It is a re-engineered version of the BMW M54B25 engine, manufactured in order to meet SULEV regulations in US states until 2006.
It was the first BMW Super Ultra Low Emission Vehicles (SULEV).
The M56B25 power output and vehicle performance were the same as the comparable model equipped with the M54B25 engine (US only).
The E46 SULEV has only been sold in 4 states in the US: California, New York, Massachusetts, and later in 2004 in Vermont.
[1] In addition, SULEV models also incorporate a "Direct Ozone Reduction System".