1. Industrial Power Systems Division Confidential ‘Green’ Emissions Compliance Flexibility Schemes

2. Industrial Power Systems Division Confidential ‘Green’ Flexibility Options for EPA Tier III

3. Industrial Power Systems Division Confidential ‘Green’ Transition Program for Equipment Manufacturers (TPEM) Provides industrial OEMs flexibility in the transition to Tier III emissions Allows OEM to install non-certified engines during transition Applies only to production for US markets Program is voluntary

4. Industrial Power Systems Division Confidential ‘Green’ TPEM Provisions Percent-of-Production Allowance Small Volume Allowance Existing Inventory and Replacement Engines Hardship Relief Provision

5. Industrial Power Systems Division Confidential ‘Green’ Percent of Production Allowance Based on cumulative percentage of total machines built for US market Maximum cumulative percentage is 80% of 1 year’s volume over 7 year period within each power range. Any combination of percentages per year can be used up to the maximum of 80% OEM can utilize multiple engine specifications to cover different machines in each power range

6. Industrial Power Systems Division Confidential ‘Green’ e.g. for 300 - 600 hp Range Example A 40% of machines in 2005 30% of machines in 2006 10% of machines in 2007 Example B 80% of machines in 2005 Percent of Production Allowance

7. Industrial Power Systems Division Confidential ‘Green’ Small Volume Allowance A second option that may benefit smaller OEMs OEM can exempt up to 700 engines over 7 years within each power range 200 engine limit per year Only one engine family may be used in each power range

8. Industrial Power Systems Division Confidential ‘Green’ Engine Family Definition Based on guidelines issued by the EPA Similar emission characteristics Bore X stroke (displacement) Configuration (T, TA, ATAAC, Electronic) Engine manufacturer determines the engine family Engine family certified with EPA

9. Industrial Power Systems Division Confidential ‘Green’ e.g. for 300 - 600 HP Example OEM uses engine ‘A’ at 300 hp OEM uses engine ‘B’ at 390 hp Options OEM could only use one of the above engines Small Volume Allowance

10. Industrial Power Systems Division Confidential ‘Green’ Existing Inventory Prohibits stockpiling of non-certified engines for use in OEM equipment Allows OEM to use normal inventories of non- certified engines until they are depleted

11. Industrial Power Systems Division Confidential ‘Green’ Hardship Relief Only to be used if other programs are fully exhausted Evidence of serious economic hardship (i.e. bankruptcy!) to the OEM EPA expects provision to be rarely used

12. Industrial Power Systems Division Confidential ‘Green’ Proposed EU Flexibility Provisions

13. Industrial Power Systems Division Confidential ‘Green’ General Provisions Allows OEM to flex up to 20% of one year’s average annual volume Annual volume calculated as average annual volume of previous five years’ production If OEM has not marketed equipment in the EU for five years, then average is for the years that it has marketed equipment Flexibility period is until introduction of next Stage of emissions limits

14. Industrial Power Systems Division Confidential ‘Green’ Small Volume Provision Engine CategoryNumber of Engines 19-37kW200 37-75kW150 75-130kW100 130-560kW50 As an alternative option, an OEM may place a fixed number of flex engines on the market, to the maximum number shown below

15. Industrial Power Systems Division Confidential ‘Green’ OEM Responsibilities Must notify the approval authorities of each Member State of their intention to use the flex scheme Must supply approval authorities with all requested information Must report to approval authorities every six months on number of flex engines placed on market (including serial numbers), and location. Must label machine to indicate use of flex engine

16. Industrial Power Systems Division Confidential ‘Green’ Engine Manufacturer Responsibilities Engine manufacturer must label engines as flex engines