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                                                       Calendar No. 585
110th Congress                                                   Report
 2d Session                                                     110-266


               February 28, 2008.--Ordered to be printed


    Mrs. Boxer, from the Committee on Environment and Public Works, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 2146]

    The Committee on Environment and Public Works, to which was 
referred the bill (S. 2146) to authorize the Administrator of 
the Environmental Protection Agency to accept, as part of a 
settlement, diesel emission reduction Supplemental 
Environmental Projects, and for other purposes, having 
considered the same, reports favorably thereon without 
amendment and recommends that the bill do pass.

                          PURPOSE OF THE BILL

    The purpose of this legislation is to clarify that the 
Administrator of the Environmental Protection Agency (EPA) is 
authorized to accept, as part of a settlement, diesel emission 
reduction Supplemental Environmental Projects.


    EPA estimates there are 11 million diesel engines in 
America lacking available control technology that could greatly 
reduce harmful pollution. The On and Off-Road vehicles using 
these engines produce more than 1000 tons of particulate matter 
every day. The pollution causes approximately 21,000 premature 
deaths in the United States each year, plus tens of thousands 
of Americans suffering from asthma attacks, heart attacks, and 
respiratory problems.
    Recognizing these harmful effects, EPA now requires all new 
on-road heavy duty diesel vehicles to be installed with 
pollution control technology. EPA estimates that when the 2001 
Highway and 2004 Non-road Diesel Engine rules are fully 
implemented harmful diesel emissions will be reduced by more 
than 80 percent from 2000 levels. The pollution prevented will 
have profound economic and health benefits. EPA estimates that 
for every dollar spent on the technology $16 of benefit will be 
generated--totaling $66 billion in economic and health benefits 
    In addition to reducing pollution from newly constructed 
diesel engines, EPA and Congress have acted to retrofit 
existing diesel vehicles with pollution control technology. EPA 
has been using Supplemental Environmental Projects (``SEPs'') 
to fund diesel retrofits, particularly on school buses. These 
projects are undertaken by a defendant as part of a settlement 
in an environmental enforcement action brought by EPA or the 
Department of Justice. They specifically do not include actions 
which a defendant is otherwise legally required to perform. So 
they generate environmental and public health benefits that 
would not have occurred without the settlement.
    SEPs have been an important funding stream for diesel 
retrofit projects. In December of 2007, EPA entered into a 
settlement with American Electric Power containing a federal 
SEP designating as much as $21 million for diesel retrofits. In 
February 2006, DaimlerChrysler entered into a settlement with 
EPA containing a SEP for $3 million for diesel retrofits. In 
2004, Toyota agreed to spend $20 million on a diesel retrofit 
SEP aimed specifically at school buses. Archer Daniel Midlands 
has also spent upwards of $6 million retrofitting school buses 
as part of a SEP. Between 2003 and 2006 nearly $62 million in 
diesel retrofit projects have been funded by SEPs. Of all the 
diesel retrofits installed between 2003 and 2006, 37% were 
financed in whole or in part by SEPs.
    Also recognizing the importance of reducing pollution from 
existing diesel engines, in 2005, Congress included the Diesel 
Emissions Reduction Act of 2005 as part of the enacted 2005 
Energy Policy Act. The Diesel Emissions Reduction Act 
established national and State-level grant and loan programs 
for diesel emission reduction projects and programs. Congress 
appropriated $49.2 million in funds for this program for the 
first time in the FY2008 Omnibus Appropriations Act.
    Following Congressional action to fund the diesel retrofit 
program, EPA apparently has concluded that the Agency generally 
should cease funding diesel retrofit projects via SEPs. EPA 
believes that allowing diesel retrofits to be funded by SEPs 
once Congress has specifically appropriated monies for that 
purpose could violate the Miscellaneous Receipts Act. This 
legislation is intended to clarify that Congress did not intend 
the funding of the Diesel Emissions Reduction Act to affect 
EPA's ability to enter into SEPs that fund diesel retrofit 
    The Miscellaneous Receipts Act was passed in order to 
ensure that government agencies did not bypass the 
appropriations authority of Congress by augmenting their 
budgets via other means, for example: user fees, fees for 
training courses, parking fees, contract and lease fees and 
revenues, monetary awards in court cases involving the 
agencies, court costs and fees, or civil penalties. It is a 
misunderstanding of Congressional intent to interpret the use 
of funds to mitigate environmental damage as part of an 
environmental enforcement agreement as an augmentation of a 
Congressionally funded grant program to retrofit diesel engines 
with pollution control technology. Congress never intended the 
Diesel Emissions Reduction Act to limit EPA's ability to 
negotiate additional diesel retrofit projects as part of 
enforcement settlements.


    S. 2146 clarifies Congressional intent of the Diesel 
Emissions Reduction Act. S. 2146 authorizes EPA to continue to 
use SEPs to fund diesel retrofits regardless of the 
congressional funding of the Diesel Emissions Reduction Act, as 
long as such SEPs: (1) protect human health and the 
environment; (2) are related to the alleged violations; (3) do 
not constitute activities the defendant would otherwise be 
required to perform; and (4) does not provide funds for the 
agency to carry out internal operations.

                          LEGISLATIVE HISTORY

    On February 6, 2008, the Committee on Environment and 
Public Works favorably reported S. 2146 without amendment by 
voice vote. There were no rollcall votes.


    In compliance with section 11(b) of rule XXVI of the 
Standing Rules of the Senate, the committee makes evaluation of 
the regulatory impact of the reported bill.
    The bill does not create any additional regulatory burdens, 
nor will it cause any adverse impact on the personal privacy of 

                          MANDATES ASSESSMENT

    In compliance with the Unfunded Mandates Reform Act of 1995 
(Public Law 104-4), the committee finds that S. 2146 would not 
impose Federal intergovernmental unfunded mandates on State, 
local, or tribal governments.


    Section 403 of the Congressional Budget and Impoundment 
Control Act requires a statement of the cost of the reported 
bill, prepared by the Congressional Budget Office, be included 
in the report.
    CBO estimates that enacting S. 2146 would have no 
significant impact on the federal budget. Enacting the 
legislation could affect revenues; however, CBO estimates that 
any such impact would be insignificant.
    S. 2146 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
    According to the Environmental Protection Agency (EPA), 
most environmental violations by businesses or individuals are 
resolved through settlement agreements. As part of a 
settlement, an alleged violator may voluntarily agree to 
undertake an environmentally beneficial project related to the 
violation in exchange for a reduction in civil monetary 
penalties. Such projects are known as supplemental 
environmental projects (SEPs). Civil penalties are recorded on 
the budget as miscellaneous receipts (revenues).
    Under EPA's SEP policy, if the agency receives a specific 
appropriation for grants under the Diesel Emission Reduction 
Act (DERA), the agency may no longer agree to diesel SEPs as 
part of any enforcement settlement. Because the DERA grant 
program was appropriated about $50 million in 2008, EPA cannot 
agree to any diesel SEPs during 2008.
    S. 2146 would allow EPA to accept diesel emission reduction 
SEPs as part of a settlement of any alleged violations of 
environmental laws under certain conditions. To the extent the 
diesel SEPs permitted under this legislation would decrease the 
amount of penalties that otherwise would have been deposited in 
the Treasury, the federal government would realize some loss of 
revenues. However, based on information from EPA, CBO expects 
that in most cases, the diesel SEPs would displace other types 
of SEPs within a particular settlement agreement. Thus, we 
estimate that any loss of revenues would be less than $500,000 
    The CBO staff contact for this estimate is Susanne S. 
Mehlman. This estimate was approved by Theresa Gullo, Deputy 
Assistant Director for Budget Analysis.

                        CHANGES IN EXISTING LAW

    Section 12 of rule XXVI of the Standing Rules of the Senate 
requires the committee to publish changes in existing law made 
by the bill as reported. Passage of this bill will make no 
changes to existing law.