(a) The averaging, banking, and trading programs for NOX. NMHC + NOX. and PM emissions from eligible nonroad engines are described in this subpart. Participation in these programs is voluntary.

(b) Requirements for Tier 1 engines rated at or above 37 kW.

(1) A nonroad engine family is eligible to participate in the averaging, banking, and trading program for NOX emissions and the banking and trading program for PM emissions if it is subject to regulation under subpart B of this part with certain exceptions specified in paragraph (b)(2) of this section. No averaging, banking, and trading program is available for meeting the Tier 1 HC, CO, or smoke emission standards specified in subpart B of this part. No averaging program is available for meeting the Tier 1 PM emission standards specified in subpart B of this part.

(2) Nonroad engines may not participate in the averaging, banking, and trading programs if they are exported or are sold as Blue Sky Series engines as described in §89.112(f). Nonroad engines certified on a special test procedure under §89.114(a), may not participate in the averaging, banking and trading programs unless the manufacturer has requested that the engines be included in the averaging, banking, and trading programs at the time the request for the special test procedure is made and has been granted approval by the Administrator for inclusion in the averaging, banking, and trading programs.

(3) A manufacturer may certify one or more nonroad engine families at NOX family emission limits (FELs) above or below the Tier 1 NOX emission standard, provided the summation of the manufacturer's projected balance of all NOX credit transactions in a given model year is greater than or equal to zero, as determined under §89.207(a). A manufacturer may certify one or more nonroad engine families at PM FELs below the Tier 2 PM emission standard that will be applicable to those engine families.

(i) FELs for NOX may not exceed the Tier 1 upper limit specified in §89.112(d).

(ii) An engine family certified to an FEL is subject to all provisions specified in this part, except that the applicable FEL replaces the emission standard for the family participating in the averaging, banking, and trading program.

(iii) A manufacturer of an engine family with a NOX FEL exceeding the Tier 1 NOX emission standard must obtain NOX emission credits sufficient to address the associated credit shortfall via averaging, banking, or trading.

(iv) An engine family with a NOX FEL below the applicable Tier 1 standard may generate emission credits for averaging, banking, trading, or a combination thereof. An engine family with a PM FEL below the Tier 2 standard that will be applicable to that engine family may generate emission credits for banking, trading, or a combination thereof. Emission credits may not be used to offset an engine family's emissions that exceed its applicable FEL. Credits may not be used to remedy nonconformity determined by a Selective Enforcement Audit (SEA) or by recall (in-use) testing. However, in the case of an SEA failure, credits may be used to allow subsequent production of engines for the family in question if the manufacturer elects to recertify to a higher FEL.

(4) NOX credits generated in a given model year may be used to address credit shortfalls with other engines during that model year or in any subsequent model year except as noted under paragraph (b)(5)(ii) of this section. PM credits may be used to address credit shortfalls with Tier 2 and later engines greater than or equal to 37 kW and Tier 1 and later engines less than 37 kW and greater than or equal to 19 kW. Credits generated in one model year may not be used for prior model years.

(5) The following provisions apply to the use of Tier 1 NOX credits for showing compliance with the Tier 2 or Tier 3 NMHC + NOX standards.

(i) A manufacturer may use NOX credits from engines subject to the Tier 1 NOX standard to address NMHC + NOX credit shortfalls with engines in the same averaging set subject to Tier 1 NMHC + NOX or Tier 2 NMHC + NOX emission standards.

(ii) A manufacturer may not use NOX credits from engines subject to the Tier 1 standards to address NMHC + NOX credit shortfalls with engines subject to the Tier 3 NMHC + NOX emission standards.

(c) Requirements for Tier 2 and later engines rated at or above 37 kW and Tier 1 and later engines rated under 37 kW.

(1) A nonroad engine family is eligible to participate in the averaging, banking, and trading programs for NMHC + NOX emissions and PM emissions if it is subject to regulation under subpart B of this part with certain exceptions specified in paragraph (c)(2) of this section. No averaging, banking, and trading program is available for meeting the CO or smoke emission standards specified in subpart B of this part.

(2) Nonroad engines may not participate in the averaging, banking, and trading programs if they are exported or are sold as Blue Sky Series engines as described in §89.112(f). Nonroad engines certified on a special test procedure under §89.114(a), may not participate in the averaging, banking and trading programs unless the manufacturer has requested that the engines be included in the averaging, banking, and trading programs at the time the request for the special test procedure is made and has been granted approval by the Administrator for inclusion in the averaging, banking, and trading programs.

(3)

(i) A manufacturer may certify one or more nonroad engine families at FELs above or below the applicable NMHC + NOX emission standard and PM emission standard, provided the summation of the manufacturer's projected balance of all NMHC + NOX credit transactions and the summation of the manufacturer's projected balance of all PM credit transactions in a given model year in a given averaging set is greater than or equal to zero, as determined under §89.207(b).

(A) FELs for NMHC + NOX and FELs for PM may not exceed the upper limits specified in §89.112(d).

(B) An engine family certified to an FEL is subject to all provisions specified in this part, except that the applicable FEL replaces the emission standard for the family participating in the averaging, banking, and trading program.

(C) A manufacturer of an engine family with an FEL exceeding the applicable emission standard must obtain emission credits sufficient to address the associated credit shortfall via averaging, banking, or trading, within the restrictions described in §89.204(c) and §89.206(b)(4).

(D) An engine family with an FEL below the applicable standard may generate emission credits for averaging, banking, trading, or a combination thereof. Emission credits may not be used to offset an engine family's emissions that exceed its applicable FEL. Credits may not be used to remedy nonconformity determined by a Selective Enforcement Audit (SEA) or by recall (in-use) testing. However, in the case of an SEA failure, credits may be used to allow subsequent production of engines for the family in question if the manufacturer elects to recertify to a higher FEL.

(ii)

(A) In lieu of generating credits under paragraph (c)(3)(i) of this section, a manufacturer may certify one or more nonroad engine families rated under 37 kW at family emission limits (FELs) above or below the applicable NMHC + NOX emission standard and PM emission standard. The summation of the manufacturer's projected balance of all NMHC + NOX credit transactions and the summation of the manufacturer's projected balance of all PM credit transactions in a given model year, as determined under §89.207(b), are each allowed to be less than zero. Separate calculations shall be required for the following two categories of engines: engines rated under 19 kW and engines rated at or above 19 kW and under 37 kW.

(B) For each calendar year a negative credit balance exists as of December 31, a penalty equal to ten percent of the negative credit balance as of December 31 of the calendar year shall be added to the negative credit balance. The resulting negative credit balance shall be carried into the next calendar year.

(C) For engines rated under 19 kW, a manufacturer will be allowed to carry over a negative credit balance until December 31, 2003. For engines rated at or above 19 kW and under 37 kW, a manufacturer will be allowed to carry over a negative credit balance until December 31, 2002. As of these dates, the summation of the manufacturer's projected balance of all NMHC + NOX credit transactions and the summation of the manufacturer's projected balance of all PM credit transactions must each be greater than or equal to zero.

(D) FELs for NMHC + NOX and FELs for PM may not exceed the upper limits specified in §89.112(d).

(E) An engine family certified to an FEL is subject to all provisions specified in this part, except that the applicable NMHC + NOX FEL or PM FEL replaces the NMHC + NOX emission standard or PM emission standard for the family participating in the averaging and banking program.

(F) A manufacturer of an engine family with an FEL exceeding the applicable emission standard must obtain emission credits sufficient to address the associated credit shortfall via averaging or banking. The exchange of emission credits generated under this program with other nonroad engine manufacturers in trading is not allowed.

(G) An engine family with an FEL below the applicable standard may generate emission credits for averaging, banking, or a combination thereof. Emission credits may not be used to offset an engine family's emissions that exceed its applicable FEL. Credits may not be used to remedy nonconformity determined by a Selective Enforcement Audit (SEA) or by recall (in-use) testing. However, in the case of an SEA failure, credits may be used to allow subsequent production of engines for the family in question if the manufacturer elects to recertify to a higher FEL.

(4)

(i) Except as noted in paragraphs (c)(4)(ii), (c)(4)(iii), and (c)(4)(iv) of this section, credits generated in a given model year may be used during that model year or used in any subsequent model year. Except as allowed under paragraph (c)(3)(ii) of this section, credits generated in one model year may not be used for prior model years.

(ii) Credits generated from engines rated under 19 kW prior to the implementation date of the applicable Tier 2 standards, shall expire on December 31, 2007.

(iii) Credits generated from engines rated under 19 kW under the provisions of paragraph (c)(3)(ii) shall expire on December 31, 2003.

(iv) Credits generated from engines rated at or above 19 kW and under 37 kW under the provisions of paragraph (c)(3)(ii) of this section shall expire on December 31, 2002.

(5) Except as provided in paragraph (b)(3) of this section, engine families may not generate credits for one pollutant while also using credits for another pollutant in the same model year.

(6) Model year 2008 and 2009 engines rated under 8 kW that are allowed to certify under this part because they meet the criteria in 40 CFR 1039.101(c) may not generate emission credits.

(d) Manufacturers must demonstrate compliance under the averaging, banking, and trading programs for a particular model year within 270 days of the end of the model year. Except as allowed under paragraph (c)(3)(ii) of this section, manufacturers that have certified engine families to FELs above the applicable emission standards and do not have sufficient emission credits to offset the difference between the emission standards and the FEL for such engine families will be in violation of the conditions of the certificate of conformity for such engine families. The certificates of conformity may be voided ab initio under §89.126(c) for those engine families.

[63 FR 57006, Oct. 23, 1998, as amended at 69 FR 39213, June 29, 2004]