US EPA Maintains Aggressive Stance on Emissions Standards with Proposed Standards for Heavy-Duty Engines and On-Road Vehicles | JD Supra

Thanks to co-author Alex Gatlin, summer associate in Foley’s Milwaukee office, for his contributions to this article.

Following its final rule for light-duty vehicles published at the end of 2021, last spring the United States Environmental Protection Agency (“US EPA”) proposed new emission standards for on-road vehicles and heavy engines. Control of Air Pollution from New Motor Vehicles: Standards for Engines and Heavy-Duty Vehicles, 87 Fed. Reg. 17,414 (proposed March 28, 2022) (the “Proposed Rule”). While the U.S. EPA has received a major blow to its authority to regulate greenhouse gas emissions under the Clean Air Act’s stationary source program in the recent Supreme Court decision of the United States in West Virginia vs. EPAThe US EPA appears to be continuing its aggressive regulation of space emissions from mobile sources for vehicles and equipment, as evidenced by the proposed rule being no exception.

The proposed rule builds on President Biden’s August 2021 Executive Order 14,037 (“Building U.S. Leadership in Clean Cars and Trucks”). To comply with the rule, manufacturers and suppliers will need to plan to meet strict emission standards from the 2027 model year, which may require manufacturers to implement more hybrid and zero-emissions technologies in their fleets to comply.

Main components of the proposed rule

The U.S. EPA said the proposed rules for heavy-duty on-road vehicles and their engines are intended to address emissions, help state and local authorities meet national ambient air quality standards (“NAAQS ”) required, and to leverage and encourage continued advances in emissions control and zero-emissions technologies. In general, the proposed rule aims to reduce both pollutant and greenhouse gas (“GHG”) emissions from heavy-duty vehicles and engines by addressing three main categories: (1) implementing a wider range of test procedures associated with more stringent emission standards, (2) revising useful life and other associated warranty periods to maintain emission control standards over a longer period of life operational life of an engine or vehicle, and (3) provide incentive programs for manufacturers to meet and exceed proposed emission standards.

1. Emissions standards: Option 1 and Option 2 proposed by the US EPA

For the majority of the provisions included in the proposed rule, the US EPA offers two distinct regulatory options (hereafter “proposed option 1” and “proposed option 2”) for potential implementation.1 The two options not only differ in the stringency of their emissions standards – the proposed option 1 is overall stricter than the proposed option 2 – but the proposed option 1 also includes additional steps required for implementation. While the proposed Option 2 includes a single set of emissions standards for all 2027 model year and later heavy-duty engines and vehicles, the proposed Option 1 establishes initial emissions standards for engines and vehicles of model years 2027 to 2030 and applies a stricter set of standards to engines and vehicles of model year 2031 and later. In addition, Proposed Option 1 includes longer useful life and warranty periods for engines and heavy vehicles than proposed in Proposed Option 2. The US EPA has indicated that it prefers to pursue the proposed Option 1 primarily due to the lower estimated implementation cost Greater reduction of criteria pollutants (particularly NOX), and greater monetized public health benefits. In their comments on the proposed rule, manufacturers and other important stakeholders generally expressed concern about the cost and technological feasibility of implementing the proposed Option 1, recommending that the US EPA to examine the provisions of the proposed option 2. Commentators also questioned the ability of engine demonstrations to account for real-world factors contributing to NOX (thereby underestimating actual emissions), the significant cost of developing and installing emission control technology, and the additional cost to customers of finding alternatives (such as electric vehicles) to meet the proposed option 1 standards.

2. Revisions to regulatory useful life and warranty periods for heavy-duty motors

In addition to proposing more stringent emission standards, the US EPA is proposing significant extensions to regulatory service life standards. In most cases, the useful life standards proposed by the US EPA are almost double the current standards. In developing the proposed standards, the US EPA relied heavily on California Air Resources Board (“CARB”) omnibus regulations governing heavy-duty engines. As with emissions standards, the US EPA has proposed two options for regulatory useful life periods with varying standards and stages of implementation.

Along with proposed increases to regulatory useful lifespans for all classes of heavy-duty vehicles, the U.S. EPA is also proposing its first significant increase to regulatory emissions warranty periods for criteria pollutants since 1983. The standards currently cover between 22% and 54% of the regulatory useful life of an engine or a vehicle depending on the class of primary service provided. Under Proposed Option 1, the US EPA has modeled warranty periods from those recently promulgated by CARB for its Omnibus program, while Proposed Option 2 includes a minimum extension that would be acceptable for various classes. In doing so, the warranty coverage for the proposed useful lives would range from 71% to 82% of useful life under Proposed Option 1 and from 44% to 73% of useful life under option 2 proposed.

3. Manufacturer Incentive Programs

The proposed rule also includes a number of incentive programs for manufacturers for early adoption of the proposed standards and even further emission reductions. A number of the proposed changes are revisions to existing incentive programs while others are new programs. The US EPA’s A Average, Banking, and Trading (“ABT”) program for heavy-duty engines, originally established in 1990, was one of the mechanisms by which the US EPA instituted increasingly stringent emission standards. Although the US EPA has stated that compliance with the proposed emissions standards is possible without the use of an ABT program, commentators have pointed to the need to continue the ABT program to achieve compliance. Despite this, the US EPA seeks to limit future production of high-emission engines and vehicles and, to that end, is proposing several significant targeted revisions to the ABT program for the 2027 model year and subsequent heavy-duty engines and vehicles. The US EPA’s proposed revisions to the ABT heavy-duty engine program would prohibit manufacturers from generating ABT credits for a number of pollutants for 2027 model year and later engines and vehicles. These revisions would also prohibit credits generated from previous model years from being applied to engines and vehicles of model year 2027 and later.

The proposed rule also allows manufacturers of battery electric vehicles (“BEVs”) and fuel cell electric vehicles (“FCEVs”) the ability to generate NOX emission credits from 2024 model year vehicles. Given the expanded opportunities for manufacturers to generate ABT credits through the use of BEV and FCEV, the US EPA is proposing significant revisions to traditional methods capping family emission limits. Although the proposed rule includes various incentives, they are not unlimited. The proposed rule would limit the lifetime of NOX Emission credits for 2027 and later model year engines and vehicles five years later. Cashed NOX emissions credits using current standards could not be applied to engines and vehicles of model year 2027 and later. However, the US EPA proposes the implementation of an early adoption incentive program to meet the proposed standards. For model years 2024 through 2026, conventional, hybrid and electric vehicle and engine manufacturers that demonstrate compliance with model year 2027 or model year 2031 NOX emissions standards would be able to generate additional NOX emissions credits for use with engine and vehicle production for the applicable model year.

The proposed rule also addresses a number of changes and additional considerations related to the adoption of CARB’s Advanced Clean Trucks program and similar provisions to advance technologies, provisions relating to tampering, durability testing, maintenance and harmonization of the CARB on-board diagnostic program as well as many other technical revisions and updates. The proposed rule, if enacted as planned, will likely drive changes throughout the supply chain and further encourage continued moves towards electrification in the heavy-duty space. It will also lead to a need for additional investment in electric chargers along transport corridors and at car service stations, similar to the rules enacted for light passenger vehicles.

1 The US EPA has also offered a third option called “the alternative” which considers emissions standards more stringent than Option 1 or 2 offered. However, the US EPA has indicated that additional information is needed to determine the feasibility of implementing the alternative in the 2027 model year schedule.

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