News & Insights  |  Newsletters

Important Clean Air Act Nonroad Regulation Revisions Coming in 2014

January 2014

Nonroad engine and equipment manufacturers should be on the lookout in 2014 for two changes to Clean Air Act regulations that may affect their ability to sell equipment and engines.

Last summer, the U.S. Environmental Protection Agency (EPA) issued direct final rules that included changes to two important exemptions included in the Agency's regulations:  (1) the technical hardship provision of 40 C.F.R. § 1039.625 for nonroad diesel equipment manufacturers; and (2) the replacement engine provision of 40 C.F.R. § 1068.240.  See 78 Fed. Reg. 36,370 (June 17, 2013).  EPA styled these as “technical amendments,” but issued them as a proposed rule and invited public comment. See 78 Fed. 36,135 (June 17, 2013).  EPA also stated that it issued the parallel direct final and proposed rules in order to expedite the regulatory process, and that it would withdraw all or part of any rules for which it received relevant adverse comment.  See 78 Fed. Reg. at 36,370.

EPA's proposed changes were modest responses to some of the market realities faced by nonroad engine and equipment manufacturers.  These companies must both meet their emissions obligations and satisfy customer demand.

EPA did receive adverse comments and, in August 2013, withdrew some of the changes.  See 78 Fed. Reg. 49,963 (Aug. 16, 2013).  But EPA also said that it intended “to consider the comments received and proceed with a new final rule” without holding another comment period. Id.  EPA's Fall 2013 regulatory agenda indicated that the new final rule would be issued by November 2013, a deadline which was not met, but new, final rules should be coming early this year.

Here is what EPA originally proposed and some insight into likely revisions before the regulations' finalization:

TPEM technical hardship provision.  The Transition Program for Equipment Manufacturers (TPEM) allows nonroad diesel equipment manufacturers to sell a limited amount of equipment containing previous-tier engines.  See 40 C.F.R. § 1039.625.  Some manufacturers who are having particular difficulty retooling their production processes to meet current-tier emissions standards may be able to obtain additional engine allowances through the TPEM technical hardship provision. See 40 C.F.R. § 1039.625(m). 

Equipment manufacturers currently are eligible for the TPEM technical hardship provision “only for those equipment models for which you, or an affiliated company, do not also produce the engine.”  Id.  This limitation implements EPA's preferences that equipment manufacturers not be penalized for an independent engine manufacturer's failure to provide them with current-tier engines, but also that they not be rewarded with additional TPEM credits if a delay is caused by a company within their same corporate structure.

In the direct final rule, EPA stated that it wanted to “facilitate EPA granting exemptions to address certain hardship circumstances that were not considered when the original 2004 final rule was published.”  78 Fed. Reg. at 36,382.  EPA thus proposed three changes:  (1) removal of limitations on the engine power categories eligible for additional TPEM allowances (currently, engines above 560 kW are ineligible, and there is limited relief for engines under 37 kW); (2) removal of limits on the maximum number of additional TPEM allowances; and (3) removal of deadlines for equipment manufacturers to use the allowances.  Id. at 36,383.

These changes would have given EPA authority to respond, on a case-by-case basis, to the reality that equipment manufacturers often are completely dependent on their engine suppliers' ability to meet emissions deadlines.  Thus, without these changes, many equipment manufacturers are forced to use their TPEM allowances in the first year of production (TPEM allowances are ordinarily spread over seven years) or not sell equipment in certain power categories. Id.  But EPA backed off these proposals after commenters argued that EPA might not be sufficiently rigorous in granting relief, which would result in an unnecessary increase in emissions. 

EPA's direct final rule responded responsibly to a very real market problem for smaller and mid-sized nonintegrated nonroad diesel equipment manufacturers.  In order for the manufacturers to stay competitive in the marketplace, EPA probably will publish a final rule that puts in place a somewhat more structured process for granting the additional allowances, giving the Agency the flexibility it needs while at the same time establishing clear standards.

Replacement engine exemption.  EPA regulations include an exemption that allows nonroad engine manufacturers to provide customers with newly manufactured engines meeting previous-tier emission standards in order to replace engines already in use. See 40 C.F.R. § 1068.240. 

In the direct final rule, EPA changed the conditions under which the replacement exemption could be used:  (1) deleting the “anti-circumvention” condition in 40 C.F.R. § 1068.240(g), which stated that engines are eligible for replacement only when they fail during use; (2) adding a provision stating that only engines less than 25 years old were eligible; and (3) specifying what engine manufacturers may do with replaced engines if, pursuant to 40 C.F.R. § 1068.240(b), they take possession of them rather than destroy them. See 78 Fed. Reg. at 36,381. 

With respect to deletion of 40 C.F.R. §1068.240(g), EPA reasoned that there may be circumstances where replacing an operational, older engine still in use with a cleaner, new replacement engine could provide a beneficial environmental impact.  EPA noted that California in-use emissions regulations already allow this. Id. EPA received no adverse comment on the removal of the anti-circumvention language, and in the direct final rule issued in August 2013, 40 C.F.R. § 1068.240(g) was dropped in its entirety.  See 78 Fed. Reg. at 49,963.  This is a welcome advance for manufacturers seeking increased flexibility to meet state-specific emissions requirements (such as California's in-use emissions regulations) while also continuing to supply their customers with needed replacements in nonfailure situations, so that the customers do not have to buy new equipment unnecessarily. 

EPA did receive adverse comment, however, on the proposed provision limiting eligibility for the replacement engine exemption to only those engines that are 25 years old or less.  Commenters argued that the limitation significantly burdened those who rely on older equipment and who might be less able to afford new equipment containing engines certified to current-tier emission standards.  EPA backed off from this proposal in the August 2013 direct final rule.

EPA also received adverse comment on its proposed revision regarding the disposition of replaced engines under 40 C.F.R. § 1068.240(b).  The current rule includes no language specifying what manufacturers may do with a replaced engine.  EPA did not want those engines put in new equipment, so the direct final rule and accompanying proposal would have required that, if the old engines were reintroduced into commerce, they meet all of the requirements applicable to new engines or new replacement engines, or fall within some other  exemption.  See 78 Fed. Reg. at 36,382.  Commenters argued that the revised language did not clearly apply to all manufacturers who wanted to use the replacement engine exemption, or clearly indicate that only used engines that are being replaced by new replacement engines must meet new replacement engine requirements.  Apparently, these comments were enough for EPA to hesitate in issuing the proposed revision to 40 C.F.R. § 1068.240(b) unchanged; the proposal was withdrawn. 

As with the TPEM hardship provision regulations, we expect EPA to take another stab at clarifying its replacement engine regulations.  However, given EPA's prior statements regarding the process it has undertaken to make these changes, it is not at all clear that stakeholders will have much of a further opportunity to comment on them.  Stay tuned.