limiting contamination during the distribution of 500 ppm non highway diesel engine fuel can be readily accomplished by the industry. This applies to locomotive and marine diesel fuel as well as nonroad diesel fuel.

In the highway diesel rule, EPA acknowledged that meeting a 15 ppm sulfur specification would pose a substantial new challenge to the distribution system. Refiners, pipelines, and terminals would have to pay careful attention to and eliminate any potential sources of contamination in the system ( e. g., tank bottoms, deal legs in pipelines, leaking valves, interface cuts, etc.). In addition, bulk plant operators and delivery truck operators would have to carefully observe recommended industry practices to limit contamination, including practices as simple as cleaning out transfer hoses, proper sequencing of fuel deliveries, and parking on a level surface when draining the storage tank. Due to the need to prepare for compliance with the highway diesel program, we anticipate that issues related to limiting sulfur contamination during the distribution of 15 ppm NRLM diesel fuel will be resolved well in advance of the 2010 and 2012 implementation dates . We are not aware of any additional issues that might arise unique to NRLM diesel fuel. If anything we anticipate limiting contamination will become easier as batch sizes are allowed to increase and potential sources of contamination decrease as more and more of the diesel pool turns over to 500 and 15 ppm sulfur. Industry representatives acknowledge that the task can be accomplished. However, they are still in the process of identifying all of the measures that will need to be taken.

b. Potential Need for Additional Product Segregation As discussed in section IV. D, we have designed the NRLM diesel fuel program to minimize the need for additional product segregation and the feasibility and cost issues associated with it. This final rule allows for the fungible distribution of 500 ppm highway and 500 ppm sulfur NRLM diesel fuel in 2007, and 15 ppm highway and 15 ppm NR diesel fuel in 2010 and 15 ppm NRLM diesel fuel in 2012, up until the point where NRLM, LM, or nonroad fuel must be dyed for IRS excise tax purposes. We proposed that heating oil would be required to be segregated throughout the distribution system by the use of a marker added at the refiners from 2007 through 2010. We received comments that addition of the marker at the refinery would cause significant concerns regarding potential marker contamination in the jet fuel. In responding to these and other comments, we have chosen to adopt a designate and track system of ensuring refiner compliance with desulfurization requirements ( see IV. D.). This allows the point of marker addition to be moved downstream to the terminal where such contamination concerns are minimal. As a result 135 The fuel marker requirements only apply outside of the Northeast/ Mid Atlantic area. Inside the Northeast/ Mid Atlantic area, high sulfur NRLM cannot be sold to end users. See section IV. D for a detailed discussion of the fuel marker provisions.

136 15 ppm diesel fuel and high sulfur heating oil will be the largest volume products at such terminals.

137 The definition of a refiner includes persons who produce highway or NRLM diesel fuel by blending.

138 This fuel will be produced by transmix processors and at terminals by segregating the pipeline interface between 15 ppm diesel fuel and jet fuel.

273 heating oil and high sulfur NRLM will also be fungible in the distribution system up to the point where the fuel marker must be added at the terminal. 135 The design of today's fuel program eliminates any potential feasibility issues associated with the need for product segregation. This is not to say that additional steps will not have to be taken. However, this program will result in only a limited number of entities in the distribution system choosing to add new tankage due to new product segregation. Bulk plants in areas of the country where heating oil is expected to remain in the market will have to decide whether to add tankage to distribute both heating oil and 500 ppm sulfur NRLM fuel. Terminal operators commented that the proposed presence of a fuel marker in heating oil would make it impossible for them to blend 500 ppm sulfur diesel from 15 ppm sulfur and high sulfur fuels. They related that this ability would be important to certain terminal operators who would not have the storage facilities available for three grades of diesel fuel, but would still not wish to forgo selling 500 ppm diesel fuel. 136 Today's rule allows the required marker to be added to heating oil before it leaves the terminal ( see section IV. D of this preamble). Therefore, terminals will be able to blend 500 ppm diesel from 15 ppm and high sulfur diesel fuels, provided they fulfill all of the responsibilities associated with acting as a fuel refiner ( see section V of this preamble). 137 However, because this will be a relatively costly way of producing 500 ppm diesel fuel, we do not expect that the practice will be widespread. In all other cases we anticipate segments of the distribution system will choose to avoid any fuel segregation costs by limiting the range of sulfur grades they choose to carry, just as they do today. Regardless, however, the costs and impacts of these choices are small. A more detailed explanation of this assessment can be found in chapter 7 of the RIA.

A limited volume of 500 ppm sulfur diesel fuel is projected to be produced downstream due to interface mixing in the distribution system ( see section IV. A). 138 Fuel from these sources is currently sold into the NRLM and heating oil markets. The implementation of the 15 ppm sulfur standard for NR diesel fuel in 2010 and for LM diesel fuel in 2012 raises the concern that the heating oil market might be insufficient to absorb all such downstream 500 ppm sulfur diesel fuel in areas outside of the Northeast ( where most heating oil is used). If the market for this fuel was 139 While today's rule does not contain an end date for the downstream distribution of 500 ppm sulfur locomotive and marine fuel, we will review the appropriateness of allowing this flexibility based on experience gained from implementation of the 15 ppm sulfur NRLM diesel fuel standard. We expect to conduct such an evaluation in 2011.

140 DoD Performance Specification, Inhibitor, Corrosion/ Lubricity Improver, Fuel Soluble,

MIL PRF 25017F, 10 November 1997, Superseding MIL I 25017E, 15 June 1989.

141 Chevron Products Diesel Fuel Technical Review provides a discussion of the impacts on fuel lubricity of current diesel fuel compositional requirements in California versus the rest of the nation;

see http:// www. chevron. com/ prodserv/ fuels/ bulletin/ diesel/ l2% 5F7% 5F2% 5Frf. htm.

274 limited, it would have to be trucked back to a refinery to be desulfurized which could raise significant logistical and cost issues. Consequently, today's rule provides that 500 ppm sulfur diesel fuel produced due to interface mixing can continue to be used in nonroad equipment until 2014 ( subject to specific sulfur requirements for new equipment), and in locomotive and marine engines indefinitely. 139 These provisions ensure that there will be a sufficient market for such 500 ppm sulfur diesel fuel.

G. What Are the Potential Impacts of the 15 ppm Sulfur Diesel Program on Lubricity and Other Fuel Properties?

1. What Is Lubricity and Why Might it Be a Concern?

Engine manufacturers and owner/ operators depend on diesel fuel lubricity properties to lubricate and protect moving parts within fuel pumps and injection systems for reliable performance. Unit injector systems and in line pumps, commonly used in diesel engines, are actuated by cams lubricated with crankcase oil, and have minimal sensitivity to fuel lubricity. However, rotary and distributor type pumps, commonly used in light and medium duty diesel engines, are completely fuel lubricated, resulting in high sensitivity to fuel lubricity. The types of fuel pumps and injection systems used in nonroad diesel engines are the same as those used in highway diesel vehicles. Consequently, nonroad and highway diesel engines share the same need for adequate fuel lubricity to maintain fuel pump and injection system durability.

Diesel fuel lubricity concerns were first highlighted for private and commercial vehicles during the initial implementation of the federal 500 ppm sulfur highway diesel program and the state of California's diesel program. The Department of Defense ( DoD) also has a longstanding concern regarding the lubricity of distillate fuels used in its equipment as evidenced by the implementation of its own fuel lubricity improver performance specification in 1989.140 The diesel fuel requirements in the state of California differed from the federal requirements by substantially restricting the aromatic content of diesel fuel which requires more severe hydrotreating than reducing the sulfur content to meet a 500 ppm standard. 141 Consequently, concerns regarding 142 The cost from the increased use of lubricity additives in 500 ppm NRLM diesel fuel in 2007 and in 15 ppm nonroad diesel fuel in 2010 and locomotive and marine diesel fuel in 2012 is discussed in section VI of this preamble.

275 diesel fuel lubricity have primarily been associated with California diesel fuel and some California refiners treat their diesel fuel with a lubricity additive as needed. Outside of California, hydrotreating to meet the current 500 ppm sulfur specification does not typically result in a substantial reduction of lubricity. Diesel fuels outside of California seldom require the use of a lubricity additive. Therefore, we anticipate only a marginal increase in the use of lubricity additives in NRLM diesel fuel meeting the 500 ppm sulfur standard for 2007.142 Today's action requires diesel fuel used in nonroad, locomotive, and marine diesel engines to meet a 15 ppm sulfur standard in 2010 and 2012, respectively. Based on the following discussion, we believe that the increase in the use of lubricity additives in 15 ppm sulfur NRLM diesel fuel would be the same as that estimated for 15 ppm highway diesel fuel.

The state of California currently requires the same standards for diesel fuel used in nonroad equipment as in highway equipment. Outside of California, highway diesel fuel is often used in nonroad equipment when logistical constraints or market influences in the fuel distribution system limit the availability of high sulfur fuel. Thus, for nearly a decade nonroad equipment has been using federal 500 ppm sulfur diesel fuel and California diesel fuel, some of which may have been treated with lubricity additives. During this time, there has been no indication that the level of diesel lubricity needed for fuel used in nonroad engines differs substantially from the level needed for fuel used in highway diesel engines.

Blending small amounts of lubricity enhancing additives increases the lubricity of poorlubricity fuels to acceptable levels. These additives are available in today's market, are effective, and are in widespread use around the world. Among the available additives, biodiesel has been suggested as one potential means for increasing the lubricity of conventional diesel fuel. Indications are that low concentrations of biodiesel might be sufficient to raise the lubricity to acceptable levels. Biodiesel is a renewable fuel made from agricultural sources such as soybean oil, peanut oil and other vegetable oils as well as rendered and animal fats and recycled cooking oils. Biodiesel generally contains very low amounts of sulfur, which is an attractive characteristic for use in diesel engines using advanced aftertreatment systems. Additionally, biodiesel, by virtue of its lubricity properties, may be a good alternative to additives currently used to ensure adequate fuel lubricity. According to the U. S. Department of Agriculture, there is a current capacity to produce 100 million gallons annually. Thus, we believe that biodiesel is a feasible technology that could help support today's clean diesel fuel program.

Research remains to be performed to better understand which fuel components are most responsible for lubricity. Consequently, it is unclear whether and to what degree the sulfur standards for NRLM diesel fuel will impact fuel lubricity. Nevertheless, there is evidence that the typical process used to remove sulfur from diesel fuel   hydrotreating   can impact lubricity 143 See chapter 5 of the RIA for a discussion of the potential impacts on fuel lubricity of this proposal.

144 Nonroad and highway diesel engines meeting similar emissions standards use similar fuel systems provided by common suppliers. For example, a nonroad engine meeting the 2001 Tier 2 nonroad diesel engine emission standards would have the same fuel system as a highway diesel engine meeting the 1998 highway diesel engine emissions standards.

276 depending on the severity of the treatment process and characteristics of the crude. We expect that hydrotreating will be the predominant process used to reduce the sulfur content of NRLM diesel fuel to meet the 500 ppm sulfur standard during the first step of the program. Similarly, we project that both conventional hydrotreating and the Linde Isotherming process will be used to meet the 15 ppm sulfur standard for NRLM diesel fuel.

Based on our comparison of the blendstocks and processes used to manufacture nonhighway diesel fuels, we believe that the potential decrease in the lubricity of these fuels from hydrotreating that might result from the sulfur standards should be approximately the same as that experienced in desulfurizing highway diesel fuel. 143 To provide a conservative, high cost estimate, we assumed that the potential impact on fuel lubricity from the use of the new desulfurization processes would be the same as that experienced when hydrotreating diesel fuel to meet a 15 ppm sulfur standard. Given that the requirements for fuel lubricity in highway and nonroad engines are the same, and the potential decrease in lubricity from desulfurization of NRLM diesel fuel would be no greater than that experienced in desulfurizing highway diesel fuel, we estimate that the potential need for lubricity additives in NRLM diesel fuel under today's action would be the same as that for highway diesel fuel meeting the same sulfur standard.

a. Farm and Mining Equipment The types of fuel pumps and injection systems used in the nonroad diesel engines found in farm and mining equipment are similar to those used in highway diesel vehicles. 144 The hydrotreating process for generating 500 ppm diesel fuel will not adversely effect fuel injection equipment in farm and mining equipment based on the use of comparable injection systems in highway diesel vehicles. We believe that the use of lubricity additives in 15 ppm sulfur NRLM diesel fuel will be required and result in adequate protection of fuel injection equipment and is similar to that needed for 15 ppm sulfur highway diesel fuel.

b. Locomotives One of the locomotive manufacturers expressed concern in its comments that low sulfur fuel might damage existing locomotives. However, the manufacturer provided no evidence to show that such damage would likely occur. Locomotives already use a significant amount of low sulfur fuel, especially in California, and we have not seen any evidence of sulfur related problems. 277 The railroads expressed a similar concern, but acknowledged that any potential problems would be manageable with sufficient lead time. At this time, we see no reason for any special concern related to locomotives using low sulfur fuel.

2. A Voluntary Approach on Lubricity In the United States, there is no government or industry standard for diesel fuel lubricity. Therefore, specifications for lubricity are determined by the market. Since the beginning of the 500 ppm sulfur highway diesel program in 1993, refiners, engine manufacturers, engine component manufacturers, and the military have been working with ASTM to develop protocols and standards for diesel fuel lubricity in its D 975 specifications for diesel fuel. ASTM is working towards a single lubricity specification that is applicable to all diesel fuel used in any type of engine. Although ASTM has not yet adopted specific protocols and standards, refiners that supply the U. S. market have been treating diesel fuel with lubricity additives on a batch by batch basis, when poor lubricity fuel is produced. ASTM's target implementation date for this specification is January 1, 2005.

The potential need for lubricity additives in diesel fuel meeting a 15 ppm sulfur specification was evaluated during the development of EPA's highway diesel rule. In response to the proposed highway diesel rule, all comments submitted regarding lubricity either stated or implied that the proposed sulfur standard of 15 ppm would likely cause the refined fuel to have lubricity characteristics that would be inadequate to protect fuel injection equipment, and that mitigation measures such as lubricity additives would be necessary. However, the commenters suggested varied approaches for addressing lubricity. For example, some suggested that we need to establish a lubricity requirement by regulation while others suggested that the current voluntary, market based system would be adequate. The Department of Defense recommended that we encourage the industry ( ASTM) to adopt lubricity protocols and standards before the 2006 implementation date of the 15 ppm sulfur standard for highway diesel fuel.

The final highway diesel rule did not establish a lubricity standard for highway diesel fuel. We believe the issues related to the need for diesel lubricity in fuel used in nonroad diesel engines are substantially the same as those related to the need for diesel lubricity for highway engines. Consequently, we expect the same industry based voluntary approach to ensuring adequate lubricity in nonroad diesel fuels that we recognized for highway diesel fuel. We believe the best approach is to allow the market to address the lubricity issue in the most economical manner, while avoiding an additional regulatory scheme. A voluntary approach should provide adequate customer protection from engine failures due to low lubricity, while providing the maximum flexibility for the industry. This approach would be a continuation of current industry practices for diesel fuel produced to meet the current federal and California 500 ppm sulfur highway diesel fuel specifications, and benefits from the considerable experience gained since 1993. It would also include any new specifications and test procedures that we expect would be adopted by ASTM regarding lubricity of NRLM diesel fuel quality. 145 ASTM sub committee D02. E0.

278 In any event, this is an issue that will be resolved to meet the demands of the highway diesel market, and whatever resolution is reached for highway diesel fuel could be applied to NRLM diesel fuel with sufficient advance notice. We are continuing to participate in the ASTM Diesel Fuel Lubricity Task Force145 and will assist their efforts to finalize a lubricity standard. We are hopeful that ASTM can reach a consensus this summer at the next meeting of the ASTM's Lubricity Task Force. If for some reason ASTM does not take action to set a lubricity specification, EPA will consider taking appropriate action to ensure 15 ppm sulfur diesel fuel has adequate lubricity.

3. What Other Impact Would Today's Actions Have on the Performance of Diesel and Other Fuels?

We do not expect that the fuel program finalized today will have any negative impacts on the performance of diesel engines in the existing fleet which would use the fuels regulated today.

While the process of lowering sulfur levels to 500 ppm does lower polynuclear aromatic hydrocarbons ( PNAs) and total aromatics in general, it does not achieve the near zero levels previously seen in California. The 15 ppm sulfur standard will further reduce PNAs, however, in most diesel fuel, there will still be PNAs present. Furthermore, since the 1990' s, diesel engine manufacturers have switched to alternative materials ( such as Viton), which do not experience leakage when PNAs are reduced. We believe that there will be no issues with leaking fuel pump O rings with the changes in diesel fuel sulfur levels required by this rulemaking.

The moderate reduction in PNAs and total aromatics associated with the hydrotreating of diesel fuel will tend to increase the cetane index and number of diesel fuel. This will improve the driveability of vehicles operating on this higher cetane diesel fuel.

We do not expect any negative impacts on other fuels, such as jet fuel or heating oil. We do expect that the sulfur levels of heating oil may decrease because of this rulemaking . Beginning in mid 2007, we expect that controlling NRLM diesel fuel to 500 ppm sulfur will lead many pipelines to discontinue carrying high sulfur heating oil as a separate grade. In areas served by these pipelines, heating oil users will likely switch to 500 ppm sulfur diesel fuel. This will reduce emissions of SO 2 and sulfate PM from furnaces and boilers fueled with heating oil. The primary exception to this will likely be the Northeast, where a distinct higher sulfur heating oil will still be distributed as a separate fuel. Also, we expect that a small volume of moderate sulfur distillate fuel will be created during distribution from the mixing of low sulfur diesel fuels and higher sulfur fuels, such as jet fuel in the pipeline interface. Such moderate sulfur distillate will often be sold by the terminal as high sulfur heating oil, but in fact its sulfur level will be lower than that normally sold as heating oil. 146 Hydrotreating diesel fuel involves the use of process heaters, which have the potential to emit pollutants associated with combustion, such as NOX, PM, CO and SO2. In addition, reconfiguring refinery processes to add desulfurization equipment could increase fugitive VOC emissions. The emissions increases associated with diesel desulfurization would vary widely from refinery to refinery,

depending on many source specific factors, such as crude oil supply, refinery configuration, type of desulfurization technology, amount of diesel fuel produced, and type of fuel used to fire the process heaters.

279 H. Refinery Air Permitting Prior to beginning diesel desulfurization projects, some refineries may be required to obtain a preconstruction permit, under the New Source Review ( NSR) program, from the applicable state/ local air pollution control agency. 146 We believe that today's program provides sufficient lead time for refiners to obtain any necessary NSR permits well in advance of the applicable compliance dates.

Given that today's diesel sulfur program provides roughly three years of lead time before the 500 ppm standard takes effect, we believe refiners will have time to obtain any necessary preconstruction permits. In addition, the experience gained by many refineries to obtain the preconstruction permits needed to comply with the Tier 2 and highway diesel fuel programs should benefit them in obtaining the necessary permits to comply with today's new diesel fuel requirements. Nevertheless, we believe it is reasonable to continue our efforts under the Tier 2 and highway diesel fuel programs, to help states in facilitating the issuance of permits under the NRLM diesel fuel sulfur program whenever such assistance may be needed and requested. We anticipate that such assistance may include both technical and procedural assistance as would be provided by the appropriate EPA Regional and Headquarters offices. Finally, to facilitate the processing of permits, we encourage refineries to begin discussions with permitting agencies and to submit permit applications as early as possible. 280 V. Nonroad, Locomotive and Marine Diesel Fuel Program: Details of the Compliance and Enforcement Provisions As with earlier fuel programs, we have developed a comprehensive set of compliance and enforcement provisions designed to promote effective and efficient implementation of this fuel program and thus to achieve the full environmental potential of the program. The compliance provisions under today's final rule are designed to ensure that nonroad, locomotive, and marine diesel fuel sulfur content requirements are met throughout the distribution system, from the refiner or importer through to the end user, subject to certain provisions applicable during the early transition years. Section IV above describes our program for the reduction of sulfur in nonroad, locomotive and marine ( NRLM) diesel fuel including the standards and basic design of the compliance and enforcement program. This section contains additional details regarding the compliance and assurance program. The provisions discussed in this section fall into several broad categories:

 Special fuel provisions and exemptions;  Additional provisions applicable to refiners and importers;  Additional provisions applicable to parties downstream of the refinery or importer;  Special provisions regarding additives, kerosene, and the prohibition against the use of motor oil in fuel;  Fuel testing and sampling requirements;  Records required to be kept, including those applying under the designate and track, credit provisions, small refiner, and refiner hardship provisions;  Reporting requirements;  Exemptions from the program;  Provisions concerning liability, defenses, and penalties for noncompliance; and  The selection of the marker for heating oil and 500 ppm sulfur LM diesel fuel. ( The specific requirements with respect to heating oil and 500 ppm sulfur LM diesel fuel inside and outside of the Northeast/ Mid Atlantic Area are discussed in section IV. D.)

A. Special Fuel Provisions and Exemptions As discussed in section IV. A. 1 above, the sulfur standards in today's rule generally cover all the diesel fuel that is intended for use in or used in nonroad, locomotive, and marine ( NRLM) applications that is not already covered by the standards for highway diesel fuel. For the purposes of this preamble, this fuel is defined primarily by the type of engine which it is used to power: land based nonroad, locomotive, and marine diesel engines. Section IV. A. 1 above also describes several types of petroleum distillate that are not covered by the sulfur standards promulgated today, including jet fuel and heating oil, provided they are not used in NRLM engines. The following paragraphs discuss several provisions and exemptions for NRLM diesel fuel that will apply in special circumstances. 281 1. Fuel Used in Military Applications NRLM diesel fuel used in military applications is treated in the same manner as under the recent highway diesel rule. Refiners are not required to produce these fuels to the NRLM standards. However, at the same time, their use is limited only to certain military applications. NRLM diesel fuel is defined so that JP 5, JP 8, F76, and any other military fuel that is used or intended for use in NRLM diesel engines or equipment is initially subject to all of the requirements applicable to NRLM diesel fuel. However, today's rule also exempts these military fuels from the diesel fuel sulfur content and other requirements in certain circumstances. First, these fuels are exempt if they are used in tactical military motor vehicles or nonroad engines, or equipment that have a national security exemption from the vehicle or engine emissions standards. Due to national security considerations, EPA's existing regulations allow the military to request and receive national security exemptions ( NSE) for their motor vehicles and NRLM diesel engines and equipment from emissions regulations if the operational requirements for such vehicles, engines, or equipment warrant such an exemption. This final rule does not change these provisions. Fuel used in these applications is exempt. Second, these fuels are also exempt if they are used in tactical military vehicles, engines, or equipment that are not covered by a national security exemption but, for national security reasons ( such as the need to be ready for immediate deployment overseas), these vehicles, engines, and equipment need to be fueled on the same fuel as vehicles, engines, or equipment with a national security exemption. Use of JP 5, JP 8, F76, or any other fuel not meeting NRLM diesel fuel standards in a motor vehicle or NRLM diesel engine or equipment other than the those described above is prohibited under today's rule.

EPA and the Department of Defense have developed a process to address the tactical vehicles, engines, and equipment covered by the diesel fuel exemption and are discussing whether changes to it might be appropriate. Based on data provided by the Department of Defense to date in the context of implementing a similar exemption provision in the highway program, EPA believes that providing an exemption for military fuel used in tactical nonroad engines and equipment will not have any significant environmental impact.

The Department of Defense ( DoD) commented that EPA should reconsider its determination that the definition of diesel fuel includes JP8 and JP5. DoD cited a 1995 letter from EPA which stated that there was insufficient reason to conclude that JP 8 is commonly and commercially known as diesel fuel under the then applicable definition of motor vehicle diesel fuel. Since the time of this letter, EPA has become aware of a substantial number of cases of the misuse of aviation turbine fuel in highway engines. The potential for misuse of JP 8 or similar fuels in NRLM equipment where no national security exemption exists would remain. To ensure that NRLM equipment is properly fueled with low sulfur fuel, the definition of NRLM diesel fuel has been written to encompass all diesel or other distillate fuels used or intended for use in NRLM engines, which would include JP 8 and JP 5. Furthermore, the provisions in today's rule allow vehicles, engines, and equipment to be fueled with military specification fuels that are exempt from the sulfur standards when needed for national security. We believe that this provides DoD with the 282 needed flexibility to meet its goals of keeping vehicles, engines, and equipment ready for quick deployment overseas.

2. Fuel Used in Research, Development, and Testing Today's final rule permits parties to request an exemption from the sulfur or other standards for NRLM diesel fuel used for research, development and testing purposes (" R & D exemption"). We recognize that there may be legitimate research programs that require the use of diesel fuel with higher sulfur levels than allowed under today's rule. As a result, this final rule contains provisions for obtaining an exemption from the prohibitions for persons, producing, distributing, transporting, storing, selling, or dispensing NRLM diesel fuel that exceeds the standards, where such diesel fuel is necessary to conduct a research, development, or testing program.

Parties seeking an R & D exemption must submit an application for exemption to EPA that describes the purpose and scope of the program, and the reasons why higher sulfur diesel fuel is necessary. Upon presentation of the required information, an exemption can be granted at the discretion of the Administrator, with the condition that EPA can withdraw the exemption in the event the Agency determines the exemption is not justified. In addition, an exemption based on false or inaccurate information will be considered void ab initio. Fuel subject to an exemption is exempt from certain provisions of this rule, including the sulfur standards, provided certain requirements are met. These requirements include the segregation of the exempt fuel from nonexempt NRLM and highway diesel fuel, identification of the exempt fuel on PTDs, pump labeling, and where appropriate, the replacement, repair, or removal from service of emission systems damaged by the use of the high sulfur fuel.

3. Fuel Used in Racing Equipment There are no provisions for an exemption from the sulfur or other content standard and other requirements for diesel fuel used in racing in today's final rule. Under certain conditions, racing vehicles are not considered nonroad vehicles. See, for example, 40 CFR § 89.2, definition of " nonroad vehicle." The fuel used by such racing vehicles would not necessarily be considered nonroad diesel fuel. However, we believe that there is a realistic chance that such fuel also could be used in NRLM equipment, and therefore, should be considered NRLM diesel fuel. We received no comments supporting the need for an exemption for racing fuel. We are not aware of any advantage for racing vehicles or racing equipment to use fuel having higher sulfur levels than are required by this rule, and we are concerned about the potential for misfueling of nonroad equipment and motor vehicles that could result from having a high sulfur ( e. g., 3,000 ppm) fuel for vehicle or nonroad equipment available in the marketplace. Consequently, as was the case with the highway diesel rule, this final rule does not provide an exemption from the nonroad diesel fuel requirements for fuel used in racing vehicles or equipment. 283 4. Fuel for Export Fuel produced for export, and that is actually exported for use in a foreign country, is exempt from the fuel content standards and other requirements of this final rule. Such fuel will be considered as intended for use in the U. S. and subject to the standards in today's rule unless it is designated by the refiner as for export only and PTDs state that the fuel is for export only. Fuel intended for export must be segregated from all fuel intended for use in the U. S., and distributing or dispensing such fuel for domestic use is illegal.

B. Additional Requirements for Refiners and Importers The primary requirements for refiners and importers under today's final rule are discussed in section IV above. In that section, we discuss the general structure of the compliance and enforcement provisions applicable to refiners and importers, including fuel content standards, fuel volume designation and tracking provisions, and credit provisions. In this subsection, we discuss several additional requirements for refiners and importers that are not addressed in section IV. In addition, sections V. G, V. H, and V. I below discuss several provisions that apply to all parties in the diesel fuel production and distribution system, including refiners and importers.

1. Transfer of Credits This final rule includes provisions for NRLM diesel sulfur credit transfers that are essentially identical to other fuels rules that have credits provisions. As in other fuels rules, NRLM diesel sulfur credits can only be transferred between the refiner or importer generating the credits and the refiner or importer using the credits. If a credit purchaser can not use all the credits it purchased from the refiner who generated them, the credits can be transferred one additional time. We recognize that there is potential for credits to be generated by one party and subsequently purchased and used in good faith by another party, where the credits are later found to have been calculated or created improperly, or otherwise found to be invalid. As with the reformulated gasoline rule, the Tier 2/ Gasoline Sulfur rule, and the highway diesel sulfur rule, invalid credits purchased in good faith are not valid for use by the purchaser. To allow such use would not be consistent with the environmental goals of the regulation. In addition, both the seller and purchaser of invalid credits must adjust their credit calculations to reflect the proper credits and either party ( or both) can be deemed in violation if the adjusted calculations demonstrated noncompliance. We expect that the parties to such a credit transaction will develop contractual provisions to address these circumstances.

Nevertheless, in a situation where invalid credits are transferred, our strong preference will be to hold the credit seller liable for the violation, rather than the credit purchaser. As a general matter we expect to enforce a shortfall in credit compliance calculations against the credit seller, and we expect to enforce a compliance shortfall ( caused by the good faith purchase of invalid credits) against a good faith purchaser only in cases where we are unable to recover sufficient valid credits from the seller to cover the shortfall. Moreover, in settlement of such cases we will 284 strongly encourage the seller to purchase credits to cover the good faith purchaser's credit shortfall. EPA will consider the covering of a credit deficit through the purchase of valid credits a very important factor in mitigation of any case against a good faith purchaser, whether the purchase of valid credits is made by the seller or by the purchaser.

2. Additional Provisions for Importers and Foreign Refiners Subject to the Credit Provisions or Hardship Provisions Since this final rule includes several compliance options that can be used by NRLM diesel fuel importers and foreign refiners, we are also finalizing specific compliance and enforcement provisions to ensure compliance for imported NRLM diesel fuel. These additional foreign refiner provisions are similar to those under the gasoline anti dumping regulations, the gasoline sulfur regulations and the highway diesel fuel regulations ( see 40 CFR § 80.94, § 80.410, and § 80.620).

Under today's final rule, the per gallon standards for NRLM diesel fuel produced by refineries owned by foreign refiners must be met by the importer, unless the foreign refiner has been approved to produce NRLM diesel fuel under the credit provisions, small refiner provisions or hardship provisions of this final rule. If the foreign refiner is approved under any of these provisions, the volume and other requirements must be met by the foreign refiner for its refinery( s) and the foreign refiner must be the entity( s) generating, using, banking or trading any credits for the NRLM diesel fuel produced for and imported into the U. S. Importers themselves are not eligible for small refiner or hardship relief as they do not face the same capital cost and lead time issues faced by refiners. Importers may participate in the credit programs, however, an importer and a foreign refiner may not generate credits for the same fuel.

Any foreign refiner that produces NRLM diesel fuel subject to the credit provisions, small refiner provisions or the hardship provisions will be subject to the same requirements as domestic refiners operating under the same provisions. Additionally, provisions for foreign refiners exist that are similar to the provisions at 40 CFR § 80.94, § 80.410, and § 80.620, which include:

 Segregation of NRLM diesel fuel produced at the foreign refinery until it reaches the U. S. and separate tracking of volumes imported into each PADD;  Controls on product designation;  Load port and port of entry testing; and  Requirements regarding bonds and sovereign immunity.

These provisions will aid the Agency in tracking NRLM diesel fuel from the foreign refinery to its point of import into this country. We believe these provisions are necessary and sufficient to ensure that foreign refiners' compliance can be monitored and that the diesel fuel requirements in today's rule can be enforced against foreign refiners. 147 Volumes of previously designated diesel fuel would be reported as volumes received under the designate and track provisions of Section IV. D.

148 Importer/ refiners availing themselves of the DTAB provisions are still subject to the downgrading provisions, and other provisions applicable to any importer or refiner.

285 3. Diesel Fuel Treated as Blendstock ( DTAB)

Under today's program, a situation could arise for importers where fuel that was expected to comply with the 15 ppm sulfur NRLM standard is found to be slightly higher in sulfur than the standard. Rather than require that importer to account for, and report, that fuel as 500 ppm sulfur fuel, an importer will be able to designate the non complying fuel as blendstock   " diesel fuel treated as blendstock" or DTAB   rather than as NRLM diesel fuel. In its capacity as a refiner, the party can then blend this DTAB fuel with lower sulfur diesel fuel or with other blendstocks to cause the sulfur level of the combined product to meet the 15 ppm sulfur NRLM diesel fuel standard prior to delivery to another entity. The same situation exists with respect to compliance with the 15 ppm sulfur highway standard. However, no provision was made in the 2007 highway final rule for this. Consequently, we are also finalizing these DTAB provisions in this final rule for application to 15 ppm sulfur highway diesel fuel.

Where diesel fuel that has been previously designated by a refiner is used to reduce the sulfur level of the DTAB to 15 ppm or less, the party, in its refiner capacity, is required to report only the volume of the imported DTAB as the amount of diesel fuel produced. 147 This avoids the double counting that would result if the same diesel fuel is reported twice ( i. e., once by the refiner who originally produced it and again by the refiner using it to blend with DTAB). If the product that is blended with the DTAB is not previously designated diesel fuel, but is also blendstock, the total combined volume of the DTAB and other blendstock constitutes the batch produced.

When an importer classifies diesel fuel as DTAB, that DTAB does not count toward the importer's calculations under the highway diesel rule's temporary compliance option, toward credit generation or use, or for volume account balance compliance calculations ( see section IV). 148 The same party, however, must include the DTAB in such calculations in its capacity as a refiner. We believe such an approach will increase the supply of 15 ppm sulfur fuel by reducing the volume of near compliant fuel that is downgraded to higher sulfur designations. In essence, it allows importers the same flexibility that refiners have within their refinery gate.

Similar to the provisions discussed above regarding the manufacture of 15 ppm sulfur diesel fuel using DTAB, 500 ppm sulfur NRLM and highway diesel fuel can also be manufactured using DTAB provided that this is appropriately reflected in the importer's compliance calculations. 149 An owner/ operator of a tanker truck that delivers fuel directly from the tanker truck tank into motor vehicles or nonroad equipment of another business entity ( i. e. a mobile refueler) would be acting as a retailer, and the truck would be operating as a retail outlet. In other words, the term retail outlet is not limited to stationary facilities. EPA proposed specific textual changes to the definition of retail outlet to clarify this, but has decided there is no need to change the definition, as it has always had this plain meaning. The owner/ operator of such a tanker truck may also be subject to distributor requirements and prohibitions, or carrier responsibilities if the trucker company does not take title to the fuel. As the definitions in 40 CFR 80.2 make clear, it is the functions performed by the owner/ operator that determine whether they come within the scope of the applicable definitions, and the resulting obligations or requirements that apply. Mobile refuelers are not subject to the labeling requirements applicable to other retailers but are required to provide PTDs to their customers.

150 For example: Once the required marker is added to heating oil at the terminal, heating oil must be segregated from all other fuel grades. Once red dye is added to NRLM it must be segregated from highway diesel fuel.

286 C. Requirements for Parties Downstream of the Refinery or Import Facility In order for the environmental benefits of the NRLM diesel program to be realized, parties in the fuel distribution system downstream of the refinery ( including pipelines, terminals, bulk plants, wholesale purchaser consumers, and retailers149) must ensure that the sulfur level of fuels supplied to the various end users covered by today's rule complies with the requirements in today's rule. At certain points in the distribution system, such parties must keep the various grades of fuel having different sulfur specifications physically separate, 150 and ensure that the fuel is properly designated and labeled. In other words, fuel represented as 15 ppm sulfur must comply with the 15 ppm sulfur standard, and fuel represented as 500 ppm sulfur must meet the 500 ppm sulfur standard. At other points in the distribution system, certain fuels may be commingled provided that the fuel volumes are appropriately designated and accounted for in the custody holders volume account balance. Owners and operators of NRLM diesel equipment must also use fuels meeting specific sulfur content standards. The following paragraphs discuss several provisions that apply to these parties: distribution of various fuel sulfur grades; diesel fuel pump labeling; use of used motor oil in diesel fuel; use of kerosene in diesel fuel; use of additives in diesel fuel; requirements for end users; and provisions covering downgrading of undyed diesel fuel to different grades of fuel. These provisions are analogous to similar provisions that apply to highway diesel fuel under the highway program. Section IV discusses in detail the provisions applicable to downstream parties under the designate and track program. 151 Fuel produced in the distribution system that meets a 500 ppm sulfur specification may be used in NRLM equipment through June 1, 2014, and in locomotive and marine equipment thereafter.

152 This requirement becomes effective June 1, 2006 to support the anti downgrade requirements in the highway diesel rule.

287 1. Product Segregation and End Use Requirements The main requirements for compliance with the fuel sulfur standards under today's rule, including the designate and track provisions, are discussed in section IV of today's preamble. The sulfur content of all fuels subject to the sulfur requirements in today's rule must be appropriately represented ( designated/ classified/ labeled) at all times through to the retailer or wholesale purchaser consumer. Furthermore, the designation and classification information on the label and PTD, and the actual sulfur content of any subject fuel must be consistent with the requirements detailed in section IV. Section IV also details how to accurately redesignate, reclassify, and relabel fuel volumes. This subsection discusses the various grades and uses of NRLM fuel under the NRLM diesel program. In later subsections, we discuss related requirements for PTDs to identify fuels throughout the distribution system and provisions relating to the liability that all parties in the distribution face for failing to maintain the standards of these different fuel sulfur grades.

a. The Period From June 1, 2007 through May 31, 2010 From June 1, 2007 through May 31, 2010, all fuel used in NRLM equipment must meet a 500 ppm sulfur standard except for fuel produced or imported under the hardship, small refiner, and credit provisions. 151 Outside of the Northeast/ Mid Atlantic Area and Alaska, we will not be able to rely upon the measurement of sulfur content alone to enforce the segregation requirements for heating oil, and are therefore requiring that heating oil be marked before it leaves the terminal by the addition of 6 mg/ L of SY 124. Fuel containing more than 0.1 mg/ L of the marker will be deemed to be heating oil and may not be used as nonroad, locomotive or marine fuel.

NRLM fuel designated or labeled as 500 ppm sulfur must meet the 500 ppm sulfur standard and any fuel designated or labeled as 15 ppm must meet the 15 ppm sulfur standard. 152 If a fuel meeting these standards is mixed or contaminated with a higher sulfur fuel it must be downgraded to the higher sulfur product and new documentation ( e. g., PTD, label) must be created to reflect the downgrade. During this period there will also be nonroad equipment that is expected to be equipped with sulfur sensitive emissions control technology that needs to operate on 500 ppm sulfur or less fuel in order to meet the NRLM program's emission standards in use. Fuels sold for use in, or dispensed into, these engines must be identified as meeting the 15 ppm sulfur standard or the 500 ppm sulfur standard, as applicable, and if so identified must meet such standard. Distributors and retailers must avoid contaminating fuel represented by them on PTDs or pump labels as 15 ppm sulfur fuel or 500 ppm sulfur fuel with higher sulfur fuels. End users are required to use only the fuel grades identified as appropriate for use on the label affixed to their NRLM equipment. 153 Such 500 ppm sulfur downstream flexibility nonroad diesel fuel may be also be used in LM equipment since it complies with the LM sulfur standard applicable during this time period. Thus, both marked and unmarked 500 ppm sulfur fuel may be used in LM equipment during this time period.

154 These flexibilities do not exist in the Northeast/ Mid Atlantic Area, and only the small refiner option exists in Alaska.

288 b. The Period From June 1, 2010 through May 31, 2012 Beginning June 1, 2010, all fuel used in nonroad equipment must meet a 15 ppm sulfur standard except for 500 ppm sulfur fuel produced or imported under the hardship, small refiner, and credit provisions, or downstream flexibility provisions which may continue to be used in nonroad engines produced prior to 2011. Locomotive and marine fuel will continue to be subject to the sulfur requirements applicable beginning June 1, 2007, until May 31, 2012.