
[Federal Register Volume 76, Number 231 (Thursday, December 1, 2011)]
[Proposed Rules]
[Pages 74854-75420]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-30358]



[[Page 74853]]

Vol. 76

Thursday,

No. 231

December 1, 2011

Part II





Environmental Protection Agency





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40 CFR Parts 85, 86, and 600





Department of Transportation





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National Highway Traffic Safety Administration





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49 CFR Parts 523, 531, 533 et al.





2017 and Later Model Year Light-Duty Vehicle Greenhouse Gas Emissions 
and Corporate Average Fuel Economy Standards; Proposed Rule

  Federal Register / Vol. 76 , No. 231 / Thursday, December 1, 2011 / 
Proposed Rules  

[[Page 74854]]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 85, 86, and 600

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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Parts 523, 531, 533, 536, and 537

[EPA-HQ-OAR-2010-0799; FRL-9495-2; NHTSA-2010-0131]
RIN 2060-AQ54; RIN 2127-AK79


2017 and Later Model Year Light-Duty Vehicle Greenhouse Gas 
Emissions and Corporate Average Fuel Economy Standards

AGENCY: Environmental Protection Agency (EPA) and National Highway 
Traffic Safety Administration (NHTSA).

ACTION: Proposed rule.

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SUMMARY: EPA and NHTSA, on behalf of the Department of Transportation, 
are issuing this joint proposal to further reduce greenhouse gas 
emissions and improve fuel economy for light-duty vehicles for model 
years 2017-2025. This proposal extends the National Program beyond the 
greenhouse gas and corporate average fuel economy standards set for 
model years 2012-2016. On May 21, 2010, President Obama issued a 
Presidential Memorandum requesting that NHTSA and EPA develop through 
notice and comment rulemaking a coordinated National Program to reduce 
greenhouse gas emissions of light-duty vehicles for model years 2017-
2025. This proposal, consistent with the President's request, responds 
to the country's critical need to address global climate change and to 
reduce oil consumption. NHTSA is proposing Corporate Average Fuel 
Economy standards under the Energy Policy and Conservation Act, as 
amended by the Energy Independence and Security Act, and EPA is 
proposing greenhouse gas emissions standards under the Clean Air Act. 
These standards apply to passenger cars, light-duty trucks, and medium-
duty passenger vehicles, and represent a continued harmonized and 
consistent National Program. Under the National Program for model years 
2017-2025, automobile manufacturers would be able to continue building 
a single light-duty national fleet that satisfies all requirements 
under both programs while ensuring that consumers still have a full 
range of vehicle choices. EPA is also proposing a minor change to the 
regulations applicable to MY 2012-2016, with respect to air conditioner 
performance and measurement of nitrous oxides.

DATES: Comments: Comments must be received on or before January 30, 
2012. Under the Paperwork Reduction Act, comments on the information 
collection provisions must be received by the Office of Management and 
Budget (OMB) on or before January 3, 2012. See the SUPPLEMENTARY 
INFORMATION section on ``Public Participation'' for more information 
about written comments.
    Public Hearings: NHTSA and EPA will jointly hold three public 
hearings on the following dates: January 17, 2012, in Detroit, 
Michigan; January 19, 2012 in Philadelphia, Pennsylvania; and January 
24, 2012, in San Francisco, California. EPA and NHTSA will announce the 
addresses for each hearing location in a supplemental Federal Register 
Notice. The agencies will accept comments to the rulemaking documents, 
and NHTSA will also accept comments to the Draft Environmental Impact 
Statement (EIS) at these hearings and to Docket No. NHTSA-2011-0056. 
The hearings will start at 10 a.m. local time and continue until 
everyone has had a chance to speak. See the SUPPLEMENTARY INFORMATION 
section on ``Public Participation.'' for more information about the 
public hearings.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2010-0799 and/or NHTSA-2010-0131, by one of the following methods:
     Online: www.regulations.gov: Follow the on-line 
instructions for submitting comments.
     Email: a-and-r-Docket@epa.gov
     Fax: EPA: (202) 566-9744; NHTSA: (202) 493-2251.
     Mail:
     EPA: Environmental Protection Agency, EPA Docket Center 
(EPA/DC), Air and Radiation Docket, Mail Code 28221T, 1200 Pennsylvania 
Avenue NW., Washington, DC 20460, Attention Docket ID No. EPA-HQ-OAR-
2010-0799. In addition, please mail a copy of your comments on the 
information collection provisions to the Office of Information and 
Regulatory Affairs, Office of Management and Budget (OMB), Attn: Desk 
Officer for EPA, 725 17th St., NW., Washington, DC 20503.
     NHTSA: Docket Management Facility, M-30, U.S. Department 
of Transportation, West Building, Ground Floor, Rm. W12-140, 1200 New 
Jersey Avenue SE, Washington, DC 20590.
     Hand Delivery:
     EPA: Docket Center, (EPA/DC) EPA West, Room B102, 1301 
Constitution Ave. NW., Washington, DC, Attention Docket ID No. EPA-HQ-
OAR-2010-0799. Such deliveries are only accepted during the Docket's 
normal hours of operation, and special arrangements should be made for 
deliveries of boxed information.
     NHTSA: West Building, Ground Floor, Rm. W12-140, 1200 New 
Jersey Avenue SE, Washington, DC 20590, between 9 a.m. and 4 p.m. 
Eastern Time, Monday through Friday, except Federal Holidays.
    Instructions: Direct your comments to Docket ID No. EPA-HQ-OAR-
2010-0799 and/or NHTSA-2010-0131. See the SUPPLEMENTARY INFORMATION 
section on ``Public Participation'' for more information about 
submitting written comments.
    Docket: All documents in the dockets are listed in the http://www.regulations.gov index. Although listed in the index, some 
information is not publicly available, e.g., confidential business 
information (CBI) or other information whose disclosure is restricted 
by statute. Certain other material, such as copyrighted material, will 
be publicly available in hard copy in EPA's docket, and electronically 
in NHTSA's online docket. Publicly available docket materials are 
available either electronically in www.regulations.gov or in hard copy 
at the following locations: EPA: EPA Docket Center, EPA/DC, EPA West, 
Room 3334, 1301 Constitution Ave. NW., Washington, DC. The Public 
Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through 
Friday, excluding legal holidays. The telephone number for the Public 
Reading Room is (202) 566-1744. NHTSA: Docket Management Facility, M-
30, U.S. Department of Transportation, West Building, Ground Floor, Rm. 
W12-140, 1200 New Jersey Avenue SE., Washington, DC 20590. The Docket 
Management Facility is open between 9 a.m. and 5 p.m. Eastern Time, 
Monday through Friday, except Federal holidays.

FOR FURTHER INFORMATION CONTACT: EPA: Christopher Lieske, Office of 
Transportation and Air Quality, Assessment and Standards Division, 
Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI 
48105; telephone number: (734) 214-4584; fax number: (734) 214-4816; 
email address: lieske.christopher@epa.gov, or contact the Assessment 
and Standards Division; email address: otaqpublicweb@epa.gov. NHTSA: 
Rebecca Yoon, Office of the Chief Counsel, National Highway Traffic 
Safety Administration, 1200 New Jersey

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Avenue SE., Washington, DC 20590. Telephone: (202) 366-2992.

SUPPLEMENTARY INFORMATION:

A. Does this action apply to me?

    This action affects companies that manufacture or sell new light-
duty vehicles, light-duty trucks, and medium-duty passenger vehicles, 
as defined under EPA's CAA regulations,\1\ and passenger automobiles 
(passenger cars) and non-passenger automobiles (light trucks) as 
defined under NHTSA's CAFE regulations.\2\ Regulated categories and 
entities include:
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    \1\ ``Light-duty vehicle,'' ``light-duty truck,'' and ``medium-
duty passenger vehicle'' are defined in 40 CFR 86.1803-01. 
Generally, the term ``light-duty vehicle'' means a passenger car, 
the term ``light-duty truck'' means a pick-up truck, sport-utility 
vehicle, or minivan of up to 8,500 lbs gross vehicle weight rating, 
and ``medium-duty passenger vehicle'' means a sport-utility vehicle 
or passenger van from 8,500 to 10,000 lbs gross vehicle weight 
rating. Medium-duty passenger vehicles do not include pick-up 
trucks.
    \2\ ``Passenger car'' and ``light truck'' are defined in 49 CFR 
part 523.
[GRAPHIC] [TIFF OMITTED] TP01DE11.000

    This list is not intended to be exhaustive, but rather provides a 
guide regarding entities likely to be regulated by this action. To 
determine whether particular activities may be regulated by this 
action, you should carefully examine the regulations. You may direct 
questions regarding the applicability of this action to the person 
listed in FOR FURTHER INFORMATION CONTACT.

B. Public Participation

    NHTSA and EPA request comment on all aspects of this joint proposed 
rule. This section describes how you can participate in this process.

How do I prepare and submit comments?

    In this joint proposal, there are many issues common to both EPA's 
and NHTSA's proposals. For the convenience of all parties, comments 
submitted to the EPA docket will be considered comments submitted to 
the NHTSA docket, and vice versa. An exception is that comments 
submitted to the NHTSA docket on NHTSA's Draft Environmental Impact 
Statement (EIS) will not be considered submitted to the EPA docket. 
Therefore, the public only needs to submit comments to either one of 
the two agency dockets, although they may submit comments to both if 
they so choose. Comments that are submitted for consideration by one 
agency should be identified as such, and comments that are submitted 
for consideration by both agencies should be identified as such. Absent 
such identification, each agency will exercise its best judgment to 
determine whether a comment is submitted on its proposal.
    Further instructions for submitting comments to either the EPA or 
NHTSA docket are described below.
    EPA: Direct your comments to Docket ID No EPA-HQ-OAR-2010-0799. 
EPA's policy is that all comments received will be included in the 
public docket without change and may be made available online at http://www.regulations.gov, including any personal information provided, 
unless

[[Page 74856]]

the comment includes information claimed to be Confidential Business 
Information (CBI) or other information whose disclosure is restricted 
by statute. Do not submit information that you consider to be CBI or 
otherwise protected through http://www.regulations.gov or email. The 
http://www.regulations.gov Web site is an ``anonymous access'' system, 
which means EPA will not know your identity or contact information 
unless you provide it in the body of your comment. If you send an email 
comment directly to EPA without going through http://www.regulations.gov your email address will be automatically captured 
and included as part of the comment that is placed in the public docket 
and made available on the Internet. If you submit an electronic 
comment, EPA recommends that you include your name and other contact 
information in the body of your comment and with any disk or CD-ROM you 
submit. If EPA cannot read your comment due to technical difficulties 
and cannot contact you for clarification, EPA may not be able to 
consider your comment. Electronic files should avoid the use of special 
characters, any form of encryption, and be free of any defects or 
viruses. For additional information about EPA's public docket visit the 
EPA Docket Center homepage at http://www.epa.gov/epahome/dockets.htm.
    NHTSA: Your comments must be written and in English. To ensure that 
your comments are correctly filed in the Docket, please include the 
Docket number NHTSA-2010-0131 in your comments. Your comments must not 
be more than 15 pages long.\3\ NHTSA established this limit to 
encourage you to write your primary comments in a concise fashion. 
However, you may attach necessary additional documents to your 
comments, and there is no limit on the length of the attachments. If 
you are submitting comments electronically as a PDF (Adobe) file, we 
ask that the documents submitted be scanned using the Optical Character 
Recognition (OCR) process, thus allowing the agencies to search and 
copy certain portions of your submissions.\4\ Please note that pursuant 
to the Data Quality Act, in order for the substantive data to be relied 
upon and used by the agency, it must meet the information quality 
standards set forth in the OMB and Department of Transportation (DOT) 
Data Quality Act guidelines. Accordingly, we encourage you to consult 
the guidelines in preparing your comments. OMB's guidelines may be 
accessed at http://www.whitehouse.gov/omb/fedreg/reproducible.html. 
DOT's guidelines may be accessed at http://www.dot.gov/dataquality.htm.
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    \3\ See 49 CFR 553.21.
    \4\ Optical character recognition (OCR) is the process of 
converting an image of text, such as a scanned paper document or 
electronic fax file, into computer-editable text.
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Tips for Preparing Your Comments

    When submitting comments, please remember to:
     Identify the rulemaking by docket number and other 
identifying information (subject heading, Federal Register date and 
page number).
     Explain why you agree or disagree, suggest alternatives, 
and substitute language for your requested changes.
     Describe any assumptions and provide any technical 
information and/or data that you used.
     If you estimate potential costs or burdens, explain how 
you arrived at your estimate in sufficient detail to allow for it to be 
reproduced.
     Provide specific examples to illustrate your concerns, and 
suggest alternatives.
     Explain your views as clearly as possible, avoiding the 
use of profanity or personal threats.
     Make sure to submit your comments by the comment period 
deadline identified in the DATES section above.

How can I be sure that my comments were received?

    NHTSA: If you submit your comments by mail and wish Docket 
Management to notify you upon its receipt of your comments, enclose a 
self-addressed, stamped postcard in the envelope containing your 
comments. Upon receiving your comments, Docket Management will return 
the postcard by mail.

How do I submit confidential business information?

    Any confidential business information (CBI) submitted to one of the 
agencies will also be available to the other agency. However, as with 
all public comments, any CBI information only needs to be submitted to 
either one of the agencies' dockets and it will be available to the 
other. Following are specific instructions for submitting CBI to either 
agency.
    EPA: Do not submit CBI to EPA through http://www.regulations.gov or 
email. Clearly mark the part or all of the information that you claim 
to be CBI. For CBI information in a disk or CD ROM that you mail to 
EPA, mark the outside of the disk or CD ROM as CBI and then identify 
electronically within the disk or CD ROM the specific information that 
is claimed as CBI. In addition to one complete version of the comment 
that includes information claimed as CBI, a copy of the comment that 
does not contain the information claimed as CBI must be submitted for 
inclusion in the public docket. Information so marked will not be 
disclosed except in accordance with procedures set forth in 40 CFR Part 
2.
    NHTSA: If you wish to submit any information under a claim of 
confidentiality, you should submit three copies of your complete 
submission, including the information you claim to be confidential 
business information, to the Chief Counsel, NHTSA, at the address given 
above under FOR FURTHER INFORMATION CONTACT. When you send a comment 
containing confidential business information, you should include a 
cover letter setting forth the information specified in our 
confidential business information regulation.\5\
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    \5\ See 49 CFR part 512.
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    In addition, you should submit a copy from which you have deleted 
the claimed confidential business information to the Docket by one of 
the methods set forth above.

Will the agencies consider late comments?

    NHTSA and EPA will consider all comments received before the close 
of business on the comment closing date indicated above under DATES. To 
the extent practicable, we will also consider comments received after 
that date. If interested persons believe that any information that the 
agencies place in the docket after the issuance of the NPRM affects 
their comments, they may submit comments after the closing date 
concerning how the agencies should consider that information for the 
final rule. However, the agencies' ability to consider any such late 
comments in this rulemaking will be limited due to the time frame for 
issuing a final rule.
    If a comment is received too late for us to practicably consider in 
developing a final rule, we will consider that comment as an informal 
suggestion for future rulemaking action.

How can I read the comments submitted by other people?

    You may read the materials placed in the docket for this document 
(e.g., the comments submitted in response to this document by other 
interested persons) at any time by going to http://www.regulations.gov. 
Follow the online instructions for accessing the dockets. You may also 
read the materials at the EPA Docket Center or NHTSA Docket

[[Page 74857]]

Management Facility by going to the street addresses given above under 
ADDRESSES.

How do I participate in the public hearings?

    NHTSA and EPA will jointly host three public hearings on the dates 
and locations described in the DATES section above. At all hearings, 
both agencies will accept comments on the rulemaking, and NHTSA will 
also accept comments on the EIS.
    If you would like to present testimony at the public hearings, we 
ask that you notify the EPA and NHTSA contact persons listed under FOR 
FURTHER INFORMATION CONTACT at least ten days before the hearing. Once 
EPA and NHTSA learn how many people have registered to speak at the 
public hearing, we will allocate an appropriate amount of time to each 
participant, allowing time for lunch and necessary breaks throughout 
the day. For planning purposes, each speaker should anticipate speaking 
for approximately ten minutes, although we may need to adjust the time 
for each speaker if there is a large turnout. We suggest that you bring 
copies of your statement or other material for the EPA and NHTSA 
panels. It would also be helpful if you send us a copy of your 
statement or other materials before the hearing. To accommodate as many 
speakers as possible, we prefer that speakers not use technological 
aids (e.g., audio-visuals, computer slideshows). However, if you plan 
to do so, you must notify the contact persons in the FOR FURTHER 
INFORMATION CONTACT section above. You also must make arrangements to 
provide your presentation or any other aids to NHTSA and EPA in advance 
of the hearing in order to facilitate set-up. In addition, we will 
reserve a block of time for anyone else in the audience who wants to 
give testimony. The agencies will assume that comments made at the 
hearings are directed to the NPRM unless commenters specifically 
reference NHTSA's EIS in oral or written testimony.
    The hearing will be held at a site accessible to individuals with 
disabilities. Individuals who require accommodations such as sign 
language interpreters should contact the persons listed under FOR 
FURTHER INFORMATION CONTACT section above no later than ten days before 
the date of the hearing.
    NHTSA and EPA will conduct the hearing informally, and technical 
rules of evidence will not apply. We will arrange for a written 
transcript of the hearing and keep the official record of the hearing 
open for 30 days to allow you to submit supplementary information. You 
may make arrangements for copies of the transcript directly with the 
court reporter.

Table of Contents

I. Overview of Joint EPA/NHTSA Proposed 2017-2025 National PROGRAM
    A. Introduction
    1. Continuation of the National Program
    2. Additional Background on the National Program
    3. California's Greenhouse Gas Program
    4. Stakeholder Engagement
    B. Summary of the Proposed 2017-2025 National Program
    1. Joint Analytical Approach
    2. Level of the Standards
    3. Form of the Standards
    4. Program Flexibilities for Achieving Compliance
    5. Mid-Term Evaluation
    6. Coordinated Compliance
    7. Additional Program Elements
    C. Summary of Costs and Benefits for the Proposed National 
Program
    1. Summary of Costs and Benefits for the Proposed NHTSA CAFE 
Standards
    2. Summary of Costs and Benefits for the Proposed EPA GHG 
Standards
    D. Background and Comparison of NHTSA and EPA Statutory 
Authority
    1. NHTSA Statutory Authority
    2. EPA Statutory Authority
    3. Comparing the Agencies' Authority
II. Joint Technical Work Completed for This Proposal
    A. Introduction
    B. Developing the Future Fleet for Assessing Costs, Benefits, 
and Effects
    1. Why Did the Agencies Establish a Baseline and Reference 
Vehicle Fleet?
    2. How Did the Agencies Develop the Baseline Vehicle Fleet?
    3. How Did the Agencies Develop the Projected MY 2017-2025 
Vehicle Reference Fleet?
    C. Development of Attribute-Based Curve Shapes
    1. Why are standards attribute-based and defined by a 
mathematical function?
    2. What attribute are the agencies proposing to use, and why?
    3. What mathematical functions have the agencies previously 
used, and why?
    4. How have the agencies changed the mathematical functions for 
the proposed MYs 2017-2025 standards, and why?
    5. What are the agencies proposing for the MYs 2017-2025 curves?
    6. Once the agencies determined the appropriate slope for the 
sloped part, how did the agencies determine the rest of the 
mathematical function?
    7. Once the agencies determined the complete mathematical 
function shape, how did the agencies adjust the curves to develop 
the proposed standards and regulatory alternatives?
    D. Joint Vehicle Technology Assumptions
    1. What Technologies did the Agencies Consider?
    2. How did the Agencies Determine the Costs of Each of these 
Technologies?
    3. How Did the Agencies Determine the Effectiveness of Each of 
these Technologies?
    E. Joint Economic and Other Assumptions
    F. Air Conditioning Efficiency CO2 Credits and Fuel 
Consumption Improvement Values, Off-cycle Reductions, and Full-size 
Pickup Trucks
    1. Proposed Air Conditioning CO2 Credits and Fuel 
Consumption Improvement Values
    2. Off-Cycle CO2 Credits
    3. Advanced Technology Incentives for Full Sized Pickup Trucks
    G. Safety Considerations in Establishing CAFE/GHG Standards
    1. Why do the agencies consider safety?
    2. How do the agencies consider safety?
    3. What is the current state of the research on statistical 
analysis of historical crash data?
    4. How do the agencies think technological solutions might 
affect the safety estimates indicated by the statistical analysis?
    5. How have the agencies estimated safety effects for the 
proposed standards?
III. EPA Proposal For MYS 2017-2025 Greenhouse Gas Vehicle Standards
    A. Overview of EPA Rule
    1. Introduction
    2. Why is EPA Proposing this Rule?
    3. What is EPA Proposing?
    4. Basis for the GHG Standards under Section 202(a)
    5. Other Related EPA Motor Vehicle Regulations
    B. Proposed Model Year 2017-2025 GHG Standards for Light-duty 
Vehicles, Light-duty Trucks, and Medium duty Passenger Vehicles
    1. What Fleet-wide Emissions Levels Correspond to the 
CO2 Standards?
    2. What Are the Proposed CO2 Attribute-based 
Standards?
    3. Mid-Term Evaluation
    4. Averaging, Banking, and Trading Provisions for CO2 
Standards
    5. Small Volume Manufacturer Standards
    6. Nitrous Oxide, Methane, and CO2-equivalent 
Approaches
    7. Small Entity Exemption
    8. Additional Leadtime Issues
    9. Police and Emergency Vehicle Exemption From CO2 
Standards
    10. Test Procedures
    C. Additional Manufacturer Compliance Flexibilities
    1. Air Conditioning Related Credits
    2. Incentive for Electric Vehicles, Plug-in Hybrid Electric 
Vehicles, and Fuel Cell Vehicles
    3. Incentives for ``Game-Changing'' Technologies Including use 
of Hybridization and Other Advanced Technologies for Full-Size 
Pickup Trucks
    4. Treatment of Plug-in Hybrid Electric Vehicles, Dual Fuel 
Compressed Natural Gas Vehicles, and Ethanol Flexible Fuel Vehicles 
for GHG Emissions Compliance
    5. Off-cycle Technology Credits
    D. Technical Assessment of the Proposed CO2 Standards
    1. How did EPA develop a reference and control fleet for 
evaluating standards?
    2. What are the Effectiveness and Costs of CO2-
reducing technologies?

[[Page 74858]]

    3. How were technologies combined into ``packages'' and what is 
the cost and effectiveness of packages?
    4. How does EPA Project how a manufacturer would decide between 
options to improve CO2 performance to meet a fleet 
average standard?
    5. Projected Compliance Costs and Technology Penetrations
    6. How does the technical assessment support the proposed 
CO2 standards as compared to the alternatives has EPA 
considered?
    7. To what extent do any of today's vehicles meet or surpass the 
proposed MY 2017-2025 CO2 footprint-based targets with 
current powertrain designs?
    E. Certification, Compliance, and Enforcement
    1. Compliance Program Overview
    2. Compliance With Fleet-Average CO2 Standards
    3. Vehicle Certification
    4. Useful Life Compliance
    5. Credit Program Implementation
    6. Enforcement
    7. Other Certification Issues
    8. Warranty, Defect Reporting, and Other Emission-related 
Components Provisions
    9. Miscellaneous Technical Amendments and Corrections
    10. Base Tire Definition
    11. Treatment of Driver-Selectable Modes and Conditions
    F. How Would This Proposal Reduce GHG Emissions and Their 
Associated Effects?
    1. Impact on GHG Emissions
    2. Climate Change Impacts From GHG Emissions
    3. Changes in Global Climate Indicators Associated With the 
Proposal's GHG Emissions Reductions
    G. How would the proposal impact non-GHG emissions and their 
associated effects?
    1. Inventory
    2. Health Effects of Non-GHG Pollutants
    3. Environmental Effects of Non-GHG Pollutants
    4. Air Quality Impacts of Non-GHG Pollutants
    5. Other Unquantified Health and Environmental Effects
    H. What are the estimated cost, economic, and other impacts of 
the proposal?
    1. Conceptual Framework for Evaluating Consumer Impacts
    2. Costs Associated With the Vehicle Standards
    3. Cost per ton of Emissions Reduced
    4. Reduction in Fuel Consumption and its Impacts
    5. CO2 Emission Reduction Benefits
    6. Non-Greenhouse Gas Health and Environmental Impacts
    7. Energy Security Impacts
    8. Additional Impacts
    9. Summary of Costs and Benefits
    10. U.S. Vehicle Sales Impacts and Payback Period
    11. Employment Impacts
    I. Statutory and Executive Order Reviews
    J. Statutory Provisions and Legal Authority
IV. NHTSA Proposed Rule for Passenger car and Light Truck Cafe 
Standards for Model Years 2017-2025
    A. Executive Overview of NHTSA Proposed Rule
    1. Introduction
    2. Why does NHTSA set CAFE standards for passenger cars and 
light trucks?
    3. Why is NHTSA proposing CAFE standards for MYs 2017-2025 now?
    B. Background
    1. Chronology of events since the MY 2012-2016 final rule was 
issued
    2. How has NHTSA developed the proposed CAFE standards since the 
President's announcement?
    C. Development and Feasibility of the Proposed Standards
    1. How was the baseline vehicle fleet developed?
    2. How were the technology inputs developed?
    3. How did NHTSA develop its economic assumptions?
    4. How does NHTSA use the assumptions in its modeling analysis?
    D. Statutory Requirements
    1. EPCA, as Amended by EISA
    2. Administrative Procedure Act
    3. National Environmental Policy Act
    E. What are the proposed CAFE standards?
    1. Form of the Standards
    2. Passenger Car Standards for MYs 2017-2025
    3. Minimum Domestic Passenger Car Standards
    4. Light Truck Standards
    F. How do the proposed standards fulfill NHTSA's statutory 
obligations?
    1. What are NHTSA's statutory obligations?
    2. How did the agency balance the factors for this NPRM?
    G. Impacts of the Proposed CAFE Standards
    1. How will these standards improve fuel economy and reduce GHG 
emissions for MY 2017-2025 vehicles?
    2. How will these standards improve fleet-wide fuel economy and 
reduce GHG emissions beyond MY 2025?
    3. How will these proposed standards impact non-GHG emissions 
and their associated effects?
    4. What are the estimated costs and benefits of these proposed 
standards?
    5. How would these proposed standards impact vehicle sales?
    6. Social Benefits, Private Benefits, and Potential Unquantified 
Consumer Welfare Impacts of the Proposed Standards
    7. What other impacts (quantitative and unquantifiable) will 
these proposed standards have?
    H. Vehicle Classification
    I. Compliance and Enforcement
    1. Overview
    2. How does NHTSA determine compliance?
    3. What compliance flexibilities are available under the CAFE 
program and how do manufacturers use them?
    4. What new incentives are being added to the CAFE program for 
MYs 2017-2025?
    5. Other CAFE enforcement issues
    J. Regulatory notices and analyses
    1. Executive Order 12866, Executive Order 13563, and DOT 
Regulatory Policies and Procedures
    2. National Environmental Policy Act
    3. Regulatory Flexibility Act
    4. Executive Order 13132 (Federalism)
    5. Executive Order 12988 (Civil Justice Reform)
    6. Unfunded Mandates Reform Act
    7. Regulation Identifier Number
    8. Executive Order 13045
    9. National Technology Transfer and Advancement Act
    10. Executive Order 13211
    11. Department of Energy Review
    12. Plain Language
    13. Privacy Act

I. Overview of Joint EPA/NHTSA Proposed 2017-2025 National Program

Executive Summary

    EPA and NHTSA are each announcing proposed rules that call for 
strong and coordinated Federal greenhouse gas and fuel economy 
standards for passenger cars, light-duty trucks, and medium-duty 
passenger vehicles (hereafter light-duty vehicles or LDVs). Together, 
these vehicle categories, which include passenger cars, sport utility 
vehicles, crossover utility vehicles, minivans, and pickup trucks, 
among others, are presently responsible for approximately 60 percent of 
all U.S. transportation-related greenhouse gas (GHG) emissions and fuel 
consumption. This proposal would extend the National Program of Federal 
light-duty vehicle GHG emissions and corporate average fuel economy 
(CAFE) standards to model years (MYs) 2017-2025. This proposed 
coordinated program would achieve important reductions in GHG emissions 
and fuel consumption from the light-duty vehicle part of the 
transportation sector, based on technologies that either are 
commercially available or that the agencies project will be 
commercially available in the rulemaking timeframe and that can be 
incorporated at a reasonable cost. Higher initial vehicle costs will be 
more than offset by significant fuel savings for consumers over the 
lives of the vehicles covered by this rulemaking.
    This proposal builds on the success of the first phase of the 
National Program to regulate fuel economy and GHG emissions from U.S. 
light-duty vehicles, which established strong and coordinated standards 
for model years (MY) 2012-2016. As with the first phase of the National 
Program, collaboration with California Air Resources Board (CARB) and 
with automobile manufacturers and other stakeholders has been a key 
element in developing the agencies' proposed rules. Continuing the 
National Program would ensure that all manufacturers can build a single 
fleet of U.S. vehicles that would satisfy all requirements under both 
programs as well as under California's

[[Page 74859]]

program, helping to reduce costs and regulatory complexity while 
providing significant energy security and environmental benefits.
    Combined with the standards already in effect for MYs 2012-2016, as 
well as the MY 2011 CAFE standards, the proposed standards would result 
in MY 2025 light-duty vehicles with nearly double the fuel economy, and 
approximately one-half of the GHG emissions compared to MY 2010 
vehicles--representing the most significant federal action ever taken 
to reduce GHG emissions and improve fuel economy in the U.S. EPA is 
proposing standards that are projected to require, on an average 
industry fleet wide basis, 163 grams/mile of carbon dioxide 
(CO2) in model year 2025, which is equivalent to 54.5 mpg if 
this level were achieved solely through improvements in fuel 
efficiency.\6\ Consistent with its statutory authority, NHTSA is 
proposing passenger car and light truck standards for MYs 2017-2025 in 
two phases. The first phase, from MYs 2017-2021, includes proposed 
standards that are projected to require, on an average industry fleet 
wide basis, 40.9 mpg in MY 2021. The second phase of the CAFE program, 
from MYs 2022-2025, represents conditional \7\ proposed standards that 
are projected to require, on an average industry fleet wide basis, 49.6 
mpg in model year 2025. Both the EPA and NHTSA standards are projected 
to be achieved through a range of technologies, including improvements 
in air conditioning efficiency, which reduces both GHG emissions and 
fuel consumption; the EPA standards also are projected to be achieved 
with the use of air conditioning refrigerants with a lower global 
warming potential (GWP), which reduce GHGs (i.e., hydrofluorocarbons) 
but do not improve fuel economy. The agencies are proposing separate 
standards for passenger cars and trucks, based on a vehicle's size or 
``footprint.'' For the MYs 2022-2025 standards, EPA and NHTSA are 
proposing a comprehensive mid-term evaluation and agency decision-
making process, given both the long time frame and NHTSA's obligation 
to conduct a separate rulemaking in order to establish final standards 
for vehicles for those model years.
---------------------------------------------------------------------------

    \6\ Real-world CO2 is typically 25 percent higher and 
real-world fuel economy is typically 20 percent lower than the 
CO2 and CAFE compliance values discussed here. The 
reference to CO2 here refers to CO2 equivalent 
reductions, as this included some degree of reductions in greenhouse 
gases other than CO2, as one part of the air conditioning 
related reductions.
    \7\ By ``conditional,'' NHTSA means to say that the proposed 
standards for MYs 2022-2025 represent the agency's current best 
estimate of what levels of stringency would be maximum feasible in 
those model years, but in order for the standards for those model 
years to be legally binding a subsequent rulemaking must be 
undertaken by the agency at a later time. See Section IV for more 
information.
---------------------------------------------------------------------------

    From a societal standpoint, this second phase of the National 
Program is projected to save approximately 4 billion barrels of oil and 
2 billion metric tons of GHG emissions over the lifetimes of those 
vehicles sold in MY 2017-2025. The agencies estimate that fuel savings 
will far outweigh higher vehicle costs, and that the net benefits to 
society of the MYs 2017-2025 National Program will be in the range of 
$311 billion to $421 billion (7 and 3 percent discount rates, 
respectively) over the lifetimes of those vehicles sold in MY 2017-
2025.
    These proposed standards would have significant savings for 
consumers at the pump. Higher costs for new vehicle technology will 
add, on average, about $2000 for consumers who buy a new vehicle in MY 
2025. Those consumers who drive their MY 2025 vehicle for its entire 
lifetime will save, on average, $5200 to $6600 (7 and 3 percent 
discount rates, respectively) in fuel savings, for a net lifetime 
savings of $3000 to $4400. For those consumers who purchase their new 
MY 2025 vehicle with cash, the discounted fuel savings will offset the 
higher vehicle cost in less than 4 years, and fuel savings will 
continue for as long as the consumer owns the vehicle. Those consumers 
that buy a new vehicle with a typical 5-year loan will benefit from an 
average monthly cash flow savings of about $12 during the loan period, 
or about $140 per year, on average. So the consumer would benefit 
beginning at the time of purchase, since the increased monthly fuel 
savings would more than offset the higher monthly payment due to the 
higher incremental vehicle cost.
    The agencies have designed the proposed standards to preserve 
consumer choice--that is, the proposed standards should not affect 
consumers' opportunity to purchase the size of vehicle with the 
performance, utility and safety features that meets their needs. The 
standards are based on a vehicle's size, or footprint--that is, 
consistent with their general performance and utility needs, larger 
vehicles have numerically less stringent fuel economy/GHG emissions 
targets and smaller vehicles have more stringent fuel economy/GHG 
emissions targets, although since the standards are fleet average 
standards, no specific vehicle must meet a target. Thus, consumers will 
be able to continue to choose from the same mix of vehicles that are 
currently in the marketplace.
    The agencies' believe there is a wide range of technologies 
available for manufacturers to consider in reducing GHG emissions and 
improving fuel economy. The proposals allow for long-term planning by 
manufacturers and suppliers for the continued development and 
deployment across their fleets of fuel saving and emissions-reducing 
technologies. The agencies believe that advances in gasoline engines 
and transmissions will continue for the foreseeable future, and that 
there will be continual improvement in other technologies, including 
vehicle weight reduction, lower tire rolling resistance, improvements 
in vehicle aerodynamics, diesel engines, and more efficient vehicle 
accessories. The agencies also expect to see increased electrification 
of the fleet through the expanded production of stop/start, hybrid, 
plug-in hybrid and electric vehicles. Finally, the agencies expect that 
vehicle air conditioners will continue to improve by becoming more 
efficient and by increasing the use of alternative refrigerants. Many 
of these technologies are already available today, and manufacturers 
will be able to meet the standards through significant efficiency 
improvements in these technologies, as well as a significant 
penetration of these and other technologies across the fleet. Auto 
manufacturers may also introduce new technologies that we have not 
considered for this rulemaking analysis, which could make possible 
alternative, more cost-effective paths to compliance.

A. Introduction

1. Continuation of the National Program
    EPA and NHTSA are each announcing proposed rules that call for 
strong and coordinated Federal greenhouse gas and fuel economy 
standards for passenger cars, light-duty trucks, and medium-duty 
passenger vehicles (hereafter light-duty vehicles or LDVs). Together, 
these vehicle categories, which include passenger cars, sport utility 
vehicles, crossover utility vehicles, minivans, and pickup trucks, are 
presently responsible for approximately 60 percent of all U.S. 
transportation-related greenhouse gas emissions and fuel consumption. 
The proposal would extend the National Program of Federal light-duty 
vehicle greenhouse gas (GHG) emissions and corporate average fuel 
economy (CAFE) standards to model years (MYs) 2017-2025. The 
coordinated program being proposed would achieve important reductions 
of greenhouse gas (GHG) emissions and fuel consumption from the light-
duty vehicle part of the

[[Page 74860]]

transportation sector, based on technologies that either are 
commercially available or that the agencies project will be 
commercially available in the rulemaking timeframe and that can be 
incorporated at a reasonable cost.
    In working together to develop the next round of standards for MYs 
2017-2025, NHTSA and EPA are building on the success of the first phase 
of the National Program to regulate fuel economy and GHG emissions from 
U.S. light-duty vehicles, which established the strong and coordinated 
standards for model years (MY) 2012-2016. As for the MYs 2012-2016 
rulemaking, collaboration with California Air Resources Board (CARB) 
and with industry and other stakeholders has been a key element in 
developing the agencies' proposed rules. Continuing the National 
Program would ensure that all manufacturers can build a single fleet of 
U.S. vehicles that would satisfy all requirements under both programs 
as well as under California's program, helping to reduce costs and 
regulatory complexity while providing significant energy security and 
environmental benefits.
    The agencies have been developing the basis for these joint 
proposed standards almost since the conclusion of the rulemaking 
establishing the first phase of the National Program. After much 
research and deliberation by the agencies, along with CARB and other 
stakeholders, President Obama announced plans for these proposed rules 
on July 29, 2011 and NHTSA and EPA issued a Supplemental Notice of 
Intent (NOI) outlining the agencies' plans for proposing the MY 2017-
2025 standards and program.\8\ This July NOI built upon the extensive 
analysis conducted by the agencies over the past year, including an 
initial technical assessment report and NOI issued in September 2010, 
and a supplemental NOI issued in December 2010 (discussed further 
below). The State of California and thirteen auto manufacturers 
representing over 90 percent of U.S. vehicle sales provided letters of 
support for the program concurrent with the Supplemental NOI.\9\ The 
United Auto Workers (UAW) also supported the announcement,\10\ as well 
as many consumer and environmental groups. As envisioned in the 
Presidential announcement and Supplemental NOI, this proposal sets 
forth proposed MYs 2017-2025 standards as well as detailed supporting 
analysis for those standards and regulatory alternatives for public 
review and comment. The program that the agencies are proposing will 
spur the development of a new generation of clean cars and trucks 
through innovative technologies and manufacturing that will, in turn, 
spur economic growth and create high-quality domestic jobs, enhance our 
energy security, and improve our environment. Consistent with Executive 
Order 13563, this proposal was developed with early consultation with 
stakeholders, employs flexible regulatory approaches to reduce burdens, 
maintains freedom of choice for the public, and helps to harmonize 
federal and state regulations.
---------------------------------------------------------------------------

    \8\ 76 FR 48758 (August 9, 2011).
    \9\ Commitment letters are available at http://www.epa.gov/otaq/climate/regulations.htm and at http://www.nhtsa.gov/fuel-economy 
(last accessed Aug. 24, 2011).
    \10\ The UAW's support was expressed in a statement on July 29, 
2011, which can be found at http://www.uaw.org/articles/uaw-supports-administration-proposal-light-duty-vehicle-cafe-and-greenhouse-gas-emissions-r (last accessed September 19, 2011).
---------------------------------------------------------------------------

    As described below, NHTSA and EPA are proposing a continuation of 
the National Program that the agencies believe represents the 
appropriate levels of fuel economy and GHG emissions standards for 
model years 2017-2025, given the technologies that the agencies 
anticipate will be available for use on these vehicles and the 
agencies' understanding of the cost and manufacturers' ability to apply 
these technologies during that time frame, and consideration of other 
relevant factors. Under this joint rulemaking, EPA is proposing GHG 
emissions standards under the Clean Air Act (CAA), and NHTSA is 
proposing CAFE standards under EPCA, as amended by the Energy 
Independence and Security Act of 2007 (EISA). This joint rulemaking 
proposal reflects a carefully coordinated and harmonized approach to 
implementing these two statutes, in accordance with all substantive and 
procedural requirements imposed by law.\11\
---------------------------------------------------------------------------

    \11\ For NHTSA, this includes the requirements of the National 
Environmental Policy Act (NEPA).
---------------------------------------------------------------------------

    The proposed approach allows for long-term planning by 
manufacturers and suppliers for the continued development and 
deployment across their fleets of fuel saving and emissions-reducing 
technologies. NHTSA's and EPA's technology assessment indicates there 
is a wide range of technologies available for manufacturers to consider 
in reducing GHG emissions and improving fuel economy. The agencies 
believe that advances in gasoline engines and transmissions will 
continue for the foreseeable future, which is a view that is supported 
in the literature and amongst the vehicle manufacturers and 
suppliers.\12\ The agencies also believe that there will be continual 
improvement in other technologies including reductions in vehicle 
weight, lower tire rolling resistance, improvements in vehicle 
aerodynamics, diesel engines, and more efficient vehicle accessories. 
The agencies also expect to see increased electrification of the fleet 
through the expanded production of stop/start, hybrid, plug-in hybrid 
and electric vehicles.\13\ Finally, the agencies expect that vehicle 
air conditioners will continue to improve by becoming more efficient 
and by increasing the use of alternative refrigerants. Many of these 
technologies are already available today, and EPA's and NHTSA's 
assessments are that manufacturers will be able to meet the standards 
through significant efficiency improvements in these technologies as 
well as a significant penetration of these and other technologies 
across the fleet. We project that these potential compliance pathways 
for manufacturers will result in significant benefits to consumers and 
to society, as quantified below. Manufacturers may also introduce new 
technologies that we have not considered for this rulemaking analysis, 
which could make possible alternative, more cost-effective paths to 
compliance.
---------------------------------------------------------------------------

    \12\ There are a number of competing gasoline engine 
technologies, with one in particular that the agencies project will 
be common beyond 2016. This is the gasoline direct injection and 
downsized engines equipped with turbochargers and cooled exhaust gas 
recirculation, which has performance characteristics similar to that 
of larger, less efficient engines. Paired with these engines, the 
agencies project that advanced transmissions (such as automatic and 
dual clutch transmissions with eight forward speeds) and higher 
efficiency gearboxes will provide significant improvements. 
Transmissions with eight or more speeds can be found in the fleet 
today in very limited production, and while they are expected to 
penetrate further by 2016, we anticipate that by 2025 these will be 
the dominant transmissions in new vehicle sales.
    \13\ For example, while today less than three percent of annual 
vehicle sales are strong hybrids, plug-in hybrids and all electric 
vehicles, by 2025 we estimate these technologies could represent 
nearly 15 percent of new sales.
---------------------------------------------------------------------------

    As discussed further below, as with the standards for MYs 2012-
2016, the agencies believe that the proposed standards would continue 
to preserve consumer choice, that is, the proposed standards should not 
affect consumers' opportunity to purchase the size of vehicle that 
meets their needs. NHTSA and EPA are proposing to continue standards 
based on vehicle footprint, where smaller vehicles have relatively more 
stringent standards, and larger vehicles have less stringent standards, 
so there should not be a significant effect on the relative 
availability of different size vehicles in the fleet.

[[Page 74861]]

Additionally, as with the standards for MYs 2012-2016, the agencies 
believe that the proposed standards should not have a negative effect 
on vehicle safety, as it relates to vehicle footprint and mass as 
described in Section II.C and II.G below, respectively.
    We note that as part of this rulemaking, given the long time frame 
at issue in setting standards for MY 2022-2025 light-duty vehicles, the 
agencies are discussing a comprehensive mid-term evaluation and agency 
decision-making process. NHTSA has a statutory obligation to conduct a 
separate de novo rulemaking in order to establish final standards for 
vehicles for the 2022-2025 model years and would conduct the mid-term 
evaluation as part of that rulemaking, and EPA is proposing regulations 
that address the mid-term evaluation. The mid-term evaluation will 
assess the appropriateness of the MY 2022-2025 standards considered in 
this rulemaking, based on an updated assessment of all the factors 
considered in setting the standards and the impacts of those factors on 
the manufacturers' ability to comply. NHTSA and EPA fully expect to 
conduct this mid-term evaluation in coordination with the California 
Air Resources Board, given our interest in a maintaining a National 
Program to address GHGs and fuel economy. Further discussion of the 
mid-term evaluation is found later in this section, as well as in 
Sections III and IV.
    Based on the agencies' analysis, the National Program standards 
being proposed are currently projected to reduce GHGs by approximately 
2 billion metric tons and save 4 billion barrels of oil over the 
lifetime of MYs 2017-2025 vehicles relative to the MY 2016 standard 
curves \14\ already in place. The average cost for a MY 2025 vehicle to 
meet the standards is estimated to be about $2,000 compared to a 
vehicle that would meet the level of the MY 2016 standards in MY 2025. 
However, fuel savings for consumers are expected to more than offset 
the higher vehicle costs. The typical driver would save a total of 
$5,200 to $6,600 (7 percent and 3 percent discount rate, respectively) 
in fuel costs over the lifetime of a MY 2025 vehicle and, even after 
accounting for the higher vehicle cost, consumers would save a net 
$3,000 to $4,400 (7 percent and 3 percent discount rate, respectively) 
over the vehicle's lifetime. Further, consumers who buy new vehicles 
with cash would save enough in lower fuel costs after less than 4 years 
(at either 7 percent or 3 percent discount rate) of owning a MY 2025 
vehicle to offset the higher upfront vehicle costs, while consumers who 
buy with a 5-year loan would save more each month on fuel than the 
increased amount they would spend on the higher monthly loan payment, 
beginning in the first month of ownership.
---------------------------------------------------------------------------

    \14\ The calculation of GHG reductions and oil savings is 
relative to a future in which the MY 2016 standards remain in place 
for MYs 2017-2025 and manufacturers comply on average at those 
levels.
---------------------------------------------------------------------------

    Continuing the National Program has both energy security and 
climate change benefits. Climate change is widely viewed as a 
significant long-term threat to the global environment. EPA has found 
that elevated atmospheric concentrations of six greenhouse gases--
carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, 
perflurocarbons, and sulfur hexafluoride--taken in combination endanger 
both the public health and the public welfare of current and future 
generations. EPA further found that the combined emissions of these 
greenhouse gases from new motor vehicles and new motor vehicle engines 
contribute to the greenhouse gas air pollution that endangers public 
health and welfare. 74 FR 66496 (Dec. 15, 2009). As summarized in EPA's 
Endangerment and Cause or Contribute Findings under Section 202(a) of 
the Clear Air Act, anthropogenic emissions of GHGs are very likely (90 
to 99 percent probability) the cause of most of the observed global 
warming over the last 50 years.\15\ Mobile sources emitted 31 percent 
of all U.S. GHGs in 2007 (transportation sources, which do not include 
certain off-highway sources, account for 28 percent) and have been the 
fastest-growing source of U.S. GHGs since 1990.\16\ Mobile sources 
addressed in the endangerment and contribution findings under CAA 
section 202(a)--light-duty vehicles, heavy-duty trucks, buses, and 
motorcycles--accounted for 23 percent of all U.S. GHG in 2007.\17\ 
Light-duty vehicles emit CO2, methane, nitrous oxide, and 
hydrofluorocarbons and are responsible for nearly 60 percent of all 
mobile source GHGs and over 70 percent of Section 202(a) mobile source 
GHGs. For light-duty vehicles in 2007, CO2 emissions 
represent about 94 percent of all greenhouse emissions (including 
HFCs), and the CO2 emissions measured over the EPA tests 
used for fuel economy compliance represent about 90 percent of total 
light-duty vehicle GHG emissions.18 19
---------------------------------------------------------------------------

    \15\ 74 FR 66,496,-66,518, December 18, 2009; ``Technical 
Support Document for Endangerment and Cause or Contribute Findings 
for Greenhouse Gases Under Section 202(a) of the Clean Air Act'' 
Docket: EPA-HQ-OAR-2009-0472-11292, http://epa.gov/climatechange/endangerment.html.
    \16\ U.S. Environmental Protection Agency. 2009. Inventory of 
U.S. Greenhouse Gas Emissions and Sinks: 1990-2007. EPA 430-R-09-
004. Available at http://epa.gov/climatechange/emissions/downloads09/GHG2007entire_report-508.pdf.
    \17\ U.S. EPA. 2009 Technical Support Document for Endangerment 
and Cause or Contribute Findings for Greenhouse Gases under Section 
202(a) of the Clean Air Act. Washington, DC. pp. 180-194. Available 
at http://epa.gov/climatechange/endangerment/downloads/Endangerment%20TSD.pdf.
    \18\ U.S. Environmental Protection Agency. 2009. Inventory of 
U.S. Greenhouse Gas Emissions and Sinks: 1990-2007. EPA 430-R-09-
004. Available at http://epa.gov/climatechange/emissions/downloads09/GHG2007entire_report-508.pdf.
    \19\ U.S. Environmental Protection Agency. RIA, Chapter 2.
---------------------------------------------------------------------------

    Improving our energy and national security by reducing our 
dependence on foreign oil has been a national objective since the first 
oil price shocks in the 1970s. Net petroleum imports accounted for 
approximately 51 percent of U.S. petroleum consumption in 2009.\20\ 
World crude oil production is highly concentrated, exacerbating the 
risks of supply disruptions and price shocks as the recent unrest in 
North Africa and the Persian Gulf highlights. Recent tight global oil 
markets led to prices over $100 per barrel, with gasoline reaching as 
high as $4 per gallon in many parts of the U.S., causing financial 
hardship for many families and businesses. The export of U.S. assets 
for oil imports continues to be an important component of the 
historically unprecedented U.S. trade deficits. Transportation 
accounted for about 71 percent of U.S. petroleum consumption in 
2009.\21\ Light-duty vehicles account for about 60 percent of 
transportation oil use, which means that they alone account for about 
40 percent of all U.S. oil consumption.
---------------------------------------------------------------------------

    \20\ Energy Information Administration, ``How dependent are we 
on foreign oil?'' Available at http://www.eia.gov/energy_in_brief/foreign_oil_dependence.cfm (last accessed August 28, 2011).
    \21\ Energy Information Administration, Annual Energy Outlook 
2011, ``Oil/Liquids.'' Available at http://www.eia.gov/forecasts/aeo/MT_liquidfuels.cfm (last accessed August 28, 2011).
---------------------------------------------------------------------------

    The automotive market is becoming increasingly global. The U.S. 
auto companies and U.S. suppliers produce and sell automobiles and 
automotive components around the world, and foreign auto companies 
produce and sell in the U.S. As a result, the industry has become 
increasingly competitive. Staying at the cutting edge of automotive 
technology while maintaining profitability and consumer acceptance has 
become increasingly important for the sustainability of auto companies. 
The proposed standards cover model years 2017-2025 for passenger cars 
and light-duty trucks sold in the United States. Many other countries 
and regions around the world have in place fuel economy or 
CO2

[[Page 74862]]

emission standards for light-duty vehicles. In addition, the European 
Union is currently discussing more stringent CO2 standards 
for 2020, and the Japanese government has recently issued a draft 
proposal for new fuel efficiency standards for 2020. The overall trend 
is clear--globally many of the major economic countries are increasing 
the stringency of their fuel economy or CO2 emission 
standards for light-duty vehicles. When considering this common trend, 
the proposed CAFE and CO2 standards for MY 2017-2025 may 
offer some advantages for U.S.-based automotive companies and 
suppliers. In order to comply with the proposed standards, U.S. firms 
will need to invest significant research and development dollars and 
capital in order to develop and produce the technologies needed to 
reduce CO2 emissions and improve fuel economy. Companies 
have limited budgets for research and development programs. As 
automakers seek greater commonality across the vehicles they produce 
for the domestic and foreign markets, improving fuel economy and 
reducing GHGs in U.S. vehicles should have spillovers to foreign 
production, and vice versa, thus yielding the ability to amortize 
investment in research and production over a broader product and 
geographic spectrum. To the extent that the technologies needed to meet 
the standards contained in this proposal can also be used to comply 
with the fuel economy and CO2 standards in other countries, 
this can help U.S. firms in the global automotive market, as the U.S. 
firms will be able to focus their available research and development 
funds on a common set of technologies that can be used both 
domestically as well as internationally.
2. Additional Background on the National Program
    Following the successful adoption of a National Program of federal 
standards for greenhouse gas emissions (GHG) and fuel economy standards 
for model years (MY) 2012-2016 light duty vehicles, President Obama 
issued a Memorandum on May 21, 2010 requesting that the National 
Highway Traffic Safety Administration (NHTSA), on behalf of the 
Department of Transportation, and the Environmental Protection Agency 
(EPA) work together to develop a national program for model years 2017-
2025. Specifically, he requested that the agencies develop ``* * * a 
coordinated national program under the CAA [Clean Air Act] and the EISA 
[Energy Independence and Security Act of 2007] to improve fuel 
efficiency and to reduce greenhouse gas emissions of passenger cars and 
light-duty trucks of model years 2017-2025.'' \22\ The President 
recognized that our country could take a leadership role in addressing 
the global challenges of improving energy security and reducing 
greenhouse gas pollution, stating that ``America has the opportunity to 
lead the world in the development of a new generation of clean cars and 
trucks through innovative technologies and manufacturing that will spur 
economic growth and create high-quality domestic jobs, enhance our 
energy security, and improve our environment.''
---------------------------------------------------------------------------

    \22\ The Presidential Memorandum is found at: http://www.whitehouse.gov/the-press-office/presidential-memorandum-regarding-fuel-efficiency-standards. For the reader's reference, the 
President also requested the Administrators of EPA and NHTSA to 
issue joint rules under the CAA and EISA to establish fuel 
efficiency and greenhouse gas emissions standards for commercial 
medium-and heavy-duty on-highway vehicles and work trucks beginning 
with the 2014 model year. The agencies recently promulgated final 
GHG and fuel efficiency standards for heavy duty vehicles and 
engines for MYs 2014-2018. 76 FR 57106 (September 15, 2011).
---------------------------------------------------------------------------

    The Presidential Memorandum stated ``The program should also seek 
to achieve substantial annual progress in reducing transportation 
sector greenhouse gas emissions and fossil fuel consumption, consistent 
with my Administration's overall energy and climate security goals, 
through the increased domestic production and use of existing, 
advanced, and emerging technologies, and should strengthen the industry 
and enhance job creation in the United States.'' Among other things, 
the agencies were tasked with researching and then developing standards 
for MYs 2017 through 2025 that would be appropriate and consistent with 
EPA's and NHTSA's respective statutory authorities, in order to 
continue to guide the automotive sector along the road to reducing its 
fuel consumption and GHG emissions, thereby ensuring corresponding 
energy security and environmental benefits. During the public comment 
period for the MY 2012-2016 proposed rulemaking, many stakeholders, 
including automakers, encouraged NHTSA and EPA to begin working toward 
standards for MY 2017 and beyond in order to maintain a single 
nationwide program. Several major automobile manufacturers and CARB 
sent letters to EPA and NHTSA in support of a MYs 2017 to 2025 
rulemaking initiative as outlined in the President's May 21, 2010 
announcement.\23\
---------------------------------------------------------------------------

    \23\ These letters of support in response to the May 21, 2010 
Presidential Memorandum are available at http://www.epa.gov/otaq/climate/regulations.htm#prez and http://www.nhtsa.gov/
Laws+&+Regulations/CAFE+-+Fuel+Economy/
Stakeholder+Commitment+Letters (last accessed August 28, 2011).
---------------------------------------------------------------------------

    The President's memo requested that the agencies, ``work with the 
State of California to develop by September 1, 2010, a technical 
assessment to inform the rulemaking process * * *.'' As a first step in 
responding to the President's request, the agencies collaborated with 
CARB to prepare an Interim Joint Technical Assessment Report (TAR) to 
inform the rulemaking process and provide an initial technical 
assessment for that work. NHTSA, EPA, and CARB issued the joint 
Technical Assessment Report consistent with Section 2(a) of the 
Presidential Memorandum.\24\ In developing the technical assessment, 
EPA, NHTSA, and CARB held numerous meetings with a wide variety of 
stakeholders including the automobile original equipment manufacturers 
(OEMs), automotive suppliers, non-governmental organizations, states 
and local governments, infrastructure providers, and labor unions. The 
Interim Joint TAR provided an overview of key stakeholder input, 
addressed other topics noted in the Presidential memorandum, and EPA's 
and NHTSA's initial assessment of benefits and costs of a range of 
stringencies of future standards.
---------------------------------------------------------------------------

    \24\ This Interim Joint Technical Assessment Report (TAR) is 
available at http://www.epa.gov/otaq/climate/regulations/ldv-ghg-tar.pdf and http://www.nhtsa.gov/staticfiles/rulemaking/pdf/cafe/
2017+CAFE-GHG--Interim--TAR2.pdf.Section 2(a) of the Presidential 
Memorandum requested that EPA and NHTSA ``Work with the State of 
California to develop by September 1, 2010, a technical assessment 
to inform the rulemaking process, reflecting input from an array of 
stakeholders on relevant factors, including viable technologies, 
costs, benefits, lead time to develop and deploy new and emerging 
technologies, incentives and other flexibilities to encourage 
development and deployment of new and emerging technologies, impacts 
on jobs and the automotive manufacturing base in the United States, 
and infrastructure for advanced vehicle technologies.''
---------------------------------------------------------------------------

    In accordance with the Presidential Memorandum, NHTSA and EPA also 
issued a joint Notice of Intent to Issue a Proposed Rulemaking 
(NOI).\25\ The September 2010 NOI highlighted the results of the 
analyses contained in the Interim Joint TAR, provided an overview of 
key program design elements, and announced plans for initiating the 
joint rulemaking to improve the fuel efficiency and reduce the GHG 
emissions of passenger cars and light-duty trucks built in MYs 2017-
2025. The agencies requested comments on the September NOI and 
accompanying Interim Joint TAR.
---------------------------------------------------------------------------

    \25\ 75 FR 62739, October 13, 2010.
---------------------------------------------------------------------------

    The Interim Joint TAR contained an initial fleet-wide analysis of 
improvements in overall average GHG emissions and equivalent fuel 
economy

[[Page 74863]]

levels. For purposes of an initial assessment, this range was intended 
to represent a reasonably broad range of stringency increases for 
potential future GHG emissions standards, and was also consistent with 
the increases suggested by CARB in its letter of commitment in response 
to the President's memorandum.26 27 The TAR evaluated a 
range of potential stringency scenarios through model year 2025, 
representing a 3, 4, 5, and 6 percent per year estimated decrease in 
GHG levels from a model year 2016 fleet-wide average of 250 gram/mile 
(g/mi). Thus, the model year 2025 scenarios analyzed in the Interim 
Joint TAR ranged from 190 g/mi on an estimated fleet-wide average 
(calculated to be equivalent to 47 miles per gallon, mpg, if all 
improvements were made with fuel economy-improving technologies) under 
the 3 percent per year reduction scenario, to 143 g/mi on an estimated 
fleet-wide average (calculated to be equivalent to 62 mpg, if all 
improvements were made with fuel economy-improving technologies) under 
the 6 percent per year scenario.\28\ For each of these scenarios, the 
TAR also evaluated four pre-defined ``technological pathways'' by which 
these levels could be attained. These pathways were meant to represent 
ways that the industry as a whole could increase fuel economy and 
reduce greenhouse gas emissions, and did not represent ways that 
individual manufacturers would be required to or necessarily would 
employ in responding to future standards. Each defined technology 
pathway emphasized a different mix of advanced technologies, by 
assuming various degrees of penetration of advanced gasoline 
technologies, mass reduction, hybrid electric vehicles (HEVs), plug-in 
hybrids (PHEVs), and electric vehicles (EVs).
---------------------------------------------------------------------------

    \26\ 75 FR at 62744-45.
    \27\ Statement of the California Air Resources Board Regarding 
Future Passenger Vehicle Greenhouse Gas Emissions Standards, 
California Air Resources Board, May 21, 2010. Available at: http://www.epa.gov/otaq/climate/regulations.htm.
    \28\ These levels correspond to on-road values of 37 to 50 mpg, 
respectively, recognizing that on-road fuel economy tends to be 
about 20 percent worse than calculated mpg values based on the CAFE 
test cycle. We note, however, that because these mpg values are 
translated from CO2e values that include reductions in 
hydrofluorocarbon (HFC) leakage due to use of advanced refrigerants 
and leakage improvements, therefore these numbers are not as 
representative of either CAFE test cycle or real-world mpg.
---------------------------------------------------------------------------

    Manufacturers and others commented extensively on the NOI and 
Interim Joint TAR on a variety of topics, including the stringency of 
the standards, program design elements, the effect of potential 
standards on vehicle safety, and the TAR's discussion of technology 
costs, effectiveness, and feasibility. In response, the agencies and 
CARB spent the next several months continuing to gather information 
from the industry and others in response to the agencies' initial 
analytical efforts. To aid the public's understanding of some of the 
key issues facing the agencies in developing the proposed rule, EPA and 
NHTSA also issued a follow-on Supplemental NOI in November 2010.\29\ 
The Supplemental NOI highlighted many of the key comments the agencies 
received in response to the September NOI and Interim Joint TAR, and 
summarized some of the key themes from the comments and the additional 
stakeholder meetings. We note, as highlighted in the November 
Supplemental NOI, that there continued to be widespread stakeholder 
support for continuing the National Program for improved fuel economy 
and greenhouse gas standards for model years 2017-2025. The November 
Supplemental NOI also provided an overview of many of the key technical 
analyses the agencies planned in support the proposed rule.
---------------------------------------------------------------------------

    \29\ 75 FR 76337, December 8, 2010.
---------------------------------------------------------------------------

    After issuing the November 2010 Supplemental NOI, EPA, NHTSA and 
CARB continued studies on technology cost and effectiveness and more 
in-depth and comprehensive analysis of the issues. In addition to this 
work, the agencies continued meeting with stakeholders, including with 
manufacturers, manufacturer organizations, automotive suppliers, a 
labor union, environmental groups, consumer interest groups, and 
investment organizations. As discussed above, on July 29, 2011 
President Obama announced plans for these proposed rules and NHTSA and 
EPA issued a Supplemental Notice of Intent (NOI) outlining the 
agencies' plans for proposing the MY 2017-2025 standards and program.
3. California's Greenhouse Gas Program
    In 2004, the California Air Resources Board (CARB) approved 
standards for new light-duty vehicles, regulating the emission of 
CO2 and other GHGs. Thirteen states and the District of 
Columbia, comprising approximately 40 percent of the light-duty vehicle 
market, adopted California's standards. On June 30, 2009, EPA granted 
California's request for a waiver of preemption under the CAA with 
respect to these standards.\30\ The granting of the waiver permits 
California and the other states to proceed with implementing the 
California emission standards for MYs 2009-2016. After EPA and NHTSA 
issued their MYs 2012-2016 standards, CARB revised its program such 
that compliance with the EPA greenhouse gas standards will be deemed to 
be compliance with California's GHG standards.\31\ This facilitates the 
National Program by allowing manufacturers to meet all of the standards 
with a single national fleet.
---------------------------------------------------------------------------

    \30\ 74 FR 32744 (July 8, 2009). See also Chamber of Commerce v. 
EPA, 642 F.3d 192 (DC Cir. 2011) (dismissing petitions for review 
challenging EPA's grant of the waiver).
    \31\ See ``California Exhaust Emission Standards and Test 
Procedures for 2001 and Subsequent Model Passenger Cars, Light-Duty 
Trucks, and Medium-Duty Vehicles as approved by OAL,'' March 29, 
2010. Available at http://www.arb.ca.gov/regact/2010/ghgpv10/oaltp.pdf (last accessed August 28, 2011).
---------------------------------------------------------------------------

    As requested by the President and in the interest of maximizing 
regulatory harmonization, NHTSA and EPA have worked closely with CARB 
throughout the development of this proposal to develop a common 
technical basis. CARB is releasing a proposal for MY 2017-2025 GHG 
emissions standards which are consistent with the standards being 
proposed by EPA and NHTSA. CARB recognizes the benefit for the country 
of continuing the National Program and plans an approach similar to the 
one taken for MYs 2012-2016. CARB has committed to propose to revise 
its GHG emissions standards for MY 2017 and later such that compliance 
with EPA GHG emissions standards shall be deemed compliance with the 
California GHG emissions standards, as long as EPA's final GHG 
standards are substantially as described in the July 2011 Supplemental 
NOI.\32\
---------------------------------------------------------------------------

    \32\ See State of California July 28, 2011 letter available at: 
http://www.epa.gov/otaq/climate/regulations.htm.
---------------------------------------------------------------------------

4. Stakeholder Engagement
    On July 29, 2010, President Obama announced the support of thirteen 
major automakers to pursue the next phase in the Administration's 
national vehicle program, increasing fuel economy and reducing GHG 
emissions for passenger cars and light trucks built in MYs 2017-
2025.\33\ The President was joined by Ford, GM, Chrysler, BMW, Honda, 
Hyundai, Jaguar/Land Rover, Kia, Mazda, Mitsubishi, Nissan, Toyota and 
Volvo, which together account for over 90 percent of all vehicles sold 
in the United States. The California Air Resources Board (CARB), the 
United Auto Workers (UAW) and a number of

[[Page 74864]]

environmental and consumer groups, also announced their support.
---------------------------------------------------------------------------

    \33\ The President's remarks are available at http://www.whitehouse.gov/the-press-office/2011/07/29/remarks-president-fuel-efficiency-standards; see also http://www.nhtsa.gov/fuel-economy for more information from the agency about the announcement.
---------------------------------------------------------------------------

    On the same day as the President's announcement, the agencies 
released a second SNOI (published in the Federal Register on August 9, 
2011) generally describing the joint proposal that the EPA and NHTSA 
expected to issue to establish the National Program for model years 
2017-2025, and which is set forth in this NPRM. The agencies explained 
that the proposal would be developed based on extensive technical 
analyses, an examination of the factors required under their respective 
statutes and discussions with and input from individual motor vehicle 
manufacturers and other stakeholders. The input of stakeholders, which 
is encouraged by Executive Order 13563, has been invaluable to the 
agencies in developing today's NPRM.
    For background, as discussed above, after publishing the 
Supplemental NOI on December 8, 2010 (the December 8 SNOI), NHTSA, EPA 
and CARB continued studies and conducted more in-depth and 
comprehensive rulemaking analyses related to technology cost and 
effectiveness, technological feasibility, reasonable timing for 
manufacturers to implement technologies, and economic factors, and 
other relevant considerations. In addition to this ongoing and more in-
depth work, the agencies continued meeting with stakeholders and 
received additional input and feedback to help inform the rulemaking. 
Meetings were held with and relevant information was obtained from 
manufacturers, manufacturer organizations, suppliers, a labor union, 
environmental groups, consumer interest groups, and investment 
organizations.
    This section summarizes NHTSA and EPA stakeholder engagement 
between December 2010 and July 29, 2011, the date on which President 
Obama announced the agencies' plans for proposing standards for MY2017-
2025, and the support of thirteen major automakers and other 
stakeholders for these plans.\34\ Information that the agencies 
presented to stakeholders is posted in the docket and referenced in 
multiple places in this section.
---------------------------------------------------------------------------

    \34\ NHTSA has prepared a list of stakeholder meeting dates and 
participants, found in a memorandum to the docket, titled ``2017-
2025 CAFE Stakeholders Meetings List,'' at NHTSA-2010-0131.
---------------------------------------------------------------------------

    The agencies' engagement with the large and diverse group of 
stakeholders described above between December 2010 and July 29, 2011 
shared the single aim of ensuring that the agencies possessed the most 
complete and comprehensive set of information possible to inform the 
proposed rulemaking.
    Throughout this period, the stakeholders repeated many of the broad 
concerns and suggestions described in the TAR, NOI, and December 8 
SNOI. For example, stakeholders uniformly expressed interest in 
maintaining a harmonized and coordinated national program that would be 
supported by CARB and allow auto makers to build one fleet and preserve 
consumer choice. The stakeholders also raised concerns about potential 
stringency levels, consumer acceptance of some advanced technologies 
and the potential structure of compliance flexibilities available under 
EPCA (as amended by EISA) and the CAA. In addition, most of the 
stakeholders wanted to discuss issues concerning technology 
availability, cost and effectiveness and economic practicability. The 
auto manufacturers, in particular, sought to provide the agencies with 
a better understanding of their respective strategies (and associated 
costs) for improving fuel economy while satisfying consumer demand in 
the coming years. Additionally, some stakeholders expressed concern 
about potential safety impacts associated with the standards, consumer 
costs and consumer acceptance, and potential disparate treatment of 
cars and trucks. Some stakeholders also stressed the importance of 
investing in infrastructure to support more widespread deployment of 
alternative vehicles and fuels. Many stakeholders also asked the 
agencies to acknowledge prevailing economic uncertainties in developing 
proposed standards. In addition, many stakeholders discussed the number 
of years to be covered by the program and what they considered to be 
important features of a mid-term review of any standards set or 
proposed for MY 2022-2025. In all of these meetings, NHTSA and EPA 
sought additional data and information from the stakeholders that would 
allow them to refine their initial analyses and determine proposed 
standards that are consistent with the agencies' respective statutory 
and regulatory requirements. The general issues raised by those 
stakeholders are addressed in the sections of this NPRM discussing the 
topics to which the issues pertain (e.g., the form of the standards, 
technology cost and effectiveness, safety impacts, impact on U.S. 
vehicle sales and other economic considerations, costs and benefits).
    The first stage of the meetings occurred between December 2010 and 
June 20, 2011. These meetings covered topics that were generally 
similar to the meetings that were held prior to the publication of the 
December 8 Supplemental NOI and that were summarized in the 
Supplemental NOI. The manufacturers provided the agencies with 
additional information related to their product plans for vehicle 
models and fuel efficiency improving technologies and associated cost 
estimates. Detailed product plans generally extend only five or six 
model years into the future. Manufacturers also provided estimates of 
the amount of improvement in CAFE and CO2 emissions they 
could reasonably achieve in model MYs 2017-2025; feedback on the shape 
of MY 2012-2016 regulatory stringency curves and curve cut points, 
regulatory program flexibilities; recommendations for and on the 
structure of one or more mid-term reviews of the later model year 
standards; estimates of the cost, effectiveness and availability of 
some fuel efficiency improving technologies; and feedback on some of 
the cost and effectiveness assumptions used in the TAR analysis. In 
addition, manufacturers provided input on manufacturer experience with 
consumer acceptance of some advanced technologies and raised concerns 
over consumer acceptance if higher penetration of these technologies 
were needed in the future, consumer's willingness to pay for improved 
fuel economy, and ideas on enablers and incentives that would increase 
consumer acceptance. Many manufacturers stated that technology is 
available to significantly improve fuel economy and CO2 
emissions; however, they maintained that the biggest challenges relate 
to the cost of the technologies, consumer willingness to pay and 
consumer acceptance.
    During this first phase NHTSA and EPA continued to meet with other 
stakeholders, who provided their own perspectives on issues of 
importance to them. They also provided data to the extent available to 
them. Information obtained from stakeholders during this phase is 
contained in the docket.
    The second stage of meetings occurred between June 21, 2011 and 
July 14, 2011, during which time EPA, NHTSA, CARB and several White 
House Offices kicked-off an intensive series of meetings, primarily 
with manufacturers, to share tentative regulatory concepts developed by 
EPA, NHTSA and CARB, which included concept stringency curves and 
program flexibilities based on the analyses completed by the agencies 
as of June 21,\35\ and requested

[[Page 74865]]

feedback.\36\ In particular, the agencies requested that the 
manufacturers provide detailed and reliable information on how they 
might comply with the concepts and, if they projected they could not 
comply, information supporting their belief that they would be unable 
to comply. Additionally, EPA and NHTSA sought detailed input from the 
manufacturers regarding potential changes to the concept stringency 
levels and program flexibilities available under EPA's and NHTSA's 
respective authority that might facilitate compliance. In addition, 
manufacturers provided input related to consumer acceptance and 
adoption of some advanced technologies and program costs based on their 
independent assessments or information previously submitted to the 
agencies.
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    \35\ The agencies consider a range of standards that may satisfy 
applicable legal criteria, taking into account the complete record 
before them . The initial concepts shared with stakeholders were 
within the range the agencies were considering, based on the 
information then available to the agencies.
    \36\ ``Agency Materials Provided to Manufacturers'' Memo to 
docket NHTSA-2010-0131.
---------------------------------------------------------------------------

    In these second stage meetings, the agencies received considerable 
input from the manufacturers. The agencies carefully considered the 
manufacturer information along with information from the agencies' 
independent analyses. The agencies used all available information to 
refine their assessment of the range of program concept stringencies 
and provisions that the agencies determined were consistent with their 
statutory mandates.
    The third stage of meetings occurred between July 15, 2011 and July 
28, 2011. During this time period the agencies continued to refine 
concept stringencies and compliance flexibilities based on further 
consideration of the information available to them. They also met with 
approximately 13 manufacturers who expressed ongoing interest in 
engaging with the agencies.\37\
---------------------------------------------------------------------------

    \37\ ``Agency Materials Provided to Manufacturers'' Memo to 
docket NHTSA-2010-0131.
---------------------------------------------------------------------------

    Throughout all three stages, EPA and NHTSA continued to engage 
other stakeholders to ensure that the agencies were obtaining the most 
comprehensive and reliable information possible to guide the agencies 
in developing proposed standards for MY 2017-2025. Many of these 
stakeholders reiterated comments previously presented to the agencies. 
For instance, environmental organizations consistently stated that 
stringent standards are technically achievable and critical to 
important national interests, such as improving energy independence, 
reducing climate change, and enabling the domestic automobile industry 
to remain competitive in the global market. Labor interests stressed 
the need to carefully consider economic impacts and the opportunity to 
create and support new jobs, and consumer advocates emphasized the 
economic and practical benefits to consumers of improved fuel economy 
and the need to preserve consumer choice. In addition, a number of 
stakeholders stated that the standards under development should not 
have an adverse impact on safety.
    On July 29, 2011, EPA and NHTSA the agencies issued a new SNOI with 
concept stringency curves and program provisions based on refined 
analyses and further consideration of the record before the agencies. 
The agencies have received letters of support for the concepts laid out 
in the SNOI from BMW, Chrysler, Ford, General Motors, Global 
Automakers, Honda, Hyundai, Jaguar Land Rover, Kia, Mazda, Mitsubishi, 
Nissan, Toyota, Volvo and CARB. Numerous other stakeholders, including 
labor, environmental and consumer groups, have expressed their support 
for the agencies' plans to move forward.
    The agencies have considered all of this stakeholder input in 
developing this proposal, and look forward to continuing the productive 
dialogue through the comment period following this proposal.

B. Summary of the Proposed 2017-2025 National Program

1. Joint Analytical Approach
    This proposed rulemaking continues the collaborative analytical 
effort between NHTSA and EPA, which began with the MYs 2012-2016 
rulemaking. NHTSA and EPA have worked together, and in close 
coordination with CARB, on nearly every aspect of the technical 
analysis supporting these joint proposed rules. The results of this 
collaboration are reflected in the elements of the respective NHTSA and 
EPA proposed rules, as well as in the analytical work contained in the 
Draft Joint NHTSA and EPA Technical Support Document (Joint TSD). The 
agencies have continued to develop and refine supporting analyses since 
issuing the NOI and Interim Joint TAR last September. The Joint TSD, in 
particular, describes important details of the analytical work that are 
common, as well as highlighting any key differences in approach. The 
joint analyses include the build-up of the baseline and reference 
fleets, the derivation of the shape of the footprint-based attribute 
curves that define the agencies' respective standards, a detailed 
description of the estimated costs and effectiveness of the 
technologies that are available to vehicle manufacturers, the economic 
inputs used to calculate the costs and benefits of the proposed rules, 
a description of air conditioner and other off-cycle technologies, and 
the agencies' assessment of the effects of the proposed standards on 
vehicle safety. This comprehensive joint analytical approach has 
provided a sound and consistent technical basis for both agencies in 
developing their proposed standards, which are summarized in the 
sections below.
2. Level of the Standards
    EPA and NHTSA are each proposing two separate sets of standards, 
each under its respective statutory authorities. Both the proposed 
CO2 and CAFE standards for passenger cars and light trucks 
would be footprint-based, similar to the standards currently in effect 
through model year 2016, and would become more stringent on average in 
each model year from 2017 through 2025. The basis for measuring 
performance relative to standards would continue to be based 
predominantly on the EPA city and highway test cycles (2-cycle test). 
However, EPA is proposing optional air conditioning and off-cycle 
credits for the GHG program and adjustments to calculated fuel economy 
for the CAFE programs that would be based on test procedures other than 
the 2-cycle tests.
    EPA is proposing standards that are projected to require, on an 
average industry fleet wide basis, 163 grams/mile of CO2 in 
model year 2025. This is projected to be achieved through improvements 
in fuel efficiency with some additional reductions achieved through 
reductions in non-CO2 GHG emissions from reduced AC system 
leakage and the use of lower global warming potential (GWP) 
refrigerants. The level of 163 grams/mile CO2 would be 
equivalent on a mpg basis to 54.5 mpg, if this level was achieved 
solely through improvements in fuel efficiency.\38\
---------------------------------------------------------------------------

    \38\ Real-world CO2 is typically 25 percent higher 
and real-world fuel economy is typically 20 percent lower than the 
CO2 and CAFE values discussed here. The reference to CO2 
here refers to CO2 equivalent reductions, as this 
included some degree of reductions in greenhouse gases other than 
CO2, as one part of the AC related reductions.
---------------------------------------------------------------------------

    For passenger cars, the CO2 compliance values associated 
with the footprint curves would be reduced on average by 5 percent per 
year from the model year 2016 projected passenger car industry-wide 
compliance level through model year 2025. In recognition of 
manufacturers' unique challenges in improving the fuel economy and GHG 
emissions of full-size pickup trucks as we transition from the MY 2016

[[Page 74866]]

standards to MY 2017 and later, while preserving the utility (e.g., 
towing and payload capabilities) of those vehicles, EPA is proposing a 
lower annual rate of improvement for light-duty trucks in the early 
years of the program. For light-duty trucks, the proposed average 
annual rate of CO2 emissions reduction in model years 2017 
through 2021 is 3.5 percent per year. EPA is also proposing to change 
the slopes of the CO2-footprint curves for light-duty trucks 
from those in the 2012-2016 rule, in a manner that effectively means 
that the annual rate of improvement for smaller light-duty trucks in 
model years 2017 through 2021 would be higher than 3.5 percent, and the 
annual rate of improvement for larger light-duty trucks over the same 
time period would be lower than 3.5 percent. For model years 2022 
through 2025, EPA is proposing an average annual rate of CO2 
emissions reduction for light-duty trucks of 5 percent per year.
    NHTSA is proposing two phases of passenger car and light truck 
standards in this NPRM. The first phase runs from MYs 2017-2021, with 
proposed standards that are projected to require, on an average 
industry fleet wide basis, 40.9 mpg in MY 2021. For passenger cars, the 
annual increase in the stringency of the target curves between model 
years 2017 to 2021 is expected to average 4.1 percent. In recognition 
of manufacturers' unique challenges in improving the fuel economy and 
GHG emissions of full-size pickup trucks as we transition from the MY 
2016 standards to MY 2017 and later, while preserving the utility 
(e.g., towing and payload capabilities) of those vehicles, NHTSA is 
also proposing a slower annual rate of improvement for light trucks in 
the first phase of the program. For light trucks, the proposed annual 
increase in the stringency of the target curves in model years 2017 
through 2021 would be 2.9 percent per year on average. NHTSA is 
proposing to change the slopes of the fuel economy footprint curves for 
light trucks from those in the MYs 2012-2016 final rule, which would 
effectively make the annual rate of improvement for smaller light 
trucks in MYs 2017-2021 higher than 2.9 percent, and the annual rate of 
improvement for larger light trucks over that time period lower than 
2.9 percent.
    The second phase of the CAFE program runs from MYs 2022-2025 and 
represents conditional \39\ proposed standards that are projected to 
require, on an average industry fleet wide basis, 49.6 mpg in model 
year 2025. For passenger cars, the annual increase in the stringency of 
the target curves between model years 2022 and 2025 is expected to 
average 4.3 percent, and for light trucks, the annual increase during 
those model years is expected to average 4.7 percent. For the first 
time, NHTSA is proposing to increase the stringency of standards by the 
amount (in mpg terms) that industry is expected to improve air 
conditioning system efficiency, and EPA is proposing, under EPCA, to 
allow manufacturers to include air conditioning system efficiency 
improvements in the calculation of fuel economy for CAFE compliance. 
NHTSA notes that the proposed rates of increase in stringency for CAFE 
standards are lower than EPA's proposed rates of increase in stringency 
for GHG standards. As in the MYs 2012-2016 rulemaking, this is for 
purposes of harmonization and in reflection of several statutory 
constraints in EPCA/EISA. As a primary example, NHTSA's proposed 
standards, unlike EPA's, do not reflect the inclusion of air 
conditioning system refrigerant and leakage improvements, but EPA's 
proposed standards would allow consideration of such A/C refrigerant 
improvements which reduce GHGs but do not affect fuel economy.
---------------------------------------------------------------------------

    \39\ By ''conditional,'' NHTSA means to say that the proposed 
standards for MYs 2022-2025 represent the agency's current best 
estimate of what levels of stringency would be maximum feasible in 
those model years, but in order for the standards for those model 
years to be legally reviewable a subsequent rulemaking must be 
undertaken by the agency at a later time. See Section IV for more 
information.
---------------------------------------------------------------------------

    As with the MYs 2012-2016 standards, NHTSA and EPA's proposed MYs 
2017-2025 passenger car and light truck standards are expressed as 
mathematical functions depending on vehicle footprint.\40\ Footprint is 
one measure of vehicle size, and is determined by multiplying the 
vehicle's wheelbase by the vehicle's average track width. The standards 
that must be met by each manufacturer's fleet would be determined by 
computing the production-weighted average of the targets applicable to 
each of the manufacturer's fleet of passenger cars and light 
trucks.\41\ Under these footprint-based standards, the average levels 
required of individual manufacturers will depend, as noted above, on 
the mix and volume of vehicles the manufacturer produces. The values in 
the tables below reflect the agencies' projection of the corresponding 
average fleet levels that will result from these attribute-based curves 
given the agencies' current assumptions about the mix of vehicles that 
will be sold in the model years covered by the proposed standards.
---------------------------------------------------------------------------

    \40\ NHTSA is required to set attribute-based CAFE standards for 
passenger cars and light trucks. 49 U.S.C. 32902(b)(3).
    \41\ For CAFE calculations, a harmonic average is used.
---------------------------------------------------------------------------

    As shown in Table I-1, NHTSA's fleet-wide required CAFE levels for 
passenger cars under the proposed standards are estimated to increase 
from 40.0 to 56.0 mpg between MY 2017 and MY 2025. Fleet-wide required 
CAFE levels for light trucks, in turn, are estimated to increase from 
29.4 to 40.3 mpg. For the reader's reference, Table I-1 also provides 
the estimated average fleet-wide required levels for the combined car 
and truck fleets, culminating in an estimated overall fleet average 
required CAFE level of 49.6 mpg in MY 2025. Considering these combined 
car and truck increases, the proposed standards together represent 
approximately a 4.0 percent annual rate of increase,\42\ on average, 
relative to the MY 2016 required CAFE levels.
---------------------------------------------------------------------------

    \42\ This estimated average percentage increase includes the 
effect of changes in standard stringency and changes in the forecast 
fleet sales mix.

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[[Page 74867]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.001

    The estimated average required mpg levels for cars and trucks under 
the proposed standards shown in Table I-1 above include the use of A/C 
efficiency improvements, as discussed above, but do not reflect a 
number of proposed flexibilities and credits that manufacturers could 
use for compliance that NHTSA cannot consider in establishing standards 
based on EPCA/EISA constraints. These flexibilities would cause the 
actual achieved fuel economy to be lower than the required levels in 
the table above. The flexibilities and credits that NHTSA cannot 
consider include the ability of manufacturers to pay civil penalties 
rather than achieving required CAFE levels, the ability to use FFV 
credits, the ability to count electric vehicles for compliance, the 
operation of plug-in hybrid electric vehicles on electricity for 
compliance prior to MY 2020, and the ability to transfer and carry-
forward credits. When accounting for these flexibilities and credits, 
NHTSA estimates that the proposed CAFE standards would lead to the 
following average achieved fuel economy levels, based on the 
projections of what each manufacturer's fleet will comprise in each 
year of the program: \43\
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    \43\ The proposed CAFE program includes incentives for full size 
pick-up trucks that have mild HEV or strong HEV systems, and for 
full size pick-up trucks that have fuel economy performance that is 
better than the target curve by more than proposed levels. To 
receive these incentives, manufacturers must produce vehicles with 
these technologies or performance levels at volumes that meet or 
exceed proposed penetration levels (percentage of full size pick-up 
truck volume). This incentive is described in detail in Section 
IV.1. The NHTSA estimates in Table I-2 do not account for the 
reduction in estimated average achieved fleet-wide CAFE fuel economy 
that would occur if manufacturers use this incentive. NHTSA has 
conducted a sensitivity study that estimates the effects for 
manufacturers' potential use of this flexibility in Chapter X of the 
PRIA.

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[[Page 74868]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.002

    NHTSA is also required by EISA to set a minimum fuel economy 
standard for domestically manufactured passenger cars in addition to 
the attribute-based passenger car standard. The minimum standard 
``shall be the greater of (A) 27.5 miles per gallon; or (B) 92 percent 
of the average fuel economy projected by the Secretary for the combined 
domestic and non-domestic passenger automobile fleets manufactured for 
sale in the United States by all manufacturers in the model year * * 
*,'' and applies to each manufacturer's fleet of domestically 
manufactured passenger cars (i.e., like the other CAFE standards, it 
represents a fleet average requirement, not a requirement for each 
individual vehicle within the fleet).
    Based on NHTSA's current market forecast, the agency's estimates of 
these proposed minimum standards for domestic passenger cars for MYs 
2017-2025 are presented below in Table I-3.
[GRAPHIC] [TIFF OMITTED] TP01DE11.003

    EPA is proposing GHG emissions standards, and Table I-4 provides 
estimates of the projected overall fleet-wide CO2 emission 
compliance target levels. The values reflected in Table I-4 are those 
that correspond to the manufacturers' projected CO2 
compliance target levels from the car and truck footprint curves, but 
do not account for EPA's projection of how manufactures will implement 
two of the proposed incentive programs (advanced technology vehicle 
multipliers, and hybrid and performance-based incentives for full-size 
pickup trucks). EPA's projection of fleet-wide emissions levels that do 
reflect these incentives is shown in Table I-5 below.
---------------------------------------------------------------------------

    \44\ The projected fleet compliance levels for 2016 are 
different for trucks and the fleet than were projected in the 2012-
2016 rule. Our assessment for this proposal is based on a predicted 
2016 truck value of 297 and a projected combined car and truck value 
of 252 g/mi. That is because the standards are footprint based and 
the fleet projections, hence the footprint distributions, change 
slightly with each update of our projections, as described below. In 
addition, the actual fleet compliance levels for any model year will 
not be known until the end of that model year based on actual 
vehicle sales.

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[[Page 74869]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.004

    As shown in Table I-4, projected fleet-wide CO2 emission 
compliance targets for cars increase in stringency from 213 to 144 g/mi 
between MY 2017 and MY 2025. Similarly, projected fleet-wide 
CO2 equivalent emission compliance targets for trucks 
increase in stringency from 295 to 203 g/mi. As shown, the overall 
fleet average CO2 level targets are projected to increase in 
stringency from 243 g/mi in MY 2017 to 163 g/mi in MY 2025, which is 
equivalent to 54.5 mpg if all reductions were made with fuel economy 
improvements.
    EPA anticipates that manufacturers would take advantage of proposed 
program credits and incentives, such as car/truck credit transfers, air 
conditioning credits, off-cycle credits, advanced technology vehicle 
multipliers, and hybrid and performance-based incentives for full size 
pick-up trucks. Two of these flexibility provisions--advanced 
technology vehicle multipliers and the full size pick-up hybrid/
performance incentives--are expected to have an impact on the fleet-
wide emissions levels that manufacturers will actually achieve. 
Therefore, Table I-5 shows EPA's projection of the achieved emission 
levels of the fleet for MY 2017 through 2025. The differences between 
the emissions levels shown in Tables I-4 and I-5 reflect the impact on 
stringency due to the advanced technology vehicle multipliers and the 
full size pick-up hybrid/performance incentives, but do not reflect 
car-truck trading, air conditioning credits, or off-cycle credits, 
because, while those credit provisions should help reduce 
manufacturers' costs of the program, EPA believes that they will result 
in real-world emission reductions that will not affect the achieved 
level of emission reductions. These estimates are more fully discussed 
in III.B
BILLING CODE 4910-59-P

[[Page 74870]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.005

    A more detailed description of how the agencies arrived at the year 
by year progression of the stringency of the proposed standards can be 
found in Sections III and IV of this preamble.
---------------------------------------------------------------------------

    \45\ Electric vehicles are assumed at 0 gram/mile in this 
analysis.
    \46\ The projected fleet compliance levels for 2016 are 
different for the fleet than were projected in the 2012-2016 rule. 
Our assessment for this proposal is based on a predicted 2016 truck 
value of 297 and a projected combined car and truck value of 252 g/
mi. That is because the standards are footprint based and the fleet 
projections, hence the footprint distributions, change slightly with 
each update of our projections, as described below. In addition, the 
actual fleet compliance levels for any model year will not be known 
until the end of that model year based on actual vehicle sales.
---------------------------------------------------------------------------

    Both agencies also considered other alternative standards as part 
of their respective Regulatory Impact Analyses that span a reasonable 
range of alternative stringencies both more and less stringent than the 
standards being proposed. EPA's and NHTSA's analyses of these 
regulatory alternatives (and explanation of why we are proposing the 
standards proposed and not the regulatory alternatives) are contained 
in Sections III and IV of this preamble, respectively, as well as in 
EPA's DRIA and NHTSA's PRIA.
3. Form of the Standards
    As noted, NHTSA and EPA are proposing to continue attribute-based 
standards for passenger cars and light trucks, as required by EISA and 
as allowed by the CAA, and continue to use vehicle footprint as the 
attribute. Footprint is defined as a vehicle's wheelbase multiplied by 
its track width--in other words, the area enclosed by the points at 
which the wheels meet the ground. NHTSA and EPA adopted an attribute-
based approach based on vehicle footprint for MYs 2012-2016 light-duty 
vehicle standards.\47\ The agencies continue to believe that footprint 
is the most appropriate attribute on which to base the proposed 
standards, as discussed later in this notice and in Chapter 2 of the 
Joint TSD.
---------------------------------------------------------------------------

    \47\ NHTSA also uses the footprint attribute in its Reformed 
CAFE program for light trucks for model years 2008-2011 and 
passenger car CAFE standards for MY 2011.
---------------------------------------------------------------------------

    Under the footprint-based standards, the curve defines a GHG or 
fuel economy performance target for each separate car or truck 
footprint. Using the curves, each manufacturer thus will have a GHG and 
CAFE average standard that is unique to each of its fleets, depending 
on the footprints and production volumes of the vehicle models produced 
by that manufacturer. A manufacturer will have separate footprint-based 
standards for cars and for trucks. The curves are mostly sloped, so 
that generally, larger vehicles (i.e., vehicles with larger footprints) 
will be subject to less stringent targets (i.e., higher CO2 
grams/mile targets and lower CAFE mpg targets) than smaller vehicles. 
This is because, generally speaking, smaller vehicles are more capable 
of achieving lower levels of CO2 and higher levels of fuel 
economy than larger vehicles. Although a manufacturer's fleet average 
standards could be estimated throughout the model year based on 
projected production volume of its vehicle fleet, the standards to 
which the manufacturer must comply will be based on its final model 
year production figures. A manufacturer's calculation of its fleet 
average standards as well as its fleets' average performance at the end 
of the model year will thus be based on the production-weighted average 
target and performance of each model in its fleet.\48\
---------------------------------------------------------------------------

    \48\ As in the MYs 2012-2016 rule, a manufacturer may have some 
models that exceed their target, and some that are below their 
target. Compliance with a fleet average standard is determined by 
comparing the fleet average standard (based on the sales weighted 
average of the target levels for each model) with fleet average 
performance (based on the sales weighted average of the performance 
for each model).
---------------------------------------------------------------------------

    While the concept is the same, the proposed curve shapes for MYs 
2017-2025 are somewhat different from the MYs 2012-2016 footprint 
curves. The passenger car curves are similar in shape to the car curves 
for MYs 2012-2016. However, the agencies are proposing more significant 
changes to the light trucks curves for MYs 2017-2025 compared to the 
light truck curves for MYs 2012-2016. The agencies are proposing 
changes to the light-truck curve to increase the slope and to

[[Page 74871]]

extend the large-footprint cutpoint over time to larger footprints, 
which we believe represent an appropriate balance of both technical and 
policy issues, as discussed in Section II.C below and Chapter 2 of the 
draft Joint TSD.
    NHTSA is proposing the attribute curves below for assigning a fuel 
economy target level to an individual car or truck's footprint value, 
for model years 2017 through 2025. These mpg values will be production 
weighted to determine each manufacturer's fleet average standard for 
cars and trucks. Although the general model of the target curve 
equation is the same for each vehicle category and each year, the 
parameters of the curve equation differ for cars and trucks. Each 
parameter also changes on a model year basis, resulting in the yearly 
increases in stringency. Figure I-1 below illustrates the passenger car 
CAFE standard curves for model years 2017 through 2025 while Figure I-2 
below illustrates the light truck CAFE standard curves for model years 
2017 through 2025.
    EPA is proposing the attribute curves shown in Figure I-3 and 
Figure I-4 below for assigning a CO2 target level to an 
individual vehicle's footprint value, for model years 2017 through 
2025. These CO2 values would be production weighted to 
determine each manufacturer's fleet average standard for cars and 
trucks. As with the CAFE curves, the general form of the equation is 
the same for each vehicle category and each year, but the parameters of 
the equation differ for cars and trucks. Again, each parameter also 
changes on a model year basis, resulting in the yearly increases in 
stringency. Figure I-3 below illustrates the CO2 car 
standard curves for model years 2017 through 2025 while Figure I-4 
shows the CO2 truck standard curves for model years 2017-
2025.
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[[Page 74872]]


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[[Page 74873]]


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[[Page 74874]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.009

BILLING CODE 4910-59-C
NHTSA and EPA are proposing to use the same vehicle category 
definitions for determining which vehicles are subject to the car curve 
standards versus the truck curve standards as were used for MYs 2012-
2016 standards. As in the MYs 2012-2016 rulemaking, a vehicle 
classified as a car under the NHTSA CAFE program will also be 
classified as a car under the EPA GHG program, and likewise for 
trucks.\49\ This approach of using CAFE definitions allows the 
CO2 standards and the CAFE standards to continue to be 
harmonized across all vehicles for the National Program.
---------------------------------------------------------------------------

    \49\ See 49 CFR 523 for NHTSA's definitions for passenger car 
and light truck under the CAFE program.
---------------------------------------------------------------------------

    As just explained, generally speaking, a smaller footprint vehicle 
will tend to have higher fuel economy and lower CO2 
emissions relative to a larger footprint vehicle when both have the 
same level of fuel efficiency improvement technology. Since the

[[Page 74875]]

proposed standards apply to a manufacturer's overall fleet, not to an 
individual vehicle, if a manufacturer's fleet is dominated by small 
footprint vehicles, then that fleet will have a higher fuel economy 
requirement and a lower CO2 requirement than a manufacturer 
whose fleet is dominated by large footprint vehicles. Compared to the 
non-attribute based CAFE standards in place prior to MY 2011, the 
proposed standards more evenly distribute the compliance burdens of the 
standards among different manufacturers, based on their respective 
product offerings. With this footprint-based standard approach, EPA and 
NHTSA continue to believe that the rules will not create significant 
incentives to produce vehicles of particular sizes, and thus there 
should be no significant effect on the relative availability of 
different vehicle sizes in the fleet due to the proposed standards, 
which will help to maintain consumer choice during the rulemaking 
timeframe. Consumers should still be able to purchase the size of 
vehicle that meets their needs. Table I-6 helps to illustrate the 
varying CO2 emissions and fuel economy targets under the 
proposed standards that different vehicle sizes will have, although we 
emphasize again that these targets are not actual standards--the 
proposed standards are manufacturer-specific, rather than vehicle-
specific.

[[Page 74876]]

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[[Page 74877]]


4. Program Flexibilities for Achieving Compliance
a. CO2/CAFE Credits Generated Based on Fleet Average Over-
Compliance
    The MYs 2012-2016 rules contain several provisions which provide 
flexibility to manufacturers in meeting standards, many of which the 
agencies are not proposing to change for MYs 2017 and later. For 
example, the agencies are proposing to continue allowing manufacturers 
to generate credits for over-compliance with the CO2 and 
CAFE standards.\50\ Under the agencies' footprint-based approach to the 
standards, a manufacturer's ultimate compliance obligations are 
determined at the end of each model year, when production of the model 
year is complete. Since the fleet average standards that apply to a 
manufacturer's car and truck fleets are based on the applicable 
footprint-based curves, a production volume-weighted fleet average 
requirement will be calculated for each averaging set (cars and trucks) 
based on the mix and volumes of the models manufactured for sale by the 
manufacturer. If a manufacturer's car and/or truck fleet achieves a 
fleet average CO2/CAFE level better than the car and/or 
truck standards, then the manufacturer generates credits. Conversely, 
if the fleet average CO2/CAFE level does not meet the 
standard, the fleet would incur debits (also referred to as a 
shortfall). As in the MY 2011 CAFE program under EPCA/EISA, and also in 
MYs 2012-2016 for the light-duty vehicle GHG and CAFE program, a 
manufacturer whose fleet generates credits in a given model year would 
have several options for using those credits, including credit carry-
back, credit carry-forward, credit transfers, and credit trading.
---------------------------------------------------------------------------

    \50\ This credit flexibility is required by EPCA/EISA, see 49 
U.S.C. 32903, and allowed by the CAA.
---------------------------------------------------------------------------

    Credit ``carry-back'' means that manufacturers are able to use 
credits to offset a deficit that had accrued in a prior model year, 
while credit ``carry-forward'' means that manufacturers can bank 
credits and use them toward compliance in future model years. EPCA, as 
amended by EISA, requires NHTSA to allow manufacturers to carry-back 
credits for up to three model years, and to carry-forward credits for 
up to five model years. EPA's MYs 2012-2016 light duty vehicle GHG 
program includes the same limitations and EPA is proposing to continue 
this limitation in the MY 2017-2025 program. To facilitate the 
transition to the increasingly more stringent standards, EPA is 
proposing under its CAA authority a one-time CO2 carry-
forward beyond 5 years, such that any credits generated from MY 2010 
through 2016 will be able to be used any time through MY 2021. This 
provision would not apply to early credits generated in MY 2009. 
NHTSA's program will continue the 5-year carry-forward and 3-year 
carry-back, as required by statute.
    Credit ``transfer'' means the ability of manufacturers to move 
credits from their passenger car fleet to their light truck fleet, or 
vice versa. EISA required NHTSA to establish by regulation a CAFE 
credits transferring program, now codified at 49 CFR part 536, to allow 
a manufacturer to transfer credits between its car and truck fleets to 
achieve compliance with the standards. For example, credits earned by 
over-compliance with a manufacturer's car fleet average standard could 
be used to offset debits incurred due to that manufacturer's not 
meeting the truck fleet average standard in a given year. However, EISA 
imposed a cap on the amount by which a manufacturer could raise its 
CAFE through transferred credits: 1 mpg for MYs 2011-2013; 1.5 mpg for 
MYs 2014-2017; and 2 mpg for MYs 2018 and beyond.\51\ Under section 
202(a) of the CAA, in contrast, there is no statutory limitation on 
car-truck credit transfers, and EPA's GHG program allows unlimited 
credit transfers across a manufacturer's car-truck fleet to meet the 
GHG standard. This is based on the expectation that this flexibility 
will facilitate setting appropriate GHG standards that manufacturers' 
can comply with in the lead time provided, and will allow the required 
GHG emissions reductions to be achieved in the most cost effective way. 
Therefore, EPA did not constrain the magnitude of allowable car-truck 
credit transfers,\52\ as doing so would reduce the flexibility for lead 
time, and would increase costs with no corresponding environmental 
benefit. EISA also prohibits the use of transferred credits to meet the 
minimum domestic passenger car fleet CAFE standard.\53\ These statutory 
limits will necessarily continue to apply to the determination of 
compliance with the CAFE standards.
---------------------------------------------------------------------------

    \51\ 49 U.S.C. 32903(g)(3).
    \52\ EPA's proposed program will continue to adjust car and 
truck credits by vehicle miles traveled (VMT), as in the MY 2012-
2016 program.
    \53\ 49 U.S.C. 32903(g)(4).
---------------------------------------------------------------------------

    Credit ``trading'' means the ability of manufacturers to sell 
credits to, or purchase credits from, one another. EISA allowed NHTSA 
to establish by regulation a CAFE credit trading program, also now 
codified at 49 CFR Part 536, to allow credits to be traded between 
vehicle manufacturers. EPA also allows credit trading in the light-duty 
vehicle GHG program. These sorts of exchanges between averaging sets 
are typically allowed under EPA's current mobile source emission credit 
programs (as well as EPA's and NHTSA's recently promulgated GHG and 
fuel efficiency standards for heavy-duty vehicles and engines). EISA 
also prohibits manufacturers from using traded credits to meet the 
minimum domestic passenger car CAFE standard.\54\
---------------------------------------------------------------------------

    \54\ 49 U.S.C. 32903(f)(2).
---------------------------------------------------------------------------

b. Air Conditioning Improvement Credits/Fuel Economy Value Increases
    Air conditioning (A/C) systems contribute to GHG emissions in two 
ways. Hydrofluorocarbon (HFC) refrigerants, which are powerful GHGs, 
can leak from the A/C system (direct A/C emissions). In addition, 
operation of the A/C system places an additional load on the engine 
which increases fuel consumption and thus results in additional 
CO2 tailpipe emissions (indirect A/C related emissions). In 
the MYs 2012-2016 program, EPA allows manufacturers to generate credits 
by reducing either or both types of GHG emissions related to A/C 
systems. The expected generation of A/C credits is accounted for in 
setting the level of the overall CO2 standard. For the 
current proposal, as with the MYs 2012-2016 program, manufacturers will 
be able to generate CO2-equivalent credits to use in 
complying with the CO2 standards for improvements in air 
conditioning (A/C) systems, both for efficiency improvements (reduces 
tailpipe CO2 and improves fuel consumption) and for leakage 
reduction or alternative, lower GWP (global warming potential) 
refrigerant use (reduces hydrofluorocarbon (HFC) emissions). EPA is 
proposing that the maximum A/C credit available for cars is 18.8 grams/
mile CO2 and for trucks is 24.4 grams/mile CO2. 
The proposed test methods used to calculate these direct and indirect 
A/C credits are very similar to those of the MYs 2012-2016 program, 
though EPA is seeking comment on a revised idle test as well as a new 
test procedure.
    For the first time in the current proposal, the agencies are 
proposing provisions that would account for improvements in air 
conditioner efficiency in the CAFE program. Improving A/C efficiency 
leads to real-world fuel economy benefits, because as explained above, 
A/C operation

[[Page 74878]]

represents an additional load on the engine, so more efficient A/C 
operation imposes less of a load and allows the vehicle to go farther 
on a gallon of gas. Under EPCA, EPA has authority to adopt procedures 
to measure fuel economy and calculate CAFE. Under this authority EPA is 
proposing that manufacturers could generate fuel consumption 
improvement values for purposes of CAFE compliance based on air 
conditioning system efficiency improvements for cars and trucks. This 
increase in fuel economy would be allowed up to a maximum based on 
0.000563 gallon/mile for cars and 0.000810 gallon/mile for trucks. This 
is equivalent to the A/C efficiency CO2 credit allowed by 
EPA under the GHG program. The same methods would be used in the CAFE 
program to calculate the values for air conditioning efficiency 
improvements for cars and trucks as are used in EPA's GHG program. 
NHTSA is including in its proposed passenger car and light truck CAFE 
standards an increase in stringency in each model year from 2017-2025 
by the amount industry is expected to improve air conditioning system 
efficiency in those years, in a manner consistent with EPA's GHG 
standards. EPA is not proposing to allow generation of fuel consumption 
improvement values for CAFE purposes, nor is NHTSA proposing to 
increase stringency of the CAFE standard, for the use of A/C systems 
that reduce leakage or employ alternative, lower GWP refrigerant, 
because those changes do not improve fuel economy.
c. Off-cycle Credits/Fuel Economy Value Increases
    For MYs 2012-2016, EPA provided an option for manufacturers to 
generate credits for employing new and innovative technologies that 
achieve CO2 reductions that are not reflected on current 
test procedures. EPA noted in the MYs 2012-2016 rulemaking that 
examples of such ``off-cycle'' technologies might include solar panels 
on hybrids, adaptive cruise control, and active aerodynamics, among 
other technologies. See generally 75 FR at 25438-39. EPA's current 
program allows off-cycle credits to be generated through MY 2016.
    EPA is proposing that manufacturers may continue to use off-cycle 
credits for MY 2017 and later for the GHG program. As with A/C 
efficiency, improving efficiency through the use of off-cycle 
technologies leads to real-world fuel economy benefits and allows the 
vehicle to go farther on a gallon of gas. Thus, under its EPCA 
authority EPA is proposing to allow manufacturers to generate fuel 
consumption improvement values for purposes of CAFE compliance based on 
the use of off-cycle technologies. Increases in fuel economy under the 
CAFE program based on off-cycle technology will be equivalent to the 
off-cycle credit allowed by EPA under the GHG program, and these 
amounts will be determined using the same procedures and test methods 
as are used in EPA's GHG program. For the reasons discussed in sections 
III and IV of this proposal, the ability to generate off-cycle credits 
and increases in fuel economy for use in compliance will not affect or 
change the level of the GHG or CAFE standards proposed by each agency.
    Many automakers indicated that they had a strong interest in 
pursuing off-cycle technologies, and encouraged the agencies to refine 
and simplify the evaluation process to provide more certainty as to the 
types of technologies the agencies would approve for credit generation. 
For 2017 and later, EPA is proposing to expand and streamline the MYs 
2012-2016 off-cycle credit provisions, including an approach by which 
the agencies would provide specified amounts of credit and fuel 
consumption improvement values for a subset of off-cycle technologies 
whose benefits are readily quantifiable. EPA is proposing a list of 
technologies and credit values, where sufficient data is available, 
that manufacturers could use without going through an advance approval 
process that would otherwise be required to generate credits. EPA 
believes that our assessment of off-cycle technologies and associated 
credit values on this proposed list is conservative, and automakers may 
apply for additional off-cycle credits beyond the minimum credit value 
if they have sufficient supporting data. Further, manufacturers may 
also apply for off-cycle technologies beyond those listed, again, if 
they have sufficient data.
    In addition, EPA is providing additional detail on the process and 
timing for the credit/fuel consumption improvement values application 
and approval process. EPA is proposing a timeline for the approval 
process, including a 60-day EPA decision process from the time a 
manufacturer submits a complete application. EPA is also proposing a 
detailed, common, step-by-step process, including a specification of 
the data that manufacturers must submit. For off-cycle technologies 
that are both not covered by the pre-approved off-cycle credit/fuel 
consumption improvement values list and that are not quantifiable based 
on the 5-cycle test cycle option provided in the 2012-2016 rulemaking, 
EPA is proposing to retain the public comment process from the MYs 
2012-2016 rule.
d. Incentives for Electric Vehicles, Plug-in Hybrid Electric Vehicles, 
and Fuel Cell Vehicles
    To facilitate market penetration of the most advanced vehicle 
technologies as rapidly as possible, EPA is proposing an incentive 
multiplier for compliance purposes for all electric vehicles (EVs), 
plug-in hybrid electric vehicles (PHEVs), and fuel cell vehicles (FCVs) 
sold in MYs 2017 through 2021. This multiplier approach means that each 
EV/PHEV/FCV would count as more than one vehicle in the manufacturer's 
compliance calculation. EPA is proposing that EVs and FCVs start with a 
multiplier value of 2.0 in MY 2017, phasing down to a value of 1.5 in 
MY 2021. PHEVs would start at a multiplier value of 1.6 in MY 2017 and 
phase down to a value of 1.3 in MY 2021.\55\ The multiplier would be 
1.0 for MYs 2022-2025.
---------------------------------------------------------------------------

    \55\ The multipliers for EV/FCV would be: 2017-2019--2.0, 2020--
1.75, 2021--1.5; for PHEV: 2017-2019--1.6, 2020--1.45, 2021--1.3.
---------------------------------------------------------------------------

    NHTSA currently interprets EPCA and EISA as precluding the agency 
from offering additional incentives for EVs, FCVs and PHEVs, except as 
specified by statute,\56\ and thus is not proposing incentive 
multipliers comparable to the EPA incentive multipliers described 
above.
---------------------------------------------------------------------------

    \56\ Because 49 U.S.C. 32904(a)(2)(B) expressly requires EPA to 
calculate the fuel economy of electric vehicles using the Petroleum 
Equivalency Factor developed by DOE, which contains an incentive for 
electric operation already, and because 49 U.S.C. 32905(a) expressly 
requires EPA to calculate the fuel economy of FCVs using a specified 
incentive, NHTSA believes that Congress' having provided clear 
incentives for these technologies in the CAFE program suggests that 
additional incentives beyond those would not be consistent with 
Congress' intent. Similarly, because the fuel economy of PHEVs' 
electric operation must also be calculated using DOE's PEF, the 
incentive for electric operation appears to already be inherent in 
the statutory structure.
---------------------------------------------------------------------------

    For EVs, PHEVs and FCVs, EPA is proposing to set a value of 0 g/
mile for the tailpipe compliance value for EVs, PHEVs (electricity 
usage) and FCVs for MY 2017-2021, with no limit on the quantity of 
vehicles eligible for 0 g/mi tailpipe emissions accounting. For MY 
2022-2025, EPA is proposing that 0 g/mi only be allowed up to a per-
company cumulative sales cap, tiered as follows: 1) 600,000 vehicles 
for companies that sell 300,000 EV/PHEV/FCVs in MYs 2019-2021; 2) 
200,000 vehicles for all other manufacturers. EPA believes the 
industry-wide impact of such a tiered cap will be approximately 2 
million vehicles. EPA

[[Page 74879]]

proposes to phase-in the change in compliance value, from 0 grams per 
mile to net upstream accounting, for any manufacturer that exceeds its 
cumulative production cap for EV/PHEV/FCVs. EPA proposes that, starting 
with MY 2022, the compliance value for EVs, FCVs, and the electric 
portion of PHEVs in excess of individual automaker cumulative 
production caps would be based on net upstream accounting.
    For EVs and other dedicated alternative fuel vehicles, EPA is 
proposing to calculate fuel economy for the CAFE program using the same 
methodology as in the MYs 2012-2016 rulemaking, which aligns with EPCA/
EISA statutory requirements. For liquid alternative fuels, this 
methodology generally counts 15 percent of the volume of fuel used in 
determine the mpg-equivalent fuel economy. For gaseous alternative 
fuels, the methodology generally determines a gasoline equivalent mpg 
based on the energy content of the gaseous fuel consumed, and then 
adjusts the fuel consumption by effectively only counting 15 percent of 
the actual energy consumed. For electricity, the methodology generally 
determines a gasoline equivalent mpg by measuring the electrical energy 
consumed, and then using a petroleum equivalency factor (PEF) to 
convert to an mpg-equivalent value. The PEF for electricity includes an 
adjustment that effectively only counts 15 percent of the actual energy 
consumed. Counting 15 percent of the volume or energy provides an 
incentive for alternative fuels in the CAFE program.
    The methodology that EPA is proposing for dual fueled vehicles 
under the GHG program and to calculate fuel economy for the CAFE 
program is discussed below in subsection I.B.7.a.
e. Incentives for ``Game Changing'' Technologies Performance for Full-
Size Pickup Truck Including Hybridization
    The agencies recognize that the standards under consideration for 
MYs 2017-2025 will be challenging for large trucks, including full size 
pickup trucks. In order to incentivize the penetration into the 
marketplace of ``game changing'' technologies for these pickups, 
including their hybridization, EPA is proposing a CO2 credit 
in the GHG program and an equivalent fuel consumption improvement value 
in the CAFE program for manufacturers that employ significant 
quantities of hybridization on full size pickup trucks, by including a 
per-vehicle CO2 credit and fuel consumption improvement 
value available for mild and strong hybrid electric vehicles (HEVs). 
EPA would provide the incentive for the GHG program under EPA's CAA 
authority and the incentive for the CAFE program under EPA's EPCA 
authority. EPA's GHG and NHTSA's CAFE proposed standards are set at 
levels that take into account this flexibility as an incentive for the 
introduction of advanced technology. This provides the opportunity to 
begin to transform the most challenging category of vehicles in terms 
of the penetration of advanced technologies, which, if successful at 
incentivizing these ``game changing technologies,'' should allow 
additional opportunities to successfully achieve the higher levels of 
truck stringencies in MYs 2022-2025.
    EPA is proposing that access to this credit and fuel consumption 
improvement value be conditioned on a minimum penetration of the 
technology in a manufacturer's full size pickup truck fleet, and is 
proposing criteria for a full size pickup truck (e.g., minimum bed size 
and minimum towing or payload capability). EPA is proposing that mild 
HEV pickup trucks would be eligible for a per vehicle credit of 10 g/mi 
\57\ during MYs 2017-2021 if the technology is used on a minimum 
percentage of a company's full size pickups, beginning with at least 
30% of a company's full size pickup production in 2017 and ramping up 
to at least 80% in MY 2021. Strong HEV pickup trucks would be eligible 
for a 20 g/mi per \58\ vehicle credit during MYs 2017-2025 if the 
technology is used on at least 10% of the company's full size pickups. 
These volume thresholds are being proposed in order to encourage rapid 
penetration of these technologies in this vehicle segment. EPA and 
NHTSA are proposing specific definitions of mild and strong HEV pickup 
trucks.
---------------------------------------------------------------------------

    \57\ 0.001125 gallon/mile.
    \58\ 0.00225 gallon/mile.
---------------------------------------------------------------------------

    Because there are other technologies besides mild and strong 
hybrids which can significantly reduce GHG emissions and fuel 
consumption in pickup trucks, EPA is also proposing a performance-based 
incentive CO2 emissions credit and equivalent fuel 
consumption improvement value for full size pickup trucks that achieve 
a significant CO2 reduction below/fuel economy improvement 
above the applicable target. This would be available for vehicles 
achieving significant CO2 reductions/fuel economy 
improvements through the use of technologies other than hybrid drive 
systems. EPA is proposing that eligible pickup trucks achieving 15 
percent below their applicable CO2 target would receive a 10 
g/mi credit, and those achieving 20 percent below their target would 
receive a 20 g/mi credit. The 10 g/mi performance-based credit would be 
available for MYs 2017 to 2021 and a vehicle meeting the requirements 
would receive the credit until MY 2021 unless its CO2 level 
increases. The 20 g/mi performance-based credit would be available for 
a maximum of 5 years within the model years of 2017 to 2025, provided 
the CO2 level does not increase for those vehicles earning 
the credit. The credits would begin in the model year of the eligible 
vehicle's introduction, and could not extend past MY 2021 for the 10 g/
mi credit and MY 2025 for the 20 g/mi credit.
    To avoid double-counting, the same vehicle would not receive credit 
under both the HEV and the performance based approaches.
5. Mid-Term Evaluation
    Given the long time frame at issue in setting standards for MYs 
2022-2025, and given NHTSA's obligation to conduct a separate 
rulemaking in order to establish final standards for vehicles for those 
model years, EPA and NHTSA are proposing a comprehensive mid-term 
evaluation and agency decision-making process. As part of this 
undertaking, both NHTSA and EPA will develop and compile up-to-date 
information for the evaluation, through a collaborative, robust and 
transparent process, including public notice and comment. The 
evaluation will be based on (1) a holistic assessment of all of the 
factors considered by the agencies in setting standards, including 
those set forth in the rule and other relevant factors, and (2) the 
expected impact of those factors on the manufacturers' ability to 
comply, without placing decisive weight on any particular factor or 
projection. The comprehensive evaluation process will lead to final 
agency action by both agencies.
    Consistent with the agencies' commitment to maintaining a single 
national framework for regulation of vehicle emissions and fuel 
economy, the agencies fully expect to conduct the mid-term evaluation 
in close coordination with the California Air Resources Board (CARB). 
Moreover, the agencies fully expect that any adjustments to the GHG 
standards will be made with the participation of CARB and in a manner 
that ensures continued harmonization of state and federal vehicle 
standards.
    Further discussion of the mid-term evaluation can be found in 
section III and IV of the proposal.

[[Page 74880]]

6. Coordinated Compliance
    The MYs 2012-2016 final rules established detailed and 
comprehensive regulatory provisions for compliance and enforcement 
under the GHG and CAFE programs. These provisions remain in place for 
model years beyond MY 2016 without additional action by the agencies 
and EPA and NHTSA are not proposing any significant modifications to 
them. In the MYs 2012-2016 final rule, NHTSA and EPA established a 
program that recognizes, and replicates as closely as possible, the 
compliance protocols associated with the existing CAA Tier 2 vehicle 
emission standards, and with earlier model year CAFE standards. The 
certification, testing, reporting, and associated compliance activities 
established for the GHG program closely track those in previously 
existing programs and are thus familiar to manufacturers. EPA already 
oversees testing, collects and processes test data, and performs 
calculations to determine compliance with both CAFE and CAA standards. 
Under this coordinated approach, the compliance mechanisms for both 
programs are consistent and non-duplicative. EPA also applies the CAA 
authorities applicable to its separate in-use requirements in this 
program.
    The compliance approach allows manufacturers to satisfy the GHG 
program requirements in the same general way they comply with 
previously existing applicable CAA and CAFE requirements. Manufacturers 
will demonstrate compliance on a fleet-average basis at the end of each 
model year, allowing model-level testing to continue throughout the 
year as is the current practice for CAFE determinations. The compliance 
program design includes a single set of manufacturer reporting 
requirements and relies on a single set of underlying data. This 
approach still allows each agency to assess compliance with its 
respective program under its respective statutory authority. The 
program also addresses EPA enforcement in cases of noncompliance.
7. Additional Program Elements
a. Treatment of Compressed Natural Gas (CNG), Plug-in Hybrid Electric 
Vehicles (PHEVs), and Flexible Fuel Vehicles (FFVs)
    EPA is proposing that CO2 compliance values for plug-in 
hybrid electric vehicles (PHEVs) and bi-fuel compressed natural gas 
(CNG) vehicles will be based on estimated use of the alternative fuels, 
recognizing that, once a consumer has paid several thousand dollars to 
be able to use a fuel that is considerably cheaper than gasoline, it is 
very likely that the consumer will seek to use the cheaper fuel as much 
as possible. Accordingly, for CO2 emissions compliance, EPA 
is proposing to use the Society of Automotive Engineers ``utility 
factor'' methodology (based on vehicle range on the alternative fuel 
and typical daily travel mileage) to determine the assumed percentage 
of operation on gasoline and percentage of operation on the alternative 
fuel for both PHEVs and bi-fuel CNG vehicles, along with the 
CO2 emissions test values on the alternative fuel and 
gasoline.
    EPA is proposing to account for E85 use by flexible fueled vehicles 
(FFVs) as in the existing MY 2016 and later program, based on actual 
usage of E85 which represents a real-world reduction attributed to 
alternative fuels. Unlike PHEV and bi-fuel CNG vehicles, there is not a 
significant cost differential between an FFV and a conventional 
gasoline vehicle and historically consumers have only fueled these 
vehicles with E85 a very small percentage of the time.
    In the CAFE program for MYs 2017-2019, the fuel economy of dual 
fuel vehicles will be determined in the same manner as specified in the 
MY 2012-2016 rule, and as defined by EISA. Beginning in MY 2020, EISA 
does not specify how to measure the fuel economy of dual fuel vehicles, 
and EPA is proposing under its EPCA authority to use the ``utility 
factor'' methodology for PHEV and CNG vehicles described above to 
determine how to proportion the fuel economy when operating on gasoline 
or diesel fuel and the fuel economy when operating on the alternative 
fuel. For FFVs, EPA is proposing to use the same methodology as it uses 
for the GHG program to determine how to proportion the fuel economy, 
which would be based on actual usage of E85. EPA is proposing to 
continue to use Petroleum Equivalency Factors and the 0.15 divisor used 
in the MY 2012-2016 rule for the alternative fuels, however with no cap 
on the amount of fuel economy increase allowed. This issue is discussed 
further in Section III.B.10.
b. Exclusion of Emergency and Police Vehicles
    Under EPCA, manufacturers are allowed to exclude emergency vehicles 
from their CAFE fleet \59\ and all manufacturers have historically done 
so. In the MYs 2012-2016 program, EPA's GHG program applies to these 
vehicles. However, after further consideration of this issue, EPA is 
proposing the same type of exclusion provision for these vehicles for 
MY 2012 and later because of the unique features of vehicles designed 
specifically for law enforcement and emergency purposes, which have the 
effect of raising their GHG emissions and calling into question the 
ability of manufacturers to sufficiently reduce the emissions from 
these vehicles without compromising necessary vehicle features or 
dropping vehicles from their fleets.
---------------------------------------------------------------------------

    \59\ 49 U.S.C. 32902(e).
---------------------------------------------------------------------------

c. Small Businesses and Small Volume Manufacturers
    EPA is proposing provisions to address two categories of smaller 
manufacturers. The first category is small businesses as defined by the 
Small Business Administration (SBA). For vehicle manufacturers, SBA's 
definition of small business is any firm with less than 1,000 
employees. As with the MYs 2012-2016 program, EPA is proposing to 
continue to exempt small businesses from the GHG standards, for any 
company that meets the SBA's definition of a small business. EPA 
believes this exemption is appropriate given the unique challenges 
small businesses would face in meeting the GHG standards, and since 
these businesses make up less than 0.1% of total U.S. vehicle sales, 
and there is no significant impact on emission reductions.
    EPA's proposal also addresses small volume manufacturers, with U.S. 
annual sales of less than 5,000 vehicles. Under the MYs 2012-2016 
program, these small volume manufacturers are eligible for an exemption 
from the CO2 standards. EPA is proposing to bring small 
volume manufacturers into the CO2 program for the first time 
starting in MY 2017, and allow them to petition EPA for alternative 
standards.
    EPCA provides NHTSA with the authority to exempt from the generally 
applicable CAFE standards manufacturers that produce fewer than 10,000 
passenger cars worldwide in the model year each of the two years prior 
to the year in which they seek an exemption.\60\ If NHTSA exempts a 
manufacturer, it must establish an alternate standard for that 
manufacturer for that model year, at the level that the agency decides 
is maximum feasible for that manufacturer. The exemption and 
alternative standard apply only if the exempted manufacturer also 
produces fewer than 10,000 passenger cars

[[Page 74881]]

worldwide in the year for which the exemption was granted.
---------------------------------------------------------------------------

    \60\ 49 U.S.C. 32902(d). Implementing regulations may be found 
in 49 CFR part 525.
---------------------------------------------------------------------------

    Further, the Temporary Lead-time Allowance Alternative Standards 
(TLAAS) provisions included in EPA's MYs 2012-2016 program for 
manufacturers with MY 2009 U.S. sales of less than 400,000 vehicles 
ends after MY 2015 for most eligible manufacturers.\61\ EPA is not 
proposing to extend or otherwise replace the TLAAS provisions for the 
proposed MYs 2017-2025 program. However, EPA is inviting comment on 
whether this or some other form of flexibility is warranted for lower 
volume, limited line manufacturers, as further discussed in Section 
III.B.8. With the exception of the small businesses and small volume 
manufacturers discussed above, the proposed MYs 2017-2025 standards 
would apply to all manufacturers.
---------------------------------------------------------------------------

    \61\ TLAAS ends after MY 2016 for manufacturers with MY 2009 
U.S. sales of less than 50,000 vehicles.
---------------------------------------------------------------------------

C. Summary of Costs and Benefits for the Proposed National Program

    This section summarizes the projected costs and benefits of the 
proposed CAFE and GHG emissions standards. These projections helped 
inform the agencies' choices among the alternatives considered and 
provide further confirmation that the proposed standards are 
appropriate under their respective statutory authorities. The costs and 
benefits projected by NHTSA to result from these CAFE standards are 
presented first, followed by those from EPA's analysis of the GHG 
emissions standards. The agencies recognize that there are 
uncertainties regarding the benefit and cost values presented in this 
proposal. Some benefits and costs are not quantified. The value of 
other benefits and costs could be too low or too high.
    For several reasons, the estimates for costs and benefits presented 
by NHTSA and EPA, while consistent, are not directly comparable, and 
thus should not be expected to be identical. Most important, NHTSA and 
EPA's standards would require slightly different fuel efficiency 
improvements. EPA's proposed GHG standard is more stringent in part due 
to its assumptions about manufacturers' use of air conditioning leakage 
credits, which result from reductions in air conditioning-related 
emissions of HFCs. NHTSA is proposing standards at levels of stringency 
that assume improvements in the efficiency of air conditioning systems, 
but that do not account for reductions in HFCs, which are not related 
to fuel economy or energy conservation. In addition, the CAFE and GHG 
standards offer somewhat different program flexibilities and 
provisions, and the agencies' analyses differ in their accounting for 
these flexibilities (examples include the treatment of EVs, dual-fueled 
vehicles, and civil penalties), primarily because NHTSA is statutorily 
prohibited from considering some flexibilities when establishing CAFE 
standards,\62\ while EPA is not. These differences contribute to 
differences in the agencies' respective estimates of costs and benefits 
resulting from the new standards. Nevertheless, it is important to note 
that NHTSA and EPA have harmonized the programs as much as possible, 
and this proposal to continue the National Program would result in 
significant cost and other advantages for the automobile industry by 
allowing them to manufacture one fleet of vehicles across the U.S., 
rather than comply with potentially multiple state standards that may 
occur in the absence of the National Program.
---------------------------------------------------------------------------

    \62\ See 49 U.S.C. 32902(h).
---------------------------------------------------------------------------

    In summary, the projected costs and benefits presented by NHTSA and 
EPA are not directly comparable, because the levels being proposed by 
EPA include air conditioning-related improvements in HFC reductions, 
and because of the projection by EPA of complete compliance with the 
proposed GHG standards, whereas NHTSA projects some manufacturers will 
pay civil penalties as part of their compliance strategy, as allowed by 
EPCA. It should also be expected that overall EPA's estimates of GHG 
reductions and fuel savings achieved by the proposed GHG standards will 
be slightly higher than those projected by NHTSA only for the CAFE 
standards because of the same reasons described above. For the same 
reasons, EPA's estimates of manufacturers' costs for complying with the 
proposed passenger car and light truck GHG standards are slightly 
higher than NHTSA's estimates for complying with the proposed CAFE 
standards.
1. Summary of Costs and Benefits for the Proposed NHTSA CAFE Standards
    In reading the following section, we note that tables are 
identified as reflecting ``estimated required'' values and ``estimated 
achieved'' values. When establishing standards, EPCA allows NHTSA to 
only consider the fuel economy of dual-fuel vehicles (for example, FFVs 
and PHEVs) when operating on gasoline, and prohibits NHTSA from 
considering the use of dedicated alternative fuel vehicle credits 
(including for example EVs), credit carry-forward and carry-back, and 
credit transfer and trading. NHTSA's primary analysis of costs, fuel 
savings, and related benefits from imposing higher CAFE standards does 
not include them. However, EPCA does not prohibit NHTSA from 
considering the fact that manufacturers may pay civil penalties rather 
than comply with CAFE standards, and NHTSA's primary analysis accounts 
for some manufacturers' tendency to do so. The primary analysis is 
generally identified in tables throughout this document by the term 
``estimated required CAFE levels.''
    To illustrate the effects of the flexibilities and technologies 
that NHTSA is prohibited from including in its primary analysis, NHTSA 
performed a supplemental analysis of these effects on benefits and 
costs of the proposed CAFE standards that helps to demonstrate the 
real-world impacts. As an example of one of the effects, including the 
use of FFV credits reduces estimated per-vehicle compliance costs of 
the program, but does not significantly change the projected fuel 
savings and CO2 reductions, because FFV credits reduce the 
fuel economy levels that manufacturers achieve not only under the 
proposed standards, but also under the baseline MY 2016 CAFE standards. 
As another example, including the operation of PHEV vehicles on both 
electricity and gasoline, and the expected use of EVs for compliance 
may raise the fuel economy levels that manufacturers achieve under the 
proposed standards. The supplemental analysis is generally identified 
in tables throughout this document by the term ``estimated achieved 
CAFE levels.''
    Thus, NHTSA's primary analysis shows the estimates the agency 
considered for purposes of establishing new CAFE standards, and its 
supplemental analysis including manufacturer use of flexibilities and 
advanced technologies currently reflects the agency's best estimate of 
the potential real-world effects of the proposed CAFE standards.
    Without accounting for the compliance flexibilities and advanced 
technologies that NHTSA is prohibited from considering when determining 
the maximum feasible level of new CAFE standards, since manufacturers' 
decisions to use those flexibilities and technologies are voluntary, 
NHTSA estimates that the required fuel economy increases would lead to 
fuel savings totaling 173 billion gallons throughout the lives of 
vehicles sold in MYs 2017-2025. At a 3 percent discount rate, the 
present value of the economic benefits resulting from those fuel

[[Page 74882]]

savings is $451 billion; at a 7 percent private discount rate, the 
present value of the economic benefits resulting from those fuel 
savings is $358 billion.
    The agency further estimates that these new CAFE standards would 
lead to corresponding reductions in CO2 emissions totaling 
1.8 billion metric tons during the lives of vehicles sold in MYs 2017-
2025. The present value of the economic benefits from avoiding those 
emissions is $49 billion, based on a global social cost of carbon value 
of $22 per metric ton (in 2010, and growing thereafter).\63\ It is 
important to note that NHTSA's CAFE standards and EPA's GHG standards 
will both be in effect, and each will lead to increases in average fuel 
economy and CO2 reductions. The two agencies standards 
together comprise the National Program, and this discussion of the 
costs and benefits of NHTSA's CAFE standards does not change the fact 
that both the CAFE and GHG standards, jointly, are the source of the 
benefits and costs of the National Program. All costs are in 2009 
dollars.
---------------------------------------------------------------------------

    \63\ NHTSA also estimated the benefits associated with three 
more estimates of a one ton GHG reduction in 2009 ($5, $36, and 
$67), which will likewise grow thereafter. See Section II for a more 
detailed discussion of the social cost of carbon.
    \64\ The ``Earlier'' column shows benefits that NHTSA forecasts 
manufacturers will implement in model years prior to 2017 that are 
in response to the proposed MY 2017-2025 standards. The CAFE model 
forecasts that manufactures will implement some technologies, and 
achieve benefits during vehicle redesigns that occur prior to MY 
2017 in order to comply with MY 2017 and later standards in a cost 
effective manner.
[GRAPHIC] [TIFF OMITTED] TP01DE11.011


[[Page 74883]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.012

    Considering manufacturers' ability to employ compliance 
flexibilities and advanced technologies for meeting the standards, 
NHTSA estimates the following for fuel savings and avoided 
CO2 emissions, assuming FFV credits

[[Page 74884]]

would be used toward both the baseline and final standards:
[GRAPHIC] [TIFF OMITTED] TP01DE11.013


[[Page 74885]]


NHTSA estimates that the fuel economy increases resulting from the 
proposed standards would produce other benefits both to drivers (e.g., 
reduced time spent refueling) and to the U.S. as a whole (e.g., 
reductions in the costs of petroleum imports beyond the direct savings 
from reduced oil purchases),\65\ as well as some disbenefits (e.g., 
increased traffic congestion) caused by drivers' tendency to travel 
more when the cost of driving declines (as it does when fuel economy 
increases). NHTSA has estimated the total monetary value to society of 
these benefits and disbenefits, and estimates that the proposed 
standards will produce significant net benefits to society. Using a 3 
percent discount rate, NHTSA estimates that the present value of these 
benefits would total more than $515 billion over the lives of the 
vehicles sold during MYs 2017-2025; using a 7 percent discount rate, 
more than $419 billion. More discussion regarding monetized benefits 
can be found in Section IV of this notice and in NHTSA's PRIA. Note 
that the benefit calculation in the following tables includes the 
benefits of reducing CO2 emissions,\66\ but not the benefits 
of reducing other GHG emissions.
---------------------------------------------------------------------------

    \65\ We note, of course, that reducing the amount of fuel 
purchased also reduces tax revenue for the Federal and state/local 
governments. NHTSA discusses this issue in more detail in Chapter 
VIII of the PRIA.
    \66\ CO2 benefits for purposes of these tables are 
calculated using the $22/ton SCC values. Note that the net present 
value of reduced GHG emissions is calculated differently from other 
benefits. The same discount rate used to discount the value of 
damages from future emissions (SCC at 5, 3, and 2.5 percent) is used 
to calculate net present value of SCC for internal consistency.

---------------------------------------------------------------------------

[[Page 74886]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.014

    Considering manufacturers' ability to employ compliance 
flexibilities and advanced technologies for meeting the standards, 
NHTSA estimates the present value of these benefits would be reduced as 
follows:

[[Page 74887]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.015

    NHTSA attributes most of these benefits (about $451 billion at a 3 
percent discount rate, or about $358 billion at a 7 percent discount 
rate, excluding consideration of compliance flexibilities and advanced 
technologies for meeting the standards) to reductions in fuel 
consumption, valuing fuel (for societal purposes) at the future pre-tax 
prices projected in the Energy Information Administration's (EIA) 
reference case forecast from the Annual Energy Outlook (AEO) 2011. 
NHTSA's PRIA accompanying this proposal

[[Page 74888]]

presents a detailed analysis of specific benefits of the rule.
[GRAPHIC] [TIFF OMITTED] TP01DE11.016

    NHTSA estimates that the increases in technology application 
necessary to achieve the projected improvements in fuel economy will 
entail considerable monetary outlays. The agency estimates that the 
incremental costs for achieving the proposed CAFE standards--that is, 
outlays by vehicle manufacturers over and above those required to 
comply with the MY 2016 CAFE standards--will total about $157 billion 
(i.e., during MYs 2017-2025).
[GRAPHIC] [TIFF OMITTED] TP01DE11.017

    However, NHTSA estimates that manufacturers employing compliance 
flexibilities and advanced technologies to meet the standards could 
significantly reduce these outlays:
[GRAPHIC] [TIFF OMITTED] TP01DE11.018


[[Page 74889]]


    NHTSA projects that manufacturers will recover most or all of these 
additional costs through higher selling prices for new cars and light 
trucks. To allow manufacturers to recover these increased outlays (and, 
to a much less extent, the civil penalties that some manufacturers are 
expected to pay for non-compliance), the agency estimates that the 
standards would lead to increase in average new vehicle prices ranging 
from $161 per vehicle in MY 2017 to $1876 per vehicle in MY 2025:
[GRAPHIC] [TIFF OMITTED] TP01DE11.019

    And as before, NHTSA estimates that manufacturers employing 
compliance flexibilities and advanced technologies to meet the 
standards could significantly reduce these increases.
[GRAPHIC] [TIFF OMITTED] TP01DE11.020

    NHTSA estimates, therefore, that the total benefits of these 
proposed CAFE standards will be more than 2.5 times the magnitude of 
the corresponding costs. As a consequence, the proposed CAFE standards 
would produce net benefits of $358 billion at a 3 percent discount rate 
(with compliance flexibilities, $355 billion), or $262 billion at a 7 
percent discount rate (with compliance flexibilities, $264 billion), 
over the useful lives of the vehicles sold during MYs 2017-2025.
2. Summary of Costs and Benefits for the Proposed EPA GHG Standards
    EPA has analyzed in detail the costs and benefits of the proposed 
GHG standards. Table I-17 shows EPA's estimated lifetime discounted 
cost, fuel savings, and benefits for all vehicles projected to be sold 
in model years 2017-2025. The benefits include impacts such as climate-
related economic benefits from reducing emissions of CO2 
(but not other GHGs), reductions in energy security externalities 
caused by U.S. petroleum consumption and imports, the value of certain 
health benefits, the value of additional driving attributed to the 
rebound effect, the value of reduced refueling time needed to fill up a 
more

[[Page 74890]]

fuel efficient vehicle. The analysis also includes economic impacts 
stemming from additional vehicle use, such as the economic damages 
caused by accidents, congestion and noise. Note that benefits depend on 
estimated values for the social cost of carbon (SCC), as described in 
Section III.H.
BLLING CODE 4910-59-P
[GRAPHIC] [TIFF OMITTED] TP01DE11.021


[[Page 74891]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.022

BLLING CODE 4910-59-C
    Table I-18 shows EPA's estimated lifetime fuel savings and 
CO2 equivalent emission reductions for all vehicles sold in 
the model years 2017-2025. The values in Table I-18 are projected 
lifetime totals for each model year and are not discounted. As 
documented in EPA's draft RIA, the potential credit transfer between 
cars and trucks may change the distribution of the fuel savings and GHG 
emission impacts between cars and trucks. As discussed above with 
respect to NHTSA's CAFE standards, it is important to note that NHTSA's 
CAFE standards and EPA's GHG standards will both be in effect, and each 
will lead to increases in average fuel economy and reductions in 
CO2 emissions. The two agencies' standards together comprise 
the National Program, and this discussion of costs and benefits of 
EPA's proposed GHG standards does not change the fact that both the 
proposed CAFE and GHG standards, jointly, are the source of the 
benefits and costs of the National Program. In general though, in 
addition to the added GHG benefit of HFC reductions from the EPA 
program, the fuel savings benefit are also somewhat higher than that 
from CAFE, primarily because of the possibility of paying civil 
penalties in lieu of applying technology in NHTSA's program, which is 
required by EPCA.
BILLING CODE 4910-59-P

[[Page 74892]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.023

BILLING CODE 4910-59-C
    Table I-19 shows EPA's estimated lifetime discounted benefits for 
all vehicles sold in model years 2017-2025. Although EPA estimated the 
benefits

[[Page 74893]]

associated with four different values of a one ton GHG reduction ($5, 
$22 $36, $67 in CY 2010 and in 2009 dollars), for the purposes of this 
overview presentation of estimated benefits EPA is showing the benefits 
associated with one of these marginal values, $22 per ton of 
CO2, in 2009 dollars and 2010 emissions. Table I-19 presents 
benefits based on the $22 value. Section III.H presents the four 
marginal values used to estimate monetized benefits of GHG reductions 
and Section III.H presents the program benefits using each of the four 
marginal values, which represent only a partial accounting of total 
benefits due to omitted climate change impacts and other factors that 
are not readily monetized. The values in the table are discounted 
values for each model year of vehicles throughout their projected 
lifetimes. The benefits include all benefits considered by EPA such as 
GHG reductions, PM benefits, energy security and other externalities 
such as reduced refueling time and accidents, congestion and noise. The 
lifetime discounted benefits are shown for one of four different social 
cost of carbon (SCC) values considered by EPA. The values in Table I-19 
do not include costs associated with new technology required to meet 
the GHG standard and they do not include the fuel savings expected from 
that technology.

[[Page 74894]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.024

    Table I-20 shows EPA's estimated lifetime fuel savings, lifetime 
CO2 emission reductions, and the monetized net present 
values of those fuel savings and CO2 emission reductions. 
The fuel savings and CO2 emission reductions are projected 
lifetime values for all vehicles sold in the model years 2017-2025. The 
estimated fuel savings in billions of gallons and the GHG reductions in 
million metric tons of CO2 shown in Table I-20 are totals 
for the nine model years throughout their projected lifetime and are 
not discounted. The monetized values shown in Table I-20 are the summed 
values of the discounted monetized fuel savings and monetized 
CO2 reductions for the model years 2017-2025 vehicles 
throughout their lifetimes. The monetized values in Table I-20 reflect

[[Page 74895]]

both a 3 percent and a 7 percent discount rate as noted.
BILLING CODE 4910-59-P
[GRAPHIC] [TIFF OMITTED] TP01DE11.025

BILLING CODE 4910-59-C
    Table I-21 shows EPA's estimated incremental and total technology 
outlays for cars and trucks for each of the model years 2017-2025. The 
technology outlays shown in Table I-21 are for the industry as a whole 
and do not account for fuel savings associated with the program. Table 
I-22 shows EPA's estimated incremental cost increase of the average new 
vehicle for each model year 2017-2025. The values shown are incremental 
to a baseline vehicle and are not cumulative. In other words, the 
estimated increase for 2017 model year cars is $194 relative to a 2017 
model year car meeting the MY 2016 standards. The estimated increase

[[Page 74896]]

for a 2018 model year car is $353 relative to a 2018 model year car 
meeting the MY 2016 standards (not $194 plus $353).
[GRAPHIC] [TIFF OMITTED] TP01DE11.026

D. Background and Comparison of NHTSA and EPA Statutory Authority

    This section provides the agencies' respective statutory 
authorities under which CAFE and GHG standards are established.
1. NHTSA Statutory Authority
    NHTSA establishes CAFE standards for passenger cars and light 
trucks for each model year under EPCA, as amended by EISA. EPCA 
mandates a

[[Page 74897]]

motor vehicle fuel economy regulatory program to meet the various 
facets of the need to conserve energy, including the environmental and 
foreign policy implications of petroleum use by motor vehicles. EPCA 
allocates the responsibility for implementing the program between NHTSA 
and EPA as follows: NHTSA sets CAFE standards for passenger cars and 
light trucks; EPA establishes the procedures for testing, tests 
vehicles, collects and analyzes manufacturers' data, and calculates the 
individual and average fuel economy of each manufacturer's passenger 
cars and light trucks; and NHTSA enforces the standards based on EPA's 
calculations.
a. Standard Setting
    We have summarized below the most important aspects of standard 
setting under EPCA, as amended by EISA. For each future model year, 
EPCA requires that NHTSA establish separate passenger car and light 
truck standards at ``the maximum feasible average fuel economy level 
that it decides the manufacturers can achieve in that model year,'' 
based on the agency's consideration of four statutory factors: 
technological feasibility, economic practicability, the effect of other 
standards of the Government on fuel economy, and the need of the nation 
to conserve energy. EPCA does not define these terms or specify what 
weight to give each concern in balancing them; thus, NHTSA defines them 
and determines the appropriate weighting that leads to the maximum 
feasible standards given the circumstances in each CAFE standard 
rulemaking.\67\ For MYs 2011-2020, EPCA further requires that separate 
standards for passenger cars and for light trucks be set at levels high 
enough to ensure that the CAFE of the industry-wide combined fleet of 
new passenger cars and light trucks reaches at least 35 mpg not later 
than MY 2020. For model years after 2020, standards need simply be set 
at the maximum feasible level.
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    \67\ See Center for Biological Diversity v. NHTSA, 538 F.3d. 
1172, 1195 (9th Cir. 2008) (``The EPCA clearly requires the agency 
to consider these four factors, but it gives NHTSA discretion to 
decide how to balance the statutory factors--as long as NHTSA's 
balancing does not undermine the fundamental purpose of the EPCA: 
energy conservation.'').
---------------------------------------------------------------------------

    Because EPCA states that standards must be set for ``* * * 
automobiles manufactured by manufacturers,'' and because Congress 
provided specific direction on how small-volume manufacturers could 
obtain exemptions from the passenger car standards, NHTSA has long 
interpreted its authority as pertaining to setting standards for the 
industry as a whole. Prior to this NPRM, some manufacturers raised with 
NHTSA the possibility of NHTSA and EPA setting alternate standards for 
part of the industry that met certain (relatively low) sales volume 
criteria--specifically, that separate standards be set so that 
``intermediate-size,'' limited-line manufacturers do not have to meet 
the same levels of stringency that larger manufacturers have to meet 
until several years later. NHTSA seeks comment on whether or how EPCA, 
as amended by EISA, could be interpreted to allow such alternate 
standards for certain parts of the industry.
i. Factors That Must Be Considered in Deciding the Appropriate 
Stringency of CAFE Standards
(1) Technological Feasibility
    ``Technological feasibility'' refers to whether a particular method 
of improving fuel economy can be available for commercial application 
in the model year for which a standard is being established. Thus, the 
agency is not limited in determining the level of new standards to 
technology that is already being commercially applied at the time of 
the rulemaking, a consideration which is particularly relevant for a 
rulemaking with a timeframe as long as the present one. For this 
rulemaking, NHTSA has considered all types of technologies that improve 
real-world fuel economy, including air-conditioner efficiency, due to 
EPA's proposal to allow generation of fuel consumption improvement 
values for CAFE purposes based on improvements to air-conditioner 
efficiency that improves fuel efficiency.
(2) Economic Practicability
    ``Economic practicability'' refers to whether a standard is one 
``within the financial capability of the industry, but not so stringent 
as to'' lead to ``adverse economic consequences, such as a significant 
loss of jobs or the unreasonable elimination of consumer choice.'' \68\ 
The agency has explained in the past that this factor can be especially 
important during rulemakings in which the automobile industry is facing 
significantly adverse economic conditions (with corresponding risks to 
jobs). Consumer acceptability is also an element of economic 
practicability, one which is particularly difficult to gauge during 
times of uncertain fuel prices.\69\ In a rulemaking such as the present 
one, looking out into the more distant future, economic practicability 
is a way to consider the uncertainty surrounding future market 
conditions and consumer demand for fuel economy in addition to other 
vehicle attributes. In an attempt to ensure the economic practicability 
of attribute-based standards, NHTSA considers a variety of factors, 
including the annual rate at which manufacturers can increase the 
percentage of their fleet that employ a particular type of fuel-saving 
technology, the specific fleet mixes of different manufacturers, and 
assumptions about the cost of the standards to consumers and consumers' 
valuation of fuel economy, among other things.
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    \68\ 67 FR 77015, 77021 (Dec. 16, 2002).
    \69\ See, e.g., Center for Auto Safety v. NHTSA (CAS), 793 F.2d 
1322 (D.C. Cir. 1986) (Administrator's consideration of market 
demand as component of economic practicability found to be 
reasonable); Public Citizen v. NHTSA, 848 F.2d 256 (Congress 
established broad guidelines in the fuel economy statute; agency's 
decision to set lower standard was a reasonable accommodation of 
conflicting policies).
---------------------------------------------------------------------------

    It is important to note, however, that the law does not preclude a 
CAFE standard that poses considerable challenges to any individual 
manufacturer. The Conference Report for EPCA, as enacted in 1975, makes 
clear, and the case law affirms, ``a determination of maximum feasible 
average fuel economy should not be keyed to the single manufacturer 
which might have the most difficulty achieving a given level of average 
fuel economy.'' \70\ Instead, NHTSA is compelled ``to weigh the 
benefits to the nation of a higher fuel economy standard against the 
difficulties of individual automobile manufacturers.'' \71\ The law 
permits CAFE standards exceeding the projected capability of any 
particular manufacturer as long as the standard is economically 
practicable for the industry as a whole. Thus, while a particular CAFE 
standard may pose difficulties for one manufacturer, it may also 
present opportunities for another. NHTSA has long held that the CAFE 
program is not necessarily intended to maintain the competitive 
positioning of each particular company. Rather, it is intended to 
enhance the fuel economy of the vehicle fleet on American roads, while 
protecting motor vehicle safety and being mindful of the risk to the 
overall United States economy.
---------------------------------------------------------------------------

    \70\ CEI-I, 793 F.2d 1322, 1352 (D.C. Cir. 1986).
    \71\ Id.
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(3) The Effect of Other Motor Vehicle Standards of the Government on 
Fuel Economy
    ``The effect of other motor vehicle standards of the Government on 
fuel economy,'' involves an analysis of the effects of compliance with 
emission,

[[Page 74898]]

safety, noise, or damageability standards on fuel economy capability 
and thus on average fuel economy. In previous CAFE rulemakings, the 
agency has said that pursuant to this provision, it considers the 
adverse effects of other motor vehicle standards on fuel economy. It 
said so because, from the CAFE program's earliest years \72\ until 
present, the effects of such compliance on fuel economy capability over 
the history of the CAFE program have been negative ones. For example, 
safety standards that have the effect of increasing vehicle weight 
lower vehicle fuel economy capability and thus decrease the level of 
average fuel economy that the agency can determine to be feasible.
---------------------------------------------------------------------------

    \72\ 42 FR 63184, 63188 (Dec. 15, 1977). See also 42 FR 33534, 
33537 (Jun. 30, 1977).
---------------------------------------------------------------------------

    In the wake of Massachusetts v. EPA and of EPA's endangerment 
finding, granting of a waiver to California for its motor vehicle GHG 
standards, and its own establishment of GHG standards, NHTSA is 
confronted with the issue of how to treat those standards under EPCA/
EISA, such as in the context of the ``other motor vehicle standards'' 
provision. To the extent the GHG standards result in increases in fuel 
economy, they would do so almost exclusively as a result of inducing 
manufacturers to install the same types of technologies used by 
manufacturers in complying with the CAFE standards.
    Comment is requested on whether and in what way the effects of the 
California and EPA standards should be considered under EPCA/EISA, 
e.g., under the ``other motor vehicle standards'' provision, consistent 
with NHTSA's independent obligation under EPCA/EISA to issue CAFE 
standards. The agency has already considered EPA's proposal and the 
harmonization benefits of the National Program in developing its own 
proposal.
(4) The Need of the United States To Conserve Energy
    ``The need of the United States to conserve energy'' means ``the 
consumer cost, national balance of payments, environmental, and foreign 
policy implications of our need for large quantities of petroleum, 
especially imported petroleum.'' \73\ Environmental implications 
principally include reductions in emissions of carbon dioxide and 
criteria pollutants and air toxics. Prime examples of foreign policy 
implications are energy independence and security concerns.
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    \73\ 42 FR 63184, 63188 (1977).
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(5) Fuel Prices and the Value of Saving Fuel
    Projected future fuel prices are a critical input into the 
preliminary economic analysis of alternative CAFE standards, because 
they determine the value of fuel savings both to new vehicle buyers and 
to society, which is related to the consumer cost (or rather, benefit) 
of our need for large quantities of petroleum. In this rule, NHTSA 
relies on fuel price projections from the U.S. Energy Information 
Administration's (EIA) most recent Annual Energy Outlook (AEO) for this 
analysis. Federal government agencies generally use EIA's projections 
in their assessments of future energy-related policies.
(6) Petroleum Consumption and Import Externalities
    U.S. consumption and imports of petroleum products impose costs on 
the domestic economy that are not reflected in the market price for 
crude petroleum, or in the prices paid by consumers of petroleum 
products such as gasoline. These costs include (1) Higher prices for 
petroleum products resulting from the effect of U.S. oil import demand 
on the world oil price; (2) the risk of disruptions to the U.S. economy 
caused by sudden reductions in the supply of imported oil to the U.S.; 
and (3) expenses for maintaining a U.S. military presence to secure 
imported oil supplies from unstable regions, and for maintaining the 
strategic petroleum reserve (SPR) to provide a response option should a 
disruption in commercial oil supplies threaten the U.S. economy, to 
allow the United States to meet part of its International Energy Agency 
obligation to maintain emergency oil stocks, and to provide a national 
defense fuel reserve. Higher U.S. imports of crude oil or refined 
petroleum products increase the magnitude of these external economic 
costs, thus increasing the true economic cost of supplying 
transportation fuels above the resource costs of producing them. 
Conversely, reducing U.S. imports of crude petroleum or refined fuels 
or reducing fuel consumption can reduce these external costs.
(7) Air Pollutant Emissions
    While reductions in domestic fuel refining and distribution that 
result from lower fuel consumption will reduce U.S. emissions of 
various pollutants, additional vehicle use associated with the rebound 
effect \74\ from higher fuel economy will increase emissions of these 
pollutants. Thus, the net effect of stricter CAFE standards on 
emissions of each pollutant depends on the relative magnitudes of its 
reduced emissions in fuel refining and distribution, and increases in 
its emissions from vehicle use. Fuel savings from stricter CAFE 
standards also result in lower emissions of CO2, the main 
greenhouse gas emitted as a result of refining, distribution, and use 
of transportation fuels. Reducing fuel consumption reduces carbon 
dioxide emissions directly, because the primary source of 
transportation-related CO2 emissions is fuel combustion in 
internal combustion engines.
---------------------------------------------------------------------------

    \74\ The ``rebound effect'' refers to the tendency of drivers to 
drive their vehicles more as the cost of doing so goes down, as when 
fuel economy improves.
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    NHTSA has considered environmental issues, both within the context 
of EPCA and the National Environmental Policy Act, in making decisions 
about the setting of standards from the earliest days of the CAFE 
program. As courts of appeal have noted in three decisions stretching 
over the last 20 years,\75\ NHTSA defined the ``need of the Nation to 
conserve energy'' in the late 1970s as including ``the consumer cost, 
national balance of payments, environmental, and foreign policy 
implications of our need for large quantities of petroleum, especially 
imported petroleum.'' \76\ In 1988, NHTSA included climate change 
concepts in its CAFE notices and prepared its first environmental 
assessment addressing that subject.\77\ It cited concerns about climate 
change as one of its reasons for limiting the extent of its reduction 
of the CAFE standard for MY 1989 passenger cars.\78\ Since then, NHTSA 
has considered the benefits of reducing tailpipe carbon dioxide 
emissions in its fuel economy rulemakings pursuant to the statutory 
requirement to consider the nation's need to conserve energy by 
reducing fuel consumption.
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    \75\ Center for Auto Safety v. NHTSA, 793 F.2d 1322, 1325 n. 12 
(D.C. Cir. 1986); Public Citizen v. NHTSA, 848 F.2d 256, 262-3 n. 27 
(D.C. Cir. 1988) (noting that ``NHTSA itself has interpreted the 
factors it must consider in setting CAFE standards as including 
environmental effects''); and Center for Biological Diversity v. 
NHTSA, 538 F.3d 1172 (9th Cir. 2007).
    \76\ 42 FR 63184, 63188 (Dec. 15, 1977) (emphasis added).
    \77\ 53 FR 33080, 33096 (Aug. 29, 1988).
    \78\ 53 FR 39275, 39302 (Oct. 6, 1988).
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ii. Other Factors Considered by NHTSA
    NHTSA considers the potential for adverse safety consequences when 
establishing CAFE standards. This practice is recognized approvingly in 
case law.\79\ Under the universal or ``flat''

[[Page 74899]]

CAFE standards that NHTSA was previously authorized to establish, the 
primary risk to safety came from the possibility that manufacturers 
would respond to higher standards by building smaller, less safe 
vehicles in order to ``balance out'' the larger, safer vehicles that 
the public generally preferred to buy. Under the attribute-based 
standards being proposed in this action, that risk is reduced because 
building smaller vehicles tends to raise a manufacturer's overall CAFE 
obligation, rather than only raising its fleet average CAFE. However, 
even under attribute-based standards, there is still risk that 
manufacturers will rely on down-weighting to improve their fuel economy 
(for a given vehicle at a given footprint target) in ways that may 
reduce safety.\80\
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    \79\ As the United States Court of Appeals pointed out in 
upholding NHTSA's exercise of judgment in setting the 1987-1989 
passenger car standards, ``NHTSA has always examined the safety 
consequences of the CAFE standards in its overall consideration of 
relevant factors since its earliest rulemaking under the CAFE 
program.'' Competitive Enterprise Institute v. NHTSA (CEI I), 901 
F.2d 107, 120 at n.11 (D.C. Cir. 1990).
    \80\ For example, by reducing the mass of the smallest vehicles 
rather than the largest, or by reducing vehicle overhang outside the 
space measured as ``footprint,'' which results in less crush space.
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iii. Factors That NHTSA Is Statutorily Prohibited From Considering in 
Setting Standards
    EPCA provides that in determining the level at which it should set 
CAFE standards for a particular model year, NHTSA may not consider the 
ability of manufacturers to take advantage of several EPCA provisions 
that facilitate compliance with the CAFE standards and thereby reduce 
the costs of compliance. Specifically, in determining the maximum 
feasible level of fuel economy for passenger cars and light trucks, 
NHTSA cannot consider the fuel economy benefits of ``dedicated'' 
alternative fuel vehicles (like battery electric vehicles or natural 
gas vehicles), must consider dual-fueled automobiles to be operated 
only on gasoline or diesel fuel, and may not consider the ability of 
manufacturers to use, trade, or transfer credits.\81\ This provision 
limits, to some extent, the fuel economy levels that NHTSA can find to 
be ``maximum feasible''--if NHTSA cannot consider the fuel economy of 
electric vehicles, for example, NHTSA cannot set a standards predicated 
on manufacturers' usage of electric vehicles to meet the standards.
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    \81\ 49 U.S.C. 32902(h). We note, as discussed in greater detail 
in Section IV, that NHTSA interprets 32902(h) as reflecting 
Congress' intent that statutorily-mandated compliance flexibilities 
remain flexibilities. When a compliance flexibility is not 
statutorily mandated, therefore, or when it ceases to be available 
under the statute, we interpret 32902(h) as no longer binding the 
agency's determination of the maximum feasible levels of fuel 
economy. For example, when the manufacturing incentive for dual-
fueled automobiles under 49 U.S.C. 32905 and 32906 expires in MY 
2019, there is no longer a flexibility left to protect per 32902(h), 
so NHTSA considers the calculated fuel economy of plug-in hybrid 
electric vehicles for purposes of determining the maximum feasible 
standards in MYs 2020 and beyond.
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iv. Weighing and Balancing of Factors
    NHTSA has broad discretion in balancing the above factors in 
determining the average fuel economy level that the manufacturers can 
achieve. Congress ``specifically delegated the process of setting * * * 
fuel economy standards with broad guidelines concerning the factors 
that the agency must consider.'' \82\ The breadth of those guidelines, 
the absence of any statutorily prescribed formula for balancing the 
factors, the fact that the relative weight to be given to the various 
factors may change from rulemaking to rulemaking as the underlying 
facts change, and the fact that the factors may often be conflicting 
with respect to whether they militate toward higher or lower standards 
give NHTSA discretion to decide what weight to give each of the 
competing policies and concerns and then determine how to balance 
them--``as long as NHTSA's balancing does not undermine the fundamental 
purpose of the EPCA: energy conservation,'' \83\ and as long as that 
balancing reasonably accommodates ``conflicting policies that were 
committed to the agency's care by the statute.'' \84\ Thus, EPCA does 
not mandate that any particular number be adopted when NHTSA determines 
the level of CAFE standards.
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    \82\ Center for Auto Safety v. NHTSA, 793 F.2d 1322, at 1341 
(D.C. Cir. 1986).
    \83\ CBD v. NHTSA, 538 F.3d at 1195 (9th Cir. 2008).
    \84\ Id.
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v. Other Requirements Related to Standard Setting
    The standards for passenger cars and for light trucks must increase 
ratably each year through MY 2020.\85\ This statutory requirement is 
interpreted, in combination with the requirement to set the standards 
for each model year at the level determined to be the maximum feasible 
level that manufacturers can achieve for that model year, to mean that 
the annual increases should not be disproportionately large or small in 
relation to each other.\86\ Standards after 2020 must simply be set at 
the maximum feasible level.\87\
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    \85\ 49 U.S.C. 32902(b)(2)(C).
    \86\ See 74 FR 14196, 14375-76 (Mar. 30, 2009).
    \87\ 49 U.S.C. 32902(b)(2)(B).
---------------------------------------------------------------------------

    The standards for passenger cars and light trucks must also be 
based on one or more vehicle attributes, like size or weight, which 
correlate with fuel economy and must be expressed in terms of a 
mathematical function.\88\ Fuel economy targets are set for individual 
vehicles and increase as the attribute decreases and vice versa. For 
example, footprint-based standards assign higher fuel economy targets 
to smaller-footprint vehicles and lower ones to larger footprint-
vehicles. The fleetwide average fuel economy that a particular 
manufacturer is required to achieve depends on the footprint mix of its 
fleet, i.e., the proportion of the fleet that is small-, medium-, or 
large-footprint.
---------------------------------------------------------------------------

    \88\ 49 U.S.C. 32902(b)(3).
---------------------------------------------------------------------------

    This approach can be used to require virtually all manufacturers to 
increase significantly the fuel economy of a broad range of both 
passenger cars and light trucks, i.e., the manufacturer must improve 
the fuel economy of all the vehicles in its fleet. Further, this 
approach can do so without creating an incentive for manufacturers to 
make small vehicles smaller or large vehicles larger, with attendant 
implications for safety.
b. Test Procedures for Measuring Fuel Economy
    EPCA provides EPA with the responsibility for establishing 
procedures to measure fuel economy and to calculate CAFE. Current test 
procedures measure the effects of nearly all fuel saving technologies. 
EPA is considering revising the procedures for measuring fuel economy 
and calculating average fuel economy for the CAFE program, however, to 
account for four impacts on fuel economy not currently included in 
these procedures--increases in fuel economy because of increases in 
efficiency of the air conditioning system; increases in fuel economy 
because of technology improvements that achieve ``off-cycle'' benefits; 
incentives for use of certain hybrid technologies in a significant 
percentage of pickup trucks; and incentives for achieving fuel economy 
levels in a significant percentage pickup trucks that exceeds the 
target curve by specified amounts, in the form of increased values 
assigned for fuel economy. NHTSA has taken these proposed changes into 
account in determining the proposed fuel economy standards. These 
changes would be the same as program elements that are part of EPA's 
greenhouse gas performance

[[Page 74900]]

standards, discussed in Section III.B.10. As discussed below, these 
three elements would be implemented in the same manner as in the EPA's 
greenhouse gas program--a vehicle manufacturer would have the option to 
generate these fuel economy values for vehicle models that meet the 
criteria for these elements and to use these values in calculating 
their fleet average fuel economy. This proposed revision to CAFE 
calculation is discussed in more detail in Sections III and IV below.
c. Enforcement and Compliance Flexibility
    NHTSA determines compliance with the CAFE standards based on 
measurements of automobile manufacturers' CAFE from EPA. If a 
manufacturer's passenger car or light truck CAFE level exceeds the 
applicable standard for that model year, the manufacturer earns credits 
for over-compliance. The amount of credit earned is determined by 
multiplying the number of tenths of a mpg by which a manufacturer 
exceeds a standard for a particular category of automobiles by the 
total volume of automobiles of that category manufactured by the 
manufacturer for a given model year. As discussed in more detail in 
Section IV.I, credits can be carried forward for 5 model years or back 
for 3, and can also be transferred between a manufacturer's fleets or 
traded to another manufacturer.
    If a manufacturer's passenger car or light truck CAFE level does 
not meet the applicable standard for that model year, NHTSA notifies 
the manufacturer. The manufacturer may use ``banked'' credits to make 
up the shortfall, but if there are no (or not enough) credits 
available, then the manufacturer has the option to submit a ``carry 
back plan'' to NHTSA. A carry back plan describes what the manufacturer 
plans to do in the following three model years to earn enough credits 
to make up for the shortfall through future over-compliance. NHTSA must 
examine and determine whether to approve the plan.
    In the event that a manufacturer does not comply with a CAFE 
standard, even after the consideration of credits, EPCA provides for 
the assessing of civil penalties.\89\ The Act specifies a precise 
formula for determining the amount of civil penalties for such a 
noncompliance. The penalty, as adjusted for inflation by law, is $5.50 
for each tenth of a mpg that a manufacturer's average fuel economy 
falls short of the standard for a given model year multiplied by the 
total volume of those vehicles in the affected fleet (i.e., import or 
domestic passenger car, or light truck), manufactured for that model 
year. The amount of the penalty may not be reduced except under the 
unusual or extreme circumstances specified in the statute, which have 
never been exercised by NHTSA in the history of the CAFE program.
---------------------------------------------------------------------------

    \89\ EPCA does not provide authority for seeking to enjoin 
violations of the CAFE standards.
---------------------------------------------------------------------------

    Unlike the National Traffic and Motor Vehicle Safety Act, EPCA does 
not provide for recall and remedy in the event of a noncompliance. The 
presence of recall and remedy provisions \90\ in the Safety Act and 
their absence in EPCA is believed to arise from the difference in the 
application of the safety standards and CAFE standards. A safety 
standard applies to individual vehicles; that is, each vehicle must 
possess the requisite equipment or feature that must provide the 
requisite type and level of performance. If a vehicle does not, it is 
noncompliant. Typically, a vehicle does not entirely lack an item or 
equipment or feature. Instead, the equipment or features fails to 
perform adequately. Recalling the vehicle to repair or replace the 
noncompliant equipment or feature can usually be readily accomplished.
---------------------------------------------------------------------------

    \90\ 49 U.S.C. 30120, Remedies for defects and noncompliance.
---------------------------------------------------------------------------

    In contrast, a CAFE standard applies to a manufacturer's entire 
fleet for a model year. It does not require that a particular 
individual vehicle be equipped with any particular equipment or feature 
or meet a particular level of fuel economy. It does require that the 
manufacturer's fleet, as a whole, comply. Further, although under the 
attribute-based approach to setting CAFE standards fuel economy targets 
are established for individual vehicles based on their footprints, the 
individual vehicles are not required to meet or exceed those targets. 
However, as a practical matter, if a manufacturer chooses to design 
some vehicles that fall below their target levels of fuel economy, it 
will need to design other vehicles that exceed their targets if the 
manufacturer's overall fleet average is to meet the applicable 
standard.
    Thus, under EPCA, there is no such thing as a noncompliant vehicle, 
only a noncompliant fleet. No particular vehicle in a noncompliant 
fleet is any more, or less, noncompliant than any other vehicle in the 
fleet.
2. EPA Statutory Authority
    Title II of the Clean Air Act (CAA) provides for comprehensive 
regulation of mobile sources, authorizing EPA to regulate emissions of 
air pollutants from all mobile source categories. Pursuant to these 
sweeping grants of authority, EPA considers such issues as technology 
effectiveness, its cost (both per vehicle, per manufacturer, and per 
consumer), the lead time necessary to implement the technology, and 
based on this the feasibility and practicability of potential 
standards; the impacts of potential standards on emissions reductions 
of both GHGs and non-GHGs; the impacts of standards on oil conservation 
and energy security; the impacts of standards on fuel savings by 
consumers; the impacts of standards on the auto industry; other energy 
impacts; as well as other relevant factors such as impacts on safety
    Pursuant to Title II of the Clean Air Act, EPA has taken a 
comprehensive, integrated approach to mobile source emission control 
that has produced benefits well in excess of the costs of regulation. 
In developing the Title II program, the Agency's historic, initial 
focus was on personal vehicles since that category represented the 
largest source of mobile source emissions. Over time, EPA has 
established stringent emissions standards for large truck and other 
heavy-duty engines, nonroad engines, and marine and locomotive engines, 
as well. The Agency's initial focus on personal vehicles has resulted 
in significant control of emissions from these vehicles, and also led 
to technology transfer to the other mobile source categories that made 
possible the stringent standards for these other categories.
    As a result of Title II requirements, new cars and SUVs sold today 
have emissions levels of hydrocarbons, oxides of nitrogen, and carbon 
monoxide that are 98-99% lower than new vehicles sold in the 1960s, on 
a per mile basis. Similarly, standards established for heavy-duty 
highway and nonroad sources require emissions rate reductions on the 
order of 90% or more for particulate matter and oxides of nitrogen. 
Overall ambient levels of automotive-related pollutants are lower now 
than in 1970, even as economic growth and vehicle miles traveled have 
nearly tripled. These programs have resulted in millions of tons of 
pollution reduction and major reductions in pollution-related deaths 
(estimated in the tens of thousands per year) and illnesses. The net 
societal benefits of the mobile source programs are large. In its 
annual reports on federal regulations, the Office of Management and 
Budget reports that many of EPA's mobile source emissions standards 
typically have projected benefit-to-cost ratios of 5:1 to 10:1 or more. 
Follow-up studies show that long-term compliance costs to the industry 
are typically lower than the

[[Page 74901]]

cost projected by EPA at the time of regulation, which result in even 
more favorable real world benefit-to-cost ratios.\91\ Pollution 
reductions attributable to Title II mobile source controls are critical 
components to attainment of primary National Ambient Air Quality 
Standards, significantly reducing the national inventory and ambient 
concentrations of criteria pollutants, especially PM2.5 and ozone. See 
e.g. 69 FR 38958, 38967-68 (June 29, 2004) (controls on non-road diesel 
engines expected to reduce entire national inventory of PM2.5 by 3.3% 
(86,000 tons) by 2020). Title II controls have also made enormous 
reductions in air toxics emitted by mobile sources. For example, as a 
result of EPA's 2007 mobile source air toxics standards, the cancer 
risk attributable to total mobile source air toxics will be reduced by 
30% in 2030 and the risk from mobile source benzene (a leukemogen) will 
be reduced by 37% in 2030. (reflecting reductions of over three hundred 
thousand tons of mobile source air toxic emissions) 72 FR 8428, 8430 
(Feb. 26, 2007).
---------------------------------------------------------------------------

    \91\ OMB, 2011. 2011 Report to Congress on the Benefits and 
Costs of Federal Regulations and Unfunded Mandates on State, Local, 
and Tribal Entities. Office of Information and Regulatory Affairs. 
June. http://www.whitehouse.gov/sites/default/files/omb/inforeg/2011_cb/2011_cba_report.pdf. Web site accessed on October 11, 
2011.
---------------------------------------------------------------------------

    Title II emission standards have also stimulated the development of 
a much broader set of advanced automotive technologies, such as on-
board computers and fuel injection systems, which are the building 
blocks of today's automotive designs and have yielded not only lower 
pollutant emissions, but improved vehicle performance, reliability, and 
durability.
    This proposal implements a specific provision from Title II, 
section 202(a).\92\ Section 202(a)(1) of the Clean Air Act (CAA) states 
that ``the Administrator shall by regulation prescribe (and from time 
to time revise) * * * standards applicable to the emission of any air 
pollutant from any class or classes of new motor vehicles * * *, which 
in his judgment cause, or contribute to, air pollution which may 
reasonably be anticipated to endanger public health or welfare.'' If 
EPA makes the appropriate endangerment and cause or contribute 
findings, then section 202(a) authorizes EPA to issue standards 
applicable to emissions of those pollutants.
---------------------------------------------------------------------------

    \92\ 42 U.S.C. 7521 (a)
---------------------------------------------------------------------------

    Any standards under CAA section 202(a)(1) ``shall be applicable to 
such vehicles * * * for their useful life.'' Emission standards set by 
the EPA under CAA section 202(a)(1) are technology-based, as the levels 
chosen must be premised on a finding of technological feasibility. 
Thus, standards promulgated under CAA section 202(a) are to take effect 
only ``after providing such period as the Administrator finds necessary 
to permit the development and application of the requisite technology, 
giving appropriate consideration to the cost of compliance within such 
period'' (section 202 (a)(2); see also NRDC v. EPA, 655 F. 2d 318, 322 
(DC Cir. 1981)). EPA is afforded considerable discretion under section 
202(a) when assessing issues of technical feasibility and availability 
of lead time to implement new technology. Such determinations are 
``subject to the restraints of reasonableness'', which ``does not open 
the door to `crystal ball' inquiry.'' NRDC, 655 F. 2d at 328, quoting 
International Harvester Co. v. Ruckelshaus, 478 F. 2d 615, 629 (DC Cir. 
1973). However, ``EPA is not obliged to provide detailed solutions to 
every engineering problem posed in the perfection of the trap-oxidizer. 
In the absence of theoretical objections to the technology, the agency 
need only identify the major steps necessary for development of the 
device, and give plausible reasons for its belief that the industry 
will be able to solve those problems in the time remaining. The EPA is 
not required to rebut all speculation that unspecified factors may 
hinder `real world' emission control.'' NRDC, 655 F. 2d at 333-34. In 
developing such technology-based standards, EPA has the discretion to 
consider different standards for appropriate groupings of vehicles 
(``class or classes of new motor vehicles''), or a single standard for 
a larger grouping of motor vehicles (NRDC, 655 F. 2d at 338).
    Although standards under CAA section 202(a)(1) are technology-
based, they are not based exclusively on technological capability. EPA 
has the discretion to consider and weigh various factors along with 
technological feasibility, such as the cost of compliance (see section 
202(a) (2)), lead time necessary for compliance (section 202(a)(2)), 
safety (see NRDC, 655 F. 2d at 336 n. 31) and other impacts on 
consumers,\93\ and energy impacts associated with use of the 
technology. See George E. Warren Corp. v. EPA, 159 F.3d 616, 623-624 
(DC Cir. 1998) (ordinarily permissible for EPA to consider factors not 
specifically enumerated in the Act).
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    \93\ Since its earliest Title II regulations, EPA has considered 
the safety of pollution control technologies. See 45 Fed. Reg. 
14,496, 14,503 (1980). (``EPA would not require a particulate 
control technology that was known to involve serious safety 
problems. If during the development of the trap-oxidizer safety 
problems are discovered, EPA would reconsider the control 
requirements implemented by this rulemaking'').
---------------------------------------------------------------------------

    In addition, EPA has clear authority to set standards under CAA 
section 202(a) that are technology forcing when EPA considers that to 
be appropriate, but is not required to do so (as compared to standards 
set under provisions such as section 202(a)(3) and section 213(a)(3)). 
EPA has interpreted a similar statutory provision, CAA section 231, as 
follows:

    While the statutory language of section 231 is not identical to 
other provisions in title II of the CAA that direct EPA to establish 
technology-based standards for various types of engines, EPA 
interprets its authority under section 231 to be somewhat similar to 
those provisions that require us to identify a reasonable balance of 
specified emissions reduction, cost, safety, noise, and other 
factors. See, e.g., Husqvarna AB v. EPA, 254 F.3d 195 (DC Cir. 2001) 
(upholding EPA's promulgation of technology-based standards for 
small non-road engines under section 213(a)(3) of the CAA). However, 
EPA is not compelled under section 231 to obtain the ``greatest 
degree of emission reduction achievable'' as per sections 213 and 
202 of the CAA, and so EPA does not interpret the Act as requiring 
the agency to give subordinate status to factors such as cost, 
safety, and noise in determining what standards are reasonable for 
aircraft engines. Rather, EPA has greater flexibility under section 
231 in determining what standard is most reasonable for aircraft 
engines, and is not required to achieve a ``technology forcing'' 
result.\94\
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    \94\ 70 FR 69664, 69676, November 17, 2005.

    This interpretation was upheld as reasonable in NACAA v. EPA, (489 
F.3d 1221, 1230 (DC Cir. 2007)). CAA section 202(a) does not specify 
the degree of weight to apply to each factor, and EPA accordingly has 
discretion in choosing an appropriate balance among factors. See Sierra 
Club v. EPA, 325 F.3d 374, 378 (DC Cir. 2003) (even where a provision 
is technology-forcing, the provision ``does not resolve how the 
Administrator should weigh all [the statutory] factors in the process 
of finding the `greatest emission reduction achievable' ''). Also see 
Husqvarna AB v. EPA, 254 F. 3d 195, 200 (DC Cir. 2001) (great 
discretion to balance statutory factors in considering level of 
technology-based standard, and statutory requirement ``to [give 
appropriate] consideration to the cost of applying * * * technology'' 
does not mandate a specific method of cost analysis); see also Hercules 
Inc. v. EPA, 598 F. 2d 91, 106 (DC Cir. 1978) (``In reviewing a 
numerical standard we must ask whether the agency's numbers are within 
a zone of reasonableness, not

[[Page 74902]]

whether its numbers are precisely right''); Permian Basin Area Rate 
Cases, 390 U.S. 747, 797 (1968) (same); Federal Power Commission v. 
Conway Corp., 426 U.S. 271, 278 (1976) (same); Exxon Mobil Gas 
Marketing Co. v. FERC, 297 F. 3d 1071, 1084 (DC Cir. 2002) (same).
a. EPA's Testing Authority
    Under section 203 of the CAA, sales of vehicles are prohibited 
unless the vehicle is covered by a certificate of conformity. EPA 
issues certificates of conformity pursuant to section 206 of the Act, 
based on (necessarily) pre-sale testing conducted either by EPA or by 
the manufacturer. The Federal Test Procedure (FTP or ``city'' test) and 
the Highway Fuel Economy Test (HFET or ``highway'' test) are used for 
this purpose. Compliance with standards is required not only at 
certification but throughout a vehicle's useful life, so that testing 
requirements may continue post-certification. Useful life standards may 
apply an adjustment factor to account for vehicle emission control 
deterioration or variability in use (section 206(a)).
    Pursuant to EPCA, EPA is required to measure fuel economy for each 
model and to calculate each manufacturer's average fuel economy.\95\ 
EPA uses the same tests--the FTP and HFET--for fuel economy testing. 
EPA established the FTP for emissions measurement in the early 1970s. 
In 1976, in response to the Energy Policy and Conservation Act (EPCA) 
statute, EPA extended the use of the FTP to fuel economy measurement 
and added the HFET.\96\ The provisions in the 1976 regulation, 
effective with the 1977 model year, established procedures to calculate 
fuel economy values both for labeling and for CAFE purposes. Under 
EPCA, EPA is required to use these procedures (or procedures which 
yield comparable results) for measuring fuel economy for cars for CAFE 
purposes, but not for labeling purposes.\97\ EPCA does not pose this 
restriction on CAFE test procedures for light trucks, but EPA does use 
the FTP and HFET for this purpose. EPA determines fuel economy by 
measuring the amount of CO2 and all other carbon compounds 
(e.g. total hydrocarbons (THC) and carbon monoxide (CO)), and then, by 
mass balance, calculating the amount of fuel consumed. EPA's proposed 
changes to the procedures for measuring fuel economy and calculating 
average fuel economy are discussed in section III.B.10.
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    \95\ See 49 U.S.C. 32904(c).
    \96\ See 41 FR 38674 (Sept. 10, 1976), which is codified at 40 
CFR part 600.
    \97\ See 49 U.S.C. 32904(c).
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b. EPA Enforcement Authority
    Section 207 of the CAA grants EPA broad authority to require 
manufacturers to remedy vehicles if EPA determines there are a 
substantial number of noncomplying vehicles. In addition, section 205 
of the CAA authorizes EPA to assess penalties of up to $37,500 per 
vehicle for violations of various prohibited acts specified in the CAA. 
In determining the appropriate penalty, EPA must consider a variety of 
factors such as the gravity of the violation, the economic impact of 
the violation, the violator's history of compliance, and ``such other 
matters as justice may require.'' Unlike EPCA, the CAA does not 
authorize vehicle manufacturers to pay fines in lieu of meeting 
emission standards.
c. Compliance
    EPA oversees testing, collects and processes test data, and 
performs calculations to determine compliance with both CAA and CAFE 
standards. CAA standards apply not only at the time of certification 
but also throughout the vehicle's useful life, and EPA is accordingly 
is proposing in-use standards as well as standards based on testing 
performed at time of production. See section III.E. Both the CAA and 
EPCA provide for penalties should manufacturers fail to comply with 
their fleet average standards, but, unlike EPCA, there is no option for 
manufacturers to pay fines in lieu of compliance with the standards. 
Under the CAA, penalties are typically determined on a vehicle-specific 
basis by determining the number of a manufacturer's highest emitting 
vehicles that cause the fleet average standard violation. Penalties 
under Title II of the CAA are capped at $25,000 per day of violation 
and apply on a per vehicle basis. CAA section 205 (a).
d. Test Procedures
    EPA establishes the test procedures under which compliance with 
both the CAA GHG standards and the EPCA fuel economy standards are 
measured. EPA's testing authority under the CAA is flexible, but 
testing for fuel economy for passenger cars is by statute is limited to 
the Federal Test procedure (FTP) or test procedures which provide 
results which are equivalent to the FTP. 49 USC section 32904 and 
section III.B, below. EPA developed and established the FTP in the 
early 1970s and, after enactment of EPCA in 1976, added the Highway 
Fuel Economy Test to be used in conjunction with the FTP for fuel 
economy testing. EPA has also developed tests with additional cycles 
(the so-called 5-cycle test) which test is used for purposes of fuel 
economy labeling and is also used in the EPA program for extending off-
cycle credits under both the light-duty and (along with NHTSA) heavy-
duty vehicle GHG programs. See 75 FR at 25439; 76 FR at 57252. In this 
rule, EPA is proposing to retain the FTP and HFET for purposes of 
testing the fleetwide average standards, and is further proposing 
modifications to the N2O measurement test procedures and the A/C 
CO2 efficiency test procedures EPA initially adopted in the 
2012-2016 rule.
3. Comparing the Agencies' Authority
    As the above discussion makes clear, there are both important 
differences between the statutes under which each agency is acting as 
well as several important areas of similarity. One important difference 
is that EPA's authority addresses various GHGs, while NHTSA's authority 
addresses fuel economy as measured under specified test procedures and 
calculated by EPA. This difference is reflected in this rulemaking in 
the scope of the two standards: EPA's proposal takes into account 
reductions of direct air conditioning emissions, as well as proposed 
standards for methane and N2O, but NHTSA's does not, because 
these things do not relate to fuel economy. A second important 
difference is that EPA is proposing certain compliance flexibilities, 
such as the multiplier for advanced technology vehicles, and takes 
those flexibilities into account in its technical analysis and modeling 
supporting its proposal. EPCA specifies a number of particular 
compliance flexibilities for CAFE, and expressly prohibits NHTSA from 
considering the impacts of those statutory compliance flexibilities in 
setting the CAFE standard so that the manufacturers' election to avail 
themselves of the permitted flexibilities remains strictly 
voluntary.\98\ The Clean Air Act, on the other hand, contains no such 
prohibition. These considerations result in some differences in the 
technical analysis and modeling used to support EPA's and NHTSA's 
proposed standards.
---------------------------------------------------------------------------

    \98\ 49 U.S.C. 32902(h).
---------------------------------------------------------------------------

    Another important area where the two agencies' authorities are 
similar but not identical involves the transfer of credits between a 
single firm's car and truck fleets. EISA revised EPCA to allow for such 
credit transfers, but placed a cap on the amount of CAFE credits which 
can be transferred between the car and

[[Page 74903]]

truck fleets. 49 U.S.C. 32903(g)(3). Under CAA section 202(a), EPA is 
proposing to continue to allow CO2 credit transfers between 
a single manufacturer's car and truck fleets, with no corresponding 
limits on such transfers. In general, the EISA limit on CAFE credit 
transfers is not expected to have the practical effect of limiting the 
amount of CO2 emission credits manufacturers may be able to 
transfer under the CAA program, recognizing that manufacturers must 
comply with both the proposed CAFE standards and the proposed EPA 
standards. However, it is possible that in some specific circumstances 
the EPCA limit on CAFE credit transfers could constrain the ability of 
a manufacturer to achieve cost savings through unlimited use of GHG 
emissions credit transfers under the CAA program.
    These differences, however, do not change the fact that in many 
critical ways the two agencies are charged with addressing the same 
basic issue of reducing GHG emissions and improving fuel economy. The 
agencies are looking at the same set of control technologies (with the 
exception of the air conditioning leakage-related technologies). The 
standards set by each agency will drive the kind and degree of 
penetration of this set of technologies across the vehicle fleet. As a 
result, each agency is trying to answer the same basic question--what 
kind and degree of technology penetration is necessary to achieve the 
agencies' objectives in the rulemaking time frame, given the agencies' 
respective statutory authorities?
    In making the determination of what standards are appropriate under 
the CAA and EPCA, each agency is to exercise its judgment and balance 
many similar factors. NHTSA's factors are provided by EPCA: 
technological feasibility, economic practicability, the effect of other 
motor vehicle standards of the Government on fuel economy, and the need 
of the United States to conserve energy. EPA has the discretion under 
the CAA to consider many related factors, such as the availability of 
technologies, the appropriate lead time for introduction of technology, 
and based on this the feasibility and practicability of their 
standards; the impacts of their standards on emissions reductions (of 
both GHGs and non-GHGs); the impacts of their standards on oil 
conservation; the impacts of their standards on fuel savings by 
consumers; the impacts of their standards on the auto industry; as well 
as other relevant factors such as impacts on safety. Conceptually, 
therefore, each agency is considering and balancing many of the same 
concerns, and each agency is making a decision that at its core is 
answering the same basic question of what kind and degree of technology 
penetration is it appropriate to call for in light of all of the 
relevant factors in a given rulemaking, for the model years concerned. 
Finally, each agency has the authority to take into consideration 
impacts of the standards of the other agency. EPCA calls for NHTSA to 
take into consideration the effects of EPA's emissions standards on 
fuel economy capability (see 49 U.S.C. 32902 (f)), and EPA has the 
discretion to take into consideration NHTSA's CAFE standards in 
determining appropriate action under section 202(a). This is consistent 
with the Supreme Court's statement that EPA's mandate to protect public 
health and welfare is wholly independent from NHTSA's mandate to 
promote energy efficiency, but there is no reason to think the two 
agencies cannot both administer their obligations and yet avoid 
inconsistency. Massachusetts v. EPA, 549 U.S. 497, 532 (2007).
    In this context, it is in the Nation's interest for the two 
agencies to continue to work together in developing their respective 
proposed standards, and they have done so. For example, the agencies 
have committed considerable effort to develop a joint Technical Support 
Document that provides a technical basis underlying each agency's 
analyses. The agencies also have worked closely together in developing 
and reviewing their respective modeling, to develop the best analysis 
and to promote technical consistency. The agencies have developed a 
common set of attribute-based curves that each agency supports as 
appropriate both technically and from a policy perspective. The 
agencies have also worked closely to ensure that their respective 
programs will work in a coordinated fashion, and will provide 
regulatory compatibility that allows auto manufacturers to build a 
single national light-duty fleet that would comply with both the GHG 
and the CAFE standards. The resulting overall close coordination of the 
proposed GHG and CAFE standards should not be surprising, however, as 
each agency is using a jointly developed technical basis to address the 
closely intertwined challenges of energy security and climate change.
    As set out in detail in Sections III and IV of this notice, both 
EPA and NHTSA believe the agencies' proposals are fully justified under 
their respective statutory criteria. The proposed standards are 
feasible in each model year within the lead time provided, based on the 
agencies' projected increased use of various technologies which in most 
cases are already in commercial application in the fleet to varying 
degrees. Detailed modeling of the technologies that could be employed 
by each manufacturer supports this initial conclusion. The agencies 
also carefully assessed the costs of the proposed rules, both for the 
industry as a whole and per manufacturer, as well as the costs per 
vehicle, and consider these costs to be reasonable during the 
rulemaking time frame and recoverable (from fuel savings). The agencies 
recognize the significant increase in the application of technology 
that the proposed standards would require across a high percentage of 
vehicles, which will require the manufacturers to devote considerable 
engineering and development resources before 2017 laying the critical 
foundation for the widespread deployment of upgraded technology across 
a high percentage of the 2017-2025 fleet. This clearly will be 
challenging for automotive manufacturers and their suppliers, 
especially in the current economic climate, and given the stringency of 
the recently-established MYs 2012-2016 standards. However, based on all 
of the analyses performed by the agencies, our judgment is that it is a 
challenge that can reasonably be met.
    The agencies also evaluated the impacts of these standards with 
respect to the expected reductions in GHGs and oil consumption and, 
found them to be very significant in magnitude. The agencies considered 
other factors such as the impacts on noise, energy, and vehicular 
congestion. The impact on safety was also given careful consideration. 
Moreover, the agencies quantified the various costs and benefits of the 
proposed standards, to the extent practicable. The agencies' analyses 
to date indicate that the overall quantified benefits of the proposed 
standards far outweigh the projected costs. All of these factors 
support the reasonableness of the proposed standards. See section III 
(proposed GHG standards) and section IV (proposed CAFE standards) for a 
detailed discussion of each agency's basis for its selection of its 
proposed standards.
    The fact that the benefits are estimated to considerably exceed 
their costs supports the view that the proposed standards represent an 
appropriate balance of the relevant statutory factors. In drawing this 
conclusion, the agencies acknowledge the uncertainties and limitations 
of the analyses. For example, the analysis of the benefits is highly 
dependent on the estimated price of fuel projected out many years into 
the future. There is also significant uncertainty in the potential

[[Page 74904]]

range of values that could be assigned to the social cost of carbon. 
There are a variety of impacts that the agencies are unable to 
quantify, such as non-market damages, extreme weather, socially 
contingent effects, or the potential for longer-term catastrophic 
events, or the impact on consumer choice. The cost-benefit analyses are 
one of the important things the agencies consider in making a judgment 
as to the appropriate standards to propose under their respective 
statutes. Consideration of the results of the cost-benefit analyses by 
the agencies, however, includes careful consideration of the 
limitations discussed above.

II. Joint Technical Work Completed for This Proposal

A. Introduction

    In this section, NHTSA and EPA discuss several aspects of their 
joint technical analyses. These analyses are common to the development 
of each agency's standards. Specifically we discuss: the development of 
the vehicle market forecast used by each agency for assessing costs, 
benefits, and effects, the development of the attribute-based standard 
curve shapes, the technologies the agencies evaluated and their costs 
and effectiveness, the economic assumptions the agencies included in 
their analyses, a description of the air conditioning and off-cycle 
technology (credit) programs, as well as the effects of the proposed 
standards on vehicle safety. The Joint Technical Support Document (TSD) 
discusses the agencies' joint technical work in more detail.
    The agencies have based today's proposal on a very significant body 
of data and analysis that we believe is the best information currently 
available on the full range of technical and other inputs utilized in 
our respective analyses. As noted in various places throughout this 
preamble, the draft Joint TSD, the NHTSA preliminary RIA, and the EPA 
draft RIA, we expect new information will become available between the 
proposal and final rulemaking. This new information will come from a 
range of sources: some is based on work the agencies have underway 
(e.g., work on technology costs and effectiveness, potentially updating 
our baseline year from model year 2008 to model year 2010); other 
sources are those we expect to be released by others (e.g., the Energy 
Information Agency's Annual Energy Outlook, which is published each 
year, and the most recent available version of which we expect to use 
for the final rule); and other information that will likely come from 
the public comment process. The agencies intend to evaluate all such 
new information as it becomes available, and where appropriate to 
update their analysis based on such information for purposes of the 
final rule. In addition, the agencies may make new information and/or 
analyses available in the agencies' respective public dockets for this 
rulemaking prior to the final rule, where that is appropriate, in order 
to facilitate public comment. We encourage all stakeholders to 
periodically check the two agencies' dockets between the proposal and 
final rules for any potential new docket submissions from the agencies.

B. Developing the Future Fleet for Assessing Costs, Benefits, and 
Effects

1. Why did the agencies establish a baseline and reference vehicle 
fleet?
    In order to calculate the impacts of the EPA and NHTSA regulations, 
it is necessary to estimate the composition of the future vehicle fleet 
absent these regulations, to provide a reference point relative to 
which costs, benefits, and effects of the regulations are assessed. As 
in the 2012-2016 light duty vehicle rulemaking, EPA and NHTSA have 
developed this comparison fleet in two parts. The first step was to 
develop a baseline fleet based on model year 2008 data. This baseline 
includes vehicle sales volumes, GHG/fuel economy performance, and 
contains a listing of the base technologies on every 2008 vehicle sold. 
The second step was to project that baseline fleet volume into model 
years 2017-2025. The vehicle volumes projected out to MY 2025 is 
referred to as the reference fleet volumes. The third step was to 
modify that MY 2017-2025 reference fleet such that it reflects 
technology manufacturers could apply if MY 2016 standards are extended 
without change through MY 2025.\99\ Each agency used its modeling 
system to develop a modified or final reference fleet, or adjusted 
baseline, for use in its analysis of regulatory alternatives, as 
discussed below and in Chapter 1 of the EPA draft RIA. All of the 
agencies' estimates of emission reductions, fuel economy improvements, 
costs, and societal impacts are developed in relation to the respective 
reference fleets. This section discusses the first two steps, 
development of the baseline fleet and the reference fleet.
---------------------------------------------------------------------------

    \99\ EPA's MY 2016 GHG standards under the CAA continue into the 
future until they are changed. While NHTSA must actively promulgate 
standards in order for CAFE standards to extend past MY 2016, the 
agency has, as in all recent CAFE rulemakings, defined a no-action 
(i.e., baseline) regulatory alternative as an indefinite extension 
of the last-promulgated CAFE standards for purposes of the main 
analysis of the standards in this preamble.
---------------------------------------------------------------------------

    EPA and NHTSA used a transparent approach to developing the 
baseline and reference fleets, largely working from publicly available 
data. Because both input and output sheets from our modeling are 
public, stakeholders can verify and check EPA's and NHTSA's modeling, 
and perform their own analyses with these datasets.\100\
---------------------------------------------------------------------------

    \100\ EPA's Omega Model and input sheets are available at http://www.epa.gov/oms/climate/models.htm; DOT/NHTSA's CAFE Compliance and 
Effects Modeling System (commonly known as the ``Volpe Model'') and 
input and output sheets are available at http://www.nhtsa.gov/fuel-economy.
---------------------------------------------------------------------------

2. How Did the Agencies Develop the Baseline Vehicle Fleet?
    NHTSA and EPA developed a baseline fleet comprised of model year 
2008 data gathered from EPA's emission and fuel economy database. This 
baseline fleet was originally developed by EPA and NHTSA for the 2012-
2016 final rule, and was updated for this proposal.\101\ The new fleet 
has the model year 2008 vehicle's volumes and attributes along with the 
addition of projected volumes from 2017 to 2025. It also has some 
expanded footprint data for pickup trucks that was needed for a more 
detailed analysis of the truck curve.
---------------------------------------------------------------------------

    \101\ Further discussion of the development of the 2008 baseline 
fleet for the MY2012-2016 rule can be found at 75 Fed. Reg. 25324, 
25349 (May 7, 2010).
---------------------------------------------------------------------------

    In this proposed rulemaking, the agencies are again choosing to use 
model year 2008 vehicle data to be the basis of the baseline fleet, but 
for different reasons than in the 2012-2016 final rule. Model year 2008 
is now the most recent model year for which the industry had normal 
sales. Model year 2009 data is available, but the agencies believe that 
model year was disrupted by the economic downturn and the bankruptcies 
of both General Motors and Chrysler resulting in a significant 
reduction in the number of vehicles sold by both companies and the 
industry as a whole. These abnormalities led the agencies to conclude 
that 2009 data was not representative for projecting the future fleet. 
Model Year 2010 data was not complete because not all manufacturers 
have yet submitted it to EPA, and was thus not available in time for it 
to be used for this proposal. Therefore, the agencies chose to use 
model year 2008 again as the baseline since it was the latest complete 
representative and transparent data set available. However, the 
agencies will consider using Model Year 2010 for the final rule, based 
on availability and an

[[Page 74905]]

analysis of the data representativeness. To the extent the MY 2010 data 
becomes available during the comment period the agencies will place a 
copy of this data in our respective dockets. We request comments on the 
relative merits of using MY 2008 and MY 2010 data, and whether one 
provides a better foundation than the other for purposes of using such 
data as the foundation for a market forecast extending through MY 2025.
    The baseline fleet reflects all fuel economy technologies in use on 
MY 2008 light duty vehicles. The 2008 emission and fuel economy 
database included data on vehicle production volume, fuel economy, 
engine size, number of engine cylinders, transmission type, fuel type, 
etc., however it did not contain complete information on technologies. 
Thus, the agencies relied on publicly available data like the more 
complete technology descriptions from Ward's Automotive Group.\102\ In 
a few instances when required vehicle information (such as vehicle 
footprint) was not available from these two sources, the agencies 
obtained this information from publicly accessible internet sites such 
as Motortrend.com and Edmunds.com.\103\ A description of all of the 
technologies used in modeling the 2008 vehicle fleet and how it was 
constructed are available in Chapter 1 of the Joint Draft TSD.
---------------------------------------------------------------------------

    \102\ Note that WardsAuto.com is a fee-based service, but all 
information is public to subscribers.
    \103\ Motortrend.com and Edmunds.com are free, no-fee internet 
sites.
---------------------------------------------------------------------------

    Footprint data for the baseline fleet came mainly from internet 
searches, though detailed information about the pickup truck footprints 
with volumes was not available online. Where this information was 
lacking, the agencies used manufacturer product plan data for 2008 
model year to find out the correct number footprint and distribution of 
footprints. The footprint data for pickup trucks was expanded from the 
original data used in the previous rulemaking. The agencies obtained 
this footprint data from MY 2008 product plans submitted by the various 
manufacturers, which can be made public at this time because by now all 
MY 2008 vehicle models are already in production, which makes footprint 
data about them essentially public information. A description of 
exactly how the agencies obtained all the footprints is available in 
Chapter 1 of the TSD.
3. How Did the Agencies Develop the Projected MY 2017-2025 Vehicle 
Reference Fleet?
    As in the 2012-2016 light duty vehicle rulemaking, EPA and NHTSA 
have based the projection of total car and total light truck sales for 
MYs 2017-2025 on projections made by the Department of Energy's Energy 
Information Administration (EIA). See 75 FR at 25349. EIA publishes a 
mid-term projection of national energy use called the Annual Energy 
Outlook (AEO). This projection utilizes a number of technical and 
econometric models which are designed to reflect both economic and 
regulatory conditions expected to exist in the future. In support of 
its projection of fuel use by light-duty vehicles, EIA projects sales 
of new cars and light trucks. EIA published its Early Annual Energy 
Outlook for 2011 in December 2010. EIA released updated data to NHTSA 
in February (Interim AEO). The final release of AEO for 2011 came out 
in May 2011, but by that time EPA/NHTSA had already prepared modeling 
runs for potential 2017-2025 standards using the interim data release 
to NHTSA. EPA and NHTSA are using the interim data release for this 
proposal, but intend to use the newest version of AEO available for the 
FRM.
    The agencies used the Energy Information Administration's (EIA's) 
National Energy Modeling System (NEMS) to estimate the future relative 
market shares of passenger cars and light trucks. However, NEMS 
methodology includes shifting vehicle sales volume, starting after 
2007, away from fleets with lower fuel economy (the light-truck fleet) 
towards vehicles with higher fuel economies (the passenger car fleet) 
in order to facilitate projected compliance with CAFE and GHG 
standards. Because we use our market projection as a baseline relative 
to which we measure the effects of new standards, and we attempt to 
estimate the industry's ability to comply with new standards without 
changing product mix (i.e., we analyze the effects of the proposed 
rules assuming manufacturers will not change fleet composition as a 
compliance strategy, as opposed to changes that might happen due to 
market forces), the Interim AEO 2011-projected shift in passenger car 
market share as a result of required fuel economy improvements creates 
a circularity. Therefore, for the current analysis, the agencies 
developed a new projection of passenger car and light truck sales 
shares by running scenarios from the Interim AEO 2011 reference case 
that first deactivate the above-mentioned sales-volume shifting 
methodology and then hold post-2017 CAFE standards constant at MY 2016 
levels. As discussed in Chapter 1 of the agencies' joint Technical 
Support Document, incorporating these changes reduced the NEMS-
projected passenger car share of the light vehicle market by an average 
of about 5% during 2017-2025.
    In the AEO 2011 Interim data, EIA projects that total light-duty 
vehicle sales will gradually recover from their currently depressed 
levels by around 2013. In 2017, car sales are projected to be 8.4 
million (53 percent) and truck sales are projected to be 7.3 million 
(47 percent). Although the total level of sales of 15.8 million units 
is similar to pre-2008 levels, the fraction of car sales is projected 
to be higher than that existing in the 2000-2007 timeframe. This 
projection reflects the impact of assumed higher fuel prices. Sales 
projections of cars and trucks for future model years can be found in 
Chapter 1 of the joint TSD.
    In addition to a shift towards more car sales, sales of segments 
within both the car and truck markets have been changing and are 
expected to continue to change. Manufacturers are introducing more 
crossover utility vehicles (CUVs), which offer much of the utility of 
sport utility vehicles (SUVs) but use more car-like designs. The AEO 
2011 report does not, however, distinguish such changes within the car 
and truck classes. In order to reflect these changes in fleet makeup, 
EPA and NHTSA used CSM Worldwide (CSM) as they did in the 2012-2016 
rulemaking analysis. EPA and NHTSA believe that CSM is the best source 
available for a long range forecast for 2017-2025, though when EPA and 
NHTSA contacted several forecasting firms none of them offered 
comparably-detailed forecasting for that time frame. NHTSA and EPA 
decided to use the forecast from CSM for several reasons presented in 
the Joint TSD chapter I.
    The long range forecast from CSM Worldwide is a custom forecast 
covering the years 2017-2025 which the agencies purchased from CSM in 
December of 2009. CSM provides quarterly sales forecasts for the 
automotive industry, and updates their data on the industry quarter. 
For the public's reference, a copy of CSM's long range forecast has 
been placed in the docket for this rulemaking.\104\ EPA and NHTSA hope 
to purchase and use an updated forecast,

[[Page 74906]]

whether from CSM or other appropriate sources, before the final 
rulemaking. To the extent that such a forecast becomes available during 
the comment period the agencies will place a copy in our respective 
dockets.
---------------------------------------------------------------------------

    \104\ The CSM Sales Forecast Excel file (``CSM North America 
Sales Forecasts 2017-2025 for the Docket'') is available in the 
docket (Docket EPA-HQ-OAR-2010-0799).
---------------------------------------------------------------------------

    The next step was to project the CSM forecasts for relative sales 
of cars and trucks by manufacturer and by market segment onto the total 
sales estimates of AEO 2011. Table II-1 and Table II-2 show the 
resulting projections for the reference 2025 model year and compare 
these to actual sales that occurred in the baseline 2008 model year. 
Both tables show sales using the traditional definition of cars and 
light trucks.
BILLING CODE 4910-59-P

[[Page 74907]]

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[[Page 74908]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.028


[[Page 74909]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.029

BILLING CODE 4910-59-C
    As mentioned previously, NHTSA has changed the definition of a 
truck for 2011 model year and beyond. The new definition has moved some 
2 wheel drive SUVs and CUVs to the car category. Table II-3 shows the 
different volumes for car and trucks based on the new and old NHTSA 
definition. The table shows the difference in 2008, 2021, and 2025 to 
give a feel for how the change in definition changes the car/truck 
split.
[GRAPHIC] [TIFF OMITTED] TP01DE11.030

    The CSM forecast provides estimates of car and truck sales by 
segment and by manufacturer separately. The forecast was broken up into 
two tables. One table with manufacturer volumes by year and the other 
with vehicle segments percentages by year. Table II-4 and Table II-5 
are examples of the data received from CSM. The task of estimating 
future sales using these tables is complex. We used the same 
methodology as in the previous rulemaking. A detailed description of 
how the projection process was done is found in Chapter 1 of the TSD.
BILLING CODE 4910-59-P

[[Page 74910]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.031


[[Page 74911]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.032

BILLING CODE 4910-59-C
    The overall result was a projection of car and truck sales for 
model years 2017-2025--the reference fleet--which matched the total 
sales projections of the AEO forecast and the manufacturer and segment 
splits of the CSM forecast. These sales splits are shown in Table II-6 
below.
[GRAPHIC] [TIFF OMITTED] TP01DE11.033


[[Page 74912]]


    Given publicly- and commercially-available sources that can be made 
equally transparent to all reviewers, the forecast described above 
represents the agencies' best technical judgment regarding the likely 
composition direction of the fleet. EPA and NHTSA recognize that it is 
impossible to predict with certainty how manufacturers' product 
offerings and sales volumes will evolve through MY 2025 under baseline 
conditions--that is, without further changes in standards after MY 
2016. The agencies have not developed alternative market forecasts to 
examine corresponding sensitivity of analytical results discussed 
below, and have not varied the market forecast when conducting 
probabilistic uncertainty analysis discussed in NHTSA's preliminary 
Regulatory Impact Analysis. The agencies invite comment regarding 
alternative methods or projections to inform forecasts of the future 
fleet at the level of specificity and technical completeness required 
by the agencies' respective modeling systems.
    The final step in the construction of the final reference fleet 
involves applying additional technology to individual vehicle models--
that is, technology beyond that already present in MY 2008--reflecting 
already-promulgated standards through MY 2016, and reflecting the 
assumption that MY 2016 standards would apply through MY 2025. A 
description of the agencies' modeling work to develop their respective 
final reference (or adjusted baseline) fleets appear below in Sections 
III and IV of this preamble.

C. Development of Attribute-Based Curve Shapes

1. Why are standards attribute-based and defined by a mathematical 
function?
    As in the MYs 2012-2016 CAFE/GHG rules, and as NHTSA did in the MY 
2011 CAFE rule, NHTSA and EPA are proposing to set attribute-based CAFE 
and CO2 standards that are defined by a mathematical 
function. EPCA, as amended by EISA, expressly requires that CAFE 
standards for passenger cars and light trucks be based on one or more 
vehicle attributes related to fuel economy, and be expressed in the 
form of a mathematical function.\105\ The CAA has no such requirement, 
although such an approach is permissible under section 202 (a) and EPA 
has used the attribute-based approach in issuing standards under 
analogous provisions of the CAA (e.g., criteria pollutant standards for 
non-road diesel engines using engine size as the attribute,\106\ in the 
recent GHG standards for heavy duty pickups and vans using a work 
factor attribute,\107\ and in the MYs 2012-2016 GHG rule itself which 
used vehicle footprint as the attribute). Public comments on the MYs 
2012-2016 rulemaking widely supported attribute-based standards for 
both agencies' standards.
---------------------------------------------------------------------------

    \105\ 49 U.S.C. 32902(a)(3)(A).
    \106\ 69 FR 38958 (June 29, 2004).
    \107\ 76 FR 57106, 57162-64, (Sept. 15, 2011).
---------------------------------------------------------------------------

    Under an attribute-based standard, every vehicle model has a 
performance target (fuel economy and CO2 emissions for CAFE 
and CO2 emissions standards, respectively), the level of 
which depends on the vehicle's attribute (for this proposal, footprint, 
as discussed below). Each manufacturers' fleet average standard is 
determined by the production-weighted \108\ average (for CAFE, harmonic 
average) of those targets.
---------------------------------------------------------------------------

    \108\ Production for sale in the United States.
---------------------------------------------------------------------------

    The agencies believe that an attribute-based standard is preferable 
to a single-industry-wide average standard in the context of CAFE and 
CO2 standards for several reasons. First, if the shape is 
chosen properly, every manufacturer is more likely to be required to 
continue adding more fuel efficient technology each year across their 
fleet, because the stringency of the compliance obligation will depend 
on the particular product mix of each manufacturer. Therefore a maximum 
feasible attribute-based standard will tend to require greater fuel 
savings and CO2 emissions reductions overall than would a 
maximum feasible flat standard (that is, a single mpg or CO2 
level applicable to every manufacturer).
    Second, depending on the attribute, attribute-based standards 
reduce the incentive for manufacturers to respond to CAFE and 
CO2 standards in ways harmful to safety.\109\ Because each 
vehicle model has its own target (based on the attribute chosen), 
properly fitted attribute-based standards provide little, if any, 
incentive to build smaller vehicles simply to meet a fleet-wide 
average, because the smaller vehicles will be subject to more stringent 
compliance targets.\110\
---------------------------------------------------------------------------

    \109\ The 2002 NAS Report described at length and quantified the 
potential safety problem with average fuel economy standards that 
specify a single numerical requirement for the entire industry. See 
2002 NAS Report at 5, finding 12. Ensuing analyses, including by 
NHTSA, support the fundamental conclusion that standards structured 
to minimize incentives to downsize all but the largest vehicles will 
tend to produce better safety outcomes than flat standards.
    \110\ Assuming that the attribute is related to vehicle size.
---------------------------------------------------------------------------

    Third, attribute-based standards provide a more equitable 
regulatory framework for different vehicle manufacturers.\111\ A single 
industry-wide average standard imposes disproportionate cost burdens 
and compliance difficulties on the manufacturers that need to change 
their product plans to meet the standards, and puts no obligation on 
those manufacturers that have no need to change their plans. As 
discussed above, attribute-based standards help to spread the 
regulatory cost burden for fuel economy more broadly across all of the 
vehicle manufacturers within the industry.
---------------------------------------------------------------------------

    \111\ Id. at 4-5, finding 10.
---------------------------------------------------------------------------

    Fourth, attribute-based standards better respect economic 
conditions and consumer choice, as compared to single-value standards. 
A flat, or single value standard, encourages a certain vehicle size 
fleet mix by creating incentives for manufacturers to use vehicle 
downsizing as a compliance strategy. Under a footprint-based standard, 
manufacturers are required to invest in technologies that improve the 
fuel economy of the vehicles they sell rather than shifting the product 
mix, because reducing the size of the vehicle is generally a less 
viable compliance strategy given that smaller vehicles have more 
stringent regulatory targets.
2. What attribute are the agencies proposing to use, and why?
    As in the MYs 2012-2016 CAFE/GHG rules, and as NHTSA did in the MY 
2011 CAFE rule, NHTSA and EPA are proposing to set CAFE and 
CO2 standards that are based on vehicle footprint, which has 
an observable correlation to fuel economy and emissions. There are 
several policy and technical reasons why NHTSA and EPA believe that 
footprint is the most appropriate attribute on which to base the 
standards, even though some other vehicle attributes (notably curb 
weight) are better correlated to fuel economy and emissions.
    First, in the agencies' judgment, from the standpoint of vehicle 
safety, it is important that the CAFE and CO2 standards be 
set in a way that does not encourage manufacturers to respond by 
selling vehicles that are in any way less safe. While NHTSA's research 
of historical crash data also indicates that reductions in vehicle mass 
that are accompanied by reductions in vehicle footprint tend to 
compromise vehicle safety, footprint-based standards provide an 
incentive to use advanced lightweight materials and structures that 
would be discouraged by weight-based

[[Page 74913]]

standards, because manufacturers can use them to improve a vehicle's 
fuel economy and CO2 emissions without their use necessarily 
resulting in a change in the vehicle's fuel economy and emissions 
targets.
    Further, although we recognize that weight is better correlated 
with fuel economy and CO2 emissions than is footprint, we 
continue to believe that there is less risk of ``gaming'' (changing the 
attribute(s) to achieve a more favorable target) by increasing 
footprint under footprint-based standards than by increasing vehicle 
mass under weight-based standards--it is relatively easy for a 
manufacturer to add enough weight to a vehicle to decrease its 
applicable fuel economy target a significant amount, as compared to 
increasing vehicle footprint. We also continue to agree with concerns 
raised in 2008 by some commenters on the MY 2011 CAFE rulemaking that 
there would be greater potential for gaming under multi-attribute 
standards, such as those that also depend on weight, torque, power, 
towing capability, and/or off-road capability. The agencies agree with 
the assessment first presented in NHTSA's MY 2011 CAFE final rule \112\ 
that the possibility of gaming is lowest with footprint-based 
standards, as opposed to weight-based or multi-attribute-based 
standards. Specifically, standards that incorporate weight, torque, 
power, towing capability, and/or off-road capability in addition to 
footprint would not only be more complex, but by providing degrees of 
freedom with respect to more easily-adjusted attributes, they could 
make it less certain that the future fleet would actually achieve the 
average fuel economy and CO2 reduction levels projected by 
the agencies.
---------------------------------------------------------------------------

    \112\ See 74 FR at 14359 (Mar. 30, 2009).
---------------------------------------------------------------------------

    The agencies recognize that based on economic and consumer demand 
factors that are external to this rule, the distribution of footprints 
in the future may be different (either smaller or larger) than what is 
projected in this rule. However, the agencies continue to believe that 
there will not be significant shifts in this distribution as a direct 
consequence of this proposed rule. The agencies also recognize that 
some international attribute-based standards use attributes other than 
footprint and that there could be benefits for a number of 
manufacturers if there was greater international harmonization of fuel 
economy and GHG standards for light-duty vehicles, but this is largely 
a question of how stringent standards are and how they are tested and 
enforced. It is entirely possible that footprint-based and weight-based 
systems can coexist internationally and not present an undue burden for 
manufacturers if they are carefully crafted. Different countries or 
regions may find different attributes appropriate for basing standards, 
depending on the particular challenges they face--from fuel prices, to 
family size and land use, to safety concerns, to fleet composition and 
consumer preference, to other environmental challenges besides climate 
change. The agencies anticipate working more closely with other 
countries and regions in the future to consider how to address these 
issues in a way that least burdens manufacturers while respecting each 
country's need to meet its own particular challenges.
    The agencies continue to find that footprint is the most 
appropriate attribute upon which to base the proposed standards, but 
recognizing strong public interest in this issue, we seek comment on 
whether the agencies should consider setting standards for the final 
rule based on another attribute or another combination of attributes. 
If commenters suggest that the agencies should consider another 
attribute or another combination of attributes, the agencies 
specifically request that the commenters address the concerns raised in 
the paragraphs above regarding the use of other attributes, and explain 
how standards should be developed using the other attribute(s) in a way 
that contributes more to fuel savings and CO2 reductions 
than the footprint-based standards, without compromising safety.
3. What mathematical functions have the agencies previously used, and 
why?
a. NHTSA in MY 2008 and MY 2011 CAFE (constrained logistic)
    For the MY 2011 CAFE rule, NHTSA estimated fuel economy levels 
after normalization for differences in technology, but did not make 
adjustments to reflect other vehicle attributes (e.g., power-to-weight 
ratios).\113\ Starting with the technology adjusted passenger car and 
light truck fleets, NHTSA used minimum absolute deviation (MAD) 
regression without sales weighting to fit a logistic form as a starting 
point to develop mathematical functions defining the standards. NHTSA 
then identified footprints at which to apply minimum and maximum values 
(rather than letting the standards extend without limit) and transposed 
these functions vertically (i.e., on a gpm basis, uniformly downward) 
to produce the promulgated standards. In the preceding rule, for MYs 
2008-2011 light truck standards, NHTSA examined a range of potential 
functional forms, and concluded that, compared to other considered 
forms, the constrained logistic form provided the expected and 
appropriate trend (decreasing fuel economy as footprint increases), but 
avoided creating ``kinks'' the agency was concerned would provide 
distortionary incentives for vehicles with neighboring footprints.\114\
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    \113\ See 74 FR 14196, 14363-14370 (Mar. 30, 2009) for NHTSA 
discussion of curve fitting in the MY 2011 CAFE final rule.
    \114\ See 71 FR 17556, 17609-17613 (Apr. 6, 2006) for NHTSA 
discussion of ``kinks'' in the MYs 2008-2011 light truck CAFE final 
rule (there described as ``edge effects''). A ``kink,'' as used 
here, is a portion of the curve where a small change in footprint 
results in a disproportionally large change in stringency.
---------------------------------------------------------------------------

b. MYs 2012-2016 Light Duty GHG/CAFE (constrained/piecewise linear)
    For the MYs 2012-2016 rules, NHTSA and EPA re-evaluated potential 
methods for specifying mathematical functions to define fuel economy 
and GHG standards. The agencies concluded that the constrained logistic 
form, if applied to post-MY 2011 standards, would likely contain a 
steep mid-section that would provide undue incentive to increase the 
footprint of midsize passenger cars.\115\ The agencies judged that a 
range of methods to fit the curves would be reasonable, and used a 
minimum absolute deviation (MAD) regression without sales weighting on 
a technology-adjusted car and light truck fleet to fit a linear 
equation. This equation was used as a starting point to develop 
mathematical functions defining the standards as discussed above. The 
agencies then identified footprints at which to apply minimum and 
maximum values (rather than letting the standards extend without limit) 
and transposed these constrained/piecewise linear functions vertically 
(i.e., on a gpm or CO2 basis, uniformly downward) to produce 
the fleetwide fuel economy and CO2 emission levels for cars 
and light trucks described in the final rule.\116\
---------------------------------------------------------------------------

    \115\ 75 FR at 25362.
    \116\ See generally 74 FR at 49491-96; 75 FR at 25357-62.
---------------------------------------------------------------------------

4. How have the agencies changed the mathematical functions for the 
proposed MYs 2017-2025 standards, and why?
    By requiring NHTSA to set CAFE standards that are attribute-based 
and defined by a mathematical function, Congress appears to have wanted 
the post-EISA standards to be data-driven--a mathematical function 
defining the standards, in order to be ``attribute-based,'' should 
reflect the observed relationship in the data between the

[[Page 74914]]

attribute chosen and fuel economy.\117\ EPA is also proposing to set 
attribute-based CO2 standards defined by similar 
mathematical functions, for the reasonable technical and policy grounds 
discussed below and in section II of the preamble to the proposed rule, 
and which supports a harmonization with the CAFE standards.
---------------------------------------------------------------------------

    \117\ A mathematical function can be defined, of course, that 
has nothing to do with the relationship between fuel economy and the 
chosen attribute--the most basic example is an industry-wide 
standard defined as the mathematical function average required fuel 
economy = X, where X is the single mpg level set by the agency. Yet 
a standard that is simply defined as a mathematical function that is 
not tied to the attribute(s) would not meet the requirement of EISA.
---------------------------------------------------------------------------

    The relationship between fuel economy (and GHG emissions) and 
footprint, though directionally clear (i.e., fuel economy tends to 
decrease and CO2 emissions tend to increase with increasing 
footprint), is theoretically vague and quantitatively uncertain; in 
other words, not so precise as to a priori yield only a single possible 
curve.\118\ There is thus a range of legitimate options open to the 
agencies in developing curve shapes. The agencies may of course 
consider statutory objectives in choosing among the many reasonable 
alternatives. For example, curve shapes that might have some 
theoretical basis could lead to perverse outcomes contrary to the 
intent of the statutes to conserve energy and protect human health and 
the environment.\119\ Thus, the decision of how to set the target 
curves cannot always be just about most ``clearly'' using a 
mathematical function to define the relationship between fuel economy 
and the attribute; it often has to have a normative aspect, where the 
agencies adjust the function that would define the relationship in 
order to avoid perverse results, improve equity of burden across 
manufacturers, preserve consumer choice, etc. This is true both for the 
decisions that guide the mathematical function defining the sloped 
portion of the target curves, and for the separate decisions that guide 
the agencies' choice of ``cutpoints'' (if any) that define the fuel 
economy/CO2 levels and footprints at each end of the curves 
where the curves become flat. Data informs these decisions, but how the 
agencies define and interpret the relevant data, and then the choice of 
methodology for fitting a curve to the data, must include a 
consideration of both technical data and policy goals.
---------------------------------------------------------------------------

    \118\ In fact, numerous manufacturers have confidentially shared 
with the agencies what they describe as ``physics based'' curves, 
with each OEM showing significantly different shapes, and footprint 
relationships. The sheer variety of curves shown to the agencies 
further confirm the lack of an underlying principle of ``fundamental 
physics'' driving the relationship between CO2 emission 
or fuel consumption and footprint, and the lack of an underlying 
principle to dictate any outcome of the agencies' establishment of 
footprint-based standards.
    \119\ For example, if the agencies set weight-based standards 
defined by a steep function, the standards might encourage 
manufacturers to keep adding weight to their vehicles to obtain less 
stringent targets.
---------------------------------------------------------------------------

    The next sections examine the policy concerns that the agencies 
considered in developing the proposed target curves that define the 
proposed MYs 2017-2025 CAFE and CO2 standards, new technical 
work (expanding on similar analyses performed by NHTSA when the agency 
proposed MY 2011-2015 standards, and by both agencies during 
consideration of options for MY 2012-2016 CAFE and GHG standards) that 
was completed in the process of reexamining potential mathematical 
functions, how the agencies have defined the data, and how the agencies 
explored statistical curve-fitting methodologies in order to arrive at 
proposed curves.
5. What are the agencies proposing for the MYs 2017-2025 curves?
    The proposed mathematical functions for the proposed MYs 2017-2025 
standards are somewhat changed from the functions for the MYs 2012-2016 
standards, in response to comments received from stakeholders and in 
order to address technical concerns and policy goals that the agencies 
judge more significant in this 9-year rulemaking than in the prior one, 
which only included 5 years. This section discusses the methodology the 
agencies selected as, at this time, best addressing those technical 
concerns and policy goals, given the various technical inputs to the 
agencies' current analyses. Below the agencies discuss how the agencies 
determined the cutpoints and the flat portions of the MYs 2017-2025 
target curves. We also note that both of these sections address only 
how the target curves were fit to fuel consumption and CO2 
emission values determined using the city and highway test procedures, 
and that in determining respective regulatory alternatives, the 
agencies made further adjustments to the resultant curves in order to 
account for adjustments for improvements to mobile air conditioners.
    Thus, recognizing that there are many reasonable statistical 
methods for fitting curves to data points that define vehicles in terms 
of footprint and fuel economy, the agencies have chosen for this 
proposed rule to fit curves using an ordinary least-squares 
formulation, on sales-weighted data, using a fleet that has had 
technology applied, and after adjusting the data for the effects of 
weight-to-footprint, as described below. This represents a departure 
from the statistical approach for fitting the curves in MYs 2012-2016, 
as explained in the next section. The agencies considered a wide 
variety of reasonable statistical methods in order to better understand 
the range of uncertainty regarding the relationship between fuel 
consumption (the inverse of fuel economy), CO2 emission 
rates, and footprint, thereby providing a range within which decisions 
about standards would be potentially supportable.
a. What concerns were the agencies looking to address that led them to 
change from the approach used for the MYs 2012-2016 curves?
    During the year and a half since the MYs 2012-2016 final rule was 
issued, NHTSA and EPA have received a number of comments from 
stakeholders on how curves should be fitted to the passenger car and 
light truck fleets. Some limited-line manufacturers have argued that 
curves should generally be flatter in order to avoid discouraging small 
vehicles, because steeper curves tend to result in more stringent 
targets for smaller vehicles. Most full-line manufacturers have argued 
that a passenger car curve similar in slope to the MY 2016 passenger 
car curve would be appropriate for future model years, but that the 
light truck curve should be revised to be less difficult for 
manufacturers selling the largest full-size pickup trucks. These 
manufacturers argued that the MY 2016 light truck curve was not 
``physics-based,'' and that in order for future tightening of standards 
to be feasible for full-line manufacturers, the truck curve for later 
model years should be steeper and extended further (i.e., made less 
stringent) into the larger footprints. The agencies do not agree that 
the MY 2016 light truck curve was somehow deficient in lacking a 
``physics basis,'' or that it was somehow overly stringent for 
manufacturers selling large pickups--manufacturers making these 
arguments presented no ``physics-based'' model to explain how fuel 
economy should depend on footprint.\120\ The same manufacturers 
indicated that they believed that the light truck standard should be 
somewhat steeper after MY 2016, primarily because, after more than ten 
years of progressive increases in the stringency of applicable CAFE 
standards, large pickups would be less capable of achieving further

[[Page 74915]]

improvements without compromising load carrying and towing capacity.
---------------------------------------------------------------------------

    \120\ See footnote 118.
---------------------------------------------------------------------------

    In developing the curve shapes for this proposed rule, the agencies 
were aware of the current and prior technical concerns raised by OEMs 
concerning the effects of the stringency on individual manufacturers 
and their ability to meet the standards with available technologies, 
while producing vehicles at a cost that allowed them to recover the 
additional costs of the technologies being applied. Although we 
continue to believe that the methodology for fitting curves for the 
MY2012-2016 standards was technically sound, we recognize 
manufacturers' technical concerns regarding their abilities to comply 
with a similarly shallow curve after MY2016 given the anticipated mix 
of light trucks in MYs 2017-2025. As in the MYs 2012-2016 rules, the 
agencies considered these concerns in the analysis of potential curve 
shapes. The agencies also considered safety concerns which could be 
raised by curve shapes creating an incentive for vehicle downsizing, as 
well as the potential loss to consumer welfare should vehicle upsizing 
be unduly disincentivized. In addition, the agencies sought to improve 
the balance of compliance burdens among manufacturers. Among the 
technical concerns and resultant policy trade-offs the agencies 
considered were the following:
     Flatter standards (i.e., curves) increase the risk that 
both the weight and size of vehicles will be reduced, compromising 
highway safety.
     Flatter standards potentially impact the utility of 
vehicles by providing an incentive for vehicle downsizing.
     Steeper footprint-based standards may incentivize vehicle 
upsizing, thus increasing the risk that fuel economy and greenhouse gas 
reduction benefits will be less than expected.
     Given the same industry-wide average required fuel economy 
or CO2 standard, flatter standards tend to place greater 
compliance burdens on full-line manufacturers.
     Given the same industry-wide average required fuel economy 
or CO2 standard, steeper standards tend to place greater 
compliance burdens on limited-line manufacturers (depending of course, 
on which vehicles are being produced).
     If cutpoints are adopted, given the same industry-wide 
average required fuel economy, moving small-vehicle cutpoints to the 
left (i.e., up in terms of fuel economy, down in terms of 
CO2 emissions) discourages the introduction of small 
vehicles, and reduces the incentive to downsize small vehicles in ways 
that would compromise highway safety.
     If cutpoints are adopted, given the same industry-wide 
average required fuel economy, moving large-vehicle cutpoints to the 
right (i.e., down in terms of fuel economy, up in terms of 
CO2 emissions) better accommodates the unique design 
requirements of larger vehicles--especially large pickups--and extends 
the size range over which downsizing is discouraged.
    All of these were policy goals that required trade-offs, and in 
determining the curves they also required balance against the comments 
from the OEMs discussed in the introduction to this section. 
Ultimately, the agencies do not agree that the MY 2017 target curves 
for this proposal, on a relative basis, should be made significantly 
flatter than the MY 2016 curve,\121\ as we believe that this would undo 
some of the safety-related incentives and balancing of compliance 
burdens among manufacturers--effects that attribute-based standards are 
intended to provide.
---------------------------------------------------------------------------

    \121\ While ``significantly'' flatter is subjective, the year 
over year change in curve shapes is discussed in greater detail in 
Section 0 and Chapter 2 of the joint TSD.
---------------------------------------------------------------------------

    Nonetheless, the agencies recognize full-line OEM concerns and have 
tentatively concluded that further increases in the stringency of the 
light truck standards will be more feasible if the light truck curve is 
made steeper than the MY 2016 truck curve and the right (large 
footprint) cut-point is extended over time to larger footprints. This 
conclusion is supported by the agencies' technical analyses of 
regulatory alternatives defined using the curves developed in the 
manner described below.
b. What methodologies and data did the agencies consider in developing 
the 2017-2025 curves?
    In considering how to address the various policy concerns discussed 
in the previous sections, the agencies revisited the data and performed 
a number of analyses using different combinations of the various 
statistical methods, weighting schemes, adjustments to the data and the 
addition of technologies to make the fleets less technologically 
heterogeneous. As discussed above, in the agencies' judgment, there is 
no single ``correct'' way to estimate the relationship between 
CO2 or fuel consumption and footprint--rather, each 
statistical result is based on the underlying assumptions about the 
particular functional form, weightings and error structures embodied in 
the representational approach. These assumptions are the subject of the 
following discussion. This process of performing many analyses using 
combinations of statistical methods generates many possible outcomes, 
each embodying different potentially reasonable combinations of 
assumptions and each thus reflective of the data as viewed through a 
particular lens. The choice of a standard developed by a given 
combination of these statistical methods is consequently a decision 
based upon the agencies' determination of how, given the policy 
objectives for this rulemaking and the agencies' MY 2008-based forecast 
of the market through MY 2025, to appropriately reflect the current 
understanding of the evolution of automotive technology and costs, the 
future prospects for the vehicle market, and thereby establish curves 
(i.e., standards) for cars and light trucks.
c. What information did the agencies use to estimate a relationship 
between fuel economy, CO2 and footprint?
    For each fleet, the agencies began with the MY 2008-based market 
forecast developed to support this proposal (i.e., the baseline fleet), 
with vehicles' fuel economy levels and technological characteristics at 
MY 2008 levels.\122\ The development, scope, and content of this market 
forecast is discussed in detail in Chapter 1 of the joint Technical 
Support Document supporting this rulemaking.
---------------------------------------------------------------------------

    \122\ While the agencies jointly conducted this analysis, the 
coefficients ultimately used in the slope setting analysis are from 
the CAFE model.
---------------------------------------------------------------------------

d. What adjustments did the agencies evaluate?
    The agencies believe one possible approach is to fit curves to the 
minimally adjusted data shown above (the approach still includes sales 
mix adjustments, which influence results of sales-weighted 
regressions), much as DOT did when it first began evaluating potential 
attribute-based standards in 2003.\123\ However, the agencies have 
found, as in prior rulemakings, that the data are so widely spread 
(i.e., when graphed, they fall in a loose ``cloud'' rather than tightly 
around an obvious line) that they indicate a relationship between 
footprint and CO2 and fuel consumption that is real but not 
particularly strong. Therefore, as discussed below, the agencies also 
explored possible adjustments that could help to explain and/or reduce 
the ambiguity of this relationship, or could help to produce policy 
outcomes the agencies judged to be more desirable.
---------------------------------------------------------------------------

    \123\ 68 FR 74920-74926.

---------------------------------------------------------------------------

[[Page 74916]]

i. Adjustment to reflect differences in technology
    As in prior rulemakings, the agencies consider technology 
differences between vehicle models to be a significant factor producing 
uncertainty regarding the relationship between CO2/fuel 
consumption and footprint. Noting that attribute-based standards are 
intended to encourage the application of additional technology to 
improve fuel efficiency and reduce CO2 emissions, the 
agencies, in addition to considering approaches based on the unadjusted 
engineering characteristics of MY 2008 vehicle models, therefore also 
considered approaches in which, as for previous rulemakings, technology 
is added to vehicles for purposes of the curve fitting analysis in 
order to produce fleets that are less varied in technology content.
    The agencies adjusted the baseline fleet for technology by adding 
all technologies considered, except for the most advanced high-BMEP 
(brake mean effective pressure) gasoline engines, diesel engines, 
strong HEVs, PHEVs, EVs, and FCVs. The agencies included 15 percent 
mass reduction on all vehicles.
ii. Adjustments reflecting differences in performance and ``density''
    For the reasons discussed above regarding revisiting the shapes of 
the curves, the agencies considered adjustments for other differences 
between vehicle models (i.e., inflating or deflating the fuel economy 
of each vehicle model based on the extent to which one of the vehicle's 
attributes, such as power, is higher or lower than average). 
Previously, NHTSA had rejected such adjustments because they imply that 
a multi-attribute standard may be necessary, and the agencies judged 
multi-attribute standard to be more subject to gaming than a footprint-
only standard.124 125 Having considered this issue again for 
purposes of this rulemaking, NHTSA and EPA conclude the need to 
accommodate in the target curves the challenges faced by manufacturers 
of large pickups currently outweighs these prior concerns. Therefore, 
the agencies also evaluated curve fitting approaches through which fuel 
consumption and CO2 levels were adjusted with respect to 
weight-to-footprint alone, and in combination with power-to-weight. 
While the agencies examined these adjustments for purposes of fitting 
curves, the agencies are not proposing a multi-attribute standard; the 
proposed fuel economy and CO2 targets for each vehicle are 
still functions of footprint alone. No adjustment would be used in the 
compliance process.
---------------------------------------------------------------------------

    \124\ For example, in comments on NHTSA's 2008 NPRM regarding MY 
2011-2015 CAFE standards, Porsche recommended that standards be 
defined in terms of a ``Summed Weighted Attribute'', wherein the 
fuel economy target would calculated as follows: target = f(SWA), 
where target is the fuel economy target applicable to a given 
vehicle model and SWA = footprint + torque 1/1.5 + weight 
1/2.5. (NHTSA-2008-0089-0174). While the standards the 
agencies are proposing for MY 2017-2025 are not multi-attributes, 
that is the target is only a function of footprint, we are proposing 
curve shapes that were developed considering more than one 
attribute.
    \125\ 74 FR 14359.
---------------------------------------------------------------------------

    The agencies also examined some differences between the technology-
adjusted car and truck fleets in order to better understand the 
relationship between footprint and CO2/fuel consumption in 
the agencies' MY 2008 based forecast. The agencies investigated the 
relationship between HP/WT and footprint in the agencies' MY2008-based 
market forecast. On a sales weighted basis, cars tend to become 
proportionally more powerful as they get larger. In contrast, there is 
a minimally positive relationship between HP/WT and footprint for light 
trucks, indicating that light trucks become only slightly more powerful 
as they get larger.
    This analysis, presented in chapter 2.4.1.2 of the agencies' joint 
TSD, indicated that vehicle performance (power-to-weight ratio) and 
``density'' (curb weight divided by footprint) are both correlated to 
fuel consumption (and CO2 emission rate), and that these 
vehicle attributes are also both related to vehicle footprint. Based on 
these relationships, the agencies explored adjusting the fuel economy 
and CO2 emission rates of individual vehicle models based on 
deviations from ``expected'' performance or weight/footprint at a given 
footprint; the agencies inflated fuel economy levels of vehicle models 
with higher performance and/or weight/footprint than the average of the 
fleet would indicate at that footprint, and deflated fuel economy 
levels with lower performance and/or weight. Previously, NHTSA had 
rejected such adjustments because they imply that a multi-attribute 
standard may be necessary, and the agency judged multi-attribute 
standard to be more subject to gaming than a footprint-only 
standard.126 127 While the agencies considered this 
technique for purposes of fitting curves, the agencies are not 
proposing a multi-attribute standard, as the proposed fuel economy and 
CO2 targets for each vehicle are still functions of 
footprint alone. No adjustment would be used in the compliance process.
---------------------------------------------------------------------------

    \126\ For example, in comments on NHTSA's 2008 NPRM regarding MY 
2011-2015 CAFE standards, Porsche recommended that standards be 
defined in terms of a ``Summed Weighted Attribute'', wherein the 
fuel economy target would calculated as follows: target = f(SWA), 
where target is the fuel economy target applicable to a given 
vehicle model and SWA = footprint + torque 1/1.5 + weight 
1/2.5. (NHTSA-2008-0089-0174). While the standards the 
agencies are proposing for MY 2017-2025 are not multi-attribute 
standards, that is the target is only a function of footprint, we 
are proposing curve shapes that were developed considering more than 
one attribute.
    \127\ 74 FR 14359.
---------------------------------------------------------------------------

    The agencies seek comment on the appropriateness of the adjustments 
as described in Chapter 2 of the joint TSD, particularly regarding 
whether these adjustments suggest that standards should be defined in 
terms of other attributes in addition to footprint, and whether they 
may encourage changes other than encouraging the application of 
technology to improve fuel economy and reduce CO2 emissions. 
The agencies also seek comment regarding whether these adjustments 
effectively ``lock in'' through MY 2025 relationships that were 
observed in MY 2008.
e. What statistical methods did the agencies evaluate?
    The above approaches resulted in three data sets each for (a) 
vehicles without added technology and (b) vehicles with technology 
added to reduce technology differences, any of which may provide a 
reasonable basis for fitting mathematical functions upon which to base 
the slope of the standard curves: (1) Vehicles without any further 
adjustments; (2) vehicles with adjustments reflecting differences in 
``density'' (weight/footprint); and (3) vehicles with adjustments 
reflecting differences in ``density,'' and adjustments reflecting 
differences in performance (power/weight). Using these data sets, the 
agencies tested a range of regression methodologies, each judged to be 
possibly reasonable for application to at least some of these data 
sets.
i. Regression Approach
    In the MYs 2012-2016 final rules, the agencies employed a robust 
regression approach (minimum absolute deviation, or MAD), rather than 
an ordinary least squares (OLS) regression.\128\ MAD is generally 
applied to mitigate the effect of outliers in a dataset, and thus was 
employed in that rulemaking as part of our interest in attempting to 
best represent the underlying technology. NHTSA had used OLS in early 
development of attribute-based CAFE

[[Page 74917]]

standards, but NHTSA (and then NHTSA and EPA) subsequently chose MAD 
instead of OLS for both the MY 2011 and the MYs 2012-2016 rulemakings. 
These decisions on regression technique were made both because OLS 
gives additional emphasis to outliers \129\ and because the MAD 
approach helped achieve the agencies' policy goals with regard to curve 
slope in those rulemakings.\130\ In the interest of taking a fresh look 
at appropriate regression methodologies as promised in the 2012-2016 
light duty rulemaking, in developing this proposal, the agencies gave 
full consideration to both OLS and MAD. The OLS representation, as 
described, uses squared errors, while MAD employs absolute errors and 
thus weights outliers less.
---------------------------------------------------------------------------

    \128\ See 75 FR at 25359.
    \129\ Id. at 25362-63.
    \130\ Id. at 25363.
---------------------------------------------------------------------------

    As noted, one of the reasons stated for choosing MAD over least 
square regression in the MYs 2012-2016 rulemaking was that MAD reduced 
the weight placed on outliers in the data. However, the agencies have 
further considered whether it is appropriate to classify these vehicles 
as outliers. Unlike in traditional datasets, these vehicles' 
performance is not mischaracterized due to errors in their measurement, 
a common reason for outlier classification. Being certification data, 
the chances of large measurement errors should be near zero, 
particularly towards high CO2 or fuel consumption. Thus, 
they can only be outliers in the sense that the vehicle designs are 
unlike those of other vehicles. These outlier vehicles may include 
performance vehicles, vehicles with high ground clearance, 4WD, or boxy 
designs. Given that these are equally legitimate on-road vehicle 
designs, the agencies concluded that it would appropriate to reconsider 
the treatment of these vehicles in the regression techniques.
    Based on these considerations as well as the adjustments discussed 
above, the agencies concluded it was not meaningful to run MAD 
regressions on gpm data that had already been adjusted in the manner 
described above. Normalizing already reduced the variation in the data, 
and brought outliers towards average values. This was the intended 
effect, so the agencies deemed it unnecessary to apply an additional 
remedy to resolve an issue that had already been addressed, but we seek 
comment on the use of robust regression techniques under such 
circumstances.
ii. Sales Weighting
    Likewise, the agencies reconsidered employing sales-weighting to 
represent the data. As explained below, the decision to sales weight or 
not is ultimately based upon a choice about how to represent the data, 
and not by an underlying statistical concern. Sales weighting is used 
if the decision is made to treat each (mass produced) unit sold as a 
unique physical observation. Doing so thereby changes the extent to 
which different vehicle model types are emphasized as compared to a 
non-sales weighted regression. For example, while total General Motors 
Silverado (332,000) and Ford F-150 (322,000) sales differ by less than 
10,000 in MY 2021 market forecast, 62 F-150s models and 38 Silverado 
models are reported in the agencies baselines. Without sales-weighting, 
the F-150 models, because there are more of them, are given 63 percent 
more weight in the regression despite comprising a similar portion of 
the marketplace and a relatively homogenous set of vehicle 
technologies.
    The agencies did not use sales weighting in the 2012-2016 
rulemaking analysis of the curve shapes. A decision to not perform 
sales weighting reflects judgment that each vehicle model provides an 
equal amount of information concerning the underlying relationship 
between footprint and fuel economy. Sales-weighted regression gives the 
highest sales vehicle model types vastly more emphasis than the lowest-
sales vehicle model types thus driving the regression toward the sales-
weighted fleet norm. For unweighted regression, vehicle sales do not 
matter. The agencies note that the light truck market forecast shows MY 
2025 sales of 218,000 units for Toyota's 2WD Sienna, and shows 66 model 
configurations with MY 2025 sales of fewer than 100 units. Similarly, 
the agencies' market forecast shows MY 2025 sales of 267,000 for the 
Toyota Prius, and shows 40 model configurations with MY2025 sales of 
fewer than 100 units. Sales-weighted analysis would give the Toyota 
Sienna and Prius more than a thousand times the consideration of many 
vehicle model configurations. Sales-weighted analysis would, therefore, 
cause a large number of vehicle model configurations to be virtually 
ignored in the regressions.\131\
---------------------------------------------------------------------------

    \131\ 75 FR at 25362 and n. 64.
---------------------------------------------------------------------------

    However, the agencies did note in the MYs 2012-2016 final rules 
that, ``sales weighted regression would allow the difference between 
other vehicle attributes to be reflected in the analysis, and also 
would reflect consumer demand.'' \132\ In reexamining the sales-
weighting for this analysis, the agencies note that there are low-
volume model types account for many of the passenger car model types 
(50 percent of passenger car model types account for 3.3 percent of 
sales), and it is unclear whether the engineering characteristics of 
these model types should equally determine the standard for the 
remainder of the market.
---------------------------------------------------------------------------

    \132\ 75 FR at 25632/3.
---------------------------------------------------------------------------

    In the interest of taking a fresh look at appropriate methodologies 
as promised in the last final rule, in developing this proposal, the 
agencies gave full consideration to both sales-weighted and unweighted 
regressions.
iii. Analyses Performed
    We performed regressions describing the relationship between a 
vehicle's CO2/fuel consumption and its footprint, in terms 
of various combinations of factors: initial (raw) fleets with no 
technology, versus after technology is applied; sales-weighted versus 
non-sales weighted; and with and without two sets of normalizing 
factors applied to the observations. The agencies excluded diesels and 
dedicated AFVs because the agencies anticipate that advanced gasoline-
fueled vehicles are likely to be dominant through MY 2025, based both 
on our own assessment of potential standards (see Sections III and IV 
below) as well as our discussions with large number of automotive 
companies and suppliers.
    Thus, the basic OLS regression on the initial data (with no 
technology applied) and no sales-weighting represents one perspective 
on the relation between footprint and fuel economy. Adding sales 
weighting changes the interpretation to include the influence of sales 
volumes, and thus steps away from representing vehicle technology 
alone. Likewise, MAD is an attempt to reduce the impact of outliers, 
but reducing the impact of outliers might perhaps be less 
representative of technical relationships between the variables, 
although that relationship may change over time in reality. Each 
combination of methods and data reflects a perspective, and the 
regression results simply reflect that perspective in a simple 
quantifiable manner, expressed as the coefficients determining the line 
through the average (for OLS) or the median (for MAD) of the data. It 
is left to policy makers to determine an appropriate perspective and to 
interpret the consequences of the various alternatives.
    We invite comments on the application of the weights as described

[[Page 74918]]

above, and the implications for interpreting the relationship between 
fuel efficiency (or CO2) and footprint.
f. What results did the agencies obtain, which methodology did the 
agencies choose for this proposal, and why is it reasonable?
    Both agencies analyzed the same statistical approaches. For 
regressions against data including technology normalization, NHTSA used 
the CAFE modeling system, and EPA used EPA's OMEGA model. The agencies 
obtained similar regression results, and have based today's joint 
proposal on those obtained by NHTSA. The draft Joint TSD Chapter 2 
contains a large set of illustrative of figures which show the range of 
curves determined by the possible combinations of regression technique, 
with and without sales weighting, with and without the application of 
technology, and with various adjustments to the gpm variable prior to 
running a regression.
    The choice among the alternatives presented in the draft Joint TSD 
Chapter 2 was to use the OLS formulation, on sales-weighted data, using 
a fleet that has had technology applied, and after adjusting the data 
for the effect of weight-to-footprint, as described above. The agencies 
believe that this represents a technically reasonable approach for 
purposes of developing target curves to define the proposed standards, 
and that it represents a reasonable trade-off among various 
considerations balancing statistical, technical, and policy matters, 
which include the statistical representativeness of the curves 
considered and the steepness of the curve chosen. The agencies judge 
the application of technology prior to curve fitting to provide a 
reasonable means--one consistent with the rule's objective of 
encouraging manufacturers to add technology in order to increase fuel 
economy--of reducing variation in the data and thereby helping to 
estimate a relationship between fuel consumption/CO2 and 
footprint.
    Similarly, for the agencies' current MY 2008-based market-forecast 
and the agencies' current estimates of future technology effectiveness, 
the inclusion of the weight-to-footprint data adjustment prior to 
running the regression also helps to improve the fit of the curves by 
reducing the variation in the data, and the agencies believe that the 
benefits of this adjustment for this proposed rule likely outweigh the 
potential that resultant curves might somehow encourage reduced load 
carrying capability or vehicle performance (note that the we are not 
suggesting that we believe these adjustments will reduce load carrying 
capability or vehicle performance). In addition to reducing the 
variability, the truck curve is also steepened, and the car curve 
flattened compared to curves fitted to sales weighted data that do not 
include these normalizations. The agencies agree with manufacturers of 
full-size pick-up trucks that in order to maintain towing and hauling 
utility, the engines on pick-up trucks must be more powerful, than 
their low ``density'' nature would statistically suggest based on the 
agencies' current MY2008-based market forecast and the agencies' 
current estimates of the effectiveness of different fuel-saving 
technologies. Therefore, it may be more equitable (i.e., in terms of 
relative compliance challenges faced by different light truck 
manufacturers) to adjust the slope of the curve defining fuel economy 
and CO2 targets.
    As described above, however, other approaches are also technically 
reasonable, and also represent a way of expressing the underlying 
relationships. The agencies plan to revisit the analysis for the final 
rule, after updating the underlying market forecast and estimates of 
technology effectiveness, and based on relevant public comments 
received. In addition, the agencies intend to update the technology 
cost estimates, which could alter the NPRM analysis results and 
consequently alter the balance of the trade-offs being weighed to 
determine the final curves.
g. Implications of the proposed slope compared to MY 2012-2016
    The proposed slope has several implications relative to the MY 2016 
curves, with the majority of changes on the truck curve. With the 
agencies' current MY2008-based market forecast and the agencies' 
current estimates of technology effectiveness, the combination of sales 
weighting and WT/FP normalization produced a car curve slope similar to 
that finalized in the MY 2012-2016 final rulemaking (4.7 g/mile in MY 
2016, vs. 4.5 g/mile proposed in MY 2017). By contrast, the truck curve 
is steeper in MY 2017 than in MY 2016 (4.0 g/mile in MY 2016 vs. 4.9 g/
mile in MY 2017). As discussed previously, a steeper slope relaxes the 
stringency of targets for larger vehicles relative to those for smaller 
vehicles, thereby shifting relative compliance burdens among 
manufacturers based on their respective product mix.
6. Once the agencies determined the appropriate slope for the sloped 
part, how did the agencies determine the rest of the mathematical 
function?
    The agencies continue to believe that without a limit at the 
smallest footprints, the function--whether logistic or linear--can 
reach values that would be unfairly burdensome for a manufacturer that 
elects to focus on the market for small vehicles; depending on the 
underlying data, an unconstrained form could result in stringency 
levels that are technologically infeasible and/or economically 
impracticable for those manufacturers that may elect to focus on the 
smallest vehicles. On the other side of the function, without a limit 
at the largest footprints, the function may provide no floor on 
required fuel economy. Also, the safety considerations that support the 
provision of a disincentive for downsizing as a compliance strategy 
apply weakly, if at all, to the very largest vehicles. Limiting the 
function's value for the largest vehicles thus leads to a function with 
an inherent absolute minimum level of performance, while remaining 
consistent with safety considerations.
    Just as for slope, in determining the appropriate footprint and 
fuel economy values for the ``cutpoints,'' the places along the curve 
where the sloped portion becomes flat, the agencies took a fresh look 
for purposes of this proposal, taking into account the updated market 
forecast and new assumptions about the availability of technologies. 
The next two sections discuss the agencies' approach to cutpoints for 
the passenger car and light truck curves separately, as the policy 
considerations for each vary somewhat.
a. Cutpoints for PC curve
    The passenger car fleet upon which the agencies have based the 
target curves for MYs 2017-2025 is derived from MY 2008 data, as 
discussed above. In MY 2008, passenger car footprints ranged from 36.7 
square feet, the Lotus Exige 5, to 69.3 square feet, the Daimler 
Maybach 62. In that fleet, several manufacturers offer small, sporty 
coupes below 41 square feet, such as the BMW Z4 and Mini, Honda S2000, 
Mazda MX-5 Miata, Porsche Carrera and 911, and Volkswagen New Beetle. 
Because such vehicles represent a small portion (less than 10 percent) 
of the passenger car market, yet often have performance, utility, and/
or structural characteristics that could make it technologically 
infeasible and/or economically impracticable for manufacturers focusing 
on such

[[Page 74919]]

vehicles to achieve the very challenging average requirements that 
could apply in the absence of a constraint, EPA and NHTSA are again 
proposing to cut off the sloped portion of the passenger car function 
at 41 square feet, consistent with the MYs 2012-2016 rulemaking. The 
agencies recognize that for manufacturers who make small vehicles in 
this size range, putting the cutpoint at 41 square feet creates some 
incentive to downsize (i.e., further reduce the size, and/or increase 
the production of models currently smaller than 41 square feet) to make 
it easier to meet the target. Putting the cutpoint here may also create 
the incentive for manufacturers who do not currently offer such models 
to do so in the future. However, at the same time, the agencies believe 
that there is a limit to the market for cars smaller than 41 square 
feet--most consumers likely have some minimum expectation about 
interior volume, among other things. The agencies thus believe that the 
number of consumers who will want vehicles smaller than 41 square feet 
(regardless of how they are priced) is small, and that the incentive to 
downsize to less than 41 square feet in response to this proposal, if 
present, will be at best minimal. On the other hand, the agencies note 
that some manufacturers are introducing mini cars not reflected in the 
agencies MY 2008-based market forecast, such as the Fiat 500, to the 
U.S. market, and that the footprint at which the curve is limited may 
affect the incentive for manufacturers to do so.
    Above 56 square feet, the only passenger car models present in the 
MY 2008 fleet were four luxury vehicles with extremely low sales 
volumes--the Bentley Arnage and three versions of the Rolls Royce 
Phantom. As in the MYs 2012-2016 rulemaking, NHTSA and EPA therefore 
are proposing again to cut off the sloped portion of the passenger car 
function at 56 square feet.
    While meeting with manufacturers prior to issuing the proposal, the 
agencies received comments from some manufacturers that, combined with 
slope and overall stringency, using 41 square feet as the footprint at 
which to cap the target for small cars would result in unduly 
challenging targets for small cars. The agencies do not agree. No 
specific vehicle need meet its target (because standards apply to fleet 
average performance), and maintaining a sloped function toward the 
smaller end of the passenger car market is important to discourage 
unsafe downsizing, the agencies are thus proposing to again ``cut off'' 
the passenger car curve at 41 square feet, notwithstanding these 
comments.
    The agencies seek comment on setting cutpoints for the MYs 2017-
2025 passenger car curves at 41 square feet and 56 square feet.
b. Cutpoints for LT curve
    The light truck fleet upon which the agencies have based the target 
curves for MYs 2017-2025, like the passenger car fleet, is derived from 
MY 2008 data, as discussed in Section 2.4 above. In MY 2008, light 
truck footprints ranged from 41.0 square feet, the Jeep Wrangler, to 
77.5 square feet, the Toyota Tundra. For consistency with the curve for 
passenger cars, the agencies are proposing to cut off the sloped 
portion of the light truck function at the same footprint, 41 square 
feet, although we recognize that no light trucks are currently offered 
below 41 square feet. With regard to the upper cutpoint, the agencies 
heard from a number of manufacturers during the discussions leading up 
to this proposal that the location of the cutpoint in the MYs 2012-2016 
rules, 66 square feet, meant that the same standard applied to all 
light trucks with footprints of 66 square feet or greater, and that in 
fact the targets for the largest light trucks in the later years of 
that rulemaking were extremely challenging. Those manufacturers 
requested that the agencies extend the cutpoint to a larger footprint, 
to reduce targets for the largest light trucks which represent a 
significant percentage of those manufacturers light truck sales. At the 
same time, in re-examining the light truck fleet data, the agencies 
concluded that aggregating pickup truck models in the MYs 2012-2016 
rule had led the agencies to underestimate the impact of the different 
pickup truck model configurations above 66 square feet on 
manufacturers' fleet average fuel economy and CO2 levels (as 
discussed immediately below). In disaggregating the pickup truck model 
data, the impact of setting the cutpoint at 66 square feet after model 
year 2016 became clearer to the agencies.
    In the agencies' view, there is legitimate basis for these 
comments. The agencies' market forecast includes about 24 vehicle 
configurations above 74 square feet with a total volume of about 50,000 
vehicles or less during any MY in the 2017-2025 time frame. While a 
relatively small portion of the overall truck fleet, for some 
manufacturers, these vehicles are non-trivial portion of sales. As 
noted above, the very largest light trucks have significant load-
carrying and towing capabilities that make it particularly challenging 
for manufacturers to add fuel economy-improving/CO2-reducing 
technologies in a way that maintains the full functionality of those 
capabilities.
    Considering manufacturer CBI and our estimates of the impact of the 
66 square foot cutpoint for future model years, the agencies have 
initially determined to adopt curves that transition to a different cut 
point. While noting that no specific vehicle need meet its target 
(because standards apply to fleet average performance), we believe that 
the information provided to us by manufacturers and our own analysis 
supports the gradual extension of the cutpoint for large light trucks 
in this proposal from 66 square feet in MY 2016 out to a larger 
footprint square feet before MY 2025.

[[Page 74920]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.034

    The agencies are proposing to phase in the higher cutpoint for the 
truck curve in order to avoid any backsliding from the MY 2016 
standard. A target that is feasible in one model year should never 
become less feasible in a subsequent model year--manufacturers should 
have no reason to remove fuel economy-improving/CO2-reducing 
technology from a vehicle once it has been applied. Put another way, 
the agencies are proposing to not allow ``curve crossing'' from one 
model year to the next. In proposing MYs 2011-2015 CAFE standards and 
promulgating MY 2011 standards, NHTSA proposed and requested comment on 
avoiding curve crossing, as an ``anti-backsliding measure.'' \133\ The 
MY 2016 2 cycle test curves are therefore a floor for the MYs 2017-2025 
curves. For passenger cars, which have minimal change in slope from the 
MY 2012-2016 rulemakings and no change in cut points, there are no 
curve crossing issues in the proposed standards.
---------------------------------------------------------------------------

    \133\ 74 Fed. Reg. at 14370 (Mar. 30, 2009).
---------------------------------------------------------------------------

    The minimum stringency determination was done using the two cycle 
curves. Stringency adjustments for air conditioning and other credits 
were calculated after curves that did not cross were determined in two 
cycle space. The year over year increase in these adjustments cause 
neither the GHG nor CAFE curves (with A/C) to contact the 2016 curves 
when charted.
7. Once the agencies determined the complete mathematical function 
shape, how did the agencies adjust the curves to develop the proposed 
standards and regulatory alternatives?
    The curves discussed above all reflect the addition of technology 
to individual vehicle models to reduce technology differences between 
vehicle models before fitting curves. This application of technology 
was conducted not to directly determine the proposed standards, but 
rather for purposes of technology adjustments, and set aside 
considerations regarding potential rates of application (i.e., phase-in 
caps), and considerations regarding economic implications of applying 
specific technologies to specific vehicle models. The following 
sections describe further adjustments to the curves discussed above, 
that affect both the shape of the curve, and the location of the curve, 
that helped the agencies determine curves that defined the proposed 
standards.
a. Adjusting for Year over Year Stringency
    As in the MYs 2012-2016 rules, the agencies developed curves 
defining regulatory alternatives for consideration by ``shifting'' 
these curves. For the MYs 2012-2016 rules, the agencies did so on an 
absolute basis, offsetting the fitted curve by the same value (in gpm 
or g/mi) at all footprints. In developing this proposal, the agencies 
have reconsidered the use of this approach, and have concluded that 
after MY 2016, curves should be offset on a relative basis--that is, by 
adjusting the entire gpm-based curve (and, equivalently, the 
CO2 curve) by the same percentage rather than the same 
absolute value. The agencies' estimates of the effectiveness of these 
technologies are all expressed in relative terms--that is, each 
technology (with the exception of A/C) is estimated to reduce fuel 
consumption (the inverse of fuel economy) and CO2 emissions 
by a specific percentage of

[[Page 74921]]

fuel consumption without the technology. It is, therefore, more 
consistent with the agencies' estimates of technology effectiveness to 
develop the proposed standards and regulatory alternatives by applying 
a proportional offset to curves expressing fuel consumption or 
emissions as a function of footprint. In addition, extended 
indefinitely (and without other compensating adjustments), an absolute 
offset would eventually (i.e., at very high average stringencies) 
produce negative (gpm or g/mi) targets. Relative offsets avoid this 
potential outcome. Relative offsets do cause curves to become, on a 
fuel consumption and CO2 basis, flatter at greater average 
stringencies; however, as discussed above, this outcome remains 
consistent with the agencies' estimates of technology effectiveness. In 
other words, given a relative decrease in average required fuel 
consumption or CO2 emissions, a curve that is flatter by the 
same relative amount should be equally challenging in terms of the 
potential to achieve compliance through the addition of fuel-saving 
technology.
    On this basis, and considering that the ``flattening'' occurs 
gradually for the regulatory alternatives the agencies have evaluated, 
the agencies tentatively conclude that this approach to offsetting the 
curves to develop year-by-year regulatory alternatives neither re-
creates a situation in which manufacturers are likely to respond to 
standards in ways that compromise highway safety, nor undoes the 
attribute-based standard's more equitable balancing of compliance 
burdens among disparate manufacturers. The agencies invite comment on 
these conclusions, and on any other means that might avoid the 
potential outcomes--in particular, negative fuel consumption and 
CO2 targets--discussed above.
b. Adjusting for anticipated improvements to mobile air conditioning 
systems
    The fuel economy values in the agencies' market forecast are based 
on the 2-cycle (i.e., city and highway) fuel economy test and 
calculation procedures that do not reflect potential improvements in 
air conditioning system efficiency, refrigerant leakage, or refrigerant 
Global Warming Potential (GWP). Recognizing that there are significant 
and cost effective potential air conditioning system improvements 
available in the rulemaking timeframe (discussed in detail in Chapter 5 
of the draft joint TSD), the agencies are increasing the stringency of 
the target curves based on the agencies' assessment of the capability 
of manufacturers to implement these changes. For the proposed CAFE 
standards and alternatives, an offset is included based on air 
conditioning system efficiency improvements, as these improvements are 
the only improvements that effect vehicle fuel economy. For the 
proposed GHG standards and alternatives, a stringency increase is 
included based on air conditioning system efficiency, leakage and 
refrigerant improvements. As discussed above in Chapter 5 of the join 
TSD, the air conditioning system improvements affect a vehicle's fuel 
efficiency or CO2 emissions performance as an additive 
stringency increase, as compared to other fuel efficiency improving 
technologies which are multiplicative. Therefore, in adjusting target 
curves for improvements in the air conditioning system performance, the 
agencies are adjusting the target curves by additive stringency 
increases (or vertical shifts) in the curves.
    For the GHG target curves, the offset for air conditioning system 
performance is being handled in the same manner as for the MY 2012-2016 
rules. For the CAFE target curves, NHTSA for the first time is 
proposing to account for potential improvements in air conditioning 
system performance. Using this methodology, the agencies first use a 
multiplicative stringency adjustment for the sloped portion of the 
curves to reflect the effectiveness on technologies other than air 
conditioning system technologies, creating a series of curve shapes 
that are ``fanned'' based on two-cycle performance. Then the curves are 
offset vertically by the air conditioning improvement by an equal 
amount at every point.

D. Joint Vehicle Technology Assumptions

    For the past four to five years, the agencies have been working 
together closely to follow the development of fuel consumption and GHG 
reducing technologies. Two major analyses have been published jointly 
by EPA and NHTSA: The Technical Support Document to support the MYs 
2012-2016 final rule and the 2010 Technical Analysis Report (which 
supported the 2010 Notice of Intent). The latter of these analyses was 
also done in conjunction with CARB. Both of these analyses have both 
been published within the past 18 months. As a result, much of the work 
is still relevant and we continue to rely heavily on these references. 
However, some technologies--and what we know about them--are changing 
so rapidly that the analysis supporting this proposal contains a 
considerable amount of new work on technologies included in this rule, 
some of which were included in prior rulemakings, and others that were 
not.
    Notably, we have updated our battery costing methodology 
significantly since the MYs 2012-2016 final rule and even relative to 
the 2010 TAR. We are now using a peer reviewed model developed by 
Argonne National Laboratory for the Department of Energy which provides 
us with more rigorous estimates for battery costs and allows us to 
estimate future costs specific to hybrids, plug-in hybrids and electric 
vehicles all of which have different battery design characteristics.
    We also have new cost data from more recently completed tear down 
and other cost studies by FEV which were not available in either the 
MYs 2012-2016 final rule or the 2010 TAR. These new studies analyzed a 
8-speed automatic transmission replacing 6-speed automatic 
transmission, a 8-speed dual clutch transmission replacing 6-speed dual 
clutch transmission, a power-split hybrid powertrain with an I4 engine 
replacing a conventional engine powertrain with V6 engine, a mild 
hybrid with stop-start technology and an I4 engine replacing a 
conventional I4 engine, and the Fiat Multi-Air engine technology. We 
discuss the new tear down studies in Section II.D.2 of this preamble. 
Based on this, we have updated some of the FEV-developed costs relative 
to what we used in the 2012-2016 final rule, although these costs are 
consistent with those used in the 2010 TAR. Furthermore, we have 
completely re-worked our estimated costs associated with mass reduction 
relative to both the MYs 2012-2016 final rule and the 2010 TAR.
    As would be expected given that some of our cost estimates were 
developed several years ago, we have also updated all of our base 
direct manufacturing costs to put them in terms of more recent dollars 
(2009 dollars for this proposal). We have also updated our methodology 
for calculating indirect costs associated with new technologies since 
both the MYs 2012-2016 final rule and the TAR. We continue to use the 
indirect cost multiplier (ICM) approach used in those analyses, but 
have made important changes to the calculation methodology--changes 
done in response to ongoing staff evaluation and public input.
    Lastly, we have updated many of the technologies' effectiveness 
estimates largely based on new vehicle simulation work conducted by 
Ricardo Engineering. This simulation work provides the effectiveness 
estimates for

[[Page 74922]]

a number of the technologies most heavily relied on in the agencies' 
analysis of potential standards for MYs 2017-2025.
    The agencies have also reviewed the findings and recommendations in 
the updated NAS report ``Assessment of Fuel Economy Technologies for 
Light-Duty Vehicles'' that was completed after the MYs 2012-2016 final 
rule was issued,\134\ and NHTSA has performed a sensitivity analysis 
(contained in its PRIA) to examine the impact of using some of the NAS 
cost and effectiveness estimates on the proposed standards.
---------------------------------------------------------------------------

    \134\ ``Assessment of Fuel Economy Technologies for Light-Duty 
Vehicles,'' National Research Council of the National Academies, 
June 2010.
---------------------------------------------------------------------------

    Each of these changes is discussed briefly in the remainder of this 
section and in much greater detail in Chapter 3 of the draft joint TSD. 
First we provide a brief summary of the technologies we have considered 
in this proposal before highlighting the above-mentioned items that are 
new for this proposal. We request comment on all aspects of our 
analysis as discussed here and detailed in the draft joint TSD.
1. What technologies did the Agencies Consider?
    For this proposal, the agencies project that manufacturers can add 
a variety of technologies to each of their vehicle models and or 
platforms in order to improve the vehicles' fuel economy and GHG 
performance. In order to analyze a variety of regulatory alternative 
scenarios, it is essential to have a thorough understanding of the 
technologies available to the manufacturers. This analysis includes an 
assessment of the cost, effectiveness, availability, development time, 
and manufacturability of various technologies within the normal 
redesign and refresh periods of a vehicle line (or in the design of a 
new vehicle). As we describe in the draft Joint TSD, when a technology 
can be applied can affect the cost as well as the technology 
penetration rates (or phase-in caps) that are projected in the 
analysis.
    The agencies considered dozens of vehicle technologies that 
manufacturers could use to improve the fuel economy and reduce 
CO2 emissions of their vehicles during the MYs 2017-2025 
timeframe. Many of the technologies considered are available today, are 
well known, and could be incorporated into vehicles once product 
development decisions are made. These are ``near-term'' technologies 
and are identical or very similar to those anticipated in the agencies' 
analyses of compliance strategies for the MYs 2012-2016 final rule. For 
this rulemaking, given its time frame, other technologies are also 
considered that are not currently in production, but that are beyond 
the initial research phase, and are under development and expected to 
be in production in the next 5-10 years. Examples of these technologies 
are downsized and turbocharged engines operating at combustion 
pressures even higher than today's turbocharged engines, and an 
emerging hybrid architecture combined with an 8 speed dual clutch 
transmission, a combination that is not available today. These are 
technologies which the agencies believe can, for the most part, be 
applied both to cars and trucks, and which are expected to achieve 
significant improvements in fuel economy and reductions in 
CO2 emissions at reasonable costs in the MYs 2017 to 2025 
timeframe. The agencies did not consider technologies that are 
currently in an initial stage of research because of the uncertainty 
involved in the availability and feasibility of implementing these 
technologies with significant penetration rates for this analysis. The 
agencies recognize that due to the relatively long time frame between 
the date of this proposal and 2025, it is very possible that new and 
innovative technologies will make their way into the fleet, perhaps 
even in significant numbers, that we have not considered in this 
analysis. We expect to reconsider such technologies as part of the mid-
term evaluation, as appropriate, and possibly could be used to generate 
credits under a number of the proposed flexibility and incentive 
programs provided in the proposed rules.
    The technologies considered can be grouped into four broad 
categories: Engine technologies; transmission technologies; vehicle 
technologies (such as mass reduction, tires and aerodynamic 
treatments); and electrification technologies (including hybridization 
and changing to full electric drive).\135\ The specific technologies 
within each broad group are discussed below. The list of technologies 
presented below is nearly identical to that presented in both the MYs 
2012-2016 final rule and the 2010 TAR, with the following new 
technologies added to the list since the last final rule: The P2 
hybrid, a newly emerging hybridization technology that was also 
considered in the 2010 TAR; continued improvements in gasoline engines, 
with greater efficiencies and downsizing; continued significant 
efficiency improvements in transmissions; and ongoing levels of 
improvement to some of the seemingly more basic technologies such as 
lower rolling resistance tires and aerodynamic treatments, which are 
among the most cost effective technologies available for reducing fuel 
consumption and GHGs. Not included in the list below are technologies 
specific to air conditioning system improvements and off-cycle 
controls, which are presented in Section II.F of this NPRM and in 
Chapter 5 of the draft Joint TSD.
---------------------------------------------------------------------------

    \135\ NHTSA's analysis considers these technologies in five 
groups rather than four--hybridization is one category, and 
``electrification/accessories'' is another.
---------------------------------------------------------------------------

a. Types of Engine Technologies Considered
    Low-friction lubricants including low viscosity and advanced low 
friction lubricant oils are now available with improved performance. If 
manufacturers choose to make use of these lubricants, they may need to 
make engine changes and conduct durability testing to accommodate the 
lubricants. The costs in our analysis consider these engine changes and 
testing requirements. This level of low friction lubricants is expected 
to exceed 85 percent penetration by the 2017 MY.
    Reduction of engine friction losses can be achieved through low-
tension piston rings, roller cam followers, improved material coatings, 
more optimal thermal management, piston surface treatments, and other 
improvements in the design of engine components and subsystems that 
improve efficient engine operation. This level of engine friction 
reduction is expected to exceed 85 percent penetration by the 2017 MY.
    Advanced Low Friction Lubricant and Second Level of Engine Friction 
Reduction are new for this analysis. As technologies advance between 
now and the rulemaking timeframe, there will be further development in 
low friction lubricants and engine friction reductions. The agencies 
grouped the development in these two areas into a single technology and 
applied them for MY 2017 and beyond.
    Cylinder deactivation disables the intake and exhaust valves and 
prevents fuel injection into some cylinders during light-load 
operation. The engine runs temporarily as though it were a smaller 
engine which substantially reduces pumping losses.
    Variable valve timing alters the timing of the intake valves, 
exhaust valves, or both, primarily to reduce pumping losses, increase 
specific power, and control residual gases.
    Discrete variable valve lift increases efficiency by optimizing air 
flow over a broader range of engine operation which

[[Page 74923]]

reduces pumping losses. This is accomplished by controlled switching 
between two or more cam profile lobe heights.
    Continuous variable valve lift is an electromechanical or 
electrohydraulic system in which valve timing is changed as lift height 
is controlled. This yields a wide range of performance optimization and 
volumetric efficiency, including enabling the engine to be valve 
throttled.
    Stoichiometric gasoline direct-injection technology injects fuel at 
high pressure directly into the combustion chamber to improve cooling 
of the air/fuel charge as well as combustion quality within the 
cylinder, which allows for higher compression ratios and increased 
thermodynamic efficiency.
    Turbo charging and downsizing increases the available airflow and 
specific power level, allowing a reduced engine size while maintaining 
performance. Engines of this type use gasoline direct injection (GDI) 
and dual cam phasing. This reduces pumping losses at lighter loads in 
comparison to a larger engine. We continue to include an 18 bar brake 
mean effective pressure (BMEP) technology (as in the MYs 2012-2016 
final rule) and are also including both 24 bar BMEP and 27 bar BMEP 
technologies. The 24 bar BMEP technology would use a single-stage, 
variable geometry turbocharger which would provide a higher intake 
boost pressure available across a broader range of engine operation 
than conventional 18 bar BMEP engines. The 27 bar BMEP technology 
requires additional boost and thus would use a two-stage turbocharger 
necessitating use of cooled exhaust gas recirculation (EGR) as 
described below. The 18 bar BMEP technology is applied with 33 percent 
engine downsizing, 24 bar BMEP is applied with 50 percent engine 
downsizing, and 27 bar BMEP is applied with 56 percent engine 
downsizing.
    Cooled exhaust-gas recirculation (EGR) reduces the incidence of 
knocking combustion with additional charge dilution and obviates the 
need for fuel enrichment at high engine power. This allows for higher 
boost pressure and/or compression ratio and further reduction in engine 
displacement and both pumping and friction losses while maintaining 
performance. Engines of this type use GDI and both dual cam phasing and 
discrete variable valve lift. The EGR systems considered in this 
assessment would use a dual-loop system with both high and low pressure 
EGR loops and dual EGR coolers. For this proposal, cooled EGR is 
considered to be a technology that can be added to a 24 bar BMEP engine 
and is an enabling technology for 27 bar BMEP engines.
    Diesel engines have several characteristics that give superior fuel 
efficiency, including reduced pumping losses due to lack of (or greatly 
reduced) throttling, high pressure direct injection of fuel, a 
combustion cycle that operates at a higher compression ratio, and a 
very lean air/fuel mixture relative to an equivalent-performance 
gasoline engine. This technology requires additional enablers, such as 
a NOx adsorption catalyst system or a urea/ammonia selective 
catalytic reduction system for control of NOx emissions 
during lean (excess air) operation.
b. Types of Transmission Technologies Considered
    Improved automatic transmission controls optimize the shift 
schedule to maximize fuel efficiency under wide ranging conditions and 
minimizes losses associated with torque converter slip through lock-up 
or modulation. The first level of controls is expected to exceed 85 
percent penetration by the 2017 MY.
    Shift optimization is a strategy whereby the engine and/or 
transmission controller(s) emulates a CVT by continuously evaluating 
all possible gear options that would provide the necessary tractive 
power and select the best gear ratio that lets the engine run in the 
most efficient operating zone.
    Six-, seven-, and eight-speed automatic transmissions are optimized 
by changing the gear ratio span to enable the engine to operate in a 
more efficient operating range over a broader range of vehicle 
operating conditions. While a six speed transmission application was 
most prevalent for the MYs 2012-2016 final rule, eight speed 
transmissions are expected to be readily available and applied in the 
MYs 2017 through 2025 timeframe.
    Dual clutch or automated shift manual transmissions are similar to 
manual transmissions, but the vehicle controls shifting and launch 
functions. A dual-clutch automated shift manual transmission (DCT) uses 
separate clutches for even-numbered and odd-numbered gears, so the next 
expected gear is pre-selected, which allows for faster and smoother 
shifting. The 2012-2016 final rule limited DCT applications to a 
maximum of 6-speeds. For this proposal we have considered both 6-speed 
and 8-speed DCT transmissions.
    Continuously variable transmission commonly uses V-shaped pulleys 
connected by a metal belt rather than gears to provide ratios for 
operation. Unlike manual and automatic transmissions with fixed 
transmission ratios, continuously variable transmissions can provide 
fully variable and an infinite number of transmission ratios that 
enable the engine to operate in a more efficient operating range over a 
broader range of vehicle operating conditions. The CVT is maintained 
for existing baseline vehicles and not considered for future vehicles 
in this proposal due to the availability of more cost effective 
transmission technologies.
    Manual 6-speed transmission offers an additional gear ratio, often 
with a higher overdrive gear ratio, than a 5-speed manual transmission.
    High Efficiency Gearbox (automatic, DCT or manual)--continuous 
improvement in seals, bearings and clutches, super finishing of gearbox 
parts, and development in the area of lubrication, all aimed at 
reducing frictional and other parasitic load in the system for an 
automatic or DCT type transmission.
c. Types of Vehicle Technologies Considered
    Lower-rolling-resistance tires have characteristics that reduce 
frictional losses associated with the energy dissipated mainly in the 
deformation of the tires under load, thereby improving fuel economy and 
reducing CO2 emissions. New for this proposal (and also 
marking an advance over low rolling resistance tires considered during 
the heavy duty greenhouse gas rulemaking, see 76 FR at 57207, 57229) is 
a second level of lower rolling resistance tires that reduce frictional 
losses even further. The first level of low rolling resistance tires 
will have 10 percent rolling resistance reduction while the 2nd level 
would have 20 percent rolling resistance reduction compared to 2008 
baseline vehicle. The first level of lower rolling resistance tires is 
expected to exceed 85 percent penetration by the 2017 MY.
    Low-drag brakes reduce the sliding friction of disc brake pads on 
rotors when the brakes are not engaged because the brake pads are 
pulled away from the rotors.
    Front or secondary axle disconnect for four-wheel drive systems 
provides a torque distribution disconnect between front and rear axles 
when torque is not required for the non-driving axle. This results in 
the reduction of associated parasitic energy losses.
    Aerodynamic drag reduction can be achieved via two approaches, 
either reducing the drag coefficients or reducing vehicle frontal area. 
To reduce the drag coefficient, skirts, air dams, underbody covers, and 
more aerodynamic side view mirrors can be

[[Page 74924]]

applied. In addition to the standard aerodynamic treatments, the 
agencies have included a second level of aerodynamic technologies which 
could include active grill shutters, rear visors, and larger under body 
panels. The first level of aero dynamic drag improvement is estimated 
to reduce aerodynamic drag by 10 percent relative to the baseline 2008 
vehicle while the second level would reduce aero dynamic drag by 20 
percent relative to 2008 baseline vehicles. The second level of 
aerodynamic technologies was not considered in the MYs 2012-2016 final 
rule.
    Mass Reduction can be achieved in many ways, such as material 
substitution, design optimization, part consolidation, improving 
manufacturing process, etc. The agencies applied mass reduction of up 
to 20 percent relative to MY 2008 levels in this NPRM compared to only 
10 percent in 2012-2016 final rule. The agencies also determined 
effectiveness values for hybrid, plug-in and electric vehicles based on 
net mass reduction, or the delta between the applied mass reduction 
(capped at 20 percent) and the added mass of electrification 
components. In assessing compliance strategies and in structuring the 
standards, the agencies only considered amounts of vehicle mass 
reduction that would result in what we estimated to be no adverse 
effect on overall fleet safety. The agencies have an extensive 
discussion of mass reduction technologies as well as the cost of mass 
reduction in chapter 3 of the draft joint TSD.
d. Types of Electrification/Accessory and Hybrid Technologies 
Considered
    Electric power steering (EPS)/Electro-hydraulic power steering 
(EHPS) is an electrically-assisted steering system that has advantages 
over traditional hydraulic power steering because it replaces a 
continuously operated hydraulic pump, thereby reducing parasitic losses 
from the accessory drive. Manufacturers have informed the agencies that 
full EPS systems are being developed for all light-duty vehicles, 
including large trucks. However, the agencies have applied the EHPS 
technology to large trucks and the EPS technology to all other light-
duty vehicles.
    Improved accessories (IACC) may include high efficiency 
alternators, electrically driven (i.e., on-demand) water pumps and 
cooling fans. This excludes other electrical accessories such as 
electric oil pumps and electrically driven air conditioner compressors. 
New for this proposal is a second level of IACC (IACC2) which consists 
of the IACC technologies and the addition of a mild regeneration 
strategy and a higher efficiency alternator. The first level of IACC 
improvements is expected to be at more than 85 percent penetration by 
the 2017MY.
    12-volt Stop-Start, sometimes referred to as idle-stop or 12-volt 
micro hybrid is the most basic hybrid system that facilitates idle-stop 
capability. These systems typically incorporate an enhanced performance 
battery and other features such as electric transmission and cooling 
pumps to maintain vehicle systems during idle-stop.
    Higher Voltage Stop-Start/Belt Integrated Starter Generator (BISG) 
sometimes referred to as a mild hybrid, provides idle-stop capability 
and uses a higher voltage battery with increased energy capacity over 
typical automotive batteries. The higher system voltage allows the use 
of a smaller, more powerful electric motor. This system replaces a 
standard alternator with an enhanced power, higher voltage, higher 
efficiency starter-alternator, that is belt driven and that can recover 
braking energy while the vehicle slows down (regenerative braking). 
This mild hybrid technology is not included by either agency as an 
enabling technology in the analysis supporting this proposal, although 
some automakers have expressed interest in possibly using the 
technology during the rulemaking time frame. EPA and NHTSA are 
providing incentives to encourage this and similar hybrid technologies 
on pick-up trucks in particular, as described in Section II.F, and the 
agencies are in the process of including this technology for the final 
rule analysis as we expand our understanding of the associated costs 
and limitations.
    Integrated Motor Assist (IMA)/Crank integrated starter generator 
(CISG) provides idle-stop capability and uses a high voltage battery 
with increased energy capacity over typical automotive batteries. The 
higher system voltage allows the use of a smaller, more powerful 
electric motor and reduces the weight of the wiring harness. This 
system replaces a standard alternator with an enhanced power, higher 
voltage, higher efficiency starter-alternator that is crankshaft 
mounted and can recover braking energy while the vehicle slows down 
(regenerative braking). The IMA technology is not included by either 
agency as an enabling technology in the analysis supporting this 
proposal, although it is included as a baseline technology because it 
exists in our 2008 baseline fleet.
    P2 Hybrid is a newly emerging hybrid technology that uses a 
transmission integrated electric motor placed between the engine and a 
gearbox or CVT, much like the IMA system described above except with a 
wet or dry separation clutch which is used to decouple the motor/
transmission from the engine. In addition, a P2 hybrid would typically 
be equipped with a larger electric machine. Disengaging the clutch 
allows all-electric operation and more efficient brake-energy recovery. 
Engaging the clutch allows efficient coupling of the engine and 
electric motor and, when combined with a DCT transmission, reduces 
gear-train losses relative to power-split or 2-mode hybrid systems.
    2-Mode Hybrid is a hybrid electric drive system that uses an 
adaptation of a conventional stepped-ratio automatic transmission by 
replacing some of the transmission clutches with two electric motors 
that control the ratio of engine speed to vehicle speed, while clutches 
allow the motors to be bypassed. This improves both the transmission 
torque capacity for heavy-duty applications and reduces fuel 
consumption and CO2 emissions at highway speeds relative to 
other types of hybrid electric drive systems. The 2-mode hybrid 
technology is not included by either agency as an enabling technology 
in the analysis supporting this proposal, although it is included as a 
baseline technology because it exists in our 2008 baseline fleet.
    Power-split Hybrid is a hybrid electric drive system that replaces 
the traditional transmission with a single planetary gearset and a 
motor/generator. This motor/generator uses the engine to either charge 
the battery or supply additional power to the drive motor. A second, 
more powerful motor/generator is permanently connected to the vehicle's 
final drive and always turns with the wheels. The planetary gear splits 
engine power between the first motor/generator and the drive motor to 
either charge the battery or supply power to the wheels. The power-
split hybrid technology is not included by either agency as an enabling 
technology in the analysis supporting this proposal, (the agencies 
evaluate the P2 hybrid technology discussed above where power-split 
hybrids might otherwise have been appropriate) although it is included 
as a baseline technology because it exists in our 2008 baseline fleet.
    Plug-in hybrid electric vehicles (PHEV) are hybrid electric 
vehicles with the means to charge their battery packs from an outside 
source of electricity (usually the electric grid). These

[[Page 74925]]

vehicles have larger battery packs with more energy storage and a 
greater capability to be discharged than other hybrid electric 
vehicles. They also use a control system that allows the battery pack 
to be substantially depleted under electric-only or blended mechanical/
electric operation and batteries that can be cycled in charge 
sustaining operation at a lower state of charge than is typical of 
other hybrid electric vehicles. These vehicles are sometimes referred 
to as Range Extended Electric Vehicles (REEV). In this MYs 2017-2025 
analysis, PHEVs with several all-electric ranges--both a 20 mile and a 
40 mile all-electric range--have been included as potential 
technologies.
    Electric vehicles (EV) are equipped with all-electric drive and 
with systems powered by energy-optimized batteries charged primarily 
from grid electricity. EVs with several ranges--75 mile, 100 mile and 
150 mile range--have been included as potential technologies.
e. Technologies Considered but Deemed ``Not Ready'' in the MYs 2017-
2025 Timeframe
    Fuel cell electric vehicles (FCEVs) utilize a full electric drive 
platform but consume electricity generated by an on-board fuel cell and 
hydrogen fuel. Fuel cells are electro-chemical devices that directly 
convert reactants (hydrogen and oxygen via air) into electricity, with 
the potential of achieving more than twice the efficiency of 
conventional internal combustion engines. High pressure gaseous 
hydrogen storage tanks are used by most automakers for FCEVs that are 
currently under development. The high pressure tanks are similar to 
those used for compressed gas storage in more than 10 million CNG 
vehicles worldwide, except that they are designed to operate at a 
higher pressure (350 bar or 700 bar vs. 250 bar for CNG). While we 
expect there will be some limited introduction of FCEVs into the market 
place in the time frame of this rule, we expect this introduction to be 
relatively small, and thus FCEVs are not considered in the modeling 
analysis conducted for this proposal.
    There are a number of other technologies that the agencies have not 
considered in their analysis, but may be considered for the final rule. 
These include HCCI, ``multi-air'', and camless valve actuation, and 
other advanced engines currently under development.
2. How did the agencies determine the costs of each of these 
technologies?
    As noted in the introduction to this section, most of the direct 
cost estimates for technologies carried over from the MYs 2012-2016 
final rule and subsequently used in this proposal are fundamentally 
unchanged since the MYs 2012-2016 final rule analysis and/or the 2010 
TAR. We say ``fundamentally'' unchanged since the basis of the direct 
manufacturing cost estimates have not changed; however, the costs have 
been updated to more recent dollars, the learning effects have resulted 
in further cost reductions for some technologies, the indirect costs 
are calculated using a modified methodology and the impact of long-term 
ICMs is now present during the rulemaking timeframe. Besides these 
changes, there are also some other notable changes to the costs used in 
previous analyses. We highlight these changes in Section II.D.2.a, 
below. We highlight the changes to the indirect cost methodology and 
adjustments to more recent dollars in Sections II.D.2.b and c. Lastly, 
we present some updated terminology used for our approach to estimating 
learning effects in an effort to eliminate confusion with our past 
terminology. This is discussed in Section II.D.2.d, below.
    The agencies note that the technology costs included in this 
proposal take into account only those associated with the initial build 
of the vehicle. Although comments were received to the MYs 2012-2016 
rulemaking that suggested there could be additional maintenance 
required with some new technologies (e.g., turbocharging, hybrids, 
etc.), and that additional maintenance costs could occur as a result, 
the agencies believe that it is equally possible that maintenance costs 
could decrease for some vehicles, especially when considering full 
electric vehicles (which lack routine engine maintenance) or the 
replacement of automatic transmissions with simpler dual-clutch 
transmissions. The agencies request comment on the possible maintenance 
cost impacts associated with this proposal, reminding potential 
commenters that increased warranty costs are already considered as part 
of the ICMs.
a. Direct Manufacturing Costs (DMC)
    For direct manufacturing costs (DMC) related to turbocharging, 
downsizing, gasoline direct injection, transmissions, as well as non-
battery-related costs on hybrid, plug-in hybrid and electric vehicles, 
the agencies have relied on costs derived from teardown studies. For 
battery related DMC for HEVs, PHEVs and EVs, the agencies have relied 
on the BatPaC model developed by Argonne National Laboratory for the 
Department of Energy. For mass reduction DMC, the agencies have relied 
on several studies as described in detail in the draft Joint TSD. We 
discuss each of these briefly here and in more detail in the draft 
joint TSD. For the majority of the other technologies considered in 
this proposal and described above, the agencies have relied on the 
2012-2016 final rule and sources described there for estimates of DMC.
i. Costs from Tear-down Studies
    As a general matter, the agencies believe that the best method to 
derive technology cost estimates is to conduct studies involving tear-
down and analysis of actual vehicle components. A ``tear-down'' 
involves breaking down a technology into its fundamental parts and 
manufacturing processes by completely disassembling actual vehicles and 
vehicle subsystems and precisely determining what is required for its 
production. The result of the tear-down is a ``bill of materials'' for 
each and every part of the relevant vehicle systems. This tear-down 
method of costing technologies is often used by manufacturers to 
benchmark their products against competitive products. Historically, 
vehicle and vehicle component tear-down has not been done on a large 
scale by researchers and regulators due to the expense required for 
such studies. While tear-down studies are highly accurate at costing 
technologies for the year in which the study is intended, their 
accuracy, like that of all cost projections, may diminish over time as 
costs are extrapolated further into the future because of uncertainties 
in predicting commodities (and raw material) prices, labor rates, and 
manufacturing practices. The projected costs may be higher or lower 
than predicted.
    Over the past several years, EPA has contracted with FEV, Inc. and 
its subcontractor Munro & Associates, to conduct tear-down cost studies 
for a number of key technologies evaluated by the agencies in assessing 
the feasibility of future GHG and CAFE standards. The analysis 
methodology included procedures to scale the tear-down results to 
smaller and larger vehicles, and also to different technology 
configurations. FEV's methodology was documented in a report published 
as part of the MY 2012-2016 rulemaking, detailing the costing of the 
first tear-down conducted in this work (1 in the below 
list).\136\ This report was peer reviewed by experts in the industry 
and revised by FEV in response to the peer review

[[Page 74926]]

comments.\137\ Subsequent tear-down studies (2-5 in the below 
list) were documented in follow-up FEV reports made available in the 
public docket for the MY 2012-2016 rulemaking.\138\
---------------------------------------------------------------------------

    \136\ U.S. EPA, ``Light-Duty Technology Cost Analysis Pilot 
Study,'' Contract No. EP-C-07-069, Work Assignment 1-3, December 
2009, EPA-420-R-09-020, Docket EPA-HQ-OAR-2009-0472-11282.
    \137\ FEV pilot study response to peer review document November 
6, 2009, is at EPA-HQ-OAR-2009-0472-11285.
    \138\ U.S. EPA, ``Light-duty Technology Cost Analysis--Report on 
Additional Case Studies,'' EPA-HQ-OAR-2009-0472-11604.
---------------------------------------------------------------------------

    Since then, FEV's work under this contract work assignment has 
continued. Additional cost studies have been completed and are 
available for public review.\139\ The most extensive study, performed 
after the MY 2012-2016 Final Rule, involved whole-vehicle tear-downs of 
a 2010 Ford Fusion powersplit hybrid and a conventional 2010 Ford 
Fusion. (The latter served as a baseline vehicle for comparison.) In 
addition to providing powersplit HEV costs, the results for individual 
components in these vehicles were subsequently used by FEV/Munro to 
cost another hybrid technology, the P2 hybrid, which employs similar 
hardware. This approach to costing P2 hybrids was undertaken because P2 
HEVs were not yet in volume production at the time of hardware 
procurement for tear-down. Finally, an automotive lithium-polymer 
battery was torn down and costed to provide supplemental battery 
costing information to that associated with the NiMH battery in the 
Fusion. This HEV cost work, including the extension of results to P2 
HEVs, has been extensively documented in a new report prepared by 
FEV.\140\ Because of the complexity and comprehensive scope of this HEV 
analysis, EPA commissioned a separate peer review focused exclusively 
on it. Reviewer comments generally supported FEV's methodology and 
results, while including a number of suggestions for improvement many 
of which were subsequently incorporated into FEV's analysis and final 
report. The peer review comments and responses are available in the 
rulemaking docket.141 142
---------------------------------------------------------------------------

    \139\ FEV, Inc., ``Light-Duty Technology Cost Analysis, Report 
on Additional Transmission, Mild Hybrid, and Valvetrain Technology 
Case Studies'', November 2011.
    \140\ FEV, Inc., ``Light-Duty Technology Cost Analysis, Power-
Split and P2 HEV Case Studies'', EPA-420-R-11-015, November 2011.
    \141\ ICF, ``Peer Review of FEV Inc. Report Light Duty 
Technology Cost Analysis, Power-Split and P2 Hybrid Electric Vehicle 
Case Studies'', EPA-420-R-11-016, November 2011.
    \142\ FEV and EPA, ``FEV Inc. Report `Light Duty Technology Cost 
Analysis, Power-Split and P2 Hybrid Electric Vehicle Case Studies', 
Peer Review Report--Response to Comments Document'', EPA-420-R-11-
017, November 2011.
---------------------------------------------------------------------------

    Over the course of this work assignment, teardown-based studies 
have been performed thus far on the technologies listed below. These 
completed studies provide a thorough evaluation of the new 
technologies' costs relative to their baseline (or replaced) 
technologies.
    1. Stoichiometric gasoline direct injection (SGDI) and 
turbocharging with engine downsizing (T-DS) on a DOHC (dual overhead 
cam) I4 engine, replacing a conventional DOHC I4 engine.
    2. SGDI and T-DS on a SOHC (single overhead cam) on a V6 engine, 
replacing a conventional 3-valve/cylinder SOHC V8 engine.
    3. SGDI and T-DS on a DOHC I4 engine, replacing a DOHC V6 engine.
    4. 6-speed automatic transmission (AT), replacing a 5-speed AT.
    5. 6-speed wet dual clutch transmission (DCT) replacing a 6-speed 
AT.
    6. 8-speed AT replacing a 6-speed AT.
    7. 8-speed DCT replacing a 6-speed DCT.
    8. Power-split hybrid (Ford Fusion with I4 engine) compared to a 
conventional vehicle (Ford Fusion with V6). The results from this tear-
down were extended to address P2 hybrids. In addition, costs from 
individual components in this tear-down study were used by the agencies 
in developing cost estimates for PHEVs and EVs.
    9. Mild hybrid with stop-start technology (Saturn Vue with I4 
engine), replacing a conventional I4 engine. (Although results from 
this cost study are included in the rulemaking docket, they were not 
used by the agencies in this rulemaking's technical analyses.)
    10. Fiat Multi-Air engine technology. (Although results from this 
cost study are included in the rulemaking docket, they were not used by 
the agencies in this rulemaking's technical analyses.)
    Items 6 through 10 in the list above are new since the 2012-2016 
final rule.
    In addition, FEV and EPA extrapolated the engine downsizing costs 
for the following scenarios that were based on the above study cases:
    1. Downsizing a SOHC 2 valve/cylinder V8 engine to a DOHC V6.
    2. Downsizing a DOHC V8 to a DOHC V6.
    3. Downsizing a SOHC V6 engine to a DOHC 4 cylinder engine.
    4. Downsizing a DOHC 4 cylinder engine to a DOHC 3 cylinder engine.
    The agencies have relied on the findings of FEV for estimating the 
cost of the technologies covered by the tear-down studies.
ii. Costs of HEV, EV & PHEV
    The agencies have also reevaluated the costs for HEVs, PHEVs, and 
EVs since both the 2012-2016 final rule and the 2010 TAR. First, 
electrified vehicle technologies are developing rapidly and the 
agencies sought to capture results from the most recent analysis. 
Second, the 2012-2016 rule employed a single $/kWhr estimate and did 
not consider the specific vehicle and technology application for the 
battery when we estimated the cost of the battery. Specifically, 
batteries used in HEVs (high power density applications) versus EVs 
(high energy density applications) need to be considered appropriately 
to reflect the design differences, the chemical material usage 
differences and differences in $/kWhr as the power to energy ratio of 
the battery changes for different applications.
    To address these issues for this proposal, the agencies have done 
two things. First, EPA has developed a spreadsheet tool that was used 
to size the motor and battery based on the different road load of 
various vehicle classes. Second, the agencies have used a battery cost 
model developed by Argonne National Laboratory (ANL) for the Vehicle 
Technologies Program of the U.S. Department of Energy (DOE) Office of 
Energy Efficiency and Renewable Energy.\143\ The model developed by ANL 
allows users to estimate unique battery pack costs using user 
customized input sets for different hybridization applications, such as 
strong hybrid, PHEV and EV. The DOE has established long term industry 
goals and targets for advanced battery systems as it does for many 
energy efficient technologies. ANL was funded by DOE to provide an 
independent assessment of Li-ion battery costs because of ANL's 
expertise in the field as one of the primary DOE National Laboratories 
responsible for basic and applied battery energy storage technologies 
for future HEV, PHEV and EV applications. Since publication of the 2010 
TAR, ANL's battery cost model has been peer-reviewed and ANL has 
updated the model and documentation to incorporate suggestions from 
peer-reviewers, such as including a battery management system, a 
battery disconnect unit, a thermal management system, etc.\144\ In this 
proposal, NHTSA and EPA have used the recently revised version of this 
updated model.
---------------------------------------------------------------------------

    \143\ ANL BatPac model Docket number EPA-HQ-OAR-2010-0799.
    \144\ Nelson, P.A., Santinit, D.J., Barnes, J. ``Factors 
Determining the Manufacturing Costs of Lithium-Ion Batteries for 
PHEVs,'' 24th World Battery, Hybrid and Fuel Cell Electric Vehicle 
Symposium and Exposition EVS-24, Stavenger, Norway, May 13-16, 2009 
(www.evs24.org).
---------------------------------------------------------------------------

    The agencies are using the ANL model as the basis for estimating 
large-

[[Page 74927]]

format lithium-ion batteries for this assessment for the following 
reasons. The model was developed by scientists at ANL who have 
significant experience in this area. The model uses a bill of materials 
methodology for developing cost estimates. The ANL model appropriately 
considers the vehicle application's power and energy requirements, 
which are two of the fundamental parameters when designing a lithium-
ion battery for an HEV, PHEV, or EV. The ANL model can estimate 
production costs based on user defined inputs for a range of production 
volumes. The ANL model's cost estimates, while generally lower than the 
estimates we received from the OEMs, are consistent with some of the 
supplier cost estimates that EPA received from large-format lithium-ion 
battery pack manufacturers. This includes data which was received from 
on-site visits done by the EPA in the 2008-2011 time frame. Finally, 
the ANL model has been described and presented in the public domain and 
does not rely upon confidential business information (which could not 
be reviewed by the public).
    The potential for future reductions in battery cost and 
improvements in battery performance relative to current batteries will 
play a major role in determining the overall cost and performance of 
future PHEVs and EVs. The U.S. Department of Energy manages major 
battery-related R&D programs and partnerships, and has done so for many 
years, including the ANL model utilized in this report. DOE has 
reviewed the battery cost projections underlying this proposal and 
supports the use of the ANL model for the purposes of this rulemaking.
    We have also estimated cost associated with in-home chargers and 
installation of in-home chargers expected to be necessary for PHEVs and 
EVs. Charger costs are covered in more detail in chapter 3 of the draft 
Joint TSD.
iii. Mass Reduction Costs
    The agencies have revised the costs for mass reduction from the MYs 
2012-2016 rule and the 2010 Technical Assessment Report. For this 
proposal, the agencies are relying on a wide assortment of sources from 
the literature as well as data provided from a number of OEMs. Based on 
this review, the agencies have estimated a new cost curve such that the 
costs increase as the levels of mass reduction increase. For the final 
rule the agencies will consider any new studies that become available, 
including two studies that the agencies are sponsoring and expect will 
be completed in time to inform the final rule. These studies are 
discussed in TSD chapter 3.
b. Indirect Costs (IC)
i. Markup Factors to Estimate Indirect Costs
    For this analysis, indirect costs are estimated by applying 
indirect cost multipliers (ICM) to direct cost estimates. ICMs were 
derived by EPA as a basis for estimating the impact on indirect costs 
of individual vehicle technology changes that would result from 
regulatory actions. Separate ICMs were derived for low, medium, and 
high complexity technologies, thus enabling estimates of indirect costs 
that reflect the variation in research, overhead, and other indirect 
costs that can occur among different technologies. ICMs were also 
applied in the MYs 2012-2016 rulemaking.
    Prior to developing the ICM methodology,\145\ EPA and NHTSA both 
applied a retail price equivalent (RPE) factor to estimate indirect 
costs. RPEs are estimated by dividing the total revenue of a 
manufacturer by the direct manufacturing costs. As such, it includes 
all forms of indirect costs for a manufacturer and assumes that the 
ratio applies equally for all technologies. ICMs are based on RPE 
estimates that are then modified to reflect only those elements of 
indirect costs that would be expected to change in response to a 
regulatory-induced technology change. For example, warranty costs would 
be reflected in both RPE and ICM estimates, while marketing costs might 
only be reflected in an RPE estimate but not an ICM estimate for a 
particular technology, if the new regulatory-induced technology change 
is not one expected to be marketed to consumers. Because ICMs 
calculated by EPA are for individual technologies, many of which are 
small in scale, they often reflect a subset of RPE costs; as a result, 
for low complexity technologies, the RPE is typically higher than the 
ICM. This is not always the case, as ICM estimates for particularly 
complex technologies, specifically hybrid technologies (for near term 
ICMs), and plug-in hybrid battery and full electric vehicle 
technologies (for near term and long term ICMs), reflect higher than 
average indirect costs, with the resulting ICMs for those technologies 
equaling or exceeding the averaged RPE for the industry.
---------------------------------------------------------------------------

    \145\ The ICM methodology was developed by RTI International, 
under contract to EPA. The results of the RTI report were published 
in Alex Rogozhin, Michael Gallaher, Gloria Helfand, and Walter 
McManus, ``Using Indirect Cost Multipliers to Estimate the Total 
Cost of Adding New Technology in the Automobile Industry.'' 
International Journal of Production Economics 124 (2010): 360-368.
---------------------------------------------------------------------------

    There is some level of uncertainty surrounding both the ICM and RPE 
markup factors. The ICM estimates used in this proposed action group 
all technologies into four broad categories and treat them as if 
individual technologies within each of the categories (``low'', 
``medium'', ``high1'' and ``high2'' complexity) will have the same 
ratio of indirect costs to direct costs. This simplification means it 
is likely that the direct cost for some technologies within a category 
will be higher and some lower than the estimate for the category in 
general. More importantly, the ICM estimates have not been validated 
through a direct accounting of actual indirect costs for individual 
technologies. Rather, the ICM estimates were developed using adjustment 
factors developed in two separate occasions: the first, a consensus 
process, was reported in the RTI report; the second, a modified Delphi 
method, was conducted separately and reported in an EPA memo.\146\ Both 
these panels were composed of EPA staff members with previous 
background in the automobile industry; the memberships of the two 
panels overlapped but were not identical.\147\ The panels evaluated 
each element of the industry's RPE estimates and estimated the degree 
to which those elements would be expected to change in proportion to 
changes in direct manufacturing costs. The method and estimates in the 
RTI report were peer reviewed by three industry experts and 
subsequently by reviewers for the International Journal of Production 
Economics. RPEs themselves are inherently difficult to estimate because 
the accounting statements of manufacturers do not neatly categorize all 
cost elements as either direct or indirect costs. Hence, each 
researcher developing an RPE estimate must apply a certain amount of 
judgment to the allocation of the costs. Since empirical estimates of 
ICMs are ultimately derived from the same data used to measure RPEs, 
this affects both measures. However, the value of RPE has not been 
measured for specific technologies, or for groups of specific 
technologies. Thus applying a single

[[Page 74928]]

average RPE to any given technology by definition overstates costs for 
very simple technologies, or understates them for advanced 
technologies.
---------------------------------------------------------------------------

    \146\ Helfand, Gloria, and Sherwood, Todd. ``Documentation of 
the Development of Indirect Cost Multipliers for Three Automotive 
Technologies.'' Memorandum, Assessment and Standards Division, 
Office of Transportation and Air Quality, U.S. Environmental 
Protection Agency, August 2009.
    \147\ NHTSA staff participated in the development of the process 
for the second, modified Delphi panel, and reviewed the results as 
they were developed, but did not serve on the panel.
---------------------------------------------------------------------------

    In every recent GHG and fuel economy rulemaking proposal, we have 
requested comment on our ICM factors and whether it is most appropriate 
to use ICMs or RPEs. We have generally received little to no comment on 
the issue specifically, other than basic comments that the ICM values 
are too low. In addition, in the June 2010 NAS report, NAS noted that 
the under the initial ICMs, no technology would be assumed to have 
indirect costs as high as the average RPE. NRC found that ``RPE factors 
certainly do vary depending on the complexity of the task of 
integrating a component into a vehicle system, the extent of the 
required changes to other components, the novelty of the technology, 
and other factors. However, until empirical data derived by means of 
rigorous estimation methods are available, the committee prefers to use 
average markup factors.'' \148\ The committee also stated that ``The 
EPA (Rogozhin et al., 2009), however, has taken the first steps in 
attempting to analyze this problem in a way that could lead to a 
practical method of estimating technology-specific markup factors'' 
where ``this problem'' spoke to the issue of estimating technology-
specific markup factors and indirect cost multipliers.\149\
---------------------------------------------------------------------------

    \148\ NRC, Finding 3-2 at page 3-23.
    \149\ NRC at page 3-19.
---------------------------------------------------------------------------

    The agencies note that, since the committee completed their work, 
EPA has published its work in the Journal of Production Economics \150\ 
and has also published a memorandum furthering the development of 
ICMs,\151\ neither of which the committee had at their disposal. 
Further, having published two final rulemakings--the 2012-2016 light-
duty rule (see 75 FR 25324) and the more recent heavy-duty GHG rule 
(see 76 FR 57106)--as well as the 2010 TAR where ICMs served as the 
basis for all or most of the indirect costs, EPA believes that ICMs are 
indeed fully developed for regulatory purposes. As thinking has 
matured, we have adjusted our ICM factors such that they are slightly 
higher and, importantly, we have changed the way in which the factors 
are applied.
---------------------------------------------------------------------------

    \150\ Alex Rogozhin, Michael Gallaher, Gloria Helfand, and 
Walter McManus, ``Using Indirect Cost Multipliers to Estimate the 
Total Cost of Adding New Technology in the Automobile Industry.'' 
International Journal of Production Economics 124 (2010): 360-368.
    \151\ Helfand, Gloria, and Sherwood, Todd. ``Documentation of 
the Development of Indirect Cost Multipliers for Three Automotive 
Technologies.'' Memorandum, Assessment and Standards Division, 
Office of Transportation and Air Quality, U.S. Environmental 
Protection Agency, August 2009.
---------------------------------------------------------------------------

    The first change--increased ICM factors--has been done as a result 
of further thought among EPA and NHTSA that the ICM factors presented 
in the original RTI report for low and medium complexity technologies 
should no longer be used and that we should rely solely on the 
modified-Delphi values for these complexity levels. For that reason, we 
have eliminated the averaging of original RTI values with modified-
Delphi values and instead are relying solely on the modified-Delphi 
values for low and medium complexity technologies. The second change--
the way the factors are applied--results in the warranty portion of the 
indirect costs being applied as a multiplicative factor (thereby 
decreasing going forward as direct manufacturing costs decrease due to 
learning), and the remainder of the indirect costs being applied as an 
additive factor (thereby remaining constant year-over-year and not 
being reduced due to learning). This second change has a comparatively 
large impact on the resultant technology costs and, we believe, more 
appropriately estimates costs over time. In addition to these changes, 
a secondary-level change was also made as part of this ICM 
recalculation to ICMs. That change was to revise upward the RPE level 
reported in the original RTI report from an original value of 1.46 to 
1.5, to reflect the long term average RPE. The original RTI study was 
based on 2008 data. However, an analysis of historical RPE data 
indicates that, although there is year to year variation, the average 
RPE has remained roughly constant at 1.5. ICMs will be applied to 
future years' data and, therefore, NHTSA and EPA staffs believe that it 
would be appropriate to base ICMs on the historical average rather than 
a single year's result. Therefore, ICMs have been adjusted to reflect 
this average level. These changes to the ICMs and the methodology are 
described in greater detail in Chapter 3 of the draft Joint TSD.
ii. Stranded Capital
    Because the production of automotive components is capital-
intensive, it is possible for substantial capital investments in 
manufacturing equipment and facilities to become ``stranded'' (where 
their value is lost, or diminished). This would occur when the capital 
is rendered useless (or less useful) by some factor that forces a major 
change in vehicle design, plant operations, or manufacturer's product 
mix, such as a shift in consumer demand for certain vehicle types. It 
can also be caused by new standards that phase-in at a rate too rapid 
to accommodate planned replacement or redisposition of existing capital 
to other activities. The lost value of capital equipment is then 
amortized in some way over production of the new technology components.
    It is difficult to quantify accurately any capital stranding 
associated with new technology phase-ins under the proposed standards 
because of the iterative dynamic involved--that is, the new technology 
phase-in rate strongly affects the potential for additional cost due to 
stranded capital, but that additional cost in turn affects the degree 
and rate of phase-in for other individual competing technologies. In 
addition, such an analysis is very company-, factory-, and 
manufacturing process-specific, particularly in regard to finding 
alternative uses for equipment and facilities. Nevertheless, in order 
to account for the possibility of stranded capital costs, the agencies 
asked FEV to perform a separate bounding analysis of potential stranded 
capital costs associated with rapid phase-in of technologies due to new 
standards, using data from FEV's primary teardown-based cost 
analyses.\152\
---------------------------------------------------------------------------

    \152\ FEV, Inc., ``Potential Stranded Capital Analysis on EPA 
Light-Duty Technology Cost Analysis'', Contract No. EP-C-07-069 Work 
Assignment 3-3. November 2011.
---------------------------------------------------------------------------

    The assumptions made in FEV's stranded capital analysis with 
potential for major impacts on results are:
     All manufacturing equipment was bought brand new when the 
old technology started production (no carryover of equipment used to 
make the previous components that the old technology itself replaced).
     10-year normal production runs: Manufacturing equipment 
used to make old technology components is straight-line depreciated 
over a 10-year life.
     Factory managers do not optimize capital equipment phase-
outs (that is, they are assumed to routinely repair and replace 
equipment without regard to whether or not it will soon be scrapped due 
to adoption of new vehicle technology).
     Estimated stranded capital is amortized over 5 years of 
annual production at 450,000 units (of the new technology components). 
This annual production is identical to that assumed in FEV's primary 
teardown-based cost analyses. The 5-year recovery period is chosen to 
help ensure a conservative analysis; the actual recovery would of 
course vary greatly with market conditions.

[[Page 74929]]

    The stranded capital analysis was performed for three transmission 
technology scenarios, two engine technology scenarios, and one hybrid 
technology scenario. The methodology used by EPA in applying the 
results to the technology costs is described in Chapter 3.8.7 and 
Chapter 5.1 of EPA's draft RIA. The methodology used by NHTSA in 
applying the results to the technology costs is described in NHTSA's 
preliminary RIA section V.
c. Cost Adjustment to 2009 Dollars
    This simple change is to update any costs presented in earlier 
analyses to 2009 dollars using the GDP price deflator as reported by 
the Bureau of Economic Analysis on January 27, 2011. The factors used 
to update costs from 2007 and 2008 dollars to 2009 dollars are shown 
below. For the final rule, we are considering moving to 2010 dollars 
but, for this analysis, given the timing of conducting modeling runs 
and developing inputs to those runs, the factors for converting to 2010 
dollars were not yet available.
[GRAPHIC] [TIFF OMITTED] TP01DE11.035

d. Cost Effects Due to Learning
    For many of the technologies considered in this rulemaking, the 
agencies expect that the industry should be able to realize reductions 
in their costs over time as a result of ``learning effects,'' that is, 
the fact that as manufacturers gain experience in production, they are 
able to reduce the cost of production in a variety of ways. The 
agencies continue to apply learning effects in the same way as we did 
in both the MYs 2012-2016 final rule and in the 2010 TAR. However, we 
have employed some new terminology in an effort to eliminate some 
confusion that existed with our old terminology. This new terminology 
was described in the recent heavy-duty GHG final rule (see 76 FR 
57320). Our old terminology suggested we were accounting for two 
completely different learning effects--one based on volume production 
and the other based on time. This was not the case since, in fact, we 
were actually relying on just one learning phenomenon, that being the 
learning-by-doing phenomenon that results from cumulative production 
volumes.
    As a result, the agencies have also considered the impacts of 
manufacturer learning on the technology cost estimates by reflecting 
the phenomenon of volume-based learning curve cost reductions in our 
modeling using two algorithms depending on where in the learning cycle 
(i.e., on what portion of the learning curve) we consider a technology 
to be--``steep'' portion of the curve for newer technologies and 
``flat'' portion of the curve for more mature technologies. The 
observed phenomenon in the economic literature which supports 
manufacturer learning cost reductions are based on reductions in costs 
as production volumes increase with the highest absolute cost reduction 
occurring with the first doubling of production. The agencies use the 
terminology ``steep'' and ``flat'' portion of the curve to distinguish 
among newer technologies and more mature technologies, respectively, 
and how learning cost reductions are applied in cost analyses.
    Learning impacts have been considered on most but not all of the 
technologies expected to be used because some of the expected 
technologies are already used rather widely in the industry and, 
presumably, quantifiable learning impacts have already occurred. The 
agencies have applied the steep learning algorithm for only a handful 
of technologies considered to be new or emerging technologies such as 
PHEV and EV batteries which are experiencing heavy development and, 
presumably, rapid cost declines in coming years. For most technologies, 
the agencies have considered them to be more established and, hence, 
the agencies have applied the lower flat learning algorithm. For more 
discussion of the learning approach and the technologies to which each 
type of learning has been applied the reader is directed to Chapter 3 
of the draft Joint TSD. Note that, since the agencies had to project 
how learning will occur with new technologies over a long period of 
time, we request comments on the assumptions of learning costs and 
methodology. In particular, we are interested in input on the 
assumptions for advanced 27-bar BMEP cooled exhaust gas recirculation 
(EGR) engines, which are currently still in the experimental stage and 
not expected to be available in volume production until 2017. For our 
analysis, we have based estimates of the costs of this engine on 
current (or soon to be current) production technologies (e.g., gasoline 
direct injection fuel systems, engine downsizing, cooled EGR, 18-bar 
BMEP capable turbochargers), and assumed that, since learning (and the 
associated cost reductions) begins in 2012 for them that it also does 
for the similar technologies used in 27-bar BMEP engines. We seek 
comment on the appropriateness of this assumption.\153\
---------------------------------------------------------------------------

    \153\ EPA notes that our modeling projections for the proposed 
CO2 standards show a technology penetration rate of 2% in 
the 2021MY and 5% in the 2025MY for 27-bar BMEP engines and, thus, 
our cost estimates are not heavily reliant on this technology.
---------------------------------------------------------------------------

3. How did the agencies determine the effectiveness of each of these 
technologies?
    In 2007 EPA conducted a detailed vehicle simulation project to 
quantify the effectiveness of a multitude of technologies for the MYs 
2012-2016

[[Page 74930]]

rule (as well as the 2010 NOI). This technical work was conducted by 
the global engineering consulting firm, Ricardo, Inc. and was peer 
reviewed and then published in 2008. For this current rule, EPA has 
conducted another peer reviewed study with Ricardo to broaden the scope 
of the original project in order to expand the range of vehicle classes 
and technologies considered, consistent with a longer-term outlook 
through model years MYs 2017-2025. The extent of the project was vast, 
including hundreds of thousands of vehicle simulation runs. The results 
were, in turn, employed to calibrate and update EPA's lumped parameter 
model, which is used to quantify the synergies and dis-synergies 
associated with combining technologies together for the purposes of 
generating inputs for the agencies respective OMEGA and CAFE modeling.
    Additionally, there were a number of technologies that Ricardo did 
not model explicitly. For these, the agencies relied on a variety of 
sources in the literature. A few of the values are identical to those 
presented in the MYs 2012-2016 final rule, while others were updated 
based on the newer version of the lumped parameter model. More details 
on the Ricardo simulation, lumped parameter model, as well as the 
effectiveness for supplemental technologies are described in Chapter 3 
of the draft Joint TSD.
    The agencies note that the effectiveness values estimated for the 
technologies considered in the modeling analyses may represent average 
values, and do not reflect the virtually unlimited spectrum of possible 
values that could result from adding the technology to different 
vehicles. For example, while the agencies have estimated an 
effectiveness of 0.6 to 0.8 percent, depending on the vehicle subclass 
for low friction lubricants, each vehicle could have a unique 
effectiveness estimate depending on the baseline vehicle's oil 
viscosity rating. Similarly, the reduction in rolling resistance (and 
thus the improvement in fuel economy and the reduction in 
CO2 emissions) due to the application of low rolling 
resistance tires depends not only on the unique characteristics of the 
tires originally on the vehicle, but on the unique characteristics of 
the tires being applied, characteristics which must be balanced between 
fuel efficiency, safety, and performance. Aerodynamic drag reduction is 
much the same--it can improve fuel economy and reduce CO2 
emissions, but it is also highly dependent on vehicle-specific 
functional objectives. For purposes of the proposal, NHTSA and EPA 
believe that employing average values for technology effectiveness 
estimates, as adjusted depending on vehicle subclass, is an appropriate 
way of recognizing the potential variation in the specific benefits 
that individual manufacturers (and individual vehicles) might obtain 
from adding a fuel-saving technology.

E. Joint Economic and Other Assumptions

    The agencies' analysis of CAFE and GHG standards for the model 
years covered by this proposed rulemaking rely on a range of forecast 
information, estimates of economic variables, and input parameters. 
This section briefly describes the agencies' proposed estimates of each 
of these values. These values play a significant role in assessing the 
benefits of both CAFE and GHG standards.
    In reviewing these variables and the agencies' estimates of their 
values for purposes of this NPRM, NHTSA and EPA reconsidered comments 
that the agencies previously received on both the Interim Joint TAR and 
during the MYs 2012-2016 light duty vehicle rulemaking and also 
reviewed newly available literature. As a consequence, for today's 
proposal, the agencies are proposing to update some economic 
assumptions and parameter estimates, while retaining a majority of 
values consistent with the Interim Joint TAR and the MYs 2012-2016 
final rule. To review the parameters and assumptions the agencies used 
in the 2012-2016 final rule, please refer to 75 FR 25378 and Chapter 4 
of the Joint Technical Support Document that accompanied the final 
rule.\154\ The proposed values summarized below are discussed in 
greater detail in Chapter 4 of the joint TSD that accompanies this 
proposal and elsewhere in the preamble and respective RIAs. The 
agencies seek comment on all of the assumptions discussed below.
---------------------------------------------------------------------------

    \154\ See http://www.epa.gov/otaq/climate/regulations/420r10901.pdf.
---------------------------------------------------------------------------

     Costs of fuel economy-improving technologies--These inputs 
are discussed in summary form above and in more detail in the agencies' 
respective sections of this preamble, in Chapter 3 of the draft joint 
TSD, and in the agencies' respective RIAs. The technology direct 
manufacturing cost estimates used in this analysis are intended to 
represent manufacturers' direct costs for high-volume production of 
vehicles with these technologies in the year for which we state the 
cost is considered ``valid.'' Technology direct manufacturing cost 
estimates are fundamentally unchanged from those employed by the 
agencies in the 2012-2016 final rule, the heavy-duty truck rule (to the 
extent relevant), and TAR for most technologies, although revised costs 
are used for batteries, mass reduction, transmissions, and a few other 
technologies. Indirect costs are accounted for by applying near-term 
indirect cost multipliers ranging from 1.24 to 1.77 to the estimates of 
vehicle manufacturers' direct costs for producing or acquiring each 
technology, depending on the complexity of the technology and the time 
frame over which costs are estimated. These values are reduced to 1.19 
to 1.50 over the long run as some aspects of indirect costs decline. 
Indirect cost markup factors have been revised from previous 
rulemakings and the Interim Joint TAR to reflect the agencies current 
thinking regarding a number of issues. These changes are discussed in 
detail in Section II.D.2 of this preamble and in Chapter 3 of the draft 
joint TSD. Details of the agencies' technology cost assumptions and how 
they were derived can be found in Chapter 3 of the draft joint TSD.
     Potential opportunity costs of improved fuel economy--This 
issue addresses the possibility that achieving the fuel economy 
improvements required by alternative CAFE or GHG standards would 
require manufacturers to compromise the performance, carrying capacity, 
safety, or comfort of their vehicle models. If it did so, the resulting 
sacrifice in the value of these attributes to consumers would represent 
an additional cost of achieving the required improvements, and thus of 
manufacturers' compliance with stricter standards. Currently the 
agencies project that these vehicle attributes will not change as a 
result of this rule. Section II.C above and Chapter 2 of the draft 
joint TSD describes how the agency carefully selected an attribute-
based standard to minimize manufacturers' incentive to reduce vehicle 
capabilities. While manufacturers may choose to do this for other 
reasons, the agencies continue to believe that the rule itself will not 
result in such changes. Additionally, EPA and NHTSA have sought to 
include the cost of maintaining these attributes as part of the cost 
estimates for technologies that are included in the cost analysis for 
the proposal. For example, downsized engines are assumed to be 
turbocharged, so that they provide the same performance and utility 
even though they are smaller.\155\ Nonetheless, it is

[[Page 74931]]

possible that in some cases, the technology cost estimates may not 
include adequate allowance for the necessary efforts by manufacturers 
to maintain vehicle acceleration performance, payload, or utility while 
improving fuel economy and reducing GHG emissions. As described in 
Section III.D.3 and Section IV.G, there are two possible exceptions in 
cases where some vehicle types are converted to hybrid or full electric 
vehicles (EVs), but, in such cases, we believe that sufficient options 
would exist for consumers concerned about the possible loss of utility 
(e.g., they would purchase the non-hybridized version of the vehicle or 
not buy an EV) that welfare loss should not necessarily be assumed. 
Although consumer vehicle demand models can measure these effects, past 
analyses using such models have not produced consistent estimates of 
buyers' willingness-to-pay for higher fuel economy, and it is difficult 
to decide whether one data source, model specification, or estimation 
procedure is clearly preferred over another. Thus, the agencies seek 
comment on how to estimate explicitly the changes in vehicle buyers' 
choices and welfare from the combination of higher prices for new 
vehicle models, increases in their fuel economy, and any accompanying 
changes in vehicle attributes such as performance, passenger- and 
cargo-carrying capacity, or other dimensions of utility.
---------------------------------------------------------------------------

    \155\ The agencies do not believe that adding fuel-saving 
technology should preclude future improvements in performance, 
safety, or other attributes, though it is possible that the costs of 
these additions may be affected by the presence of fuel-saving 
technology.
---------------------------------------------------------------------------

     The on-road fuel economy ``gap''--Actual fuel economy 
levels achieved by light-duty vehicles in on-road driving fall somewhat 
short of their levels measured under the laboratory test conditions 
used by EPA to establish compliance with the proposed CAFE and GHG 
standards. The modeling approach in this proposal follows the 2012-2016 
final rule and the Interim Joint TAR. In calculating benefits of the 
program, the agencies estimate that actual on-road fuel economy 
attained by light-duty vehicles that operate on liquid fuels will be 20 
percent lower than published fuel economy ratings for vehicles that 
operate on liquid fuels. For example, if the measured CAFE fuel economy 
value of a light truck is 20 mpg, the on-road fuel economy actually 
achieved by a typical driver of that vehicle is expected to be 16 mpg 
(20*.80).\156\ Based on manufacturer confidential business information, 
as well as data derived from the 2006 EPA fuel economy label rule, the 
agencies use a 30 percent gap for consumption of wall electricity for 
electric vehicles and plug-in hybrid electric vehicles.\157\
---------------------------------------------------------------------------

    \156\ U.S. Environmental Protection Agency, Final Technical 
Support Document, Fuel Economy Labeling of Motor Vehicle Revisions 
to Improve Calculation of Fuel Economy Estimates, EPA420-R-06-017, 
December 2006.
    \157\ See 71 FR at 77887, and U.S. Environmental Protection 
Agency, Final Technical Support Document, Fuel Economy Labeling of 
Motor Vehicle Revisions to Improve Calculation of Fuel Economy 
Estimates, EPA420-R-06-017, December 2006 for general background on 
the analysis. See also EPA's Response to Comments (EPA-420-R-11-005) 
to the 2011 labeling rule, page 189, first paragraph, specifically 
the discussion of the derived five cycle equation and the non-linear 
adjustment with increasing MPG.
---------------------------------------------------------------------------

     Fuel prices and the value of saving fuel--Projected future 
fuel prices are a critical input into the preliminary economic analysis 
of alternative standards, because they determine the value of fuel 
savings both to new vehicle buyers and to society, and fuel savings 
account for the majority of the proposed rule's estimated benefits. For 
this proposed rule, the agencies are using the most recent fuel price 
projections from the U.S. Energy Information Administration's (EIA) 
Annual Energy Outlook (AEO) 2011 reference case forecast. The forecasts 
of fuel prices reported in EIA's AEO 2011 extend through 2035. Fuel 
prices beyond the time frame of AEO's forecast were estimated using an 
average growth rate for the years 2017-2035 to each year after 2035. 
This is the same methodology used by the agencies in the 2012-2016 
rulemaking, in the heavy duty truck and engine rule (76 FR 57106), and 
in the Interim Joint TAR. For example, these forecasts of gasoline fuel 
prices in 2009$ include $3.25 per gallon in 2017, $3.39 in 2021 and 
$3.71 in 2035. Extrapolating as described above, retail gasoline prices 
reach $4.16 per gallon in 2050 (measured in constant 2009 dollars). As 
discussed in Chapter 4 of the draft Joint TSD, while the agencies 
believe that EIA's AEO reference case generally represents a reasonable 
forecast of future fuel prices for purposes of use in our analysis of 
the benefits of this rule, we recognize that there is a great deal of 
uncertainty in any such forecast that could affect our estimates. The 
agencies request comment on how best to account for uncertainty in 
future fuel prices.
     Consumer valuation of fuel economy and payback period--In 
estimating the value of fuel economy improvements to potential vehicle 
buyers that would result from alternative CAFE and GHG standards, the 
agencies assume that buyers value the resulting fuel savings over only 
part of the expected lifetimes of the vehicles they purchase. 
Specifically, we assume that buyers value fuel savings over the first 
five years of a new vehicle's lifetime, and that buyers discount the 
value of these future fuel savings. The five-year figure represents the 
current average term of consumer loans to finance the purchase of new 
vehicles.
     Vehicle sales assumptions--The first step in estimating 
lifetime fuel consumption by vehicles produced during a model year is 
to calculate the number that are expected to be produced and sold. The 
agencies relied on the AEO 2011 Reference Case for forecasts of total 
vehicle sales, while the baseline market forecast developed by the 
agencies (discussed in Section II.B and in Chapter 1 of the TSD) 
divided total projected sales into sales of cars and light trucks.
     Vehicle lifetimes and survival rates--As in the 2012-2016 
final rule and Interim Joint TAR, we apply updated values of age-
specific survival rates for cars and light trucks to adjusted forecasts 
of passenger car and light truck sales to determine the number of these 
vehicles expected to remain in use during each year of their lifetimes. 
These values remain unchanged from prior analyses.
     Vehicle miles traveled--We calculated the total number of 
miles that cars and light trucks produced in each model year will be 
driven during each year of their lifetimes using estimates of annual 
vehicle use by age tabulated from the Federal Highway Administration's 
2001 National Household Travel Survey (NHTS),\158\ adjusted to account 
for the effects on vehicle use of subsequent increases in fuel prices. 
In order to insure that the resulting mileage schedules imply 
reasonable estimates of future growth in total car and light truck use, 
we calculated the rate of future growth in annual mileage at each age 
that would be necessary for total car and light truck travel to 
increase at the rates forecast in the AEO 2011 Reference Case. The 
growth rate in average annual car and light truck use produced by this 
calculation is approximately 1 percent per year through 2030 and 0.5 
percent thereafter. We applied these growth rates applied to the 
mileage figures derived from the 2001 NHTS to estimate annual mileage 
by vehicle age during each year of the expected lifetimes of MY 2017-
2025 vehicles. A similar approach to estimating future vehicle use was 
used in the 2012-2016 final rule and Interim Joint TAR, but the

[[Page 74932]]

future growth rates in average vehicle use have been revised for this 
proposal.
---------------------------------------------------------------------------

    \158\ For a description of the Survey, see http://www.bts.gov/programs/national_household_travel_survey/ (last accessed Sept. 
9, 2011).
---------------------------------------------------------------------------

     Accounting for the rebound effect of higher fuel economy--
The rebound effect refers to the increase in vehicle use that results 
if an increase in fuel efficiency lowers the cost of driving. For 
purposes of this NPRM, the agencies elected to continue to use a 10 
percent rebound effect in their analyses of fuel savings and other 
benefits from higher standards, consistent with the 2012-2016 light-
duty vehicle rulemaking and the Interim Joint TAR. That is, we assume a 
10 percent decrease in fuel cost per mile resulting from our proposed 
standards would result in a 1 percent increase in the annual number of 
miles driven at each age over a vehicle's lifetime. In Chapter 4 of the 
joint TSD, we provide a detailed explanation of the basis for our 
rebound estimate, including a summary of new literature published since 
the 2012-2016 rulemaking that lends further support to the 10 percent 
rebound estimate. We also refer the reader to Chapters X and XII of 
NHTSA's PRIA and Chapter 4 of the EPA DRIA that accompanies this 
preamble for sensitivity and uncertainty analyses of alternative 
rebound assumptions.
     Benefits from increased vehicle use--The increase in 
vehicle use from the rebound effect provides additional benefits to 
drivers, who may make more frequent trips or travel farther to reach 
more desirable destinations. This additional travel provides benefits 
to drivers and their passengers by improving their access to social and 
economic opportunities away from home. The analysis estimates the 
economic benefits from increased rebound-effect driving as the sum of 
the fuel costs they incur in that additional travel plus the consumer 
surplus drivers receive from the improved accessibility their travel 
provides. As in the 2012-2016 final rule we estimate the economic value 
of this consumer surplus using the conventional approximation, which is 
one half of the product of the decline in vehicle operating costs per 
vehicle-mile and the resulting increase in the annual number of miles 
driven.
     Added costs from congestion, accidents, and noise--
Although it provides benefits to drivers as described above, increased 
vehicle use associated with the rebound effect also contributes to 
increased traffic congestion, motor vehicle accidents, and highway 
noise. Depending on how the additional travel is distributed over the 
day and where it takes place, additional vehicle use can contribute to 
traffic congestion and delays by increasing traffic volumes on 
facilities that are already heavily traveled. These added delays impose 
higher costs on drivers and other vehicle occupants in the form of 
increased travel time and operating expenses. At the same time, this 
travel also increases costs associated with traffic accidents, and 
increased traffic noise. The agencies rely on estimates of congestion, 
accident, and noise costs caused by automobiles and light trucks 
developed by the Federal Highway Administration to estimate these 
increased external costs caused by added driving.\159\ This method is 
consistent with the 2012-2016 final rule.
---------------------------------------------------------------------------

    \159\ These estimates were developed by FHWA for use in its 1997 
Federal Highway Cost Allocation Study; http://www.fhwa.dot.gov/policy/hcas/final/index.htm (last accessed Sept. 9, 2011).
---------------------------------------------------------------------------

     Petroleum consumption and import externalities--U.S. 
consumption of imported petroleum products also impose costs on the 
domestic economy that are not reflected in the market price for crude 
petroleum, or in the prices paid by consumers of petroleum products 
such as gasoline. These costs include (1) higher prices for petroleum 
products resulting from the effect of increased U.S. demand for 
imported oil on the world oil price (``monopsony costs''); (2) the 
expected costs associated with the risk of disruptions to the U.S. 
economy caused by sudden reductions in the supply of imported oil to 
the U.S.; and (3) expenses for maintaining a U.S. military presence to 
secure imported oil supplies from unstable regions, and for maintaining 
the strategic petroleum reserve (SPR) to cushion the U.S. economy 
against the effects of oil supply disruptions.\160\ Although the 
reduction in the global price of petroleum and refined products due to 
decreased demand for fuel in the U.S. resulting from this rule 
represents a benefit to the U.S. economy, it simultaneously represents 
an economic loss to other countries that produce and sell oil or 
petroleum products to the U.S. Recognizing the redistributive nature of 
this ``monopsony effect'' when viewed from a global perspective (which 
is consistent with the agencies' use of a global estimate for the 
social cost of carbon to value reductions in CO2 emissions, 
the energy security benefits estimated to result from this program 
exclude the value of this monopsony effect. In contrast, the 
macroeconomic disruption and adjustment costs that arise from sudden 
reductions in the supply of imported oil to the U.S. do not have 
offsetting impacts outside of the U.S., so the estimated reduction in 
their expected value stemming from reduced U.S. petroleum imports is 
included in the energy security benefits estimated for this program. 
U.S. military costs are excluded from the analysis because their 
attribution to particular missions or activities is difficult. Also, 
historical variation in U.S. military costs have not been associated 
with changes in U.S. petroleum imports, although we recognize that more 
broadly, there may be significant (if unquantifiable) benefits in 
improving national security by reducing oil imports. Similarly, since 
the size or other factors affecting the cost of maintaining the SPR 
historically have not varied in response to changes in U.S. oil import 
levels, changes in the costs of the SPR are excluded from the estimates 
of the energy security benefits of the program. To summarize, the 
agencies have included only the macroeconomic disruption and adjustment 
costs portion of the energy security benefits to estimate the monetary 
value of the total energy security benefits of this program. Based on a 
recent update of an earlier peer-reviewed Oak Ridge National Laboratory 
study that was used in support of the both the 2012-2016 light duty 
vehicle and the 2014-2018 medium- and heavy-duty vehicle rulemaking, we 
estimate that each gallon of fuel saved will reduce the expected 
macroeconomic disruption and adjustment costs of sudden reductions in 
the supply of imported oil to the U.S. economy by $0.185 (2009$) in 
2025. Each gallon of fuel saved as a consequence of higher standards is 
anticipated to reduce total U.S. imports of crude petroleum or refined 
fuel by 0.95 gallons.\161\ The energy security analysis conducted for 
this proposal also estimates that the world price of oil will fall 
modestly in response to lower U.S. demand for refined 
fuel.162 163 The energy security

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methodology used in this proposal is the same as that used by the 
agencies in both the 2012-2016 light duty vehicle and 2014-2018 medium- 
and heavy-duty vehicle rulemakings. In those rulemakings, the agencies 
addressed comments about the magnitude of their energy security 
estimates and methodological issues such as whether to include the 
monopsony benefits in energy security calculations.
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    \160\ See, e.g., Bohi, Douglas R. and W. David Montgomery 
(1982). Oil Prices, Energy Security, and Import Policy Washington, 
DC: Resources for the Future, Johns Hopkins University Press; Bohi, 
D. R., and M. A. Toman (1993). ``Energy and Security: Externalities 
and Policies,'' Energy Policy 21:1093-1109; and Toman, M. A. (1993). 
``The Economics of Energy Security: Theory, Evidence, Policy,'' in 
A. V. Kneese and J. L. Sweeney, eds. (1993). Handbook of Natural 
Resource and Energy Economics, Vol. III. Amsterdam: North-Holland, 
pp. 1167-1218.
    \161\ Each gallon of fuel saved is assumed to reduce imports of 
refined fuel by 0.5 gallons, and the volume of fuel refined 
domestically by 0.5 gallons. Domestic fuel refining is assumed to 
utilize 90 percent imported crude petroleum and 10 percent 
domestically-produced crude petroleum as feedstocks. Together, these 
assumptions imply that each gallon of fuel saved will reduce imports 
of refined fuel and crude petroleum by 0.50 gallons + 0.50 
gallons*90 percent = 0.50 gallons + 0.45 gallons = 0.95 gallons.
    \162\ Leiby, Paul. Oak Ridge National Laboratory. ``Approach to 
Estimating the Oil Import Security Premium for the MY 2017-2025 
Light Duty Vehicle Proposal'' 2011.
    \163\ Note that this change in world oil price is not reflected 
in the AEO projections described earlier in this section.
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     Air pollutant emissions--
    [cir] Impacts on criteria air pollutant emissions--Criteria air 
pollutants emitted by vehicles and during fuel production and 
distribution include carbon monoxide (CO), hydrocarbon compounds 
(usually referred to as ``volatile organic compounds,'' or VOC), 
nitrogen oxides (NOX), fine particulate matter 
(PM2.5), and sulfur oxides (SOX). Although 
reductions in domestic fuel refining and distribution that result from 
lower fuel consumption will reduce U.S. emissions of these pollutants, 
additional vehicle use associated with the rebound effect, and 
additional electricity production will increase emissions. Thus the net 
effect of stricter standards on emissions of each criteria pollutant 
depends on the relative magnitudes of reduced emissions from fuel 
refining and distribution, and increases in emissions resulting from 
added vehicle use. The agencies' analysis assumes that the per-mile 
emission rates for cars and light trucks produced during the model 
years affected by the proposed rule will remain constant at the levels 
resulting from EPA's Tier 2 light duty vehicle emissions standards. The 
agencies' approach to estimating criteria air pollutant emissions is 
consistent with the method used in the 2012-2016 final rule (where the 
agencies received no significant adverse comments), although the 
agencies employ a more recent version of the EPA's MOVES (Motor Vehicle 
Emissions Simulator) model.
    [cir] Economic value of reductions in criteria pollutant 
emissions--For the purpose of the joint technical analysis, EPA and 
NHTSA estimate the economic value of the human health benefits 
associated with reducing population exposure to PM2.5 using 
a ``benefit-per-ton'' method. These PM2.5-related benefit-
per-ton estimates provide the total monetized benefits to human health 
(the sum of reductions in premature mortality and premature morbidity) 
that result from eliminating one ton of directly emitted 
PM2.5, or one ton of other pollutants that contribute to 
atmospheric levels of PM2.5 (such as NOX, 
SOX, and VOCs), from a specified source. These unit values 
remain unchanged from the 2012-2016 final rule, and the agencies 
received no significant adverse comment on the analysis. Note that the 
agencies' analysis includes no estimates of the direct health or other 
benefits associated with reductions in emissions of criteria pollutants 
other than PM2.5.
    [cir] Impacts on greenhouse gas (GHG) emissions--NHTSA estimates 
reductions in emissions of carbon dioxide (CO2) from 
passenger car and light truck use by multiplying the estimated 
reduction in consumption of fuel (gasoline and diesel) by the quantity 
or mass of CO2 emissions released per gallon of fuel 
consumed. EPA directly calculates reductions in total CO2 
emissions from the projected reductions in CO2 emissions by 
each vehicle subject to the proposed rule.\164\ Both agencies also 
calculate the impact on CO2 emissions that occur during fuel 
production and distribution resulting from lower fuel consumption, as 
well as the emission impacts due to changes in electricity production. 
Although CO2 emissions account for nearly 95 percent of 
total GHG emissions that result from fuel combustion during vehicle 
use, emissions of other GHGs are potentially significant as well 
because of their higher ``potency'' as GHGs than that of CO2 
itself. EPA and NHTSA therefore also estimate the change in upstream 
and downstream emissions of non-CO2 GHGs that occur during 
the aforementioned processes due to their respective standards.\165\ 
The agencies approach to estimating GHG emissions is consistent with 
the method used in the 2012-2016 final rule and the Interim Joint TAR.
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    \164\ The weighted average CO2 content of 
certification gasoline is estimated to be 8,887 grams per gallon, 
while that of diesel fuel is estimated to be approximately 10,200 
grams per gallon.
    \165\ There is, however, an exception. NHTSA does not and cannot 
claim benefit from reductions in downstream emissions of HFCs 
because they do not relate to fuel economy, while EPA does because 
all GHGs are relevant for purposes of EPA's Clean Air Act standards.
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    [cir] Economic value of reductions in CO2 emissions--EPA 
and NHTSA assigned a dollar value to reductions in CO2 
emissions using recent estimates of the ``social cost of carbon'' (SCC) 
developed by a federal interagency group that included the two 
agencies. As that group's report observed, ``The SCC is an estimate of 
the monetized damages associated with an incremental increase in carbon 
emissions in a given year. It is intended to include (but is not 
limited to) changes in net agricultural productivity, human health, 
property damages from increased flood risk, and the value of ecosystem 
services due to climate change.'' \166\ Published estimates of the SCC 
vary widely as a result of uncertainties about future economic growth, 
climate sensitivity to GHG emissions, procedures used to model the 
economic impacts of climate change, and the choice of discount 
rates.\167\ The SCC estimates used in this analysis were developed 
through an interagency process that included EPA, DOT/NHTSA, and other 
executive branch entities, and concluded in February 2010. We first 
used these SCC estimates in the benefits analysis for the 2012-2016 
light-duty vehicle rulemaking. We have continued to use these estimates 
in other rulemaking analyses, including the Greenhouse Gas Emission 
Standards and Fuel Efficiency Standards for Medium- and Heavy-Duty 
Engines and Vehicles (76 FR 57106, p. 57332) . The SCC Technical 
Support Document (SCC TSD) provides a complete discussion of the 
methods used to develop these SCC estimates.
---------------------------------------------------------------------------

    \166\ SCC TSD, see page 2. Docket ID EPA-HQ-OAR-2009-0472-
114577, Technical Support Document: Social Cost of Carbon for 
Regulatory Impact Analysis Under Executive Order 12866, Interagency 
Working Group on Social Cost of Carbon, with participation by 
Council of Economic Advisers, Council on Environmental Quality, 
Department of Agriculture, Department of Commerce, Department of 
Energy, Department of Transportation, Environmental Protection 
Agency, National Economic Council, Office of Energy and Climate 
Change, Office of Management and Budget, Office of Science and 
Technology Policy, and Department of Treasury (February 2010). Also 
available at http://epa.gov/otaq/climate/regulations.htm
    \167\ SCC TSD, see pages 6-7.
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     The value of changes in driving range--By reducing the 
frequency with which drivers typically refuel their vehicles, and by 
extending the upper limit of the range they can travel before requiring 
refueling, improving fuel economy and reducing GHG emissions provides 
additional benefits to their owners. The primary benefits from the 
reduction in the number of required refueling cycles are the value of 
time saved to drivers and other adult vehicle occupants, as well as the 
savings to owners in terms of the cost of the fuel that would have 
otherwise been consumed in transit during those (now no longer 
required) refueling trips. Using recent data on vehicle owners' 
refueling patterns gathered from a survey conducted by the National 
Automotive Sampling System (NASS), NHTSA was able to better estimate 
parameters associated with refueling trips. NASS data provided NHTSA 
with

[[Page 74934]]

the ability to estimate the average time required for a refueling trip, 
the average time and distance drivers typically travel out of their way 
to reach fueling stations, the average number of adult vehicle 
occupants, the average quantity of fuel purchased, and the distribution 
of reasons given by drivers for refueling. From these estimates, NHTSA 
constructed an updated set of economic assumptions to update those used 
in the 2012-2016 FRM in calculating refueling-related benefits. The 
2012-2016 FRM discusses NHTSA's intent to utilize the NASS data on 
refueling trip characteristics in future rulemakings. While the NASS 
data improve the precision of the inputs used in the analysis of the 
benefits resulting from fewer refueling cycles, the framework of the 
analysis remains essentially the same as in the 2012-2016 final rule. 
Note that this topic and associated benefits were not covered in the 
Interim Joint TAR. Detailed discussion and examples of the agencies' 
approach are provided in Chapter VIII of NHTSA's PRIA and Chapter 8 of 
EPA's DRIA.
     Discounting future benefits and costs--Discounting future 
fuel savings and other benefits is intended to account for the 
reduction in their value to society when they are deferred until some 
future date, rather than received immediately.\168\ The discount rate 
expresses the percent decline in the value of these future fuel-savings 
and other benefits--as viewed from today's perspective--for each year 
they are deferred into the future. In evaluating the non-climate 
related benefits of the final standards, the agencies have employed 
discount rates of both 3 percent and 7 percent, consistent with the 
2012-2016 final rule and OMB Circular A-4 guidance.
---------------------------------------------------------------------------

    \168\ Because all costs associated with improving vehicles' fuel 
economy and reducing CO2 emissions are assumed to be 
incurred at the time they are produced, these costs are already 
expressed in their present values as of each model year affected by 
the proposed rule, and require discounting only for the purpose of 
expressing them as present values as of a common year.
---------------------------------------------------------------------------

    For the reader's reference, Table II-8 and Table II-9 below 
summarize the values used to calculate the impacts of each proposed 
standard. The values presented in this table are summaries of the 
inputs used for the models; specific values used in the agencies' 
respective analyses may be aggregated, expanded, or have other relevant 
adjustments. See Joint TSD 4 and each agency's respective RIA for 
details. The agencies seek comment on the economic assumptions 
presented in the table.
    In addition, the agencies analyzed the sensitivity of their 
estimates of the benefits and costs associated with this proposed rule 
to variation in the values of many of these economic assumptions and 
other inputs. The values used in these sensitivity analyses and their 
results are presented their agencies' respective RIAs. A wide range of 
estimates is available for many of the primary inputs that are used in 
the agencies' CAFE and GHG emissions models. The agencies recognize 
that each of these values has some degree of uncertainty, which the 
agencies further discuss in the draft Joint TSD. The agencies have 
tested the sensitivity of their estimates of costs and benefits to a 
range of assumptions about each of these inputs, and present these 
sensitivity analyses in their respective RIAs. For example, NHTSA 
conducted separate sensitivity analyses for, among other things, 
discount rates, fuel prices, the social cost of carbon, the rebound 
effect, consumers' valuation of fuel economy benefits, battery costs, 
mass reduction costs, the value of a statistical life, and the indirect 
cost markup factor. This list is similar in scope to the list that was 
examined in the MY 2012-2016 final rule, but includes battery costs and 
mass reduction costs, while dropping military security and monopsony 
costs. NHTSA's sensitivity analyses are contained in Chapter X of 
NHTSA's PRIA. EPA conducted sensitivity analyses on the rebound effect, 
battery costs, mass reduction costs, the indirect cost markup factor 
and on the cost learning curves used in this analysis. These analyses 
are found in Chapters 3 and 4 of the EPA DRIA. In addition, NHTSA 
performs a probabilistic uncertainty analysis examining simultaneous 
variation in the major model inputs including technology costs, 
technology benefits, fuel prices, the rebound effect, and military 
security costs. This information is provided in Chapter XII of NHTSA's 
PRIA. These uncertainty parameters are consistent with those used in 
the MY 2012-2016 final rule. The agencies will consider conducting 
additional sensitivity and uncertainty analyses for the final rule as 
appropriate.
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F. Air Conditioning Efficiency CO2 Credits and Fuel 
Consumption Improvement Values, Off-cycle Reductions, and Full-size 
Pickup Trucks

    For MYs 2012-2016, EPA provided an option for manufacturers to 
generate credits for complying with GHG standards by incorporating 
efficiency improving vehicle technologies that would reduce 
CO2 and fuel consumption from air conditioning (A/C) 
operation or from other vehicle operation that is not captured by the 
Federal Test Procedure (FTP) and Highway Fuel Economy Test (HFET), also 
collectively known as the ``two-cycle'' test procedure. EPA referred to 
these credits as ``off-cycle credits.''
    For this proposal, EPA, in coordination with NHTSA, is proposing 
under their EPCA authorities to allow manufacturers to generate fuel 
consumption improvement values for purposes of CAFE compliance based on 
the use of A/C efficiency and off-cycle technologies. This proposed 
expansion is a change from the 2012-16 final rule where EPA only 
provided the A/C efficiency and off-cycle credits for the GHG program. 
EPA is not proposing to allow these increases for compliance with the 
CAFE program for MYs 2012-2016, nor to allow any compliance with the 
CAFE program as a result of reductions in direct A/C emissions 
resulting from leakage of HFCs from air conditioning systems, which 
remains a flexibility unique to the GHG program.
    The agencies believe that because of the significant amount of 
credits and fuel consumption improvement values offered under the A/C 
program (up to 5.0 g/mi for cars and 7.2 g/mi for trucks which is 
equivalent to a fuel consumption improvement value of 0.000563 gal/mi 
for cars and 0.000586 gal/mi for trucks) that manufacturers will 
maximize the benefits these credits and fuel consumption improvement 
values afford. Consistent with the 2012-2016 final rule, EPA will 
continue to adjust the stringency of the two-cycle tailpipe 
CO2 standards in order to account for this projected 
widespread penetration of A/C credits (as described more fully in 
Section III.C), and NHTSA has also accounted for expected A/C 
efficiency improvements in determining the maximum feasible CAFE 
standards. The agencies discuss these proposed CO2 credits/
fuel consumption improvement values below and in more detail in the 
Joint TSD (Chapter 5). EPA discusses additional proposed GHG A/C 
leakage credits that are unrelated to CO2 and fuel 
consumption (though they are part of EPA's CO2 equivalent 
calculation) in Section III.C below.
    EPA, in coordination with NHTSA, is also proposing to add for MYs 
2017-2025 a new incentive for Advanced Technology for Full Sized Pickup 
Trucks. Under its EPCA authority for CAFE and under its CAA authority 
for GHGs, EPA is proposing GHG credits and fuel economy improvement 
values for manufacturers that hybridize a significant quantity of their 
full size pickup trucks, or that use other technologies that 
significantly reduce CO2 emissions and fuel consumption. 
Further discussions of the A/C, off-cycle, and the advanced technology 
for pick-up truck incentive programs are provided below.
1. Proposed Air Conditioning CO2 Credits and Fuel 
Consumption Improvement Values
    The credits/fuel consumption improvement values for higher-
efficiency air conditioning technologies are very similar to those EPA 
included in the 2012-2016 GHG final rule. The proposed credits/fuel 
consumption improvement values represent an improved understanding of 
the relationships between A/C technologies and CO2 emissions 
and fuel consumption. Much of this

[[Page 74938]]

understanding results from a new vehicle simulation tool that EPA has 
developed and the agencies are using for this proposal. EPA designed 
this model to simulate in an integrated way the dynamic behavior of the 
several key systems that affect vehicle efficiency: The engine, 
electrical, transmission, and vehicle systems. The simulation model is 
supported by data from a wide range of sources; Chapter 2 of the Draft 
Regulatory Impact Analysis discusses its development in more detail.
    The agencies have identified several technologies that are key to 
the amount of fuel a vehicle consumes and thus the amount of 
CO2 it emits. Most of these technologies already exist on 
current vehicles, but manufacturers can improve the energy efficiency 
of the technology designs and operation. For example, most of the 
additional air conditioning related load on an engine is due to the 
compressor which pumps the refrigerant around the system loop. The less 
the compressor operates, the less load the compressor places on the 
engine resulting in less fuel consumption and CO2 emissions. 
Thus, optimizing compressor operation with cabin demand using more 
sophisticated sensors, controls and control strategies, is one path to 
improving the overall efficiency of the A/C system. Additional 
components or control strategies are available to manufacturers to 
reduce the air conditioning load on the engine which are discussed in 
more detail in Chapter 5 of the joint TSD. Overall, the agencies have 
concluded that these improved technologies could together reduce A/C-
related CO2 and fuel consumption of today's typical air 
conditioning systems by 42%. The agencies propose to use this level of 
improvement to represent the maximum efficiency credit available to a 
manufacturer.
    Demonstrating the degree of efficiency improvement that a 
manufacturer's air conditioning systems achieve--thus quantifying the 
appropriate amount of GHG credit and CAFE fuel consumption improvement 
value the manufacturer is eligible for--would ideally involve a 
performance test. That is, a test that would directly measure 
CO2 (and thus allow calculation of fuel consumption) before 
and after the incorporation of the improved technologies. Progress 
toward such a test continues. As mentioned in the introduction to this 
section, the primary vehicle emissions and fuel consumption test, the 
Federal Test Procedure (FTP) or ``two-cycle'' testing, does not require 
or simulate air conditioning usage through the test cycle. The SC03 
test is designed to identify any effect the air conditioning system has 
on other emissions when it is operating under extreme conditions, but 
is not designed to measure the small differences in CO2 due 
to different A/C technologies.
    At the time of the final rule for the 2012-2016 GHG program, EPA 
concluded that a practical, performance-based test procedure capable of 
quantifying efficiency credits was not yet available. However, EPA 
introduced a specialized new procedure that it believed would be 
appropriate for the more limited purpose of demonstrating that the 
design improvements for which a manufacturer was earning credits 
produced actual efficiency improvements. EPA's test is a fairly simple 
test, performed while the vehicle is at idle. Beginning with the 2014 
model year, the A/C Idle Test was to be used to qualify a manufacturer 
to be able to use the technology lookup table (``menu'') approach to 
quantify credits. That is, a manufacturer would need to achieve a 
certain CO2 level on the Idle Test in order to access the 
``menu'' and generate GHG efficiency credits.
    Since that final rule was published, several manufacturers have 
provided data that raises questions about the ability of the Idle Test 
to fulfill its intended purpose. Especially for small, lower-powered 
vehicles, the data also shows that it is difficult to achieve 
reasonable test-to-test repeatability. The manufacturers have also 
informed EPA (in meetings subsequent to the 2012-2016 final rule) that 
the Idle Test does not accurately capture the improvements from many of 
the technologies listed in the menu. EPA has been aware of all of these 
issues, and proposing to modify the Idle Test such that the threshold 
would be a function of engine displacement, in contrast to the flat 
threshold from the previous rule. EPA continues to consider this Idle 
Test to be a reasonable measure of some A/C CO2 emissions as 
there is significant real-world driving activity at idle, and the Idle 
Test significantly exercises a number of the A/C technologies from the 
menu. Sec III.C.1.b.i below and Chapter 5 (5.1.3.5) of the Joint TSD 
describe further the adjustments EPA is proposing to the Idle Test for 
manufacturers to qualify for MYs 2014-2016 A/C efficiency credits. EPA 
proposes that manufacturers continue to use the menu for MYs 2014-2016 
to determine credits for the GHG program. This was also the approach 
that EPA used for efficiency credits in the MY2012-2016 GHG rule. 
However for MYs 2017-2025, EPA is proposing a new test procedure to 
demonstrate the effectiveness of A/C efficiency technologies and 
credits as described below. For MYs 2014-2016, EPA requests comment on 
substituting the Idle Test requirement with a reporting requirement 
from this new test procedure as described in Section III.C.1.b.i below.
    In order to correct the shortcomings of the available tests, EPA 
has developed a four-part performance test, called the AC17. The test 
includes the SC03 driving cycle, the fuel economy highway cycle, in 
addition to a pre-conditioning cycle, and a solar soak period. EPA is 
proposing that manufacturers use this test to demonstrate that new or 
improved A/C technologies actually result in efficiency improvements. 
Since the appropriateness of the test is still being evaluated, EPA 
proposes that manufacturers continue to use the menu to determine 
credits and fuel consumption improvement values for the GHG and CAFE 
programs. This design-based approach would assign CO2 credit 
to each efficiency-improving air conditioning technology that the 
manufacturer incorporates in a vehicle model. The sum of these values 
for all technologies would be the amount of CO2 credit 
generated by that vehicle, up to a maximum of 5.0 g/mi for car and 7.2 
g/mi for trucks. As stated above, this is equivalent to a fuel 
consumption value of 0.000563 gallons/mi for cars and 0.000586 gallons/
mi for trucks. EPA will consult with NHTSA on the amount of fuel 
consumption improvement value manufacturers may factor into their CAFE 
calculations if there are adjustments that may be required in the 
future. Table II-10 presents the proposed CO2 credit and 
CAFE fuel consumption improvement values for each of the efficiency-
reducing air conditioning technologies considered in this rule. More 
detail is provided on the calculation of indirect A/C CAFE fuel 
consumption improvement values in chapter 5 of the TSD. EPA is 
proposing very specific definitions of each of the technologies in the 
table below which are discussed in Chapter 5 of the draft joint TSD to 
ensure that the air conditioner technology used by manufacturers 
seeking these credits corresponds with the technology used to derive 
the credit/fuel consumption improvement values.
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    As mentioned above, EPA, working with manufacturers and CARB, has 
made significant progress in developing a more robust test that may 
eventually be capable of measuring differences in A/C efficiency. While 
EPA believes that more testing and development will be necessary before 
the new test could be used directly to quantify efficiency credits and 
fuel consumption improvement values, EPA is proposing that the test be 
used to demonstrate that new or improved A/C technologies result in 
reductions in GHG emissions and fuel consumption. EPA is proposing the 
AC17 test as a reporting-only alternative to the Idle Test for MYs 
2014-2016, and as a prerequisite for generating Efficiency Credits and 
fuel consumption improvement values for MY 2017 and later. To 
demonstrate that a vehicle's A/C system is delivering the efficiency 
benefits of the new technologies, manufacturers would run the AC17 test 
procedure on a vehicle that incorporates the new technologies, with the 
A/C system off and then on, and then compare that result to the result 
from a previous model year or baseline vehicle with similar vehicle 
characteristics, except that the comparison vehicle would not have the 
new technologies. If the test result with the new technology 
demonstrated an emission reduction that is greater than or equal to the 
menu-based credit potential of those technologies, the manufacturer 
would generate the appropriate credit based on the menu. However, if 
the test result did not demonstrate the full menu-based potential of 
the technology, partial credit could still be earned, in proportion to 
how far away the result was from the expected menu-based credit amount.
    EPA discusses the new test in more detail in Section III.C.1.b 
below and in Chapter 5 (5.1.3.5) of the joint TSD. Due to the length of 
time to conduct the test procedure, EPA is also proposing that required 
testing on the new AC17 test procedure be limited to a subset of 
vehicles. The agencies request comment on this approach to establishing 
A/C efficiency credits and fuel consumption improvement values and the 
use of the new A/C test.
    For the CAFE program, EPA is proposing to determine a fleet average 
fuel consumption improvement value in a manner consistent with the way 
a fleet average CO2 credits will be determined. EPA would 
convert the metric tons of CO2 credits for air conditioning, 
off-cycle, and full size pick-up to fleet-wide fuel consumption 
improvement values, consistent with the way EPA would convert the 
improvements in CO2 performance to metric tons of credits. 
See discussion in section III. C. There would be separate improvement 
values for each type of credit, calculated separately for cars and for 
trucks. These improvement values would be subtracted from the 
manufacturer's two-cycle-based fleet fuel consumption value to yield a 
final new fleet fuel consumption value, which would be inverted to 
determine a final fleet fuel CAFE value. EPA considered, but is not 
proposing, an approach where the fuel consumption improvement values 
would be accounted for at the individual vehicle level. In this case a 
credit-adjusted MPG value would have to be calculated for each vehicle 
that accrues air conditioning, off-cycle, or pick-up truck credits, and 
a credit-adjusted CAFE would be calculated by sales-weighting each 
vehicle. EPA found that a significant issue with this approach is that 
the credit programs do not align with the way fuel economy and GHG 
emissions are currently reported to EPA or to NHTSA, i.e., at the model 
type level. Model types are similar in basic engine and transmission 
characteristics, but credits are expected to vary within a model type, 
possibly considerably. For example, within a model type the credits 
could vary by body style, trim level, footprint, and the type of air 
conditioning systems and other GHG reduction technologies installed. 
Manufacturers would have to report sales volumes for each unique 
combination of all of these factors in order to enable EPA to perform 
the CAFE averaging calculations. This

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would require a dramatic and expensive overhaul of EPA's data systems, 
and the manufacturers would likely face similar impacts. The vehicle-
specific approach would also likely introduce more opportunities for 
errors resulting from data entry and rounding, since each vehicle's 
base fuel economy would be modified by multiple consumption values 
reported to at least six decimal places. The proposed approach would 
instead focus on calculating the GHG credits correctly and summing them 
for each of the car and truck fleets, and the step of transforming to a 
fuel consumption improvement value is relatively straightforward. 
However, given that the vehicle-specific and fleet-based approaches 
yield the same end result, EPA requests comment on whether one approach 
or the other is preferable, and if so, why a specific approach is 
preferable.
2. Off-Cycle CO2 Credits
    For MYs 2012-2016, EPA provided an option for manufacturers to 
generate adjustments (credits) for employing new and innovative 
technologies that achieve CO2 reductions which are not 
reflected on current 2-cycle test procedures. For this proposal, EPA, 
in coordination with NHTSA, is proposing to apply the off-cycle credits 
and equivalent fuel consumption improvement values to both the CAFE and 
GHG programs. This proposed expansion is a change from the 2012-16 
final rule where only EPA provided the off-cycle credits for the GHG 
program. For MY 2017 and later, EPA is proposing that manufacturers may 
continue to use off-cycle credits for GHG compliance and begin to use 
fuel consumption improvement values for CAFE compliance. In addition, 
EPA is proposing a set of defined (e.g. default) values for identified 
off-cycle technologies that would apply unless the manufacturer 
demonstrates to EPA that a different value for its technology is 
appropriate.
    Starting with MY2008, EPA started employing a ``five-cycle'' test 
methodology to measure fuel economy for the fuel economy label. 
However, for GHG and CAFE compliance, EPA continues to use the 
established ``two-cycle'' (city and highway test cycles, also known as 
the FTP and HFET) test methodology. As learned through development of 
the ``five-cycle'' methodology and researching this proposal, EPA and 
NHTSA recognize that there are technologies that provide real-world GHG 
emissions and fuel consumption improvements, but those improvements are 
not fully reflected on the ``two-cycle'' test.
    During meetings with vehicle manufacturers, EPA received comments 
that the approval process for generating off-cycle credits was 
complicated and did not provide sufficient certainty on the amount of 
credits that might be approved. Commenters also maintained that it is 
impractical to measure small incremental improvements on top of a large 
tailpipe measurement, similar to comments received related to 
quantifying air conditioner improvements. These same manufacturers 
believed that such a process could stifle innovation and fuel efficient 
technologies from penetrating into the vehicle fleet.
    In response to these concerns, EPA is proposing a menu with a 
number of technologies that the agency believes will show real-world 
CO2 and fuel consumption benefits which can be reasonably 
quantified by the agencies at this time. This list of pre-approved 
technologies includes a quantified default value that would apply 
unless the manufacturer demonstrates to EPA that a different value for 
a technology is appropriate. This list is similar to the menu driven 
approach described in the previous section on A/C efficiency credits. 
The estimates of these credits were largely determined from research, 
analysis and simulations, rather from full vehicle testing, which would 
have been cost and time prohibitive. These predefined estimates are 
somewhat conservative to avoid the potential for windfall. If 
manufactures believe their specific off-cycle technology achieves 
larger improvement, they may apply for greater credits and fuel 
consumption improvement values with supporting data. For technologies 
not listed, EPA is proposing a case-by-case approach for approval of 
off-cycle credits and fuel consumption improvement values, similar to 
the approach in the 2012-2016 rule but with important modifications to 
streamline the approval process. EPA will also consult with NHTSA 
during the review process. See section III.C below; technologies for 
which EPA is proposing default off-cycle credit values and fuel 
consumption improvement values are shown in Table II--11 below. Fuel 
consumption improvement values under the CAFE program based on off-
cycle technology would be equivalent to the off-cycle credit allowed by 
EPA under the GHG program, and these amounts would be determined using 
the same procedures and test methods as are proposed for use in EPA's 
GHG program.
    EPA and NHTSA are not proposing to adjust the stringency of the 
standards based on the availability of off-cycle credits and fuel 
consumption improvement values. There are a number of reasons for this. 
First, the agencies have limited technical information on the cost, 
development time necessary, and manufacturability of many of these 
technologies. The analysis presented below (and in greater detail in 
Chapter 5 of the joint TSD) is limited to quantifying the effectiveness 
of the technology (for the purposes of quantifying credits and fuel 
consumption improvement values). It is based on a combination of data 
and engineering analysis for each technology. Second, for most of these 
technologies the agencies have no data on what the rates of penetration 
of these technologies would be during the rule timeframe. Thus, with 
the exception of active aerodynamic improvements and stop start 
technology, the agencies do not have adequate information available to 
consider the technologies on the list when determining the appropriate 
GHG emissions or CAFE standards. The agencies expect to continue to 
improve their understanding of these technologies over time. If further 
information is obtained during the comment period that supports 
consideration of these technologies in setting the standards, EPA and 
NHTSA will reevaluate their positions. However, given the current lack 
of detailed information about these technologies, the agencies do not 
expect that it will be able to do more for the final rule than estimate 
some general amount of reasonable projected cost savings from 
generation of off-cycle credits and fuel consumption improvement 
values. Therefore, effectively the off-cycle credits and fuel 
consumption improvement values allow manufacturers additional 
flexibility in selecting technologies that may be used to comply with 
GHG emission and CAFE standards.
    Two technologies on the list--active aerodynamic improvements and 
stop start--are in a different position than the other technologies on 
the list. Both of these technologies are included in the agencies' 
modeling analysis of technologies projected to be available for use in 
achieving the reductions needed for the standards. We have information 
on their effectiveness, cost, and availability for purposes of 
considering them along with the various other technologies we consider 
in determining the appropriate CO2 emissions standard. These 
technologies are among those listed in Chapter 3 of the joint TSD and 
have measureable benefit on the 2-cycle test. However, in the context 
of off-cycle credits and fuel

[[Page 74942]]

consumption improvement values, stop start is any technology which 
enables a vehicle to automatically turn off the engine when the vehicle 
comes to a rest and restart the engine when the driver applies pressure 
to the accelerator or releases the brake. This includes HEVs and PHEVs 
(but not EVs). In addition, active grill shutters is just one of 
various technologies that can be used as part of aerodynamic design 
improvements (as part of the ``aero2'' technology). The modeling and 
other analysis developed for determining the appropriate emissions 
standard includes these technologies, using the effectiveness values on 
the 2-cycle test. This is consistent with our consideration of all of 
the other technologies included in these analyses. Including them on 
the list for off-cycle credit and fuel consumption improvement value 
generation, for purposes of compliance with the standards, would 
recognize that these technologies have a higher degree of effectiveness 
than reflected in their 2-cycle effectiveness. As discussed in Sections 
III.C and Chapter 5 of the joint TSD, the agencies have taken into 
account the generation of off-cycle credits and fuel consumption 
improvement values by these two technologies in determining the 
appropriateness of the proposed standards, considering the amount of 
credit and fuel consumption improvement value, the projected degree of 
penetration of these technologies, and other factors. The proposed 
standards are appropriate recognizing that these technologies would 
also generate off-cycle credits and fuel consumption improvement 
values. Section III.D has a more detailed discussion on the feasibility 
of the standards within the context of the flexibilities (such as off-
cycle credits and fuel consumption improvement values) proposed in this 
rule.
    For these technologies that provide a benefit on five-cycle 
testing, but show less benefit on two cycle testing, in order to 
quantify the emissions impacts of these technologies, EPA will simply 
subtract the two-cycle benefit from the five-cycle benefit for the 
purposes of assigning credit and fuel consumption improvement values 
for this pre-approved list. Other technologies, such as more efficient 
lighting show no benefit over any test cycle. In these cases, EPA will 
estimate the average amount of usage using MOVES \169\ data if possible 
and use this to calculate a duty-cycle-weighted benefit (or credit and 
fuel consumption improvement value). In the 2012-2016 rule, EPA stated 
a technology must have ``real world GHG reductions not significantly 
captured on the current 2-cycle tests* * *'' For this proposal, EPA is 
proposing to modify this requirement to allow technologies as long as 
the incremental benefit in the real-world is significantly better than 
on the 2-cycle test. There are environmental benefits to encouraging 
these kinds of technologies that might not otherwise be employed, 
beyond the level that the 2-cycle standards already do, thus we are now 
allowing credits and fuel consumption improvement values to be 
generated where the technology achieves an incremental benefit that is 
significantly better than on the 2-cycle test, as is the case for the 
technologies on the list.
---------------------------------------------------------------------------

    \169\ MOVES is EPA's MOtor Vehicle Emissions Simulator. This 
model contains (in its database) a wide variety of fleet and 
activity data as well as national ambient temperature conditions.
---------------------------------------------------------------------------

    EPA and NHTSA evaluated many more technologies for off-cycle 
credits and fuel consumption improvement values and decided that the 
following technologies should be eligible for off-cycle credits and 
fuel consumption improvement values. These eleven technologies eligible 
for credits and fuel consumption improvement values are shown in Table 
II-11 below. EPA is proposing that a CAFE improvement value for off-
cycle improvements be determined at the fleet level by converting the 
CO2 credits determined under the EPA program (in metric tons 
of CO2) for each fleet (car and truck) to a fleet fuel 
consumption improvement value. This improvement value would then be 
used to adjust the fleet's CAFE level upward. See the proposed 
regulations at 40 CFR 600.510-12. Note that while the table below 
presents fuel consumption values equivalent to a given CO2 
credit value, these consumption values are presented for informational 
purposes and are not meant to imply that these values will be used to 
determine the fuel economy for individual vehicles.

[[Page 74943]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.041

    Table II-11 shows the proposed list of off-cycle technologies and 
credits and equivalent fuel consumption improvement values for cars and 
trucks. The credits and fuel consumption improvement values for engine 
heat recovery and solar roof panels are scalable, depending on the 
amount of energy these systems can generate for the vehicle. The Solar/
Thermal control technologies are varied and are limited to 3 and 4.3 g/
mi (car and truck respectively) total.
    To ensure that the off cycle technology used by manufacturers 
seeking these credits and fuel consumption improvement values 
corresponds with the technology used to derive the credit and fuel 
consumption improvement values, EPA is proposing very specific 
definitions of each of the technologies in the table of the list of 
technologies in Chapter 5 of the draft joint TSD. The agencies are 
requesting comment on all aspects of the off-cycle credit and fuel 
consumption improvement value program, and would welcome any data to 
support an adjustment to this table, whether it is to adjust the values 
or to add or remove technologies.

Vehicle Simulation Tool

    Chapter 2 of the RIA provides a detailed description of the vehicle 
simulation tool that EPA has been developing. This tool is capable of 
simulating a wide range of conventional and advanced engines, 
transmissions, and vehicle technologies over various driving cycles. It 
evaluates technology package effectiveness while taking into account 
synergy (and dis-synergy) effects among vehicle components and 
estimates GHG emissions for various combinations of technologies. For 
the 2017 to 2025 GHG proposal, this simulation tool was used to assist 
estimating the amount of GHG credits for improved A/C systems and off-
cycle technologies. EPA seeks public comments on this approach of using 
the tool for directly generating and fine-tuning some of the credits in 
order to capture the amount of GHG reductions provided by primarily 
off-cycle technologies.
    There are a number of technologies that could bring additional GHG 
reductions over the 5-cycle drive test (or in the real world) compared 
to the combined FTP/Highway (or two) cycle test. These are called off-
cycle technologies and are described in chapter 5 of the Joint TSD in 
detail. Among them are technologies related to reducing vehicle's 
electrical loads, such as High Efficiency Exterior Lights, Engine Heat 
Recovery, and Solar Roof Panels. In an effort to streamline the process 
for approving off-cycle credits, we have set a relatively conservative 
estimate of the credit based on our efficacy analysis. EPA seeks 
comment on utilizing the model in order to quantify the credits more 
accurately, if actual data of electrical load reduction and/or on-board 
electricity generation by one or more of these technologies is 
available through data submission from manufacturers. Similarly, there 
are

[[Page 74944]]

technologies that would provide additional GHG reduction benefits in 
the 5-cycle test by actively reducing the vehicle's aerodynamic drag 
forces. These are referred to as active aerodynamic technologies, which 
include but are not limited to active grill shutters and active 
suspension lowering. Like the electrical load reduction technologies, 
the vehicle simulation tool can be used to more accurately estimate the 
additional GHG reductions (therefore the credits) provided by these 
active aerodynamic technologies over the 5-cycle drive test. EPA seeks 
comment on using the simulation tool in order to quantify these 
credits. In order to do this properly, manufacturers would be expected 
to submit two sets of coast-down coefficients (with and without the 
active aerodynamic technologies). Or, they could submit two sets of 
aerodynamic drag coefficient (with and without the active aerodynamic 
technologies) as a function of vehicle speed.
    There are other technologies that would result in additional GHG 
reduction benefits that cannot be fully captured on the combined FTP/
Highway cycle test. These technologies typically reduce engine loads by 
utilizing advanced engine controls, and they range from enabling the 
vehicle to turn off the engine at idle, to reducing cabin temperature 
and thus A/C compressor loading when the vehicle is restarted. Examples 
include Engine Start-Stop, Electric Heater Circulation Pump, Active 
Engine/Transmission Warm-Up, and Solar Control. For these types of 
technologies, the overall GHG reduction largely depends on the control 
and calibration strategies of individual manufacturers and vehicle 
types. Also, the current vehicle simulation tool does not have the 
capability to properly simulate the vehicle behaviors that depend on 
thermal conditions of the vehicle and its surroundings, such as Active 
Engine/Transmission Warm-Up and Solar Control. Therefore, the vehicle 
simulation may not provide full benefits of the technologies on the GHG 
reductions. For this reason, the agency is not proposing to use the 
simulation tool to generate the GHG credits for these technologies at 
this time, though future versions of the model may be more capable of 
quantifying the efficacy of these off-cycle technologies as well.
3. Advanced Technology Incentives for Full Sized Pickup Trucks
    The agencies recognize that the standards under consideration for 
MY 2017-2025 will be most challenging to large trucks, including full 
size pickup trucks that are often used for commercial purposes and have 
generally higher payload and towing capabilities, and cargo volumes 
than other light-duty vehicles. In Section II.C and Chapter 2 of the 
joint TSD, EPA and NHTSA describe the proposal to adjust the slope of 
the truck curve compared to the 2012-2016 rule. In Sections III.B and 
IV.F, EPA and NHTSA describe the progression of the truck standards. In 
this section, the agencies describe a credit and fuel consumption 
improvement value for full size pickup trucks to incentivize advanced 
technologies on this class of vehicles.
    The agencies' goal is to incentivize the penetration into the 
marketplace of ``game changing'' technologies for these pickups, 
including their hybridization. For that reason, EPA, in coordination 
with NHTSA, is proposing credits and corresponding equivalent fuel 
consumption improvement values for manufacturers that hybridize a 
significant quantity of their full size pickup trucks, or use other 
technologies that significantly reduce CO2 emissions and 
fuel consumption. This proposed credit and corresponding equivalent 
fuel consumption improvement value would be available on a per-vehicle 
basis for mild and strong HEVs, as well as other technologies that 
significantly improve the efficiency of the full sized pickup 
class.\170\ The credits and fuel consumption improvement values would 
apply for purposes of compliance with both the GHG emissions standards 
and the CAFE standards. This provides the incentive to begin 
transforming this most challenging category of vehicles toward use of 
the most advanced technologies.
---------------------------------------------------------------------------

    \170\ Note that EPA's proposed calculation methodology in 40 CFR 
600.510-12 does not use vehicle-specific fuel consumption 
adjustments to determine the CAFE increase due to the various 
incentives allowed under the proposed program. Instead, EPA would 
convert the total CO2 credits due to each incentive 
program from metric tons of CO2 to a fleetwide CAFE 
improvement value. The fuel consumption values are presented to give 
the reader some context and explain the relationship between 
CO2 and fuel consumption improvements.
---------------------------------------------------------------------------

    Access to this credit and fuel consumption improvement value is 
conditioned on a minimum penetration of the technologies in a 
manufacturer's full size pickup truck fleet. To ensure its use for only 
full sized pickup trucks, EPA is proposing a very specific definition 
for a full sized pickup truck based on minimum bed size and minimum 
towing capability. The specifics of this proposed definition can be 
found in Chapter 5 of the draft joint TSD (see Section 5.3.1). This 
proposed definition is meant to ensure that smaller pickup trucks, 
which do not offer the same level of utility (e.g., bed size, towing 
capability and/or payload capability) and thus may not face the same 
technical challenges to improving fuel economy and reducing 
CO2 emissions as compared to full sized pickup trucks, do 
not qualify.\171\ For this proposal, a full sized pickup truck would be 
defined as meeting requirements 1 and 2, below, as well as either 
requirement 3 or 4, below:
---------------------------------------------------------------------------

    \171\ As discussed in TSD Section 5.3.1, EPA is seeking comment 
on expanding the scope of this credit to somewhat smaller pickups, 
provided they have the towing and/or hauling capabilities of the 
larger full-size trucks.
---------------------------------------------------------------------------

    1. The vehicle must have an open cargo box with a minimum width 
between the wheelhouses of 48 inches measured as the minimum lateral 
distance between the limiting interferences (pass-through) of the 
wheelhouses. The measurement would exclude the transitional arc, local 
protrusions, and depressions or pockets, if present.\172\ An open cargo 
box means a vehicle where the cargo bed does not have a permanent roof 
or cover. Vehicles sold with detachable covers are considered ``open'' 
for the purposes of these criteria.
---------------------------------------------------------------------------

    \172\ This dimension is also known as dimension W202 as defined 
in Society of Automotive Engineers Procedure J1100.
---------------------------------------------------------------------------

    2. Minimum open cargo box length of 60 inches defined by the lesser 
of the pickup bed length at the top of the body (defined as the 
longitudinal distance from the inside front of the pickup bed to the 
inside of the closed endgate; this would be measured at the height of 
the top of the open pickup bed along vehicle centerline and the pickup 
bed length at the floor) and the pickup bed length at the floor 
(defined as the longitudinal distance from the inside front of the 
pickup bed to the inside of the closed endgate; this would be measured 
at the cargo floor surface along vehicle centerline).\173\
---------------------------------------------------------------------------

    \173\ The pickup body length at the top of the body is also 
known as dimension L506 in Society of Automotive Engineers Procedure 
J1100. The pickup body length at the floor is also known as 
dimension L505 in Society of Automotive Engineers Procedure J1100.
---------------------------------------------------------------------------

    3. Minimum Towing Capability--the vehicle must have a GCWR (gross 
combined weight rating) minus GVWR (gross vehicle weight rating) value 
of at least 5,000 pounds.\174\
---------------------------------------------------------------------------

    \174\ Gross combined weight rating means the value specified by 
the vehicle manufacturer as the maximum weight of a loaded vehicle 
and trailer, consistent with good engineering judgment. Gross 
vehicle weight rating means the value specified by the vehicle 
manufacturer as the maximum design loaded weight of a single 
vehicle, consistent with good engineering judgment. Curb weight is 
defined in 40 CFR 86.1803, consistent with the provisions of 40 CFR 
1037.140.

---------------------------------------------------------------------------

[[Page 74945]]

    4. Minimum Payload Capability--the vehicle must have a GVWR (gross 
vehicle weight rating) minus curb weight value of at least 1,700 
pounds.
    The technical basis for these proposed definitions is found in 
Section III.C below and Chapter 5 of the joint TSD. EPA is proposing 
that mild HEV pickup trucks would be eligible for a per-truck 10 g/mi 
CO2 credit (equal to a 0.001125 gal/mi fuel consumption 
improvement value) during MYs 2017-2021 if the mild HEV technology is 
used on a minimum percentage of a company's full sized pickups. That 
minimum percentage would be 30 percent of a company's full sized pickup 
production in MY 2017 with a ramp up to at least 80 percent of 
production in MY 2021.
    EPA is also proposing that strong HEV pickup trucks would be 
eligible for a per-truck 20 g/mi CO2 credit (equal to a 
0.002250 gal/mi fuel consumption improvement value) during MYs 2017-
2025 if the strong HEV technology is used on a minimum percentage of a 
company's full sized pickups. That minimum percentage would be 10 
percent of a company's full sized pickup production in each year over 
the model years 2017-2025.
    To ensure that the hybridization technology used by manufacturers 
seeking one of these credits and fuel consumption improvement values 
meets the intent behind the incentives, EPA is proposing very specific 
definitions of what qualifies as a mild and a strong HEV. These 
definitions are described in detail in Chapter 5 of the draft joint TSD 
(see section 5.3.3).
    For similar reasons, EPA is also proposing a performance-based 
incentive credit and equivalent fuel consumption improvement value for 
full size pickup trucks that achieve an emission level significantly 
below the applicable target.\175\ EPA, in coordination with NHTSA, 
proposes this credit to be either 10 g/mi CO2 (equivalent to 
0.001125 gal/mi for the CAFE program) or 20 g/mi CO2 
(equivalent to 0.002250 gal/mi for the CAFE program) for pickups 
achieving 15 percent or 20 percent, respectively, better CO2 
than their footprint based target in a given model year. Because the 
footprint target curve has been adjusted to account for A/C related 
credits, the CO2 level to be compared with the target would 
also include any A/C related credits generated by the vehicle. Further 
details on this performance-based incentive are in Section III.C below 
and in Chapter 5 of the draft joint TSD (see Section 5.3.4). The 10 g/
mi (equivalent to 0.001125 gal/mi) performance-based credit and fuel 
consumption improvement value would be available for MYs 2017 to 2021 
and a vehicle meeting the requirements would receive the credit and 
fuel consumption improvement value until MY 2021 unless its 
CO2 level increases or fuel economy decreases. The 20 g/mi 
CO2 (equivalent to 0.0023 gal/mi fuel consumption 
improvement value) performance-based credit would be available for a 
maximum of 5 years within the model years of 2017 to 2025, provided its 
CO2 level and fuel consumption does not increase. The 
rationale for these limits is because of the year over year progression 
of the stringency of the truck target curves. The credits and fuel 
consumption improvement values would begin in the model year of 
introduction, and could not extend past MY 2021 for the 10 g/mi credit 
(equivalent to 0.001125 gal/mi) and MY 2025 for the 20 g/mi credit 
(equivalent to 0.002250 gal/mi).
---------------------------------------------------------------------------

    \175\ The 15 and 20 percent thresholds would be based on 
CO2 performance compared to the applicable CO2 
vehicle target for both CO2 credits and corresponding 
CAFE fuel consumption improvement values. As with A/C and off-cycle 
credits, EPA would convert the total CO2 credits due to 
the pick-up incentive program from metric tons of CO2 to 
a fleetwide equivalent CAFE improvement value.
---------------------------------------------------------------------------

    As with the HEV-based credit and fuel consumption improvement 
value, the performance-based credit and fuel consumption improvement 
value requires that the technology be used on a minimum percentage of a 
manufacturer's full-size pickup trucks. That minimum percentage for the 
10 g/mi GHG credit (equivalent to 0.001125 gal/mi fuel consumption 
improvement value) would be 15 percent of a company's full sized pickup 
production in MY 2017 with a ramp up to at least 40 percent of 
production in MY 2021. The minimum percentage for the 20 g/mi credit 
(equivalent to 0.002250 gal/mi fuel consumption improvement value) 
would be 10 percent of a company's full sized pickup production in each 
year over the model years 2017-2025.
    Importantly, the same vehicle could not receive credit and fuel 
consumption improvement under both the HEV and the performance-based 
approaches. EPA and NHTSA request comment on all aspects of this 
proposed pickup truck incentive credit and fuel consumption improvement 
value, including the proposed definitions for full sized pickup truck 
and mild and strong HEV.

G. Safety Considerations in Establishing CAFE/GHG Standards

1. Why do the agencies consider safety?
    The primary goals of the proposed CAFE and GHG standards are to 
reduce fuel consumption and GHG emissions from the on-road light-duty 
vehicle fleet, but in addition to these intended effects, the agencies 
also consider the potential of the standards to affect vehicle 
safety.\176\ As a safety agency, NHTSA has long considered the 
potential for adverse safety consequences when establishing CAFE 
standards,\177\ and under the CAA, EPA considers factors related to 
public health and human welfare, and safety, in regulating emissions of 
air pollutants from mobile sources.\178\ Safety trade-offs associated 
with fuel economy increases have occurred in the past (particularly 
before NHTSA CAFE standards were attribute-based), and the agencies 
must be mindful of the possibility of future ones. These past safety 
trade-offs may have occurred because manufacturers chose, at the time, 
to build smaller and lighter vehicles--partly in response to CAFE 
standards--rather than adding more expensive fuel-saving technologies 
(and maintaining vehicle size and safety), and the smaller and lighter 
vehicles did not fare as well in crashes as larger and heavier 
vehicles. Historically, as shown in FARS data analyzed by NHTSA, the 
safest cars generally have been heavy and large, while the cars with 
the highest fatal-crash rates have been light and small. The question, 
then, is whether past is necessarily prologue when it comes to 
potential changes in vehicle size (both footprint and ``overhang'') and 
mass in response to these proposed future CAFE and GHG standards. 
Manufacturers have stated that they will reduce vehicle mass as one of 
the cost-effective means of increasing fuel economy and reducing 
CO2 emissions in order to meet the proposed standards, and 
the

[[Page 74946]]

agencies have incorporated this expectation into our modeling analysis 
supporting the proposed standards. Because the agencies discern a 
historical relationship between vehicle mass, size, and safety, it is 
reasonable to assume that these relationships will continue in the 
future. The question of whether vehicle design can mitigate the adverse 
effects of mass reduction is discussed below.
---------------------------------------------------------------------------

    \176\ In this rulemaking document, ``vehicle safety'' is defined 
as societal fatality rates per vehicle miles traveled (VMT), which 
include fatalities to occupants of all the vehicles involved in the 
collisions, plus any pedestrians.
    \177\ This practice is recognized approvingly in case law. As 
the United States Court of Appeals for the DC Circuit stated in 
upholding NHTSA's exercise of judgment in setting the 1987-1989 
passenger car standards, ``NHTSA has always examined the safety 
consequences of the CAFE standards in its overall consideration of 
relevant factors since its earliest rulemaking under the CAFE 
program.'' Competitive Enterprise Institute v. NHTSA (``CEI I''), 
901 F.2d 107, 120 at n. 11 (DC Cir. 1990).
    \178\ See NRDC v. EPA, 655 F. 2d 318, 332 n. 31 (DC Cir. 1981). 
(EPA may consider safety in developing standards under section 202 
(a) and did so appropriately in the given instance).
---------------------------------------------------------------------------

    Manufacturers are less likely than they were in the past to reduce 
vehicle footprint in order to reduce mass for increased fuel economy. 
The primary mechanism in this rulemaking for mitigating the potential 
negative effects on safety is the application of footprint-based 
standards, which create a disincentive for manufacturers to produce 
smaller-footprint vehicles. See section II. C.1, above. This is 
because, as footprint decreases, the corresponding fuel economy/GHG 
emission target becomes more stringent. We also believe that the shape 
of the footprint curves themselves is approximately ``footprint-
neutral,'' that is, that it should neither encourage manufacturers to 
increase the footprint of their fleets, nor to decrease it. Upsizing 
footprint is also discouraged through the curve ``cut-off'' at larger 
footprints.\179\ However, the footprint-based standards do not 
discourage downsizing the portions of a vehicle in front of the front 
axle and to the rear of the rear axle, or of other areas of the vehicle 
outside the wheels. The crush space provided by those portions of a 
vehicle can make important contributions to managing crash energy. 
Additionally, simply because footprint-based standards create no 
incentive to downsize vehicles does not mean that manufacturers will 
not downsize if doing so makes it easier to meet the overall CAFE/GHG 
standard, as for example if the smaller vehicles are so much lighter 
that they exceed their targets by much greater amounts. On balance, 
however, we believe the target curves and the incentives they provide 
generally will not encourage down-sizing (or up-sizing) in terms of 
footprint reductions (or increases).\180\ Consequently, all of our 
analyses are based on the assumption that this rulemaking, in and of 
itself, will not result in any differences in the sales weighted 
distribution of vehicle sizes.
---------------------------------------------------------------------------

    \179\ The agencies recognize that at the other end of the curve, 
manufacturers who make small cars and trucks below 41 square feet 
(the small footprint cut-off point) have some incentive to downsize 
their vehicles to make it easier to meet the constant target. That 
cut-off may also create some incentive for manufacturers who do not 
currently offer models that size to do so in the future. However, at 
the same time, the agencies believe that there is a limit to the 
market for cars and trucks smaller than 41 square feet: most 
consumers likely have some minimum expectation about interior 
volume, for example, among other things. Additionally, vehicles in 
this segment are the lowest price point for the light-duty 
automotive market, with several models in the $10,000-$15,000 range. 
Manufacturers who find themselves incentivized by the cut-off will 
also find themselves adding technology to the lowest price segment 
vehicles, which could make it challenging to retain the price 
advantage. Because of these two reasons, the agencies believe that 
the incentive to increase the sales of vehicles smaller than 41 
square feet due to this rulemaking, if any, is small. See Section 
II.C.1 above and Chapter 1 of the draft Joint TSD for more 
information on the agencies' choice of ``cut-off'' points for the 
footprint-based target curves.
    \180\ This statement makes no prediction of how consumer choices 
of vehicle size will change in the future, independent of this 
proposal.
---------------------------------------------------------------------------

    Given that we expect manufacturers to reduce vehicle mass in 
response to the proposed standards, and do not expect manufacturers to 
reduce vehicle footprint in response to the proposed standards, the 
agencies must attempt to predict the safety effects, if any, of the 
proposed standards based on the best information currently available. 
This section explained why the agencies consider safety; the following 
section discusses how the agencies consider safety.
2. How do the agencies consider safety?
    Assessing the effects of vehicle mass reduction and size on 
societal safety is a complex issue. One part of estimating potential 
safety effects involves trying to understand better the relationship 
between mass and vehicle design. The extent of mass reduction that 
manufacturers may be considering to meet more stringent fuel economy 
and GHG standards may raise different safety concerns from what the 
industry has previously faced. The principal difference between the 
heavier vehicles, especially truck-based LTVs, and the lighter 
vehicles, especially passenger cars, is that mass reduction has a 
different effect in collisions with another car or LTV. When two 
vehicles of unequal mass collide, the change in velocity (delta V) is 
higher in the lighter vehicle, similar to the mass ratio proportion. As 
a result of the higher change in velocity, the fatality risk may also 
increase. Removing more mass from the heavier vehicle than in the 
lighter vehicle by amounts that bring the mass ratio closer to 1.0 
reduces the delta V in the lighter vehicle, possibly resulting in a net 
societal benefit.
    Another complexity is that if a vehicle is made lighter, 
adjustments must be made to the vehicle's structure such that it will 
be able to manage the energy in a crash while limiting intrusion into 
the occupant compartment after adopting materials that may be stiffer. 
To maintain an acceptable occupant compartment deceleration, the 
effective front end stiffness has to be managed such that the crash 
pulse does not increase as stiffer yet lighter materials are utilized. 
If the energy is not well managed, the occupants may have to ``ride 
down'' a more severe crash pulse, putting more burdens on the restraint 
systems to protect the occupants. There may be technological and 
physical limitations to how much the restraint system may mitigate 
these effects.
    The agencies must attempt to estimate now, based on the best 
information currently available to us, how the assumed levels of mass 
reduction without additional changes (i.e. footprint, performance, 
functionality) might affect the safety of vehicles, and how lighter 
vehicles might affect the safety of drivers and passengers in the 
entire on-road fleet, as we are analyzing potential future CAFE and GHG 
standards. The agencies seek to ensure that the standards are designed 
to encourage manufacturers to pursue a path toward compliance that is 
both cost-effective and safe.
    To estimate the possible safety effects of the MY 2017-2025 
standards, then, the agencies have undertaken research that approaches 
this question from several angles. First, we are using a statistical 
approach to study the effect of vehicle mass reduction on safety 
historically, as discussed in greater detail in section C below. 
Statistical analysis is performed using the most recent historical 
crash data available, and is considered as the agencies' best estimate 
of potential mass-safety effects. The agencies recognize that negative 
safety effects estimated based on the historical relationships could 
potentially be tempered with safety technology advances in the future, 
and may not represent the current or future fleet. Second, we are using 
an engineering approach to investigate what amount of mass reduction is 
affordable and feasible while maintaining vehicle safety and other 
major functionalities such as NVH and acceleration performance. Third, 
we are also studying the new challenges these lighter vehicles might 
bring to vehicle safety and potential countermeasures available to 
manage those challenges effectively.
    The sections below discuss more specifically the state of the 
research on the mass-safety relationship, and how the agencies 
integrate that research into our assessment of the potential safety 
effects of the MY 2017-2025 CAFE and GHG standards.

[[Page 74947]]

3. What is the current state of the research on statistical analysis of 
historical crash data?
a. Background
    Researchers have been using statistical analysis to examine the 
relationship of vehicle mass and safety in historical crash data for 
many years, and continue to refine their techniques over time. In the 
MY 2012-2016 final rule, the agencies stated that we would conduct 
further study and research into the interaction of mass, size and 
safety to assist future rulemakings, and start to work collaboratively 
by developing an interagency working group between NHTSA, EPA, DOE, and 
CARB to evaluate all aspects of mass, size and safety. The team would 
seek to coordinate government supported studies and independent 
research, to the greatest extent possible, to help ensure the work is 
complementary to previous and ongoing research and to guide further 
research in this area.
    The agencies also identified three specific areas to direct 
research in preparation for future CAFE/GHG rulemaking in regards to 
statistical analysis of historical data.
    First, NHTSA would contract with an independent institution to 
review the statistical methods that NHTSA and DRI have used to analyze 
historical data related to mass, size and safety, and to provide 
recommendation on whether the existing methods or other methods should 
be used for future statistical analysis of historical data. This study 
will include a consideration of potential near multicollinearity in the 
historical data and how best to address it in a regression analysis. 
The 2010 NHTSA report was also peer reviewed by two other experts in 
the safety field--Charles Farmer (Insurance Institute for Highway 
Safety) and Anders Lie (Swedish Transport Administration).\181\
---------------------------------------------------------------------------

    \181\ All three of the peer reviews are in docket, NHTSA-2010-
0152. You can access the docket at http://www.regulations.gov/#!home 
by typing `NHTSA-2010-0152' where it says ``enter keyword or ID'' 
and then clicking on ``Search.''
---------------------------------------------------------------------------

    Second, NHTSA and EPA, in consultation with DOE, would update the 
MYs 1991-1999 database on which the safety analyses in the NPRM and 
final rule are based with newer vehicle data, and create a common 
database that could be made publicly available to help address concerns 
that differences in data were leading to different results in 
statistical analyses by different researchers.
    And third, in order to assess if the design of recent model year 
vehicles that incorporate various mass reduction methods affect the 
relationships among vehicle mass, size and safety, the agencies sought 
to identify vehicles that are using material substitution and smart 
design, and to try to assess if there is sufficient crash data 
involving those vehicles for statistical analysis. If sufficient data 
exists, statistical analysis would be conducted to compare the 
relationship among mass, size and safety of these smart design vehicles 
to vehicles of similar size and mass with more traditional designs.
    Significant progress has been made on these tasks since the MY 
2012-2016 final rule, as follows: The independent review of recent and 
updated statistical analyses of the relationship between vehicle mass, 
size, and crash fatality rates has been completed. NHTSA contracted 
with the University of Michigan Transportation Research Institute 
(UMTRI) to conduct this review, and the UMTRI team led by Paul Green 
evaluated over 20 papers, including studies done by NHTSA's Charles 
Kahane, Tom Wenzel of the US Department of Energy's Lawrence Berkeley 
National Laboratory, Dynamic Research, Inc., and others. UMTRI's basic 
findings will be discussed below. Some commenters in recent CAFE 
rulemakings, including some vehicle manufacturers, suggested that the 
designs and materials of more recent model year vehicles may have 
weakened the historical statistical relationships between mass, size, 
and safety. The agencies agree that the statistical analysis would be 
improved by using an updated database that reflects more recent safety 
technologies, vehicle designs and materials, and reflects changes in 
the overall vehicle fleet. The agencies also believe, as UMTRI also 
found, that different statistical analyses may have had different 
results because they each used slightly different datasets for their 
analyses. In order to try to mitigate this problem and to support the 
current rulemaking, NHTSA has created a common, updated database for 
statistical analysis that consists of crash data of model years 2000-
2007 vehicles in calendar years 2002-2008, as compared to the database 
used in prior NHTSA analyses which was based on model years 1991-1999 
vehicles in calendar years 1995-2000. The new database is the most up-
to-date possible, given the processing lead time for crash data and the 
need for enough crash cases to permit statistically meaningful 
analyses. NHTSA has made the new databases available to the 
public,\182\ enabling other researchers to analyze the same data and 
hopefully minimizing discrepancies in the results that would have been 
due to inconsistencies across databases.\183\ The agencies recognize, 
however, that the updated database may not represent the future fleet, 
because vehicles have continued and will continue to change.
---------------------------------------------------------------------------

    \182\ The new databases are available at http://www.nhtsa.gov/fuel-economy (look for ``Download Crash Databases for Statistical 
Analysis of Relationships Between Vehicles' Fatality Risk, Mass, and 
Footprint.''
    \183\ 75 Fed. Reg. 25324 (May 7, 2010); the discussion of 
planned statistical analyses is on pp. 25395-25396.
---------------------------------------------------------------------------

    The agencies are aware that several studies have been initiated 
using NHTSA's 2011 newly established safety database. In addition to a 
new Kahane study, which is discussed in section II.G.4, other on-going 
studies include two by Wenzel at Lawrence Berkeley National Laboratory 
(LBNL) under contract with the U.S. DOE, and one by Dynamic Research, 
Inc. (DRI) contracted by the International Council on Clean 
Transportation (ICCT). These studies may take somewhat different 
approaches to examine the statistical relationship between fatality 
risk, vehicle mass and size. In addition to a detailed assessment of 
the NHTSA 2011 report, Wenzel is expected to consider the effect of 
mass and footprint reduction on casualty risk per crash, using data 
from thirteen states. Casualty risk includes both fatalities and 
serious or incapacitating injuries. DRI is expected to use a two-stage 
approach to separate the effect of mass reduction on two components of 
fatality risk, crash avoidance and crashworthiness. The LBNL assessment 
of the NHTSA 2011 report is available in the docket for this NPRM.\184\ 
The casualty risk effect study was not available in time to inform this 
NPRM. The completed final peer reviewed-report on both assessments will 
be available prior to the final rule. DRI has also indicated that it 
expects its study to be publicly available prior to the final rule. The 
agencies will consider these studies and any others that become 
available, and the results may influence the safety analysis for the 
final rule.
---------------------------------------------------------------------------

    \184\ Wenzel, T.P. (2011b). Assessment of NHTSA's Report 
``Relationships between Fatality Risk, Mass, and Footprint in Model 
Year 2000-2007 Passenger Cars and LTVs'', available at[hellip]
---------------------------------------------------------------------------

    Other researchers are free to download the database from NHTSA's 
Web site, and we expect to see additional papers in the coming months 
and as comments to the rulemaking that may also inform our 
consideration of these issues for the final rule. Kahane's updated 
study for 2011 is currently undergoing peer-review, and is available

[[Page 74948]]

in the docket for this rulemaking for review by commenters.
    Finally, EPA and NHTSA with DOT's Volpe Center, part of the 
Research and Innovative Technology Administration (RITA), attempted to 
investigate the implications of ``Smart Design,'' by identifying and 
describing the types of ``Smart Design'' and methods for using ``Smart 
Design'' to result in vehicle mass reduction, selecting analytical 
pairs of vehicles, and using the appropriate crash database to analyze 
vehicle crash data. The analysis identified several one-vehicle and 
two-vehicle crash datasets with the potential to shed light on the 
issue, but the available data for specific crash scenarios was 
insufficient to produce consistent results that could be used to 
support conclusions regarding historical performance of ``smart 
designs.''
    Undertaking these tasks has helped the agencies come closer to 
resolving some of the ongoing debates in statistical analysis research 
of historical crash data. We intend to apply these conclusions going 
forward, and we believe that the public discussion of the issues will 
be facilitated by the research conducted. The following sections 
discuss the findings from these studies and others in greater detail, 
to present a more nuanced picture of the current state of the 
statistical research.
b. NHTSA Workshop on Vehicle Mass, Size and Safety
    On February 25, 2011, NHTSA hosted a workshop on mass reduction, 
vehicle size, and fleet safety at the Headquarters of the U.S. 
Department of Transportation in Washington, DC.\185\ The purpose of the 
workshop was to provide the agencies with a broad understanding of 
current research in the field and provide stakeholders and the public 
with an opportunity to weigh in on this issue. NHTSA also created a 
public docket to receive comments from interested parties that were 
unable to attend.
---------------------------------------------------------------------------

    \185\ A video recording, transcript, and the presentations from 
the NHTSA workshop on mass reduction, vehicle size and fleet safety 
is available at http://www.nhtsa.gov/fuel-economy (look for ``NHTSA 
Workshop on Vehicle Mass-Size-Safety on Feb. 25'')
---------------------------------------------------------------------------

    The speakers included Charles Kahane of NHTSA, Tom Wenzel of 
Lawrence Berkeley National Laboratory, R. Michael Van Auken of Dynamic 
Research Inc. (DRI), Jeya Padmanaban of JP Research, Inc., Adrian Lund 
of the Insurance Institute for Highway Safety, Paul Green of the 
University of Michigan Transportation Research Institute (UMTRI), 
Stephen Summers of NHTSA, Gregg Peterson of Lotus Engineering, Koichi 
Kamiji of Honda, John German of the International Council on Clean 
Transportation (ICCT), Scott Schmidt of the Alliance of Automobile 
Manufacturers, Guy Nusholtz of Chrysler, and Frank Field of the 
Massachusetts Institute of Technology.
    The wide participation in the workshop allowed the agencies to hear 
from a broad range of experts and stakeholders. The contributions were 
particularly relevant to the agencies' analysis of the effects of 
weight reduction for this proposed rule. The presentations were divided 
into two sessions that addressed the two expansive sets of issues--
statistical evidence of the roles of mass and size on safety, and 
engineering realities--structural crashworthiness, occupant injury and 
advanced vehicle design.
    The first session focused on previous and ongoing statistical 
studies of crash data that attempt to identify the relative effects of 
vehicle mass and size on fleet safety. There was consensus that there 
is a complicated relationship with many confounding influences in the 
data. Wenzel summarized a recent study he conducted comparing four 
types of risk (fatality or casualty risk, per vehicle registration-
years or per crash) using police-reported crash data from five 
states.\186\ He showed that the trends in risk for various classes of 
vehicles (e.g., non-sports car passenger cars, vans, SUVs, crossover 
SUVs, pickups) were similar regardless of what risk was being measured 
(fatality or casualty) or what exposure metric was used (e.g., 
registration years, police-reported crashes, etc.). In general, most 
trends showed a lower risk for drivers of larger, heavier vehicles.
---------------------------------------------------------------------------

    \186\ Wenzel, T.P. (2011a). Analysis of Casualty Risk per 
Police-Reported Crash for Model Year 2000 to 2004 Vehicles, using 
Crash Data from Five States, March 2011, LBNL-4897E, available at: 
http://eetd.lbl.gov/EA/teepa/pub.html#Vehicle
---------------------------------------------------------------------------

    Although Wenzel's analysis was focused on differences in the four 
types of risk on the relative risk by vehicle type, he cautioned that, 
when analyzing casualty risk per crash, analysts should control for 
driver age and gender, crash location (urban vs. rural), and the state 
in which the crash occurred (to account for crash reporting biases).
    Several participants pointed out that analyses must also control 
for individual technologies with significant safety effects (e.g., 
Electronic Stability Control, airbags).It was not always conclusive 
whether a specialty vehicle group (e.g., sports cars, two-door cars, 
early crossover SUVs) were outliers that confound the trend or unique 
datasets that isolate specific vehicle characteristics. Unfortunately, 
specialty vehicle groups are usually adopted by specific driver groups, 
often with outlying vehicle usage or driver behavior patterns. Green, 
who conducted an independent review of the previous statistical 
analyses, suggested that evaluating residuals will give an indication 
of whether or not a data subset can be legitimately removed without 
inappropriately affecting the analytical results.
    It was recognized that the physics of a two-vehicle crash require 
that the lighter vehicle experience a greater change in velocity, which 
often leads to disproportionately more injury risk. Lund noted 
persistent historical trends that, in any time period, occupants of the 
smallest and lightest vehicles had, on average, fatality rates 
approximately twice those of occupants of the largest and heaviest 
vehicles but predicted ``the sky will not fall'' as the fleet 
downsizes, we will not see an increase in absolute injury risk because 
smaller cars will become increasingly protective of their occupants. 
Padmanaban also noted in her research of the historical trends that 
mass ratio and vehicle stiffness are significant predictors with mass 
ratio consistently the dominant parameter when correlating harm. 
Reducing the mass of any vehicle may have competing societal effects as 
it increases the injury risk in the lightened vehicle and decreases 
them in the partner vehicle
    The separation of key parameters was also discussed as a challenge 
to the analyses, as vehicle size has historically been highly 
correlated with vehicle mass. Presenters had varying approaches for 
dealing with the potential multicollinearity between these two 
variables. Van Auken of DRI stated that there was latitude in the value 
of Variance Inflation Factor (VIF, a measure of multicollinearity) that 
would call results into question, and suggested that the large value of 
VIF for curb weight might imply ``perhaps the effect of weight is too 
small in comparison to other factors.'' Green, of UMTRI, stated that 
highly correlated variables may not be appropriate for use in a 
predictive model and that ``match[ing] on footprint'' (i.e., conducting 
multiple analyses for data subsets with similar footprint values) may 
be the most effective way to resolve the issue.
    There was no consensus on the overall effect of the maneuverability 
of smaller, lighter vehicles. German noted that lighter vehicles should 
have improved handling and braking characteristics and ``may be more 
likely to avoid collisions''. Lund presented

[[Page 74949]]

crash involvement data that implied that, among vehicles of similar 
function and use rates, crash risk does not go down for more ``nimble'' 
vehicles. Several presenters noted the difficulties of projecting past 
data into the future as new technologies will be used that were not 
available when the data were collected. The advances in technology 
through the decades have dramatically improved safety for all weight 
and size classes. A video of IIHS's 50th anniversary crash test of a 
1959 Chevrolet Bel Air and 2009 Chevrolet Malibu graphically 
demonstrated that stark differences in design and technology that can 
possibly mask the discrete mass effects, while videos of compatibility 
crash tests between smaller, lighter vehicles and contemporary larger, 
heavier vehicles graphically showed the significance of vehicle mass 
and size.
    Kahane presented results from his 2010 report\187\ that found that 
a scenario which took some mass out of heavier vehicles but little or 
no mass out of the lightest vehicles did not impact safety in absolute 
terms. Kahane noted that if the analyses were able to consider the mass 
of both vehicles in a two-vehicle crash, the results may be more 
indicative of future crashes. There is apparent consistency with other 
presentations (e.g., Padmanaban, Nusholtz) that reducing the overall 
ranges of masses and mass ratios seems to reduce overall societal harm. 
That is, the effect of mass reduction exclusively does not appear to be 
a ``zero sum game'' in which any increase in harm to occupants of the 
lightened vehicle is precisely offset by a decrease in harm to the 
occupants of the partner vehicle. If the mass of the heavier vehicle is 
reduced by a larger percentage, the changes in velocity from the 
collision are more nearly equal and the injuries suffered in the 
lighter vehicle are likely to be reduced more than the injuries in the 
heavier vehicle are increased. Alternatively, a fixed mass reduction 
(say, 100 lbs) in all vehicles could increase societal harm whereas a 
fixed percentage mass reduction is more likely to be neutral.
---------------------------------------------------------------------------

    \187\ Kahane, C. J. (2010). ``Relationships Between Fatality 
Risk, Mass, and Footprint in Model Year 1991-1999 and Other 
Passenger Cars and LTVs,'' Final Regulatory Impact Analysis: 
Corporate Average Fuel Economy for MY 2012-MY 2016 Passenger Cars 
and Light Trucks. Washington, DC: National Highway Traffic Safety 
Administration, pp. 464-542, available at http://www.nhtsa.gov/staticfiles/rulemaking/pdf/cafe/CAFE_2012-2016_FRIA_04012010.pdf.
---------------------------------------------------------------------------

    Padmanaban described a series of studies conducted in recent years. 
She included numerous vehicle parameters including bumper height and 
several measures of vehicle size and stiffness and also commented on 
previous analyses that using weight and wheelbase together in a 
logistic model distorts the estimates, resulting in inflated variance 
with wrong signs and magnitudes in the results. Her results 
consistently showed that vehicle mass ratio was a more important 
parameter than those describing vehicle geometry or stiffness. Her 
ultimate conclusion was that removing mass (e.g., 100 lbs.) from all 
passenger cars would cause an overall increase in fatalities in truck-
to-car crashes while removing the same amount from light trucks would 
cause an overall decrease in fatalities.
c. Report by Green et al., UMTRI--``Independent Review: Statistical 
Analyses of Relationship Between Vehicle Curb Weight, Track Width, 
Wheelbase and Fatality Rates,'' April 2011.
    As explained above, NHTSA contracted with the University of 
Michigan Transportation Research Institute (UMTRI) to conduct an 
independent review ;\188\ of a set of statistical analyses of 
relationships between vehicle curb weight, the footprint variables 
(track width, wheelbase) and fatality rates from vehicle crashes. The 
purpose of this review was to examine analysis methods, data sources, 
and assumptions of the statistical studies, with the objective of 
identifying the reasons for any differences in results. Another 
objective was to examine the suitability of the various methods for 
estimating the fatality risks of future vehicles.
---------------------------------------------------------------------------

    \188\ The review is independent in the sense that it was 
conducted by an outside third party without any interest in the 
reported outcome.
---------------------------------------------------------------------------

    UMTRI reviewed a set of papers, reports, and manuscripts provided 
by NHTSA (listed in Appendix A of UMTRI's report, which is available in 
the docket to this rulemaking) that examined the statistical 
relationships between fatality or casualty rates and vehicle properties 
such as curb weight, track width, wheelbase and other variables.
    It is difficult to summarize a study of that length and complexity 
for purposes of this discussion, but fundamentally, the UMTRI team 
concluded the following:
     Differences in data may have complicated comparisons of 
earlier analyses, but if the methodology is robust, and the methods 
were applied in a similar way, small changes in data should not lead to 
different conclusions. The main conclusions and findings should be 
reproducible. The data base created by Kahane appears to be an 
impressive collection of files from appropriate sources and the best 
ones available for answering the research questions considered in this 
study.
     In statistical analysis simpler models generally lead to 
improved inference, assuming the data and model assumptions are 
appropriate. In that regard, the disaggregate logistic regression model 
used by NHTSA in the 2003 report \189\ seems to be the most appropriate 
model, and valid for the analysis in the context that it was used: 
finding general associations between fatality risk and mass--and the 
general directions of the reported associations are correct.
---------------------------------------------------------------------------

    \189\
---------------------------------------------------------------------------

     The two-stage logistic regression model in combination 
with the two-step aggregate regression used by DRI seems to be more 
complicated than is necessary based on the data being analyzed, and 
summing regression coefficients from two separate models to arrive at 
conclusions about the effects of reductions in weight or size on 
fatality risk seems to add unneeded complexity to the problem.
     One of the biggest issues regarding this work is the 
historical correlation between curb weight, wheelbase, and track width. 
Including three variables that are highly correlated in the same model 
can have adverse effects on the fit of the model, especially with 
respect to the parameter estimates, as discussed by Kahane. UMTRI makes 
no conclusions about multicollinearity, other than to say that 
inferences made in the presence of multicollinearity should be judged 
with great caution. At the NHTSA workshop on size, safety and mass, 
Paul Green suggested that a matched analysis, in which regressions are 
run on the relationship between mass reduction and risk separately for 
vehicles of similar footprint, could be undertaken to investigate the 
effect of multicollinearity between vehicle mass and size. Kahane has 
combined wheelbase and track width into one variable (footprint) to 
compare with curb weight. NHTSA believes that the 2011 Kahane analysis 
has done all it can to lessen concerns about multicollinearity, but a 
concern still exists. In considering other studies provided by NHTSA 
for evaluation by the UMTRI team:
    [cir] Papers by Wenzel, and Wenzel and Ross, addressing 
associations between fatality risk per vehicle registration-year, 
weight, and size by vehicle model contribute to understanding some of 
the relationships between risk, weight, and size. However, least 
squares linear regression models, without

[[Page 74950]]

modification, are not exposure-based risk models and inference drawn 
from these models tends to be weak since they do not account for 
additional differences in vehicles, drivers, or crash conditions that 
could explain the variance in risk by vehicle model.
    [cir] A 2009 J.P. Research paper focused on the difficulties 
associated with separating out the contributions of weight and size 
variables when analyzing fatality risk properly recognized the problem 
arising from multicollinearity and included a clear explanation of why 
fatality risk is expected to increase with increasing mass ratio. UMTRI 
concluded that the increases in fatality risk associated with a 100-
pound reduction in weight allowing footprint to vary with weight as 
estimated by Kahane and JP Research, are broadly more convincing than 
the 6.7 percent reduction in fatality risk associated with mass 
reduction while holding footprint constant, as reported by DRI.
    [cir] A paper by Nusholtz et al. focused on the question of whether 
vehicle size can reasonably be the dominant vehicle factor for fatality 
risk, and finding that changing the mean mass of the vehicle population 
(leaving variability unchanged) has a stronger influence on fatality 
risk than corresponding (feasible) changes in mean vehicle dimensions, 
concluded unequivocally that reducing vehicle mass while maintaining 
constant vehicle dimensions will increase fatality risk. UMTRI 
concluded that if one accepts the methodology, this conclusion is 
robust against realistic changes that may be made in the force vs. 
deflection characteristics of the impacting vehicles.
    [cir] Two papers by Robertson, one a commentary paper and the other 
a peer-reviewed journal article, were reviewed. The commentary paper 
did not fit separate models according to crash type, and included 
passenger cars, vans, and SUVs in the same model. UMTRI concluded that 
some of the claims in the commentary paper appear to be overstated, and 
intermediate results and more documentation would help the reader 
determine if these claims are valid. The second paper focused largely 
on the effects of electronic stability control (ESC), but generally 
followed on from the first paper except that curb weight is not fit and 
fuel economy is used as a surrogate.
    The UMTRI study provided a number of useful suggestions that Kahane 
considered in updating his 2011 analysis, and that have been 
incorporated into the safety effects estimates for the current 
rulemaking.
d. Report by Dr. Charles Kahane, NHTSA--``Relationships Between 
Fatality Risk, Mass, and Footprint in Model Year 2000-2007 Passenger 
Cars and LTVs,'' 2011
    The relationship between a vehicle's mass, size, and fatality risk 
is complex, and it varies in different types of crashes. NHTSA, along 
with others, has been examining this relationship for over a decade. 
The safety chapter of NHTSA's April 2010 final regulatory impact 
analysis (FRIA) of CAFE standards for MY 2012-2016 passenger cars and 
light trucks included a statistical analysis of relationships between 
fatality risk, mass, and footprint in MY 1991-1999 passenger cars and 
LTVs (light trucks and vans), based on calendar year (CY) 1995-2000 
crash and vehicle-registration data.\190\ The 2010 analysis used the 
same data as the 2003 analysis, but included vehicle mass and footprint 
in the same regression model.
---------------------------------------------------------------------------

    \190\ Kahane, C. J. (2010). ``Relationships Between Fatality 
Risk, Mass, and Footprint in Model Year 1991-1999 and Other 
Passenger Cars and LTVs,'' Final Regulatory Impact Analysis: 
Corporate Average Fuel Economy for MY 2012-MY 2016 Passenger Cars 
and Light Trucks. Washington, DC: National Highway Traffic Safety 
Administration, pp. 464-542, available at http://www.nhtsa.gov/staticfiles/rulemaking/pdf/cafe/CAFE_2012-2016_FRIA_04012010.pdf.
---------------------------------------------------------------------------

    The principal findings of NHTSA's 2010 analysis were that mass 
reduction in lighter cars, even while holding footprint constant, would 
significantly increase societal fatality risk, whereas mass reduction 
in the heavier LTVs would significantly reduce net societal fatality 
risk, because it would reduce the fatality risk of occupants in lighter 
vehicles which collide with the heavier LTVs. NHTSA concluded that, as 
a result, any reasonable combination of mass reductions while holding 
footprint constant in MY 2012-2016 vehicles--concentrated, at least to 
some extent, in the heavier LTVs and limited in the lighter cars--would 
likely be approximately safety-neutral; it would not significantly 
increase fatalities and might well decrease them.
    NHTSA's 2010 report partially agreed and partially disagreed with 
analyses published during 2003-2005 by Dynamic Research, Inc. (DRI). 
NHTSA and DRI both found a significant protective effect for footprint, 
and that reducing mass and footprint together (downsizing) on smaller 
vehicles was harmful. DRI's analyses estimated a significant overall 
reduction in fatalities from mass reduction in all light-duty vehicles 
if wheelbase and track width were maintained, whereas NHTSA's report 
showed overall fatality reductions only in the heavier LTVs, and 
benefits only in some types of crashes for other vehicle types. Much of 
NHTSA's 2010 report, as well as recent work by DRI, involved 
sensitivity tests on the databases and models, which generated a range 
of estimates somewhere between the initial DRI and NHTSA results.\191\
---------------------------------------------------------------------------

    \191\ Van Auken, R. M., and Zellner, J. W. (2003). A Further 
Assessment of the Effects of Vehicle Weight and Size Parameters on 
Fatality Risk in Model Year 1985-98 Passenger Cars and 1986-97 Light 
Trucks. Report No. DRI-TR-03-01. Torrance, CA: Dynamic Research, 
Inc.; Van Auken, R. M., and Zellner, J. W. (2005a). An Assessment of 
the Effects of Vehicle Weight and Size on Fatality Risk in 1985 to 
1998 Model Year Passenger Cars and 1985 to 1997 Model Year Light 
Trucks and Vans. Paper No. 2005-01-1354. Warrendale, PA: Society of 
Automotive Engineers; Van Auken, R. M., and Zellner, J. W. (2005b). 
Supplemental Results on the Independent Effects of Curb Weight, 
Wheelbase, and Track on Fatality Risk in 1985-1998 Model Year 
Passenger Cars and 1986-97 Model Year LTVs. Report No. DRI-TR-05-01. 
Torrance, CA: Dynamic Research, Inc.; Van Auken, R.M., and Zellner, 
J. W. (2011). ``Updated Analysis of the Effects of Passenger Vehicle 
Size and Weight on Safety,'' NHTSA Workshop on Vehicle Mass-Size-
Safety, Washington, February 25, 2011, http://www.nhtsa.gov/staticfiles/rulemaking/pdf/MSS/MSSworkshop_VanAuken.pdf
---------------------------------------------------------------------------

    Immediately after issuing the final rule for MYs 2012-2016 CAFE and 
GHG standards in May 2010, NHTSA and EPA began work on the next joint 
rulemaking to develop CAFE and GHG standards for MY 2017 to 2025 and 
beyond. The preamble to the 2012-2016 final rule stated that NHTSA, 
working closely with EPA and the Department of Energy (DOE), would 
perform a new statistical analysis of the relationships between 
fatality rates, mass and footprint, updating the crash and exposure 
databases to the latest available model years, refining the methodology 
in response to peer reviews of the 2010 report and taking into account 
changes in vehicle technologies. The previous databases of MY 1991-1999 
vehicles in CY 1995-2000 crashes has become outdated as new safety 
technologies, vehicle designs and materials were introduced. The new 
databases comprising MY 2000-2007 vehicles in CY 2002-2008 crashes with 
the most up-to-date possible, given the processing lead time for crash 
data and the need for enough crash cases to permit statistically 
meaningful analyses. NHTSA has made the new databases available to the 
public,\192\ enabling other researchers to analyze the same data and 
hopefully minimizing discrepancies in the results due to 
inconsistencies across the data used.\193\
---------------------------------------------------------------------------

    \192\ http://www.nhtsa.gov/fuel-economy.
    \193\ 75 FR 25324 (May 7, 2010); the discussion of planned 
statistical analyses is on pp. 25395-25396.
---------------------------------------------------------------------------

    One way to estimate these effects is via statistical analyses of 
societal fatality

[[Page 74951]]

rates per vehicle miles traveled (VMT), by vehicles' mass and 
footprint, for the current on-road vehicle fleet. The basic analytical 
method used for the 2011 NHTSA report is the same as in NHTSA's 2010 
report: Cross-sectional analyses of the effect of mass and footprint 
reductions on the societal fatality rate per billion vehicle miles of 
travel (VMT), while controlling for driver age and gender, vehicle 
type, vehicle safety features, crash times and locations, and other 
factors. Separate logistic regression models are run for three types of 
vehicles and nine types of crashes. Societal fatality rates include 
occupants of all vehicles in the crash, as well as non-occupants, such 
as pedestrians and cyclists. NHTSA's 2011 Report \194\ analyzes MY 
2000-2007 cars and LTVs in CY 2002-2008 crashes. Fatality rates were 
derived from FARS data, 13 State crash files, and registration and 
mileage data from R.L. Polk.
---------------------------------------------------------------------------

    \194\ Kahane, C. J. (2011). ``Relationships Between Fatality 
Risk, Mass, and Footprint in Model Year 2000-2007 Passenger Cars and 
LTVs,'' July 2011. The report is available in the NHTSA docket, 
NHTSA-2010-0152. You can access the docket at http://www.regulations.gov/#!home by typing `NHTSA-2010-0152' where it says 
``enter keyword or ID'' and then clicking on ``Search.''
---------------------------------------------------------------------------

    The most noticeable change in MY 2000-2007 vehicles from MY 1991-
1999 has been the increase in crossover utility vehicles (CUV), which 
are SUVs of unibody construction, often but not always built upon a 
platform shared with passenger cars. CUVs have blurred the distinction 
between cars and trucks. The new analysis treats CUVs and minivans as a 
separate vehicle class, because they differ in some respects from 
pickup-truck-based LTVs and in other respects from passenger cars. In 
the 2010 report, the many different types of LTVs were combined into a 
single analysis and NHTSA believes that this may have made the analyses 
too complex and might have contributed to some of the uncertainty in 
the results.
    The new database has accurate VMT estimates, derived from a file of 
odometer readings by make, model, and model year recently developed by 
R.L. Polk and purchased by NHTSA.\195\ For the 2011 report, the 
relative distribution of crash types has been changed to reflect the 
projected distribution of crashes during the period from 2017 to 2025, 
based on the estimated effectiveness of electronic stability control 
(ESC) in reduction the number of fatalities in rollover crashes and 
crashes with a stationary object. The annual target population of 
fatalities or the annual fatality distribution baseline \196\ was not 
decreased in the period between 2017 and 2025 for the safety statistics 
analysis, but is taken into account later in the Volpe model analysis, 
since all vehicles in the future will be equipped with ESC.\197\
---------------------------------------------------------------------------

    \195\ In the 1991-1999 data base, VMT was estimated only by 
vehicle class, based on NASS CDS data.
    \196\ MY 2004-2007 vehicles with fatal crashes occurred in CY 
2004-2008 are selected as the annual fatality distribution baseline 
in the Kahane analysis.
    \197\ In the Volpe model, NHTSA assumed that the safety trend 
would result in 12.6 percent reduction between 2007 and 2020 due to 
the combination of ESC, new safety standard, and behavior changes 
anticipated.
---------------------------------------------------------------------------

    For the 2011 report, vehicles are now grouped into five classes 
rather than four: passenger cars (including both 2-door and 4-door 
cars) are split in half by median weight; CUVs and minivans; and truck-
based LTVs, which are also split in half by median weight of the model 
year 2000-2007 vehicles. Table II-12 presents the estimated percent 
increase in U.S. societal fatality risk per ten billion VMT for each 
100-pound reduction in vehicle mass, while holding footprint constant, 
for each of the five classes of vehicles.
[GRAPHIC] [TIFF OMITTED] TP01DE11.042

    Only the 1.44 percent risk increase in the lighter cars is 
statistically significant. There are non-significant increases in the 
heavier cars and the lighter truck-based LTVs, and non-significant 
societal benefits for mass

[[Page 74952]]

reduction in CUVs, minivans, and the heavier truck-based LTVs. Based on 
these results, potential combinations of mass reductions that maintain 
footprint and are proportionately somewhat higher for the heavier 
vehicles may be safety-neutral or better as point estimates and, in any 
case, unlikely to significantly increase fatalities. The primarily non-
significant results are not due to a paucity of data, but because the 
societal effect of mass reduction while maintaining footprint, if any, 
is small.
    MY 2000-2007 vehicles of all types are heavier and larger than 
their MY 1991-1999 counterparts. The average mass of passenger cars 
increased by 5 percent from 2000 to 2007 and the average mass of pickup 
trucks increased by 19 percent. Other types of vehicles became heavier, 
on the average, by intermediate amounts. There are several reasons for 
these increases: during this time frame, some of the lighter make-
models were discontinued; many models were redesigned to be heavier and 
larger; and consumers more often selected stretched versions such as 
crew cabs in their new-vehicle purchases.
    It is interesting to compare the new results to NHTSA's 2010 
analysis of MY 1991-1999 vehicles in CY 1995-2000, especially the new 
point estimate to the ``actual regression result scenario'' in the 2010 
report:
[GRAPHIC] [TIFF OMITTED] TP01DE11.043

    The new results are directionally the same as in 2010: fatality 
increase in the lighter cars, safety benefit in the heavier LTVs, but 
the effects may have become weaker at both ends. (The agencies do not 
consider this conclusion to be

[[Page 74953]]

definitive because of the relatively wide confidence bounds of the 
estimates.) The fatality increase in the lighter cars tapered off from 
2.21 percent to 1.44 percent while the societal benefit of mass 
reduction in the heaviest LTVs diminished from 1.90 percent to 0.39 
percent and is no longer statistically significant.
    The agencies believe that the changes may be due to a combination 
of both changes in the characteristics of newer vehicles and revisions 
to the analysis. NHTSA believes, above all, that several light, small 
car models with poor safety performance were discontinued by 2000 or 
during 2000-2007. Also, the tendency of light, small vehicles to be 
driven poorly is not as strong as it used to be--perhaps in part 
because safety improvements in lighter and smaller vehicles have made 
some good drivers more willing to buy them. Both agencies believe that 
at the other end of the weight/size spectrum, blocker beams and other 
voluntary compatibility improvements in LTVs, as well as compatibility-
related self-protection improvements to cars, have made the heavier 
LTVs less aggressive in collisions with lighter vehicles (although the 
effect of mass disparity remains). This report's analysis of CUVs and 
minivans as a separate class of vehicles may have relieved some 
inaccuracies in the 2010 regression results for LTVs. Interestingly, 
the new actual-regression results are quite close to the previous 
report's ``lower-estimate scenario,'' which was an attempt to adjust 
for supposed inaccuracies in some regressions and for a seemingly 
excessive trend toward higher crash rates in smaller and lighter cars.
    The principal difference between the heavier vehicles, especially 
truck-based LTVs, and the lighter vehicles, especially passenger cars, 
is that mass reduction has a different effect in collisions with 
another car or LTV. When two vehicles of unequal mass collide, the 
delta V is higher in the lighter vehicle, in the same proportion as the 
mass ratio. As a result, the fatality risk is also higher. Removing 
some mass from the heavy vehicle reduces delta V in the lighter 
vehicle, where fatality risk is high, resulting in a large benefit, 
offset by a small penalty because delta V increases in the heavy 
vehicle, where fatality risk is low--adding up to a net societal 
benefit. Removing some mass from the lighter vehicle results in a large 
penalty offset by a small benefit--adding up to net harm. These 
considerations drive the overall result: fatality increase in the 
lighter cars, reduction in the heavier LTVs, and little effect in the 
intermediate groups. However, in some types of crashes, especially 
first event rollovers and impacts with fixed objects, mass reduction is 
usually not harmful and often beneficial, because the lighter vehicles 
respond more quickly to braking and steering and are often more stable 
because their center of gravity is lower. Offsetting that benefit is 
the continuing historical tendency of lighter and smaller vehicles to 
be driven less well--although it continues to be unknown why that is 
so, and to what extent, if any, the lightness or smallness of the 
vehicle contributes to people driving it less safely.
    The estimates of the model are formulated for each 100-pound 
reduction in mass; in other words, if risk increases by 1 percent for 
100 pounds reduction in mass, it would increase by 2 percent for a 200-
pound reduction, and 3 percent for a 300-pound reduction (more exactly, 
2.01 percent and 3.03 percent, because the effects work like compound 
interest). Confidence bounds around the point estimates will grow wider 
by the same proportions.
    The regression results are best suited to predict the effect of a 
small change in mass, leaving all other factors, including footprint, 
the same. With each additional change from the current environment, the 
model may become somewhat less accurate and it is difficult to assess 
the sensitivity to additional mass reduction greater than 100 pounds. 
The agencies recognize that the light-duty vehicle fleet in the 2017-
2025 timeframe will be different than the 2000-2007 fleet analyzed for 
this study. Nevertheless, one consideration provides some basis for 
confidence. This is NHTSA's fourth evaluation of the effects of mass 
reduction and/or downsizing, comprising databases ranging from MY 1985 
to 2007. The results of the four studies are not identical, but they 
have been consistent up to a point. During this time period, many makes 
and models have increased substantially in mass, sometimes as much as 
30-40 percent.\198\ If the statistical analysis has, over the past 
years, been able to accommodate mass increases of this magnitude, 
perhaps it will also succeed in modeling the effects of mass reductions 
on the order of 10-20 percent, if they occur in the future.
---------------------------------------------------------------------------

    \198\ For example, one of the most popular models of small 4-
door sedans increased in curb weight from 1,939 pounds in MY 1985 to 
2,766 pounds in MY 2007, a 43 percent increase. A high-sales mid-
size sedan grew from 2,385 to 3,354 pounds (41%); a best-selling 
pickup truck from 3,390 to 4,742 pounds (40%) in the basic model 
with 2-door cab and rear-wheel drive; and a popular minivan from 
2,940 to 3,862 pounds (31%).
---------------------------------------------------------------------------

e. Report by Tom Wenzel, LBNL, ``An Assessment of NHTSA's Report 
`Relationships Between Fatality Risk, Mass, and Footprint in Model Year 
2000-2007 Passenger Cars and LTVs'' ', 2011
    DOE contracted with Tom Wenzel of Lawrence Berkeley National 
Laboratory to conduct an assessment of NHTSA's updated 2011 study of 
the effect of mass and footprint reductions on U.S. fatality risk per 
vehicle miles traveled, and to provide an analysis of the effect of 
mass and footprint reduction on casualty risk per police-reported 
crash, using independent data from thirteen states. The assessment has 
been completed and reviewed by NHTSA and EPA staff, and a draft final 
version is included in the docket of today's rulemaking; the separate 
analysis of crash data from thirteen states will be completed and 
included in the docket shortly. Both reports will be peer reviewed by 
outside experts.
    The LBNL report replicates Kahane's analysis for NHTSA, using the 
same data and methods, and in many cases using the same SAS programs. 
The Wenzel report finds that although mass reduction in lighter (less 
than 3,106 lbs) cars leads to a statistically significant 1.44% 
increase in fatality risk per vehicle miles travelled (VMT), the 
increase is small. He tests this result for sensitivity to changes in 
specifications of the regression models and what data are used. In 
addition Wenzel shows that there is a wide range in fatality rates by 
vehicle model for models that have the same mass, even after accounting 
for differences in drivers' age and gender, safety features installed, 
and crash times and locations. This section summarizes the results of 
the Wenzel assessment of the most recent NHTSA analysis.
    The LBNL report highlights the effect of the other driver, vehicle, 
and crash control variables, in addition to the effect of mass and 
footprint reduction, on risk. Some of the other variables NHTSA 
included in its regression models have much larger effects on fatality 
risk than mass or footprint reduction. For example, the models indicate 
that a 100-lb increase in the mass of a lighter car results in a 1.44% 
reduction in fatality risk; this is the largest estimated effect of 
changes in vehicle mass, and the only one that is statistically 
significant. For comparison this reduction in fatality risk could also 
be achieved by a 13% increase in 4-door sedans equipped with ESC.
    The 1.44% increase in risk from reducing mass in the lighter cars 
was

[[Page 74954]]

tested for sensitivity changes in the specification of, or the data 
used in, the regression models. For example, using the current 
distribution of crashes, rather than adjusting the distribution to that 
expected after full adoption of ESC, reduces the effect to 1.18%; 
excluding the calendar year variables from the model, which may be 
weakening the modeled benefits of vehicle safety technologies, reduces 
the effect to 1.39%; and including vehicle make in the model increases 
the effect to 1.81%. The results also are sensitive to the selection of 
data to include in the analysis: Excluding bad drivers increases the 
effect to 2.03%, while excluding crashes involving alcohol or drugs 
increases the effect to 1.66%, and including sports, police, and all-
wheel drive cars increases the effect to 1.64%. Finally, changing the 
definition of risk also affects the result for lighter cars: Using the 
number of fatalities per induced exposure crash reduces the effect to -
0.24% (that is, a 0.24% reduction in risk), while using the number of 
fatal crashes (rather than total fatalities) per VMT increases the 
effect to 1.84%. These sensitivity tests, except one, changed the 
estimated coefficient by less than 1 percentage point, which is within 
its statistical confidence bounds of 0.29 to 2.59 percent and may be 
considered compatible with the baseline result. Using two or more 
variables that are strongly correlated in the same regression model 
(referred to as multicollinearity) can lead to inaccurate results. 
However, the correlation between vehicle mass and footprint may not be 
strong enough to cause serious concern. Experts suggest that a 
correlation of greater than 0.60 (or a variance inflation factor of 
2.5) raises concern about multicollinearity.\199\ The correlation 
between vehicle mass and footprint ranges from over 0.80 for four-door 
sedans, pickups, and SUVs, to about 0.65 for two-door cars and CUVs, to 
0.26 for minivans; when pickups and SUVs are considered together, the 
correlation between mass and footprint is 0.65. Wenzel notes that the 
2011 NHTSA report recognizes that the ``near'' multicollinearity 
between mass and footprint may not be strong enough to invalidate the 
results from a regression model that includes both variables. In 
addition, NHTSA included several analyses to address possible effects 
of the near-multicollinearity between mass and footprint.
---------------------------------------------------------------------------

    \199\ Light-Duty Vehicle Greenhouse Gas Emission Standards and 
Corporate Average Fuel Economy Standards; Final Rule, April 1, 2010, 
Section II.G.3., page 139.
---------------------------------------------------------------------------

    First, NHTSA ran a sensitivity model specification, where footprint 
is not held constant, but rather allowed to vary as mass varies (i.e. 
NHTSA ran a regression model which includes mass but not footprint). If 
the multicollinearity was so great that including both variables in the 
same model gave misleading results, removing footprint from the model 
could give mass coefficients five or more percentage points different 
than keeping it in the model. NHTSA's sensitivity test indicates that 
when footprint is allowed to vary with mass, the effect of mass 
reduction on risk increases from 1.44% to 2.64% for lighter cars, and 
from a non-significant 0.47% to a statistically-significant 1.94% for 
heavier cars (changes of less than two percentage points); however, the 
effect of mass reduction on light trucks is unchanged, and is still not 
statistically significant for CUVs/minivans.
    Second, NHTSA conducted a stratification analysis of the effect of 
mass reduction on risk by dividing vehicles into deciles based on their 
footprint, and running a separate regression model for each vehicle and 
crash type, for each footprint decile (3 vehicle types times 9 crash 
types times 10 deciles equals 270 regressions). This analysis estimates 
the effect of mass reduction on risk separately for vehicles with 
similar footprint. The analysis indicates that mass reduction does not 
consistently increase risk across all footprint deciles for any 
combination of vehicle type and crash type. Mass reduction increases 
risk in a majority of footprint deciles for 13 of the 27 crash and 
vehicle combinations, but few of these increases are statistically 
significant. On the other hand, mass reduction decreases risk in a 
majority of footprint deciles for 9 of the 27 crash and vehicle 
combinations; in some cases these risk reductions are large and 
statistically significant.\200\ If reducing vehicle mass while 
maintaining footprint inherently leads to an increase in risk, the 
coefficients on mass reduction should be more consistently positive, 
and with a larger R2, across the 27 vehicle/crash 
combinations, than shown in the analysis. These findings are consistent 
with the conclusion of the basic regression analyses, namely, that the 
effect of mass reduction while holding footprint constant, if any, is 
small.
---------------------------------------------------------------------------

    \200\ And in 5 of the 27 crash and vehicle combinations, mass 
reduction increased risk in 5 deciles and decreased risk in 5 
deciles.
---------------------------------------------------------------------------

    One limitation of using logistic regression to estimate the effect 
of mass reduction on risk is that a standard statistic to measure the 
extent to which the variables in the model explain the range in risk, 
equivalent to the R2> statistic in a linear regression 
model, does not exist. (SAS does generate a pseudo-R2 value 
for logistic regression models; in almost all of the NHTSA regression 
models this value is less than 0.10). For this reason LBNL conducted an 
analysis of risk versus mass by vehicle model. LBNL used the results of 
the NHTSA logistic regression model to predict the number of fatalities 
expected after accounting for all vehicle, driver, and crash variables 
included in the NHTSA regression model except for vehicle weight and 
footprint. LBNL then plotted expected fatality risk per VMT by vehicle 
model against the mass of each model, and analyzed the change in risk 
as mass increases, as well as how much of the change in risk was 
explained by all of the variables included in the model.
    The analysis indicates that, after accounting for all the 
variables, risk does decrease as mass increases; however, risk and mass 
are not strongly correlated, with the R2 ranging from 0.33 
for CUVs to less than 0.15 for all other vehicle types (as shown in 
Figure x). This means that, on average, risk decreases as mass 
increases, but the variation in risk among individual vehicle models is 
stronger than the trend in risk from light to heavy vehicles. For 
fullsize (i.e. 3/4- and 1-ton) pickups, risk increases as mass 
increases, with an R2 of 0.43, consistent with NHTSA's basic 
regression results for the heavier LTVs (societal risk increases as 
mass increases). LBNL also examined the relationship between residual 
risk, that is the remaining unexplained risk after accounting for all 
vehicle, driver and crash variables, and mass, and found similarly poor 
correlations. This implies that the remaining factors not included in 
the regression model that account for the observed range in risk by 
vehicle model also are not correlated with mass. (LBNL found similar 
results when the analysis compared risk to vehicle footprint.)
    Figure II-2 indicates that some vehicles on the road today have the 
same, or lower, fatality rates than models that weigh substantially 
more, and are substantially larger in terms of footprint. After 
accounting for differences in driver age and gender, safety features 
installed, and crash times and locations, there are numerous examples 
of different models with similar weight and footprint yet widely 
varying fatality rates. The variation of fatality rates among 
individual models may reflect differences in vehicle

[[Page 74955]]

design, differences in the drivers who choose such vehicles (beyond 
what can be explained by demographic variables such as age and gender), 
and statistical variation of fatality rates based on limited data for 
individual models. Differences in vehicle design can, and already do, 
mitigate some safety penalties from reduced mass; this is consistent 
with NHTSA's opinion that some of the changes in its regression results 
between the 2003 study and the 2011 study are due to the redesign or 
removal of certain smaller and lighter models of poor design.
[GRAPHIC] [TIFF OMITTED] TP01DE11.044

f. Based on this information, what do the agencies consider to be the 
current state of statistical research on vehicle mass and safety?
    The agencies believe that statistical analysis of historical crash 
data continues to be an informative and important tool in assessing the 
potential safety impacts of the proposed standards. The effect of mass 
reduction while maintaining footprint is a complicated topic and there 
are open questions whether future designs will reduce the historical 
correlation between weight and size. It is important to note that while 
the updated database represents more current vehicles with technologies 
more representative of vehicles on the road today, they still do not 
fully represent what vehicles will be on the road in the 2017-2025 
timeframe. The vehicles manufactured in the 2000-2007 timeframe were 
not subject to footprint-based fuel economy standards. The agencies 
expect that the attribute-based standards will likely facilitate the 
design of vehicles such that manufacturers may reduce mass while 
maintaining footprint. Therefore, it is possible that the analysis for 
2000-2007 vehicles may not be fully representative of the vehicles that 
will be on the road in 2017 and beyond.
    While we recognize that statistical analysis of historical crash 
data may not be the only way to think about the future relationship 
between vehicle mass and safety, we also recognize that other 
assessment methods are also subject to uncertainties, which makes 
statistical analysis of historical data an important starting point if 
employed mindfully and recognized for how it can be useful and what its 
limitations may be.
    NHTSA undertook the independent review of statistical studies and 
held the mass-safety workshop in February 2011 in order to help the 
agencies sort through the ongoing debates over what statistical 
analysis of historical data is actually telling us. Previously, the 
agencies have assumed that differences in results were due in part to 
inconsistent databases; by creating the updated common database and 
making it publicly available, we are hopeful that that aspect of the 
problem has been resolved, and moreover, the UMTRI review suggested 
that differences in data were probably less significant than the 
agencies may have thought. Statistical analyses of historical crash 
data should be examined for potential multicollinearity issues. The 
agencies will continue to monitor issues with multicollinearity in our 
analyses, and hope that outside researchers will do the same. And 
finally, based on the findings of the independent review, the agencies 
continue to be confident that Kahane's analysis is one of the best for 
the purpose of analyzing potential safety effects of future CAFE and 
GHG standards. UMTRI concluded that Kahane's approach is valid, and 
Kahane has continued and refined that approach for the current 
analysis. The NHTSA 2011 statistical fatality report finds 
directionally similar but less statistically significant relationships 
between vehicle mass, size, and footprint, as discussed above. Based on 
these findings, the agencies believe that

[[Page 74956]]

in the future, fatalities due to mass reduction will be best reduced if 
mass reduction is concentrated in the heaviest vehicles. NHTSA 
considers part of the reason that more recent historical data shows a 
dampened effect in the relationship between mass reduction and safety 
is that all vehicles, including traditionally lighter ones, grew 
heavier during that timeframe (2000s). As lighter vehicles might become 
more prevalent in the fleet again over the next decade, it is possible 
that the trend could strengthen again. On the other hand, extensive use 
of new lightweight materials and optimized vehicle design may weaken 
the relationship. Future updated analyses will be necessary to 
determine how the effect of mass reduction on risk changes over time.
    Both agencies agree that there are several identifiable safety 
trends already in place or expected to occur in the foreseeable future 
that are not accounted for in the study, since they were not in effect 
at the time that the vehicles in question were manufactured. For 
example, there are two important new safety standards that have already 
been issued and will be phasing in after MY 2008. FMVSS No. 126 (49 CFR 
Sec.  571.126) requires electronic stability control in all new 
vehicles by MY 2012, and the upgrade to FMVSS No. 214 (Side Impact 
Protection, 49 CFR Sec.  571.214) will likely result in all new 
vehicles being equipped with head-curtain air bags by MY 2014. 
Additionally, we anticipate continued improvements in driver (and 
passenger) behavior, such as higher safety belt use rates. All of these 
may tend to reduce the absolute number of fatalities. On the other 
hand, as crash avoidance technology improves, future statistical 
analysis of historical data may be complicated by a lower number of 
crashes. In summary, the agencies have relied on the coefficients in 
the Kahane 2011 study for estimating the potential safety effects of 
the proposed CAFE and GHG standards for MYs 2017-2025, based on our 
assumptions regarding the amount of mass reduction that could be used 
to meet the standards in a cost-effective way without adversely 
affecting safety. Section E below discusses the methodology used by the 
agencies in more detail; while the results of the safety effects 
analysis are less significant than the results in the MY 2012-2016 
final rule, the agencies still believe that any statistically 
significant results warrant careful consideration of the assumptions 
about appropriate levels of mass reduction on which to base future CAFE 
and GHG standards, and have acted accordingly in developing the 
proposed standards.
4. How do the agencies think technological solutions might affect the 
safety estimates indicated by the statistical analysis?
    As mass reduction becomes a more important technology option for 
manufacturers in meeting future CAFE and GHG standards, manufacturers 
will invest more and more resources in developing increasingly 
lightweight vehicle designs that meet their needs for manufacturability 
and the public's need for vehicles that are also safe, useful, 
affordable, and enjoyable to drive. There are many different ways to 
reduce mass, as discussed in Chapter 3 of this TSD and in Sections II, 
III, and IV of the preamble, and a considerable amount of information 
is available today on lightweight vehicle designs currently in 
production and that may be able to be put into production in the 
rulemaking timeframe. Discussion of lightweight material designs from 
NHTSA's workshop is presented below.
    Besides ``lightweighting'' technologies themselves, though, there 
are a number of considerations when attempting to evaluate how future 
technological developments might affect the safety estimates indicated 
by the statistical analysis. As discussed in the first part of this 
chapter, for example, careful changes in design and/or materials used 
might mitigate some of the potential decrease in safety from mass 
reduction--through improved distribution of crash pulse energy, etc.--
but these techniques can sometimes cause other problems, such as 
increased crash forces on vehicle occupants that have to be mitigated, 
or greater aggressivity against other vehicles in crashes. 
Manufacturers may develop new and better restraints--air bags, seat 
belts, etc.--to protect occupants in lighter vehicles in crashes, but 
NHTSA's current safety standards for restraint systems are designed 
based on the current fleet, not the yet-unknown future fleet. The 
agency will need to monitor trends in the crash data to see whether 
changes to the safety standards (or new safety standards) become 
necessary. Manufacturers are also increasingly investigating a variety 
of crash avoidance technologies--ABS, electronic stability control 
(ESC), lane departure warnings, vehicle-to-vehicle (V2V) 
communications--that, as they become more prevalent in the fleet, are 
expected to reduce the number of overall crashes, and fatal, crashes. 
Until these technologies are present in the fleet in greater numbers, 
however, it will be difficult to assess whether they can mitigate the 
observed relationship between vehicle mass and safety in the historical 
data.
    Along with the California Air Resources Board (CARB), the agencies 
have initiated several projects to estimate the maximum potential for 
advanced materials and improved designs to reduce mass in the MY 2017-
2021 timeframe, while continuing to meeting safety regulations and 
maintaining functionality of vehicles. Another NHTSA-sponsored study 
will estimate the effects of these design changes on overall fleet 
safety.
    A. NHTSA has awarded a contract to Electricore, with EDAG and 
George Washington University (GWU) as subcontractors, to study the 
maximum feasible amount of mass reduction for a mid-size car--
specifically, a Honda Accord. The study tore down a MY 2011 Honda 
Accord, studied each component and sub-system, and then redesigned each 
component and sub-system trying to maximize the amount of mass 
reduction with technologies that are considered feasible for 200,000 
units per year production volume during the time frame of this 
rulemaking. Electricore and its sub-contractors are consulting industry 
leaders and experts for each component and sub-system when deciding 
which technologies are feasible. Electricore and its sub-contractors 
are also building detailed CAD/CAE/powertrain models to validate 
vehicle safety, stiffness, NVH, durability, drivability and powertrain 
performance. For OEM-supplied parts, a detailed cost model is being 
built based on a Technical Cost Modeling (TCM) approach developed by 
the Massachusetts Institute of Technology (MIT) Materials Systems 
Laboratory's research\201\ to estimate the costs to OEMs for 
manufacturing parts. The cost will be broken down into each of the 
operations involved in the manufacturing; for example, for a sheet 
metal part, production costs will be estimated from the blanking of the 
steel coil to the final operation to fabricate the component. Total 
costs are then categorized into fixed cost, such as tooling, equipment, 
and facilities; and variable costs such as labor, material, energy, and 
maintenance. These costs will be assessed through an interactive 
process between the product designer, manufacturing engineers, and cost

[[Page 74957]]

analysts. For OEM-purchased parts, the cost will be estimated by 
consultation with experienced cost analysts and Tier 1 system 
suppliers. This study will help to inform the agencies about the 
feasible amount of mass reduction and the cost associated with it. 
NHTSA intends to have this study completed and peer reviewed before 
July 2012, in time for it to play an integral role in informing the 
final rule.
---------------------------------------------------------------------------

    \201\ Frank Field, Randolph Kirchain and Richard Roth, Process 
cost modeling: Strategic engineering and economic evaluation of 
materials technologies, JOM Journal of the Minerals, Metals and 
Materials Society, Volume 59, Number 10, 21-32. Available at http://msl.mit.edu/pubs/docs/Field_KirchainCM_StratEvalMatls.pdf (last 
accessed Aug. 22, 2011).
---------------------------------------------------------------------------

    B. EPA has awarded a similar contract to FEV, with EDAG and Monroe 
& Associates, Inc. as subcontractors, to study the maximum feasible 
amount of mass reduction for a mid-size CUV (cross over vehicle) 
specifically, a Toyota Venza. The study tears down a MY 2010 vehicle, 
studies each component and sub-system, and then redesigns each 
component and sub-system trying to maximize the amount of mass 
reduction with technologies that are considered feasible for high 
volume production for a 2017 MY vehicle. FEV in coordination with EDAG 
is building detailed CAD/CAE/powertrain models to validate vehicle 
safety, stiffness, NVH, durability, drivability and powertrain 
performance to assess the safety of this new design. This study builds 
upon the low development (20% mass reduction) design in the 2010 Lotus 
Engineering study ``An Assessment of Mass Reduction Opportunities for a 
2017-2020 Model Year Vehicle Program''. This study builds upon the low 
development (20% mass reduction) design in the 2010 Lotus Engineering 
study ``An Assessment of Mass Reduction Opportunities for a 2017-2020 
Model Year Vehicle Program''. This study will undergo a peer review. 
EPA intends to have this study completed and peer reviewed before July 
2012, in time for it to play an integral role in informing the final 
rule.
    C. California Air Resources Board (CARB) has awarded a contract to 
Lotus Engineering, to study the maximum feasible amount of mass 
reduction for a mid-size CUV (cross over vehicle) specifically, a 
Toyota Venza. The study will concentrate on the Body-in-White and 
closures in the high development design (40% mass reduction) in the 
Lotus Engineering study cited above. The study will provide an updated 
design with crash simulation, detailed costing and manufacturing 
feasibility of these two systems for a MY2020 high volume production 
vehicle. This study will undergo a peer review. EPA intends to have 
this study completed and peer reviewed before July 2012, in time for it 
to play an integral role in informing the final rule.
    D. NHTSA has contracted with George Washington University (GWU) to 
build a fleet simulation model to study the impact and relationship of 
light-weight vehicle design and injuries and fatalities. This study 
will also include an evaluation of potential countermeasures to reduce 
any safety concerns associated with lightweight vehicles. NHTSA will 
include three light-weighted vehicle designs in this study: the one 
from Electricore/EDAG/GWU mentioned above, one from Lotus Engineering 
funded by California Air Resource Board for the second phase of the 
study, evaluating mass reduction levels around 35 percent of total 
vehicle mass, and two funded by EPA and the International Council on 
Clean Transportation (ICCT). This study will help to inform the 
agencies about the possible safety implications for light-weight 
vehicle designs and the appropriate counter-measures,\202\ if 
applicable, for these designs, as well as the feasible amounts of mass 
reduction. All of these analyses are expected to be finished and peer-
reviewed before July 2012, in time to inform the final rule.
---------------------------------------------------------------------------

    \202\ Countermeasures could potentially involve improved front 
end structure, knee bags, seat ramps, buckle pretensioners, and 
others.
---------------------------------------------------------------------------

a. NHTSA workshop on vehicle mass, size and safety
    As stated above, in section C.2, on February 25, 2011, NHTSA hosted 
a workshop on mass reduction, vehicle size, and fleet safety at the 
Headquarters of the US Department of Transportation in Washington, DC. 
The purpose of the workshop was to provide the agencies with a broad 
understanding of current research in the field and provide stakeholders 
and the public with an opportunity to weigh in on this issue. The 
agencies also created a public docket to receive comments from 
interested parties that were unable to attend. The presentations were 
divided into two sessions that addressed the two expansive sets of 
issues. The first session explored statistical evidence of the roles of 
mass and size on safety, and is summarized in section C.2. The second 
session explored the engineering realities of structural 
crashworthiness, occupant injury and advanced vehicle design, and is 
summarized here. The speakers in the second session included Stephen 
Summers of NHTSA, Gregg Peterson of Lotus Engineering, Koichi Kamiji of 
Honda, John German of the International Council on Clean Transportation 
(ICCT), Scott Schmidt of the Alliance of Automobile Manufacturers, Guy 
Nusholtz of Chrysler, and Frank Field of the Massachusetts Institute of 
Technology.
    The second session explored what degree of weight reduction and 
occupant protection are feasible from technical, economic, and 
manufacturing perspectives. Field emphasized that technical feasibility 
alone does not constitute feasibility in the context of vehicle mass 
reduction. Sufficient material production capacity and viable 
manufacturing processes are essential to economic feasibility. Both 
Kamiji and German noted that both good materials and good designs will 
be necessary to reduce fatalities. For example, German cited the 
examples of hexagonally structured aluminum columns, such as used in 
the Honda Insight, that can improve crash absorption at lower mass, and 
of high-strength steel components that can both reduce weight and 
improve safety. Kamiji made the point that widespread mass reduction 
will reduce the kinetic energy of all crashes which should produce some 
beneficial effect.
    Summers described NHTSA's plans for a model to estimate fleetwide 
safety effects based on an array of vehicle-to-vehicle computational 
crash simulations of current and anticipated vehicle designs. In 
particular, three computational models of lightweight vehicles are 
under development. They are based on current vehicles that have been 
modified to substantially reduce mass. The most ambitious was the 
``high development'' derivative of a Toyota Venza developed by Lotus 
Engineering and discussed by Mr. Peterson. Its structure currently 
contains about 75% aluminum, 12% magnesium, 8% steel, and 5% advanced 
composites. Peterson expressed confidence that the design had the 
potential to meet federal safety standards. Nusholtz emphasized that 
computational crash simulations involving more advanced materials were 
less reliable than those involving traditional metals such as aluminum 
and steel.
    Nusholtz presented a revised data-based fleet safety model in which 
important vehicle parameters were modeled based on trends from current 
NCAP crash tests. For example, crash pulses and potential intrusion for 
a particular size vehicle were based on existing distributions. Average 
occupant deceleration was used to estimate injury risk. Through a range 
of simulations of modified vehicle fleets, he was able to estimate the 
net effects of various design strategies for lighter weight vehicles, 
such as various scaling approaches for vehicle stiffness or intrusion. 
The approaches were selected based on engineering requirements for 
modified

[[Page 74958]]

vehicles. Transition from the current fleet was considered. He 
concluded that protocols resulting in safer transitions (e.g., removing 
more mass from heavier vehicles with appropriate stiffness scaling 
according to a \3/2\ power law) were not generally consistent with 
those that provide the greatest reduction in GHG production.
    German discussed several important points on the future of mass 
reduction. Similar to Kahane's discussion of the difficulties of 
isolating the impact of weight reduction, German stated that other 
important variables, such as vehicle design and compatibility factors, 
must be held constant in order for size or weight impacts to be 
quantified in statistical analyses. He presented results that, compared 
to driver, driving influences, and vehicle design influences, the 
safety impacts of size and weight are small and difficult to quantify. 
He noted that several scenarios, such as rollovers, greatly favored the 
occupants of smaller and lighter cars once a crash occurred. He pointed 
out that if size and design are maintained, lower weight should 
translate into a lower total crash force. He thought that advanced 
material designs have the potential to ``decouple'' the historical 
correlation between vehicle size and weight, and felt that effective 
design and driver attributes may start to dominate size and weight 
issues in future vehicle models.
    Other presenters noted industry's perspective of the effect of 
incentivizing weight reduction. Field highlighted the complexity of 
institutional changes that may be necessitated by weight reduction, 
including redesign of material and component supply chains and 
manufacturing infrastructure. Schmidt described an industry perspective 
on the complicated decisions that must be made in the face of 
regulatory change, such as evaluating goals, gains, and timing.
    Field and Schmidt noted that the introduction of technical 
innovations is generally an innate development process involving both 
tactical and strategic considerations that balance desired vehicle 
attributes with economic and technical risk. In the absence of 
challenging regulatory requirements, a substantial technology change is 
often implemented in stages, starting with lower volume pilot 
production before a commitment is made to the infrastructure and supply 
chain modifications necessary for inclusion on a high-volume production 
model. Joining, damage characterization, durability, repair, and 
significant uncertainty in final component costs are also concerns. 
Thus, for example, the widespread implementation of high-volume 
composite or magnesium structures might be problematic in the short or 
medium term when compared to relatively transparent aluminum or high 
strength steel implementations. Regulatory changes will affect how 
these tradeoffs are made and these risks are managed.
    Koichi Kamiji presented data showing in increased use of high 
strength steel in their Honda product line to reduced vehicle mass and 
increase vehicle safety. He stated that mass reduction is clearly a 
benefit in 42% of all fatal crashes because absolute energy is reduced. 
He followed up with slides showing the application of certain optimized 
it designs can improve safety even when controlling for weight and 
size.
    A philosophical theme developed that explored the ethics of 
consciously allowing the total societal harm associated with mass 
reduction to approach the anticipated benefits of enhanced safety 
technologies. Although some participants agreed that there may 
eventually be specific fatalities that would not have occurred without 
downsizing, many also agreed that safety strategies will have to be 
adapted to the reality created by consumer choices, and that ``We will 
be ok if we let data on what works--not wishful thinking--guide our 
strategies.''
5. How have the agencies estimated safety effects for the proposed 
standards?
a. What was the agencies' methodology for estimating safety effects for 
the proposed standards?
    As explained above, the agencies consider the 2011 statistical 
analysis of historical crash data by NHTSA to represent the best 
estimates of the potential relationship between mass reduction and 
fatality increases in the future fleet. This section discusses how the 
agencies used NHTSA's 2011 analysis to calculate specific estimates of 
safety effects of the proposed standards, based on the analysis of how 
much mass reduction manufacturers might use to meet the proposed 
standards.
    Neither the proposed CAFE/GHG standards nor the agencies' analysis 
mandates mass reduction, or mandates that mass reduction occur in any 
specific manner. However, mass reduction is one of the technology 
applications available to the manufacturers and a degree of mass 
reduction is used by both agencies' models to determine the 
capabilities of manufacturers and to predict both cost and fuel 
consumption/emissions impacts of improved CAFE/GHG standards. We note 
that the amount of mass reduction selected for this rulemaking is based 
on our assumptions about how much is technologically feasible without 
compromising safety. While we are confident that manufacturers will 
build safe vehicles, we cannot predict with certainty that they will 
choose to reduce mass in exactly the ways that the agencies have 
analyzed in response to the standards. In the event that manufacturers 
ultimately choose to reduce mass and/or footprint in ways not analyzed 
or anticipated by the agencies, the safety effects of the rulemaking 
may likely differ from the agencies' estimates.
    NHTSA utilized the 2011 Kahane study relationships between weight 
and safety, expressed as percent changes in fatalities per 100-pound 
weight reduction while holding footprint constant. However, as 
mentioned previously, there are several identifiable safety trends 
already occurring, or expected to occur in the foreseeable future, that 
are not accounted for in the study. For example, the two important new 
safety standards that were discussed above for electronic stability 
control and head curtain airbags, have already been issued and began 
phasing in after MY 2008. The recent shifts in market shares from 
pickups and SUVs to cars and CUVs may continue, or accelerate, if 
gasoline prices remain high, or rise further. The growth in vehicle 
miles travelled may continue to stagnate if the economy does not 
improve, or gasoline prices remain high. And improvements in driver 
(and passenger) behavior, such as higher safety belt use rates, may 
continue. All of these will tend to reduce the absolute number of 
fatalities in the future. The agency estimated the overall change in 
fatalities by calendar year after adjusting for ESC, Side Impact 
Protection, and other Federal safety standards and behavioral changes 
projected through this time period. The smaller percent changes in risk 
from mass reduction (from the 2011 NHTSA analysis), coupled with the 
reduced number of baseline fatalities, results in smaller absolute 
increases in fatalities than those predicted in the 2010 rulemaking.
    NHTSA examined the impacts of identifiable safety trends over the 
lifetime of the vehicles produced in each model year. An estimate of 
these impacts was contained in a previous

[[Page 74959]]

agency report.\203\ The impacts were estimated on a year-by-year basis, 
but could be examined in a combined fashion. Using this method, we 
estimate a 12.6 percent reduction in fatality levels between 2007 and 
2020 for the combination of safety standards and behavioral changes 
anticipated (ESC, head-curtain air bags, and increased belt use). Since 
the same safety standards are taking effect in the same years, the 
estimates derived from applying NHTSA fatality percentages to a 
baseline of 2007 fatalities were thus multiplied by 0.874 to account 
for changes that NHTSA believes will take place in passenger car and 
light truck safety between the 2007 baseline on-road fleet used for 
this particular safety analysis and year 2025.
---------------------------------------------------------------------------

    \203\ Countermeasures could potentially involve improved front 
end structure, knee bags, seat ramps, buckle pretensioners, and 
others.
    Blincoe, L. and Shankar, U., ``The Impact of Safety Standards 
and Behavioral Trends on Motor Vehicle Fatality Rates,'' DOT HS 810 
777, January 2007. See Table 4 comparing 2020 to 2007 (37,906/43,363 
= 12.6% reduction (1-.126 = .874). Since 2008 was a recession year, 
it does not seem appropriate to use that as a baseline. We believe 
this same ratio should hold for this analysis which should compare 
2025 to 2008. Thus, we are inclined to continue to use the same 
ratio.
---------------------------------------------------------------------------

    To estimate the amount of mass reduction to apply in the rulemaking 
analysis, the agencies considered fleet safety effects for mass 
reduction. As previously discussed and shown in Table II-15, the Kahane 
2011 study shows that applying mass reduction to CUVs and light duty 
trucks will generally decrease societal fatalities, while applying mass 
reduction to passenger cars will increase fatalities. The CAFE model 
uses coefficients from the Kahane study along with the mass reduction 
level applied to each vehicle model to project societal fatality 
effects in each model year. NHTSA used the CAFE model and conducted 
iterative modeling runs varying the maximum amount of mass reduction 
applied to each subclass in order to identify a combination that 
achieved a high level of overall fleet mass reduction while not 
adversely affecting overall fleet safety. These maximum levels of mass 
reduction for each subclass were then used in the CAFE model for the 
rulemaking analysis. The agencies believe that mass reduction of up to 
20 percent is feasible on light trucks, CUVs and minivans,\204\ but 
that less mass reduction should be implemented on other vehicle types 
to avoid increases in societal fatalities. For this proposal, NHTSA 
used the mass reduction levels shown in Table II-15.
---------------------------------------------------------------------------

    \204\ When applying mass reduction, NHSTA capped the maximum 
amount of mass reduction to 20 percent for any individual vehicle 
class. The 20 percent cap is the maximum amount of mass reduction 
the agencies believe to be feasible in MYs 2017-2025 time frame.
[GRAPHIC] [TIFF OMITTED] TP01DE11.045

    For the CAFE model, these percentages apply to a vehicle's total 
weight, including the powertrain. Table II-16 shows the amount of mass 
reduction in pounds for these percentage mass reduction levels for a 
typical vehicle weight in each subclass.

[[Page 74960]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.046

    After applying the mass reduction levels in the CAFE model, Table 
II-17 shows the results of NHTSA's safety analysis separately for each 
model year.\205\ These are estimated increases or decreases in 
fatalities over the lifetime of the model year fleet. A positive number 
means that fatalities are projected to increase, a negative number 
(indicated by parentheses) means that fatalities are projected to 
decrease. The results are significantly affected by the assumptions put 
into the Volpe model to take more weight out of the heavy LTVs, CUVs, 
and minivans than out of other vehicles. As the negative coefficients 
only appear for LTVs greater than 4,594 lbs., CUVs, and minivans, a 
statistically improvement in safety can only occur if more weight is 
taken out of these vehicles than passenger cars or smaller light 
trucks. Combining passenger car and light truck safety estimates for 
the proposed standards results in an increase in fatalities over the 
lifetime of the nine model years of MY 2017-2025 of 4 fatalities, 
broken up into an increase of 61 fatalities in passenger cars and 56 
decrease in fatalities in light trucks. NHTSA also analyzed the results 
for different regulatory alternatives in Chapter IX of its PRIA; the 
difference in the results by alternative depends upon how much weight 
reduction is used in that alternative and the types and sizes of 
vehicles that the weight reduction applies to.
---------------------------------------------------------------------------

    \205\ NHTSA has changed the definitions of a passenger car and 
light truck for fuel economy purposes between the time of the Kahane 
2003 analysis and this proposed rule. About 1.4 million 2 wheel 
drive SUVs have been redefined as passenger cars instead of light 
trucks. The Kahane 2011 analysis continues with the definitions used 
in the Kahane 2003 analysis. Thus, there are different definitions 
between Tables IX-1 and IX-2 (which use the old definitions) and 
Table IX-3 (which uses the new definitions).

---------------------------------------------------------------------------

[[Page 74961]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.047

    Using the same coefficients from the 2011 Kahane study, EPA used 
the OMEGA model to conduct a similar analysis. After applying these 
percentage increases to the estimated weight reductions per vehicle 
size by model year assumed in the Omega model, Table II-18 shows the 
results of EPA's safety analysis separately for each model year. These 
are estimated increases or decreases in fatalities over the lifetime of 
the model year fleet. A positive number means that fatalities are 
projected to increase; a negative number means that fatalities are 
projected to decrease. For details, see the EPA RIA Chapter 3.
[GRAPHIC] [TIFF OMITTED] TP01DE11.048

b. Why might the real-world effects be less than or greater than what 
the agencies have calculated?
    As discussed above the ways in which future technological advances 
could potentially mitigate the safety effects estimated for this 
rulemaking: lightweight vehicles could be designed to be both stronger 
and not more aggressive; restraint systems could be improved to deal 
with higher crash pulses in lighter vehicles; crash avoidance 
technologies could reduce the number of overall crashes; roofs could be 
strengthened to improve safety

[[Page 74962]]

in rollovers. As also stated above, however, while we are confident 
that manufacturers will strive to build safe vehicles, it will be 
difficult for both the agencies and the industry to know with certainty 
ahead of time how crash trends will change in the future fleet as 
lightweighted vehicles become more prevalent. Going forward, we will 
have to continue to monitor the crash data as well as changes in 
vehicle weight relative to what we expect.
    Additionally, we note that the total amount of mass reduction used 
in the agencies' analysis for this rulemaking were chosen based on our 
assumptions about how much is technologically feasible without 
compromising safety. Again, while we are confident that manufacturers 
are motivated to build safe vehicles, we cannot predict with certainty 
that they will choose to reduce mass in exactly the ways that the 
agencies have analyzed in response to the standards. In the event that 
manufacturers ultimately choose to reduce mass and/or footprint in ways 
not analyzed by the agencies, the safety effects of the rulemaking may 
likely differ from the agencies' estimates.
    The agencies acknowledge the proposal does not prohibit 
manufacturers from redesigning vehicles to change wheelbase and/or 
track width (footprint). However, as NHTSA explained in promulgating 
MY2008-2011 light truck CAFE standards and MY2011 passenger car and 
light truck CAFE standards, and as the agencies jointly explained in 
promulgating MY2012-2016 CAFE and GHG standards, the agencies believes 
such engineering changes are significant enough to be unattractive as a 
measure to undertake solely to reduce compliance burdens. Similarly, 
the agencies acknowledge that a manufacturer could, without actually 
reengineering specific vehicles to increase footprint, shift production 
toward those that perform well compared to their respective footprint-
based targets. However, NHTSA and, more recently NHTSA and EPA have 
previously explained, because such production shifts would run counter 
to market demands, they would also be competitively unattractive. Based 
on this regulatory design, the analysis assumes this proposal will not 
have either of the effects described above.
    As discussed in Chapter 2 of the Draft Joint TSD, the agencies note 
that the standard is flat for vehicles smaller than 41 square feet and 
that downsizing in this category could help achieve overall compliance, 
if the vehicles are desirable to consumers. The agencies note that less 
than 10 percent of MY2008 passenger cars were below 41 square feet, and 
due to the overall lower level of utility of these vehicles, and the 
engineering challenges involved in ensuring that these vehicles meet 
all applicable federal motor vehicle safety standards (FMVSS), we 
expect a significant increase in this segment of the market in the 
future is unlikely. Please see Chapter 2 of the Draft Joint TSD for 
additional discussion.
    We seek comment on the appropriateness of the overall analytic 
assumption that the attribute-based aspect of the proposed standards 
will have no effect on the overall distribution of vehicle footprints. 
Notwithstanding the agencies current judgment that such deliberate 
reengineering or production shift are unlikely as pure compliance 
strategies, both agencies are considering the potential future 
application of vehicle choice models, and anticipate that doing so 
could result in estimates that market shifts induced by changes in 
vehicle prices and fuel economy levels could lead to changes in fleet's 
footprint distribution. However, neither agency is currently able to 
include vehicle choice modeling in our analysis.
    As discussed in Chapter 2 of the Draft Joint TSD, the agencies note 
that the standard is flat for vehicles smaller than 41 square feet and 
that downsizing in this category could help achieve overall compliance, 
if the vehicles are desirable to consumers. The agencies note that less 
than 10 percent of MY2008 passenger cars were below 41 square feet, and 
due to the overall lower level of utility of these vehicles, and the 
engineering challenges involved in ensuring that these vehicles meet 
all applicable federal motor vehicle safety standards (FMVSS), we 
expect a significant increase in this segment of the market in the 
future is unlikely. Please see Chapter 2 of the Draft Joint TSD for 
additional discussion.
c. Do the agencies plan to make any changes in these estimates for the 
final rule?
    As discussed above, the agencies have based our estimates of safety 
effects due to the proposed standards on Kahane's 2011 report. That 
report is currently undergoing peer review and is docketed for public 
review;\206\ the peer review comments and response to peer review 
comments, along with any revisions to the report in response to that 
review, will also be docketed there. Depending on the results of the 
peer review, our calculation of safety effects for the final rule will 
also be revised accordingly. The agencies will also consider any 
comments received on the proposed rule, and determine at that time 
whether and how our estimates should be changed in response to those 
comments. Additional studies published by the agencies or other 
independent researchers as previously discussed will also be 
considered, along with any other relevant information.
---------------------------------------------------------------------------

    \206\ Kahane, C. J. (2011). ``Relationships Between Fatality 
Risk, Mass, and Footprint in Model Year 2000-2007 Passenger Cars and 
LTVs,'', July 2011. The report is available in the NHTSA docket, 
NHTSA-2010-0152. You can access the docket at http://www.regulations.gov/#!home by typing `NHTSA-2010-0152' where it says 
``enter keyword or ID'' and then clicking on ``Search.''
---------------------------------------------------------------------------

III. EPA Proposal for MYs 2017-2025 Greenhouse Gas Vehicle Standards

A. Overview of EPA Rule

1. Introduction
    Soon after the completion of the successful model years (MYs) 2012-
2016 rulemaking in May 2010, the President, with support from the auto 
manufacturers, requested that EPA and NHTSA work to extend the National 
Program to MYs 2017-2025 light duty vehicles. The agencies were 
requested to develop ``a coordinated national program under the CAA 
(Clean Air Act) and the EISA (Energy Independence and Security Act of 
2007) to improve fuel efficiency and to reduce greenhouse gas emissions 
of passenger cars and light-duty trucks of model years 2017-2025.'' 
\207\ EPA's proposal grows directly out of our work with NHTSA and CARB 
in developing such a continuation of the National Program. This 
proposal provides important benefits to society and consumers in the 
form of reduced emissions of greenhouse gases (GHGs), reduced 
consumption of oil, and fuel savings for consumers, all at reasonable 
costs. It provides industry with the important certainty and leadtime 
needed to implement the technology changes that will achieve these 
benefits, as part of a harmonized set of federal requirements. Acting 
now to address the standards for MYs 2017-2025 will allow for the 
important continuation of the National Program that started with MYs 
2012-2016.
---------------------------------------------------------------------------

    \207\ The Presidential Memorandum is found at: http://www.whitehouse.gov/the-press-office/presidential-memorandum-regarding-fuel-efficiency-standards.
---------------------------------------------------------------------------

    EPA is proposing GHG emissions standards for light-duty vehicles, 
light-duty trucks, and medium-duty passenger vehicles (hereafter light 
vehicles) for MYs 2017 through 2025. These vehicle categories, which 
include cars, sport utility vehicles, minivans, and pickup trucks used 
for personal

[[Page 74963]]

transportation, are responsible for almost 60% of all U.S. 
transportation related GHG emissions.
    If finalized, this proposal would be the second EPA rule to 
regulate light vehicle GHG emissions under the Clean Air Act (CAA), 
building upon the GHG emissions standards for MYs 2012-2016 that were 
established in 2010,\208\ and the third rule to regulate GHG emissions 
from the transportation sector.\209\ Combined with the standards 
already in effect for MYs 2012-2016, the proposed standards would 
result in MY 2025 light vehicles emitting approximately one-half of the 
GHG emissions of MY 2010 vehicles and would represent the most 
significant federal action ever taken to reduce GHG emissions (and 
improve fuel economy) in the U.S.
---------------------------------------------------------------------------

    \208\ 75 FR 25324 (May 7, 2010).
    \209\ 76 FR 57106 (September 15, 2011) established GHG emission 
standards for heavy-duty vehicles and engines for model years 2014-
2018.
---------------------------------------------------------------------------

    From a societal standpoint, the proposed GHG emissions standards 
are projected to save approximately 2 billion metric tons of GHG 
emissions and 4 billion barrels of oil over the lifetimes of those 
vehicles sold in MYs 2017-2025. EPA estimates that fuel savings will 
far outweigh higher vehicle costs, and that the net benefits to society 
will be in the range of $311 billion (at 7% discount rate) to $421 
billion (3% discount) over the lifetimes of those vehicles sold in MYs 
2017-2025. Just in calendar year 2040 alone, after the on-road vehicle 
fleet has largely turned over to vehicles sold in MY 2025 and later, 
EPA projects GHG emissions savings of 462 million metric tons, oil 
savings of 2.63 million barrels per day, and net benefits of $144 
billion using the $22/ton CO2 social cost of carbon value.
    EPA estimates that these proposed standards will save consumers 
money. Higher costs for new technology, sales taxes, and insurance will 
add, on average in the first year, about $2100 for consumers who buy a 
new vehicle in MY 2025. But those consumers who drive their MY 2025 
vehicle for its entire lifetime will save, on average, $5200 (7% 
discount rate) to $6600 (3% discount) in fuel savings, for a net 
lifetime savings of $3000-$4400. For those consumers who purchase their 
new MY 2025 vehicle with cash, the discounted fuel savings will offset 
the higher vehicle cost in less than 4 years, and fuel savings will 
continue for as long as the consumer owns the vehicle. Those consumers 
that buy a new vehicle with a 5-year loan will benefit from a monthly 
cash flow savings of $12 (or about $140 per year), on average, as the 
monthly fuel savings more than offsets the higher monthly payment due 
to the higher incremental vehicle cost.
    The proposed standards are designed to allow full consumer choice, 
in that they are footprint-based, i.e., larger vehicles have higher 
absolute GHG emissions targets and smaller vehicles have lower absolute 
GHG emissions targets. While the GHG emissions targets do become more 
stringent each year, the emissions targets have been selected to allow 
compliance by vehicles of all sizes and with current levels of vehicle 
attributes such as utility, size, safety, and performance. Accordingly, 
these proposed standards are projected to allow consumers to choose 
from the same mix of vehicles that are currently in the marketplace.
    Section I above provides a comprehensive overview of the joint EPA/
NHTSA proposal, including the history and rationale for a National 
Program that allows manufacturers to build a single fleet of light 
vehicles that can satisfy all federal and state requirements for GHG 
emissions and fuel economy, the level and structure of the proposed GHG 
emissions and corporate average fuel economy (CAFE) standards, the 
compliance flexibilities proposed to be available to manufacturers, the 
mid-term evaluation, and a summary of the costs and benefits of the GHG 
and CAFE standards based on a ``model year lifetime analysis.''
    In this Section III, EPA provides more detailed information about 
EPA's proposed GHG emissions standards. After providing an overview of 
key information in this section (III.A), EPA discusses the proposed 
standards (III.B); the vehicles covered by the standards, various 
compliance flexibilities available to manufacturers, and a mid-term 
evaluation (III.C); the feasibility of the proposed standards (III.D); 
provisions for certification, compliance, and enforcement (III.E); the 
reductions in GHG emissions projected for the proposed standards and 
the associated effects of these reductions (III.F); the impact of the 
proposal on non-GHG emissions and their associated effects (III.G); the 
estimated cost, economic, and other impacts of the proposal (III.H); 
and various statutory and executive order issues (III.I).
2. Why is EPA proposing this Rule?
a. Light Duty Vehicle Emissions Contribute to Greenhouse Gases and the 
Threat of Climate Change
    Greenhouse gases (GHGs) are gases in the atmosphere that 
effectively trap some of the Earth's heat that would otherwise escape 
to space. GHGs are both naturally occurring and anthropogenic. The 
primary GHGs of concern that are directly emitted by human activities 
include carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, 
perfluorocarbons, and sulfur hexafluoride.
    These gases, once emitted, remain in the atmosphere for decades to 
centuries. They become well mixed globally in the atmosphere and their 
concentrations accumulate when emissions exceed the rate at which 
natural processes remove GHGs from the atmosphere. The heating effect 
caused by the human-induced buildup of GHGs in the atmosphere is very 
likely the cause of most of the observed global warming over the last 
50 years. The key effects of climate change observed to date and 
projected to occur in the future include, but are not limited to, more 
frequent and intense heat waves, more severe wildfires, degraded air 
quality, heavier and more frequent downpours and flooding, increased 
drought, greater sea level rise, more intense storms, harm to water 
resources, continued ocean acidification, harm to agriculture, and harm 
to wildlife and ecosystems. A more in depth explanation of observed and 
projected changes in GHGs and climate change, and the impact of climate 
change on health, society, and the environment is included in Section 
III.F below.
    Mobile sources represent a large and growing share of U.S. GHG 
emissions and include light-duty vehicles, light-duty trucks, medium 
duty passenger vehicles, heavy duty trucks, airplanes, railroads, 
marine vessels and a variety of other sources. In 2007, all mobile 
sources emitted 30% of all U.S. GHGs, and have been the source of the 
largest absolute increase in U.S. GHGs since 1990. Transportation 
sources, which do not include certain off highway sources such as farm 
and construction equipment, account for 27% of U.S. GHG emissions, and 
motor vehicles (CAA section 202(a)), which include light-duty vehicles, 
light-duty trucks, medium-duty passenger vehicles, heavy-duty trucks, 
buses, and motorcycles account for 23% of total U.S. GHGs.
    Light duty vehicles emit carbon dioxide, methane, nitrous oxide and 
hydrofluorocarbons. Carbon dioxide (CO2) is the end product of fossil 
fuel combustion. During combustion, the carbon stored in the fuels is 
oxidized and emitted as CO2 and smaller amounts of other carbon 
compounds. Methane (CH4) emissions are a function of the methane 
content of the motor fuel, the amount of hydrocarbons passing 
uncombusted through the

[[Page 74964]]

engine, and any post-combustion control of hydrocarbon emissions (such 
as catalytic converters). Nitrous oxide (N2O) (and nitrogen 
oxide (NOX)) emissions from vehicles and their engines are 
closely related to air-fuel ratios, combustion temperatures, and the 
use of pollution control equipment. For example, some types of 
catalytic converters installed to reduce motor vehicle NOX, 
carbon monoxide (CO) and hydrocarbon (HC) emissions can promote the 
formation of N2O. Hydrofluorocarbons (HFC) are progressively 
replacing chlorofluorocarbons (CFC) and hydrochlorofluorocarbons (HCFC) 
in these vehicles' cooling and refrigeration systems as CFCs and HCFCs 
are being phased out under the Montreal Protocol and Title VI of the 
CAA. There are multiple emissions pathways for HFCs with emissions 
occurring during charging of cooling and refrigeration systems, during 
operations, and during decommissioning and disposal.
b. Basis for Action Under the Clean Air Act
    Section 202(a)(1) of the Clean Air Act (CAA) states that ``the 
Administrator shall by regulation prescribe (and from time to time 
revise) * * * standards applicable to the emission of any air pollutant 
from any class or classes of new motor vehicles * * *, which in his 
judgment cause, or contribute to, air pollution which may reasonably be 
anticipated to endanger public health or welfare.'' The Administrator 
has found that the elevated concentrations of a group of six GHGs in 
the atmosphere may reasonably be anticipated to endanger public health 
and welfare, and that emissions of GHGs from new motor vehicles and new 
motor vehicle engines contribute to this air pollution.
    As a result of these findings, section 202(a) requires EPA to issue 
standards applicable to emissions of that air pollutant, and authorizes 
EPA to revise them from time to time. This preamble describes the 
proposed revisions to the current standards to control emissions of CO2 
and HFCs from new light-duty motor vehicles.\210\ For further 
discussion of EPA's authority under section 202(a), see Section I.D. of 
the preamble.
---------------------------------------------------------------------------

    \210\ EPA is not proposing to amend the substantive standards 
adopted in the 2012-2016 light-duty vehicle rule for N2O 
and CH4, but is proposing revisions to the options that 
manufacturers have in meeting the N2O and CH4 standards, and to the 
timeframe for manufacturers to begin measuring N2O emissions. See 
Section III.B below.
---------------------------------------------------------------------------

c. EPA's Endangerment and Cause or Contribute Findings for Greenhouse 
Gases Under Section 202(a) of the Clean Air Act
    On December 15, 2009, EPA published its findings that elevated 
atmospheric concentrations of GHGs are reasonably anticipated to 
endanger the public health and welfare of current and future 
generations, and that emissions of GHGs from new motor vehicles 
contribute to this air pollution. Further information on these findings 
may be found at 74 FR 66496 (December 15, 2009) and 75 FR 49566 (Aug. 
13, 2010).
3. What is EPA proposing?
a. Light-Duty Vehicle, Light-Duty Truck, and Medium-Duty Passenger 
Vehicle Greenhouse Gas Emission Standards and Projected Emissions 
Levels
    EPA is proposing tailpipe carbon dioxide (CO2) standards 
for cars and light trucks based on the CO2 emissions-
footprint curves for cars and light trucks that are shown above in 
Section I.B.3 and below in Section III.B. These curves establish 
different CO2 emissions targets for each unique car and 
truck footprint value. Generally, the larger the vehicle footprint, the 
higher the corresponding vehicle CO2 emissions target. 
Vehicle CO2 emissions will be measured over the EPA city and 
highway tests. Under this proposal, various incentives and credits are 
available for manufacturers to demonstrate compliance with the 
standards. See Section I.B for a comprehensive overview of both the EPA 
CO2 emissions-footprint standard curves and the various 
compliance flexibilities that are proposed to be available to the 
manufacturers in meeting the EPA tailpipe CO2 standards.
    EPA projects that the proposed tailpipe CO2 emissions-
footprint curves would yield a fleetwide average light vehicle 
CO2 emissions compliance target level in MY 2025 of 163 
grams per mile, which would represent an average reduction of 35 
percent relative to the projected average light vehicle CO2 
level in MY 2016. On average, car CO2 emissions would be 
reduced by about 5 percent per year, while light truck CO2 emissions 
would be reduced by about 3.5 percent per year from MY 2017 through 
2021, and by about 5 percent per year from MY 2022 through 2025.
    The following three tables, Table III-1 through Table III-3, 
summarize EPA's projections of what the proposed standards would mean 
in terms of projected CO2 emissions reductions for passenger 
cars, light trucks, and the overall fleet combining passenger cars and 
light trucks for MYs 2017-2025. It is important to emphasize that these 
projections are based on technical assumptions by EPA about various 
matters, including the mix of cars and trucks, as well as the mix of 
vehicle footprint values, in the fleet in varying years. It is possible 
that the actual CO2 emissions values will be either higher 
or lower than the EPA projections.
    In each of these tables, the column ``Projected CO2 
Compliance Target'' represents our projected fleetwide average 
CO2 compliance target value based on the proposed 
CO2-footprint curve standards as well as the projected mixes 
of cars and trucks and vehicle footprint levels. This Compliance Target 
represents the projected fleetwide average of the projected standards 
for the various manufacturers.
    The column(s) under ``Incentives'' represent the emissions impact 
of the proposed multiplier incentive for EV/PHEV/FCVs and the proposed 
pickup truck incentives. These incentives allow manufacturers to meet 
their Compliance Targets with CO2 emissions levels slightly higher than 
they would otherwise have to be, but do not reflect actual real-world 
CO2 emissions reductions. As such they reduce the emissions 
reductions that the CO2 standards would be expected to 
achieve.
    The column ``Projected Achieved CO2'' is the sum of the 
CO2 Compliance Target and the value(s) in the ``Incentive'' 
columns. This Achieved CO2 value is a better reflection of 
the CO2 emissions benefits of the standards, since it 
accounts for the incentive programs. One incentive that is not 
reflected in these tables is the 0 gram per mile compliance value for 
EV/PHEV/FCVs. The 0 gram per mile value accurately reflects the 
tailpipe CO2 gram per mile achieved by these vehicles; 
however, the use of this fuel does impact the overall GHG reductions 
associated with the proposed standards due to fuel production and 
distribution-related upstream GHG emissions which are projected to be 
greater than the upstream GHG emissions associated with gasoline from 
oil. The combined impact of the 0 gram per mile and multiplier 
incentive for EV/PHEV/FCVs on overall program GHG emissions is 
discussed in more detail below in Section III.C.2.
    The columns under ``Credits'' quantify the projected CO2 
emissions credits that we project manufacturers will achieve through 
improvements in air conditioner refrigerants and efficiency. These 
credits reflect real world emissions reductions, so they do not raise 
the levels of the Achieved CO2 values, but they do allow 
manufacturers to comply with their compliance targets with 2-cycle test 
CO2 emissions values

[[Page 74965]]

higher than otherwise. One other credit program that could similarly 
affect the 2-cycle CO2 values is the off-cycle credit 
program, but it is not included in this table due to the uncertainty 
inherent in projecting the future use of these technologies. The off-
cycle credits, like A/C credits, reflect real world reductions, so they 
would not change the CO2 Achieved values.
    The column ``Projected 2-cycle CO2'' is the projected fleetwide 2-
cycle CO2 emissions values that manufacturers would have to 
achieve in order to be able to comply with the proposed standards. This 
value is the sum of the projected fleetwide credit, incentive, and 
Compliance Target values.\211\
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    \211\ For MY 2016, the Temporary Leadtime Allowance Alternative 
Standards are available to manufacturers. In the MYs 2012-2016 rule, 
we estimated the impact of this credit in MY 2016 to be 0.1 gram/
mile. Due to the small magnitude, we have not included this in the 
following tables for the MY 2016 base year.
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BILLING CODE 4910-59-C
    Table III-4 shows the projected real world CO2 emissions 
and fuel economy values associated with the proposed CO2 
standards. These real world estimates, similar to values shown on new 
vehicle labels, reflect the fact that the way cars and trucks are 
operated in the real world generally results in higher CO2 
emissions and lower fuel economy than laboratory test results used to 
determine compliance with the standards, which are performed under 
tightly controlled conditions. There are many assumptions that must be 
made for these projections, and real world CO2 emissions and 
fuel economy performance can vary based on many factors.
    The real world tailpipe CO2 emissions projections in 
Table III-4 are calculated starting with the projected 2-cycle 
CO2 emissions values in Table III-1 through Table III-3, 
subtracting the air conditioner efficiency credits, and then 
multiplying by a factor of 1.25. The 1.25 factor is an approximation of 
the ratio of real world CO2 emissions to 2-cycle test 
CO2 emissions for the fleet in the

[[Page 74968]]

recent past. It is not possible to know the appropriate factor for 
future vehicle fleets, as this factor will depend on many factors such 
as technology performance, driver behavior, climate conditions, fuel 
composition, etc. Issues associated with future projections of this 
factor are discussed in TSD 4. Air conditioner efficiency credits were 
subtracted from the 2-cycle CO2 emissions values as air 
conditioning efficiency improvements will increase real world fuel 
economy. The real world fuel economy value is calculated by dividing 
8887 grams of CO2 per gallon of gasoline by the real world 
tailpipe CO2 emissions value.
[GRAPHIC] [TIFF OMITTED] TP01DE11.054

    As discussed both in Section I and later in this Section III, EPA 
either already has adopted or is proposing provisions for averaging, 
banking, and trading of credits, that allow annual credits for a 
manufacturer's over-compliance with its unique fleet-wide average 
standard, carry-forward and carry-backward of credits, the ability to 
transfer credits between a manufacturer's car and truck fleets, and 
credit trading between manufacturers. EPA is proposing a one-time 
carry-forward of any credits such that any credits generated in MYs 
2010-2016 can be used through MY 2021. These provisions are not 
expected to change the emissions reductions achieved by the standards, 
but should significantly reduce the cost of achieving those reductions. 
The tables above do not reflect the year to year impact of these 
provisions. For example, EPA expects that many manufacturers may 
generate credits by over complying with the standards for cars, and 
transfer such credits to its truck fleet. Table III-1 (cars) and Table 
III-2 (trucks) do not reflect such transfers. If on an industry wide 
basis more credits are transferred from cars to trucks than vice versa, 
you would expect to achieve greater reductions from cars than reflected 
in Table III-1 (lower CO2 gram/miles values) and less 
reductions from trucks than reflected in Table III-2 (higher 
CO2 gram/mile values). Credit transfers between cars and 
trucks would not be expected to change the results for the combined 
fleet, reflected in Table III-3.
    The proposed rule would also exclude from coverage a limited set of 
vehicles: emergency and police vehicles, and vehicles manufactured by 
small businesses. As discussed in Section III.B below, these exclusions 
have very limited impact on the total GHG emissions reductions from the 
light-

[[Page 74969]]

duty vehicle fleet. We also do not anticipate significant impacts on 
total GHG emissions reductions from the proposed provisions allowing 
small volume manufacturers to petition EPA for alternative standards. 
See Section III.B.5 below.
b. Environmental and Economic Benefits and Costs of EPA's Standards
i. Model Year Lifetime Analysis
    Section I.C provides a comprehensive discussion of the projected 
benefits and costs associated with the proposed MYs 2017-2025 GHG and 
CAFE standards based on a ``model year lifetime'' analysis, i.e., the 
benefits and costs associated with the lifetime operation of the new 
vehicles sold in these nine model years. It is important to note that 
while the incremental vehicle costs associated with MY 2017 vehicles 
will in fact occur in calendar year 2017, the benefits associated with 
MY 2017 vehicles will be split among all the calendar years from 2017 
through the calendar year during which the last MY 2017 vehicle would 
be retired.
    Table III-5 provides a summary of the GHG emissions and oil savings 
associated with the lifetime operation of all the vehicles sold in each 
model year. Cumulatively, for the nine model years from 2017 through 
2025, the proposed standards are projected to save approximately 2 
billion metric tons of GHG emissions and 4 billion barrels of oil.
    Table III-6 provides a summary of the most important projected 
economic impacts of the proposed GHG emissions standards based on this 
model year lifetime analytical approach. These monetized dollar values 
are all discounted to the first year of each model year, then summed up 
across all model years. With a 3% discount rate, cumulative incremental 
vehicle technology cost for MYs 2017-2025 vehicles is $140 billion, 
fuel savings is $444 billion, other monetized benefits are $117 
billion, and program net benefits are projected to be $421 billion. 
Using a 7% discount rate, the projected program net benefits are $311 
billion.
    As discussed previously, EPA recognizes that some of these same 
benefits and costs are also attributable to the CAFE standard contained 
in this joint proposal, although the GHG program achieves greater 
reductions of both GHG emissions and petroleum. More details associated 
with this model year lifetime analysis of the proposed GHG standards 
are presented in Sections III.F and III.H.
[GRAPHIC] [TIFF OMITTED] TP01DE11.055

ii. Calendar Year Analysis
    In addition to the model year lifetime analysis projections 
summarized above, EPA also performs a ``calendar year'' analysis that 
projects the environmental and economic impacts associated with the 
proposed tailpipe CO2 standards during specific calendar 
years out to 2050. This calendar year approach reflects the timeframe 
when the benefits would be achieved and the costs incurred. Because the 
EPA tailpipe CO2 emissions standards will remain in effect 
unless and until they are changed, the projected impacts in this 
calendar year analysis beyond calendar year 2025 reflect vehicles sold 
in model years after 2025 (e.g., most of the benefits in calendar year 
2040 would be due to vehicles sold after MY 2025).
    Table III-7 provides a summary of the most important projected 
benefits and costs of the proposed EPA GHG emissions standards based on 
this calendar year analysis. In calendar year 2025, EPA projects GHG 
savings of 151 million metric tons and oil savings of 0.83 million 
barrels per day. These would grow to 547 million metric tons of GHG 
savings and 3.12 million barrels of oil per day by calendar year 2050. 
Program net benefits are projected to be $18 billion in calendar year 
2025, growing to $198 billion in calendar year 2050. Program net 
benefits over the 34-year period from 2017 through 2050 are projected 
to have a net present value in 2012 of $600 billion (7% discount rate) 
to $1.4 trillion (3% discount rate).
    More details associated with this calendar year analysis of the 
proposed

[[Page 74970]]

GHG standards are presented in Sections III.F and III.H.
BILLING CODE 4910-59-P
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BILLING CODE 4910-59-C
iii. Consumer Analysis
    The model year lifetime and calendar year analytical approaches 
discussed above aggregate the environmental and economic impacts across 
the nationwide light vehicle fleet. EPA has also projected the average 
impact of the proposed GHG standards on individual consumers who own 
and drive MY 2025 light vehicles over their lifetimes.
    Table III-8 shows, on average, several key consumer impacts 
associated with the proposed tailpipe CO2 standard for

[[Page 74972]]

MY 2025 vehicles. Some of these factors are dependent on the assumed 
discount factors, and this table uses the same 3% and 7% discount 
factors used throughout this preamble. EPA uses AEO2011 fuel price 
projections of $3.25 per gallon in calendar year 2017, rising to $3.54 
per gallon in calendar year 2025 and $3.85 per gallon in calendar year 
2040.
    EPA projects that the new technology necessary to meet the proposed 
MY 2025 standard would add, on average, an extra $1950 (including 
markup) to the sticker price of a new MY 2025 light-duty vehicle. 
Including higher vehicle sales taxes and first-year insurance costs, 
the projected incremental first-year cost to the consumer is about 
$2100 on average. The projected incremental lifetime vehicle cost to 
the consumer, reflecting higher insurance premiums over the life of the 
vehicle, is, on average, about $2200. For all of the consumers who 
drive MY 2025 light-duty vehicles, the proposed standards are projected 
to yield a net savings of $3000 (7% discount rate) to $4400 (3% 
discount) over the lifetime of the vehicle, as the discounted lifetime 
fuel savings of $5200-$6600 is 2.4 to 3 times greater than the $2200 
incremental lifetime vehicle cost to the consumer.
    Of course, many vehicles are owned by more than one consumer. The 
payback period and monthly cash flow approaches are two ways to 
evaluate the economic impact of the MY 2025 standard on those new car 
buyers who do not own the vehicle for its entire lifetime. Projected 
payback periods of 3.7-3.9 years means that, for a consumer that buys a 
new vehicle with cash, the discounted fuel savings for that consumer 
would more than offset the incremental lifetime vehicle cost in 4 
years. If the consumer owns the vehicle beyond this payback period, the 
vehicle will save money for the consumer. For a consumer that buys a 
new vehicle with a 5-year loan, the monthly cash flow savings of $12 
(or about $140 per year) shows that the consumer would benefit 
immediately as the monthly fuel savings more than offsets the higher 
monthly payment due to the higher incremental first-year vehicle cost.
    The final entries in Table III-8 show the CO2 and oil 
savings that would be associated with the MY 2025 vehicles on average, 
both on a lifetime basis and in the first full year of operation. On 
average, a consumer who owns a MY 2025 vehicle for its entire lifetime 
is projected to emit 20 fewer metric tons of CO2 and consume 
2200 fewer gallons of gasoline due to the proposed standards.
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BILLING CODE 4910-59-C
4. Basis for the GHG Standards Under Section 202(a)
    EPA has significant discretion under section 202(a) of the Act in 
how to structure the standards that apply to the emission of the air 
pollutant at issue here, the aggregate group of six GHGs, as well as to 
the content of such standards. See generally 74 FR at 49464-65. EPA 
statutory authority under section 202(a)(1) of the Clean Air Act (CAA) 
is discussed in more detail in Section I.D of the preamble. In this 
rulemaking, EPA is proposing a CO2 tailpipe emissions 
standard that provides for credits based on reductions of HFCs, as the 
appropriate way to issue standards applicable to emissions of the 
single air pollutant, the aggregate group of six GHGs. EPA is not 
proposing to change the methane and nitrous oxide standards already in 
place (although EPA is proposing certain changes to the compliance 
mechanisms for these standards as explained in Section III.B below). 
EPA is not setting any standards for perfluorocarbons or sulfur 
hexafluoride, as they are not emitted by motor vehicles. The following 
is a summary of the basis for the proposed GHG standards under section 
202(a), which is discussed in more detail in the following portions of 
Section III.
    With respect to CO2 and HFCs, EPA is proposing 
attribute-based light-duty car and truck standards that achieve large 
and important emissions reductions of GHGs. EPA has evaluated the 
technological feasibility of the standards, and the information and 
analysis performed by EPA indicates that these standards are feasible 
in the lead time provided. EPA and NHTSA have carefully evaluated the 
effectiveness of individual technologies as well as the interactions 
when technologies are combined. EPA projects that manufacturers will be 
able to meet the standards by employing a wide variety of technologies 
that are already commercially available. EPA's analysis also takes into 
account certain flexibilities that will facilitate compliance. These 
flexibilities include averaging, banking, and trading of various types 
of credits. For a few very small volume manufacturers, EPA is proposing 
to allow manufacturers to petition for alternative standards.
    EPA, as a part of its joint technology analysis with NHTSA, has 
performed what we believe is the most comprehensive federal vehicle 
technology analysis in history. We carefully considered the cost to 
manufacturers of meeting the standards, estimating piece costs for all 
candidate technologies, direct manufacturing costs, cost markups to 
account for manufacturers' indirect costs, and manufacturer cost 
reductions attributable to learning. In estimating manufacturer costs, 
EPA took into account manufacturers' own practices such as making major 
changes to vehicle technology packages during a planned redesign cycle. 
EPA then projected the average cost across the industry to employ this 
technology, as well as manufacturer-by-manufacturer costs. EPA 
considers the per vehicle costs estimated by this analysis to be within 
a reasonable range in light of the emissions reductions and benefits 
achieved. EPA projects, for example, that the fuel savings over the 
life of the vehicles will more than offset the increase in cost 
associated with the technology used to meet the standards. As explained 
in Section III.D.6 below, EPA has also investigated potential standards 
both more and less stringent than those being proposed and has rejected 
them. Less stringent standards would forego emission reductions which 
are feasible, cost effective, and cost feasible, with short consumer 
payback periods. EPA judges that the proposed standards are appropriate 
and preferable to more stringent alternatives based largely on 
consideration of cost--both to manufacturers and to consumers--and the 
potential for overly aggressive penetration rates for advanced 
technologies relative to the penetration rates seen in the proposed 
standards, especially in the face of unknown degree of consumer 
acceptance of both the increased costs and the technologies themselves.
    EPA has also evaluated the impacts of these standards with respect 
to reductions in GHGs and reductions in oil usage. For the lifetime of 
the model year 2017-2025 vehicles we estimate GHG reductions of 
approximately 2 billion metric tons and fuel reductions of about 4 
billion barrels of oil. These are important and significant reductions. 
EPA has also analyzed a variety of other impacts of the standards, 
ranging from the standards' effects on emissions of non-GHG pollutants, 
impacts on noise, energy, safety and congestion. EPA has also 
quantified the cost and benefits of the standards, to the extent 
practicable. Our

[[Page 74975]]

analysis to date indicates that the overall quantified benefits of the 
standards far outweigh the projected costs. We estimate the total net 
social benefits (lifetime present value discounted to the first year of 
the model year) over the life of MY 2017-2025 vehicles to be $421 
billion with a 3% discount rate and $311 billion with a 7% discount 
rate.
    Under section 202(a), EPA is called upon to set standards that 
provide adequate lead-time for the development and application of 
technology to meet the standards. EPA's standards satisfy this 
requirement given the present existence of the technologies on which 
the proposed rule is predicated and the substantial lead times afforded 
under the proposal (which by MY2025 allow for multiple vehicle redesign 
cycles and so affords opportunities for adding technologies in the most 
cost efficient manner, see 75 FR at 25407). In setting the standards, 
EPA is called upon to weigh and balance various factors, and to 
exercise judgment in setting standards that are a reasonable balance of 
the relevant factors. In this case, EPA has considered many factors, 
such as cost, impacts on emissions (both GHG and non-GHG), impacts on 
oil conservation, impacts on noise, energy, safety, and other factors, 
and has where practicable quantified the costs and benefits of the 
proposed rule. In summary, given the technical feasibility of the 
standard, the cost per vehicle in light of the savings in fuel costs 
over the lifetime of the vehicle, the very significant reductions in 
emissions and in oil usage, and the significantly greater quantified 
benefits compared to quantified costs, EPA is confident that the 
standards are an appropriate and reasonable balance of the factors to 
consider under section 202(a). See Husqvarna AB v. EPA, 254 F. 3d 195, 
200 (DC Cir. 2001) (great discretion to balance statutory factors in 
considering level of technology-based standard, and statutory 
requirement ``to [give appropriate] consideration to the cost of 
applying * * * technology'' does not mandate a specific method of cost 
analysis); see also Hercules Inc. v. EPA, 598 F. 2d 91, 106 (DC Cir. 
1978) (``In reviewing a numerical standard we must ask whether the 
agency's numbers are within a zone of reasonableness, not whether its 
numbers are precisely right''); Permian Basin Area Rate Cases, 390 U.S. 
747, 797 (1968) (same); Federal Power Commission v. Conway Corp., 426 
U.S. 271, 278 (1976) (same); Exxon Mobil Gas Marketing Co. v. FERC, 297 
F. 3d 1071, 1084 (DC Cir. 2002) (same).
    EPA recognizes that most of the technologies that we are 
considering for purposes of setting standards under section 202(a) are 
commercially available and already being utilized to a limited extent 
across the fleet, or will soon be commercialized by one or more major 
manufacturers. The vast majority of the emission reductions that would 
result from this rule would result from the increased use of these 
technologies. EPA also recognizes that this rule would enhance the 
development and commercialization of more advanced technologies, such 
as PHEVs and EVs and strong hybrids as well. In this technological 
context, there is no clear cut line that indicates that only one 
projection of technology penetration could potentially be considered 
feasible for purposes of section 202(a), or only one standard that 
could potentially be considered a reasonable balancing of the factors 
relevant under section 202(a). EPA therefore evaluated several 
alternative standards, some more stringent than the promulgated 
standards and some less stringent.
    See Section III.D.6 for EPA's analysis of alternative GHG emissions 
standards.
5. Other Related EPA Motor Vehicle Regulations
a. EPA's Recent Heavy-Duty GHG Emissions Rulemaking
    EPA and NHTSA recently conducted a joint rulemaking to establish a 
comprehensive Heavy-Duty National Program that will reduce greenhouse 
gas emissions and fuel consumption for on-road heavy-duty vehicles 
beginning in MY 2014 (76 FR 57106 (September 15, 2011)). EPA's final 
carbon dioxide (CO2), nitrous oxide (N2O), and 
methane (CH4) emissions standards, along with NHTSA's final 
fuel consumption standards, are tailored to each of three regulatory 
categories of heavy-duty vehicles: (1) Combination Tractors; (2) Heavy-
duty Pickup Trucks and Vans; and (3) Vocational Vehicles. The rules 
include separate standards for the engines that power combination 
tractors and vocational vehicles. EPA also set hydrofluorocarbon 
standards to control leakage from air conditioning systems in 
combination tractors and heavy-duty pickup trucks and vans.
    The agencies estimate that the combined standards will reduce 
CO2 emissions by approximately 270 million metric tons and 
save 530 million barrels of oil over the life of vehicles sold during 
the 2014 through 2018 model years, providing $49 billion in net 
societal benefits when private fuel savings are considered. See 76 FR 
at 57125-27.
b. EPA's Plans for Further Standards for Light Vehicle Criteria 
Pollutants and Gasoline Fuel Quality
    In the May 21, 2010 Presidential Memorandum, in addition to 
addressing GHGs and fuel economy, the President also requested that EPA 
examine its broader motor vehicle air pollution control program. The 
President requested that ``[t]he Administrator of the EPA review for 
adequacy the current nongreenhouse gas emissions regulations for new 
motor vehicles, new motor vehicle engines, and motor vehicle fuels, 
including tailpipe emissions standards for nitrogen oxides and air 
toxics, and sulfur standards for gasoline. If the Administrator of the 
EPA finds that new emissions regulations are required, then I request 
that the Administrator of the EPA promulgate such regulations as part 
of a comprehensive approach toward regulating motor vehicles.'' \214\ 
EPA is currently in the process of conducting an assessment of the 
potential need for additional controls on light-duty vehicle non-GHG 
emissions and gasoline fuel quality. EPA has been actively engaging in 
technical conversations with the automobile industry, the oil industry, 
nongovernmental organizations, the states, and other stakeholders on 
the potential need for new regulatory action, including the areas that 
are specifically mentioned in the Presidential Memorandum. EPA will 
coordinate all future actions in this area with the State of 
California.
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    \214\ The Presidential Memorandum is found at: http://www.whitehouse.gov/the-press-office/presidential-memorandum-regarding-fuel-efficiency-standards.
---------------------------------------------------------------------------

    Based on this assessment, in the near future, EPA expects to 
propose a separate but related program that would, in general, affect 
the same set of new vehicles on the same timeline as would the proposed 
light-duty GHG emissions standards. It would be designed to address air 
quality problems with ozone and PM, which continue to be serious 
problems in many parts of the country, and light-duty vehicles continue 
to play a significant role.
    EPA expects that this related program, called ``Tier 3'' vehicle 
and fuel standards, would among other things propose tailpipe and 
evaporative standards to reduce non-GHG pollutants from light-duty 
vehicles, including volatile organic compounds, nitrogen oxides, 
particulate matter, and air toxics. EPA's intent, based on extensive 
interaction to date with the automobile manufacturers and other 
stakeholders, is to propose a Tier 3 program that would allow 
manufacturers to proceed with

[[Page 74976]]

coordinated future product development plans with a full understanding 
of the major regulatory requirements they will be facing over the long 
term. This coordinated regulatory approach would allow manufacturers to 
design their future vehicles so that any technological challenges 
associated with meeting both the GHG and Tier 3 standards could be 
efficiently addressed.
    It should be noted that under EPA's current regulations, GHG 
emissions and CAFE compliance testing for gasoline vehicles is 
conducted using a defined fuel that does not include any amount of 
ethanol.\215\ If the certification test fuel is changed to some 
ethanol-based fuel through a future rulemaking, EPA would be required 
under EPCA to address the need for a test procedure adjustment to 
preserve the level of stringency of the CAFE standards.\216\ EPA is 
committed to doing so in a timely manner to ensure that any change in 
certification fuel will not affect the stringency of future GHG 
emission standards.
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    \215\ See 40 CFR 86.113-94(a).
    \216\ EPCA requires that CAFE tests be determined from the EPA 
test procedures in place as of 1975, or procedures that give 
comparable results. 49 USC 32904(c).
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B. Proposed Model Year 2017-2025 GHG Standards for Light-duty Vehicles, 
Light-duty Trucks, and Medium duty Passenger Vehicles

    EPA is proposing new emissions standards to control greenhouse 
gases (GHGs) from MY 2017 and later light-duty vehicles. EPA is 
proposing new emission standards for carbon dioxide (CO2) on 
a gram per mile (g/mile) basis that will apply to a manufacturer's 
fleet of cars, and a separate standard that will apply to a 
manufacturer's fleet of trucks. CO2 is the primary 
greenhouse gas resulting from the combustion of vehicular fuels, and 
the amount of CO2 emitted is directly correlated to the 
amount of fuel consumed. EPA is proposing to conduct a mid-term 
evaluation of the GHG standards and other requirements for MYs 2022-
2025, as further discussed in Section III.B.3 below.
    EPA is not proposing changes to the CH4 and 
N2O emissions standards, but is proposing revisions to the 
options that manufacturers have in meeting the CH4 and 
N2O standards, and to the timeframe for manufacturers to 
begin measuring N2O emissions. These proposed changes are 
not intended to change the stringency of the CH4 and 
N2O standards, but are aimed at addressing implementation 
concerns regarding the standards.
    The opportunity to earn credits toward the fleet-wide average 
CO2 standards for improvements to air conditioning systems 
remains in place for MY 2017 and later, including improvements to 
address both hydrofluorocarbon (HFC) refrigerant losses (i.e., system 
leakage) and indirect CO2 emissions related to the air 
conditioning efficiency and load on the engine. The CO2 
standards proposed for cars and trucks take into account EPA's 
projection of the average amount of credits expected to be generated 
across the industry. EPA is proposing several revisions to the air 
conditioning credits provisions, as discussed in Section III.C.1.
    The MY 2012-2016 Final Rule established several program elements 
that remain in place, where EPA is not proposing significant changes. 
The proposed standards described below would apply to passenger cars, 
light-duty trucks, and medium-duty passenger vehicles (MDPVs). As an 
overall group, they are referred to in this preamble as light-duty 
vehicles or simply as vehicles. In this preamble section, passenger 
cars may be referred to simply as ``cars'', and light-duty trucks and 
MDPVs as ``light trucks'' or ``trucks.'' \217\
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    \217\ GHG emissions standards would use the same vehicle 
category definitions used for MYs 2012-2016 and as are used in the 
CAFE program.
---------------------------------------------------------------------------

    EPA is not proposing changes to the averaging, banking, and trading 
program elements, as discussed in Section III.B.4, with the exception 
of our proposal for a one-time carry-forward of any credits generated 
in MY 2010-2016 to be used anytime through MY2021. The previous 
rulemaking also established provisions for MY 2016 and later FFVs, 
where the emissions levels of these vehicles are based on tailpipe 
emissions performance and the amount of alternative fuel used. These 
provisions remain in place without change.
    Several provisions are being proposed that allow manufacturer's to 
generate credits for use in complying with the standards or that 
provide additional incentives for use of advanced technology. These 
include credits for technology that reduces CO2 emissions 
during off-cycle operation that is not reasonably accounted for by the 
2-cycle tests used for compliance purposes. EPA is proposing various 
changes to this program to streamline its use compared to the MYs 2012-
2016 program. These provisions are discussed in section III.C. In 
addition, EPA is proposing the use of multipliers to provide an 
incentive for the use of EVs, PHEVs, and FCVs, as well as a specified 
gram/mile credit for full size pick-up trucks that meet various 
efficiency performance criteria and/or include hybrid technology at a 
minimum level of production volumes. These provisions are also 
discussed in Section III.C. As discussed in those sections, while these 
additional credit provisions do not change the level of the standards 
proposed for cars and trucks, unlike the provisions for AC credits, 
they all support the reasonableness of the standards proposed for MYs 
2017-2025.
1. What Fleet-wide Emissions Levels Correspond to the CO2 
Standards?
    EPA is proposing standards that are projected to require, on an 
average industry fleet wide basis, 163 grams/mile of CO2 in 
model year 2025. The level of 163 grams/mile CO2 would be 
equivalent on a mpg basis to 54.5 mpg, if this level was achieved 
solely through improvements in fuel efficiency.218 219 For 
passenger cars, the proposed footprint curves call for reducing 
CO2 by 5 percent per year on average from the model year 
2016 passenger car standard through model year 2025. In recognition of 
manufacturers' unique challenges in improving the GHG emissions of 
full-size pickup trucks as we transition from the MY 2016 standards to 
MY 2017 and later, while preserving the utility (e.g., towing and 
payload capabilities) of those vehicles, EPA is proposing a lower 
annual rate of improvement for light-duty trucks in the early years of 
the program. For light-duty trucks, the footprint curves call for 
reducing CO2 by 3.5 percent per year on average from the 
model year 2016 truck standard through model year 2021. EPA is also 
proposing to change the slopes of the CO2-footprint curves 
for light-duty trucks from those in the 2012-2016 rule, in a manner 
that effectively means that the annual rate of improvement for smaller 
light-duty trucks in model years 2017 through 2021 would be higher than 
3.5 percent, and the annual rate of improvement for larger light-duty 
trucks over the same time period would be lower than 3.5 percent to 
account for the unique challenges for improving the GHG of large light 
trucks while maintaining cargo hauling and towing utility. For model 
years 2022 through 2025, EPA is proposing a reduction of CO2 
for light-

[[Page 74977]]

duty trucks of 5 percent per year on average starting from the model 
year 2021 truck standard.
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    \218\ In comparison, the MY 2016 CO2 standard is 
projected to achieve a national fleet-wide average, covering both 
cars and trucks, of 250 g/mile.
    \219\ Real-world CO2 is typically 25 percent higher 
and real-world fuel economy is typically 20 percent lower than the 
CO2 and CAFE values discussed here. The reference to 
CO2 here refers to CO2 equivalent reductions, 
as this level includes some reductions in emissions of greenhouse 
gases other than CO2, from refrigerant leakage, as one 
part of the AC related reductions.
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    EPA's proposed standards include EPA's projection of average 
industry wide CO2-equivalent emission reductions from A/C 
improvements, where the proposed footprint curve is made more stringent 
by an amount equivalent to this projection of A/C credits. This 
projection of A/C credits builds on the projections from MYs 2012-2016, 
with the increases in credits mainly due to the full penetration of low 
GWP alternative refrigerant by MY 2021. The proposed car standards 
would begin with MY 2017, with a generally linear increase in 
stringency from MY 2017 through MY 2025 for cars. The truck standards 
have a more gradual increase for MYs 2017-2020 then more rapidly in MY 
2021. For MYs 2021-2025, the truck standards increase in stringency 
generally in a linear fashion. EPA proposes to continue to have 
separate standards for cars and light trucks, and to have identical 
definitions of cars and trucks as NHTSA, in order to harmonize with 
CAFE standards. The tables in this section below provide overall fleet 
average levels that are projected for both cars and light trucks over 
the phase-in period which is estimated to correspond with the proposed 
standards. The actual fleet-wide average g/mi level that would be 
achieved in any year for cars and trucks will depend on the actual 
production for that year, as well as the use of the various credit and 
averaging, banking, and trading provisions. For example, in any year, 
manufacturers would be able to generate credits from cars and use them 
for compliance with the truck standard, or vice versa. Such transfer of 
credits between cars and trucks is not reflected in the table below. In 
Section III.F, EPA discusses the year-by-year estimate of emissions 
reductions that are projected to be achieved by the standards.
    In general, the proposed schedule of standards acts as a phase-in 
to the MY 2025 standards, and reflects consideration of the appropriate 
lead-time and engineering redesign cycles for each manufacturer to 
implement the requisite emission reductions technology across its 
product line. Note that MY 2025 is the final model year in which the 
standards become more stringent. The MY 2025 CO2 standards 
would remain in place for MY 2025 and later model years, until revised 
by EPA in a future rulemaking. EPA estimates that, on a combined fleet-
wide national basis, the 2025 MY proposed standards would require a 
level of 163 g/mile CO2. The derivation of the 163 g/mile 
estimate is described in Section III.B.2. EPA has estimated the overall 
fleet-wide CO2-equivalent emission (target) levels that 
correspond with the proposed attribute-based standards, based on the 
projections of the composition of each manufacturer's fleet in each 
year of the program. Tables Table III-9 and Table III-10 provide these 
target estimates for each manufacturer.
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BILLING CODE 4910-59-C
    These estimates were aggregated based on projected production 
volumes into the fleet-wide averages for cars, trucks, and the entire 
fleet, shown in Table III-11.\220\ The combined fleet estimates are 
based on the assumption of a fleet mix of cars and trucks that vary 
over the MY 2017-2025 timeframe. This fleet mix distribution can be 
found in Chapter 1 of the join TSD.
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    \220\ Due to rounding during calculations, the estimated fleet-
wide CO2-equivalent levels may vary by plus or minus 1 
gram.

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    As shown in Table III-11, fleet-wide CO2-equivalent 
emission levels for cars under the approach are projected to decrease 
from 213 to 144 grams per mile between MY 2017 and MY 2025. Similarly, 
fleet-wide CO2-equivalent emission levels for trucks are 
projected to decrease from 295 to 203 grams per mile. These numbers do 
not include the effects of other flexibilities and credits in the 
program.\221\ The estimated achieved values can be found in Chapter 3 
of the Regulatory Impact Analysis (RIA).
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    \221\ Nor do they reflect ABT.
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    As noted above, EPA is proposing standards that would result in 
increasingly stringent levels of CO2 control from MY 2017 
though MY 2025. Applying the CO2 footprint curves applicable 
in each model year to the vehicles (and their footprint distributions) 
expected to be sold in each model year produces progressively more 
stringent estimates of fleet-wide CO2 emission targets. The 
standards achieve important CO2 emissions reductions through 
the application of feasible control technology at reasonable cost, 
considering the needed lead time for this program and with proper 
consideration of manufacturer product redesign cycles. EPA has analyzed 
the feasibility of achieving the proposed CO2 standards, 
based on projections of the adoption of technology to reduce emissions 
of CO2, during the normal redesign process for cars and 
trucks, taking into account the effectiveness and cost of the 
technology. The results of the analysis are discussed in detail in 
Section III.D below and in the draft RIA. EPA also presents the overall 
estimated costs and benefits of the car and truck proposed 
CO2 standards in Section III.H. In developing the proposal, 
EPA has evaluated the kinds of technologies that could be utilized by 
the automobile industry, as well as the associated costs for the 
industry and fuel savings for the consumer, the magnitude of the GHG 
and oil reductions that may be achieved, and other factors relevant 
under the CAA.
    With respect to the lead time and cost of incorporating technology 
improvements that reduce GHG emissions, EPA places important weight on 
the fact that the proposed rule provides a long planning horizon to 
achieve the very challenging emissions standards being proposed, and 
provides manufacturers with certainty when planning future products. 
The time-frame and levels for the standards are expected to provide 
manufacturers the time needed to develop and incorporate technology 
that will achieve GHG reductions, and to do this as part of the normal 
vehicle redesign process. Further discussing of lead time, redesigns 
and feasibility can be found in Section III-D and Chapter 3 of the 
joint TSD.
    In the MY 2012-2016 Final Rule, EPA established several provisions 
which will continue to apply for the proposed MY2017-2025 standards. 
Consistent with the requirement of CAA section 202(a)(1) that standards 
be applicable to vehicles ``for their useful life,'' CO2 
vehicle standards would apply for the useful life of the vehicle. Under 
section 202(i) of the Act, which authorized the Tier 2 standards, EPA 
established a useful life period of 10 years or 120,000

[[Page 74982]]

miles, whichever first occurs, for all light-duty vehicles and light-
duty trucks.\222\ This useful life was applied to the MY 2012-2016 GHG 
standards and EPA is not proposing any changes to the useful life for 
MYs 2017-2025. Also, as with MYs 2012-2016, EPA proposes that the in-
use emission standard would be 10% higher for a model than the emission 
levels used for certification and compliance with the fleet average 
that is based on the footprint curves. As with the MY2012-2016 
standards, this will address issues of production variability and test-
to-test variability. The in-use standard is discussed in Section III.E. 
Finally, EPA is not proposing any changes to the test procedures over 
which emissions are measured and weighted to determine compliance with 
the standards. These procedures are the Federal Test Procedure (FTP or 
``city'' test) and the Highway Fuel Economy Test (HFET or ``highway'' 
test).
---------------------------------------------------------------------------

    \222\ See 65 FR 6698 (February 10, 2000).
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2. What Are the Proposed CO2 Attribute-based Standards?
    As with the MY 2012-2016 standards, EPA is proposing separate car 
and truck standards, that is, vehicles defined as cars have one set of 
footprint-based curves for MY 2017-2025 and vehicles defined as trucks 
have a different set for MY 2017-2025. In general, for a given 
footprint the CO2 g/mi target for trucks would be less 
stringent than for a car with the same footprint. EPA's approach for 
establishing the footprint curves for model years 2017 and later, 
including changes from the approach used for the MY2012-2016 footprint 
curves, is discussed in Section II.C and Chapter 2 of the joint TSD. 
The curves are described mathematically by a family of piecewise linear 
functions (with respect to vehicle footprint) that gradually and 
continually ramp down from the MY 2016 curve established in the 
previous rule. As Section II.C describes, EPA has modified the curves 
from 2016, particularly for trucks. To make this modification, we 
wanted to ensure that starting from the 2016 curve, there is a gradual 
transition to the new slopes and cut point (out to 74 sq ft from 66 sq 
ft). The transition is also designed to prevent the curve from one year 
from crossing the previous year's curve.
    Written in mathematic notation, the form of the proposed function 
is as follows: \223\
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    \223\ See proposed Regulatory text, which are the official 
coefficients and equation. The information proposed here is a 
summary version.

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    The car curves are largely similar to 2016 curve in slope. By 
contrast, the MY 2017 and later truck curves are steeper relative to 
the MY 2016 curve, but gradually flatten as a result of the 
multiplicative increase of the standards. As a further change from the 
MYs 2012-2016 rule, the truck curve does not reach the ultimate 
cutpoint of 74 sq ft until 2022. The gap between the 2020 curve and the 
2021 curve is indicative of design of the truck standards described 
earlier, where a significant proportion of the increased stringency 
over the first five years occurs between MY 2020 and MY 2021. Finally, 
the gradual flattening of both the car and the trucks curves is 
noticeable. For further discussion of these topics, please see Section 
II.C and Chapter 2 of the joint TSD.

[[Page 74986]]

3. Mid-Term Evaluation
    Given the long time frame at issue in setting standards for MY2022-
2025 light-duty vehicles, and given NHTSA's obligation to conduct a 
separate rulemaking in order to establish final standards for vehicles 
for those model years, EPA and NHTSA will conduct a comprehensive mid-
term evaluation and agency decision-making as described below. Up to 
date information will be developed and compiled for the evaluation, 
through a collaborative, robust and transparent process, including 
public notice and comment. The evaluation will be based on (1) A 
holistic assessment of all of the factors considered by the agencies in 
setting standards, including those set forth in the rule and other 
relevant factors, and (2) the expected impact of those factors on the 
manufacturers' ability to comply, without placing decisive weight on 
any particular factor or projection. The comprehensive evaluation 
process will lead to final agency action by both agencies.
    Consistent with the agencies' commitment to maintaining a single 
national framework for regulation of vehicle emissions and fuel 
economy, the agencies fully expect to conduct the mid-term evaluation 
in close coordination with the California Air Resources Board (CARB). 
Moreover, the agencies fully expect that any adjustments to the 
standards will be made with the participation of CARB and in a manner 
that ensures continued harmonization of state and Federal vehicle 
standards.
    EPA will conduct a mid-term evaluation of the later model year 
light-duty GHG standards (MY2022-2025). The evaluation will determine 
whether those standards are appropriate under section 202(a) of the 
Act. Under the regulations proposed today, EPA would be legally bound 
to make a final decision, by April 1, 2018, on whether the MY 2022-2025 
GHG standards are appropriate under section 202(a), in light of the 
record then before the agency.
    EPA, NHTSA and CARB will jointly prepare a draft Technical 
Assessment Report (TAR) to inform EPA's determination on the 
appropriateness of the GHG standards and to inform NHTSA's rulemaking 
for the CAFE standards for MYs 2022-2025. The TAR will examine the same 
issues and underlying analyses and projections considered in the 
original rulemaking, including technical and other analyses and 
projections relevant to each agency's authority to set standards as 
well as any relevant new issues that may present themselves. There will 
be an opportunity for public comment on the draft TAR, and appropriate 
peer review will be performed of underlying analyses in the TAR. The 
assumptions and modeling underlying the TAR will be available to the 
public, to the extent consistent with law.
    EPA will also seek public comment on whether the standards are 
appropriate under section 202(a), e.g. comments to affirm or change the 
GHG standards (either more or less stringent). The agencies will 
carefully consider comments and information received and respond to 
comments in their respective subsequent final actions.
    EPA and NHTSA will consult and coordinate in developing EPA's 
determination on whether the MY 2022-2025 GHG standards are appropriate 
under section 202(a) and NHTSA's NPRM.
    In making its determination, EPA will evaluate and determine 
whether the MY2022-2025 GHG standards are appropriate under section 
202(a) of the CAA based on a comprehensive, integrated assessment of 
all of the results of the review, as well as any public comments 
received during the evaluation, taken as a whole. The decision making 
required of the Administrator in making that determination is intended 
to be as robust and comprehensive as that in the original setting of 
the MY2017-2025 standards.
    In making this determination, EPA will consider information on a 
range of relevant factors, including but not limited to those listed in 
the proposed rule and below:
    1. Development of powertrain improvements to gasoline and diesel 
powered vehicles.
    2. Impacts on employment, including the auto sector.
    3. Availability and implementation of methods to reduce weight, 
including any impacts on safety.
    4. Actual and projected availability of public and private charging 
infrastructure for electric vehicles, and fueling infrastructure for 
alternative fueled vehicles.
    5. Costs, availability, and consumer acceptance of technologies to 
ensure compliance with the standards, such as vehicle batteries and 
power electronics, mass reduction, and anticipated trends in these 
costs.
    6. Payback periods for any incremental vehicle costs associated 
with meeting the standards.
    7. Costs for gasoline, diesel fuel, and alternative fuels.
    8. Total light-duty vehicle sales and projected fleet mix.
    9. Market penetration across the fleet of fuel efficient 
technologies.
    10. Any other factors that may be deemed relevant to the review.
    If, based on the evaluation, EPA decides that the GHG standards are 
appropriate under section 202(a), then EPA will announce that final 
decision and the basis for EPA's decision. The decision will be final 
agency action which also will be subject to judicial review on its 
merits. EPA will develop an administrative record for that review that 
will be no less robust than that developed for the initial 
determination to establish the standards. In the midterm evaluation, 
EPA will develop a robust record for judicial review that is the same 
kind of record that would be developed and before a court for judicial 
review of the adoption of standards.
    Where EPA decides that the standards are not appropriate, EPA will 
initiate a rulemaking to adopt standards that are appropriate under 
section 202(a), which could result in standards that are either less or 
more stringent. In this rulemaking EPA will evaluate a range of 
alternative standards that are potentially effective and reasonably 
feasible, and the Administrator will propose the alternative that in 
her judgment is the best choice for a standard that is appropriate 
under section 202(a).\224\ If EPA initiates a rulemaking, it will be a 
joint rulemaking with NHTSA. Any final action taken by EPA at the end 
of that rulemaking is also judicially reviewable.
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    \224\ The provisions of CAA section 202(b)(1)(C) are not 
applicable to any revisions of the greenhouse standards adopted in a 
later rulemaking based on the mid-term evaluation. Section 
202(b)(1)(C) refers to EPA's authority to revise ``any standard 
prescribed or previously revised under this subsection,'' and 
indicates that ``[a]ny revised standard'' shall require a reduction 
of emissions from the standard that was previously applicable. These 
provisions apply to standards that are adopted under subsection 
202(b) of the Act and are later revised. These provisions are 
limited by their terms to such standards, and do not otherwise limit 
EPA's general authority under section 202(a) to adopt standards and 
revise them ``from time to time.'' Since the greenhouse gas 
standards are not adopted under subsection 202(b), section 
202(b)(1)(C) does not apply to these standards or any subsequent 
revision of these standards.
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    The MY 2022-2025 GHG standards will remain in effect unless and 
until EPA changes them by rulemaking.
    NHTSA intends to issue conditional standards for MYs 2022-2025 in 
the LDV rulemaking being initiated this fall for MY2017 and later model 
years. The CAFE standards for MYs 2022-2025 will be determined with 
finality in a subsequent, de novo notice and comment rulemaking 
conducted in full compliance with section 32902 of title 49 U.S.C. and 
other applicable law.

[[Page 74987]]

Accordingly, NHTSA's development of its proposal in that later 
rulemaking will include the making of economic and technology analyses 
and estimates that are appropriate for those model years and based on 
then-current information.
    Any rulemaking conducted jointly by the agencies or by NHTSA alone 
will be timed to provide sufficient lead time for industry to make 
whatever changes to their products that the rulemaking analysis deems 
feasible based on the new information available. At the very latest, 
the three agencies will complete the mid-term evaluation process and 
subsequent rulemaking on the standards that may occur in sufficient 
time to promulgate final standards for MYs 2022-2025 with at least 18 
months lead time, but additional lead time may be provided.
    EPA understands that California intends to propose a mid-term 
evaluation in its program that is coordinated with EPA and NHTSA and is 
based on a similar set of factors as outlined in this Appendix A. The 
rules submitted to EPA for a waiver under the CAA will include such a 
mid-term evaluation. EPA understands that California intends to 
continue promoting harmonized state and federal vehicle standards. EPA 
further understands that California's 2017-2025 standards to be 
submitted to EPA for a waiver under the Clean Air Act will deem 
compliance with EPA greenhouse gas emission standards, even if amended 
after 2012, as compliant with California's. Therefore, if EPA revises 
it standards in response to the mid-term evaluation, California may 
need to amend one or more of its 2022-2025 MY standards and would 
submit such amendments to EPA with a request for a waiver, or for 
confirmation that said amendments fall within the scope of an existing 
waiver, as appropriate.
4. Averaging, Banking, and Trading Provisions for CO2 
Standards
    In the MY 2012-2016 rule, EPA adopted credit provisions for credit 
carry-back, credit carry-forward, credit transfers, and credit trading. 
For EPA's purposes, these kinds of provisions are collectively termed 
Averaging, Banking, and Trading (ABT), and have been an important part 
of many mobile source programs under CAA Title II, both for fuels 
programs as well as for engine and vehicle programs.\225\ As in the 
MY2012-2016 program, EPA is proposing basically the same comprehensive 
program for averaging, banking, and trading of credits which together 
will help manufacturers in planning and implementing the orderly phase-
in of emissions control technology in their production, consistent with 
their typical redesign schedules. ABT is important because it can help 
to address many issues of technological feasibility and lead-time, as 
well as considerations of cost. ABT is an integral part of the standard 
setting itself, and is not just an add-on to help reduce costs. In many 
cases, ABT resolves issues of cost or technical feasibility, allowing 
EPA to set a standard that is numerically more stringent. The ABT 
provisions are integral to the fleet averaging approach established in 
the MY 2012-2016 rule. EPA is proposing to change the credit carry-
forward provisions as described below, but the program otherwise would 
remain in place unchanged for model years 2017 and later.
---------------------------------------------------------------------------

    \225\ See 75 FR at 25412-413.
---------------------------------------------------------------------------

    As noted above, the ABT provisions consist primarily of credit 
carry-back, credit carry-forward, credit transfers, and credit trading. 
A manufacturer may have a deficit at the end of a model year after 
averaging across its fleet using credit transfers between cars and 
trucks--that is, a manufacturer's fleet average level may fail to meet 
the required fleet average standard. Credit carry-back refers to using 
credits to offset any deficit in meeting the fleet average standards 
that had accrued in a prior model year. A deficit must be offset within 
3 model years using credit carry-back provisions. After satisfying any 
needs to offset pre-existing debits within a vehicle category, 
remaining credits may be banked, or saved for use in future years. This 
is referred to as credit carry-forward. The EPCA/EISA statutory 
framework for the CAFE program includes a 5-year credit carry-forward 
provision and a 3-year credit carry-back provision. In the MYs 2012-
2016 program, EPA chose to adopt 5-year credit carry-forward and 3-year 
credit carry-back provisions as a reasonable approach that maintained 
consistency between the agencies' provisions. EPA is proposing to 
continue with this approach in this rulemaking. (A further discussion 
of the ABT provisions can be found at 75 FR 25412-14 May 7, 2010).
    Although the credit carry-forward and carry-back provisions would 
generally remain in place for MY 2017 and later, EPA is proposing to 
allow all unused credits generated in MY 2010-2016 to be carried 
forward through MY 2021. This amounts to the normal 5 year carry-
forward for MY 2016 and later credits but provides additional carry-
forward years for credits earned in MYs 2010-2015. Extending the life 
for MY 2010-2015 credits would provide greater flexibility for 
manufacturers in using the credits they have generated. These credits 
would help manufacturers resolve lead-time issues they might face in 
the model years prior to 2021 as they transition from the 2016 
standards to the progressively more stringent standards for 2017 and 
later. It also provides an additional incentive to generate credits 
earlier, for example in MYs 2014 and 2015, because those credits may be 
used through 2021, thereby encouraging the earlier use of additional 
CO2 reducing technology.
    While this provision provides greater flexibility in how 
manufacturers use credits they have generated, it would not change the 
overall CO2 benefits of the National Program, as EPA does 
not expect that any of the credits would have expired as they likely 
would be used or traded to other manufacturers. EPA believes the 
proposed approach provides important additional flexibility in the 
early years of the new MY2017 and later standards. EPA requests 
comments on the proposed approach for carrying over MY 2010-2015 
credits through MY 2021.
    EPA is not proposing to allow MY 2009 early credits to be carried 
forward beyond the normal 5 years due to concerns expressed during the 
2012-2016 rulemaking that there may be the potential for large numbers 
of credits that could be generated in MY 2009 for companies that are 
over-achieving on CAFE and that some of these credits could represent 
windfall credits.\226\ In response to these concerns, EPA placed 
restrictions the use of MY 2009 credits (for example, MY 2009 credits 
may not be traded) and does not believe expanding the use of MY 2009 
credits would be appropriate. Under the MY 2012-2016 early credits 
program, manufacturers have until the end of MY 2011 (reports must be 
submitted by April 2012), when the early credits program ends, to 
submit early credit reports. Therefore, EPA does not yet have 
information on the amount of early MY2009 credits actually generated by 
manufacturers to assess whether or not they could be viewed as 
windfall. Nevertheless, because these concerns continue, EPA is 
proposing not to extend the MY 2009 credit transfers past the existing 
5-years limit.
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    \226\ 75 FR at 25442. Moreover, as pointed out in the earlier 
rulemaking, there can be no legitimate expectation that these 2009 
MY credits could be used as part of a compliance strategy in model 
years after 2014, and thus no reason to carry forward the credits 
past 5 years due to action in reliance by manufacturers.
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    Transferring credits refers to exchanging credits between the two 
averaging sets, passenger cars and trucks, within a manufacturer. For

[[Page 74988]]

example, credits accrued by over-compliance with a manufacturer's car 
fleet average standard could be used to offset debits accrued due to 
that manufacturer not meeting the truck fleet average standard in a 
given year. Finally, accumulated credits may be traded to another 
manufacturer. In EPA's CO2 program, there are no limits on 
the amount of credits that may be transferred or traded.
    The averaging, banking, and trading provisions are generally 
consistent with those included in the CAFE program, with a few notable 
exceptions. As with EPA's approach (except for the proposal discussed 
above for a one-time extended carry-forward of MY2010-2016 credits), 
CAFE allows five year carry-forward of credits and three year carry-
back, per EISA. CAFE transfers of credits across a manufacturer's car 
and truck averaging sets are also allowed, but with limits established 
by EISA on the use of transferred credits. The amount of transferred 
credits that can be used in a year is limited under CAFE, and 
transferred credits may not be used to meet the CAFE minimum domestic 
passenger car standard, also per statute. CAFE allows credit trading, 
but again, traded credits cannot be used to meet the minimum domestic 
passenger car standard.
5. Small Volume Manufacturer Standards
    In adopting the CO2 standards for MY 2012-2016, EPA 
recognized that for very small volume manufacturers, the CO2 
standards adopted for MY 2012-2016 would be extremely challenging and 
potentially infeasible absent credits from other manufacturers. EPA 
therefore deferred small volume manufacturers (SVMs) with annual U.S. 
sales less than 5,000 vehicles from having to meet CO2 
standards until EPA is able to establish appropriate SVM standards. As 
part of establishing eligibility for the exemption, manufacturers must 
make a good faith effort to secure credits from other manufacturers, if 
they are reasonably available, to cover the emissions reductions they 
would have otherwise had to achieve under applicable standards.
    These small volume manufacturers face a greater challenge in 
meeting CO2 standards compared to large manufacturers 
because they only produce a few vehicle models, mostly focusing on high 
performance sports cars and luxury vehicles. These manufacturers have 
limited product lines across which to average emissions, and the few 
models they produce often have very high CO2 levels. As SVMs 
noted in discussions, SVMs only produce one or two vehicle types but 
must compete directly with brands that are part of larger manufacturer 
groups that have more resources available to them. There is often a 
time lag in the availability of technologies from suppliers between 
when the technology is supplied to large manufacturers and when it is 
available to small volume manufacturers. Also, incorporating new 
technologies into vehicle designs costs the same or more for small 
volume manufacturers, yet the costs are spread over significantly 
smaller volumes. Therefore, SVMs typically have longer model life 
cycles in order to recover their investments. SVMs further noted that 
despite constraints facing them, SVMs need to innovate in order to 
differentiate themselves in the market and often lead in incorporating 
technological innovations, particularly lightweight materials.
    In the MY 2012-2016 Final Rule, EPA noted that it intended to 
conduct a follow-on rulemaking to establish appropriate standards for 
these manufacturers. In developing this proposal, the agencies held 
detailed technical discussions with the manufacturers eligible for the 
exemption under the MY 2012-2016 program and reviewed detailed product 
plans of each manufacturer. EPA continues to believe that SVMs would 
face great difficulty meeting the primary CO2 standards and 
that establishing challenging but less stringent SVM standards is 
appropriate given the limited products offering of SVMs. EPA believes 
it is important to establish standards that will require SVMs to 
continue to innovate to reduce emissions and do their ``fair share'' 
under the GHG program. However, selecting a single set of standards 
that would apply to all SVMs is difficult because each manufacturer's 
product lines vary significantly. EPA is concerned that a standard that 
would be appropriate for one manufacturer may not be feasible for 
another, potentially driving them from the domestic market. 
Alternatively, a less stringent standard may only cap emissions for 
some manufacturers, providing little incentive to reduce emissions.
    Based on this, rather than conducting a separate rulemaking, as 
part of this MY 2017-2025 rulemaking EPA is proposing to allow SVMs to 
petition EPA for an alternative CO2 standard for these model 
years. The proposed approach for SVM standards and eligibility 
requirements are described below. EPA is also requesting comments on 
extending eligibility for the proposed SVM standards to very small 
manufacturers that are owned by large manufacturers but are able to 
establish that they are operationally independent.
    EPA considered a variety of approaches and believes a case-by-case 
approach for establishing SVM standards would be appropriate. EPA is 
proposing to allow eligible SVMs the option to petition EPA for 
alternative standards. An SVM utilizing this option would be required 
to submit data and information that the agency would use in addition to 
other available information to establish CO2 standards for 
that specific manufacturer. EPA requests comments on all aspects of the 
proposed approach described in detail below.
a. Overview of Existing Case-by-Case Approaches
    A case-by-case approach for establishing standards for SVMs has 
been adopted by NHTSA for CAFE, CARB in their 2009-2016 GHG program, 
and the European Union (EU) for European CO2 standards. For 
the CAFE program, EPCA allows manufacturers making less than 10,000 
vehicles per year worldwide to petition the agency to have an 
alternative standard set for them.\227\ NHTSA has adopted alternative 
standards for some small volume manufacturers under these CAFE 
provisions and continually reviews applications as they are 
submitted.\228\ Under the CAFE program, petitioners must include 
projections of the most fuel efficient production mix of vehicle 
configurations for a model year and a discussion demonstrating that the 
projections are reasonable. Petitioners must include, among other 
items, annual production data, efforts to comply with applicable fuel 
economy standards, and detailed information on vehicle technologies and 
specifications. The petitioner must explain why they have not pursued 
additional means that would allow them to achieve higher average fuel 
economy. NHTSA publishes a proposed decision in the Federal Register 
and accepts public comments. Petitions may be granted for up to three 
years.
---------------------------------------------------------------------------

    \227\ See 49 U.S.C. 32902(d) and 49 CFR Part 525. Under the CAFE 
program, manufacturers who manufacture less than 10,000 passenger 
cars worldwide annually may petition for an exemption from 
generally-applicable CAFE standards, in which case NHTSA will 
determine what level of CAFE would be maximum feasible for that 
particular manufacturer if the agency determines that doing so is 
appropriate.
    \228\ Alternative CAFE standards are provided in 49 CFR 531.5 
(e).
---------------------------------------------------------------------------

    For the California GHG standards for MYs 2009-2016, CARB 
established a process that would start at the beginning of MY2013, 
where small volume manufacturers would identify all MY

[[Page 74989]]

2012 vehicle models certified by large volume manufacturers that are 
comparable to the SVM's planned MY 2016 vehicle models.\229\ The 
comparison vehicles were to be selected on the basis of horsepower and 
power to weight ratio. The SVM was required to demonstrate the 
appropriateness of the comparison models selected. CARB would then 
provide a target CO2 value based on the emissions 
performance of the comparison vehicles to the SVM for each of their 
vehicle models to be used to calculate a fleet average standard for 
each test group for MY2016 and later. Since CARB provides that 
compliance with the National Program for MYs 2012-2016 will be deemed 
compliance with the CARB program, it has not taken action to set unique 
SVM standards, but its program nevertheless was a useful model to 
consider.
---------------------------------------------------------------------------

    \229\ 13 CCR 1961.1(D).
---------------------------------------------------------------------------

    The EU process allows small manufacturers to apply for a derogation 
from the primary CO2 emissions reduction targets.\230\ 
Applications for 2012 were required to be submitted by manufacturers no 
later than March 31, 2011, and the Commission will assess the 
application within 9 months of the receipt of a complete application. 
Applications for derogations for 2012 have been submitted by several 
manufacturers and non confidential versions are currently available to 
the public.\231\ In the EU process, the SVM proposes an alternative 
emissions target supported by detailed information on the applicant's 
economic activities and technological potential to reduce 
CO2 emissions. The application also requires information on 
individual vehicle models such as mass and specific CO2 
emissions of the vehicles, and information on the characteristics of 
the market for the types of vehicles manufactured. The proposed 
alternative emissions standards may be the same numeric standard for 
multiple years or a declining standard, and the alternative standards 
may be established for a maximum period of five years. Where the 
European Commission is satisfied that the specific emissions target 
proposed by the manufacturer is consistent with its reduction 
potential, including the economic and technological potential to reduce 
its specific emissions of CO2, and taking into account the 
characteristics of the market for the type of car manufactured, the 
Commission will grant a derogation to the manufacturer.
---------------------------------------------------------------------------

    \230\ Article 11 of Regulation (EC) No 443/2009 and EU No 63/
2011. See also ``Frequently asked questions on application for 
derogation pursuant to Aticle 11 of Regulation (EC) 443/2009.''
    \231\ http://ec.europa.eu/clima/documentation/transport/vehicles/cars_en.htm.
---------------------------------------------------------------------------

b. EPA's Proposed Framework for Case-by-Case SVM Standards
    EPA proposes that SVMs will become subject to the GHG program 
beginning with MY 2017. Starting in MY 2017, an SVM would be required 
to meet the primary program standards unless EPA establishes 
alternative standards for the manufacturer. EPA proposes that eligible 
manufacturers seeking alternative standards must petition EPA for 
alternative standards by July 30, 2013, providing the information 
described below. If EPA finds that the application is incomplete, EPA 
would notify the manufacturer and provide an additional 30 days for the 
manufacturer to provide all necessary information. EPA would then 
publish a notice in the Federal Register of the manufacturer's petition 
and recommendations for an alternative standard, as well as EPA's 
proposed alternative standard. Non confidential business information 
portions of the petition would be available to the public for review in 
the docket. After a period for public comment, EPA would make a 
determination on an alternative standard for the manufacturer and 
publish final notice of the determination in the Federal Register for 
the general public as well as the applicant. EPA expects the process to 
establish the alternative standard to take about 12 months once a 
complete application is submitted by the manufacturer.
    EPA proposes that manufacturers would petition for alternative 
standards for up to 5 model years (i.e., MYs 2017--2021) as long as 
sufficient information is available on which to base the alternative 
standards (see application discussion below). This initial round of 
establishing case-by-case standards would be followed by one or more 
additional rounds until standards are established for the SVM for all 
model years up to and including MY 2025. For the later round(s) of 
standard setting, EPA proposes that the SVM must submit their petition 
36 months prior to the start of the first model year for which the 
standards would apply in order to provide sufficient time for EPA to 
evaluate and set alternative standards (e.g., January 1, 2018 for MY 
2022). The 36 month requirement would not apply to new market entrants, 
discussed in section III.C.5.e below. The subsequent case-by-case 
standard setting would follow the same notice and comment process as 
outlined above.
    EPA also proposes that if EPA does not establish SVM standards for 
a manufacturer at least 12 months prior to the start of the model year 
in cases where the manufacturer provided all required information by 
the established deadline, the manufacturer may request an extension of 
the alternative standards currently in place, on a model year by model 
year basis. This would provide assurance to manufacturers that they 
would have at least 12 months lead time to prepare for the upcoming 
model year.
    EPA requests comments on allowing SVMs to comply early with the MY 
2017 SVM standards established for them. Manufacturers may want to 
certify to the MY 2017 standards in earlier model years (e.g., MY 2015 
or MY 2016). Under the MY 2012-2016 program, SVMs are eligible for an 
exemption from the standards as long as they have made a good faith 
effort to purchase credits. By certifying to the SVM alternative 
standard early in lieu of this exemption, manufacturers could avoid 
having to seek out credits to purchase in order to maintain this 
exemption. EPA would not allow certification for vehicles already 
produced by the manufacturer, so the applicability of this provision 
would be limited due to the timing of establishing the SVM standards. 
Manufacturers interested in the possibility of early compliance would 
be able to apply for SVM standards earlier than the required July 30, 
2013 deadline proposed above. An early compliance option also may be 
beneficial for new manufacturers entering the market that qualify as 
SVMs.
c. Petition Data and Information Requirements
    As described in detail in section I.D.2, EPA establishes motor 
vehicle standards under section 202(a) that are based on technological 
feasibility, and considering lead time, safety, costs and other impacts 
on consumers, and other factors such as energy impacts associated with 
use of the technology. EPA proposes to require that SVMs submit the 
data and information listed below which EPA would use, in addition to 
other relevant information, in determining an appropriate alternative 
standard for the SVM. EPA would also consider data and information 
provided by commenters during the comment process in determining the 
final level of the SVM's standards. As noted above, other case-by-case 
standard setting approaches have been adopted by NHTSA, the European 
Union, and CARB and EPA has considered the data requirements of those 
programs in developing the proposed data and information requirements 
detailed below. EPA

[[Page 74990]]

requests comments on the following proposed data requirements.
    EPA proposes that SVMs would provide the following information as 
part of their petition for SVM standards:
Vehicle Model and Fleet Information
     MYs that the application covers--up to 5 MYs. Sufficient 
information must be provided to establish alternative standards for 
each year
     Vehicle models and sales projections by model for each MY
     Description of models (vehicle type, mass, power, 
footprint, expected pricing)
     Description of powertrain
     Production cycle for each model including new vehicle 
model introductions
     Vehicle footprint based targets and projected fleet 
average standard under primary program by model year
Technology Evaluation
     CO2 reduction technologies employed or expected 
to be on the vehicle model(s) for the applicable model years, including 
effectiveness and cost information

--Including A/C and potential off-cycle technologies

     Evaluation of similar vehicles to those produced by the 
petitioning SVM and certified in MYs 2012-2013 (or latest 2 MYs for 
later applications) for each vehicle model including CO2 
results and any A/C credits generated by the models
--Similar vehicles must be selected based on vehicle type, horsepower, 
mass, power-to-weight, vehicle footprint, vehicle price range and other 
relevant factors as explained by the SVM

     Discussion of CO2 reducing technologies 
employed on vehicles offered by the manufacturer outside of the U.S. 
market but not in the U.S., including why those vehicles/technologies 
are not being introduced in the U.S. market as a way of reducing 
overall fleet CO2 levels
     Evaluation of technologies projected by EPA as 
technologies likely to be used to meet the MYs 2012-2016 and MYs 2017-
2025 standards that are not projected to be fully utilized by the 
petitioning SVM and explanation of reasons for not using the 
technologies, including relevant cost information \232\
---------------------------------------------------------------------------

    \232\ See 75 FR 25444 (Section III.D) for MY 2012-2016 
technologies and Section III.D below for discussion of projected MY 
2017-2025 technologies.
---------------------------------------------------------------------------

SVM Projected Standards
     The most stringent CO2 level estimated by the 
SVM to be feasible and appropriate by model and MY and the 
technological and other basis for the estimate
     For each MY, projection of the lowest fleet average 
CO2 production mix of vehicle models and discussion 
demonstrating that these projections are reasonable
     A copy of any applications submitted to NHTSA for MY 2012 
and later alternative standards
Eligibility
     U.S. sales for previous three model years and projections 
for production volumes over the time period covered by the application
     Complete information on ownership structure in cases where 
SVM has ties to other manufacturers with U.S. vehicle sales
    EPA proposes to weigh several factors in determining what 
CO2 standards are appropriate for a given SVMs fleet. These 
factors would include the level of technology applied to date by the 
manufacturer, the manufacturer's projections for the application of 
additional technology, CO2 reducing technologies being 
employed by other manufacturers including on vehicles with which the 
SVM competes directly and the CO2 levels of those vehicles, 
and the technological feasibility and reasonableness of employing 
additional technology not projected by the manufacturer in the time-
frame for which standards are being established. EPA would also 
consider opportunities to generate A/C and off-cycle credits that are 
available to the manufacturer. Lead time would be a key consideration 
both for the initial years of the SVM standard, where lead time would 
be shorter due to the timing of the notice and comment process to 
establish the standards, and for the later years where manufacturers 
would have more time to achieve additional CO2 reductions.
d. SVM Credits Provisions
    As discussed in Section III.B.4, EPA's program includes a variety 
of credit averaging, banking, and trading provisions. EPA proposes that 
these provisions would generally apply to SVM standards as well, with 
the exception that SVMs would not be allowed to trade credits to other 
manufacturers. Because SVMs would be meeting alternative, less 
stringent standards compared to manufacturers in the primary program, 
EPA proposes that SVM would not be allowed to trade (i.e., sell or 
otherwise provide) CO2 credits that the SVM generates 
against the SVM standards to other manufacturers. SVMs would be able to 
use credits purchased from other manufacturers generated in the primary 
program. Although EPA does not expect significant credits to be 
generated by SVMs due to the manufacturer-specific standard setting 
approach being proposed, SVMs would be able to generate and use credits 
internally, under the credit carry-forward and carry-back provisions. 
Under a case-by-case approach, EPA would not view such credits as 
windfall credits and not allowing internal banking could stifle 
potential innovative approaches for SVMs. SVMs would also be able to 
transfer credits between the car and light trucks categories.
e. SVM Standards Eligibility
i. Current SVMs
    The MY 2012-2016 rulemaking limited eligibility for the SVM 
deferment to manufacturers in the U.S. market in MY 2008 or MY 2009 
with U.S. sales of less than 5,000 vehicles per year. After initial 
eligibility has been established, the SVM remains eligible for the 
exemption if the rolling average of three consecutive model years of 
sales remains below 5,000 vehicles. Manufacturers going over the 5,000 
vehicle rolling average limit would have two additional model years to 
transition to having to meet applicable CO2 standards. Based 
on these eligibility criteria, there are three companies that qualify 
currently as SVMs under the MY2012-2016 standards: Aston Martin, Lotus, 
and McLaren.\233\ These manufacturers make up much less than one 
percent of total U.S. vehicles sales, so the environmental impact of 
these alternative standards would be very small. EPA continues to 
believe that the 5,000 vehicle cut-point and rolling three year average 
approach is appropriate and proposes to retain it as a primary 
criterion for SVMs to remain eligible for SVM standards. The 5,000 
vehicle threshold allows for some sales growth by SVMs, as the SVMs in 
the market today typically have annual sales of below 2,000 vehicles. 
However, EPA wants to ensure that standards for as few vehicles as 
possible are included in the SVM standards to minimize the 
environmental impact, and therefore believes it is appropriate that 
manufacturers with U.S. sales growing to above 5,000 vehicles per year 
be required to comply with the primary standards. Manufacturers with 
unusually strong sales in a given year would still likely remain 
eligible, based on the three year rolling average. However, if a 
manufacturer expands in

[[Page 74991]]

the U.S. market on a permanent basis such that they consistently sell 
more than 5,000 vehicles per year, they would likely increase their 
rolling average to above 5,000 and no longer be eligible. EPA believes 
a manufacturer will be able to consider these provisions, along with 
other factors, in its planning to significantly expand in the U.S. 
market. As discussed below, EPA is not proposing to continue to tie 
eligibility to having been in the market in MY 2008 or MY 2009, or any 
other year and is instead proposing eligibility criteria for new SVMs 
newly entering the U.S. market.
---------------------------------------------------------------------------

    \233\ Under the MY 2012-2016 program, manufacturers must also 
make a good faith effort to purchase CO2 credits in order 
to maintain eligibility for SVM status.
---------------------------------------------------------------------------

ii. New SVMs (New Entrants to the U.S. Market)
    As noted above, the SVM deferment under the MY 2012-2016 program 
included a requirement that a manufacturer had to have been in the U.S. 
vehicle market in MY 2008 or MY 2009. This provision ensured that a 
known universe of manufacturers would be eligible for the exemption in 
the short term and manufacturers would not be driven from the market as 
EPA proceeded to develop appropriate SVM standards. EPA is not 
proposing to include such a provision for the SVM standards eligibility 
criteria for MY 2017-2025. EPA believes that with SVM standards in 
place, tying eligibility to being in the market in a prior year is no 
longer necessary because SVMs will be required to achieve appropriate 
levels of emissions control. Also, it could serve as a potential market 
barrier to competition by hindering new SVMs from entering the U.S. 
market.
    For new market entrants, EPA proposes that a manufacturer seeking 
an alternative standard for MY2017-2025 must apply and that standards 
would be established through the process described above. The new SVM 
would not be able to certify their vehicles until the standards are 
established and therefore EPA would expect the manufacturer to submit 
an application as early as possible but at least 30 months prior to 
when they expect to begin producing vehicles in order to provide enough 
time for EPA to evaluate standards and to follow the notice and comment 
process to establish the standards and for certification. In addition 
to the information and data described below, EPA proposes to require 
new market entrants to provide evidence that the company intends to 
enter the U.S. market within the time frame of the MY2017-2025 SVM 
standards. Such evidence would include documentation of work underway 
to establish a dealer network, appropriate financing and marketing 
plans, and evidence the company is working to meet other federal 
vehicle requirements such as other EPA emissions standards and NHTSA 
vehicle safety standards. EPA is concerned about the administrative 
burden that could be created for the agency by companies with no firm 
plans to enter the U.S. market submitting applications in order to see 
what standard might be established for them. This information, in 
addition to a complete application with the information and data 
outlined above, would provide evidence of the seriousness of the 
applicant. As part of this review, EPA reserves the right to not 
undertake its SVM standards development process for companies that do 
not exhibit a serious and documented effort to enter the U.S. market.
    EPA remains concerned about the potential for gaming by a 
manufacturer that sells less than 5,000 vehicles in the first year, but 
with plans for significantly larger sales volumes in the following 
years. EPA believes that it would not be appropriate to establish SVM 
standards for a new market entrant that plans a steep ramp-up in U.S. 
vehicle sales. Therefore, EPA proposes that for new entrants, U.S. 
vehicle sales must remain below 5,000 vehicles for the first three 
years in the market. After the initial three years, the manufacturer 
must maintain a three year rolling average below 5,000 vehicles (e.g., 
the rolling average of years 2, 3 and 4, must be below 5,000 vehicles). 
If a new market entrant does not comply with these provisions for the 
first five years in the market, vehicles sold above the 5,000 vehicle 
threshold would be found not to be covered by the alternative 
standards, and EPA expects the fleet average is therefore not in 
compliance with the standards and would be subject to enforcement 
action and also, the manufacturer would lose eligibility for the SVM 
standards until it has reestablished three consecutive years of sales 
below 5,000 vehicles.
    By not tying the 5,000 vehicle eligibility criteria to a particular 
model year, it would be possible for a manufacturer already in the 
market to drop below the 5,000 vehicle threshold in a future year and 
attempt to establish eligibility. EPA proposes to treat such 
manufacturers as new entrants to the market for purposes of determining 
eligibility for SVM standards. However, the requirements to demonstrate 
that the manufacturer intends to enter the U.S. market obviously would 
not be relevant in this case, and therefore would not apply.
iii. Aggregation Requirements and an Operational Independence Concept
    In determining eligibility for the MY 2012-2016 exemption, sales 
volumes must be aggregated across manufacturers according to the 
provisions of 40 CFR 86.1838-01(b)(3), which requires the sales of 
different firms to be aggregated in various situations, including where 
one firm has a 10% or more equity ownership of another firm, or where a 
third party has a 10% or more equity ownership of two or more firms. 
These are the same aggregation requirements used in other EPA small 
volume manufacturer provisions, such as those for other light-duty 
emissions standards.\234\ EPA proposes to retain these aggregation 
provisions as part of the eligibility criteria for the SVM standards 
for MYs 2017-2025. Manufacturers also retain, no matter their size, the 
option to meet the full set of GHG requirements on their own, and do 
not necessarily need to demonstrate compliance as part of a corporate 
parent company fleet. However, as discussed below, EPA is seeking 
comments on allowing manufacturers that otherwise would not be eligible 
for the SVM standards due to these aggregation provisions, to 
demonstrate to the Administrator that they are ``operationally 
independent'' based on the criteria described below. Under such a 
concept, if the Administrator were to determine that a manufacturer was 
operationally independent, that manufacturer would be eligible for SVM 
standards.
---------------------------------------------------------------------------

    \234\ For other programs, the eligibility cut point for SVM 
flexibility is 15,000 vehicles rather than 5,000 vehicles.
---------------------------------------------------------------------------

    During the 2012-2016 rule comment period, EPA received comments 
from Ferrari requesting that EPA allow a manufacturer to apply to EPA 
to establish SVM status based on the independence of its research, 
development, testing, design, and manufacturing from another firm that 
has ownership interest in that manufacturer. Ferrari is majority owned 
by Fiat and would be aggregated with other Fiat brands, including 
Chrysler, Maserati, and Alfa Romeo, for purposes of determining 
eligibility for SVM standards; therefore Ferrari does not meet the 
eligibility criteria for SVM status. However, Ferrari believes that it 
would qualify for such an ``operational independence'' concept, if such 
an option were provided. In the MY 2012-2016 Final Rule, EPA noted that 
it would further consider the issue of operational independence and 
seek public comments on this concept (see 75 FR 25420). In this 
proposal, EPA is

[[Page 74992]]

requesting comment on the concept of operational independence. 
Specifically, we are seeking comment on expanding eligibility for the 
SVM standards to manufacturers who would have U.S. annual sales of less 
than 5,000 vehicles and based on a demonstration that they are 
``operationally independent'' of other companies. Under such an 
approach, EPA would be amending the limitation for SVM corporate 
aggregation provisions such that a manufacturer that is more than 10 
percent owned by a large manufacturer would be allowed to qualify for 
SVM standards on the basis of its own sales, because it operates its 
research, design, production, and manufacturing independently from the 
parent company.
    In seeking public comment on this concept of operational 
independence, EPA particularly is interested in comments regarding the 
degree to which this concept could unnecessarily open up the SVM 
standards to several smaller manufacturers that are integrated into 
large companies--smaller companies that may be capable of and planning 
to meet the CO2 standards as part of the larger 
manufacturer's fleet. EPA also seeks comment on the concern that 
manufacturers could change their corporate structure to take advantage 
of such provisions (that is, gaming). EPA is therefore requesting 
comment on approaches, described below, to narrowly define the 
operational independence criteria to ensure that qualifying companies 
are truly independent and to avoid gaming to meet the criteria. EPA 
also requests comments on the possible implications of this approach on 
market competition, which we believe should be fully explored through 
the public comment process. EPA acknowledges that regardless of the 
criteria for operational independence, a small manufacturer under the 
umbrella of a large manufacturer is fundamentally different from other 
SVMs because the large manufacturer has several options under the GHG 
program to bring the smaller subsidiary into compliance, including the 
use of averaging or credit transfer provisions, purchasing credits from 
another manufacturer, or providing technical and financial assistance 
to the smaller subsidiary. Truly independent SVMs do not have the 
potential access to these options, with the exception of buying credits 
from another manufacturer. EPA requests comments on the need for and 
appropriateness of allowing companies to apply for less stringent SVM 
standards based on sales that are not aggregated with other companies 
because of operational independence.
    EPA is considering and requesting comments on the operational 
independence criteria listed below. These criteria are meant to 
establish that a company, though owned by another manufacturer, does 
not benefit operationally or financially from this relationship, and 
should therefore be considered independent for purposes of calculating 
the sales volume for the SVM program. Manufacturers would need to 
demonstrate compliance with all of these criteria in order to be found 
to be operationally independent. By ``related manufacturers'' below, 
EPA means all manufacturers that would be aggregated together under the 
10 percent ownership provisions contained in EPA's current small volume 
manufacturer definition (i.e., the parent company and all subsidiaries 
where there is 10 percent or greater ownership).
    EPA would need to determine, based on the information provided by 
the manufacturer in its application, that the manufacturer currently 
meets the following criteria and has met them for at least 24 months 
preceding the application submittal:
    1. No financial or other support of economic value was provided by 
related manufacturers for purposes of design, parts procurement, R&D 
and production facilities and operation. Any other transactions with 
related manufacturers must be conducted under normal commercial 
arrangements like those conducted with other parties. Any such 
transactions shall be at competitive pricing rates to the manufacturer.
    2. Maintains separate and independent research and development, 
testing, and production facilities.
    3. Does not use any vehicle powertrains or platforms developed or 
produced by related manufacturers.
    4. Patents are not held jointly with related manufacturers.
    5. Maintains separate business administration, legal, purchasing, 
sales, and marketing departments; maintains autonomous decision making 
on commercial matters.
    6. Overlap of Board of Directors is limited to 25 percent with no 
sharing of top operational management, including president, chief 
executive officer (CEO), chief financial officer (CFO), and chief 
operating officer (COO), and provided that no individual overlapping 
director or combination of overlapping directors exercises exclusive 
management control over either or both companies.
    7. Parts or components supply agreements between related companies 
must be established through open market process and to the extent that 
manufacturer sells parts/components to non-related auto manufacturers, 
it does so through the open market at competitive pricing.
    In addition to the criteria listed above, EPA also requests 
comments on the following programmatic elements and framework. EPA 
requests comments on requiring the manufacturer applying for 
operational independence to provide an attest engagement from an 
independent auditor verifying the accuracy of the information provided 
in the application.\235\ EPA foresees possible difficulty verifying the 
information in the application, especially if the company is located 
overseas. The principal purpose of the attest engagement would be to 
provide an independent review and verification of the information 
provided. EPA also would require that the application be signed by the 
company president or CEO. After EPA approval, the manufacturer would be 
required to report within 60 days any material changes to the 
information provided in the application. A manufacturer would lose 
eligibility automatically after the material change occurs. However, 
EPA would confirm that the manufacturer no longer meets one or more of 
the criteria and thus is no longer considered operationally 
independent, and would notify the manufacturer. EPA would provide two 
model years lead time for the manufacturer to transition to the primary 
program. For example, if the manufacturer lost eligibility sometime in 
calendar year 2018 (based on when the material change occurs), the 
manufacturer would need to meet primary program standards in MY 2021.
---------------------------------------------------------------------------

    \235\ EPA has required attest engagements as part of its 
Reformulated Fuels program. See 40 CFR Sec.  80.1164 and Sec.  
80.1464.
---------------------------------------------------------------------------

    In addition, EPA requests comments on whether or not a manufacturer 
losing eligibility should be able to re-establish itself as 
operationally independent in a future year and over what period of time 
they would need to meet the criteria to again be eligible. EPA requests 
comments on, for example, whether or not a manufacturer meeting the 
criteria for three to five consecutive years should be allowed to again 
be considered operationally independent.
6. Nitrous Oxide, Methane, and CO2-equivalent Approaches
a. Standards and Flexibility
    For light-duty vehicles, as part of the MY 2012-2016 rulemaking, 
EPA finalized standards for nitrous oxide (N2O) of 0.010 g/
mile and methane (CH4) of 0.030 g/mile for MY 2012 and

[[Page 74993]]

later vehicles. 75 FR at 25421-24. The light-duty vehicle standards for 
N2O and CH4 were established to cap emissions, 
where current levels are generally significantly below the cap. The cap 
would prevent future emissions increases, and were generally not 
expected to result in the application of new technologies or 
significant costs for the manufacturers for current vehicle designs. 
EPA also finalized an alternative CO2 equivalent standard 
option, which manufacturers may choose to use in lieu of complying with 
the N2O and CH4 cap standards. The 
CO2-equivalent standard option allows manufacturers to fold 
all 2-cycle weighted N2O and CH4 emissions, on a 
CO2-equivalent basis, along with CO2 into their 
CO2 emissions fleet average compliance level.\236\ The 
applicable CO2 fleet average standard is not adjusted to 
account for the addition of N2O and CH4. For 
flexible fueled vehicles, the N2O and CH4 
standards must be met on both fuels (e.g., both gasoline and E-85).
---------------------------------------------------------------------------

    \236\ The global warming potentials (GWP) used in this rule are 
consistent with the 100-year time frame values in the 2007 
Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment 
Report (AR4). At this time, the 100-year GWP values from the 1996 
IPCC Second Assessment Report (SAR) are used in the official U.S. 
greenhouse gas inventory submission to the United Nations Framework 
Convention on Climate Change (per the reporting requirements under 
that international convention, which were last updated in 2006) . 
N2O has a 100-year GWP of 298 and CH4 has a 
100-year GWP of 25 according to the 2007 IPCC AR4.
---------------------------------------------------------------------------

    After the light-duty standards were finalized, manufacturers raised 
concerns that for a few of the vehicle models in their existing fleet 
they were having difficulty meeting the N2O and/or 
CH4 standards, in the near-term. In such cases, 
manufacturers would still have the option of complying using the 
CO2 equivalent alternative. On a CO2 equivalent 
basis, folding in all N2O and CH4 emissions could 
add up to 3-4 g/mile to a manufacturer's overall fleet-average 
CO2 emissions level because the alternative standard must be 
used for the entire fleet, not just for the problem vehicles. The 3-4 
g/mile assumes all emissions are actually at the level of the cap. See 
75 FR at 74211. This could be especially challenging in the early years 
of the program for manufacturers with little compliance margin because 
there is very limited lead time to develop strategies to address these 
additional emissions. Some manufacturers believe that the current 
CO2-equivalent fleet-wide option ``penalizes'' them by 
requiring them to fold in both CH4 and N2O 
emissions for their entire fleet, even if they have difficulty meeting 
the cap on only one vehicle model.
    In response to these concerns, as part of the heavy-duty GHG 
rulemaking, EPA requested comment on and finalized provisions allowing 
manufacturers to use CO2 credits, on a CO2-
equivalent basis, to meet the light-duty N2O and 
CH4 standards.\237\ Manufacturers have the option of using 
CO2 credits to meet N2O and CH4 
standards on a test group basis as needed for MYs 2012-2016. In their 
public comments to the proposal in the heavy-duty package, 
manufacturers urged EPA to extend this flexibility indefinitely, as 
they believed this option was more advantageous than the 
CO2-equivalent fleet wide option (discussed previously) 
already provided in the light-duty program, because it allowed 
manufacturers to address N2O and CH4 separately 
and on a test group basis, rather than across their whole fleet. 
Further, manufacturers believed that since this option is allowed under 
the heavy-duty standards, allowing it indefinitely in the light-duty 
program would make the light- and heavy-duty programs more consistent. 
In the Final Rule for Heavy-Duty Vehicles, EPA noted that it would 
consider this issue further in the context of new standards for MYs 
2017-2025 in the planned future light-duty vehicle rulemaking. 76 FR at 
57194.
---------------------------------------------------------------------------

    \237\ See 76 FR at 57193-94.
---------------------------------------------------------------------------

    EPA has further considered this issue and is proposing to allow the 
additional option of using CO2 credits to meet the light-
duty vehicle N2O and CH4 standards to extend for 
all model years beyond MY 2016. EPA understands manufacturer concerns 
that if they use the CO2-equivalent option for meeting the 
GHG standards, they would be penalized by having to incorporate all 
N2O and CH4 emissions across their entire fleet 
into their CO2-equivalent fleet emissions level 
determination. EPA continues to believe that allowing CO2 
credits to meet CH4 and N2O standards on a 
CO2-equivalent basis is a reasonable approach to provide 
additional flexibility without diminishing overall GHG emissions 
reductions.
    EPA is also requesting comments on establishing an adjustment to 
the CO2-equivalent standard for manufacturers selecting the 
CO2-equivalent option established in the MY 2012-2016 
rulemaking. Manufacturers would continue to be required to fold in all 
of their CH4 and N2O emissions, along with 
CO2, into their CO2-equivalent levels. They would 
then apply the agency-established adjustment factor to the 
CO2-equivalent standard. For example, if the adjustment for 
CH4 and N2O combined was 1 to 2 g/mile 
CO2-equivalent (taking into account the GWP of 
N2O and CH4), manufacturers would determine their 
CO2 fleet emissions standard and add the 1 to 2 g/mile 
adjustment factor to it to determine their CO2-equivalent 
standard. The adjustment factor would slightly increase the amount of 
allowed fleet average CO2-equivalent emissions for the 
manufacturer's fleet. The purpose of this adjustment would be so 
manufacturers do not have to offset the typical N2O and 
CH4 vehicle emissions, while holding manufacturers 
responsible for higher than average N2O and CH4 
emissions levels.
    At this time, EPA is not proposing an adjustment value due to a 
current lack of N2O test data on which to base the 
adjustment for N2O. As discussed below, EPA and 
manufacturers are currently evaluating N2O measurement 
equipment and insufficient data is available at this time on which to 
base an appropriate adjustment. For CH4, manufacturers 
currently provide data during certification, and based on current 
vehicle data a fleet-wide adjustment for CH4 in the range of 
0.14 g/mile appears to be appropriate.\238\ EPA requests comments on 
this concept and requests city and highway cycle N2O data on 
current Tier 2 vehicles which could help serve as the basis for the 
adjustment.
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    \238\ Average city/highway cycle CH4 emissions based 
on MY2010-2012 gasoline vehicles certification data is about 0.0056 
g/mile; multiplied by the methane GWP of 25, this level would result 
in a 0.14 g/mile adjustment. See memo to the docket, ``Analysis of 
Methane (CH4) Certification Data for Model Year 2010-2012 
Vehicles.''
---------------------------------------------------------------------------

    EPA continues to believe that it would not be appropriate to base 
the adjustment on the cap standards because such an approach could have 
the effect of undermining the stringency of the CO2 
standards, as many vehicles would likely have CH4 and 
N2O levels much lower than the cap standards. EPA believes 
that if an appropriate adjustment could be developed and applied, it 
would help alleviate manufacturers' concerns discussed above and make 
the CO2-equivalent approach a more viable option.
b. N2O Measurement
    For the N2O standard, EPA finalized provisions in the MY 
2012-2016 rule allowing manufacturers to support an application for a 
certificate by supplying a compliance statement based on good 
engineering judgment, in lieu of N2O test data, through MY 
2014. EPA required N2O testing starting with MY 2015. See 75 
FR at 25423. This flexibility provided manufacturers with lead time 
needed to make necessary

[[Page 74994]]

facilities changes and install N2O measurement equipment.
    Since the final rule, manufacturers have raised concerns that the 
lead-time provided to begin N2O measurement is not 
sufficient, as their research and evaluation of N2O 
measurement instrumentation has involved a greater level of effort than 
previously expected. There are several analyzers available today for 
the measurement of N2O. Over the last year since the MY 
2012-2016 standards were finalized, EPA has continued to evaluate 
instruments for N2O measurement and now believes instruments 
not evaluated during the 2012-2016 rulemaking have the potential to 
provide more precise emissions measurement and believe it would be 
prudent to provide manufacturers with additional time to evaluate, 
procure, and install equipment in their test cells.\239\ Therefore, EPA 
believes that the manufacturer's concerns about the need for additional 
lead-time have merit, and is proposing to extend the ability for 
manufacturers to use compliance statements based on good engineering 
judgment in lieu of test data through MY 2016. Beginning in MY 2017, 
manufacturers would be required to measure N2O emissions to 
verify compliance with the standard. This approach, if finalized, will 
provide the manufacturers with two additional years of lead-time to 
evaluate, procure, and install N2O measurement systems 
throughout their certification laboratories.
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    \239\ ``Data from the evaluation of instruments that measure 
Nitrous Oxide (N2O),'' Memorandum from Chris Laroo to 
Docket EPA-HQ-OAR-2010-0799, October 31, 2011.
---------------------------------------------------------------------------

7. Small Entity Exemption
    In the MY 2012-2016 rule, EPA exempted entities from the GHG 
emissions standard, if the entity met the Small Business Administration 
(SBA) size criteria of a small business as described in 13 CFR 
121.201.\240\ This includes both U.S.-based and foreign small entities 
in three distinct categories of businesses for light-duty vehicles: 
small manufacturers, independent commercial importers (ICIs), and 
alternative fuel vehicle converters. EPA is proposing to continue this 
exemption for the MY 2017-2025 standards. EPA will instead consider 
appropriate GHG standards for these entities as part of a future 
regulatory action.
---------------------------------------------------------------------------

    \240\ See final regulations at 40 CFR 86.1801-12(j).
---------------------------------------------------------------------------

    EPA has identified about 21 entities that fit the Small Business 
Administration (SBA) size criterion of a small business. EPA estimates 
there currently are approximately four small manufacturers including 
three electric vehicle small manufacturers that have recently entered 
the market, eight ICIs, and nine alternative fuel vehicle converters in 
the light-duty vehicle market. EPA estimates that these small entities 
comprise less than 0.1 percent of the total light-duty vehicle sales in 
the U.S., and therefore the exemption will have a negligible impact on 
the GHG emissions reductions from the standards. Further detail 
regarding EPA's assessment of small businesses is provided in 
Regulatory Flexibility Act Section III.J.3.
    At least one small business manufacturer, Fisker Automotive, in 
discussions with EPA, has suggested that small businesses should have 
the option of voluntarily opting-in to the GHG standards. This 
manufacturer sells electric vehicles, and sees a potential market for 
selling credits to other manufacturers. EPA believes that there could 
be several benefits to this approach, as it would allow small 
businesses an opportunity to generate revenue to offset their 
technology investments and encourage commercialization of the 
innovative technology, and it would benefit any manufacturer seeking 
those credits to meet their compliance obligations. EPA is proposing to 
allow small businesses to waive their small entity exemption and opt-in 
to the GHG standards. Upon opting in, the manufacturer would be subject 
to all of the requirements that would otherwise be applicable. This 
would allow small entity manufacturers to earn CO2 credits 
under the program, which may be an especially attractive option for the 
new electric vehicle manufacturers entering the market. EPA proposes to 
make the opt-in available starting in MY 2014, as the MY 2012, and 
potentially the MY 2013, certification process will have already 
occurred by the time this rulemaking is finalized. EPA is not proposing 
to retroactively certify vehicles that have already been produced. 
However, EPA proposes that manufacturers certifying to the GHG 
standards for MY 2014 would be eligible to generate credits for 
vehicles sold in MY 2012 and MY 2013 based on the number of vehicles 
sold and the manufacturer's footprint-based standard under the primary 
program that would have otherwise applied to the manufacturer if it 
were a large manufacturer. This approach would be similar to that used 
by EPA for early credits generated in MYs 2009-2011, where 
manufacturers did not certify vehicles to CO2 standards in 
those years but were able to generate credits. See 75 FR at 25441. EPA 
believes it is appropriate to provide these credits to small entities, 
as the credits would be available to large manufacturers producing 
similar vehicles, and the credits further encourage manufacturers of 
advanced technology vehicles such as EVs. In addition to benefiting 
these small businesses, this option also has the potential to expand 
the pool of credits available to be purchased by other manufacturers. 
EPA proposes that manufacturers waiving their small entity exemption 
would be required to meet all aspects of the GHG standards and program 
requirements across their entire product line. EPA requests comments on 
the small business provisions described above.
8. Additional Leadtime Issues
    The 2012-2016 GHG vehicle standards include Temporary Leadtime 
Allowance Alternative Standards (TLAAS) which provide alternative 
standards to certain intermediate sized manufacturers (those with U.S. 
sales between 5,000 and 400,000 during model year 2009) to accommodate 
two situations: manufacturers which traditionally paid fines instead of 
complying with CAFE standards, and limited line manufacturers facing 
special compliance challenges due to less flexibility afforded by 
averaging, banking and trading. See 75 FR at 25414-416. EPA is not 
proposing to continue this program for MYs 2017-2025. First, the 
allowance was premised on the need to provide adequate lead time, given 
the (at the time the rule was finalized) rapidly approaching MY 2012 
deadline, and given that manufacturers were transitioning from a CAFE 
regime that allows fine-paying, to a Clean Air Act regime that does 
not. That concern is no longer applicable, given that there is ample 
lead time before the MY 2017 standards. More important, the Temporary 
Lead Time Allowance was just that--temporary--and EPA provided it to 
allow manufacturers to transition to full compliance in later model 
years. See 75 FR at 25416. EPA is thus not proposing to continue this 
provision.
    In the context of the increasing stringency of standards in the 
latter phase of the program (e.g., MY 2022-2025), one manufacturer 
suggested that EPA should consider providing limited line, intermediate 
volume manufacturers additional time to phase into the standards. The 
concern raised is that such limited line manufacturers face unique 
challenges securing competitive supplier contracts for new 
technologies, and have fewer vehicle lines to allocate the necessary 
upfront investment and risk inherent with new technology introduction. 
This

[[Page 74995]]

manufacturer believes that as the standards become increasingly 
stringent in future years requiring the investment in new or advanced 
technologies, intermediate volume limited line manufacturers may have 
to pay a premium to gain access to these technologies which would put 
them at a competitive disadvantage. EPA seeks comment on this issue, 
and whether there is a need to provide some type of additional leadtime 
for intermediate volume limited line manufacturers to meet the latter 
year standards.
    In the context of the increasing stringency of standards starting 
in MY 2017, as discussed, EPA is not proposing a continuation of the 
TLAAS. TLAAS was available to firms with a wide range of U.S. sales 
volumes (between 5,000 and 400,000 in MY 2009). One company with U.S. 
sales on the order of 25,000 vehicles per year has indicated that it 
believes that the CO2 standards in today's proposal for MY 
2017-2025 would present significant technical challenges for their 
company, due to the relatively small volume of products it sells in the 
U.S., limited ability to average across their limited line fleet, and 
the performance-oriented nature of its vehicles. This firm indicated 
that absent access several years in advance to CO2 credits 
that it could purchase from other firms, this firm would need to 
significantly change the types of products they currently market in the 
U.S. beginning in model year 2017, even if it adds substantial 
CO2 reducing technology to its vehicles. EPA requests 
comment on the potential need to include additional flexibilities for 
companies with U.S. vehicle sales on the order of 25,000 units per 
year, and what types of additional flexibilities would be appropriate. 
Potential flexibilities could include an extension of the TLAAS program 
for lower volume companies, or a one-to-three year delay in the 
applicable model year standard (e.g., the proposed MY 2017 standards 
could be delayed to begin in MY 2018, MY 2019, or MY 2020). Commenters 
suggesting that additional flexibilities may be needed are encouraged 
to provide EPA with data supporting their suggested flexibilities.
9. Police and Emergency Vehicle Exemption From CO2 Standards
    Under EPCA, manufacturers are allowed to exclude police and other 
emergency vehicles from their CAFE fleet and all manufacturers that 
produce emergency vehicles have historically done so. EPA received 
comments in the MY 2012-2016 rulemaking that these vehicles should be 
exempt from the GHG emissions standards and EPA committed to further 
consider the issue in a future rulemaking.\241\ After further 
consideration of this issue, EPA proposes to exempt police and other 
emergency vehicles from the CO2 standards starting in MY 
2012.\242\ EPA believes it is appropriate to provide an exemption for 
these vehicles because of the unique features of vehicles designed 
specifically for law enforcement and emergency response purposes, which 
have the effect of raising their GHG emissions, as well as for purposes 
of harmonization with the CAFE program. EPA proposes to exempt vehicles 
that are excluded under EPCA and NHTSA regulations which define 
emergency vehicle as ``a motor vehicle manufactured primarily for use 
as an ambulance or combination ambulance-hearse or for use by the 
United States Government or a State or local government for law 
enforcement, or for other emergency uses as prescribed by regulation by 
the Secretary of Transportation.'' \243\
---------------------------------------------------------------------------

    \241\ 75 FR 25409.
    \242\ Manufacturers would exclude police and emergency vehicles 
from fleet average calculations (both for determining fleet 
compliance levels and fleet standards) starting in MY 2012. Because 
this would have the effect of making the fleet standards easier to 
meet for manufacturers, EPA does not believe there would be lead 
time issues associated with the exemption, even though it would take 
effect well into MY 2012.
    \243\ 49 U.S.C. 32902(e).
---------------------------------------------------------------------------

    The unique features of these vehicles result in significant added 
weight including: heavy-duty suspensions, stabilizer bars, heavy-duty/
dual batteries, heavy-duty engine cooling systems, heavier glass, 
bullet-proof side panels, and high strength sub-frame. Police pursuit 
vehicles are often equipped with specialty steel rims and increased 
rolling resistance tires designed for high speeds, and unique engine 
and transmission calibrations to allow high-power, high-speed chases. 
Police and emergency vehicles also have features that tend to reduce 
aerodynamics, such as emergency lights, increased ground clearance, and 
heavy-duty front suspensions.
    EPA is concerned that manufacturers may not be able to sufficiently 
reduce the emissions from these vehicles, and would be faced with a 
difficult choice of compromising necessary vehicle features or dropping 
vehicles from their fleets, as they may not have credits under the 
fleet averaging provisions necessary to cover the excess emissions from 
these vehicles as standards become more stringent. Without the 
exemption, there could be situations where a manufacturer is more 
challenged in meeting the GHG standards simply due to the inclusion of 
these higher emitting emergency vehicles. Technical feasibility issues 
go beyond those of other high-performance vehicles and there is a clear 
public need for law enforcement and emergency vehicles that meet these 
performance characteristics as these vehicles must continue to be made 
available in the market. MY 2012-2016 standards, as well as MY 2017 and 
later standards would be fully harmonized with CAFE regarding the 
treatment of these vehicles. EPA requests comments on its proposal to 
exempt emergency vehicles from the GHG standards.
10. Test Procedures
    EPA is considering revising the procedures for measuring fuel 
economy and calculating average fuel economy for the CAFE program, 
effective beginning in MY 2017, to account for three impacts on fuel 
economy not currently included in these procedures--increases in fuel 
economy because of increases in efficiency of the air conditioner; 
increases in fuel economy because of technology improvements that 
achieve ``off-cycle'' benefits; and incentives for use of certain 
hybrid technologies in full size pickup trucks, and for the use of 
other technologies that help those vehicles exceed their targets, in 
the form of increased values assigned for fuel economy. As discussed in 
section IV of this proposal, NHTSA would take these changes into 
account in determining the maximum feasible fuel economy standard, to 
the extent practicable. In this section, EPA discusses the legal 
framework for considering these changes, and the mechanisms by which 
these changes could be implemented. EPA invites comment on all aspects 
of this concept, and plans to adopt this approach in the final rule if 
it determines the changes are appropriate after consideration of all 
comments on these issues.
    These changes would be the same as program elements that are part 
of EPA's greenhouse gas performance standards, discussed in section 
III.B.1 and 2, above. EPA is considering adopting these changes for A/C 
efficiency and off-cycle technology because they are based on 
technology improvements that affect real world fuel economy, and the 
incentives for light-duty trucks will promote greater use of hybrid 
technology to improve fuel economy in these vehicles. In addition, 
adoption of these changes would lead to greater coordination between 
the greenhouse gas program under the CAA and the fuel economy program 
under EPCA. As discussed below, these three elements would be 
implemented in the same

[[Page 74996]]

manner as in the EPA's greenhouse gas program--a vehicle manufacturer 
would have the option to generate these fuel economy values for vehicle 
models that meet the criteria for these ``credits,'' and to use these 
values in calculating their fleet average fuel economy.
a. Legal Framework
    EPCA provides that:

    (c) Testing and calculation procedures. The Administrator [of 
EPA] shall measure fuel economy for each model and calculate average 
fuel economy for a manufacturer under testing and calculation 
procedures prescribed by the Administrator. However * * *, the 
Administrator shall use the same procedures for passenger 
automobiles the Administrator used for model year 1975 * * *, or 
procedures that give comparable results. 49 U.S.C. 32904(c)

    Thus, EPA is charged with developing and adopting the procedures 
used to measure fuel economy for vehicle models and for calculating 
average fuel economy across a manufacturer's fleet. While this 
provision provides broad discretion to EPA, it contains an important 
limitation for the measurement and calculation procedures applicable to 
passenger automobiles. For passenger automobiles, EPA has to use the 
same procedures used for model year 1975 automobiles, or procedures 
that give comparable results.\244\ This limitation does not apply to 
vehicles that are not passenger automobiles. The legislative history 
explains that:
---------------------------------------------------------------------------

    \244\ For purposes of this discussion, EPA need not determine 
whether the changes relating to A/C efficiency, off-cycle, and 
light-duty trucks involve changes to procedures that measure fuel 
economy or procedures for calculating a manufacturer's average fuel 
economy. The same provisions apply irrespective of which procedure 
is at issue. This discussion generally refers to procedures for 
measuring fuel economy for purposes of convenience, but the same 
analysis applies whether a measurement or calculation procedure is 
involved.

    Compliance by a manufacturer with applicable average fuel 
economy standards is to be determined in accordance with test 
procedures established by the EPA Administrator. Test procedures so 
established would be the procedures utilized by the EPA 
Administrator for model year 1975, or procedures which yield 
comparable results. The words ``or procedures which yield comparable 
results'' are intended to give EPA wide latitude in modifying the 
1975 test procedures to achieve procedures that are more accurate or 
easier to administer, so long as the modified procedure does not 
have the effect of substantially changing the average fuel economy 
standards. H.R. Rep. No. 94-340, at 91-92 (1975).\245\
---------------------------------------------------------------------------

    \245\ Unlike the House Bill, the Senate bill did not restrict 
EPA's discretion to adopt or revise test procedures. Senate Bill 
1883, section 503(6). However, the Senate Report noted that:
    The fuel economy improvement goals set in section 504 are based 
upon the representative driving cycles used by the Environmental 
Protection Agency to determine automobile fuel economies for model 
year 1975. In the event that these driving cycles are changed in the 
future, it is the intent of this legislation that the numerical 
miles per gallon values of the fuel economy standards be revised to 
reflect a stringency (in terms of percentage-improvement from the 
baseline) that is the same as the bill requires in terms of the 
present test procedures. S. Rep. No. 94-179, at 19 (1975).
    In Conference, the House version of the bill was adopted, which 
contained the restriction on EPA's authority.
---------------------------------------------------------------------------

    EPA measures fuel economy for the CAFE program using two different 
test procedures--the Federal Test Procedure (FTP) and the Highway Fuel 
Economy Test (HFET). These procedures originated in the early 1970's, 
and were intended to generally represent city and highway driving, 
respectively. These two tests are commonly referred to as the ``2-
cycle'' test procedures for CAFE. The FTP is also used for measuring 
compliance with CAA emissions standards for vehicle exhaust. EPA has 
made various changes to the city and highway fuel economy tests over 
the years. These have ranged from changes to dynamometers and other 
mechanical elements of testing, changes in test fuel properties, 
changes in testing conditions, to changes made in the 1990s when EPA 
adopted additional test procedures for exhaust emissions testing, 
called the Supplemental Federal Test Procedures (SFTP).
    When EPA has made changes to the FTP or HFET, we have evaluated 
whether it is appropriate to provide for an adjustment to the measured 
fuel economy results, to comply with the EPCA requirement for passenger 
cars that the test procedures produce results comparable to the 1975 
test procedures. These adjustments are typically referred to as a CAFE 
or fuel economy test procedure adjustment or adjustment factor. In 1985 
EPA evaluated various test procedure changes made since 1975, and 
applied fuel economy adjustment factors to account for several of the 
test procedure changes that reduced the measured fuel economy, 
producing a significant CAFE impact for vehicle manufacturers. 50 FR 
27172 (July 1, 1985). EPA defined this significant CAFE impact as any 
change or group of changes that has at least a one tenth of a mile per 
gallon impact on CAFE results. Id. at 27173. EPA also concluded in this 
proceeding that no adjustments would be provided for changes that 
removed the manufacturer's ability to take advantage of flexibilities 
in the test procedure and derive increases in measured fuel economy 
values which were not the result of design improvements or marketing 
shifts, and which would not result in any improvement in real world 
fuel economy. EPA likewise concluded that test procedure changes that 
provided manufacturers with an improved ability to achieve increases in 
measured fuel economy based on real world fuel economy improvements 
also would not warrant a CAFE adjustment. Id. at 27172, 27174, 27183. 
EPA adopted retroactive adjustments that had the effect of increasing 
measured fuel economy (to offset test procedure changes that reduced 
the measured fuel economy level) but declined to apply retroactive 
adjustments that reduced fuel economy.
    The DC Circuit reviewed two of EPA's decisions on CAFE test 
procedure adjustments. Center for Auto Safety et al. v. Thomas, 806 
F.2d 1071 (1986). First, the Court rejected EPA's decision to apply 
only positive retroactive adjustments, as the appropriateness of an 
adjustment did not depend on whether it increased or decreased measured 
fuel economy results. Second, the Court upheld EPA's decision to not 
apply any adjustment for the change in the test setting for road load 
power. The 1975 test procedure provided a default setting for road load 
power, as well as an optional, alternative method that allowed a 
manufacturer to develop an alternative road load power setting. The 
road load power setting affected the amount of work that the engine had 
to perform during the test, hence it affected the amount of fuel 
consumed during the test and the measured fuel economy. EPA changed the 
test procedure by replacing the alternative method in the 1975 
procedure with a new alternative coast down procedure. Both the 
original and the replacement alternative procedures were designed to 
allow manufacturers to obtain the benefit of vehicle changes, such as 
changes in aerodynamic design, that improved real world fuel economy by 
reducing the amount of work that the engine needed to perform to move 
the vehicle. The Center for Auto Safety (CAS) argued that EPA was 
required to provide a test procedure adjustment for the new alternative 
coast down procedure as it increased measured fuel economy compared to 
the values measured for the 1975 fleet. In 1975, almost no 
manufacturers made use of the then available alternative method, while 
in later years many manufacturers made use of the option once it was 
changed to the coast down procedure. CAS argued this amounted to a 
change in test procedure that did not achieve comparable results, and 
therefore

[[Page 74997]]

required a test procedure adjustment. CAS did not contest that the 
coast down method and the prior alternative method achieved comparable 
results.
    The DC Circuit rejected CAS' arguments, stating that:

    The critical fact is that a procedure that credited reductions 
in a vehicle's road load power requirements achieved through 
improved aerodynamic design was available for MY1975 testing, and 
those manufacturers, however few in number, that found it 
advantageous to do so, employed that procedure. The manifold intake 
procedure subsequently became obsolete for other reasons, but its 
basic function, to measure real improvements in fuel economy through 
more aerodynamically efficient designs, lived on in the form of the 
coast down technique for measuring those aerodynamic improvements. 
We credit the EPA's finding that increases in measured fuel economy 
because of the lower road load settings obtainable under the coast 
down method, were increases ``likely to be observed on the road,'' 
and were not ``unrepresentative artifact[s] of the dynamometer test 
procedure.'' Such real improvements are exactly what Congress meant 
to measure when it afforded the EPA flexibility to change testing 
and calculating procedures. We agree with the EPA that no 
retroactive adjustment need be made on account of the coast down 
technique. Center for Auto Safety et al v. EPA, 806 F.2d 1071, 1077 
(DC Cir. 1986)

    Some years later, in 1996, EPA adopted a variety of test procedure 
changes as part of updating the emissions test procedures to better 
reflect real world operation and conditions. 61 FR 54852 (October 22, 
1996). EPA adopted new test procedures to supplement the FTP, as well 
as modifications to the FTP itself. For example, EPA adopted a new 
supplemental test procedure specifically to address the impact of air 
conditioner use on exhaust emissions. Since this new test directly 
addressed the impact of A/C use on emissions, EPA removed the specified 
A/C horsepower adjustment that had been in the FTP since 1975. Id. at 
54864, 54873. Later EPA determined that there was no need for CAFE 
adjustments for the overall set of test procedures changes to the FTP, 
as the net effect of the changes was no significant change in CAFE 
results.
    As evidenced by this regulatory history, EPA's traditional approach 
is to consider the impact of potential test procedure changes on CAFE 
results for passenger automobiles and determine if a CAFE adjustment 
factor is warranted to meet the requirement that the test procedure 
produce results comparable to the 1975 test procedure. This involves 
evaluating the magnitude of the impact on measured fuel economy 
results. It also involves evaluating whether the change in measured 
fuel economy reflects real word fuel economy impacts from changes in 
technology or design, or whether it is an artifact of the test 
procedure or test procedure flexibilities such that the change in 
measured fuel economy does not reflect a real world fuel economy 
impact.
    In this case, allowing credits for improvements in air conditioner 
efficiency and off-cycle efficiency for passenger cars would lead to an 
increase (i.e., improvement) in the fuel economy results for the 
vehicle model. The impact on fuel economy and CAFE results clearly 
could be greater than one tenth of a mile per gallon (the level that 
EPA has previously indicated as having a substantial impact). The 
increase in fuel economy results would reflect real world improvements 
in fuel economy and not changes that are just artifacts of the test 
procedure or changes that come from closing a loophole or removing a 
flexibility in the current test procedure. However, these changes in 
procedure would not have the ``critical fact'' that the CAS Court 
relied upon--the existence of a 1975 test provision that was designed 
to account for the same kind of fuel economy improvements from changes 
in A/C or off-cycle efficiency. Under EPA's traditional approach, these 
changes would appear to have a significant impact on CAFE results, 
would reflect real world changes in fuel economy, but would not have a 
comparable precedent in the 1975 test procedure addressing the impact 
of these technology changes on fuel economy. EPA's traditional approach 
would be expected to lead to a CAFE adjustment factor for passenger 
cars to account for the impact of these changes.
    However, EPA is considering whether a change in approach is 
appropriate based on the existence of similar EPA provisions for the 
greenhouse gas emissions procedures and standards. In the past, EPA has 
determined whether a CAFE adjustment factor for passenger cars would be 
appropriate in a context where manufacturers are subject to a CAFE 
standard under EPCA and there is no parallel greenhouse gas standard 
under the CAA. That is not the case here, as MY2017-2025 passenger cars 
will be subject to both CAFE and greenhouse gas standards. As such, EPA 
is considering whether it is appropriate to consider the impact of a 
CAFE procedure change in this broader context standard.
    The term ``comparable results'' is not defined in section 32904(c), 
and the legislative history indicates that it is intended to address 
changes in procedure that result in a substantial change in the average 
fuel economy standard. As explained above, EPA has considered a change 
of one-tenth of a mile per gallon as having a substantial impact, based 
in part on the one tenth of a mile per gallon rounding convention in 
the statute for CAFE calculations. 48 FR 56526, 56528 fn.14 (December 
21, 1983). A change in the procedure that changes fuel economy results 
to this or a larger degree has the effect of changing the stringency of 
the CAFE standard, either making it more or less stringent. A change in 
stringency of the standard changes the burden on the manufacturers, as 
well as the fuel savings and other benefits to society expected from 
the standard. A CAFE adjustment factor is designed to account for these 
impacts.
    Here, however, there is a companion EPA standard for greenhouse gas 
emissions. In this case, the changes would have an impact on the fuel 
economy results and therefore the stringency of the CAFE standard, but 
would not appear to have a real world impact on the burden placed on 
the manufacturers, as the provisions would be the same as provisions in 
EPA's greenhouse gas standards. Similarly it would not appear to have a 
real world impact on the fuel savings and other benefits of the 
National Program which would remain identical. If that is the case, 
then it would appear reasonable to interpret section 32904(c) in these 
circumstances as not restricting these changes in procedure for 
passenger automobiles. The fuel economy results would be considered 
``comparable results'' to the 1975 procedure as there would not be a 
substantial impact on real world CAFE stringency and benefits, given 
the changes in procedure are the same as provisions in EPA's companion 
greenhouse gas procedures and standards. EPA invites comment on this 
approach to interpreting section 32904(c), as well as the view that 
this would not have a substantial impact on either the burden on 
manufacturers or the benefits of the National Program.
    EPA is also considering an alternative interpretation. Under this 
interpretation, the reference to the 1975 procedures in section 
32904(c) would be viewed as a historic reference point, and not a 
codification of any specific procedures or fuel economy improvement 
technologies. The change in procedure would be considered within EPA's 
broad discretion to prescribe reasonable testing and calculation 
procedures, as these changes reflect real world improvements in design 
and accompanying real world improvements in fuel economy. The changes 
in procedure would reflect real world fuel

[[Page 74998]]

economy improvements and increase harmonization with EPA's greenhouse 
gas program. Since the changes in procedure have an impact on fuel 
economy results and could have an impact on the stringency of the CAFE 
standard, EPA could consider two different approaches to offsetting the 
change in stringency.
    In one approach EPA could maintain the stringency of the 2-cycle 
(FTP and HFET) CAFE standard by adopting a corresponding adjustment 
factor to the test results, ensuring that the stringency of the CAFE 
standard was not substantially changed by the change in procedure. This 
would be the traditional approach EPA has followed. Another approach 
would be for NHTSA to maintain the stringency of the 2-cycle CAFE 
standard by increasing that standard's stringency to offset any 
reduction in stringency associated with changes that increase fuel 
economy values. The effect of this adjustment to the standard would be 
to maintain at comparable levels the amount of CAFE to be achieved 
using technology whose effects on fuel economy are accounted for as 
measured under the 1975 test procedures. The effect of the adjustment 
to the standard would also typically be an additional amount of CAFE 
that would have to be achieved, for example by technology whose effects 
on fuel economy are not accounted for under the 1975 test procedures. 
Under this interpretation, this would maintain the level of stringency 
of the 2-cycle CAFE standard that would be adopted for passenger cars 
absent the changes in procedure. As with the interpretation discussed 
above, this alternative interpretation would be a major change from 
EPA's past interpretation and practice. In this joint rulemaking the 
alternative interpretation would apply to changes in procedure that are 
the same as the companion EPA greenhouse gas program. However, that 
would not be an important element in this alternative interpretation, 
which would apply irrespective of the similarity with EPA's greenhouse 
gas procedures and standards. EPA invites comment on this alternative 
interpretation.
    The discussion above focuses on the procedures for passenger cars, 
as section 32904(c) only limits changes to the CAFE test and 
calculation procedures for these automobiles. There is no such 
limitation on the procedures for light-trucks. The credit provisions 
for improvements in air conditioner efficiency and off-cycle 
performance would apply to light-trucks as well. In addition, the 
limitation in section 32904(c) does not apply to the provisions for 
credits for use of hybrids in light-trucks, if certain criteria are 
met, as these provisions apply to light-trucks and not passenger 
automobiles.
b. Implementation of This Approach
    As discussed in section IV, NHTSA would take these changes in 
procedure into account in setting the applicable CAFE standards for 
passenger cars and light-trucks, to the extent practicable. As in EPA's 
greenhouse gas program, the allowance of AC credits for cars and trucks 
results in a more stringent CAFE standard than otherwise would apply 
(although in the CAFE program the AC credits would only be for AC 
efficiency improvements, since refrigerant improvements do not impact 
fuel economy). The allowance of off-cycle credits has been considered 
in setting the CAFE standards for passenger car and light-trucks and 
credits for hybrid use in light pick-up trucks has not been expressly 
considered in setting the CAFE standards for light-trucks, because the 
agencies did not believe that it was possible to quantify accurately 
the extent to which manufacturers would rely on those credits, but if 
more accurate quantification were possible, NHTSA would consider 
incorporating those incentives into its stringency determination.
    EPA further discusses the criteria and test procedures for 
determining AC credits, off-cycle technology credits, and hybrid/
performance-based credits for full size pickup trucks in Section III.C 
below.

C. Additional Manufacturer Compliance Flexibilities

1. Air Conditioning Related Credits
    A/C is virtually standard equipment in new cars and trucks today. 
Over 95% of the new cars and light trucks in the United States are 
equipped with A/C systems. Given the large number of vehicles with A/C 
in use in today's light duty vehicle fleet, their impact on the amount 
of energy consumed and on the amount of refrigerant leakage that occurs 
due to their use is significant.
    EPA proposes that manufacturers be able to comply with their 
fleetwide average CO2 standards described above by 
generating and using credits for improved (A/C) systems. Because such 
improved A/C technologies tend to be relatively inexpensive compared to 
other GHG-reducing technologies, EPA expects that most manufacturers 
would choose to generate and use such A/C compliance credits as a part 
of their compliance demonstrations. For this reason, EPA has 
incorporated the projected costs of compliance with A/C related 
emission reductions into the overall cost analysis for the program. As 
discussed in section II.F, and III.B.10, EPA, in coordination with 
NHTSA, is also proposing that manufacturers be able to include fuel 
consumption reductions resulting from the use of A/C efficiency 
improvements in their CAFE compliance calculations. Manufacturers would 
generate ``fuel consumption improvement values'' essentially equivalent 
to EPA CO2 credits, for use in the CAFE program. The 
proposed changes to the CAFE program to incorporate A/C efficiency 
improvements are discussed below in section III.C.1.b.
    As in the 2012-2016 final rule, EPA is structuring the A/C 
provisions as optional credits for achieving compliance, not as 
separate standards. That is, unlike standards for N2O and 
CH4, there are no separate GHG standards related to AC 
related emissions. Instead, EPA provides manufacturers the option to 
generate A/C GHG emission reductions that could be used as part of 
their CO2 fleet average compliance demonstrations. As in the 
2012-2016 final rule, EPA also included projections of A/C credit 
generation in determining the appropriate level of the proposed 
standards.\246\
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    \246\ See Section II.F above and Section IV below for more 
information on the use of such credits in the CAFE program.
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    In the time since the analyses supporting the 2012-2016 FRM were 
completed, EPA has re-assessed its estimates of overall A/C emissions 
and the fraction of those emissions that might be controlled by 
technologies that are or will be available to manufacturers.\247\ As 
discussed in more detail in Chapter 5 of the Joint TSD (see Section 
5.1.3.2), the revised estimates remain very similar to those of the 
earlier rule. This includes the leakage of refrigerant during the 
vehicle's useful life, as well as the subsequent leakage associated 
with maintenance and servicing, and with disposal at the end of the 
vehicle's life (also called ``direct emissions''). The refrigerant 
universally used today is HFC-134a with a global warming potential 
(GWP) of 1,430.\248\ Together these leakage emissions are equivalent to 
CO2 emissions of 13.8 g/

[[Page 74999]]

mi for cars and 17.2 g/mi for trucks. (Due to the high GWP of HFC-134a, 
a small amount of leakage of the refrigerant has a much greater global 
warming impact than a similar amount of emissions of CO2 or 
other mobile source GHGs.) EPA also estimates that A/C efficiency-
related emissions (also called ``indirect'' A/C emissions), account for 
CO2-equivalent emissions of 11.9 g/mi for cars and 17.1 g/mi 
for trucks.\249\ Chapter 5 of the Joint TSD (see Section 5.1.3.2) 
discusses the derivation of these estimates.
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    \247\ The A/C-related emission inventories presented in this 
paragraph are discussed in Chapter 4 of the Draft RIA.
    \248\ The global warming potentials (GWP) used in this rule are 
consistent with the 100-year time frame values in the 2007 
Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment 
Report (AR4). At this time, the 1996 IPCC Second Assessment Report 
(SAR) 100-year GWP values are used in the official U.S. greenhouse 
gas inventory submission to the United Nations Framework Convention 
on Climate Change (per the reporting requirements under that 
international convention, which were last updated in 2006).
    \249\ Indirect emissions are additional CO2 emitted 
due to the load of the A/C system on the engine.
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    Achieving GHG reductions in the most cost-effective ways is a 
primary goal of the program, and EPA believes that allowing 
manufacturers to comply with the proposed standards by using credits 
generated from incorporating A/C GHG-reducing technologies is a key 
factor in meeting that goal.\250\ EPA accounts for projected reductions 
from A/C related credits in developing the standards (curve targets), 
and includes these emission reductions in estimating the achieved 
benefits of the program. See Section II.D above.
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    \250\ The recent GHG standards for medium and heavy duty 
vehicles included separate standards for A/C leakage, rather than a 
credit based approach. EPA did so because the quantity of these 
leakage emissions is small relative to CO2 emissions from 
driving and moving freight, so that a credit does not create 
sufficient incentive to adopt leakage controls. 76 FR at 57118; 75 
FR at 74211. EPA also did not adopt standards to control A/C leakage 
from vocational vehicles, and did not adopt standards to control 
indirect emissions from any medium or heavy duty vehicle for reasons 
explained at 75 FR 74211 and 74212.
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    Manufacturers can make very feasible improvements to their A/C 
systems to reduce leakage and increase efficiency. Manufacturers can 
reduce A/C leakage emissions by using components that tend to limit or 
eliminate refrigerant leakage. Also, manufacturers can significantly 
reduce the global warming impact of leakage emissions by adopting 
systems that use an alternative, low-GWP refrigerant, acceptable under 
EPA's SNAP program, as discussed below, especially if systems are also 
designed to minimize leakage.\251\ Manufacturers can also increase the 
overall efficiency of the A/C system and thus reduce A/C-related 
CO2 emissions. This is because the A/C system contributes to 
increased CO2 emissions through the additional work required 
to operate the compressor, fans, and blowers. This additional work 
typically is provided through the engine's crankshaft, and delivered 
via belt drive to the alternator (which provides electric energy for 
powering the fans and blowers) and the A/C compressor (which 
pressurizes the refrigerant during A/C operation). The additional fuel 
used to supply the power through the crankshaft necessary to operate 
the A/C system is converted into CO2 by the engine during 
combustion. This incremental CO2 produced from A/C operation 
can thus be reduced by increasing the overall efficiency of the 
vehicle's A/C system, which in turn will reduce the additional load on 
the engine from A/C operation.
---------------------------------------------------------------------------

    \251\ Refrigerant emissions during service, maintenance, repair, 
and disposal are also addressed by the CAA Title VI stratospheric 
ozone program, as described below.
---------------------------------------------------------------------------

    As with the earlier GHG rule, EPA is proposing two separate credit 
approaches to address leakage reductions and efficiency improvements 
independently. A leakage reduction credit would take into account the 
various technologies that could be used to reduce the GHG impact of 
refrigerant leakage, including the use of an alternative refrigerant 
with a lower GWP. An efficiency improvement credit would account for 
the various types of hardware and control of that hardware available to 
increase the A/C system efficiency. To generate credits toward 
compliance with the fleet average CO2 standard, 
manufacturers would be required to attest to the durability of the 
leakage reduction and the efficiency improvement technologies over the 
full useful life of the vehicle.
    EPA believes that both reducing A/C system leakage and increasing 
A/C efficiency would be highly cost-effective and technologically 
feasible for light-duty vehicles in the 2017-2025 timeframe. EPA 
proposes to maintain much of the existing framework for quantifying, 
generating, and using A/C Leakage Credits and Efficiency Credits. EPA 
expects that most manufacturers would choose to use these A/C credit 
provisions, although some may choose not to do so. Consistent with the 
2012-2016 final rule, the proposed standard reflects this projected 
widespread penetration of A/C control technology.
    The following table summarizes the maximum credits the EPA proposes 
to make available in the overall A/C program.

[[Page 75000]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.068

    The next table shows the credits on a model year basis that EPA 
projects that manufacturers will generate on average (starting with the 
ending values from the 2012-2016 final rule). In the 2012-2016 rule, 
the total average car and total average truck credits accounted for the 
difference between the GHG and CAFE standards.

[[Page 75001]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.069

    The year-on-year progression of credits was determined as follows. 
The credits are assumed to increase starting from their MY 2016 value 
at a rate approximately commensurate with the increasing stringency of 
the 2017-2025 GHG standards, but not exceeding a 20% penetration rate 
increase in any given year, until the maximum credits are achieved by 
2021. EPA expects that manufacturers would be changing over to 
alternative refrigerants at the time of complete vehicle redesign, 
which occurs about every 5 years, though in confidential meetings, some 
manufacturers/suppliers have informed EPA that a modification of the 
hardware for some alternative refrigerant systems may be able to be 
done between redesign periods. Given the significant number of credits 
for using low GWP refrigerants, as well as the variety of alternative 
refrigerants that appear to be available, EPA believes that a total 
phase-in of alternative refrigerants is likely to begin in the near 
future and be completed by no later than 2021 (as shown in Table III-13 
above). EPA requests comment on our assumptions for the phase-in rate 
for alternative refrigerants.
    The progression of the average credits (relative to the maximum) 
also defines the relative year-on-year costs as described in Chapter 3 
of the Joint TSD. The costs are proportioned by the ratio of the 
average credit in any given year to the maximum credit. This is nearly 
equivalent to proportioning costs to technology penetration rates as is 
done for all the other technologies. However because the maximum 
efficiency credits for cars and trucks have changed since the 2012-2016 
rule, proportioning to the credits provides a more realistic and 
smoother year-on-year sequencing of costs.\252\
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    \252\ In contrast, the technology penetration rates could have 
anomalous (and unrealistic) discontinuities that would be reflected 
in the cost progressions. This issue is only specific to A/C credits 
and costs and not to any other technology analysis in this proposal.
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    EPA seeks comment on all aspects of the A/C credit program, 
including changes from the current A/C credit program and the details 
in the Joint TSD.

[[Page 75002]]

a. Air Conditioning Leakage (``Direct'') Emissions and Credits
i. Quantifying A/C Leakage Credits for Today's Refrigerant
    As previously discussed, EPA proposes to continue the existing 
leakage credit program, with minor modifications. Although in general 
EPA continues to prefer performance-based standards whenever possible, 
A/C leakage is very difficult to accurately measure in a laboratory 
test, due to the typical slowness of such leaks and the tendency of 
leakage to develop unexpectedly as vehicles age. At this time, no 
appropriate performance test for refrigerant leakage is available. 
Thus, as in the existing MYs 2012-2016 program, EPA would associate 
each available leakage-reduction technology with associated leakage 
credit value, which would be added together to quantify the overall 
system credit, up to the maximum available credit. EPA's Leakage Credit 
method is drawn from the SAE J2727 method (HFC-134a Mobile Air 
Conditioning System Refrigerant Emission Chart, August 2008 version), 
which in turn was based on results from the cooperative ``IMAC'' 
study.\253\ EPA is proposing to incorporate several minor modifications 
that SAE is making to the J2727 method, but these do not affect the 
proposed credit values for the technologies. Chapter 5 of the joint TSD 
includes a full discussion of why EPA is proposing to continue the 
design-based ``menu'' approach to quantifying Leakage Credits, 
including definitions of each of the technologies associated with the 
values in the menu.
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    \253\ Society of Automotive Engineers, ``IMAC Team 1--
Refrigerant Leakage Reduction, Final Report to Sponsors,'' 2006. 
This document is available in Docket EPA-HQ-OAR-2010-0799.
---------------------------------------------------------------------------

    In addition to the above ``menu'' for vehicles using the current 
high-GWP refrigerant (HFC-134a), EPA also proposes to continue to 
provide the leakage credit calculation for vehicles using an 
alternative, lower-GWP refrigerant. This provision was also a part of 
the MYs 2012-2016 rule. As with the earlier rule, the agency is 
including this provision because shifting to lower-GWP alternative 
refrigerants would significantly reduce the climate-change concern 
about HFC-134a refrigerant leakage by reducing the direct climate 
impacts. Thus, the credit a manufacturer could generate is a function 
of the degree to which the GWP of an alternative refrigerant is less 
than that of the current refrigerant (HFC-134a).
    In recent years, the global industry has given serious attention 
primarily to three of the alternative refrigerants: HFO-1234yf, HFC-
152a, and carbon dioxide (R-744). Work on additional low GWP 
alternatives continues. HFO1234yf, has a GWP of 4, HFC-152a has a GWP 
of 124 and CO2 has a GWP of 1.\254\ Both HFC-152a and 
CO2 are produced commercially in large amounts and thus, 
supply of refrigerant is not a significant factor preventing 
adoption.\255\ HFC-152a has been shown to be comparable to HFC-134a 
with respect to cooling performance and fuel use in A/C systems.\256\
---------------------------------------------------------------------------

    \254\ IPCC 4th Assessment Report.
    \255\ The U.S. has one of the largest industrial quality 
CO2 production facilities in the world (Gale Group, 
2011). HFC-152a is used widely as an aerosol propellant in many 
commercial products and thus potentially available for refrigerant 
use in motor vehicle A/C. Production volume for non-confidential 
chemicals reported under the 2006 Inventory Update Rule. Chemical: 
Ethane, 1,1-difluoro-. Aggregated National Production Volume: 50 to 
<100 million pounds. [US EPA; Non-Confidential 2006 Inventory Update 
Reporting. National Chemical Information. Ethane, 1,1-difluoro- (75-
37-6). Available from, as of September 21, 2009: http://cfpub.epa.gov/iursearch/index.cfm?s=chem&err=t.
    \256\ United Nations Environment Program, Technology and 
Economic Assessment Panel, ``Assessment of HCFCs and Environmentally 
Sound Alternatives,'' TEAP 2010 Progress Report, Volume 1, May 2010. 
http://www.unep.ch/ozone/Assessment_Panels/TEAP/Reports/TEAP_Reports/teap-2010-progress-report-volume1-May2010.pdf. This document 
is available in Docket EPA-HQ-OAR-2010-0799.
---------------------------------------------------------------------------

    In the MYs 2012-2016 GHG rule, a manufacturer using an alternative 
refrigerant would receive no credit for leakage-reduction technologies. 
At that time, EPA believed that from the perspective of primary climate 
effect, leakage of a very low GWP refrigerant is largely irrelevant. 
However, there is now reason to believe that the need for repeated 
recharging (top-off) of A/C systems with another, potentially costly 
refrigerant could lead some consumers and/or repair facilities to 
recharge a system designed for use with an alternative, low GWP 
refrigerant with either HFC-134a or another high GWP refrigerant. 
Depending on the refrigerant, it may still be feasible, although not 
ideal, for systems designed for a low GWP refrigerant to operate on 
HFC-134a; in particular, the A/C system operating pressures for HFO-
1234yf and HFC-152a might allow their use. Thus, the need for repeated 
recharging in use could slow the transition away from the high-GWP 
refrigerant even though recharging with a refrigerant different from 
that already in the A/C system is not authorized under current 
regulations.\257\
---------------------------------------------------------------------------

    \257\ See appendix D to 40 CFR part 82, subpart G.
---------------------------------------------------------------------------

    For alternative refrigerant systems, EPA is proposing to add to the 
existing credit calculation approach for alternative-refrigerant 
systems a provision that would provide a disincentive for manufacturers 
if systems designed to operate with HFO-1234yf, HFC-152a, R744, or some 
other low GWP refrigerant incorporated fewer leakage-reduction 
technologies. A system with higher annual leakage could then be 
recharged with HFC-134a or another refrigerant with a GWP higher than 
that with which the vehicle was originally equipped (e.g., HFO-1234yf, 
CO2, or HFC-152a). Some stakeholders have suggested that EPA 
take precautions to address the potential for HFC-134a to replace HFO-
1234yf, for example, in vehicles designed for use with the new 
refrigerant (see comment and response section of EPA's SNAP rule on 
HFO-1234yf, 76 FR 17509; March 29, 2011).\258\ In EPA's proposed 
disincentive provision, manufacturers would avoid some or all of a 
deduction in their Leakage Credit of about 2 g/mi by maintaining the 
use of low-leak components after a transition to an alternative 
refrigerant.
---------------------------------------------------------------------------

    \258\ Regulations in Appendix D to Subpart G of 40 CFR part 82 
prohibit topping off the refrigerant in a motor vehicle A/C system 
with a different refrigerant.
---------------------------------------------------------------------------

ii. Issues Raised by a Potential Broad Transition to Alternative 
Refrigerants
    As described previously, use of alternative, lower-GWP refrigerants 
for mobile use reduces the climate effects of leakage or release of 
refrigerant through the entire life-cycle of the A/C system. Because 
the impact of direct emissions of such refrigerants on climate is 
significantly less than that for the current refrigerant HFC-134a, 
release of these refrigerants into the atmosphere through direct 
leakage, as well as release due to maintenance or vehicle scrappage, is 
predictably less of a concern than with the current refrigerant. As 
discussed above, there remains a concern, even with a low-GWP 
refrigerant, that some repairs may repeatedly result in the replacement 
of the lower-GWP refrigerant from a leaky A/C system with a readily-
available, inexpensive, high-GWP refrigerant.
    For a number of years, the automotive industry has explored lower-
GWP refrigerants and the systems required for them to operate 
effectively and efficiently, taking into account refrigerant costs, 
toxicity, flammability, environmental impacts, and A/C system costs, 
weight, complexity, and efficiency. European Union regulations require 
a transition to alternative refrigerants with a GWP of 150 or less for 
motor vehicle air conditioning. The European Union's Directive on 
mobile

[[Page 75003]]

air-conditioning systems (MAC Directive \259\) aims at reducing 
emissions of specific fluorinated greenhouse gases in the air-
conditioning systems fitted to passenger cars (vehicles under EU 
category M1) and light commercial vehicles (EU category N1, class 1).
---------------------------------------------------------------------------

    \259\ 2006/40/EC.
---------------------------------------------------------------------------

    The main objectives of the EU MAC Directive are: to control leakage 
of fluorinated greenhouse gases with a global warming potential (GWP) 
higher than 150 used in this sector; and to prohibit by a specified 
date the use of higher GWP refrigerants in MACs. The MAC Directive is 
part of the European Union's overall objectives to meet commitments 
made under the UNFCCC's Kyoto Protocol. This transition starts with new 
car models in 2011 and continues with a complete transition to 
manufacturing all new cars with low GWP refrigerant by January 1, 2017.
    One alternative refrigerant has generated significant interest in 
the automobile manufacturing industry and it appears likely to be used 
broadly in the near future for this application. This refrigerant, 
called HFO-1234yf, has a GWP of 4. The physical and thermodynamic 
properties of this refrigerant are similar enough to HFC-134a that auto 
manufacturers would need to make relatively minor technological changes 
to their vehicle A/C systems in order to manufacture and market 
vehicles capable of using HFO-1234yf. Although HFO-1234yf is flammable, 
it requires a high amount of energy to ignite, and is expected to have 
flammability risks that are not significantly different from those of 
HFC-134a or other refrigerants found acceptable subject to use 
conditions (76 FR 17494-17496, 17507; March 29, 2011).
    There are some drawbacks to the use of HFO-1234yf. Some 
technological changes, such as the addition of an internal heat 
exchanger in the A/C system, may be necessary to use HFO-1234yf. In 
addition, the anticipated cost of HFO-1234yf is several times that of 
HFC-134a. At the time that EPA's Significant New Alternatives Policy 
(SNAP) program issued its determination allowing the use of HFO-1234yf 
in motor vehicle A/C systems, the agency cited estimated costs of $40 
to $60 per pound, and stated that this range was confirmed by an 
automobile manufacturer (76 FR 17491; March 29, 2011) and a component 
supplier.\260\ By comparison, HFC-134a currently costs about $2 to $4 
per pound.\261\ The higher cost of HFO-1234yf is largely because of 
limited global production capability at this time. However, because it 
is more complicated to produce the molecule for HFO-1234yf, it is 
unlikely that it will ever be as inexpensive as HFC-134a is currently. 
In Chapter 5 of the TSD (see Section 5.1.4), the EPA has accounted for 
this additional cost of both the refrigerant as well as the hardware 
upgrades.
---------------------------------------------------------------------------

    \260\ Automotive News, April 18, 2011.21.
    \261\ Ibid.
---------------------------------------------------------------------------

    Manufacturers have seriously considered other alternative 
refrigerants in recent years. One of these, HFC-152a, has a GWP of 
124.\262\ HFC-152a is produced commercially in large amounts.\263\ HFC-
152a has been shown to be comparable to HFC-134a with respect to 
cooling performance and fuel use in A/C systems.\264\ HFC-152a is 
flammable, listed as A2 by ASHRAE.\265\ Air conditioning systems using 
this refrigerant would require engineering strategies or devices in 
order to reduce flammability risks to acceptable levels (e.g., use of 
release valves or secondary-loop systems). In addition, CO2 
can be used as a refrigerant. It has a GWP of 1, and is widely 
available commercially.\266\ Air conditioning systems using 
CO2 would require different designs than other refrigerants, 
primarily due to the higher operating pressures that are required. 
Reesearch continues exploring the potential for these alternative 
refrigerants for automotive applications. Finally, EPA is aware that 
the chemical and automobile manufacturing industries continue to 
consider additional refrigerants with GWPs less than 150. For example, 
SAE International is currently running a cooperative research program 
looking at two low GWP refrigerant blends, with the program to complete 
in 2012.\267\ The producers of these blends have not to date applied 
for SNAP approval. However, we expect that there may well be additional 
alternative refrigerants available to vehicle manufacturers in the next 
few years.
---------------------------------------------------------------------------

    \262\ IPCC 4th Assessment Report.
    \263\ HFC-152a is used widely as an aerosol propellant in many 
commercial products and may potentially be available for refrigerant 
use in motor vehicle A/C systems. Aggregated national production 
volume is estimated to be between 50 and 100 million pounds. [US 
EPA; Non-Confidential 2006 Inventory Update Reporting. National 
Chemical Information.]
    \264\ May 2010 TEAP XXI/9 Task Force Report, http://www.unep.ch/ozone/Assessment_Panels/TEAP/Reports/TEAP_Reports/teap-2010-progress-report-volume1-May2010.pdf.
    \265\ A wide range of concentrations has been reported for HFC-
152a flammability where the gas poses a risk of ignition and fire 
(3.7%-20% by volume in air) (Wilson, 2002). EPA finalized a rule in 
2008 listing HFC-152a as acceptable subject to use conditions in 
motor vehicle air-conditioning, one of these restricting refrigerant 
concentrations in the passenger compartment resulting from leaks 
above the lower flammability limit of 3.7% (see 71 FR 33304; June 
12, 2008).
    \266\ The U.S. has one of the largest industrial quality 
CO2 production facilities in the world (Gale Group, 
2011).
    \267\ ``Recent Experiences in MAC System Development: `New 
Alternative Refrigerant Assessment' Technical Update. Enrique Peral-
Antunez, Renault. Presentation at SAE Alternative Refrigerant and 
System Efficiency Symposium. September, 2011. Available online at 
http://www.sae.org/events/aars/presentations/2011/Enrique%20Peral%20Renault%20Recent%20Experiences%20in%20MAC%20System%20Dev.pdf .
---------------------------------------------------------------------------

(1) Related EPA Actions to Date and Potential Actions Concerning 
Alternative Refrigerants
    EPA is addressing potential environmental and human health concerns 
of low-GWP alternative refrigerants through a number of actions. The 
SNAP program has issued final rules regulating the use of HFC-152a and 
HFO-1234yf in order to reduce their potential risks (June 12, 2008, 73 
FR 33304; March 29, 2010, 76 FR 17488). The SNAP rule for HFC-152a 
allows its use in new motor vehicle A/C systems where proper 
engineering strategies and/or safety devices are incorporated into the 
system. The SNAP rules for both HFC-152a and HFO-1234yf require meeting 
safety requirements of the industry standard SAE J639. With both 
refrigerants, EPA expects that manufacturers conduct and keep on file 
failure mode and effect analysis for the motor vehicle A/C system, as 
stated in SAE J1739. EPA has also proposed a rule that would allow use 
of carbon dioxide as a refrigerant subject to use conditions for motor 
vehicle A/C systems (September 21, 2006; 71 FR 55140). EPA expects to 
finalize a rule for use of carbon dioxide in motor vehicle A/C systems 
in 2012.
    Under Section 612(d) of the Clean Air Act, any person may petition 
EPA to add alternatives to or remove them from the list of acceptable 
substitutes for ozone depleting substances. The National Resource 
Defense Council (NRDC) submitted a petition on behalf of NRDC, the 
Institute for Governance & Sustainable Development (IGSD), and the 
Environmental Investigation Agency-US (EIA-US) to EPA under Clean Air 
Act Section 612(d), requesting that the Agency remove HFC-134a from the 
list of acceptable substitutes and add it to the list of unacceptable 
(prohibited) substitutes for motor vehicle A/C, among other uses.\268\ 
EPA has found this

[[Page 75004]]

petition complete specifically for use of HFC-134a in new motor vehicle 
A/C systems for use in passenger cars and light duty vehicles. EPA 
intends to initiate a separate notice and comment rulemaking in 
response to this petition in the future.
---------------------------------------------------------------------------

    \268\ NRDC et al. Re: Petition to Remove HFC-134a from the List 
of Acceptable Substitutes under the Significant New Alternatives 
Policy Program (November 16, 2010).
---------------------------------------------------------------------------

    EPA expects to address potential toxicity issues with the use of 
CO2 as a refrigerant in automotive A/C systems in the 
upcoming final SNAP rule mentioned above. CO2 has a 
workplace exposure limit of 5000 pm on a 8-hour time-weighted 
average.\269\ EPA has also addressed potential toxicity issues with 
HFO-1234yf through a significant new use rule (SNUR) under the Toxic 
Substances Control Act (TSCA) (October 27, 2010; 75 FR 65987). The SNUR 
for HFO-1234yf allows its use as an A/C refrigerant for light-duty 
vehicles and light-duty trucks, and found no significant toxicity 
issues with that use. As mentioned in the NPRM for a VOC exemption for 
HFO-1234yf, ``The EPA considered the results of developmental testing 
available at the time of the final SNUR action to be of some concern, 
but not a sufficient basis to find HFO-1234yf unacceptable under the 
SNUR determination. As a result, the EPA requested additional toxicity 
testing and issued the SNUR for HFO-1234yf. The EPA has received and is 
presently reviewing the results of the additional toxicity testing. The 
EPA continues to believe that HFO-1234yf, when used in new automobile 
air conditioning systems in accordance with the use conditions under 
the SNAP rule, does not result in significantly greater risks to human 
health than the use of other available substitutes.'' (76 FR 64063, 
October 17, 2011). HFC-152a is considered relatively low in toxicity 
and comparable to HFC-134a, both of which have a workplace 
environmental exposure limit from the American Industrial Hygiene 
Association of 1000 ppm on an 8-hour time-weighted average (73 FR 
33304; June 12, 2008).
---------------------------------------------------------------------------

    \269\ The 8-hour time-weighted average worker exposure limit for 
CO2 is consistent with OSHA's PEL-TWA, and ACGIH'S TLV-
TWA of 5,000 ppm (0.5%).
---------------------------------------------------------------------------

    EPA has issued a proposed rule, proposing to exempt HFO-1234yf from 
the definition of ``volatile organic compound'' (VOC) for purposes of 
preparing State implementation Plans (SIPs) to attain the national 
ambient air quality standards for ozone under Title I of the Clean Air 
Act (October 17, 2011; 76 FR 64059). VOCs are a class of compounds that 
can contribute to ground level ozone, or smog, in the presence of 
sunlight. Some organic compounds do not react enough with sunlight to 
create significant amounts of smog. EPA has already determined that a 
number of compounds, including the current automotive refrigerant, HFC-
134a as well as HFC-152a, are low enough in photochemical reactivity 
that they do not need to be regulated under SIPs. CO2 is not 
considered a volatile organic compound (VOC) for purposes of preparing 
SIPs.
(2) Vehicle Technology Requirements for Alternative Refrigerants
    As discussed above, significant hardware changes could be needed to 
allow use of HFC-152a or CO2, because of the flammability of 
HFC-152a and because of the high operating pressure required for 
CO2. In the case of HFO-1234yf, manufacturers have said that 
A/C systems for use with HFO-1234yf would need a limited amount of 
additional hardware to maintain cooling efficiency compared to HFC-
134a. In particular, A/C systems may require an internal heat exchanger 
to use HFO-1234yf, because HFO-1234yf would be less effective in A/C 
systems not designed for its use. Because EPA's SNAP ruling allows only 
for its use in new vehicles, we expect that manufacturers would 
introduce cars using HFO-1234yf only during complete vehicle redesigns 
or when introducing new models.\270\ EPA expects that the same would be 
true for other alternative refrigerants that are potential candidates 
(e.g., HFC-152a and CO2). This need for complete vehicle 
redesign limits the potential pace of a transition from HFC-134a to 
alternative refrigerants. In meetings with EPA, manufacturers have 
informed EPA that, in the case of HFO-1234yf, for example, they would 
need to upgrade their refrigerant storage facilities and charging 
stations on their assembly lines. During the transition period between 
the refrigerants, some of these assembly lines might need to have the 
infrastructure for both refrigerants simultaneously since many lines 
produce multiple vehicle models. Moreover, many of these plants might 
not immediately have the facilities or space for two refrigerant 
infrastructures, thus likely further increasing necessary lead time. 
EPA took these kinds of factors into account in estimating the 
penetration of alternative refrigerants, and the resulting estimated 
average credits over time shown in Table III-13.
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    \270\ Some suppliers and manufacturers have informed us that 
some vehicles may be able to upgrade A/C systems during a refresh of 
an existing model (between redesign years). However, this is highly 
dependent on the vehicle, space constraints behind the dashboard, 
and the manufacturing plant, so an upgrade may be feasible for only 
a select few models.
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    Switching to alternative refrigerants in the U.S. market continues 
to be an attractive option for automobile manufacturers because 
vehicles with low GWP refrigerant could qualify for a significantly 
larger leakage credit. Manufacturers have expressed to EPA that they 
would plan to place a significant reliance on, or in some cases believe 
that they would need, alternative refrigerant credits for compliance 
with GHG fleet emission standards starting in MY 2017.
(3) Alternative Refrigerant Supply
    EPA is aware that another practical factor affecting the rate of 
transition to alternative refrigerants is their supply. As mentioned 
above, both HFC-152a and CO2 are being produced commercially 
in large quantities and thus, although their supply chain does not at 
this time include auto manufacturers, it may be easier to increase 
production to meet additional demand that would occur if manufacturers 
adopt either as a refrigerant. However, for the newest refrigerant 
listed under the SNAP program, HFO-1234yf, supply is currently limited. 
There are currently two major producers of HFO-1234yf, DuPont and 
Honeywell, that are licensed to produce this chemical for the U.S. 
market. Both companies will likely provide most of their production for 
the next few years from a single overseas facility, as well as some 
production from small pilot plants. The initial emphasis for these 
companies is to provide HFO-1234yf to the European market, where 
regulatory requirements for low GWP refrigerants are already in effect. 
These same companies have indicated that they plan to construct a new 
facility in the 2014 timeframe and intend to issue a formal 
announcement about that facility close to the end of this calendar 
year. This facility should be designed to provide sufficient production 
volume for a worldwide market in coming years. EPA expects that the 
speed of the transition to alternative refrigerants in the U.S. may 
depend on how rapidly chemical manufacturers are able to provide supply 
to automobile manufacturers sufficient to allow most or all vehicles 
sold in the U.S. to be built using the alternative refrigerant.
    One manufacturer (GM) has announced its intention to begin 
introducing vehicle models using HFO-

[[Page 75005]]

1234yf as early as MY 2013.\271\ EPA is not aware of other companies 
that have made a public commitment to early adoption of HFO-1234yf or 
other alternative refrigerants. As described above, we expect that in 
most cases a change-over to systems designed for alternative 
refrigerants would be limited to vehicle product redesign cycles, 
typically about every 5 years. Because of this, the pace of 
introduction is likely to be limited to about 20% of a manufacturer's 
fleet per year. In addition, the current uncertainty about the 
availability of supply of the new refrigerant in the early years of 
introduction into vehicles in the U.S. vehicles, also discussed above, 
means that the change-over may not occur at every vehicle redesign 
point. Thus, even with the announced intention of this one manufacturer 
to begin early introduction of an alternative refrigerant, EPA's 
analysis of the overall industry trend will assume minimal penetration 
of the U.S. vehicle market before MY 2017.
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    \271\ General Motors Press Release, July 23, 2010. ``GM First to 
Market Greenhouse Gas-Friendly Air Conditioning Refrigerant in 
U.S''.
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    Table III-13 shows that, starting from MY 2017, virtually all of 
the expected increase in generated credits would be due to a gradual 
increase in penetration of alternative refrigerants. In earlier model 
years, EPA attributes the expected increase in Leakage Credits to 
improvements in low-leak technologies.
(4) Projected Potential Scenarios for Auto Industry Changeover to 
Alternative Refrigerants
    As discussed above, EPA is planning on issuing a proposed SNAP 
rulemaking in the future requesting comment on whether to move HFC-134a 
from the list of acceptable substitutes to the list of unacceptable 
(prohibited) substitutes. However, the agency has not determined the 
specific content of that proposal, and the results of any final action 
are unknowable at this time. EPA recognizes that a major element of 
that proposal will be the evaluation of the time needed for a 
transition for automobile manufacturers away from HFC-134a. Thus, there 
could be multiple scenarios for the timing of a transition considered 
in that future proposed rulemaking. Should EPA finalize a rule under 
the SNAP program that prohibits the use of HFC-134a in new vehicles, 
the agency plans to evaluate the impacts of such a SNAP rule to 
determine whether it would be necessary to consider revisions to the 
availability and use of the compliance credit for MY 2017-2025.
    For purposes of this proposed GHG rule, EPA is assuming the current 
status, where there are no U.S. regulatory requirements for 
manufacturers to eliminate the use of HFC-134a for newly manufactured 
vehicles. Thus, the agency would expect that the market penetration of 
alternatives will proceed based on supply and demand and the strong 
incentives in this proposal. Given the combination of clear interest 
from automobile manufacturers in switching to an alternative 
refrigerant, the interest from HFO-1234yf alternative refrigerant 
manufacturers to expand their capacity to produce and market the 
refrigerant, and current commercial availability of HFC-152a and 
CO2, EPA believes it is reasonable to project that supply 
would be adequate to support the orderly rate of transition to an 
alternative refrigerant described above. As mentioned earlier, at least 
one U.S. manufacturer already has plans to introduce models using the 
alternative refrigerant HFO-1234yf beginning in MY 2013. However, it is 
not certain how widespread the transition to a alternative refrigerants 
will be in the U.S., nor how quickly that transition will occur in the 
absence of requirements or strong incentives.
    There are other situations that could lead to an overall fleet 
changeover from HFC-134a to alternative refrigerants. For example, the 
governments of the U.S., Canada, and Mexico have proposed to the 
Parties to the Montreal Protocol on Substances that Deplete the Ozone 
Layer that production of HFCs be reduced over time. The North American 
Proposal to amend the Montreal Protocol allows the global community to 
make near-term progress on climate change by addressing this group of 
potent greenhouse gases. The proposal would result in lower emissions 
in developed and developing countries through the phase-down of the 
production and consumption of HFCs. If an amendment were adopted by the 
Parties, then switching from HFC-134a to alternative refrigerants would 
likely become an attractive option for decreasing the overall use and 
emissions of high-GWP HFCs, and the Parties would likely initiate or 
expand policies to incentivize suppliers to ramp up the supply of 
alternative refrigerants. Options for reductions would include 
transition from HFCs, moving from high to lower GWP HFCs, and reducing 
charge sizes.
    EPA requests comment on the implications for the program of the 
refrigerant transition scenario assumed for the analyses supporting 
this NPRM; that is, where there are no U.S. regulatory requirements for 
manufacturers to eliminate the use of HFC-134a for newly manufactured 
vehicles. EPA requests comment on factors that may affect the industry 
demand for refrigerant and its U.S. and international supply.
b. Air Conditioning Efficiency (``Indirect'') Emissions and Credits
    In addition to the A/C leakage credits discussed above, EPA is 
proposing credits for improving the efficiency of--and thus reducing 
the CO2 emissions from--A/C systems. Manufacturers have 
available a number of very cost-effective technology options that can 
reduce these A/C-related CO2 emissions, which EPA estimates 
are currently on average 11.9 g/mi for cars and 17.1 for trucks 
nationally.\272\ When manufacturers incorporate these technologies into 
vehicles that clearly result in reduced CO2 emissions, EPA 
believes that A/C Efficiency Credits are warranted. Based on extensive 
industry testing and EPA analysis, the agency proposes that eligible 
efficiency-improving technologies be limited to up to a maximum 42% 
improvement,\273\ which translates into a maximum credit value of 5.0 
g/mi for cars and 7.2 g/mi for trucks.
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    \272\ EPA derived these estimates using a sophisticated new 
vehicle simulation tool that EPA has developed since the completion 
of the MYs 2012-2016 final rule. Although results are very similar 
to those in the earlier rule, EPA believes they represent more 
accurate estimates. Chapter 5 of the Joint TSD presents a detailed 
discussion of the development of the simulation tool and the 
resulting emissions estimates.
    \273\ The cooperative IMAC study mentioned above concluded that 
these emissions can be reduced by as much as 40% through the use of 
these technologies. In addition, EPA has concluded that improvements 
in the control software for the A/C system, including more precise 
control of such components as the radiator fan and compressor, can 
add another 2% to the emission reductions. In total, EPA believes 
that a total maximum improvement of 42% is available for A/C 
systems.
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    As discussed further in Section III.C.1.b.iii below, under its EPCA 
authority, EPA is proposing, in coordination with NHTSA, to allow 
manufacturers to generate fuel consumption improvement values for 
purposes of CAFE compliance based on the use of A/C efficiency 
technologies. EPA is proposing that both the A/C efficiency credits 
under EPA's GHG program and the A/C efficiency fuel consumption 
improvement values under the CAFE program would be based on the same 
methodologies and test procedures, as further described below.
i. Quantifying A/C Efficiency Credits
    In the 2012-2016 rule, EPA proposed that A/C Efficiency Credits be 
calculated based on the efficiency-improving

[[Page 75006]]

technologies included in the vehicle. The design-based approach, 
associating each technology with a specific credit value, was a 
surrogate for a using a performance test to determine credit values. 
Although EPA generally prefers measuring actual emissions performance 
to a design-based approach, measuring small differences in A/C 
CO2 emissions is very difficult, and an accurate test 
procedure capable of determining such differences was not available.
    In conjunction with the (menu or) design-based calculation, EPA 
continues to believe it is important to verify that the technologies 
installed to generate credits are improving the efficiency of the A/C 
system. In the 2012-2016 rule, EPA required that manufacturers submit 
data from an A/C CO2 Idle Test as a prerequisite to 
accessing the design-based credit calculation method. Beginning in MY 
2014, manufacturers wishing to generate the A/C Efficiency Credits need 
to meet a CO2 emissions threshold on the Idle Test.
    As manufacturers have begun to evaluate the Idle Test requirements, 
they have made EPA aware of an issue with the test's original design. 
In the MYs 2012-2016 rule, EPA received comments that the Idle Test did 
not properly capture the efficiency impact of some of the technologies 
on the Efficiency Credit menu list. EPA also received comments that 
idle operation is not typical of real-world driving. EPA acknowledges 
that both of these comments have merit. At the time of the MY 2012-2016 
rule, we expected that many manufacturers would be able to demonstrate 
improved efficiency with technologies like forced cabin air 
recirculation or electronically-controlled, and variable-displacement 
compressors., But under idle conditions, testing by manufacturers has 
shown that the benefits from these technologies can be difficult to 
quantify. Also, recent data provided by the industry shows that some 
vehicles that incorporate higher-efficiency A/C technologies are not 
able to consistently reach the CO2 threshold on the current 
Idle Test. The available data also indicates that meeting the threshold 
tends to be more difficult for vehicles with smaller-displacement 
engines.\274\ EPA continues to believe that there are some technologies 
that do have their effectiveness demonstrated during idle and that idle 
is a significant fraction of real-world operation.\275\
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    \274\ Chapter 5 of the Joint TDS provides details about the 
manufacturers' testing of these vehicles.
    \275\ More discussion of real world idle operation can be found 
below and in chapter 5 of the joint TSD in the description of stop-
start off cycle credits.
---------------------------------------------------------------------------

    Although EPA believes some adjustments in the Idle Test are 
warranted and is proposing such adjustments, the agency also believes 
that a reasonable degree of verification is still needed, to 
demonstrate that that A/C efficiency-improving technologies for which 
manufacturers are basing credits are indeed implemented properly and 
are reducing A/C-related fuel consumption. EPA continues to believe 
that the Idle Test is a reasonable measure of some A/C-related 
CO2 emissions as there is significant real-world driving 
activity at idle, and it significantly exercises a number of the A/C 
technologies from the menu. Therefore, EPA proposes to maintain the use 
of Idle Test as a prerequisite for generating Efficiency Credits for 
MYs 2014-2016. However, in order to provide reasonable verification 
while encouraging the development and use of efficiency-improving 
technologies, EPA proposes to revise the CO2 threshold. 
Specifically, the agency proposes to scale the magnitude of the 
threshold to the displacement of the vehicle's engine, with smaller-
displacement engines having a higher ``grams per minute'' threshold 
than larger-displacement engines. Thus, for vehicles with smaller-
displacement engines, the threshold would be less stringent. The 
revised threshold would apply for MYs 2014-2016, and can be used 
(optionally) instead of the flat gram per minute threshold that applies 
for MYs 2014, through 2016.\276\ In addition to revising the threshold, 
EPA proposes to relax the average ambient temperature and humidity 
requirements, due to the difficulty in controlling the year-round 
humidity in test cells designed for FTP testing. EPA requests comment 
on the proposed continued use of the Idle Test as a tool to validate 
the function of a vehicle's A/C efficiency-improving technologies, and 
on the revised CO2 threshold and ambient requirements.
---------------------------------------------------------------------------

    \276\ Chapter 5 of the Joint TSD describes the available data 
relevant to testing on the Idle Test and to the design of the 
displacement-weighted revised threshold in more detail.
---------------------------------------------------------------------------

    As stated above, EPA still considers the Idle Test to be a 
reasonable measure of some A/C-related CO2 emissions. 
However, there are A/C efficiency-improving technologies that cannot be 
fully evaluated with the Idle Test. In addition to proposing the 
revised Idle Test, EPA proposes that manufacturers have the option of 
reporting results from a new transient A/C test in place of the Idle 
Test, for MYs 2014-2016. In the year since the previous GHG rule was 
finalized, EPA, CARB, and a consortium of auto manufacturers (USCAR) 
have developed a new transient test procedure that can measure the 
effect of the operation of the overall A/C system on CO2 
emissions and fuel economy. The new test, known as ``AC17'' (for Air 
Conditioning, 2017), and described in detail in Chapter 5 of the Joint 
TSD, is essentially a combination of the existing SC03 and HWFET test 
procedures, which, with the proposed modifications, would exercise the 
A/C system (and new technologies) under conditions representing typical 
U.S. driving and climate.
    Some aspects of the AC17 test are still being developed and 
improved, but the basic procedure is sufficiently complete for EPA to 
propose it as a reporting option alternative to the Idle Test threshold 
in 2014, and a replacement for the Idle Test in 2017, as a prerequisite 
for generating Efficiency Credits. In model years 2014 to 2016, the 
AC17 test would be used to demonstrate that a vehicle's A/C system is 
delivering the efficiency benefits of the new technologies, and the 
menu will still be utilized. Manufacturers would run the AC17 test 
procedure on each vehicle platform that incorporates the new 
technologies, with the A/C system off and then on, and then report 
these test results to the EPA. This reporting option would replace the 
need for the Idle Test. In addition to reporting the test results, EPA 
will require that manufactures provide detailed vehicle and A/C system 
information for each vehicle tested (e.g. vehicle class, model type, 
curb weight, engine size, transmission type, interior volume, climate 
control type, refrigerant type, compressor type, and evaporator/
condenser characteristics).
    For model years 2017 and beyond, the A/C Idle Test menu and 
threshold requirement would be eliminated and be replaced with the AC17 
test, as a prerequisite for access to the credit menu. For vehicle 
models which manufacturers are applying for A/C efficiency credits, the 
AC17 test would be run to validate that the performance and efficiency 
of a vehicle's A/C technology is commensurate to the level of credit 
for which the manufacturer is applying. To determine whether the 
efficiency improvements of these technologies are being realized on the 
vehicle, the results of an AC17 test performed on a new vehicle model 
would be compared to a ``baseline'' vehicle which does not incorporate 
the efficiency-improving technologies. If the difference between the 
new vehicle's AC17 test result and the baseline vehicle test result is 
greater than or equal to the amount of menu credit for

[[Page 75007]]

which the manufacturer is applying, then the menu credit amount would 
be generated. However, if the difference in test results did not 
demonstrate the full menu-based potential of the technology, a partial 
credit could still be generated. This partial credit would be 
proportional to how far the difference in results was from the expected 
menu-based credit (i.e., the sum of the individual technology credits). 
The baseline vehicle is defined as one with characteristics which are 
similar to the new vehicle, except that it is not equipped with the 
efficiency-improving technologies (or they are de-activated). EPA is 
seeking comment on this approach to qualifying for A/C efficiency 
credits.
    The AC17 test requires a significant amount of time for each test 
(nearly 4 hours) and must be run in expensive SC03-capable facilities. 
EPA believes that the purpose of the test--to validate that A/C 
CO2 reductions are indeed occurring and hence that the 
manufacturer is eligible for efficiency credits--would be met if the 
manufacturer performs the new test on a limited subset of test 
vehicles. EPA proposes that manufacturers wishing to use the AC17 test 
to validate a vehicle's A/C technology be required to test one vehicle 
from each platform. For this purpose, ``platform'' would be defined as 
a group of vehicles with common body floorplan, chassis, engine, and 
transmission.\277\ EPA requests comment on the new test and its 
proposed use. EPA also requests comment on using the AC17 test to 
quantify efficiency credits, instead of the menu. EPA is also seeking 
comment on an option starting in MY 2017, to have the AC17 test be used 
in a similar fashion as the Idle Test, such that if the CO2 
measurements are below a certain threshold value, then credit would be 
quantified based on the menu. EPA also seeks comment on eliminating the 
idle test in favor of reporting only the AC17 test for A/C efficiency 
credits starting as early as MY 2014.
---------------------------------------------------------------------------

    \277\ A single platform may encompass a larger group of fuel 
economy label classes or car lines (40 CFR Sec.  600.002-93), such 
as passenger cars, compact utility vehicles, and station wagons The 
specific vehicle selection requirements for manufacturers using this 
testing are laid out in the regulations associated with this NPRM.
---------------------------------------------------------------------------

ii. Potential Future Use of the New A/C Test for Credit Quantification
    As described above, EPA is proposing to use the AC17 test as a 
prerequisite to generating A/C Efficiency Credits. The test is well-
suited for this purpose since it can accurately measure the difference 
in the increased CO2 emissions that occur when the A/C 
system is turned on vs. when it is turned off. This difference in the 
``off-on'' CO2 emissions, along with details about the 
vehicle and its A/C system design, will help inform EPA as to how these 
efficiency-improving technologies perform on a wide variety of vehicle 
types.
    However, the test is limited in its ability to accurately quantify 
the amount of credit that would be warranted by an improved A/C system 
on a particular vehicle. This is because to determine an absolute--
rather than a relative--difference in CO2 effect for an 
individual vehicle design would require knowledge of the A/C system 
CO2 performance for that exact vehicle, but without those 
specific A/C efficiency improvements installed. This would be difficult 
and costly, since two test vehicles (or a single vehicle with the 
components removed and replaced) would be necessary to quantify this 
precisely. Even then, the inherent variability between such tests on 
such a small sample in such an approach might not be statistically 
robust enough to confidently determine a small absolute CO2 
emissions impact between the two vehicles.
    As an alternative to comparing new vehicle AC17 test with a 
``baseline'' (described above), in Chapter 5 of the Joint TSD, EPA 
discusses a potential method of more accurately quantifying the credit. 
This involves comparing the efficiencies of individual components 
outside the vehicles, through ``bench'' testing of components 
supplemented by vehicle simulation modeling to relate that component's 
performance to the complete vehicle. EPA believes that such approaches 
may eventually allow the AC17 test to be used as part of a more 
complicated series of test procedures and simulations, to accurately 
quantify the A/C CO2 effect of an individual vehicle's A/C 
technology package. However, EPA believes that this issue is beyond the 
scope of this proposed rule since there are many challenges associated 
with measuring small incremental decreases in fuel consumption and 
CO2 emissions compared to the relatively large overall fuel 
consumption rate and CO2 emissions. The agency does 
encourage comment, including test data, on how the AC17 test could be 
enhanced in order to measure the individual and collective impact of 
different A/C efficiency-improving technologies on individual vehicle 
designs and thus to quantify Efficiency Credits. EPA especially seeks 
comment on a more complex procedure, also discussed in Chapter 5 of the 
Joint TSD, that uses a combination of bench testing of components, 
vehicle simulation models, and dynamometer testing to quantify 
Efficiency Credits. Specifically, the agencies request comment on how 
to define the baseline configuration for bench testing. The agencies 
also request comment on the use of the Lifecycle Climate Performance 
Model (LCCP), or alternatively, the use of an EPA simulation tool to 
convert the test bench results to a change in fuel consumption and 
CO2 emissions.
iii. A/C Efficiency Fuel Consumption Improvement Values in the CAFE 
Program
    As described in section II.F and above, EPA is proposing to use the 
AC17 test as a prerequisite to generating A/C Efficiency Credits 
starting in MY 2017. EPA is proposing, in coordination with NHTSA, for 
the first time under its EPCA authority to allow manufacturers to use 
this same test procedure to generate fuel consumption improvement 
values for purposes of CAFE compliance based on the use of A/C 
efficiency technologies. As described above, the CO2 credits 
would be determined from a comparison of the new vehicle compared to an 
older ``baseline vehicle.'' For CAFE, EPA proposes to convert the total 
CO2 credits due to A/C efficiency improvements from metric 
tons of CO2 to a fleetwide CAFE improvement value. The fuel 
consumption improvement values are presented to give the reader some 
context and explain the relationship between CO2 and fuel 
consumption improvements. The fuel consumption improvement values would 
be the amount of fuel consumption reduction achieved by that vehicle, 
up to a maximum of 0.000563 gallons/mi fuel consumption improvement 
value for cars and a 0.000586 gallons/mi fuel consumption improvement 
value for trucks.\278\ If the difference between the new vehicle and 
baseline results does not demonstrate the full menu-based potential of 
the technology, a partial credit could still be generated. This partial 
credit would be proportional to how far the difference in results was 
from the expected menu-based credit (i.e., the sum of the individual 
technology credits). The table below presents the proposed CAFE fuel 
consumption improvement values for

[[Page 75008]]

each of the efficiency-reducing air conditioning technologies 
considered in this proposal. More detail is provided on the calculation 
of indirect A/C CAFE fuel consumption improvement values in chapter 5 
of the joint TSD. EPA is proposing definitions of each of the 
technologies in the table below which are discussed in Chapter 5 of the 
draft joint TSD to ensure that the air conditioner technology used by 
manufacturers seeking these values corresponds with the technology used 
to derive the fuel consumption improvement values.
---------------------------------------------------------------------------

    \278\ Note that EPA's proposed calculation methodology in 40 CFR 
600.510-12 does not use vehicle-specific fuel consumption 
adjustments to determine the CAFE increase due to the various 
incentives allowed under the proposed program. Instead, EPA would 
convert the total CO2 credits due to each incentive 
program from metric tons of CO2 to a fleetwide CAFE 
improvement value. The fuel consumption values are presented to give 
the reader some context and explain the relationship between 
CO2 and fuel consumption improvements.

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[[Page 75009]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.070


[[Page 75010]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.071

2. Incentive for Electric Vehicles, Plug-in Hybrid Electric Vehicles, 
and Fuel Cell Vehicles
a. Rationale for Temporary Regulatory Incentives for Electric Vehicles, 
Plug-in Hybrid Electric Vehicles, and Fuel Cell Vehicles
    EPA has identified two vehicle powertrain-fuel combinations that 
have the future potential to transform the light-duty vehicle sector by 
achieving near-zero greenhouse gas (GHG) emissions and oil consumption 
in the longer term, but which face major near-term market barriers such 
as vehicle cost, fuel cost (in the case of fuel cell vehicles), the 
development of low-GHG fuel production and distribution infrastructure, 
and/or consumer acceptance.
     Electric vehicles (EVs) and plug-in hybrid electric 
vehicles (PHEVs) which would operate exclusively or frequently on grid 
electricity that could be produced from very low GHG emission 
feedstocks or processes.
     Fuel cell vehicles (FCVs) which would operate on hydrogen 
that could be produced from very low GHG emissions feedstocks or 
processes.
    As in the 2012-2016 rule, EPA is proposing temporary regulatory 
incentives for the commercialization of EVs, PHEVs, and FCVs. EPA 
believes that these advanced technologies represent potential game-
changers with respect to control of transportation GHG emissions as 
they can combine an efficient vehicle propulsion system with the 
potential to use motor fuels produced from low-GHG emissions feedstocks 
or from fossil feedstocks with carbon capture and sequestration. EPA 
recognizes that the use of EVs, PHEVs, and FCVs in the 2017-2025 
timeframe, in conjunction with the incentives, will decrease the 
overall GHG emissions reductions associated with the program as the 
upstream emissions associated with the generation and distribution of 
electricity are higher than the upstream emissions associated with 
production and distribution of gasoline. EPA accounts for this 
difference in projections of the overall program's impacts and benefits 
(see Section III.F).\279\
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    \279\ Also see the Regulatory Impact Analysis.
---------------------------------------------------------------------------

    The tailpipe GHG emissions from EVs, PHEVs operated on grid 
electricity, and hydrogen-fueled FCVs are zero, and traditionally the 
emissions of the vehicle itself are all that EPA takes into account for 
purposes of compliance with standards set under Clean Air Act section 
202(a). Focusing on vehicle tailpipe emissions has not raised any 
issues for criteria pollutants, as upstream emissions associated with 
production and distribution of the fuel are addressed by comprehensive 
regulatory programs focused on the upstream sources of those emissions. 
At this time, however, there is no such comprehensive program 
addressing upstream emissions of GHGs, and the upstream GHG emissions 
associated with production and distribution of electricity are higher, 
on a national average basis, than the corresponding upstream GHG 
emissions of gasoline or other petroleum based fuels.\280\ In the 
future, if there were a program to comprehensively control upstream GHG 
emissions, then the zero tailpipe levels from these vehicles have the 
potential to contribute to very large GHG reductions, and to transform 
the transportation sector's contribution to nationwide GHG emissions 
(as well as oil consumption). For a discussion of this issue in the 
2012-2016 rule, see 75 FR at 25434-438.
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    \280\ There is significant regional variation with upstream GHG 
emissions associated with electricity production and distribution. 
Based on EPA's eGRID2010 database, comprised of 26 regions, the 
average powerplant GHG emissions rates per kilowatt-hour for those 
regions with the highest GHG emissions rates are about 3 times 
higher than those with the lowest GHG emissions rates. See http://www.epa.gov/cleanenergy/energy-resources/egrid/index.html.
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    EVs and FCVs also represent some of the most significant changes in 
automotive technology in the industry's history.\281\ For example, EVs 
face major consumer barriers such as significantly

[[Page 75011]]

higher vehicle cost and lower range. However, EVs also have attributes 
that could be attractive to some consumers: Lower and more predictable 
fuel price, no need for oil changes or spark plugs, and reducing one's 
personal contribution to local air pollution, climate change, and oil 
dependence.\282\
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    \281\ A PHEV is not such a big change since, if the owner so 
chooses, it can operate on gasoline.
    \282\ PHEVs and FCVs share many of these same challenges and 
opportunities.
---------------------------------------------------------------------------

    Original equipment manufacturers currently offer two EVs and one 
PHEV in the U.S. market.\283\ Deliveries of the Nissan Leaf EV, which 
has a list price of about $33,000 (before tax credits) and an EPA label 
range of 73 miles, began in December 2010 in selected areas, and total 
sales through October 2011 are about 8000. The luxury Tesla Roadster 
EV, with a list price of $109,000, has been on sale since March 2008 
with cumulative sales of approximately 1500. The Chevrolet Volt PHEV, 
with a list price of about $41,000 and an EPA label all-electric range 
of 35 miles, has sold over 5000 vehicles since it entered the market in 
December 2010 in selected markets. At this time, no original equipment 
manufacturer offers FCVs to the general public except for some limited 
demonstration programs.\284\ Currently, combined EV, PHEV, and FCV 
sales represent about 0.1% of overall light-duty vehicle sales. 
Additional models, such as the Ford Focus EV, the Mitsubishi i EV, and 
the Toyota Prius PHEV, are expected to enter the U.S. market in the 
next few months.
---------------------------------------------------------------------------

    \283\ Smart has also leased approximately 100 Smart ED vehicles 
in the U.S.
    \284\ For example, Honda has leased up to 200 Clarity fuel cell 
vehicles in southern California (see Honda.com) and Toyota has 
announced plans for a limited fuel cell vehicle introduction in 2015 
(see Toyota.com).
---------------------------------------------------------------------------

    The agency remains optimistic about consumer acceptance of EVs, 
PHEVs, and FCVs in the long run, but we believe that near-term market 
acceptance is less certain. One of the most successful new automotive 
powertrain technologies--conventional hybrid electric vehicles like the 
Toyota Prius--illustrates the challenges involved with consumer 
acceptance of new technologies, even those that do not involve vehicle 
attribute tradeoffs. Even though conventional hybrids have now been on 
the U.S. market for over a decade, their market share hovers around 2 
to 3 percent or so \285\ even though they offer higher vehicle range 
than their traditional gasoline vehicle counterparts, involve no 
significant consumer tradeoffs (other than cost), and have reduced 
their incremental cost to a few thousand dollars. The cost and consumer 
tradeoffs associated with EVs, PHEVs, and FCVs are more significant 
than those associated with conventional hybrids. Given the long 
leadtimes associated with major transportation technology shifts, there 
is value in promoting these potential game-changing technologies today 
if we want to retain the possibility of achieving major environmental 
and energy benefits in the future.
---------------------------------------------------------------------------

    \285\ Light-Duty Automotive Technology, Carbon Dioxide 
Emissions, and Fuel Economy Trends: 1975 Through 2010, EPA-420-R-10-
023, November 2010, www.epa.gov/otaq/fetrends.htm.
---------------------------------------------------------------------------

    In terms of the relative relationship between tailpipe and upstream 
fuel production and distribution GHG emissions, EVs, PHEVs, and FCVs 
are very different than conventional gasoline vehicles. Combining 
vehicle tailpipe and fuel production/distribution sources, gasoline 
vehicles emit about 80 percent of these GHG emissions at the vehicle 
tailpipe with the remaining 20 percent associated with ``upstream'' 
fuel production and distribution GHG emissions.\286\ On the other hand, 
vehicles using electricity and hydrogen emit no GHG (or other 
emissions) at the vehicle tailpipe, and therefore all GHG emissions 
associated with powering the vehicle are due to fuel production and 
distribution.\287\ Depending on how the electricity and hydrogen fuels 
are produced, these fuels can have very high fuel production/
distribution GHG emissions (for example, if coal is used with no GHG 
emissions control) or very low GHG emissions (for example, if renewable 
processes with minimal fossil energy inputs are used, or if carbon 
capture and sequestration is used). For example, as shown in the 
Regulatory Impact Analysis, today's Nissan Leaf EV would have an 
upstream GHG emissions value of 161 grams per mile based on national 
average electricity, and a value of 89 grams per mile based on the 
average electricity in California, one of the initial markets for the 
Leaf.
---------------------------------------------------------------------------

    \286\ Fuel production and distribution GHG emissions have 
received much attention because there is the potential for more 
widespread commercialization of transportation fuels that have very 
different GHG emissions characteristics in terms of the relative 
contribution of GHG emissions from the vehicle tailpipe and those 
associated with fuel production and distribution. Other GHG 
emissions source categories include vehicle production, including 
the raw materials used to manufacture vehicle components, and 
vehicle disposal. These categories have not been included in EPA 
motor vehicle emissions regulations for several reasons: These 
categories are less important from an emissions inventory 
perspective, they raise complex accounting questions that go well 
beyond vehicle testing and fuel-cycle analysis, and in general there 
are fewer differences across technologies.
    \287\ The Agency notes that many other fuels currently used in 
light-duty vehicles, such as diesel from conventional oil, ethanol 
from corn, and compressed natural gas from conventional natural gas, 
have tailpipe GHG and fuel production/distribution GHG emissions 
characteristics fairly similar to that of gasoline from conventional 
oil. See 75 FR at 25437. The Agency recognizes that future 
transportation fuels may be produced from renewable feedstocks with 
lower fuel production/distribution GHG emissions than gasoline from 
oil.
---------------------------------------------------------------------------

    Because these upstream GHG emissions values are generally higher 
than the upstream GHG emissions values associated with gasoline 
vehicles, and because there is currently no national program in place 
to reduce GHG emissions from electric powerplants, EPA believes it is 
appropriate to consider the incremental upstream GHG emissions 
associated with electricity production and distribution. But, we also 
think it is appropriate to encourage the initial commercialization of 
EV/PHEV/FCVs as well, in order to retain the potential for game-
changing GHG emissions and oil savings in the long term.
    Accordingly, EPA proposes to provide temporary regulatory 
incentives for EVs, PHEVs (when operated on electricity) and FCVs that 
will be discussed in detail below. EPA recognizes that the use of EVs, 
PHEVs, and FCVs in the 2017-2025 timeframe, in conjunction with the 
incentives, will decrease the overall GHG emissions reductions 
associated with the program as the upstream emissions associated with 
the generation and distribution of electricity are higher than the 
upstream emissions associated with production and distribution of 
gasoline. EPA accounts for this difference in projections of the 
overall program's impacts and benefits (see Section III.F). EPA 
believes that the relatively minor impact on GHG emissions reductions 
in the near term is justified by promoting technologies that have 
significant transportation GHG emissions and oil consumption game-
changing potential in the longer run, and that also face major market 
barriers in entering a market that has been dominated by gasoline 
vehicle technology and infrastructure for over 100 years.
    EPA will review all of the issues associated with upstream GHG 
emissions, including the status of EV/PHEV/FCV commercialization, the 
status of upstream GHG emissions control programs, and other relevant 
factors.
b. MYs 2012-2016 Light-Duty Vehicle Greenhouse Gas Emissions Standards
    The light-duty vehicle greenhouse gas emissions standards for model 
years 2012-2016 provide a regulatory incentive for electric vehicles 
(EVs), fuel cell vehicles (FCVs), and for the electric portion of 
operation of plug-in hybrid

[[Page 75012]]

electric vehicles (PHEVs). See generally 75 FR at 25434-438. This is 
designed to promote advanced technologies that have the potential to 
provide ``game changing'' GHG emissions reductions in the future. This 
incentive is a 0 grams per mile compliance value (i.e., a compliance 
value based on measured vehicle tailpipe GHG emissions) up to a 
cumulative EV/PHEV/FCV production cap threshold for individual 
manufacturers. There is a two-tier cumulative EV/PHEV/FCV production 
cap for MYs 2012-2016: The cap is 300,000 vehicles for those 
manufacturers that sell at least 25,000 EVs/PHEVs/FCVs in MY 2012, and 
the cap is 200,000 vehicles for all other manufacturers. For 
manufacturers that exceed the cumulative production cap over MYs 2012-
2016, compliance values for those vehicles in excess of the cap will be 
based on a full accounting of the net fuel production and distribution 
GHG emissions associated with those vehicles relative to the fuel 
production and distribution GHG emissions associated with comparable 
gasoline vehicles. For an electric vehicle, this accounting is based on 
the vehicle electricity consumption over the EPA compliance tests, 
eGRID2007 national average powerplant GHG emissions factors, and 
multiplicative factors to account for electricity grid transmission 
losses and pre-powerplant feedstock GHG related emissions.\288\ The 
accounting for a hydrogen fuel cell vehicle would be done in a 
comparable manner.
---------------------------------------------------------------------------

    \288\ See 40 CFR 600.113-12(m).
---------------------------------------------------------------------------

    Although EPA also proposed a vehicle incentive multiplier for MYs 
2012-2016, the agency did not finalize a multiplier. At that time, the 
Agency believed that combining the 0 gram per mile and multiplier 
incentives would be excessive.
    The 0 grams per mile compliance value decreases the GHG emissions 
reductions associated with the 2012-2016 standards compared to the same 
standards and no 0 grams per mile compliance value. It is impossible to 
know the precise number of vehicles that will take advantage of this 
incentive in MYs 2012-2016. In the preamble to the final rule, EPA 
projected the decrease in GHG emissions reductions that would be 
associated with a scenario of 500,000 EVs certified with a compliance 
value of 0 grams per mile. This scenario would result in a projected 
decrease of 25 million metric tons of GHG emissions reductions, or less 
than 3 percent of the total projected GHG benefits of the program of 
962 million metric tons. This GHG emissions impact could be smaller or 
larger, of course, based on the actual number of EVs that would certify 
at 0 grams per mile.
    In the preamble to the final rule, EPA stated that it would 
reassess this issue for rulemakings beginning in MY 2017 based on the 
status of advanced vehicle technology commercialization, the status of 
upstream GHG control programs, and other relevant factors.
c. Supplemental Notice of Intent
    In our most recent Supplemental Notice of Intent,\289\ EPA stated 
that: ``EPA intends to propose an incentive multiplier for all electric 
vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell 
vehicles (FCVs) sold in MYs 2017 through 2021. This multiplier approach 
means that each EV/PHEV/FCV would count as more than one vehicle in the 
manufacturer's compliance calculation. EPA intends to propose that EVs 
and FCVs start with a multiplier value of 2.0 in MY 2017, phasing down 
to a value of 1.5 in MY 2021. PHEVs would start at a multiplier value 
of 1.6 in MY 2017 and phase down to a value of 1.3 in MY 2021. These 
multipliers would be proposed for incorporation in EPA's GHG program * 
* *. As an additional incentive for EVs, PHEVs and FCVs, EPA intends to 
propose allowing a value of 0 g/mile for the tailpipe compliance value 
for EVs, PHEVs (electricity usage) and FCVs for MYs 2017-2021, with no 
limit on the quantity of vehicles eligible for 0 g/mi tailpipe 
emissions accounting. For MYs 2022-2025, 0 g/mi will only be allowed up 
to a per-company cumulative sales cap based on significant penetration 
of these advanced vehicles in the marketplace. EPA intends to propose 
an appropriate cap in the NPRM.''
---------------------------------------------------------------------------

    \289\ 76 Federal Register 48758 (August 9, 2011).
---------------------------------------------------------------------------

d. Proposal for MYs 2017-2025
    EPA is proposing the following temporary regulatory incentives for 
EVs, PHEVs, and FCVs consistent with the discussion in the August 2011 
Supplemental Notice of Intent.
    For MYs 2017 through 2021, EPA is proposing two incentives. The 
first proposed incentive is to allow all EVs, PHEVs (electric 
operation), and FCVs to use a GHG emissions compliance value of 0 grams 
per mile. There would be no cap on the number of vehicles eligible for 
the 0 grams per mile compliance value for MYs 2017 through 2021.
    The second proposed incentive for MYs 2017 through 2021 is a 
multiplier for all EVs, PHEVs, and FCVs, which would allow each of 
these vehicles to ``count'' as more than one vehicle in the 
manufacturer's compliance calculation.\290\ While the Agency rejected a 
multiplier incentive in the MYs 2012-2016 final rule, we are proposing 
a multiplier for MYs 2017-2021 because, while advanced technologies 
were not necessary for compliance in MYs 2012-2016, they are necessary, 
for some manufacturers, to comply with the GHG standards in the MYs 
2022-2025 timeframe. A multiplier for MYs 2017-2021 can also promote 
the initial commercialization of these advanced technologies. In order 
for a PHEV to be eligible for the multiplier incentive, EPA proposes 
that PHEVs be required to be able to complete a full EPA highway test 
(10.2 miles), without using any conventional fuel, or alternatively, 
have a minimum equivalent all-electric range of 10.2 miles as measured 
on the EPA highway cycle. EPA seeks comment on whether this minimum 
range (all-electric or equivalent all-electric) should be lower or 
higher, or whether the multiplier should vary based on range or on 
another PHEV metric such as battery capacity or ratio of electric motor 
power to engine or total vehicle power. The specific proposed 
multipliers are shown in Table III-15.
---------------------------------------------------------------------------

    \290\ In the unlikely case where a PHEV with a low electric 
range might have an overall GHG emissions compliance value that is 
higher than its compliance target, EPA proposes that the automaker 
can choose not to use the multiplier.

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[[Page 75013]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.072

    EPA also requests comments on the merits of providing similar 
multiplier incentives to dedicated and/or dual fuel compressed natural 
gas vehicles.
    For MYs 2022 through 2025, EPA is proposing one incentive--the 0 
grams per mile GHG emissions compliance incentive for EVs, PHEVs 
(electric operation), and FCVs up to a per-company cumulative 
production cap threshold for those model years. EPA is proposing a two-
tier, per-company cap based on cumulative production in prior years, 
consistent with the general approach that was adopted in the rulemaking 
for MYs 2012-2016. For manufacturers that sell 300,000 or more EV/PHEV/
FCVs combined in MYs 2019-2021, the proposed cumulative production cap 
would be 600,000 EV/PHEV/FCVs for MYs 2022-2025. Other automakers would 
have a proposed cumulative production cap of 200,000 EV/PHEV/FCVs in 
MYs 2022-2025.
    This proposed cap design is appropriate as a way to encourage 
automaker investment in potential GHG emissions game-changing 
technologies that face very significant cost and consumer barriers. In 
addition, as with the rulemaking for MYs 2012-2016, EPA believes it is 
important to both recognize the benefit of early leadership in 
commercialization of these technologies, and encourage additional 
manufacturers to invest over time. Manufacturers are unlikely to do so 
if vehicles with these technologies are treated for compliance purposes 
to be no more advantageous than the best conventional hybrid vehicles. 
Finally, we believe that the proposed cap design provides a reasonable 
limit to the overall decrease in program GHG emissions reductions 
associated with the incentives, and EPA is being transparent about 
these GHG emissions impacts (see later in this section and also Section 
III.F).
    EPA recognizes that a central tension in the design of a proposed 
cap relates to certainty and uncertainty with respect to both 
individual automaker caps and the overall number of vehicles that may 
fall under the cap, which determines the overall decrease in GHG 
emissions reductions. A per-company cap as described above would 
provide clear certainty for individual manufacturers at the time of the 
final rule, but would yield uncertainty about how many vehicles 
industry-wide would take advantage of the 0 grams per mile incentive 
and therefore the overall impact on GHG emissions. An alternative 
approach would be an industry-wide cap where EPA would establish a 
finite limit on the total number of vehicles eligible for the 0 grams 
per mile incentive, with a method for allocating this industry-wide cap 
to individual automakers. An industry-wide cap would provide certainty 
with respect to the maximum number of vehicles and GHG emissions impact 
and would reward those automakers who show early leadership. If EPA 
were to make a specific numerical allocation at the time of the final 
rule, automakers would have certainty, but EPA is concerned that we may 
not have sufficient information to make an equitable allocation for a 
timeframe that is over a decade away. If EPA were to adopt an 
allocation formula in the final rule that was dependent on future sales 
(as we are proposing above for the per-company cap), automakers would 
have much less certainty in compliance planning as they would not know 
their individual caps until some point in the future.
    To further assess the merits of an industry-wide cap approach, EPA 
also seeks comment on the following alternative for an industry-wide 
cap. EPA would place an industry-wide cumulative production cap of 2 
million EV/PHEV/FCVs eligible for the 0 grams per mile incentive in MYs 
2022-2025. EPA has chosen 2 million vehicles because, as shown below, 
we project that this limits the maximum decrease in GHG emissions 
reductions to about 5 percent of total program GHG savings. EPA would 
allocate this 2 million vehicle cap to individual automakers in 
calendar year 2022 based on cumulative EV/PHEV/FCV sales in MYs 2019-
2021, i.e., if an automaker sold X percent of industry-wide EV/PHEV/FCV 
sales in MYs 2019-2021, that automaker would get X percent of the 2 
million industry-wide cumulative production cap in MYs 2022-2025 (or 
possibly somewhat less than X percent, if EPA were to reserve some 
small volumes for those automakers that sold zero EV/PHEV/FCVs in MYs 
2019-2021).
    For both the proposed per-company cap and the alternative industry-
wide cap, EPA proposes that, for production beyond the cumulative 
vehicle production cap for a given manufacturer in MY 2022 and later, 
compliance values would be calculated according to a methodology that 
accounts for the full net increase in upstream GHG emissions relative 
to that of a comparable gasoline vehicle. EPA also asks for comment on 
various approaches for phasing in from a 0 gram per mile value to a 
full net increase value, e.g., an interim period when the compliance 
value might be one-half of the net increase.
    EPA also seeks comments on whether any changes should be made for 
MYs 2012-2016, i.e., whether the compliance value for production beyond 
the cap should be one-half of the net increase in upstream GHG 
emissions, or whether the current cap for MYs 2012-2016 should be 
removed.
    EPA is not proposing any multiplier incentives for MYs 2022 through 
2025. EPA believes that the 0 gram per mile compliance value, with 
cumulative

[[Page 75014]]

vehicle production cap, is a sufficient incentive for MYs 2022-2025.
    One key issue here is the appropriate electricity upstream GHG 
emissions factor or rate to use in future projections of EV/PHEV 
emissions based on the net upstream approach. In the following example, 
we use a 2025 nationwide average electricity upstream GHG emissions 
rate (powerplant plus feedstock extraction, transportation, and 
processing) of 0.574 grams GHG/watt-hour, based on simulations with the 
EPA Office of Atmospheric Program's Integrated Planning Model 
(IPM).\291\ For the example below, EPA is using a projected national 
average value from the IPM model, but EPA recognizes that values 
appropriate for future vehicle use may be higher or lower than this 
value. EPA is considering running the IPM model with a more robust set 
of vehicle and vehicle charging-specific assumptions to generate a 
better electricity upstream GHG emissions factor for EVs and PHEVs for 
our final rulemaking, and, at minimum, intends to account for the 
likely regional sales variation for initial EV/PHEV/FCVs, and different 
scenarios for the relative frequency of daytime and nighttime charging. 
EPA seeks comment on whether there are additional factors that we 
should try to include in the IPM modeling for the final rulemaking.
---------------------------------------------------------------------------

    \291\ Technical Support Document, Chapter 4.
---------------------------------------------------------------------------

    EPA proposes a 4-step methodology for calculating the GHG emissions 
compliance value for vehicle production in excess of the cumulative 
production cap for an individual automaker. For example, for an EV in 
MY 2025, this methodology would include the following steps and 
calculations:
     Measuring the vehicle electricity consumption in watt-
hours/mile over the EPA city and highway tests (for example, a midsize 
EV in 2025 might have a 2-cycle test electricity consumption of 230 
watt-hours/mile)
     Adjusting this watt-hours/mile value upward to account for 
electricity losses during electricity transmission (dividing 230 watt-
hours/mile by 0.93 to account for grid/transmission losses yields a 
value of 247 watt-hours/mile)
     Multiplying the adjusted watt-hours/mile value by a 2025 
nationwide average electricity upstream GHG emissions rate of 0.574 
grams/watt-hour at the powerplant (247 watt-hours/mile multiplied by 
0.574 grams GHG/watt-hour yields 142 grams/mile)
     Subtracting the upstream GHG emissions of a comparable 
midsize gasoline vehicle of 39 grams/mile \292\ to reflect a full net 
increase in upstream GHG emissions (142 grams/mile for the EV minus 39 
grams/mile for the gasoline vehicle yields a net increase and EV 
compliance value of 103 grams/mile).\293\
---------------------------------------------------------------------------

    \292\ A midsize gasoline vehicle with a footprint of 46 square 
feet would have a MY 2025 GHG target of about 140 grams/mile; 
dividing 8887 grams CO2/gallon of gasoline by 140 grams/
mile yields an equivalent fuel economy level of 63.5 mpg; and 
dividing 2478 grams upstream GHG/gallon of gasoline by 63.5 mpg 
yields a midsize gasoline vehicle upstream GHG value of 39 grams/
mile. The 2478 grams upstream GHG/gallon of gasoline is calculated 
from 21,546 grams upstream GHG/million Btu (EPA value for future 
gasoline based on DOE's GREET model modified by EPA standards and 
data; see docket memo to MY 2012-2016 rulemaking titled 
``Calculation of Upstream Emissions for the GHG Vehicle Rule'') and 
multiplying by 0.115 million Btu/gallon of gasoline.
    \293\ Manufacturers can utilize alternate calculation 
methodologies if shown to yield equivalent or superior results and 
if approved in advance by the Administrator.
---------------------------------------------------------------------------

    The full accounting methodology for FCVs and the portion of PHEV 
operation on grid electricity would use this same approach. The 
proposed regulations contain EPA's proposed method to determine the 
compliance value for PHEVs, and EPA proposes to develop a similar 
methodology for FCVs if and when the need arises.\294\ Given the 
uncertainty about how hydrogen would be produced, if and when it were 
used as a transportation fuel, EPA seeks comment on projections for the 
fuel production and distribution GHG emissions associated with hydrogen 
production for various feedstocks and processes.
---------------------------------------------------------------------------

    \294\ 40 CFR 600.113-12(m).
---------------------------------------------------------------------------

    EPA is fully accounting for the upstream GHG emissions associated 
with all electricity used by EVs and PHEVs (and any hydrogen used by 
FCVs), both in our regulatory projections of the impacts and benefits 
of the program, and in all GHG emissions inventory accounting.
    EPA seeks public comment on the proposed incentives for EVs, PHEVs, 
and FCVs described above.
e. Projection of Impact on GHG Emissions Reductions Due to Incentives
    EPA believes it is important to project the impact on GHG emissions 
that will be associated with the proposed incentives (both 0 grams per 
mile and the multiplier) for EV/PHEV/FCVs over the MYs 2017-2025 
timeframe. Since it is impossible to know precisely how many EV/PHEV/
FCVs will be sold in the MYs 2017-2025 timeframe that will utilize the 
proposed incentives, EPA presents projections for two scenarios: (1) 
The number of EV/PHEV/FCVs that EPA's OMEGA technology and cost model 
predicts based exclusively on its projections for the most cost-
effective way for the industry to meet the proposed standards, and (2) 
a scenario with a greater number of EV/PHEV/FCVs, based not only on 
compliance with the proposed GHG and CAFE standards, but other factors 
such as the proposed cumulative production caps and manufacturer 
investments. For this analysis, EPA assumes that EVs and PHEVs each 
account for 50 percent of all EV/PHEV/FCVs. EPA seeks comment on 
whether there are other scenarios which should be evaluated for this 
purpose in the final rule.

[[Page 75015]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.073

     
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    \295\ The number of metric tons represents the number of 
additional tons that would be reduced if the standards stayed the 
same and there was no 0 gram per mile compliance value.
    \296\ The percentage change represents the ratio of the 
cumulative decrease in GHG emissions reductions from the prior 
column to the total cumulative GHG emissions reductions associated 
with the proposed standards and the proposed 0 gram per mile 
compliance value.
---------------------------------------------------------------------------

    EPA projects that the cumulative GHG emissions savings of the 
proposed MYs 2017-2025 standards, on a model year lifetime basis, is 
approximately 2 billion metric tons. Table III-16 projects that the 
likely decrease in cumulative GHG emissions reductions due to the EV/
PHEV/FCV incentives for MYs 2017-2025 vehicles is in the range of 80 to 
110 million metric tons, or about 4 to 5 percent.
    It is important to note that the above projection of the impact of 
the EV/PHEV/FCV incentives on the overall program GHG emissions 
reductions assumes that there would be no change to the standard even 
if the EV 0 gram per mile incentive were not in effect, i.e., that EPA 
would propose exactly the same standard if the 0 gram per mile 
compliance value were not allowed for any EV/PHEV/FCVs. While EPA has 
not analyzed such a scenario, it is clear that not allowing a 0 gram 
per mile compliance value would change the technology mix and cost 
projected for the proposed standard.
    It is also important to note that the projected impact on GHG 
emissions reductions in the above table are based on the 2025 
nationwide average electricity upstream GHG emissions rate (powerplant 
plus feedstock) of 0.574 grams GHG/watt-hour discussed above (based on 
simulations with the EPA's Integrated Planning Model (IPM) for 
powerplants in 2025, and a 1.06 factor to account for feedstock-related 
GHG emissions).
    EPA recognizes two factors which could significantly reduce the 
electricity upstream GHG emissions factor by calendar year 2025. First, 
there is a likelihood that early EV/PHEV/FCV sales will be much more 
concentrated in parts of the country with lower electricity GHG 
emissions rates and much less concentrated in regions with higher 
electricity GHG emissions rates. This has been the case with sales of 
hybrid vehicles, and is likely to be more so with EVs in particular. 
Second, there is the possibility of a future comprehensive program 
addressing upstream emissions of GHGs from the generation of 
electricity. Other factors which could also help in this regard include 
technology innovation and lower prices for some powerplant fuels such 
as natural gas.
    On the other hand, EPA also recognizes factors which could increase 
the appropriate electricity upstream GHG emissions factor in the 
future, such as a consideration of marginal electricity demand rather 
than average demand and use of high-power charging. The possibility 
that EVs won't displace gasoline vehicle use on a 1:1 basis (i.e., 
multi-vehicle households may use EVs for more shorter trips and fewer 
longer trips, which could lead to lower overall travel for typical EVs 
and higher overall travel for gasoline vehicles) could also reduce the 
overall GHG emissions benefits of EVs.
    EPA seeks comment on information relevant to these and other 
factors which could both decrease or increase the proper electricity 
upstream GHG emissions factor for calendar year 2025 modeling.

[[Page 75016]]

3. Incentives for ``Game-Changing'' Technologies Including Use of 
Hybridization and Other Advanced Technologies for Full-Size Pickup 
Trucks
    As explained in section II. C above, the agencies recognize that 
the standards under consideration for MY 2017-2025 will be challenging 
for large trucks, including full size pickup trucks that are often used 
for commercial purposes and have generally higher payload and towing 
capabilities, and cargo volumes than other light-duty vehicles. In 
Section II.C and Chapter 2 of the joint TSD, EPA and NHTSA describe how 
the slope of the truck curve has been adjusted compared to the 2012-
2016 rule to reflect these disproportionate challenges. In Section 
III.B, EPA describes the progression of the truck standards. In this 
section, EPA describes a proposed incentive for full size pickup 
trucks, proposed by EPA under both section 202 (a) of the CAA and 
section 32904 (c) of EPCA, to incentivize advanced technologies on this 
class of vehicles. This incentive would be in the form of credits under 
the EPA GHG program, and fuel consumption improvement values 
(equivalent to EPA's credits) under the CAFE program.
    The agencies' goal is to incentivize the penetration into the 
marketplace of ``game changing'' technologies for these pickups, 
including their hybridization. For that reason, EPA is proposing 
credits for manufacturers that hybridize a significant quantity of 
their full size pickup trucks, or use other technologies that 
significantly reduce CO2 emissions and fuel consumption. 
This proposed credit would be available on a per-vehicle basis for mild 
and strong HEVs, as well as for use of other technologies that 
significantly improve the efficiency of the full sized pickup class. As 
described in section II.F. and III.B.10, EPA, in coordination with 
NHTSA, is also proposing that manufacturers be able to include ``fuel 
consumption improvement values'' equivalent to EPA CO2 
credits in the CAFE program. The gallon per mile values equivalent to 
EPA proposed CO2 credits are also provided below, in 
addition to the proposed CO2 credits.\297\ These credits and 
fuel consumption improvement values provide the incentive to begin 
transforming this challenged category of vehicles toward use of the 
most advanced technologies.
---------------------------------------------------------------------------

    \297\ Note that EPA's proposed calculation methodology in 40 CFR 
600.510-12 does not use vehicle-specific fuel consumption 
adjustments to determine the CAFE increase due to the various 
incentives allowed under the proposed program. Instead, EPA would 
convert the total CO2 credits due to each incentive 
program from metric tons of CO2 to a fleetwide CAFE 
improvement value. The fuel consumption values are presented to give 
the reader some context and explain the relationship between 
CO2 and fuel consumption improvements.
---------------------------------------------------------------------------

    Access to this credit is conditioned on a minimum penetration of 
the technologies in a manufacturer's full size pickup truck fleet. The 
proposed penetration rates can be found in Table 5-26 in the TSD. EPA 
is seeking comment on these penetration rates and how they should be 
applied to a manufacturer's truck fleet.
    To ensure its use for only full sized pickup trucks, EPA is 
proposing a specific definition for a full sized pickup truck based on 
minimum bed size and minimum towing capability. The specifics of this 
proposed definition can be found in Chapter 5 of the draft joint TSD 
(see Section 5.3.1) and in the draft regulations at 86.1866-12(e). This 
proposed definition is meant to ensure that the larger pickup trucks 
which provide significant utility with respect to payload and towing 
capacity as well as open beds with large cargo capacity are captured by 
the definition, while smaller pickup trucks which have more limited 
hauling, payload and/or towing are not covered by the proposed 
definition. For this proposal, a full sized pickup truck would be 
defined as meeting requirements 1 and 2, below, as well as either 
requirement 3 or 4, below:
    1. The vehicle must have an open cargo box with a minimum width 
between the wheelhouses of 48 inches measured as the minimum lateral 
distance between the limiting interferences (pass-through) of the 
wheelhouses. The measurement would exclude the transitional arc, local 
protrusions, and depressions or pockets, if present.\298\ An open cargo 
box means a vehicle where the cargo bed does not have a permanent roof 
or cover. Vehicles sold with detachable covers are considered ``open'' 
for the purposes of these criteria.
---------------------------------------------------------------------------

    \298\ This dimension is also known as dimension W202 as defined 
in Society of Automotive Engineers Procedure J1100.
---------------------------------------------------------------------------

    2. Minimum open cargo box length of 60 inches defined by the lesser 
of the pickup bed length at the top of the body (defined as the 
longitudinal distance from the inside front of the pickup bed to the 
inside of the closed endgate; this would be measured at the height of 
the top of the open pickup bed along vehicle centerline and the pickup 
bed length at the floor) and the pickup bed length at the floor 
(defined as the longitudinal distance from the inside front of the 
pickup bed to the inside of the closed endgate; this would be measured 
at the cargo floor surface along vehicle centerline).\299\
---------------------------------------------------------------------------

    \299\ The pickup body length at the top of the body is also 
known as dimension L506 in Society of Automotive Engineers Procedure 
J1100. The pickup body length at the floor is also known as 
dimension L505 in Society of Automotive Engineers Procedure J1100.
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    3. Minimum Towing Capability--the vehicle must have a GCWR (gross 
combined weight rating) minus GVWR (gross vehicle weight rating) value 
of at least 5,000 pounds.\300\
---------------------------------------------------------------------------

    \300\ Gross combined weight rating means the value specified by 
the vehicle manufacturer as the maximum weight of a loaded vehicle 
and trailer, consistent with good engineering judgment. Gross 
vehicle weight rating means the value specified by the vehicle 
manufacturer as the maximum design loaded weight of a single 
vehicle, consistent with good engineering judgment. Curb weight is 
defined in 40 CFR 86.1803, consistent with the provisions of 40 CFR 
1037.140.
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    4. Minimum Payload Capability--the vehicle must have a GVWR (gross 
vehicle weight rating) minus curb weight value of at least 1,700 
pounds.
    As discussed above, this proposed definition is intend to cover the 
larger pickup trucks sold in the U.S. today (and for 2017 and later) 
which have the unique attributes of an open bed, and larger towing and/
or payload capacity. This proposed incentive will encourage the 
penetration of advanced, low CO2 technologies into this 
market segment. The proposed definition would exclude a number of 
smaller-size pickup trucks sold in the U.S. today (examples are the 
Dodge Dakota, Nissan Frontier, Chevrolet Colorado, Toyota Tacoma and 
Ford Ranger). These vehicles generally have smaller boxes (and thus 
smaller cargo capacity), and lower payload and towing ratings. EPA is 
aware that some configurations of these smaller pickups trucks can 
offer towing capacity similar to the larger pickups. As discussed in 
the draft Joint TSD Section 5.3.1, EPA is seeking comment on expanding 
the scope of this credit to somewhat smaller pickups (with a minimum 
distance between the wheel wells of 42 inches, but still with a minimum 
box length of 60 inches), provided they have the towing capabilities of 
the larger full-size trucks (for example a minimum towing capacity of 
6,000 pounds). EPA believes this could incentivize advanced 
technologies (such as HEVs) on pickups which offer some of the utility 
of the larger vehicles, but overall have lower CO2 emissions 
due to the much lighter mass of the vehicle. Providing an advanced 
technology incentive credit for a vehicle which offers consumers much 
of the utility of a larger pickup truck but with overall lower 
CO2 performance would promote the overall objective of the 
proposed standards.

[[Page 75017]]

    EPA proposes that mild HEV pickup trucks would be eligible for a 
per-truck 10 g/mi CO2 credit (equal to 0.0011 gal/mi for a 
25 mpg truck) during MYs 2017-2021 if the mild HEV technology is used 
on a minimum percentage of a company's full sized pickups. That minimum 
percentage would be 30 percent of a company's full sized pickup 
production in MY 2017 with a ramp up to at least 80 percent of 
production in MY 2021.
    EPA is also proposing that strong HEV pickup trucks would be 
eligible for a per-truck 20 g/mi CO2 credit (equal to 0.0023 
gal/mi for a 25 mpg truck) during MYs 2017-2025 if the strong HEV 
technology is used on a minimum percentage of a company's full sized 
pickups. That minimum percentage would be 10 percent of a company's 
full sized pickup production in each year over the model years 2017-
2025.
    To ensure that the hybridization technology used by manufacturers 
seeking one of these credits meets the intent behind the incentives, 
EPA is proposing very specific definitions of what qualifies as a mild 
and a strong HEV for these purposes. These definitions are described in 
detail in Chapter 5 of the draft joint TSD (see section 5.3.3).
    Because there are other technologies besides mild and strong 
hybrids which can significantly reduce GHG emissions and fuel 
consumption in pickup trucks, EPA is also proposing performance-based 
incentive credits, and equivalent fuel consumption improvement values 
for CAFE, for full size pickup trucks that achieve an emission level 
significantly below the applicable CO2 target.\301\ EPA 
proposes that this credit be either 10 g/mi CO2 (equivalent 
to 0.0011 gal/mi for the CAFE program) or 20 g/mi CO2 
(equivalent to 0.0023 gal/mi for the CAFE program) for pickups 
achieving 15 percent or 20 percent, respectively, better CO2 
than their footprint based target in a given model year. Because the 
footprint target curve has been adjusted to account for A/C related 
credits, the CO2 level to be compared with the target would 
also include any A/C related credits generated by the vehicles. EPA 
provides further details on this performance-based incentive in Chapter 
5 of the draft joint TSD (see Section 5.3). The 10 g/mi (equivalent to 
0.0011 gal/mi) performance-based credit would be available for MYs 2017 
to 2021 and a vehicle meeting the requirements would receive the credit 
until MY 2021 unless its CO2 level or fuel consumption 
increases. The 10 g/mi credit is not available after 2021 because the 
post-2021 standards quickly overtake a 15% overcompliance. Earlier in 
the program, an overcompliance lasts for more years, making the credit/
value appropriate for a longer period. The 20 g/mi CO2 
(equivalent to 0.0023 gal/mi) performance-based credit would be 
available for a maximum of 5 consecutive years within the model years 
of 2017 to 2025 after it is first eligible, provided its CO2 
level and fuel consumption does not increase. Subsequent redesigns can 
qualify for the credit again. The credits would begin in the model year 
of introduction, and (as noted) could not extend past MY 2021 for the 
10 g/mi credit (equivalent to 0.0011 gal/mi) and MY 2025 for the 20 g/
mi credit (equivalent to 0.0023 gal/mi).
---------------------------------------------------------------------------

    \301\ The 15 and 20 percent thresholds would be based on 
CO2 performance compared to the applicable CO2 
vehicle footprint target for both CO2 credits and 
corresponding CAFE fuel consumption improvement values. As with A/C 
and off-cycle credits, EPA would convert the total CO2 
credits due to the pick-up incentive program from metric tons of 
CO2 to a fleetwide equivalent CAFE improvement value.
---------------------------------------------------------------------------

    As with the HEV-based credit, the performance-based credit/value 
requires that the technology be used on a minimum percentage of a 
manufacturer's full-size pickup trucks. That minimum percentage for the 
10 g/mi GHG credit (equivalent to 0.0011 gal/mi fuel consumption 
improvement value) would be 15 percent of a company's full sized pickup 
production in MY 2017 with a ramp up to at least 40 percent of 
production in MY 2021. The minimum percentage for the 20 g/mi credit 
(equivalent to 0.0011 gal/mi fuel consumption improvement value) would 
be 10 percent of a company's full sized pickup production in each year 
over the model years 2017-2025. These minimum percentages are set to 
encourage significant penetration of these technologies, leading to 
long-term market acceptance.
    Importantly, the same vehicle could not receive credits (or 
equivalent fuel consumption improvement values) under both the HEV and 
the performance-based approaches. EPA requests comment on all aspects 
of this proposed pickup truck incentive credit, including the proposed 
definitions for full sized pickup truck and mild and strong HEV.
4. Treatment of Plug-in Hybrid Electric Vehicles, Dual Fuel Compressed 
Natural Gas Vehicles, and Ethanol Flexible Fuel Vehicles for GHG 
Emissions Compliance
a. Greenhouse Gas Emissions
i. Introduction
    This section addresses proposed approaches for determining the 
compliance values for greenhouse gas (GHG) emissions for those vehicles 
that can use two different fuels, typically referred to as dual fuel 
vehicles under the CAFE program. Three specific technologies are 
addressed: Plug-in hybrid electric vehicles (PHEVs), dual fuel 
compressed natural gas (CNG) vehicles, and ethanol flexible fuel 
vehicles (FFVs).\302\ EPA's underlying principle is to base compliance 
values on demonstrated vehicle tailpipe CO2 emissions 
performance. The key issue with vehicles that can use more than one 
fuel is how to weight the operation (and therefore GHG emissions 
performance) on the two different fuels. EPA proposes to do this on a 
technology-by-technology basis, and the sections below will explain the 
rationale for choosing a particular approach for each vehicle 
technology.
---------------------------------------------------------------------------

    \302\ EPA recognizes that other vehicle technologies may be 
introduced in the future that can use two (or more) fuels. For 
example, the original FFVs were designed for up to 85% methanol/15% 
gasoline, rather than the 85% ethanol/15% gasoline for which current 
FFVs are designed. EPA has regulations that address methanol 
vehicles (both FFVs and dedicated vehicles), and, for GHG emissions 
compliance in MYs 2017-2025, EPA is proposing to treat methanol 
vehicles in the same way as ethanol vehicles.
---------------------------------------------------------------------------

    EPA is proposing no changes to the tailpipe GHG emissions 
compliance approach for dedicated vehicles, i.e., those vehicles that 
can use only one fuel. As finalized for MY 2016 and later vehicles in 
the 2012-2016 rule, tailpipe CO2 emissions compliance levels 
are those values measured over the EPA 2-cycle city/highway tests.\303\ 
EPA is proposing provisions for how and when to also account for the 
upstream fuel production and distribution related GHG emissions 
associated with electric vehicles, fuel cell vehicles, and the electric 
portion of plug-in hybrid electric vehicles, and these provisions are 
discussed in Section III.C.2 above.
---------------------------------------------------------------------------

    \303\ For dedicated alternative fuel vehicles. See 75 at FR 
25434.
---------------------------------------------------------------------------

ii. Plug-In Hybrid Electric Vehicles
    PHEVs can operate both on an on-board battery that can be charged 
by wall electricity from the grid, and on a conventional liquid fuel 
such as gasoline. Depending on how these vehicles are fueled and 
operated, PHEVs

[[Page 75018]]

could operate exclusively on grid electricity, exclusively on the 
conventional fuel, or any combination of both fuels. EPA can determine 
the CO2 emissions performance when operated on the battery 
and on the conventional fuel. But, in order to generate a single 
CO2 emissions compliance value, EPA must adopt an approach 
for determining the appropriate weighting of the CO2 
emissions performance on grid electricity and the CO2 
emissions performance on gasoline.
    EPA is proposing no changes to the Society of Automotive Engineers 
(SAE) cycle-specific utility factor approach for PHEV compliance and 
label emissions calculations first adopted by EPA in the joint EPA/DOT 
final rulemaking establishing new fuel economy and environment label 
requirements for MY 2013 and later vehicles.\304\ This utility factor 
approach is based on several key assumptions. One, PHEVs are designed 
such that the first mode of operation is all-electric drive or electric 
assist. Every PHEV design with which EPA is familiar is consistent with 
this assumption. Two, PHEVs will be charged once per day. While this 
critical assumption is unlikely to be met by every PHEV driver every 
day, EPA believes that a large majority of PHEV owners will be highly 
motivated to re-charge as frequently as possible, both because the 
owner has paid a considerably higher initial vehicle cost to be able to 
operate on grid electricity, and because electricity is considerably 
cheaper, on a per mile basis, than gasoline. Three, it is reasonable to 
assume that future PHEV drivers will retain driving profiles similar to 
those of past drivers on which the utility factors were based. More 
detailed information on the development of this utility factor approach 
can be obtained from the Society of Automotive Engineers.\305\ EPA will 
continue to reevaluate the appropriateness of these assumptions over 
time.
---------------------------------------------------------------------------

    \304\ 76 FR 39504-39505 (July 6, 2011) and 40 CFR 600.116-12(b).
    \305\ http://www.SAE.org, specifically SAE J2841 ``Utility 
Factor Definitions for Plug-In Hybrid Electric Vehicles Using Travel 
Survey Data,'' September 2010.
---------------------------------------------------------------------------

    Based on this approach, and PHEV-specific specifications such as 
all-electric drive or equivalent all-electric range, the cycle-specific 
utility factor methodology yields PHEV-specific values for projected 
average percent of operation on grid electricity and average percent of 
operation on gasoline over both the city and highway test cycles. For 
example, the Chevrolet Volt PHEV, the only original equipment 
manufacturer (OEM) PHEV in the U.S. market today, which has an all-
electric range of 35 miles on EPA's fuel economy label, has city and 
highway cycle utility factors of about 0.65, meaning that the average 
Volt driver is projected to drive about 65 percent of the miles on grid 
electricity and about 35 percent of the miles on gasoline. Each PHEV 
will have its own utility factor.
    Based on this utility factor approach, EPA calculates the GHG 
emissions compliance value for an individual PHEV as the sum of (1) the 
GHG emissions value for electric operation (either 0 grams per mile or 
a non-zero value reflecting the net upstream GHG emissions accounting 
depending on whether automaker EV/PHEV/FCV production is below or above 
its cumulative production cap as discussed in Section III.C.2 above) 
multiplied by the utility factor, and (2) the tailpipe CO2 
emissions value on gasoline multiplied by (1 minus the utility factor).
iii. Dual Fuel Compressed Natural Gas Vehicles
    Dual fuel CNG vehicles operate on either compressed natural gas or 
gasoline, but not both at the same time, and have separate tanks for 
the two fuels.\306\ There are no OEM dual fuel CNG vehicles in the U.S. 
market today, but some manufacturers have expressed interest in 
bringing them to market during the rulemaking time frame. Under current 
EPA regulations through MY 2015, GHG emissions compliance values for 
dual fuel CNG vehicles are based on a methodology that provides 
significant GHG emissions incentives equivalent to the ``CAFE credit'' 
approach for dual and flexible fuel vehicles. For MY 2016, current EPA 
regulations utilize a methodology based on demonstrated vehicle 
emissions performance and real world fuels usage, similar to that for 
ethanol flexible fuel vehicles discussed below.
---------------------------------------------------------------------------

    \306\ EPA considers ``bi-fuel'' CNG vehicles to be those 
vehicles that can operate on a mixture of CNG and gasoline. Bi-fuel 
vehicles would not be eligible for this treatment, since they are 
not designed to allow the use of CNG only.
---------------------------------------------------------------------------

    EPA proposes to develop a new approach for dual fuel CNG vehicle 
GHG emissions compliance that is very similar to the utility factor 
approach developed and described above for PHEVs, and for this new 
approach to take effect with MY 2016. As with PHEVs, EPA believes that 
owners of dual fuel CNG vehicles will preferentially seek to refuel and 
operate on CNG fuel as much as possible, both because the owner paid a 
much higher price for the dual fuel capability, and because CNG fuel is 
considerably cheaper than gasoline on a per mile basis. EPA notes that 
there are some relevant differences between dual fuel CNG vehicles and 
PHEVs, and some of these differences might weaken the case for using 
utility factors for dual fuel CNG vehicles. For example, a dual fuel 
CNG vehicle might be able to run on gasoline when both fuels are 
available on board (depending on how the vehicle is designed), it may 
be much more inconvenient for some private dual fuel CNG vehicle owners 
to fuel every day relative to PHEVs, and there are many fewer CNG 
refueling stations than electrical charging facilities.\307\ On the 
other hand, there are differences that could strengthen the case as 
well, e.g., many dual fuel CNG vehicles will likely have smaller 
gasoline tanks given the expectation that gasoline will be used only as 
an ``emergency'' fuel, and it may be easier for a dual fuel CNG vehicle 
to be refueled during the day than a PHEV (which is most conveniently 
refueled at night with a home charging unit).
---------------------------------------------------------------------------

    \307\ EPA assumes that most PHEV owners will charge at home with 
electrical charging equipment that they purchase and install for 
their own use.
---------------------------------------------------------------------------

    Taking all these considerations into account, EPA believes that the 
merit of using a utility factor-based approach for dual fuel CNG 
vehicles is similar to that of doing so for PHEVs, and we propose to 
develop a similar methodology for dual fuel CNG vehicles. For example, 
applying the current SAE fleet utility factor approach developed for 
PHEVs to a dual fuel CNG vehicle with a 150-mile CNG range would result 
in a compliance assumption of about 95 percent operation on CNG and 
about 5 percent operation on gasoline.\308\ EPA is proposing to 
directly extend the PHEV utility factor methodology to dual fuel CNG 
vehicles, using the same assumptions about daily refueling. EPA invites 
comment on this proposal, including the appropriateness of the 
assumptions described above for dual fuel CNG vehicles.
---------------------------------------------------------------------------

    \308\ See SAE J2841 ``Utility Factor Definitions for Plug-In 
Hybrid Electric Vehicles Using Travel Survey Data,'' September 2010, 
available at http://www.SAE.org, which we are proposing to use for 
dual fuel CNG vehicles as well.
---------------------------------------------------------------------------

    Further, for MYs 2012-2015, EPA is also proposing to allow the 
option, at the manufacturer's discretion, to use the proposed utility 
factor-based methodology for MYs 2016-2025 discussed above. The 
rationale for providing this option is that some manufacturers are 
likely to reach the maximum allowable GHG emissions credits (based on 
the statutory CAFE credits) through their production of

[[Page 75019]]

ethanol FFVs, and therefore would not be able to gain any GHG emissions 
compliance benefit even if they produced dual fuel CNG vehicles that 
demonstrated superior GHG emissions performance.
    In determining eligibility for the utility factor approach, EPA may 
consider placing additional constraints on the designs of dual fuel CNG 
vehicles to maximize the likelihood that consumers will routinely seek 
to use CNG fuel. Options include, but are not limited to, placing a 
minimum value on CNG tank size or CNG range, a maximum value on 
gasoline tank size or gasoline range, a minimum ratio of CNG-to-
gasoline range, and requiring an onboard control system so that a dual 
fuel CNG vehicle is only able to access the gasoline fuel tank if the 
CNG tank is empty. EPA seeks comments on the merits of these additional 
eligibility constraints for dual fuel CNG vehicles.
iv. Ethanol Flexible Fuel Vehicles
    Ethanol FFVs can operate on E85 (a blend of 15 percent gasoline and 
85 percent ethanol, by volume), gasoline, or any blend of the two. 
There are many ethanol FFVs in the market today.
    In the final rulemaking for MY 2012-2016, EPA promulgated 
regulations for MYs 2012-2015 ethanol FFVs that provided significant 
GHG emissions incentives equivalent to the long-standing ``CAFE 
credits'' for ethanol FFVs under EPCA, since many manufacturers had 
relied on the availability of these credits in developing their 
compliance strategies.\309\ Beginning in MY 2016, EPA ended the GHG 
emissions compliance incentives and adopted a methodology based on 
demonstrated vehicle emissions performance. This methodology 
established a default value assumption where ethanol FFVs are operated 
100 percent of the time on gasoline, but allows manufacturers to use a 
relative E85 and gasoline vehicle emissions performance weighting based 
either on national average E85 and gasoline sales data, or 
manufacturer-specific data showing the percentage of miles that are 
driven on E85 vis-[agrave]-vis gasoline for that manufacturer's ethanol 
FFVs.\310\ EPA is not proposing any changes to this methodology for MYs 
2017-2025.
---------------------------------------------------------------------------

    \309\ 75 FR at 25432-433.
    \310\ 75 FR at 25433-434.
---------------------------------------------------------------------------

    EPA believes there is a compelling rationale for not adopting a 
utility factor-based approach, as discussed above for PHEVs and dual 
fuel CNG vehicles, for ethanol FFVs. Unlike with PHEVs and dual fuel 
CNG vehicles, owners of ethanol FFVs do not pay any more for the E85 
fueling capability. Unlike with PHEVs and dual fuel CNG vehicles, 
operation on E85 is not cheaper than gasoline on a per mile basis, it 
is typically the same or somewhat more expensive to operate on E85. 
Accordingly, there is no direct economic motivation for the owner of 
ethanol FFVs to seek E85 refueling, and in some cases there is an 
economic disincentive. Because E85 has a lower energy content per 
gallon than gasoline, an ethanol FFV will have a lower range on E85 
than on gasoline, which provides an additional disincentive. The data 
confirm that, on a national average basis in 2008, less than one 
percent of ethanol FFVs used E85 fuel.\311\
---------------------------------------------------------------------------

    \311\ 75 FR 14762 (March 26, 2010).
---------------------------------------------------------------------------

    If, in the future, this situation were to change (e.g., if E85 were 
less expensive, on a per mile basis), then EPA could reconsider its 
approach to this issue.
b. Procedures for CAFE Calculations for MY 2020 and Later
    49 U.S.C. 32905 specifies how the fuel economy of dual fuel 
vehicles is to be calculated for the purposes of CAFE through the 2019 
model year. The basic calculation is a 50/50 harmonic average of the 
fuel economy for the alternative fuel and the conventional fuel, 
irrespective of the actual usage of each fuel. In addition, the fuel 
economy value for the alternative fuel is significantly increased by 
dividing by 0.15 in the case of CNG and ethanol and by using a 
petroleum equivalency factor methodology that yields a similar overall 
increase in the CAFE mpg value for electricity.\312\ In a related 
provision, 49 U.S.C. 32906, the amount by which a manufacturer's CAFE 
value (for domestic passenger cars, import passenger cars, or light-
duty trucks) can be improved by the statutory incentive for dual fuel 
vehicles is limited by EPCA to 1.2 mpg through 2014, and then gradually 
reduced until it is phased out entirely starting in model year 
2020.\313\ With the expiration of the special calculation procedures in 
49 U.S.C. 32905 for dual fueled vehicles, the CAFE calculation 
procedures for model years 2020 and later vehicles need to be set under 
the general provisions authorizing EPA to establish testing and 
calculation procedures.\314\
---------------------------------------------------------------------------

    \312\ 49 U.S.C. 32905.
    \313\ 49 U.S.C. 32906. NHTSA interprets section 32906(a) as not 
limiting the impact of duel fueled vehicles on CAFE calculations 
after MY2019.
    \314\ 49 U.S.C. 32904(a), (c).
---------------------------------------------------------------------------

    With the expiration of the specific procedures for dual fueled 
vehicles, there is less need to base the procedures on whether a 
vehicle meets the specific definition of a dual fueled vehicle in EPCA. 
Instead, EPA's focus is on establishing appropriate procedures for the 
broad range of vehicles that can use both alternative and conventional 
fuels. For convenience, this discussion uses the term dual fuel to 
refer to vehicles that can operate on an alternative fuel and on a 
conventional fuel.
    EPA sees two potential approaches for dual fuel vehicle CAFE 
calculations for model years 2020 and later. EPA requests comment on 
the two options discussed here, and we welcome comments on other 
potential options as well.
    Determining the fuel economy of the vehicle for purposes of CAFE 
requires a determination on how to weight the fuel economy performance 
on the alternative fuel and the fuel economy performance on the 
conventional fuel. For PHEVs, dual-fuel CNG vehicles, and FFVs, EPA 
proposes to apply the same weighting for CAFE purposes as for purposes 
of GHG emissions compliance values. EPA proposes that, for PHEVs and 
dual-fuel CNG vehicles, the fuel economy weightings will be determined 
using the SAE utility factor methodology, while for ethanol FFVs, 
manufacturers can choose to use a default based on 100% gasoline 
operation, or can choose to base the fuel economy weightings on 
national average E85 and gasoline use, or on manufacturer-specific data 
showing the percentage of miles that are driven on E85 vis-[agrave]-vis 
gasoline for that manufacturer's ethanol FFVs. Where the two options 
differ is whether the 0.15 divisor or similar adjustment factor is 
retained or not. EPA believes that there are legitimate arguments both 
for and against retaining the adjustment factors.
    EPA proposes to continue to use the 0.15 divisor for CNG and 
ethanol, and the petroleum equivalency factor for electricity, both of 
which the statute requires to be used through 2019, for model years 
2020 and later. EPA believes there are two primary arguments for 
retaining the 0.15 divisor and petroleum equivalency factor. One, this 
approach is directionally consistent with the overall petroleum 
reduction goals of EPCA and the CAFE program, because it continues to 
encourage manufacturers to build vehicles capable of operating on fuels 
other than petroleum. Two, the 0.15 divisor and petroleum equivalency 
factor are used under EPCA to calculate CAFE compliance values for 
dedicated alternative fuel vehicles, and retaining this approach for 
dual fuel vehicles would maintain consistency, for MY 2020 and later, 
between the approaches for dedicated alternative fuel vehicles and for 
the alternative fuel portion of

[[Page 75020]]

dual fuel vehicle operation. Opting not to provide the 0.15 divisor or 
PEF for the alternative fuel portion of these vehicles' operation may 
discourage manufacturers from building vehicles capable of operating on 
both gasoline/diesel and alternative fuels, and thus potentially 
discourage important ``bridge'' technologies that may help consumers 
overcome current concerns about advanced technology vehicles.
    EPA recognizes that this proposed calculation procedure would 
continue to provide, directionally, an increase in fuel economy values 
for the vehicles previously covered by the special calculation 
procedures in 49 U.S.C. 32905, and that Congress chose both to end the 
specific calculation procedures in that section and over time to reduce 
the benefit for CAFE purposes of the increase in fuel economy mandated 
by those special calculation procedures. However, the proposed 
provisions differ significantly in important ways from the special 
calculation provisions mandated by EPCA. Most importantly, they are 
changed to reflect actual usage rates of the alternative fuel and do 
not use the artificial 50/50 weighting previously mandated by 49 U.S.C. 
32905. In practice this means the primary vehicles to benefit from the 
proposed provision will be PHEVs and dual-fuel CNG vehicles, and not 
FFVs, while the primary source of benefit to manufacturers under the 
statutory provisions came from FFVs. Changing the weighting to better 
reflect real world usage is a major change from that mandated by 49 
U.S.C. 32905, and it orients the calculation procedure more to the real 
world impact on petroleum usage, consistent with the statute's 
overarching purpose of energy conservation. In addition, as noted 
above, Congress clearly continued the calculation procedures for 
dedicated alternative fuel vehicles that result in increased fuel 
economy values. This proposed approach is consistent with this, as it 
uses the same approach for calculating fuel economy on the alternative 
fuel when there is real world usage of the alternative fuel. Since the 
proposed provisions are quite different in effect from the specified 
provisions in 49 U.S.C. 32905, and are consistent with the calculation 
procures for dedicated vehicles that use the same alternative fuel, EPA 
believes this proposal would be an appropriate exercise of discretion 
under the general authority provided in 49 U.S.C. 32904.
    An alternative option to the above proposal, and about which EPA 
seeks comment, is to not adopt the 0.15 divisor and petroleum 
equivalency factor for model years 2020 and later. The fuel economy for 
the CNG portion of a dual fuel CNG vehicle, E85 portion of FFVs, and 
the electric portion of a PHEV would be determined strictly on an 
energy-equivalent basis, without any adjustment based on the 0.15 
divisor or petroleum equivalency factor. For E85 FFVs, the manufacturer 
would almost certainly use the gasoline fuel economy value only because 
gasoline has higher energy content and fuel economy than E85.\315\ This 
approach would place less emphasis on conservation of petroleum and 
more on conservation of energy for dual fuel vehicles. It would also 
place more emphasis on Congress' decision to reduce over time the 
impact on CAFE from the increased fuel economy values derived from the 
specified calculation procedures in 49 U.S.C. 32905, and less emphasis 
on aligning the incentives for dual fuel alternative fuel vehicles with 
the incentives for dedicated alternative fuel vehicles.\316\ EPA 
invites comment on both approaches.
---------------------------------------------------------------------------

    \315\ Manufacturers can also choose to base the fuel economy 
weightings on national average E85 and gasoline use, or on 
manufacturer-specific data showing the percentage of miles that are 
driven on E85 vis-[agrave]-vis gasoline for that manufacturer's 
ethanol FFVs, but since E85 fuel economy ratings are based on miles 
per gallon of E85, not adjusted for energy equivalency with 
gasoline, E85 mpg values are lower than gasoline mpg values, which 
makes this a non-option.
    \316\ Incentives for dedicated alternative fuel vehicles would 
not be affected by changes to incentives for dual fueled vehicles. 
Dedicated alternative fuel vehicles would continue to use the 0.15 
divisor or petroleum equivalency factor.
---------------------------------------------------------------------------

5. Off-Cycle Technology Credits
    For MYs 2012-2016, EPA provided an option for manufacturers to 
generate credits for employing new and innovative technologies that 
achieve CO2 reductions which are not reflected on current 2-
cycle test procedures. For this proposal, EPA, in coordination with 
NHTSA, is proposing to apply the off-cycle credits and equivalent fuel 
consumption improvement values to both the GHG and CAFE programs. This 
proposed expansion is a change from the 2012-16 final rule where EPA 
only provided the off-cycle credits for the GHG program. For MY 2017 
and later, EPA is proposing that manufacturers may continue to use off-
cycle credits for GHG compliance and begin to use fuel consumption 
improvement values (essentially equivalent to EPA credits) for CAFE 
compliance. In addition, EPA is proposing a set of defined (e.g. 
default) values for identified off-cycle technologies that would apply 
unless the manufacturer demonstrates to EPA that a different value for 
its technologies is appropriate. The proposed changes to incorporate 
off-cycle technologies for the GHG program are described in Section 
III.C.5.a-b below, and for the CAFE program are described in Section 
III.C.5.c below.
a. Off-Cycle Credit Program Adopted in MY 2012-2016 Rule
    In the MY 2012-2016 Final Rule, EPA adopted an optional credit 
opportunity for new and innovative technologies that reduce vehicle 
CO2 emissions, but for which the CO2 reduction 
benefits are not significantly captured over the 2-cycle test procedure 
used to determine compliance with the fleet average standards (i.e., 
``off-cycle'').\317\ EPA indicated that eligible innovative 
technologies are those that may be relatively newly introduced in one 
or more vehicle models, but that are not yet implemented in widespread 
use in the light-duty fleet, and which provide novel approaches to 
reducing greenhouse gas emissions. The technologies must have 
verifiable and demonstrable real-world GHG reductions.\318\ EPA adopted 
the off-cycle credit option to provide an incentive to encourage the 
introduction of these types of technologies, believing that bona fide 
reductions from these technologies should be considered in determining 
a manufacturer's fleet average, and that a credit mechanism is an 
effective way to do this. This optional credit opportunity is currently 
available through the 2016 model year.
---------------------------------------------------------------------------

    \317\ 75 FR 25438-440,
    \318\ See 40 CFR 1866.12 (d); 75 FR at 25438.
---------------------------------------------------------------------------

    EPA finalized a two-tiered process for OEMs to demonstrate that 
CO2 reductions of an innovative and novel technology are 
verifiable and measureable but are not captured by the 2-cycle test 
procedures. First, a manufacturer must determine whether the benefit of 
the technology could be captured using the 5-cycle methodology 
currently used to determine fuel economy label values. EPA established 
the 5-cycle test methods to better represent real-world factors 
impacting fuel economy, including higher speeds and more aggressive 
driving, colder temperature operation, and the use of air conditioning. 
If this determination is affirmative, the manufacture must follow the 
5-cycle procedures.
    If the manufacturer finds that the technology is such that the 
benefit is not adequately captured using the 5-cycle approach, then the 
manufacturer would have to develop a robust methodology, subject to EPA 
approval, to demonstrate the benefit and determine the appropriate 
CO2 gram per mile credit. This case-by-case, non-5-cycle 
credits approach includes an opportunity for public comment as part of 
the approval

[[Page 75021]]

process. The demonstration program must be robust, verifiable, and 
capable of demonstrating the real-world emissions benefit of the 
technology with strong statistical significance. Whether the approach 
involves on-road testing, modeling, or some other analytical approach, 
the manufacturer is required to present a proposed methodology to EPA. 
EPA will approve the methodology and credits only if certain criteria 
are met. Baseline emissions and control emissions must be clearly 
demonstrated over a wide range of real world driving conditions and 
over a sufficient number of vehicles to address issues of uncertainty 
with the data. Data must be on a vehicle model-specific basis unless a 
manufacturer demonstrated model specific data was not necessary. See 
generally 75 FR at 25438-40.
b. Proposed Changes to the Off-cycle Credits Program
    EPA has been encouraged by automakers' interest in off-cycle 
credits since the program was finalized. Though it is early in the 
program, several manufacturers have shown interest in introducing off-
cycle technologies which are in various stages of development and 
testing. EPA believes that continuing the option for off-cycle credits 
would further encourage innovative strategies for reducing 
CO2 emissions beyond those measured by the 2-cycle test 
procedures. Continuing the program provides manufacturers with 
additional flexibility in reducing CO2 to meet increasingly 
stringent CO2 standards and to encourage early penetration 
of off-cycle technologies into the light duty fleet. Furthermore, 
extending the program may encourage automakers to invest in off-cycle 
technologies that could have the benefit of realizing additional 
reductions in the light-duty fleet over the longer-term. Therefore, EPA 
is proposing to extend the off-cycle credits program to 2017 and later 
model years.
    In implementing the program, some manufacturers have expressed 
concern that a drawback to using the program is uncertainty over which 
technologies may be eligible for off-cycle credits plus uncertainties 
resulting from a case-by-case approval process. Current EPA eligibility 
criteria require technologies to be new, innovative, and not in 
widespread use in order to qualify for credits. Also, the MY 2012-2016 
Final Rule specified that technologies must not be significantly 
measurable on the 2-cycle test procedures. As discussed below, EPA 
proposes to significantly modify the eligibility criteria, as the 
current criteria are not well defined and have been a source of 
uncertainty for manufacturers, thereby interfering with the goal of 
providing an incentive for the development and use of additional 
technologies to achieve real world reductions in CO2 
emissions. The focus will be on whether or not add-on technologies can 
be demonstrated to provide off-cycle CO2 emissions 
reductions that are not sufficiently reflected on the 2-cycle tests.
    In addition, as described below in section III.C.5.b.i, EPA is 
proposing that manufacturers would be able to generate credits by 
applying technologies listed on an EPA pre-defined and pre-approved 
technology list starting with MY 2017. These credits would be verified 
and approved as part of certification with no prior approval process 
needed. We believe this new option would significantly streamline and 
simplify the program for manufacturers choosing to use it and would 
provide manufacturers with certainty that credits may be generated 
through the use of pre-approved technologies. For credits not based on 
the pre-defined list, EPA is proposing to streamline and better define 
a step-by-step process for demonstrating emissions reductions and 
applying for credits. EPA is proposing that these procedural changes to 
the case-by-case approach would be effective for new credit 
applications for both the remaining years of the MY 2012-2016 program 
as well as for MY 2017 and later credits that are not based on the pre-
defined list.
    As discussed in section II.F and III.B.10, EPA, in coordination 
with NHTSA, is also proposing that manufacturers be able to include 
fuel consumption reductions resulting from the use of off-cycle 
technologies in their CAFE compliance calculations. Manufacturers would 
generate ``fuel consumption improvement values'' essentially equivalent 
to EPA credits, for use in the CAFE program. The proposed changes to 
the CAFE program to incorporate off-cycle technologies are discussed 
below in section III.5.c.
i. Pre-Defined Credit List for MY 2017 and Later
    As noted above, EPA proposes to establish a list of off-cycle 
technologies from which manufacturers could select to earn a pre-
defined level of CO2 credits in MY 2017 and later. Both 
technologies and credit values based on the list would be pre-approved. 
The manufacturer would demonstrate in the certification process that 
their technology meets the definition of the technology in the list. 
Table III-17 provides an initial proposed list of the technologies and 
per vehicle credit levels for cars and light trucks. EPA has used a 
combination of available activity data from the MOVES model, vehicle 
and test data, and EPA's vehicle simulation tool to estimate a proposed 
credit value EPA believes to be appropriate. In particular, this 
vehicle simulation tool was used to determine the credit amount for 
electrical load reduction technologies (e.g. high efficiency exterior 
lighting, engine heat reconvery, and solar roof panels) and active 
aerodynamic improvements. Chapter 5 of the joint TSD provides a 
detailed description of how these technologies are defined and how the 
proposed credits levels were derived.

[[Page 75022]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.074

    Two technologies on the list--active aerodynamic improvements and 
stop start--are in a different category than the other technologies on 
the list. Both of these technologies are included in the agencies' 
modeling analysis of technologies projected to be available for use in 
achieving the reductions needed for the standards. We have information 
on their effectiveness, cost, and availability for purposes of 
considering them along with the various other technologies we consider 
in determining the appropriate CO2 emissions standard. These 
technologies are among those listed in Chapter 3 of the joint TSD and 
have measureable benefit on the 2-cycle test. However in the context of 
off-cycle credits, stop start is any technology which enables a vehicle 
to automatically turn off the engine when the vehicle comes to a rest 
and restart the engine when the driver applies pressure to the 
accelerator or releases the brake. This includes HEVs and PHEVs (but 
not EVs). In addition, active grill shutters is just one of various 
technologies that can be used as part of aerodynamic design 
improvements (as part of the ``aero2'' technology). The modeling and 
other analysis developed for determining the appropriate emissions 
standard includes these technologies, using the effectiveness values on 
the 2-cycle test. This is consistent with our consideration of all of 
the other technologies included in these analyses. Including them on 
the list for off-cycle credit generation, for purposes of compliance 
with the standard, would recognize that these technologies have a 
higher degree of effectiveness in reducing real-world CO2 
emissions than is reflected in their 2-cycle effectiveness. EPA has 
taken into account the generation of off-cycle credits by these two 
technologies in determining the appropriateness of the proposed GHG 
standards, considering the amount of credit, the projected degree of 
penetration of these technologies, and other factors. Section III.D has 
a more detailed discussion on the feasibility of the standards within 
the context of the flexibilities (such as off-cycle credits) proposed 
in this rule. As discussed in section III.D, EPA plans to incorporate 
the off-cycle credits for these two technologies in the cost analysis 
for the final rule (which EPA anticipates would slightly reduce costs 
with no change to benefits). EPA requests comments on this approach for 
stop start and active aerodynamic improvements.
    Although EPA believes that there is sufficient information to 
estimate performance of other listed technologies for purposes of a 
credit program, EPA does not believe it appropriate to reflect these 
technologies in setting the level of standards at this point. There 
remains significant uncertainty as to the extent listed technologies 
other than stop start and active aerodynamic improvements may be used 
across the light duty fleet and (in some instances) costs of the 
technologies. Including them in the

[[Page 75023]]

standard setting, as is done with A/C control technology, calls for a 
reasonable projection of the penetration of these technologies across 
the fleet and over time, along with reasonable estimates of their cost. 
EPA does not have adequate data at this point in time to make such 
fleet wide projections for other technologies on the list, or for other 
technologies addressed by the case-by-case approach. As in the 2012-
2016 rule, the use of these technologies continues to be not nearly so 
well developed and understood for purposes of consideration in setting 
the standards. See 75 FR at 25438. Technologies that are considered by 
EPA in setting the standard, as discussed in section III.D and in 
Chapter 3 of the TSD, may not generate off-cycle credits under this 
approach, except for active aerodynamic improvements and stop 
start.\319\ This would amount to the double counting discussed at 75 FR 
25438, as EPA has already considered these technologies and assigned 
them an emission reduction effectiveness for purposes of standard 
setting, and has enough information on effectiveness, cost, and 
applicability to project their use for purposes of standard setting. 
EPA will reassess the list above for the Final Rule, based on 
additional information that becomes available during the comment 
period. It may also be appropriate to reconsider this approach as part 
of the mid-term evaluation as information on these technologies' 
applicability, costs, and performance becomes more robust.
---------------------------------------------------------------------------

    \319\ Section III.D provides EPA projected technology 
penetration rates. Technologies projected to be used to meet the 
standards would not be eligible for off-cycle credits, with the 
exception of stop start and active aerodynamic improvements.
---------------------------------------------------------------------------

    EPA proposes to cap the amount of credits a manufacturer could 
generate using the above list to 10 g/mile per year on a combined car 
and truck fleet-wide average basis. The cap would not apply on a 
vehicle model basis, allowing manufacturers the flexibility to focus 
off-cycle technologies on certain vehicle models and generate credits 
for that vehicle model in excess of 10 g/mile. EPA is proposing a 
fleet-wide cap because the proposed credits are based on limited data, 
and also EPA recognizes that some uncertainty is introduced when 
credits are provided based on a general assessment of off-cycle 
performance as opposed to testing on the individual vehicle models. 
Also, as discussed in Chapter 5 of the draft TSD, EPA believes the 
credits proposed are based on conservative estimates, providing 
additional assurance that the list would not result in an overall loss 
of CO2 benefits. EPA proposes that manufacturers wanting to 
generate credits in excess of the 10 g/mile limit for these listed 
technologies could do so by generating necessary data and going through 
the credit approval process described below in Section III.C.5.b.iii 
and iv.
    As noted above, EPA proposes to make the list available for credit 
generation starting in MY 2017. Prior to MY 2017, manufacturers would 
need to demonstrate off-cycle emissions reductions in order to generate 
credits for off-cycle technologies, including those on the list. 
Requirements for demonstrating off-cycle credits not based on the list 
are described below. Manufacturers may also opt to generate data for 
listed technologies in MY 2017 and later where they are able to 
demonstrate a credit value greater than that provided on the list.
    Prior to MY 2017, EPA would continue to evaluate off-cycle 
technologies. Based on data provided by manufacturers for non-listed 
technologies, and other available data, EPA would consider adding 
technologies to the list through rulemaking. EPA could also issue 
guidance in the future for additional off-cycle technologies, 
indicating the level of credits that EPA expects could be approved for 
any manufacturer through the case-by-case approach, helping to 
streamline the case-by-case approach until a rulemaking was conducted 
to update the list. If the CO2 reduction benefits of a 
technology have been established through manufacturer data and testing, 
EPA believes that it would be appropriate to list the technology and a 
conservative associated credit value.
    Since one purpose of the off-cycle credits is to encourage market 
penetration of the technologies (see 75 FR at 25438), EPA also proposes 
to require minimum penetration rates for several of the listed 
technologies as a condition for generating credit from the list as a 
way to further encourage their widespread adoption by MY 2017 and 
later. The proposed minimum penetration rates for the various 
technologies are provided in Table III-17. At the end of the model year 
for which the off-cycle credit is claimed, manufacturers would need to 
demonstrate that production of vehicles equipped with the technologies 
for that model year exceeded the percentage thresholds in order to 
receive the listed credit. EPA proposes to set the threshold at 10 
percent of a manufacturer's overall combined car and light truck 
production except for technologies specific to HEVs/PHEVs/EVs and 
exhaust heat recovery. EPA believes 10 percent is an appropriate 
threshold as it would encourage manufacturers to develop technologies 
for use on larger volume models and bring the technologies into the 
mainstream. On the other hand, EPA is not proposing a larger value 
because EPA does not want to discourage the use of technologies. For 
solar roof panels (solar control) and electric heater circulation 
pumps, which are HEV/PHEV/EV-specific, EPA is not proposing a minimum 
penetration rate threshold for credit generation. Hybrids and EVs may 
be a small subset of a manufacturer's fleet, less than 10 percent in 
some cases, and EPA does not believe establishing a threshold for 
hybrid-based technologies would be useful and could unnecessarily 
impede the introduction of these technologies. EPA is also not 
proposing to apply a minimum penetration threshold to exhaust heat 
recovery because the threshold could impede rather than encourage the 
development of the technology due to its relatively early stage of 
development and potentially high cost. EPA requests comments on 
applying this type of threshold, the appropriateness of 10 percent as 
the threshold for several of the listed technologies, and the proposed 
treatment of HEV/PHEV/EV specific technologies and exhaust heat 
recovery.
ii. Proposed Technology Eligibility Criteria
    EPA proposes to remove the criteria in the 2012-2016 rule that off-
cycle technologies must be `new, innovative, and not widespread' 
because these terms are imprecise and have created implementation 
issues and uncertainty in the program. For example, it is unclear if 
technologies developed in the past but not used extensively would be 
considered new, if only the first one or two manufacturers using the 
technology would be eligible or if all manufacturers could use a 
technology to generate credits, or if credits for a technology would 
sunset after a period of time. It has also been unclear if a technology 
such as active aerodynamics would be eligible since it provides a small 
measurable reduction on the 2-cycle test but provides additional 
reductions off-cycle, especially during high speed driving. These 
criteria have interfered with the goal of providing an incentive for 
the development and use of off-cycle technology that reduces 
CO2 emissions. EPA proposes this approach for new MY 2012-
2016 credits as well as for MY 2017-2025.
    EPA believes it is appropriate to provide credit opportunities for 
technologies that achieve real world

[[Page 75024]]

reductions beyond those measured under the two-cycle test without 
further making (somewhat subjective) judgments regarding the newness 
and innovativeness of the technology. Instead, EPA proposes to provide 
off-cycle credits for any technologies that are added to a vehicle 
model that are demonstrated to provide significant incremental off-
cycle CO2 reductions, like those on the list. The proposed 
technology demonstration and step-by-step application process is 
described in detail below in section III.C.5.b.ii. EPA is proposing to 
clarify that technologies providing small reductions on the 2-cycle 
tests but additional significant reductions off-cycle could be eligible 
to generate off-cycle credits. EPA thus proposes to remove the ``not 
significantly measurable over the 2-cycle test'' criteria. EPA proposes 
that, instead, manufacturers must be able to make a demonstration 
through testing with and without the off-cycle technology.
    As noted above, EPA proposes that technologies included in EPA's 
assessment in this rulemaking of technology for purposes of developing 
the standard would not be allowed to generate off-cycle credits, as 
their cost and effectiveness and expected use are already included in 
the assessment of the standard. (As explained above, the agencies have 
done so with respect to stop start and active aerodynamic improvements 
by including the projected level of credits in determining the 
appropriateness of the proposed standards.) EPA proposes that 
technologies integral or inherent to the basic vehicle design including 
engine, transmission, mass reduction, passive aerodynamic design, and 
base tires would not be eligible for credits. For example, 
manufacturers would not be able to generate off-cycle credits by moving 
to an eight-speed transmission. EPA believes that it would be difficult 
to clearly establish an appropriate A/B test (with and without 
technologies) for technologies so integral to the basic vehicle design. 
EPA proposes to limit the off-cycle program to technologies that can be 
clearly identified as add-on technologies conducive to A/B testing. 
Further, EPA would not provide credits for a technology required to be 
used by Federal law, such as tire pressure monitoring systems, as EPA 
would consider such credits to be windfall credits (i.e. not generated 
as a result of the rule). The base versions of such technologies would 
be considered part of the base vehicle. However, if a manufacturer 
demonstrates that an improvement to such technologies provides 
additional off-cycle benefits above and beyond a system meeting minimum 
Federal requirements, those incremental improvements could be eligible 
for off-cycle credits, assuming an appropriate quantification of 
credits is demonstrated.
    By proposing to remove the ``new, innovative, not widespread use'' 
criteria in the present rule, EPA is also making clear that once 
approved, EPA does not intend to sunset a technology's credit 
eligibility or deny credits to other vehicle applications using the 
technology, as may have been implied by those criteria under the MY 
2012-2016 program. EPA believes, at this time, that it should encourage 
the wider use of technologies with legitimate off-cycle emissions 
benefits. Manufacturers demonstrating through the EPA approval process 
that the technology is effective on additional vehicle models would be 
eligible for credits. Limiting the application of a technology or 
sunsetting the availability of credits during the 2017-2025 time frame 
would be counterproductive because it would remove part of the 
incentive for manufacturers to invest in developing and deploying off-
cycle technologies, some of which may be promising but have 
considerable development costs associated with them. Also, approving a 
technology only to later disallow it could lead to a manufacturer 
discontinuing the use of the technology even if it remained a cost 
effective way to reduce emissions. EPA also believes that this approach 
provides an incentive for manufacturers to continue to improve 
technologies without concern that they will become ineligible for 
credits at some future time. EPA requests comments on all aspects of 
the above approach for the off-cycle credits program criteria.
iii. Demonstrating Off-Cycle Emissions Reductions
5-Cycle Testing
    EPA is retaining a two-tiered process for demonstrating the 
CO2 reductions of off-cycle technologies (in those instances 
when a manufacturer is not using the default value provided by the 
rule), but is clarifying several of the requirements. The process 
described below would be used for all credits not based on the pre-
defined list described in Section III.C.5.i, above. As noted above, the 
proposed approach would replace the requirement in the 2012-2016 rule 
that technology must not be ``significantly measurable'' over the 2-
cycle test. See section 86. 1866-12 (d) (ii). This criterion has been 
problematic because several technologies provide some benefit on the 2-
cycle test but much greater benefits off-cycle. Under today's proposal, 
technologies would need to be demonstrated to provide significant 
incremental off-cycle benefits above and beyond those provided over the 
2-cycle test (examples are shown below). EPA proposes this approach for 
new MY 2012-2016 credits as well as for MY 2017-2025.
    The 5-cycle test procedures would remain the starting point for 
demonstrating off-cycle emissions reductions. The MY 2012-2016 
rulemaking established general 5-cycle testing requirements and EPA is 
proposing several provisions to delineate what EPA would expect as part 
of a 5-cycle based demonstration. Manufacturers requested clarification 
on the amount of 5-cycle testing that would be needed to demonstrate 
off-cycle credits, and EPA is proposing the following as part of the 
step-by-step methodology manufacturers would follow to generate 
credits. In addition to the general 5-cycle demonstration requirements 
of the MY 2012-2016 program, EPA proposes to specifically require 
model-based verification of 5-cycle results where off-cycle reductions 
are small and could be a product of testing variability. EPA is also 
proposing to specifically require that all applications include an 
engineering analysis for why the technology provides off-cycle 
emissions reductions. EPA proposes to specify that manufacturers would 
run an initial set of three 5-cycle tests with and without the 
technology providing the off-cycle CO2 reduction. Testing 
must be conducted on a representative vehicle, selected using good 
engineering judgment, for each vehicle model. EPA proposes that 
manufacturers could bundle off-cycle technologies together for testing 
in order to reduce testing costs and improve their ability to 
demonstrate consistently measurable reductions over the tests. If these 
A/B 5-cycle tests demonstrate an off-cycle benefit of 3 percent or 
greater, comparing average test results with and without the off-cycle 
technology, the manufacturer would be able to use the data as the basis 
for credits. EPA has long used 3 percent as a threshold in fuel economy 
confirmatory testing for determining if a manufacturer's fuel economy 
test results are comparable to those run by EPA.\320\
---------------------------------------------------------------------------

    \320\ 40 CFR 600.008 (b)(3).
---------------------------------------------------------------------------

    If the initial three sets of 5-cycle results demonstrate a 
reduction of less than a 3 percent difference in the 5-cycle results 
with and without the off-cycle technology, the manufacturer

[[Page 75025]]

would have to run two additional 5-cycle tests with and without the 
off-cycle technologies and verify the emission reduction using the EPA 
Light-duty Simulation Tool described below. If the simulation tool 
supports credits that are less than 3 percent of the baseline 2-cycle 
emissions, then EPA would approve the credits based on the test 
results. As outlined below, credits based on this methodology would be 
subject to a 60 day EPA review period starting when EPA receives a 
complete application, which would not include a public review.
    EPA believes that small off-cycle credit claims (i.e., less than 3 
percent of the vehicle model 2-cycle CO2 level) should be 
supported with modeling and engineering analysis. EPA is proposing the 
approach above for a number of reasons. Emissions reductions of only a 
few grams may not be statistically significant and could be the product 
of gaming. Also, manufacturers have raised test-to-test variability as 
an issue for demonstrating technologies through 5-cycle testing. 
Modeling and engineering analyses can help resolve these questions. EPA 
also requests comments on allowing manufacturers to use the EPA 
simulation tool and engineering analysis in lieu of additional 5-cycle 
testing. For some technologies providing very small incremental 
benefits, it may not be possible to accurately measure their benefit 
with vehicle testing.
Demonstrations Not Based on 5-Cycle Testing
    In cases where the benefit of a technological approach to reducing 
CO2 emissions cannot be adequately represented using 5-cycle 
testing, manufacturers will need to develop test procedures and 
analytical approaches to estimate the effectiveness of the technology 
for the purpose of generating credits. See 75 FR at 25440. EPA is not 
proposing to make significant changes to this aspect of the program. If 
the 5-cycle process is inadequate for the specific technology being 
considered by the manufacturer (i.e., the 5-cycle test does not 
demonstrate any emissions reductions), then an alternative approach may 
be developed by the manufacturer and submitted to EPA for approval. The 
demonstration program must be robust, verifiable, and capable of 
demonstrating the real-world emissions benefit of the technology with 
strong statistical significance. The methodology developed and 
submitted to EPA would be subject to public review as explained at 75 
FR 25440 and in 86.1866(d)(2)(ii).
    EPA has identified two general situations where manufacturers would 
need to develop their own demonstration methodology. The first is a 
situation where the technology is active only during certain operating 
conditions that are not represented by any of the 5-cycle tests. To 
determine the overall emissions reductions, manufacturers must 
determine not only the emissions impacts during operation but also 
real-world activity data to determine how often the technology is 
utilized during actual, in-use driving on average across the fleet. EPA 
has identified some of these types of technologies and has calculated a 
default credit for them, including items such as high efficiency (e.g., 
LED) lights and solar panels on hybrids. See Table III-17 above. In 
their demonstrations, manufacturers may be able to apply the same type 
of methodologies used by EPA as a basis for these default values (see 
TSD Chapter 5).
    The second type of situation where manufacturers would need to 
develop their own demonstration data would be for technologies that 
involve action by the driver to make the technology effective in 
reducing CO2 emissions. EPA believes that driver interactive 
technologies face the highest demonstration hurdle because 
manufacturers would need to provide actual real-world usage data on 
driver response rates. Such technologies would include ``eco buttons'' 
where the driver has the option of selecting more fuel efficient 
operating modes, traffic avoidance systems, and more advanced tire 
pressure monitor systems (i.e., technologies that go beyond the minimum 
Federal requirements) notifying the driver to fill their tires more 
often.\321\ EPA proposes that data would need to be from instrumented 
vehicle studies and not through driver surveys where results may be 
influenced by drivers failure to accurately recall their response 
behavior. Systems such as On-star could be one promising way to collect 
driver response data if they are designed to do so. Manufacturers might 
have to design extensive on-road test programs. Any such on-road 
testing programs would need to be statistically robust and based on 
average U.S. driving conditions, factoring in differences in geography, 
climate, and driving behavior across the U.S. EPA proposes this 
approach for new MY 2012-2016 credits as well as for MY 2017-2025.
---------------------------------------------------------------------------

    \321\ A tire pressure monitor system that also automatically 
fills the tire without driver interaction would obviously not 
involve driver response data for the automatic system, but the 
demonstration may involve the driver response rates for the baseline 
system to determine an incremental credit.
---------------------------------------------------------------------------

EPA Light-Duty Vehicle Simulation Tool
    As explained above and, EPA has developed full vehicle simulation 
capabilities in order to support regulations and vehicle compliance by 
quantifying the effectiveness of different technologies over a wide 
range of engine and vehicle operating conditions. This in-house 
simulation tool has been developed for modeling a wide variety of 
light, medium, and heavy duty vehicle applications over various driving 
cycles. In order to ensure transparency of the models and free public 
access, EPA has developed the tool in MATLAB/Simulink environment with 
a completely open source code. EPA's first application of the vehicle 
simulation tool was for purposes of heavy-duty vehicle compliance and 
certification. For the model years 2014 to 2017 final rule for medium 
and heavy duty trucks, EPA created the ``Greenhouse gas Emissions 
Model'' (GEM), which is used both to assess Class 2b-8 vocational 
vehicle and Class \7/8\ combination tractor GHG emissions and fuel 
efficiency and to demonstrate compliance with the vocational vehicle 
and combination tractor standards. See 76 FR at 57146-147.\322\ EPA 
will submit the simulation tool for peer review for the final rule. 
Chapter 2 of the Draft RIA has more details of this simulation tool.
---------------------------------------------------------------------------

    \322\ See also US EPA, ``Final Rule Making to Establish 
Greenhouse Gas Emissions Standards and Fuel Efficiency Standards for 
Medium- and Heavy-Duty Engines and Vehicles,'' Heavy-Duty Regulatory 
Impact Analysis.give cite to where GEM is written up in the heavy 
duty RIA.
---------------------------------------------------------------------------

    As mentioned previously, the tool is based on MATLAB/Simulink and 
is a forward-looking full vehicle model that uses the same physical 
principles as other commercially available vehicle simulation tools 
(e.g. Autonomie, AVL-CRUISE, GT-Drive, etc.) to derive the governing 
equations. These governing equations describe steady-state and 
transient behaviors of each of electrical, engine, transmission, 
driveline, and vehicle systems, and they are integrated together to 
provide overall system behavior during transient conditions as well as 
steady-state operations. In the light-duty vehicle simulation tool, 
there are four key system elements that describe the overall vehicle 
dynamics behavior and the corresponding fuel efficiency: Electrical, 
engine, transmission, and vehicle. The electrical system model consists 
of parasitic electrical load and A/C blower fan, both of which were 
assumed to be constant. The engine system model is comprised

[[Page 75026]]

of engine torque and fueling maps. For the vehicle system, four 
vehicles were modeled: Small, mid, large size passenger vehicles, and a 
light-duty pick-up truck. The engine maps, transmission gear ratios and 
shifting schedules were appropriately sized and adjusted according to 
the vehicle type represented by the simulation. This tool is capable of 
simulating a wide range of conventional and advanced engines, 
transmissions, and vehicle technologies over various driving cycles. It 
evaluates technology package effectiveness while taking into account 
synergy (and dis-synergy) effects among vehicle components and 
estimates GHG emissions for various combinations of technologies. 
Chapter 2 of the Draft Regulatory Impact Analysis provides more details 
on this light-duty vehicle simulation tool.
    As discussed in section III.C.1, EPA has used the light-duty 
vehicle simulation tool to estimate indirect A/C CO2 
emissions from conventional (non-hybrid) vehicles, helping to quantify 
the indirect A/C credit. In addition to A/C related CO2 
reductions, EPA believes this same simulation tool may be useful in 
estimating CO2 reductions from off-cycle technologies. 
Currently, the model provides A/B relative comparisons with and without 
technologies that can help inform credits estimates. EPA has used it to 
estimate credits for some of the technologies in the proposed pre-
defined list, including active aerodynamic improvements. As discussed 
above, EPA is proposing to require this simulation tool be used as an 
additional way to estimate emissions reductions in cases where the 5-
cycle test results indicate the potential reductions to be small, and 
EPA is also requesting comments on using the simulation tool as a basis 
for estimating off-cycle credits in lieu of 5-cycle testing.
    There are a number of technologies that could bring additional GHG 
reductions over the 5-cycle drive test (or in the real world) compared 
to the combined FTP/Highway (or two) cycle test. These are called off-
cycle technologies and are described in chapter 5 of the Joint TSD in 
detail. Among them are technologies related to reducing vehicle's 
electrical loads, such as High Efficiency Exterior Lights, Engine Heat 
Recovery, and Solar Roof Panels. In an effort to streamline the process 
for approving off-cycle credits, we have set a relatively conservative 
estimate of the credit based on our efficacy analysis. EPA seeks 
comment on utilizing the model in order to quantify the credits more 
accurately, for example, if actual data of electrical load reduction 
and/or on-board electricity generation by one or more of these 
technologies is available through data submission from manufacturers. 
Similarly, there are technologies that would provide additional GHG 
reduction benefits in the 5-cycle test by actively reducing the 
vehicle's aerodynamic drag forces. These are referred to as active 
aerodynamic technologies, which include but are not limited to Active 
Grill Shutters and Active Suspension Lowering. Like the electrical load 
reduction technologies, the vehicle simulation tool can be used to more 
accurately estimate the additional GHG reductions (therefore the 
credits) provided by these active aerodynamic technologies over the 5-
cycle drive test. EPA seeks comment on using the simulation tool in 
order to quantify these credits. In order to do this properly, 
manufacturers would be expected to submit two sets of coast-down 
coefficients (with and without the active aerodynamic technologies).
    There are other technologies that would result in additional GHG 
reduction benefits that cannot be fully captured on the combined FTP/
Highway cycle test. These technologies typically reduce engine loads by 
utilizing advanced engine controls, and they range from enabling the 
vehicle to turn off the engine at idle, to reducing cabin temperature 
and thus A/C compressor loading when the vehicle is restarted. Examples 
include Engine Start-Stop, Electric Heater Circulation Pump, Active 
Engine/Transmission Warm-Up, and Solar Control. For these types of 
technologies, the overall GHG reduction largely depends on the control 
and calibration strategies of individual manufacturers and vehicle 
types. Also, the current vehicle simulation tool does not yet have the 
capability to properly simulate the vehicle behaviors that depend on 
thermal conditions of the vehicle and its surroundings, such as Active 
Engine/Transmission Warm-Up and Solar Control. Therefore, the vehicle 
simulation may not provide full benefits of the technologies on the GHG 
reductions. For this reason, the agency is not proposing to use the 
simulation tool to generate the GHG credits for these technologies at 
this time, though future versions of the model may be more capable of 
quantifying the efficacy of these off-cycle technologies as well.
iv. In-Use Emissions Requirements
    EPA requires off-cycle components to be durable in-use and 
continues to believe that this is an important aspect of the program. 
See 86.1866-12 (d)(1)(iii). The technologies upon which the credits are 
based are subject to full useful life compliance provisions, as with 
other emissions controls. Unless the manufacturer can demonstrate that 
the technology would not be subject to in-use deterioration over the 
useful life of the vehicle, the manufacturer must account for 
deterioration in the estimation of the credits in order to ensure that 
the credits are based on real in-use emissions reductions over the life 
of the vehicle. In-use requirements would apply to technologies 
generating credits based on the pre-defined list as well as to those 
based on a manufacturer's demonstration.
    Manufacturers have requested clarification of these provisions and 
guidance on how to demonstrate in-use performance. EPA is proposing to 
clarify that off-cycle technologies are considered emissions related 
components and all in-use requirements apply including defect 
reporting, warranty, and recall. OBD requirements do not apply under 
the MY 2012-2016 program and EPA is not proposing any OBD requirements 
at this time for off-cycle technologies. Manufacturers may establish 
maintenance intervals for these components in the same way they would 
for other emissions related components. The performance of these 
components would be considered in determining compliance with the 
applicable in-use CO2 standards. Manufacturers may 
demonstrate in-use emissions durability at time of certification by 
submitting an engineering analysis describing why the technology is 
durable and expected to last for the full useful life of the vehicle. 
This demonstration may also include component durability testing or 
through whole vehicle aging if the manufacturer has such data. The 
demonstration would be subject to EPA approval prior to credits being 
awarded.\323\ EPA believes these provisions are important to ensure 
that promised emissions reductions and fuel economy benefit to the 
consumer are delivered in-use. EPA requests comments on the above 
approach for in-use emissions durability.
---------------------------------------------------------------------------

    \323\ Listed technologies are pre-approved assuming the 
manufacturer demonstrates durability.
---------------------------------------------------------------------------

v. Step-by-Step EPA Review Process
    EPA proposes to provide a step-by-step process and timeline for 
reviewing credit applications and providing a decision to 
manufacturers. EPA requests comments on the process described below 
including comments on how to further improve or streamline it while 
maintaining its effectiveness. EPA

[[Page 75027]]

proposes these clarifications and further detailed step-by-step 
instructions for new MY 2012-2016 credits as well as for MY 2017-2025. 
EPA believes these additional details are consistent with the general 
off-cycle requirements adopted in the MY 2012-2016 rule. Starting in MY 
2017, EPA is proposing that manufacturers may generate credits using 
technologies on a pre-defined list, and these technologies would not be 
required to go through the approval process described below.

Step 1: Manufacturer Conducts Testing and Prepares Application

 5-cycle--Manufacturers would conduct the testing and/or 
simulation described above
 Non 5-cycle--Manufacturers would develop a methodology for non 
5-cycle based demonstration and carry-out necessary testing and 
analysis
    [cir] Manufacturers may opt to meet with EPA to discuss their plans 
for demonstrating technologies and seek EPA input prior to conducting 
testing or analysis
 Manufacturers conduct engineering analysis and/or testing to 
demonstrate in-use durability

Step 2: Manufacturer Submits Application

    The manufacturer application must contain the following:

 Description of the off-cycle technologies and how they 
function to reduce off-cycle emissions
 The vehicle models on which the technology will be applied
 Test vehicles selection and supporting engineering analysis 
for their selection
 5-cycle test data, and/or including simulation results using 
EPA Light-duty Simulation Tool, as applicable
 For credits not based on 5-cycle testing, a complete 
description of methodology used to estimate credits and supporting data 
(vehicle test data and activity data)
    [cir] Manufacturer may seek EPA input on methodology prior to 
conducting testing or analysis
 An estimate of off-cycle credits by vehicle model, and 
fleetwide based on projected vehicle sales
 Engineering analysis and/or component durability testing or 
whole vehicle test data (as necessary) demonstrating in-use durability 
of components

Step 3: EPA Review

    Once EPA receives an application, EPA would do the following:

 EPA will review the application for completeness and within 30 
days will notify the manufacturer if additional information is needed
 EPA will review the data and information provided to determine 
if the application supports the level of credits estimated by 
manufacturers
 EPA will consult with NHTSA on the application and the data 
received in cases where the manufacturer intends to generate fuel 
consumption improvement values for CAFE in MY 2017 and later
 For applications where the rule specifies public participation 
in the review process, EPA will make the applications available to the 
public within 60 days of receiving a complete application
    [cir] The public review period will be 30 day review of the 
methodology used by the manufacturer to estimate credits, during which 
time the public may submit comments.
    [cir] Manufacturers may submit a written rebuttal of comments for 
EPA consideration or may revise their application in response to 
comments following the end of the public review period.

Step 4: EPA Decision

     For applications where the rule does not specify public 
participation and review, EPA, after consultation with NHTSA in cases 
where the manufacturer intends to generate fuel consumption improvement 
values for CAFE in MY 2017 and later, will notify the manufacturer of 
its decision within 60 days of receiving a complete application.
     For applications where the rule does specify public 
participation and review, EPA will notify the manufacturer of its 
decision on the application after reviewing public comments.
     EPA will notify manufacturers in writing of its decision 
to approve or deny the credits application, and provide a written 
explanation for its action (supported by the administrative record for 
the application proceeding).
c. Off-Cycle Technology Fuel Consumption Improvement Values in the CAFE 
Program
    EPA proposes, in coordination with NHTSA, that manufacturers would 
be able to generate fuel consumption improvement values equivalent to 
CO2 off-cycle credits for use in the CAFE program. EPA is 
proposing that a CAFE improvement value for off-cycle improvements be 
determined at the fleet level by converting the CO2 credits 
determined under the EPA program (in metric tons of CO2) for 
each fleet (car and truck) to a fleet fuel consumption improvement 
value. This improvement value would then be used to adjust the fleet's 
CAFE level upward. See the proposed regulations at 40 CFR 600.510-12. 
Note that while the following table presents fuel consumption values 
equivalent to a given CO2 credit value, these consumption 
values are presented for informational purposes and are not meant to 
imply that these values will be used to determine the fuel economy for 
individual vehicles. For off-cycle CO2 credits not based on 
the list, manufacturers would go though the steps described above in 
Section III.C.5.b. Again, all off-cycle CO2 credits would be 
converted to a gallons per mile fuel consumption improvement value at a 
fleet level for purposes of the CAFE program. EPA would approve credit 
generation, and corresponding equivalent fuel consumption improvement 
values, in consultation with NHTSA.

[[Page 75028]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.075

D. Technical Assessment of the Proposed CO2 Standards

    This proposed rule is based on the need to obtain significant GHG 
emissions reductions from the transportation sector, and the 
recognition that there are cost-effective technologies available in 
this timeframe to achieve such reductions for MY 2017-2025 light duty 
vehicles. As in many prior mobile source rulemakings, the decision on 
what standard to set is largely based on the effectiveness of the 
emissions control technology, the cost and other impacts of 
implementing the technology, and the lead time needed for manufacturers 
to employ the control technology. The standards derived from assessing 
these factors are also evaluated in terms of the need for reductions of 
greenhouse gases, the degree of reductions achieved by the standards, 
and the impacts of the standards in terms of costs, quantified 
benefits, and other impacts of the standards. The availability of 
technology to achieve reductions and the cost and other aspects of this 
technology are therefore a central focus of this rulemaking.
    EPA is taking the same basic approach in this rulemaking as that 
taken in the MYs 2012-2016 rulemaking. EPA is evaluating emissions 
control technologies which reduce CO2 and other greenhouse 
gases. CO2 emissions from automobiles are largely the 
product of fuel combustion. Vehicles combust fuel to perform two basic 
functions: (1) to transport the vehicle, its passengers and its 
contents (and any towed loads), and (2) to operate various accessories 
during the operation of the vehicle such as the air conditioner. 
Technology can reduce CO2 emissions by either making more 
efficient use of the energy that is produced through combustion of the 
fuel or reducing the energy needed to perform either of these 
functions.
    This focus on efficiency calls for looking at the vehicle as an 
entire system, and as in the MYs 2012-2016 rule, the proposed standards 
reflect this basic paradigm. In addition to fuel delivery, combustion, 
and aftertreatment technology, any aspect of the vehicle that affects 
the need to produce energy must also be considered. For example, the 
efficiency of the transmission system, which takes the energy produced 
by the engine and transmits it to the wheels, and the resistance of the 
tires to rolling both have major impacts on the amount of fuel that is 
combusted while operating the vehicle. The braking system, the 
aerodynamics of the vehicle, and the efficiency of accessories, such as 
the air conditioner, all affect how much fuel is combusted as well.
    In evaluating vehicle efficiency, we have excluded fundamental 
changes in vehicles' utility.\324\ For example, we did not evaluate 
converting minivans and SUVs to station wagons, converting vehicles 
with four wheel drive to two wheel drive, or reducing headroom in order 
to lower the roofline and reduce aerodynamic drag. We have limited our 
assessment of technical feasibility and resultant vehicle cost to 
technologies which maintain vehicle utility as much as possible (and, 
in our assessment of the costs of the rule, included the costs to 
manufacturers of preserving vehicle utility). Manufacturers may decide 
to alter the utility of the vehicles which they sell, but this would 
not be a

[[Page 75029]]

necessary consequence of the rule but rather a matter of automaker 
choice.
---------------------------------------------------------------------------

    \324\ EPA recognizes that electric vehicles, a technology 
considered in this analysis, have unique attributes and discusses 
these considerations in Section III.H.1.b. There is also a fuller 
discussion of the utility of Atkinson engine hybrid vehicles in EPA 
DRIA Chapter 1.
---------------------------------------------------------------------------

    This need to focus on the efficient use of energy by the vehicle as 
a system leads to a broad focus on a wide variety of technologies that 
affect vehicle design. As discussed below, there are many technologies 
that are currently available which can reduce vehicle energy 
consumption. Several of these are ``game-changing'' technologies and 
are already being commercially utilized to a limited degree in the 
current light-duty fleet. Examples include hybrid technologies that use 
high efficiency batteries and electric motors as the power source in 
combination with or instead of internal combustion engines, plug-in 
hybrid electric vehicles, and battery-electric vehicles. While already 
commercialized, these technologies continue to be developed and offer 
the potential for even more significant efficiency improvements. There 
are also other advanced technologies under development and not yet on 
production vehicles, such as high BMEP engines with cooled EGR, which 
offer the potential of improved energy generation taking the gasoline 
combustion process nearly to its thermodynamic limit. In addition, the 
available technologies are not limited to powertrain improvements but 
also include a number of technologies that are expected to continually 
improve incrementally, such as engine friction reduction, rolling 
resistance reduction, mass reduction, electrical system efficiencies, 
and aerodynamic improvements.
    The large number of possible technologies to consider and the 
breadth of vehicle systems that are affected mean that consideration of 
the manufacturer's design, product development and manufacturing 
process plays a major role in developing the proposed standards. 
Vehicle manufacturers typically develop many different models by basing 
them on a limited number of vehicle platforms. The platform typically 
consists of a common set of vehicle architecture and structural 
components.\325\ This allows for efficient use of design and 
manufacturing resources. Given the very large investment put into 
designing and producing each vehicle model, manufacturers typically 
plan on a major redesign for the models approximately every 5 
years.\326\ At the redesign stage, the manufacturer will upgrade or add 
all of the technology and make most other changes supporting the 
manufacturer's plans for the next several years, including plans to 
comply with emissions, fuel economy, and safety regulations.\327\ This 
redesign often involves significant engineering, development, 
manufacturing, and marketing resources to create a new product with 
multiple new features. In order to leverage this significant upfront 
investment, manufacturers plan vehicle redesigns with several model 
years' of production in mind. Vehicle models are not completely static 
between redesigns as limited changes are often incorporated for each 
model year. This interim process is called a refresh of the vehicle and 
generally does not allow for major technology changes although more 
minor ones can be done (e.g., small aerodynamic improvements, valve 
timing improvements, etc). More major technology upgrades that affect 
multiple systems of the vehicle thus occur at the vehicle redesign 
stage and not in the time period between redesigns.
---------------------------------------------------------------------------

    \325\ Examples of shared vehicle platforms include the Ford 
Taurus and Ford Explorer or the Chrysler Sebring and Dodge Journey.
    \326\ See TSD Chapter 3.
    \327\ TSD 3 discusses redesign schedules in greater detail.
---------------------------------------------------------------------------

    This proposal affects nine years of vehicle production, model years 
2017-2025. Given the now-typical five year redesign cycle, many 
vehicles will be redesigned three times between MY 2012 and MY 2025 and 
are expected to be redesigned twice during the 2017-2025 timeframe. Due 
to the relatively long lead time before 2017, there are fewer lead time 
concerns with regard to product redesign in this proposal than with the 
MYs 2012-2016 rule (or the MY 2014-2018 rule for heavy duty vehicles 
and engines). However, there are still some technologies that require 
significant lead time, and are not projected to be heavily utilized in 
the first years of this proposal. An example is the advanced high BMEP, 
cooled EGR engines. As these engines are not yet in vehicles today, a 
research and development period is required, even if there are a number 
of demonstration projects complete (as discussed in Chapter 3 of the 
joint TSD).
    In developing the proposed MY 2021 and 2025 car and truck curves 
(discussed in Section III.B), EPA used the OMEGA model to evaluate 
technologies that manufacturers could use to comply with the targets 
which those curves would establish. These curves correspond to sales-
weighted fleetwide CO2 average targets of 200 g/mile in MY 
2021 and 163 g/mile in MY 2025. As discussed later in this section, we 
believe that this level of technology application to the light-duty 
vehicle fleet can be achieved in this time frame, the standards will 
produce significant reductions in GHG emissions, and the costs for both 
the industry and the costs to the consumer are reasonable and that 
consumer savings due to improved fuel economy will more than pay for 
the increased vehicle cost over the life of the vehicles. EPA also 
estimated costs for the intermediate model years 2017 through 2020 
based on the OMEGA analyses in MYs 2016 and 2021 as well as the 
intermediate model years 2022-2024 based on the OMEGA analyses in MYs 
2021 and 2025.
    EPA's technical assessment of the proposed MY2017-2025 standards is 
described below. EPA has also evaluated a set of alternative standards 
for these model years, two of which are more stringent and two of which 
are less stringent than the standards proposed. The technical 
assessment of these alternative standards in relation to the ones 
proposed is discussed at the end of this section.
    Evaluating the appropriateness of these standards includes a core 
focus on identifying available technologies and assessing their 
effectiveness, cost, and impact on relevant aspects of vehicle 
performance and utility. The wide number of technologies which are 
available and likely to be used in combination requires a sophisticated 
assessment of their combined cost and effectiveness. An important 
factor is also the degree that these technologies are already being 
used in the current vehicle fleet and thus, unavailable for use to 
improve energy efficiency beyond current levels. Finally, the challenge 
for manufacturers to design the technology into their products within 
the constraints of the redesign cycles, and the appropriate lead time 
needed to employ the technology over the product line of the industry 
must be considered.
    Applying these technologies efficiently to the wide range of 
vehicles produced by various manufacturers is a challenging task 
involving dozens of technologies and hundreds of vehicle platforms. In 
order to assist in this task, EPA is again using a computerized program 
called the Optimization Model for reducing Emissions of Greenhouse 
gases from Automobiles (OMEGA). Broadly, OMEGA starts with a 
description of the future vehicle fleet (i.e. the `reference fleet'; 
see section II.B above), including manufacturer, sales, base 
CO2 emissions, footprint and the extent to which emission 
control technologies are already employed. For the purpose of this 
analysis, EPA uses OMEGA to analyze over 200 vehicle platforms 
comprising approximately 1300 vehicle models in order o capture the 
important differences in vehicle and engine design and utility of 
future vehicle sales of roughly 16-18 million

[[Page 75030]]

units annually in the 2017-2025 timeframe. The model is then provided 
with a list of technologies which are applicable to various types of 
vehicles, along with the technologies' cost and effectiveness and the 
percentage of vehicle sales which can receive each technology during 
the redesign cycle of interest. The model combines this information 
with economic parameters, such as fuel prices and a discount rate, to 
project how various manufacturers would apply the available technology 
in order to meet increasing levels of emission control. The result is a 
description of which technologies are added to each vehicle platform, 
along with the resulting cost. While OMEGA can apply technologies which 
reduce CO2 efficiency related emissions and refrigerant 
leakage emissions associated with air conditioner use, this task is 
currently handled outside of the OMEGA model. A/C improvements are 
relatively cost-effective, and would always be added to vehicles by the 
model, thus they are simply added into the results at the projected 
penetration levels. The model can also be set to account for the 
various proposed compliance flexibilities (and to accommodate 
compliance flexibilities in general.
    The remainder of this section describes the technical feasibility 
analysis in greater detail. Section III.D.1 describes the development 
of our reference and control case projections of the MY 2017-2025 
fleet. Section III.D.2 describes our estimates of the effectiveness and 
cost of the control technologies available for application in the 2017-
2025 timeframe. Section III.D.3 describes how these technologies are 
combined into packages likely to be applied at the same time by a 
manufacturer. In this section, the overall effectiveness of the 
technology packages vis-[agrave]-vis their effectiveness when adopted 
individually is described. Section III.D.4 describes EPA's OMEGA model 
and its approach to estimating how manufacturers will add technology to 
their vehicles in order to comply with potential CO2 
emission standards. Section III.D.5 presents the results of the OMEGA 
modeling, namely the level of technology added to manufacturers' 
vehicles and the cost of adding that technology. Section III.D.6 
discusses the appropriateness (or lack of appropriateness) of the 
alternative standards in relation to those proposed. Further technical 
detail on all of these issues can be found in the Draft Joint Technical 
Support Document as well as EPA's Regulatory Impact Analysis.
1. How did EPA develop a reference and control fleet for evaluating 
standards?
    In order to calculate the impacts of this proposal, it is necessary 
to project the GHG emissions characteristics of the future vehicle 
fleet absent the proposed regulation. EPA and NHTSA develop this 
projection using a three step process. (1) Develop a set of detailed 
vehicle characteristics and sales for a specific model year (in this 
case, 2008).\328\ This is called the baseline fleet. (2) Adjust the 
sales of this baseline fleet using projections made by the Energy 
Information Administration (EIA) and CSM to account for projected sales 
volumes in future MYs absent future regulation.\329\ (3) Apply fuel 
saving and emission control technology to these vehicles to the extent 
necessary for manufacturers to comply with the existing 2016 standards 
and the proposed standards.
---------------------------------------------------------------------------

    \328\ As discussed in TSD Chapter 1, and in Section II.B.2, the 
agencies will consider using Model Year 2010 for the final rule, 
based on availability and an analysis of the data 
representativeness.
    \329\ See generally Chapter 1 of the Joint TSD for details on 
development of the baseline fleet, and Section III.H.1 for a 
discussion of the potential sales impacts of this proposal.
---------------------------------------------------------------------------

    Thus, the analyzed fleet differs from the MY 2008 baseline fleet in 
both the level of technology utilized and in terms of the sales of any 
particular vehicle. A similar method is used to analyze both reference 
and control cases, with the major distinction being the stringency of 
the standards.
    EPA and NHTSA perform steps one and two above in an identical 
manner. The development of the characteristics of the baseline 2008 
fleet and the sales adjustment to match AEO and CSM forecasts is 
described in Section II.B above and in greater detail in Chapter 1 of 
the joint TSD. The two agencies perform step three in a conceptually 
identical manner, but each agency utilizes its own vehicle technology 
and emission model to project the technology needed to comply with the 
reference and proposed standards. Further, each agency evaluates its 
own proposed and MY 2016 standards; neither NHTSA nor EPA evaluated the 
other agency's standard in this proposal.\330\
---------------------------------------------------------------------------

    \330\ While the MY 2012-2016 standards are largely similar, some 
important differences remain. See 75 FR at 25342.
---------------------------------------------------------------------------

    The use of MY 2008 vehicles in our fleet projections includes 
vehicle models which already have or will be discontinued by the time 
this rule takes effect and will be replaced by more advanced vehicle 
models. However, we believe that the use of MY 2008 vehicle designs is 
still the most appropriate approach available for this proposal.\331\ 
First, as discussed in Section II.B above, the designs of these MYs 
2017-2025 vehicles at the level of detail required for emission and 
cost modeling are not publically available, and in many cases, do not 
yet exist. Even manufacturers' confidential descriptions of these 
vehicle designs are usually not of sufficient detail to facilitate the 
level of technology and emission modeling performed by both agencies. 
Second, steps two and three of the process used to create the reference 
case fleet adjust both the sales and technology of the 2008 vehicles. 
Thus, our reference fleet reflects the extent that completely new 
vehicles are expected to shift the light vehicle market in terms of 
both segment and manufacturer. Also, by adding technology to facilitate 
compliance with the MY 2016 standards, we account for the vast majority 
of ways in which these new vehicles will differ from their older 
counterparts.
---------------------------------------------------------------------------

    \331\ See section II.B.2 concerning the selection of MY 2008 as 
the appropriate baseline.
---------------------------------------------------------------------------

a. Reference Fleet Scenario Modeled
    EPA projects that in the absence of the proposed GHG and CAFE 
standards, the reference case fleet in MY 2017-2025 would have 
fleetwide GHG emissions performance no better than that projected to be 
necessary to meet the MY 2016 standards. While it is not possible to 
know with certainty the future fleetwide GHG emissions performance in 
the absence of more stringent standards, EPA believes that this 
approach is the most reasonable projection for developing the reference 
case fleet for MYs 2017-2025. One important element supporting the 
proposed approach is that AEO2011 projects relatively stable gasoline 
prices over the next 15 years. The average actual price in the U.S. for 
the first nine months of 2011 for gasoline was $3.57 per gallon ($3.38 
in 2009 dollars).\332\ However, the AEO2011 reference case projects a 
price of $2.80 per gallon (in 2009 dollars) AEO2011 projects prices to 
be $3.25 in 2017, rising slightly to $3.54 per gallon in 2025 (which is 
less than a 4 cent per year increase on average). Based on these fuel 
price projections, the reference fleet for MYs 2017-2025 should 
correspond to a time period where there is a stable, unchanging GHG 
standard, and essentially stable gasoline prices.
---------------------------------------------------------------------------

    \332\ The Energy Information Administration estimated the 
average regular unleaded gasoline price in the U.S. for the first 
nine months of 2011 was $3.57.
---------------------------------------------------------------------------

    EPA reviewed the historical record for similar periods when we had 
stable fuel economy standards and stable gasoline

[[Page 75031]]

prices. EPA maintains, and publishes every year, the seminal reference 
on new light-duty vehicle CO2 emissions and fuel 
economy.\333\ This report contains very detailed data from MYs 1975-
2010. There was an extended 18-year period from 1986 through 2003 
during which CAFE standards were essentially unchanged,\334\ and 
gasoline prices were relatively stable and remained below $1.50 per 
gallon for almost the entire period. The 1975-1985 and 2004-2010 
timeframes are not relevant in this regard due to either rising 
gasoline prices, rising CAFE standards, or both. Thus, the 1986-2003 
time frame is an excellent analogue to the period out to MY 2025 during 
which AEO projects relatively stable gasoline prices. EPA staff have 
analyzed the fuel economy trends data from the 1986-2003 timeframe 
(during which CAFE standards did not vary by footprint) and have drawn 
three conclusions: (1) there was a small, industry-wide, average over-
compliance with CAFE on the order of 1-2 mpg or 3-4%, (2) almost all of 
this industry-wide over-compliance was from 3 companies (Toyota, Honda, 
and Nissan) that routinely over-complied with the universal CAFE 
standards simply because they produced smaller and lighter vehicles 
relative to the industry average, and (3) full line car and truck 
manufacturers, such as General Motors, Ford, and Chrysler, which 
produced larger and heavier vehicles relative to the industry average 
and which were constrained by the universal CAFE standards, rarely 
over-complied during the entire 18-year period.\335\
---------------------------------------------------------------------------

    \333\ Light-Duty Automotive Technology, Carbon Dioxide 
Emissions, and Fuel Economy Trends: 1975 through 2010, November 
2010, available at http://www.epa.gov/otaq/fetrends.htm.
    \334\ There are no EPA LD GHG emissions regulations prior to MY 
2012.
    \335\ See Regulatory Impact Analysis, Chapter 3.
---------------------------------------------------------------------------

    Since the MY 2012-2016 standards are footprint-based, every major 
manufacturer is expected to be constrained by the new standards in 2016 
and manufacturers of small vehicles will not routinely over-comply as 
they had with the past universal standards.\336\ Thus, the historical 
evidence and the footprint-based design of the 2016 GHG emissions and 
CAFE standards strongly support the use of a reference case fleet where 
there are no further fuel economy improvements beyond those required by 
the MY 2016 standards. There are additional factors that reinforce the 
historical evidence. While it is possible that one or two companies may 
over-comply, any voluntary over-compliance by one company would 
generate credits that could be sold to other companies to substitute 
for their more expensive compliance technologies; this ability to buy 
and sell credits could eliminate any over-compliance for the overall 
fleet.\337\ NHTSA also evaluated EIA assumptions and inputs employed in 
the version of NEMS used to support AEO 2011 and found, based on this 
analysis, that when fuel economy standards were held constant after MY 
2016, EIA appears to forecast market-driven levels of over- and under-
compliance generally consistent with a CAFE model analysis using a 
flat, 2016-based reference case fleet. From a consumer market driven 
perspective, while there is considerable evidence that many consumers 
now care more about fuel economy than in past decades, the 2016 
compliance level is projected to be several mpg higher than that being 
demanded in the market today.\338\ On the other hand, some 
manufacturers have already announced plans to introduce technology well 
beyond that required by the 2016 MY GHG standards.\339\ However, it is 
difficult, if not impossible, to separate future fuel economy 
improvements made for marketing purposes from those designed to 
efficiently plan for compliance with anticipated future CAFE or 
CO2 emission standards, i.e., some manufacturers may have 
made public statements about higher mpg levels in the future in part 
because of the expectation of higher future standards.
---------------------------------------------------------------------------

    \336\ With the notable exception of manufacturers who only 
market electric vehicles or other limited product lines.
    \337\ Oates, Wallace E., Paul R. Portney, and Albert M. 
McGartland. ``The Net Benefits of Incentive-Based Regulation: A Case 
Study of Environmental Standard Setting.'' American Economic Review 
79(5) (December 1989): 1233-1242.
    \338\ The average, fleetwide ``laboratory'' or ``unadjusted'' 
fuel economy value for MY 2010 is 28.3 mpg (see Light-Duty 
Automotive Technology, Carbon Dioxide Emissions, and Fuel Economy 
Trends: 1975 Through 2010, November 2010, available at http://www.epa.gov/otaq/fetrends.htm), 6-7 mpg less than the 34-35 mpg 
levels necessary to meet the EPA GHG and NHTSA CAFE levels in MY 
2016.
    \339\ For example, Hyundai has made a public commitment to 
achieve 50 mpg by 2025.
---------------------------------------------------------------------------

    All estimates of actual GHG emissions and fuel economy performance 
in 2016 or other future years are projections, and it is plausible that 
actual GHG emissions and fuel economy performance in 2016 and later 
years, absent more stringent standards, could be worse than projected 
if there are shifts from car market share to truck market share, or to 
higher footprint levels. For example, average fuel economy performance 
levels decreased over the period from 1986-2003 even as car CAFE 
standards were stable and truck CAFE levels rose slightly.\340\ On the 
other hand, it is also possible that future GHG emissions and fuel 
economy performance could be better than MY2016 levels if there are 
shifts from trucks to cars, or to lower footprint levels. While EPA has 
not performed a quantified sensitivity assessment for this proposal, 
EPA believes that a reasonable range for a sensitivity analysis would 
evaluate over or under compliance on the order of a few percent which 
EPA projects would have, at most, a small impact on projected program 
costs and benefits.
---------------------------------------------------------------------------

    \340\ See Regulatory Impact Analysis, Chapter 3.
---------------------------------------------------------------------------

    Based on this assessment, the EPA reference case fleet is estimated 
through the target curves defined in the MY 2016 rulemaking applied to 
the projected MYs 2017-2025 fleet.\341\ As in the previous rulemaking, 
EPA assumes that manufacturers make use of 10.2 grams of air 
conditioning credits on cars and 11.5 on light trucks, or an average of 
approximately 11 grams on the U.S. fleet and the technology for doing 
so is included in the reference case (Section III.C).
---------------------------------------------------------------------------

    \341\ 75 FR at 25686.
---------------------------------------------------------------------------

b. Control Scenarios Modeled
    For the control scenario, EPA modeled the proposed standard curves 
discussed in Section III.B, as well as the alternative scenarios 
discussed in III.D.6. Other flexibilities are accounted for in the 
analysis. The air conditioning credits modeled are discussed in 
III.D.2. Air conditioning credits (both leakage and efficiency) are 
included in the cost and technology analysis described below. The 
compliance value of 0 g/mi for PHEVs and EVs are also included. 
However, off-cycle credits, PH/EV multipliers through MY 2021, pickup 
truck credits, flexible fuel, and carry forward/back credits are not 
included explicitly in the cost analysis. These flexibilities will 
offer the manufacturers more compliance options. Moreover, the overall 
cost analysis includes small volume manufacturers in the fleet, which 
would have company specific standards assuming this part of the 
proposal is finalized (see section III.C). As we expect all of these 
flexibilities together to only have a small impact on the fleet 
compliance costs on average, we will re-evaluate including them in the 
final rule analysis.
c. Vehicle Groupings Used
    In order to create future technology projections and enable 
compliance with the modeled standards, EPA aggregates vehicle sales by 
a combination of manufacturer, vehicle platform, and engine design for 
the OMEGA model. As

[[Page 75032]]

discussed above, manufacturers implement major design changes at 
vehicle redesign and tend to implement these changes across a vehicle 
platform (such as large SUV, mid-size SUV, large automobile, etc) at a 
given manufacturing plant. Because the cost of modifying the engine 
depends on the valve train design (such as SOHC, DOHC, etc.), the 
number of cylinders and in some cases head design, the vehicle sales 
are broken down beyond the platform level to reflect relevant engine 
differences. The vehicle groupings are shown in Table III-19.

[[Page 75033]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.076


[[Page 75034]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.077

2. What are the Effectiveness and Costs of CO2-Reducing 
Technologies?
    EPA and NHTSA worked together to develop information on the 
effectiveness and cost of most CO2-reducing and fuel 
economy-improving technologies. This joint work is reflected in Chapter 
3 of the draft Joint TSD and in Section II.D of this preamble. The work 
on technology cost and effectiveness also includes maximum penetration 
rates, or ``caps'' for the OMEGA model. These caps are an important 
input to OMEGA that capture the agencies' analysis concerning the rate 
at which technologies can be added to the fleet (see Chapter 3.5 of the 
draft joint TSD for more detail). This preamble section, rather than 
repeating those details, focuses upon EPA-only technology assumptions, 
specifically, those relating to air conditioning refrigerant.
    EPA expects all manufacturers will choose to use AC improvement 
credit opportunities as a strategy for complying with the 
CO2 standards, and has set the stringency of the proposed 
standards accordingly (see section II.F above). EPA estimates that the 
level of the credits earned will increase from 2017 (13 grams/mile) to 
2021 (21 grams/mile) as more vehicles in the fleet convert to use of 
the new alternative refrigerant.\342\ By 2021, we project that 100% of 
the MY 2021 fleet will be using alternative refrigerants, and that 
credits will remain constant on a car and truck basis until 2025. Note 
from the table below that costs then decrease from 2021 to 2025 due to 
manufacturer learning as discussed in Section II of this preamble and 
in Chapter 3 of the draft joint TSD. A more in-depth discussion of 
feasibility and availability of low GWP alternative refrigerants, can 
be found in Section III.C of the Preamble.
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    \342\ See table in III.B.

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[[Page 75035]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.078

    Additionally, by MY 2019, EPA estimates that 100% of the A/C 
efficiency improvements will by fully phased-in. However 85% of these 
costs are already in the reference fleet, as this is the level of 
penetration assumed in the 2012-2016 final rule. The penetration of A/C 
costs for this proposal can be found in Chapter 5 of the draft joint 
TSD.
3. How were technologies combined into ``Packages'' and what is the 
cost and effectiveness of packages?
    Individual technologies can be used by manufacturers to achieve 
incremental CO2 reductions. However, as discussed 
extensively in the MYs 2012-2016 Rule, EPA believes that manufacturers 
are more likely to bundle technologies into ``packages'' to capture 
synergistic aspects and reflect progressively larger CO2 
reductions with additions or changes to any given package. In this 
manner, and consistent with the concept of a redesign cycle, 
manufacturers can optimize their available resources, including 
engineering, development, manufacturing and marketing activities to 
create a product with multiple new features. Therefore, the approach 
taken here is to group technologies into packages of increasing cost 
and effectiveness.
    EPA built unique technology packages for each of 19 ``vehicle 
types,'' which, as in the MYs 2012-2016 rule and the Interim Joint TAR, 
provides sufficient resolution to represent the technology of the 
entire fleet. This was the result of analyzing the existing light duty 
fleet with respect to vehicle size and powertrain configurations. All 
vehicles, including cars and trucks, were first distributed based on 
their relative size, starting from compact cars and working upward to 
large trucks. Next, each vehicle was evaluated for powertrain, 
specifically the engine size (I4, V6, and V8) then by valvetrain 
configuration (DOHC, SOHC, OHV), and finally by the number of valves 
per cylinder. For purposes of calculating some technology costs and 
effectiveness values, each of these 19 vehicle types is mapped into one 
of seven classes of vehicles: Subcompact, Small car, Large car, 
Minivan, Minivan with towing, Small truck, and Large truck.\343\ We 
believe that these seven vehicle classes, along with engine cylinder 
count, provide adequate representation for the cost basis associated 
with most technology application. Note also that these 19 vehicle types 
span the range of vehicle footprints--smaller footprints for smaller 
vehicles and larger footprints for larger vehicles--which served as the 
basis for the 2012-2016 GHG standards and the standards in this 
proposal. A detailed table showing the 19 vehicle types, their baseline 
engines and their

[[Page 75036]]

descriptions is contained in Table III-19 and in Chapter 1 of EPA's 
draft RIA.
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    \343\ Note that, for the current assessment and representing an 
update since the 2010 TAR, EPA has created a new vehicle class 
called ``minivan with towing'' which allows for greater 
differentiation of costs for this popular class of vehicles (such as 
the Ford Edge, Honda Odyssey, Jeep Grand Cherokee).
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    Within each of the 19 vehicle types, multiple technology packages 
were created in increasing technology content resulting in increasing 
effectiveness. As stated earlier, with few exceptions, each package is 
meant to provide equivalent driver-perceived performance to the 
baseline package. Note that we refer throughout this discussion of 
package building to a ``baseline'' vehicle or a ``baseline'' package. 
This should not be confused with the baseline fleet, which is the fleet 
of roughly 16 million 2008MY individual vehicles comprised of over 
1,100 vehicle models. In this discussion, when we refer to ``baseline'' 
vehicle we refer to the ``baseline'' configuration of the given vehicle 
type. So, we have 19 baseline vehicles in the context of building 
packages. Each of those 19 baseline vehicles is equipped with a port 
fuel injected engine and a 4 speed automatic transmission. The 
valvetrain configuration and the number of cylinders changes for each 
vehicle type in an effort to encompass the diversity in the 2008 
baseline fleet as discussed above. In short, while the baseline vehicle 
that defines the vehicle type is relevant when discussing the package 
building process, the baseline and reference case fleets of real 
vehicles are not relevant to the discussion here. We describe this in 
more detail in Chapter 1 of EPA's draft RIA.
    To develop a set of packages as OMEGA inputs, EPA builds packages 
consisting of every legitimate permutation of technology available, 
subject to constraints.\344\ This ``preliminary-set'' of packages 
consists of roughly 2,000 possible packages of technologies for each of 
19 vehicle types, or nearly 40,000 packages in all. The cost of each 
package is determined by adding the cost of each individual technology 
contained in the package for the given year of interest. The 
effectiveness of each package is determined in a more deliberate 
manner; one cannot simply add the effectiveness of individual 
technologies to arrive at a package-level effectiveness because of the 
synergistic effects of technologies when grouped with other 
technologies that seek to improve the same or similar efficiency loss 
mechanism. As an example, the benefits of the engine and transmission 
technologies can usually be combined multiplicatively,\345\ but in some 
cases, the benefit of the transmission-related technologies overlaps 
with the engine technologies. This occurs because the transmission 
technologies shift operation of the engine to more efficient locations 
on the engine map by incorporating more ratio selections and a wider 
ratio span into the transmissions. Some of the engine technologies have 
the same goal, such as cylinder deactivation, advanced valvetrains, and 
turbocharging. In order to account for this overlap and avoid over-
estimating emissions reduction effectiveness, EPA uses an engineering 
approach known as the lumped-parameter technique. The results from this 
approach were then applied directly to the vehicle packages. The 
lumped-parameter technique is well documented in the literature, and 
the specific approach developed by EPA is detailed in Chapter 3 
(Section 3.3.2) of the draft joint TSD as well as Chapter 1 of EPA's 
draft RIA.
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    \344\ Example constraints include the requirement for 
stoichiometric gasoline direct injection on every turbocharged and 
downsized engine and/or any 27 bar BMEP turbocharged and downsized 
engine must also include cooled EGR. Some constraints are the result 
of engineering judgment while others are the result of effectiveness 
value estimates which are tied to specific combinations of 
technologies.
    \345\ For example, if an engine technology reduces 
CO2 emissions by five percent and a transmission 
technology reduces CO2 emissions by four percent, the 
benefit of applying both technologies is 8.8 percent (100% - (100% - 
4%) * (100% - 5%)).
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    Table III-21 presents technology costs for a subset of the more 
prominent technologies in our analysis (note that all technology costs 
are presented in Chapter 3 of the draft Joint TSD and in Chapter 1.2 of 
EPA's draft RIA). Table III-21 includes technology costs for a V6 dual 
overhead cam midsize or large car and a V8 overhead valve large pickup 
truck. This table is meant to illustrate how technology costs are 
similar and/or different for these two large selling vehicle classes 
and how the technology costs change over time due to learning and 
indirect cost changes as described in section II.D of this preamble and 
at length in Chapter 3.2 of the draft Joint TSD. Note that these costs 
are not package costs but, rather, individual technology costs. We 
present package costs for the V6 midsize or large car in Table III-22, 
below.

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[[Page 75038]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.080

    Table III-22 presents the cost and effectiveness values from a 
2025MY master-set of packages used in the OMEGA model for EPA's vehicle 
type 5, a midsize or large car class equipped with a V6 engine. Similar 
packages were generated for each of the 19 vehicle types and the costs 
and effectiveness estimates for each of those packages are discussed in 
detail in Chapter 1 of EPA's draft RIA.
    As detailed in Chapter 1 of EPA's draft RIA, this preliminary-set 
of packages is then ranked according to technology application ranking 
factors (TARFs) to eliminate packages that are not as cost-effective as 
others.\346\ The result of this TARF ranking process is a ``ranked-
set'' of roughly 500 packages for use as OMEGA inputs, or roughly 25 
per vehicle type. EPA prepares a ranked set of packages for any MY in 
which OMEGA is run,\347\ the initial packages represent what we believe 
a manufacturer will most likely implement on all vehicles, including 
lower rolling resistance tires, low friction lubricants, engine 
friction reduction, aggressive shift logic, early torque converter 
lock-up, improved electrical accessories, and low drag brakes (to the 
extent not reflected in the baseline vehicle).\348\ Subsequent packages 
include gasoline direct injection, turbocharging and downsizing, and 
more advanced transmission technologies such as six and eight speed 
dual-clutch transmissions and 6 and 8 speed automatic transmissions. 
The most technologically advanced packages within a vehicle type 
include the hybrids, plug-in hybrids and electric vehicles. Note that 
plug-in hybrid and electric vehicle packages are only modeled for the 
non-towing vehicle types, in order to better maintain utility. We 
request comment on this decision and whether or not we should perhaps 
consider plug-in hybrids for towing vehicle types.
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    \346\ The Technology Application Ranking Factor (TARF) is 
discussed further in III.D.5.
    \347\ Note that a ranked-set of package is generated for any 
year for which OMEGA is run due to the changes in costs and maximum 
penetration rates. EPA's draft RIA chapter 3 contains more details 
on the OMEGA modeling and draft Joint TSD Chapter 3 has more detail 
on both costs changes over time and the maximum penetration limits 
of certain technologies.
    \348\ When making reference to low friction lubricants, the 
technology being referred to is the engine changes and possible 
durability testing that would be done to accommodate the low 
friction lubricants, not the lubricants themselves.

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[GRAPHIC] [TIFF OMITTED] TP01DE11.082


[[Page 75041]]


4. How does EPA project how a manufacturer would decide between options 
to improve CO2 performance to meet a fleet average standard?
    As discussed, there are many ways for a manufacturer to reduce 
CO2-emissions from its vehicles. A manufacturer can choose 
from a myriad of CO2 reducing technologies and can apply one 
or more of these technologies to some or all of its vehicles. Thus, for 
a variety of levels of CO2 emission control, there are an 
almost infinite number of technology combinations which produce a 
desired CO2 reduction. As noted earlier, EPA used the same 
model used in the MYs 2012-2016 Rule, the OMEGA model, in order to make 
a reasonable estimate of how manufacturers will add technologies to 
vehicles in order to meet a fleet-wide CO2 emissions level. 
EPA has described OMEGA's specific methodologies and algorithms 
previously in the model documentation,\349\ makes the model publically 
available on its Web site,\350\ and has recently peer reviewed the 
model.\351\
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    \349\ Previous OMEGA documentation for versions used in MYs 
2012-2016 Final Rule (EPA-420-B-09-035), Interim Joint TAR (EPA-420-
B-10-042).
    \350\ http://www.epa.gov/oms/climate/models.htm.
    \351\ EPA-420-R-09-016, September 2009.
---------------------------------------------------------------------------

    The OMEGA model utilizes four basic sets of input data. The first 
is a description of the vehicle fleet. The key pieces of data required 
for each vehicle are its manufacturer, CO2 emission level, 
fuel type, projected sales and footprint. The model also requires that 
each vehicle be assigned to one of the 19 vehicle types, which tells 
the model which set of technologies can be applied to that vehicle. 
(For a description of how the 19 vehicle types were created, see 
Section III.D.3 above.) In addition, the degree to which each baseline 
vehicle already reflects the effectiveness and cost of each available 
technology must also be input. This avoids the situation, for example, 
where the model might try to add a basic engine improvement to a 
current hybrid vehicle. Except for this type of information, the 
development of the required data regarding the reference fleet was 
described in Section III.D.1 above and in Chapter 1 of the Joint TSD.
    The second type of input data used by the model is a description of 
the technologies available to manufacturers, primarily their cost and 
effectiveness. This information was described above as well as in 
Chapter 3 of the draft Joint TSD and Chapter 1 of EPA's draft RIA. In 
all cases, the order of the technologies or technology packages for a 
particular vehicle type is determined by the model user prior to 
running the model. The third type of input data describes vehicle 
operational data, such as annual vehicle scrappage rates and mileage 
accumulation rates, and economic data, such as fuel prices and discount 
rates. These estimates are described in Section II.E above, Section 
III.H below and Chapter 4 of the Joint TSD.
    The fourth type of data describes the CO2 emission 
standards being modeled. These include the MY 2016 standards, proposed 
MY 2021 and proposed MY 2025 standards. As described in more detail 
below, the application of A/C technology is evaluated in a separate 
analysis from those technologies which impact CO2 emissions 
over the 2-cycle test procedure. Thus, for the percent of vehicles that 
are projected to achieve A/C related reductions, the CO2 
credit associated with the projected use of improved A/C systems is 
used to adjust the final CO2 standard which will be 
applicable to each manufacturer to develop a target for CO2 
emissions over the 2-cycle test which is assessed in our OMEGA 
modeling. As an example, on an industry wide basis, EPA projects that 
manufacturers will generate 11 g/mi of A/C credit in 2016. Thus, the 
2016 CO2 target in OMEGA was approximately eleven grams less 
stringent for each manufacturer than predicted by the curves. Similar 
adjustments were made for the control cases (i.e., the A/C credits 
allowed by the rule are accounted for in the standards), but for a 
larger amount of A/C credit (approximately 25 grams).
    As mentioned above for the market data input file utilized by 
OMEGA, which characterizes the vehicle fleet, our modeling accounts for 
the fact that many 2008 MY vehicles are already equipped with one or 
more of the technologies discussed in Section III.D.2 above. Because of 
the choice to apply technologies in packages, and because 2008 vehicles 
are equipped with individual technologies in a wide variety of 
combinations, accounting for the presence of specific technologies in 
terms of their proportion of package cost and CO2 
effectiveness requires careful, detailed analysis.
    Thus, EPA developed a method to account for the presence of the 
combinations of applied technologies in terms of their proportion of 
the technology packages. This analysis can be broken down into four 
steps
    The first step in the updated process is to break down the 
available GHG control technologies into five groups: (1) Engine-
related, (2) transmission-related, (3) hybridization, (4) weight 
reduction and (5) other. Within each group, each individual technology 
was given a ranking which generally followed the degree of complexity, 
cost and effectiveness of the technologies within each group. More 
specifically, the ranking is based on the premise that a technology on 
a 2008 baseline vehicle with a lower ranking would be replaced by one 
with a higher ranking which was contained in one of the technology 
packages which we included in our OMEGA modeling. The corollary of this 
premise is that a technology on a 2008 baseline vehicle with a higher 
ranking would be not be replaced by one with an equal or lower ranking 
which was contained in one of the technology packages which we chose to 
include in our OMEGA modeling. This ranking scheme can be seen in an 
OMEGA pre-processor (the TEB/CEB calculation macro), available in the 
docket.
    In the second step of the process, these rankings were used to 
estimate the complete list of technologies which would be present on 
each baseline vehicle after the application of a technology package. In 
other words, this step indicates the specific technology on each 
baseline vehicle after a package has been applied to it. EPA then used 
the lumped parameter model to estimate the total percentage 
CO2 emission reduction associated with the technology 
present on the baseline vehicle (termed package 0), as well as the 
total percentage reduction after application of each package. A similar 
approach was used to determine the total cost of all of the technology 
present on the baseline vehicle and after the application of each 
applicable technology package.
    The third step in this process is to account for the degree of each 
technology package's incremental effectiveness and incremental cost is 
affected by the technology already present on the baseline vehicle. In 
this step, we calculate the degree to which a technology package's 
effectiveness is already present on the baseline vehicle, and produce a 
value for each package termed the technology effectiveness basis, or 
TEB. The degree to which a technology package's incremental cost is 
reduced by technology already present on the baseline vehicle is termed 
the cost effectiveness basis, or CEB, in the OMEGA model. The equations 
for calculating these values can be seen in RIA chapter 3.
    As described in Section III.D.3 above, technology packages are 
applied to groups of vehicles which generally represent a single 
vehicle platform and which are equipped with a single engine size 
(e.g., compact cars with four cylinder engine produced by Ford). These 
groupings are described in Table

[[Page 75042]]

III-19. Thus, the fourth step is to combine the fractions of the CEB 
and TEB of each technology package already present on the individual MY 
2008 vehicle models for each vehicle grouping. For cost, percentages of 
each package already present are combined using a simple sales-
weighting procedure, since the cost of each package is the same for 
each vehicle in a grouping. For effectiveness, the individual 
percentages are combined by weighting them by both sales and base 
CO2 emission level. This appropriately weights vehicle 
models with either higher sales or CO2 emissions within a 
grouping. Once again, this process prevents the model from adding 
technology which is already present on vehicles, and thus ensures that 
the model does not double count technology effectiveness and cost 
associated with complying with the modeled standards.
    Conceptually, the OMEGA model begins by determining the specific 
CO2 emission standard applicable for each manufacturer and 
its vehicle class (i.e., car or truck). Since the proposal allows for 
averaging across a manufacturer's cars and trucks, the model determines 
the CO2 emission standard applicable to each manufacturer's 
car and truck sales from the two sets of coefficients describing the 
piecewise linear standard functions for cars and trucks (i.e., the 
respective car and truck curves) in the inputs, and creates a combined 
car-truck standard. This combined standard considers the difference in 
lifetime VMT of cars and trucks, as indicated in the proposed 
regulations which govern credit trading between these two vehicle 
classes (which reflect the final 2012-2016 rules on this point).\352\
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    \352\ The analysis for the control cases in this proposal was 
run with slightly different lifetime VMT estimates than those 
proposed in the regulation. The impact on the cost estimates is 
small and varies by manufacturer.
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    As noted above, EPA estimated separately the cost of the improved 
A/C systems required to generate the credit. In the reference case 
fleet that complies with the MY 2016 standards, 85% of vehicles are 
modeled with improved A/C efficiency and leakage prevention technology.
    The model then works with one manufacturer at a time to add 
technologies until that manufacturer meets its applicable proposed 
standard. The OMEGA model can utilize several approaches to determining 
the order in which vehicles receive technologies. For this analysis, 
EPA used a ``manufacturer-based net cost-effectiveness factor'' to rank 
the technology packages in the order in which a manufacturer is likely 
to apply them. Conceptually, this approach estimates the cost of adding 
the technology from the manufacturer's perspective and divides it by 
the mass of CO2 the technology will reduce. One component of 
the cost of adding a technology is its production cost, as discussed 
above. However, it is expected that new vehicle purchasers value 
improved fuel economy since it reduces the cost of operating the 
vehicle. Typical vehicle purchasers are assumed to value the fuel 
savings accrued over the period of time which they will own the 
vehicle, which is estimated to be roughly five years. It is also 
assumed that consumers discount these savings at the same rate as that 
used in the rest of the analysis (3 or 7 percent).\353\ Any residual 
value of the additional technology which might remain when the vehicle 
is sold is not considered. The CO2 emission reduction is the 
change in CO2 emissions multiplied by the percentage of 
vehicles surviving after each year of use multiplied by the annual 
miles travelled by age.
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    \353\ While our costs and benefits are discounted at 3% or 7%, 
the decision algorithm (TARF) used in OMEGA was run at a discount 
rate of 3%. Given that manufacturers must comply with the standard 
regardless of the discount rate used in the TARF, this has little 
impact on the technology projections shown here.
---------------------------------------------------------------------------

    Given this definition, the higher priority technologies are those 
with the lowest manufacturer-based net cost-effectiveness value 
(relatively low technology cost or high fuel savings leads to lower 
values). Because the order of technology application is set for each 
vehicle, the model uses the manufacturer-based net cost-effectiveness 
primarily to decide which vehicle receives the next technology 
addition. Initially, technology package 1 is the only one 
available to any particular vehicle. However, as soon as a vehicle 
receives technology package 1, the model considers the 
manufacturer-based net cost-effectiveness of technology package 
2 for that vehicle and so on. In general terms, the equation 
describing the calculation of manufacturer-based cost effectiveness is 
as follows:
[GRAPHIC] [TIFF OMITTED] TP01DE11.083

Where:

CostEffManuft = Manufacturer-Based Cost Effectiveness (in 
dollars per kilogram CO2),
TechCost = Marked up cost of the technology (dollars),
FS = Difference in fuel consumption due to the addition of 
technology times fuel price and discounted over the payback period, 
or the number of years of vehicle use over which consumers value 
fuel savings when evaluating the value of a new vehicle at time of 
purchase
dCO2 = Difference in CO2 emissions (g/mile) 
due to the addition of technology
VMTregulatory = the statutorily defined VMT

    EPA describes the technology ranking methodology and manufacturer-
based cost effectiveness metric in greater detail in the OMEGA 
documentation.\354\
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    \354\ OMEGA model documentation. EPA-420-B-10-042.
---------------------------------------------------------------------------

    When calculating the fuel savings in the TARF equation, the full 
retail price of fuel, including taxes is used. While taxes are not 
generally included when calculating the cost or benefits of a 
regulation, the net cost component of the manufacturer-based net cost-
effectiveness equation is not a measure of the social cost of this 
proposed rule, but a measure of the private cost, (i.e., a measure of 
the vehicle purchaser's willingness to pay more for a vehicle with 
higher fuel efficiency). Since vehicle operators pay the full price of 
fuel, including taxes, they value fuel costs or savings at this level, 
and the manufacturers will consider this when choosing among the 
technology options.\355\
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    \355\ This definition of manufacturer-based net cost-
effectiveness ignores any change in the residual value of the 
vehicle due to the additional technology when the vehicle is five 
years old. Based on historic used car pricing, applicable sales 
taxes, and insurance, vehicles are worth roughly 23% of their 
original cost after five years, discounted to year of vehicle 
purchase at 7% per annum. It is reasonable to estimate that the 
added technology to improve CO2 level and fuel economy 
will retain this same percentage of value when the vehicle is five 
years old. However, it is less clear whether first purchasers, and 
thus, manufacturers consider this residual value when ranking 
technologies and making vehicle purchases, respectively. For this 
proposal, this factor was not included in our determination of 
manufacturer-based net cost-effectiveness in the analyses.
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    The values of manufacturer-based net cost-effectiveness for 
specific

[[Page 75043]]

technologies will vary from vehicle to vehicle, often substantially. 
This occurs for three reasons. First, both the cost and fuel-saving 
component cost, ownership fuel-savings, and lifetime CO2 
effectiveness of a specific technology all vary by the type of vehicle 
or engine to which it is being applied (e.g., small car versus large 
truck, or 4-cylinder versus 8-cylinder engine). Second, the 
effectiveness of a specific technology often depends on the presence of 
other technologies already being used on the vehicle (i.e., the dis-
synergies). Third, the absolute fuel savings and CO2 
reduction of a percentage an incremental reduction in fuel consumption 
depends on the CO2 level of the vehicle prior to adding the 
technology. Chapter 1 of EPA's draft RIA contains further detail on the 
values of manufacturer-based net cost-effectiveness for the various 
technology packages.
5. Projected Compliance Costs and Technology Penetrations
    The following tables present the projected incremental costs and 
technology penetrations for the proposed program. Overall projected 
cost increases are $734 in MY 2021 and $1946 in MY 2025. Relative to 
the reference fleet complying with of MY 2016 standards, we see 
significant increases in advanced transmission technologies such as the 
high efficiency gear box and 8 speed transmissions, as well as more 
moderate increase in turbo downsized, cooled EGR 24 bar BMEP engines. 
In the control case, 15 percent of the MY 2025 fleet is projected to be 
a strong P2 hybrid as compared to 5% in the 2016 reference case. 
Similarly, 3 percent of the MY 2025 fleet are projected to be electric 
vehicles while less than 1 percent are projected to be electric 
vehicles in the reference case. EPA notes that we have projected one 
potential compliance path for each company and the industry as a 
whole--this does not mean other potential technology penetrations are 
not possible, in fact, it is likely that each firm will of course plot 
their own future course on how to comply. For example, while we show 
relatively low levels of EV and PHEV technologies may be used to meet 
the proposed standards, several firms have announced plans to 
aggressively pursue EV and PHEV technologies and thus the actual 
penetration of those technologies may turn out to be much higher than 
the prediction we present here.
BILLING CODE 4910-59-P

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BILLING CODE 4910-59-C
6. How does the technical assessment support the proposed 
CO2 standards as compared to the alternatives has EPA 
considered?
a. What are the targets and achieved levels for the fleet in this 
proposal?
    In this section EPA analyzes the proposed standards alongside 
several potential alternative GHG standards.
    Table III-28 includes a summary of the proposed standards and the 
four alternatives considered by EPA for this notice. In this table and 
for the majority of the data presented in this section, EPA focuses on 
two specific model years in the 2017-2025 time frame addressed by this 
proposal. For the purposes of considering alternatives, EPA assessed 
these two specific years as being reasonably separated in time in order 
to evaluate a range of meaningfully different standards, rather than 
analyzing alternatives for each individual model year. After discussing 
the reasons for selecting the proposed standards rather than any of the 
alternatives, EPA will describe the specific standard phase-in schedule 
for the proposal. Table III-28 presents the projected reference case 
targets for the fleet in 2021 and 2025, that is the estimated industry 
wide targets that would be required for the projected fleet in those 
years by the MY 2016 standards.\357\ The alternatives, like the 
proposed standards, account for projected use of A/C related credits. 
They represent the average targets for cars and trucks projected for 
the proposed standards and four alternative standards. They do not 
represent the manner in which manufacturers are projected to achieve 
compliance with these targets, which includes the ability to transfer 
credits to and from the car and truck fleets. That is discussed later.
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    \357\ The reference case targets for 2021 and 2025 may be 
different even though the footprint based standards are identical 
(the 2016 curves). This is because the fleet distribution of cars 
and trucks may change in the intervening years thus changing the 
targets in 2021 and 2025.

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[[Page 75052]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.092

    Alternative 1 and 2 are focused on changes in the level of 
stringency for just light-duty trucks: Alternative 1 is 20 grams/mile 
CO2 less stringent (higher) in 2021 and 2025, and 
Alternative 2 is 20 grams/mile CO2 more stringent (lower) in 
2021 and 2025. Alternative 3 and 4 are focused on changes in the level 
of stringency for just passenger cars: Alternative 3 is 20 grams/mile 
CO2 less stringent (higher) in 2021 and 2025, and 
Alternative 4 is 20 grams/mile CO2 more stringent (lower) in 
2021 and 2025. When combined with the sales projections for 2021 and 
2025, these alternatives span fleet wide targets with a range of 187-
213 g/mi CO2 in 2021 (equivalent to a range of 42-48 mpge if 
all improvements were made with fuel economy technologies) and a range 
of 150-177 g/mi CO2 in 2025 in 2025 (equivalent to a range 
of 50-59 mpg if all improvements were made with fuel economy 
technologies).
    Using the OMEGA model, EPA evaluated the proposed standards and 
each of the alternatives in 2021 and in 2025. It is worth noting that 
although Alternatives 1 and 2 consider different truck footprint curves 
compared to the proposal and Alternatives 3 and 4 evaluate different 
car footprint curves compared to the proposal, in all cases EPA 
evaluated the alternatives by modeling both the car and truck footprint 
curves together (which achieve the fleet targets shown in Table III-28) 
as this is how manufacturers would view the future standards given the 
opportunity to transfer credits between cars and trucks under the GHG 
program.\358\ A manufacturer's ability to transfer GHG credits between 
its car and truck fleets without limit does have the effect of muting 
the ``truck'' focused and ``car'' focused nature of the alternatives 
EPA is evaluating. For example, while Alternative 1 has truck standards

[[Page 75053]]

projected in 2021 and 2025 to be 20 grams/mile less stringent than the 
proposed truck standards and the same car standards as the proposed car 
standards, individual firms may over comply on trucks and under-comply 
on cars (or vice versa) in order to meet Alternative 1 in a cost 
effective manner from each company's perspective. EPA's modeling of 
single manufacturer fleets reflects this flexibility, and appropriately 
so given that it reflects manufacturers' expected response.
---------------------------------------------------------------------------

    \358\ The curves for the alternatives were developed using the 
same methods as the proposed curves, however with different targets. 
Thus, just as in the proposed curves, the car and truck curves 
described in TSD 2 were ``fanned'' up or down to determine the 
curves of the alternatives.
---------------------------------------------------------------------------

    Table III-29 shows the projected target and projected achieved 
levels in 2025 for the proposed standards. This accounts for a 
manufacturer's ability to transfer credits to and from cars and trucks 
to meet a manufacturer's car and truck targets.

[[Page 75054]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.093

    Similar tables for each of the alternatives for 2025 and for the 
alternatives and the proposal for 2021 are contained in Chapter 3 of 
EPA's draft RIA. With the proposed standards and for Alternatives 1 and 
2, all

[[Page 75055]]

companies are projected to be able to comply both in 2021 and 2025, 
with the with the exception of Ferrari, which in each case falls 9 g/mi 
short of its projected fleet wide obligation in 2025.\359\ In 
Alternatives 3 and 4, where the car stringency varies, all companies 
are again projected to comply with the exception of Ferrari, which 
complies under Alternative 3, but has a 30 gram shortfall under 
Alternative 4. This level of compliance was not the case for the 2016 
standards from the previous rule. The primary reason for this result is 
the penetration of more efficient technologies beyond 2016. As 
described earlier, many technologies projected as not to be available 
by MY 2016 or whose penetration was limited due to lead time issues are 
projected to be available or available at greater penetration rates in 
the 2017-2025 timeframe, especially given two more redesign cycles for 
the industry on average.
---------------------------------------------------------------------------

    \359\ Note that Ferrari is shown as a separate entity in the 
table above but could be combined with other Fiat-owned companies 
for purposes of GHG compliance at the manufacturer's discretion. 
Also, in Section III.B., EPA is requesting comment on the concept of 
allowing companies that are able to demonstrate ``operational 
independence'' to be eligible for SVM alternative standards. 
However, the costs shown above are based on Ferrari meeting the 
primary program standards.
---------------------------------------------------------------------------

b. Why is the Relative Rate of Car Truck Stringency Appropriate?
    Table III-29 illustrates the importance of car-truck credit 
transfer for individual firms. For example, the OMEGA model projects 
for the proposed standards that in 2025, Daimler would under comply for 
trucks by 22 g/mile but over comply in their car fleet by 8 g/mi in 
order to meet their overall compliance obligation, while for Kia the 
OMEGA model projects that under the proposed standards Kia's truck 
fleet would over comply by 10 g/mi and under comply in their car fleet 
by 3 g/mi in order to meet their compliance obligations. However, for 
the fleet as a whole, we project only a relatively small degree of net 
credit transfers from the truck fleet to the car fleet.
    Table III-23 shows that the average costs for cars and trucks are 
also nearly equivalent for 2021 and 2025. For MY 2021, the average cost 
to comply with the car standards is $718, while it is $764 for trucks. 
For MY 2025, the average cost to comply with the car standards is 
$1,942, while it is $1,954 for trucks. These results are highly 
consistent with the small degree of net projected credit transfer 
between cars and trucks.
    The average cost for complying with the truck and car standards are 
similar, even though the level of stringency for trucks is increasing 
at a slower rate than for cars. As described in Section I.B.2 of the 
preamble, the proposed car standards are decreasing (in CO2) 
at a rate of 5% per year from MYs 2017-2025, while the proposed truck 
standards are decreasing at a rate of 3.5% per year on average from MYs 
2017-2021, then 5% per year thereafter till 2025. Given this difference 
in percentage rates, the close similarity in average cost stems from 
the fact that it is more costly to add the technologies to trucks (in 
general) than to cars as described in Chapter 1 of the draft RIA. 
Moreover, some technologies are not even available for towing trucks. 
These include EVs, PHEVs, Atkinson Cycle engines (matched with HEVs), 
and DCTs--the latter two are relatively cost effective. Together these 
result in a decrease in effectiveness potential for the heavier towing 
trucks compared to non-towing trucks and cars. In addition,, there is 
more mass reduction projected for these vehicles, but this comes at 
higher cost as well, as the cost per pound for mass reduction goes up 
with higher levels of mass reduction (that is, the cost increase curves 
upward rather than being linear). As described in greater detail in 
Chapter 2 of the joint TSD, these factors help explain the reason EPA 
and NHTSA are proposing to make the truck curve steeper relative to the 
2016 curve, thus resulting in a truck curve that is ``more parallel'' 
to cars than the 2016 truck curve.
    Taken together, our analysis shows that under the proposed 
standards, there is relatively little net trading between car and 
trucks; average costs for compliance with cars is similar to that of 
trucks in MY 2021 as well as MY 2025; and it is more costly to add 
technologies to trucks than to cars. These facts corroborate the 
reasonableness for increasing the slope of the truck curve. These 
observations also lead us to the conclusion that (at a fleet level) 
starting from MYs 2017-2021, the slower rate of increase for trucks 
compared to cars (3.5% compared to 5% per year), and the same rate of 
increase (5% per year) for both cars and trucks for MY 2022-2025 
results in car and truck standards that reflect increases in stringency 
over time that are comparable and consistent. There are no indications 
that either the truck or car standards are leading manufacturers to 
choose technology paths that lead to significant over or under 
compliance for cars or trucks, on an industry wide level. E.g., there 
is no indication that on average the proposed car standards would lead 
manufacturers to consistently under or over comply with the car 
standard in light of the truck standard, or vice versa. A consistent 
pattern across the industry of manufacturers choosing to under or over 
comply with a car or trucks standard could indicate that the car or 
truck standard should be evaluated further to determine if one was more 
or less stringent than might be appropriate in light of the technology 
choices available to manufacturers and their costs. As shown above, 
that is not the case for the proposed car and truck standards. However, 
EPA did evaluate a set of alternative standards that reflect separately 
increasing or decreasing the stringency of the car and truck standards, 
as discussed below.
c. What are the costs and advanced technology penetration rates for the 
alternative standards in relation to the proposed standards?
    Below we discuss results for the proposed car and truck standards 
compared to the truck alternatives evaluated (Alternatives 1 and 2), 
and then discuss the proposed car and truck standards compared to the 
car alternatives (Alternatives 3 and 4).
    Table III-30 presents our projected per-vehicle cost for the 
average car, truck and for the fleet in model year 2021 and 2025 for 
the proposal and for Alternatives 1 and 2. All costs are relative to 
the reference case (i.e. the fleet with technology added to meet the 
2016 MY standards). As can be seen, even though only the truck 
standards vary among these three scenarios, in each case the projected 
average car and truck costs vary as a result of car-truck credit 
transfer by individual companies. Table III-30 shows that compared to 
the proposal, Alternative 1 (with a 2021 and 2025 truck target 20 g/
mile less stringent, or 20 g/mile greater, than the proposal) is $281 
per vehicle less than the proposal in 2021 and $430 per vehicle less 
than the proposal in 2025. Alternative 2 (with a 2021 and 2025 truck 
target 20g/mile more stringent, or 20 g/mile less, than the proposal) 
is $343 per vehicle more than the proposal in 2021 and $516 per vehicle 
more than the proposal in 2025.
    Note that while the car and truck costs are nearly equivalent for 
Alternative 2 in 2021 and 2025, cars are over complying on average by 7 
g/mi, while trucks are under complying by 11 g/mi, thus indicating 
significant flow of credits from cars to trucks.\360\ The situation is 
reversed in Alternative 1, where cars are under complying on average by 
9 g/mi and trucks are over

[[Page 75056]]

complying by 16 g/mi, implying significant flow of credits from truck 
to cars.
---------------------------------------------------------------------------

    \360\ These detailed tables are in Chapter 3 of EPA's draft RIA.
    [GRAPHIC] [TIFF OMITTED] TP01DE11.095
    
    Table III-31 presents the per-vehicle cost estimates in MY 2021 by 
company for the proposal, Alternative 1 and Alternative 2. In general, 
for most of the companies our projected results show the same trends as 
for the industry as a whole.

[[Page 75057]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.096

    Table III-32 presents the per-vehicle cost estimates in MY 2025 by 
company for the proposal, Alternative 1 and Alternative 2. In general, 
for most of the companies our projected results show the same trends as 
for the industry as a whole, with Alternative 1 on the order of $200 to 
$600 per vehicle less expensive then the proposal, and Alternative 2 on 
the order of $200 to $800 per vehicle more expensive. For the fleet as 
a whole, the average cost for Alternative 1 is $430 less costly, while 
Alternative 2 is $516 more costly. Thus the incremental average cost is 
higher for the more stringent alternative than for an equally less 
stringent alternative standard. This is not a surprise as more 
technologies must be added to vehicles to meet tighter standards, and 
these technologies increase in cost in a non-linear fashion.

[[Page 75058]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.097

    The previous tables present the costs for the proposal and 
alternatives 1 and 2 at both the industry and company level. In 
addition to costs, another key is the technology required to meet 
potential future standards. The EPA assessment of the proposal, as well 
as Alternatives 1 and 2 predict the penetration into the fleet of a 
large number of technologies at various rates of penetration. A subset 
of these technologies are discussed below, while EPA's draft RIA 
Chapter 3 includes the details on this much longer list for the 
passenger car fleet, light-duty truck fleet, and the overall fleet at 
both the industry and individual company level. Table III-33 and Table 
III-34 present only a sub-set of the technologies EPA estimates could 
be used to meet the proposed standards as well as alternative 1 and 2 
in MY 2021. Table III-35 and Table III-36 show the same for 2025. The 
technologies listed in these tables are those for which there is a 
large difference in penetration rates between the proposal and the 
alternatives. We have not included here, for example, the penetration 
rates for improved high efficiency gear boxes because in 2021 our 
modeling estimates a 58% penetration of this technology across the 
total fleet for the proposal as well as for alternatives 1 and 2, or 8 
speed automatic transmissions which in 2021 we estimate at a 28% 
penetration

[[Page 75059]]

rate for the proposed standards as well as for alternatives 1 and 2. 
There are several other technologies (shown in the Chapter 3 of the 
DRIA) where there is little differentiation between the proposal and 
alternatives 1 and 2.
    Table III-33 shows that in 2021, for several technologies the 
proposal requires higher levels of penetration for trucks than 
alternative 1. For example, for trucks, compared to the proposal, 
alternative 1 leads to an 8% decrease in the 24 bar turbo-charged/
downsized engines, a 10% decrease in the penetration of cooled EGR, and 
a 12% decrease in the penetration of gasoline direct injection fuel 
systems. We also see that due to credit transfer between cars and 
trucks, the lower level of stringency considered for trucks in 
alternative 1 also impacts the penetration of technology to the car 
fleet--with alternative 1 leading to a 14% decrease in penetration of 
18 bar turbo-downsized engines, 5% decrease in penetration of 24 bar 
turbo-downsize engines, 8% decrease in penetration of 8 speed dual 
clutch transmissions, and a 19% decrease in penetration of gasoline 
direct injection fuel systems in the car fleet. For the more stringent 
alternative 2, we see increases in the penetration of many of these 
technologies projected for 2021, for the truck fleet as well as for the 
car fleet. Table III-34 shows these same overall trends but at the 
sales weighted fleet level in 2021.

[[Page 75060]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.098

    Table III-35 shows that in 2025, there is only a small change in 
many of these technology penetration rates when comparing the proposal 
to alternative 1 for trucks, and most of the change shows up in the car 
fleet. One important exception is hybrid electric vehicles, where the 
less stringent alternative 1 is projected to be met with a 4% decrease 
in penetration of HEVs compared to the proposal. As in 2021, we see 
that due to credit transfer between cars and trucks, the lower level of 
stringency considered for trucks in alternative 1 also impacts the car 
fleet penetration--with alternative 1 leading to a 8% decrease in 
penetration of 24 bar turbo-downsized engines, 12% decrease in 
penetration of cooled EGR, 6% decrease in penetration of HEVs, and a 2% 
decrease in penetration of electric vehicles. For the more stringent 
alternative 2, we see only small increases in the penetration of many 
of

[[Page 75061]]

these technologies projected for 2025, with a major exception being a 
significant 14% increase in the penetration of HEVs for trucks compared 
to the proposal, a 6% increase in the penetration of HEVs for cars 
compared to the proposal, and a 3% increase in the penetration of EVs 
for cars compared to the proposal.
[GRAPHIC] [TIFF OMITTED] TP01DE11.099

    The results are similar for Alternatives 3 and 4, where the truck 
standard stays at the proposal level and the car stringency varies, +20 
g/mi and -20 g/mi respectively. Table III-37 presents our projected 
per-vehicle cost for the average car, truck and for the fleet in model 
year 2021 and 2025 for the proposal and for Alternatives 3 and

[[Page 75062]]

4. Compared to the proposal, Alternative 3 (with a 2021 and 2025 car 
target 20 g/mile less stringent then the proposal) is $442 per vehicle 
less on average than the proposal in 2021 and $708 per vehicle less 
than the proposal in 2025. Alternative 4 (with a 2021 and 2025 car 
target 20g/mile more stringent then the proposal) is $635 per vehicle 
more on average than the proposal in 2021 and $923 per vehicle more 
than the proposal in 2025. These differences are even more pronounced 
than Alternatives 1 and 2. As in the analysis above, the costs 
increases are greater for more stringent alternatives than the reduced 
costs from the less stringent alternatives.
    Note that although the car and truck costs are not too dissimilar 
for cars and trucks for Alternative 3 in 2025, what is not shown is 
that cars are over complying by 5 g/mi, while trucks are under 
complying by 7 g/mi, thus indicating significant flow of credits from 
cars to trucks. The situation is reversed in Alternative 4, where cars 
are under complying by 6 g/mi and trucks are over complying by 12 g/mi 
implying significant flow of credits from truck to cars.
[GRAPHIC] [TIFF OMITTED] TP01DE11.100

    Table III-38 presents the per-vehicle cost estimates in MY 2021 by 
company for the proposal, Alternative 3 and Alternative 4. In general, 
for most of the companies our projected results show the same trends as 
for the industry as a whole, with Alternative 3 being a several hundred 
dollars per vehicle less expensive then the proposal, and Alternative 4 
being several hundred dollars per vehicle more expensive (with larger 
increment for more stringent than less stringent alternatives). In some 
case the differences exceed $1,000 (e.g. BMW, Daimler, Geely/Volvo, 
Mazda, Spyker/Saab, and Tata).

[[Page 75063]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.101

    Table III-39 presents the per-vehicle cost estimates in MY 2025 by 
company for the proposal, Alternative 3 and Alternative 4. In general, 
for most of the companies our projected results show the same trends as 
for the industry as a whole, with Alternative 3 on the order of $500 to 
$1,400 per vehicle less expensive then the proposal, and Alternative 4 
on the order of $700 to $1,600 per vehicle more expensive. Again these 
differences are more pronounced for the car alternatives than the truck 
alternatives.

[[Page 75064]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.102

    Table III-40 shows that in 2021, for several technologies 
Alternative 3 leads to lower levels of penetration for cars as well as 
trucks compared to the proposal. For example (on cars) there is an 13% 
decrease in the 18 bar turbo-charged/downsized engines, a 5% decrease 
in the penetration of cooled EGR, and a 22% decrease in the penetration 
of gasoline direct injection fuel systems. We also see that due to 
credit transfer between cars and trucks, the lower level of stringency 
considered for cars in alternative 3 also impacts the penetration of 
technology to the truck fleet--with alternative 3 leading to 12% 
decrease in penetration of 24 bar turbo-downsized engines, 13% decrease 
in penetration of cooled EGR, and a 17% decrease in penetration of 
gasoline direct injection fuel systems in the car fleet. For the more 
stringent alternative 4, we see increases in the penetration of many of 
these technologies projected for 2021, for the truck fleet as well as 
for the car fleet. Table III-41 shows these same overall trends but at 
the sales weighted fleet level in 2021.

[[Page 75065]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.103

    Table III-42 shows that in 2025, there is only a small change in 
many of these technology penetration rates when comparing the proposal 
to alternative 3 for cars, and most of the change shows up in the car 
fleet. There are a few

[[Page 75066]]

exceptions: There is a 15% decrease in the penetrate rate of 24 bar 
bmep engines (made up somewhat by a 4% increase in 18 bar engines); 
there is 20% less EGR boost and GDI, and 9% less hybrid electric 
vehicles compared to the proposal. As in 2021, we see that due to 
credit transfer between cars and trucks at the lower level of 
stringency considered for cars in alternative 3 also impacts the truck 
fleet penetration--with alternative 3 leading to 7% decrease in 
penetration of HEVs. For the more stringent alternative 4, we see only 
small increases in the penetration of many of these technologies 
projected for 2025, with a major exception being a significant 9% 
increase in the penetration of HEVs for cars compared to the proposal 
(along with a drop in advanced engines), and a 20% increase in the 
penetration of HEVs for trucks compared to the proposal.
[GRAPHIC] [TIFF OMITTED] TP01DE11.104


[[Page 75067]]


    The trend for Alternatives 3 and 4 have thus far been that the 
impacts have been more extreme than Alternatives 1 and 2 compared to 
the proposal. Thus we will focus the discussion of feasibility on 
Alternatives 1 and 2 (as the same will also then apply to 3 and 4 
respectively).
    As stated above, EPA's OMEGA analysis indicates that there is a 
technology pathway for all manufacturers to build vehicles that would 
meet the proposed standards as well as the alternative standards.\361\ 
The differences lie in the per-vehicle costs and the associated 
technology penetrations. With the proposed standards, we estimate that 
the average per-vehicle cost is $734 in 2021 and $1,946 in 2025. We 
have also shown that the relative rate of increase in the stringencies 
of cars and trucks are at an appropriate level such that there is 
greater balance amongst the manufacturers where the distribution of the 
burden is relatively evenly spread. In Section I.C of the Preamble, we 
also showed that the benefits of the program are significant, and that 
this cost can be recovered within the first four years of vehicle 
ownership.
---------------------------------------------------------------------------

    \361\ Except Ferrari.
---------------------------------------------------------------------------

    EPA's analysis of the four alternatives indicates that under all of 
the alternatives the projected response of the manufacturers is to 
change both their car and truck fleets. Whether the car or truck 
standard is being changed, and whether it is being made more or less 
stringent, the response of the manufacturers is to make changes across 
their fleet, in light of their ability to transfer credits between cars 
and trucks. For example, Alternatives 1 and 3 make either the car or 
trucks standard less stringent, and keep the other standard as is. For 
both alternatives, manufacturers increase their projected 
CO2 g/mile level achieved by their car fleet, and to a 
lesser extent their truck fleet. For alternatives 2 and 4, where either 
the truck or car fleet is made more stringent, and the other standard 
is kept as is, manufacturers reduce the projected CO2 g/mile 
level achieved by both their car and trucks fleets, in a generally 
comparable fashion. This is summarized in Table III-44 for MY 2025.
[GRAPHIC] [TIFF OMITTED] TP01DE11.105

    This demonstrates that the four alternatives are indicative of what 
would happen if EPA increased the stringency of both the car and truck 
fleet at the same time, or decreased the stringency of the car and 
truck fleet at the same time. E.g., Alternative 4 would be comparable 
to an alternative where EPA made the car standard more stringent by 14 
gm/mi and the truck standard by 10 gm/mile. Under such an alternative, 
there would logically be little if any net transfer of credits between 
cars and trucks. In that context, the results from alternatives 1 and 3 
can be considered as indicative of what would be expected if EPA 
decreased the stringency of both the car and truck standards, and 
alternatives 2 and 4 as indicative of what would happen if EPA 
increased the stringency of both the car and truck standards. In 
general, it appears that decreasing the stringency of the standards 
would lead the manufacturers to focus more on increasing the 
CO2 gm/mile of cars than trucks (alternatives 1 and 3). 
Increasing the stringency of the car and truck standards would 
generally lead to comparable increases in gm/mi for both cars and 
trucks.
    Alternatives 1 and 3 would achieve significantly lower reductions, 
and would therefore forego important benefits that the proposed 
standards would achieve at reasonable costs and

[[Page 75068]]

penetrations of technology. EPA judges that there is not a good reason 
to forego such benefits, and is not proposing less stringent standards 
such as alternatives 1 and 3.
    Alternatives 2 and 4 increase the per vehicle estimates to $1,077 
and $1,369 respectively in 2021 and $2,462 and $2,869 respectively in 
2025. This increase in cost from the proposal originates from the 
dramatic increases in the costlier electrification technologies, such 
as HEVs and EVs. The following tables and charts show the technology 
penetrations by manufacturer in greater detail.
    Table III-45 and later tables describe the projected penetration 
rates for the OEMs of some key technologies in MY 2021 and MY2025 under 
the proposed standards. TDS27, HEV, and PHEV+EV technologies represent 
the most costly technologies added in the package generation process, 
and the OMEGA model generally adds them as one of the last technology 
choices for compliance. They are therefore an indicator of the extent 
to which the stringency of the standard is pushing the manufacturers to 
the most costly technology. Cost (as shown above) is a similar 
indicator.
    Table III-45 describes technology penetration for MY2021 under the 
proposal.

[[Page 75069]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.106

    It can be seen from this table that the larger volume manufacturers 
have levels of advanced technologies that are below the phase in caps 
(described in the next table). On the other hand, smaller ``luxury'' 
volume manufacturers tend to

[[Page 75070]]

require higher levels of these technologies. BMW, Daimler, Volvo, 
Porsche, Saab, Jaguar/LandRover, and VW all reach the maximum 
penetration cap for HEVs (30%) in 2021. Suzuki is the only other 
company with greater than 20% penetration of HEVs and only two 
manufacturers have greater than 10% penetration of PH/EVs: Porsche and 
Saab. Together these seven ``luxury'' vehicle manufacturers represent 
12% of vehicle sales and their estimated cost of compliance with 2021 
proposed standards is $2,178 compared to $744 for the others.
    It is important to review some of the caps or limits on the 
technology phase in rates described in Chapter 3.5.2.3 of the joint TSD 
as it relates to the remainder of this discussion. These are upper 
limits on the penetration rates allowed under our modeling, and reflect 
an estimate of the physical limits for such penetration. It is not a 
judgment that rates below that cap are practical or reasonable, and is 
intended to be more of a physical limit of technical capability in 
light of conditions such as supplier capacity, up-front investment 
capital requirements, manufacturability, and other factors. For 
example, in MY 2010, there are presently 3% HEVs in the new vehicle 
fleet. In MYs 2015, 2021 and 2025 we project that this cap on 
technology penetration rate increases to 15%, 30% and 50% respectively. 
For PH/EVs in MY 2010, there is practically none of these technologies. 
In MYs 2015, 2021 and 2025 we project that this cap on technology 
penetration rate increases to approximately 5%, 10% and 15% 
respectively for EVs and PHEVs separately. These highly complex 
technologies also have the slowest penetration phase-in rates to 
reflect the relatively long lead time required to implement into 
substantial fractions of the fleet subject to the manufacturers' 
product redesign schedules. In contrast, an advanced technology still 
under development based on an improved engine design, TDS27, has a cap 
on penetration phase in rate in MYs 2015, 2021, and 2025 of 0%, 15%, 
and 50% indicative of a longer lead time to develop the technology, but 
a relatively faster phase in rate once the technology is ``ready'' 
(consistent with other ``conventional'' evolutionary improvements). 
Table III-46 summarizes the caps on the phase in rates of some of the 
key technologies. A penetration rate result from the analysis that 
approaches the caps for these technologies for a given manufacturer is 
an indication of how much that manufacturer is being ``pushed'' to 
technical limits by the standards. This will be in direct correlation 
to the cost of compliance for that same manufacturer.
[GRAPHIC] [TIFF OMITTED] TP01DE11.108

    Table III-47 shows the technology penetrations for Alternative 2. 
Immediately striking is the penetration rates of truck HEVs in the 
fleet: Even in 2021, it nearly doubles in comparison to the proposal. 
The Ford truck fleet (to take one of the largest volume manufacturers 
as an example) increases from 2% HEVs in the proposal trucks to 16% in 
Alternative 2, an eightfold increase.
    There are other significant increases in the larger manufacturers 
and even more dramatic increases in the HEV penetration in smaller 
manufacturers' fleets. For example, Suzuki cars now reach the maximum 
technology penetration cap of 30% for HEVs and Mitsubishi now has 20% 
HEVs. Also, there are now four manufacturers with total fleet PH/EV 
penetration rates equal to 10% or greater.
    The larger volume manufacturers have an estimated per vehicle cost 
of compliance with 2021 alternative standards of $1,044, which is $555 
higher than the proposed standards. The seven ``luxury'' vehicle 
manufacturers now have estimated costs of $2,733, which is $300 higher 
than the proposed standards (See Table III-12 above).

[[Page 75071]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.109

BILLING CODE 4910-59-P
    Table III-48 shows the technology penetrations for Alternative 4 
for MY 2021. The large volume manufacturer, Ford now has a 25% 
penetration rate of

[[Page 75072]]

truck HEVs (a 23% increase compared to the proposed standards) and the 
fleet penetration has gone up 11 fold for this company in comparison to 
the proposed standards.
    Mitsubishi, and Suzuki cars now reach the maximum technology 
penetration cap of 30% for HEVs, and Mazda, Subaru cars as well as Ford 
trucks now have greater than 20% HEVs. Also, there are now six 
manufacturers with PH/EV penetration rates greater than 10%.
    The larger volume manufacturers now have an estimated per vehicle 
cost of compliance with 2021 alternative standards of $1,428, which is 
$683 higher than the proposed standards. The seven ``luxury'' vehicle 
manufacturers now have estimated costs of $3,499, which is $1,320 
higher than the proposed standard (See Table III-32 above). For the 
seven luxury manufacturers, this per vehicle cost exceeds the costs 
under the proposal for complying with the considerably more stringent 
2025 standards.

[[Page 75073]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.110

    Table III-49 shows the technology penetrations for the proposed 
standards in 2025. The larger volume manufacturers have levels of 
advanced technologies that are below the phase in caps (described in 
the next table),

[[Page 75074]]

though there are some notably high penetration rates for truck HEVs for 
Ford and Nissan.\362\ For the fleet in general, we note a 3% 
penetration rate of PHEV+EVs--it is interesting to note that this is 
the penetration rate of HEVs today. EPA believes that there is 
sufficient lead time to have this level of penetration of these 
vehicles by 2025. Case in point, it has taken approximately 10 years 
for HEV penetration to get to the levels that we see today, and that 
was without an increase in the stringency of passenger car CAFE 
standards.
---------------------------------------------------------------------------

    \362\ EPA has not conducted an analysis of pickup truck HEV 
penetration rates compared to the remainder of the truck fleet. This 
may be conducted for the final rule.

---------------------------------------------------------------------------

[[Page 75075]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.111

    Six of the seven luxury vehicle manufacturers reach the maximum 
penetration cap on their truck portion of their fleet; however, no 
company reaches 50% for their combined fleet. The seven do have over 
30%

[[Page 75076]]

penetration rate of HEVs, while Suzuki is the only company to have 
between 20 and 30% HEVs. Six of the 7 luxury vehicle manufacturers also 
have greater than 10% penetration of PH/EVs (which has a total cap of 
29%). The only company to have large penetration rates (>15%) of TDS27 
is Jaguar/LandRover at 29%.
    The estimated per vehicle cost of compliance with 2025 proposed 
standards is $1,943 for the larger volume manufacturers and $3,133 for 
the seven ``luxury'' vehicle manufacturers.
    Table III-50 shows the technology penetrations for Alternative 2 in 
2025. In this alternative Chrysler trucks nearly double their 
penetration rate of HEVs along with dramatic increases in car and truck 
PH/EVs. GM has a very large increase in truck HEVs as well: From 3% in 
the proposed to 39% in the alternative standards along with a doubling 
of PH/EVs. Toyota also has double the number of HEVs. In this 
alternative there are many more companies with 20-30% HEVs: Chrysler, 
Ford, GM, Mitsubishi, Nissan, Subaru, Suzuki, and Toyota. Suzuki (in 
addition to the seven) now also has 10% or greater penetration of PH/
EVs. Ford, GM, Chrysler, and Nissan now have more than 20% penetration 
of HEVs in trucks.
    The estimated per vehicle cost of compliance with 2025 alternative 
2 standards is $2,354, which is $410 higher than the proposed 
standards. The seven luxury vehicle manufacturers now have costs of 
$3,616, which is $483 higher than the proposed standards. See Table 
III-32 above.

[[Page 75077]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.112

    Table III-51 shows the technology penetrations for Alternative 4 in 
2025. In this alternative every company except Honda, Hyundai, Kia have 
greater than 20% HEVs. Many of the large volume manufacturers have even 
more dramatic

[[Page 75078]]

increases in the volumes of P/H/EVs than in Alternative 2. Ford, GM, 
Nissan, and Toyota have greater than 20 or 30% penetration rates of 
HEVs on trucks. Mazda, Mitsubishi, Subaru, Suzuki (in addition to the 
seven) now also have 10% or greater penetration of PH/EVs, while 
Daimler, Volvo, Porsche, Saab, and VW have over 20%.
    The estimated per vehicle cost of compliance with 2025 alternative 
standards is $2,853, which is $910 higher than the proposed standards. 
The seven luxury vehicle manufacturers now have costs of $4,481, which 
is $1,348 higher than the proposed standards. Much of this non-linear 
increase in cost is due to increased penetration of PHEVs and EVs (more 
so than HEVs).

[[Page 75079]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.113


[[Page 75080]]


d. Summary of the Technology Penetration Rates and Costs From the 
Alternative Scenarios in Relation to the Proposed Standards
    As described above, alternatives 2 and 4 would lead to significant 
increases in the penetration of advanced technologies into the fleet 
during the time frame of these standards. In general, both alternatives 
would lead to an increase in the average penetration rate for advanced 
technologies in 2021, in effect accelerating some of the technology 
penetration that would otherwise occur in the 2022-2025 timeframe. For 
the fleet as a whole, in 2021 alternative 2 would lead to a significant 
increase in cooled EGR use and a limited increase in HEV use, while 
alternative 4 would lead to an even larger increase in cooled EGR as 
well as a significant increase in HEV use. In 2025 these alternatives 
would dramatically affect penetration rates of HEVs, EVs, and PHEVs, in 
each case leading to very significant increases on average for the 
fleet. Again, Alternative 4 would lead to greater penetration rates 
than Alternative 2. When one considers the technology penetration rates 
for individual manufacturers, in 2021 the alternatives lead to much 
higher increases than average for some individual large volume 
manufacturers. Smaller volume manufacturers start out with higher 
penetration rates and are pushed to even higher levels. This result is 
even more pronounced in 2025.
    This increase in technology penetration rates raises serious 
concerns about the ability and likelihood manufacturers can smoothly 
implement the increased technology penetration in a fleet that has so 
far seen limited usage of these technologies, especially for trucks--
and for towing trucks in particular. While this is more pronounced for 
2025, there are still concerns for the 2021 technology penetration 
rates. Although EPA believes that these penetration rates are, in the 
narrow sense, technically achievable, it is more a question of judgment 
whether we are confident at this time that these increased rates of 
advanced technology usage can be practically and smoothly implemented 
into the fleet--a reason the agencies are attempting to encourage more 
utilization of this technology with the proposed HEV pickup truck 
credits but being reasonably prudent in proposing standards that could 
de facto force high degrees of penetration of this technology on towing 
trucks.\363\
---------------------------------------------------------------------------

    \363\ See 76 FR at 57220 discussing a similar issue in the 
context of the standards for heavy duty pickups and vans: ``Hybrid 
electric technology likewise could be applied to heavy-duty 
vehicles, and in fact has already been so applied on a limited 
basis. However, the development, design, and tooling effort needed 
to apply this technology to a vehicle model is quite large, and 
seems less likely to prove cost-effective in this time frame, due to 
the small sales volumes relative to the light-duty sector. Here 
again, potential customer acceptance would need to be better 
understood because the smaller engines that facilitate much of a 
hybrid's benefit are typically at odds with the importance pickup 
truck buyers place on engine horsepower and torque, whatever the 
vehicle's real performance''.
---------------------------------------------------------------------------

    EPA notes that the same concerns support the proposed decision to 
steepen the slope of the truck curve in acknowledgement of the special 
challenges these larger footprint trucks (which in many instances are 
towing vehicles) would face. Without the steepening, the penetration 
rates of these challenging technologies would have been even greater.
    From a cost point of view, the impacts on cost track fairly closely 
with the technology penetration rates discussed above. The average cost 
increases under Alternatives 2 and 4 are significant for 2021 
(approximately $300 and $600), and for some manufacturers they result 
in very large cost increases. For 2025 the cost increases are even 
higher (approximately $500 and $900). Alternative 4, as expected, is 
significantly more costly than alternative 2. From another perspective, 
the average cost of compliance to the industry on average is $23 and 
$44 billion for the 2021 and 2025 proposed standards respectively. 
Alternative 2 will cost the industry on average $7 and $9 billion in 
excess, while Alternative 4 will cost the industry on average $10 and 
$16 billion in excess of the costs for the proposed standards. These 
are large increases in percentage terms, ranging from approximately 25% 
to 45% in 2021, and from approximately 20% to 35% in 2025.
    Per vehicle costs will also increase dramatically including for 
some of the largest, full-line manufacturers. Under Alternative 2, per 
vehicle costs for Chrysler, Ford, GM, Honda and Nissan increase by an 
estimated one-third to nearly double (200%) to meet 2021 standards and 
from roughly 25% to 45% to meet 2025 standards (see Table III-31 and 
Table III-32 above). The per-vehicle costs to meet Alternative 4 for 
these manufacturers is significantly greater and in the same 
proportions, see Table III-38 and Table III-39.
    As noted, these cost increases are associated especially with 
increased utilization of advanced technologies. As shown in Figure 
below, HEV+PHEV+EV penetration are projected to increase in 2025 from 
17% in the proposed standards to 28% and to nearly 35% under 
Alternatives 2 and 4 respectively for manufacturers with annual sales 
above 500,000 vehicles (including Chrysler, Ford, GM, Honda, Hyundai, 
Nissan, Toyota and VW). The differences are less pronounced for 2021, 
but still (in alternative 4) over double the penetration level of the 
proposal. EPA regards these differences as significant, given the 
factors of expense, consumer cost, consumer acceptance, and potentially 
(for 2021) lead time.
BILLING CODE 491-59-P

[[Page 75081]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.114

    The Figure below shows the HEV+PHEV+EV penetration for 
manufacturers with sales below 500,000 but exceeding 30,000 (including 
BMW, Daimler, Volvo, Kia, Mazda, Mitsubishi, Porsche, Subaru, Suzuki, 
and Jaguar/LandRover while excluding Aston Martin, Ferrari, Lotus, 
Saab, and Tesla). While the penetration rates of these advanced 
technologies also increase, the distribution within these are shifting 
to the higher cost EVs and PHEVs as noted above.

[[Page 75082]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.115

    EPA did not model a number of flexibilities when conducting the 
analysis for the NPRM. For example, PHEV, EV and fuel cell vehicle 
incentive multipliers for 2017-2021, full size pickup truck HEV 
incentive credits, full size pickup truck performance based incentive 
credits, and off-cycle credits, were not explicitly captured. We plan 
on modeling these flexibilities for the final rule. For this proposal, 
while we have not been able to explicitly model the impacts on the 
program costs, the impact will only be to reduce the estimated costs of 
the program for most manufacturers. From an industry wide perspective, 
EPA expects that their overall impact on costs, technology penetration, 
and emissions reductions and other benefits will be limited. They will 
provide some additional, important flexibility in achieving the 
proposed levels and promoting more advanced technology, on a case by 
case basis, but their impact is not expected to be of enough 
significance to warrant a change to the standards proposed. Instead 
they are expected to support the reasonableness of the proposed 
standards.
    Overall, EPA believes that the characteristics and impacts of these 
and other alternative standards generally reflect a continuum in terms 
of technical feasibility, cost, lead time, consumer impacts, emissions 
reductions and oil savings, and other factors evaluated under section 
202 (a). In determining the appropriate standard to propose in this 
context, EPA judges that the proposed standards are appropriate and 
preferable to more stringent alternatives based largely on 
consideration of cost--both to manufacturers and to consumers--and the 
potential for overly aggressive penetration rates for advanced 
technologies relative to the penetration rates seen in the proposed 
standards, especially in the face of unknown degree of consumer 
acceptance of both the increased costs and the technologies themselves. 
At the same time, the proposal helps to address these issues by 
providing incentives to promote early and broader deployment of 
advanced technologies, and so provides a means of encouraging their 
further penetration while leaving manufacturers alternative technology 
choices. EPA thus judges that the increase in technology penetration 
rates and the increase in costs under the increased stringency for the 
car and truck fleets reflected in alternatives 2 and 4 are such that it 
would not be appropriate to propose standards that would increase the 
stringency of the car and truck fleets in this manner.
    The two tables below shows the year on year costs as described in 
greater detail in Chapter 5 of the RIA. These projections show a steady 
increase in costs from 2017 thru 2025 (as interpolated).

[[Page 75083]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.116


[[Page 75084]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.117

    Figure 7 below shows graphically the year on year average costs 
presented in Table III-53 with the per vehicle costs on the left axis 
and the projected CO2 target standards on the right axis. It 
is quite evident and intuitive that as the stringency of the standard 
gets tighter, the average per vehicle costs increase. It is also clear 
that the costs for cars exceed that of trucks for the early years of 
the program, but then progress upwards together starting in MY 2021. It 
is interesting to note that the slower rate of progression of the 
standards for trucks seems to result in a slower rate of increase in 
costs for both cars and trucks. This initial slower rate of stringency 
for trucks is appropriate due primarily concerns over technology 
penetration rates and disproportionately higher costs for adding 
technologies to trucks than cars, as described in Section III.D.6.b 
above. The figure below corroborates these conclusions and further 
demonstrates that based on the smooth progression of average costs 
(from 2017-2025), the year on year increase in stringency of the 
standards is also reasonable. Though there are undoubtedly a range of 
minor modifications that could be made to the progression of standards, 
EPA believes that the progression proposed is reasonable and 
appropriate. Also, EPA believes that any progression of standards that 
significantly deviates from the proposed standards (such as those in 
Alternatives 1 through 4) are much less appropriate for the reasons 
provided in the discussion above.
[GRAPHIC] [TIFF OMITTED] TP01DE11.999


[[Page 75085]]


7. To what extent do any of today's vehicles meet or surpass the 
proposed MY 2017-2025 CO2 footprint-based targets with 
current powertrain designs?
    In addition to the analysis discussed above regarding what 
technologies could be added to vehicles in order to achieve the 
projected CO2 obligation for each automotive company under 
the proposed MY 2017 to 2025 standards, EPA performed an assessment of 
the light-duty vehicles available in the market today to see how such 
vehicles compare to the proposed MY 2017-2025 footprint-based standard 
curves. This analysis supports EPA's overall assessment that there are 
a broad range of effective and available technologies that could be 
used to achieve the proposed standards, as well as illustrating the 
need for the lead-time between today and MY 2017 to MY 2025 in order 
for continued refinement of today's technologies and their broader 
penetration across the fleet for the industry as a whole as well as 
individual companies. In addition, this assessment supports EPA's view 
that the proposed standards would not interfere with consumer utility--
footprint-attribute standards provide manufacturers with the ability to 
offer consumers a full range of vehicles with the utility customers 
want, and does not require or encourage companies to just produce small 
passenger cars with very low CO2 emissions.
    Using publicly available data, EPA compiled a list of available 
vehicles and their 2-cycle CO2 emissions performance (that 
is, the performance over the city and highway test cycles required by 
this proposal). Data is currently available for all MY 2011 vehicles 
and some MY 2012 vehicles. EPA gathered vehicle footprint data from EPA 
reports, manufacturer submitted CAFE reports, and manufacturer Web 
sites.
    EPA evaluated these vehicles against the proposed CO2 
footprint-based standard curves to determine which vehicles would meet 
or exceed the proposed MY 2017-MY 2025 footprint-based CO2 
targets assuming air conditioning credit generation consistent with 
today's proposal. Under the proposed 2017-2025 greenhouse gas emissions 
standards, each vehicle will have a unique CO2 target based 
on the vehicle's footprint. However, it is important to note that the 
proposed CO2 standard is a company-specific sales weighted 
fleet-wide standard for each company's passenger cars and truck fleets 
calculated using the proposed footprint-based standard curves. No 
individual vehicle is required to achieve a specific CO2 
target. In this analysis, EPA assumed usage of air conditioner credits 
because air conditioner improvements are considered to be among the 
cheapest and easiest technologies to reduce greenhouse gas emissions, 
manufacturers are already investing in air conditioner improvements, 
and air conditioner changes do not impact engine, transmission, or 
aerodynamic designs so assuming such credits does not affect 
consideration of cost and leadtime for use of these other technologies. 
In this analysis, EPA assumed increasing air conditioner credits over 
time with a phase-in of alternative refrigerant for the generation of 
HFC leakage reduction credits consistent with the assumed phase-in 
schedule discussed in Section III.C.I. of this preamble. No adjustments 
were made to vehicle CO2 performance other then this 
assumption of air conditioning credit generation. Under this analysis, 
a wide range of existing vehicles would meet the MY 2017 proposed 
CO2 targets, and a few meet even the proposed MY 2025 
CO2 targets. The details regarding this assessment are in 
Chapter 3 of the EPA Draft RIA.
    This assessment shows that a significant number of vehicles models 
sold today (nearly 40 models) would meet or be lower than the proposed 
MY 2017 footprint-based CO2 targets with current powertrain 
designs, assuming air conditioning credit generation consistent with 
our proposal. The list of vehicles includes a full suite of vehicle 
sizes and classes, including midsize cars, minivans, sport utility 
vehicles, compact cars, small pickup trucks and full size pickup 
trucks--all of which meet the proposed MY 2017 target values with no 
technology improvements other than air conditioning system upgrades. 
These vehicles utilize a wide variety of powertrain technologies and 
operate on a variety of different fuels including gasoline, diesel, 
electricity, and compressed natural gas. Nearly every major 
manufacturer currently produces vehicles that would meet or exceed the 
proposed MY 2017 footprint CO2 target with only improvements 
in air conditioning systems. For all of these vehicle classes the MY 
2017 targets are achieved with conventional gasoline powertrains, with 
the exception of the full size (or ``standard'') pickup trucks. In the 
case of full size pickups trucks, only HEV versions of the Chevrolet 
Silverado and the GMC Sierra fall into this category (though the HEV 
Silverado and Sierra meet not just the MY 2017 footprint-based 
CO2 targets with A/C improvements, but their respective 
targets through MY 2022). As the CO2 targets become more 
stringent each model year, fewer MY 2011 and MY 2012 vehicles achieve 
or surpass the proposed CO2 targets, in particular for 
gasoline powertrains. While approximately 15 unique gasoline vehicle 
models achieve or surpass the MY 2017 targets, this number falls to 
approximately 11 for the MY 2018 targets, 9 for the model year 2019 
targets, and only 2 unique gasoline vehicle models can achieve the MY 
2020 proposed CO2 targets with A/C improvements.
    EPA also assessed the subset of these vehicles that have emissions 
within 5%, of the proposed CO2 targets. As detailed in 
Chapter 3 of the EPA Draft RIA, the analysis shows that there are more 
than twenty additional vehicle models (primarily with gasoline and 
diesel powertrains) that are within 5% of the proposed MY 2017 
CO2 targets, including compact cars, midsize cars, large 
cars, SUVs, station wagons, minivans, small and standard pickup trucks. 
EPA also receives projected sales data prior to each model year from 
each manufacturer. Based on this data, approximately 7% of MY 2011 
sales will be vehicles that would meet or be better than the proposed 
MY 2017 targets for those vehicles, requiring only improvements in air 
conditioning systems. In addition, nearly 15% of projected MY 2011 
sales would be within 5% of the proposed MY 2017 footprint 
CO2 target with only simple improvements to air conditioning 
systems, a full six model years before the proposed standard takes 
effect. With improvements to air conditioning systems, the most 
efficient gasoline internal combustion engines would meet the MY 2020 
proposed footprint targets. After MY 2020, the only current vehicles 
that continue to meet the proposed footprint-based CO2 
targets (assuming improvements in air conditioning) are hybrid-
electric, plug-in hybrid-electric, and fully electric vehicles. 
However, the proposed MY 2021 standards, if finalized, would not need 
to be met for another 9 years. Today's Toyota Prius, Ford Fusion 
Hybrid, Chevrolet Volt, Nissan Leaf, Honda Civic Hybrid, and Hyundai 
Sonata Hybrid all meet or surpass the proposed footprint-based 
CO2 targets through MY 2025. In fact, the current Prius, 
Volt, and Leaf meet the proposed 2025 CO2 targets without 
air conditioning credits.
    This assessment of MY 2011 and MY 2012 vehicles makes it clear that 
HEV technology (and of course EVs and PHEVs) is capable of achieving 
the MY 2025 standards. However, as discussed

[[Page 75086]]

earlier in this section, EPA's modeling projects that the MY 2017-2025 
standards can primarily be achieved by advanced gasoline vehicles--for 
example, in MY 2025, we project more than 80 percent of the new 
vehicles could be advanced gasoline powertrains. The assessment of MY 
2011 and MY 2012 vehicles available in the market today indicates 
advanced gasoline vehicles (as well as diesels) can achieve the targets 
for the early model years of the proposed standards (i.e., model years 
2017-2020) with only improvements in air conditioning systems. However, 
significant improvements in technologies are needed and penetrations of 
those technologies must increase substantially in order for individual 
manufacturers (and the fleet overall) to achieve the proposed standards 
for the early years of the program, and certainly for the later years 
(i.e., model years 2021-2025). These technology improvements are the 
very technologies EPA and NHTSA describe in detail in Chapter 3 of the 
draft Joint Technical Support Document and which we forecasted 
penetration rates earlier in this section III.D, and they include for 
example: gasoline direct injection fuel systems; downsized and 
turbocharged gasoline engines (including in some cases with the 
application of cooled exhaust gas recirculation); continued 
improvements in engine friction reduction and low friction lubricants; 
transmissions with an increased number of forward gears (e.g., 8 
speeds); improvements in transmission shifting logic; improvements in 
transmission gear box efficiency; vehicle mass reduction; lower rolling 
resistance tires, and improved vehicle aerodynamics. In many (though 
not all) cases these technologies are beginning to penetrate the U.S. 
light-duty vehicle market.
    In general, these technologies must go through the automotive 
product development cycle in order to be introduced into a vehicle. In 
some cases additional research is needed before the technologies' 
CO2 benefits can be fully realized and large-scale 
manufacturing can be achieved. The subject of technology penetration 
phase-in rates is discussed in more detail in Chapter 3.5 of the draft 
Joint Technical Support Document. In that Chapter, we explain that why 
many CO2 reducing technologies should be able to penetrate 
the new vehicle market at high levels between now and MY 2016. There 
are also many of the key technologies we project as being needed to 
achieve the proposed 2017-2025 standards which will only be able to 
penetrate the market at relatively low levels (e.g., a maximum level of 
30% or less) by MY 2016, and even by MY 2021. These include important 
powertrain technologies such as 8-speed transmissions and second or 
third generation downsized engines with turbocharging,
    The majority of these technologies must be integrated into vehicles 
during the product redesign schedule, which is typically on a 5-year 
cycle. EPA discussed in the MY 2012-2016 rule the significant costs and 
potential risks associated with requiring major technologies to be 
added in-between the typical 5-year vehicle redesign schedule (see 75 
FR at 25467-68, May 7, 2010). In addition, engines and transmissions 
generally have longer lifetimes then 5 years, typically on the order of 
10 years. Thus major powertrain technologies generally take longer to 
penetrate the new vehicle fleet then can be done in a 5-year redesign 
cycle. As detailed in Chapter 3.5 of the draft Joint TSD, EPA projects 
that 8-speed transmissions could increase their maximum penetration in 
the fleet from 30% in MY 2016 to 80% in 2021 and to 100% in MY 2025. 
Similarly, we project that second generation downsized and turbocharged 
engines (represented in our assessment as engines with a brake-mean 
effective pressure of 24 bars) could penetrate the new vehicle fleet at 
a maximum level of 15% in MY 2016, 30% in MY 2021, and 75% in MY 2025. 
When coupled with the typical 5-year vehicle redesign schedule, EPA 
projects that it is not possible for all of the advanced gasoline 
vehicle technologies we have assessed to penetrate the fleet in a 
single 5-year vehicle redesign schedule.
    Given the status of the technologies we project to be used to 
achieve the proposed MY2017-2025 standards and the product development 
and introduction process which is fairly standard in the automotive 
industry today, our assessment of the MY2011 and MY2012 vehicles in 
comparison to the proposed standards supports our overall feasibility 
assessment, and reinforces our assessment of the lead time needed for 
the industry to achieve the proposed standards.

E. Certification, Compliance, and Enforcement

1. Compliance Program Overview
    This section summarizes EPA's comprehensive program to ensure 
compliance with emission standards for carbon dioxide (CO2), 
nitrous oxide (N2O), and methane (CH4), as 
described in Section III.B. An effective compliance program is 
essential to achieving the environmental and public health benefits 
promised by these mobile source GHG standards. EPA's GHG compliance 
program is designed around two overarching priorities: (1) to address 
Clean Air Act (CAA) requirements and policy objectives; and (2) to 
streamline the compliance process for both manufacturers and EPA by 
building on existing practice wherever possible, and by structuring the 
program such that manufacturers can use a single data set to satisfy 
both GHG and Corporate Average Fuel Economy (CAFE) testing and 
reporting requirements. The EPA and NHTSA programs replicate the 
compliance protocols established in the MY 2012-2016 rule.\364\ The 
certification, testing, reporting, and associated compliance activities 
track current practices and are thus familiar to manufacturers. As is 
the case under the 2012-2016 program, EPA and NHTSA have designed a 
coordinated compliance approach for 2017-2025 such that the compliance 
mechanisms for both GHG and CAFE standards are consistent and non-
duplicative. Readers are encouraged to review the MY 2012-2016 final 
rule for background and a detailed description of these certification, 
compliance, and enforcement requirements.
---------------------------------------------------------------------------

    \364\ 75 FR 25468.
---------------------------------------------------------------------------

    Vehicle emission standards established under the CAA apply 
throughout a vehicle's full useful life. Today's rule establishes fleet 
average greenhouse gas standards where compliance with the fleet 
average is determined based on the testing performed at time of 
production, as with the current CAFE fleet average. EPA is also 
establishing in-use standards that apply throughout a vehicle's useful 
life, with the in-use standard determined by adding an adjustment 
factor to the emission results used to calculate the fleet average. 
EPA's program will thus not only assess compliance with the fleet 
average standards described in Section III.B, but will also assess 
compliance with the in-use standards. As it does now, EPA will use a 
variety of compliance mechanisms to conduct these assessments, 
including pre-production certification and post-production, in-use 
monitoring once vehicles enter customer service. Under this compliance 
program manufacturers will also be afforded numerous flexibilities to 
help achieve compliance, both stemming from the program design itself 
in the form of a manufacturer-specific CO2 fleet average 
standard, as well as in various credit banking and trading 
opportunities, as described in

[[Page 75087]]

Section III.C. The compliance program is summarized in further detail 
below.
2. Compliance With Fleet-Average CO2 Standards
    Fleet average emission levels can only be determined when a 
complete fleet profile becomes available at the close of the model 
year. Therefore, EPA will determine compliance with the fleet average 
CO2 standards when the model year closes out, based on 
actual production figures for each model and on model-level emissions 
data collected through testing over the course of the model year. 
Manufacturers will submit this information to EPA in an end-of-year 
report which is discussed in detail in Section III.E.5.h of the MY 
2012-2016 final rule preamble (see 75 FR 25481).
a. Compliance Determinations
    As described in Section III.B above, the fleet average standards 
will be determined on a manufacturer by manufacturer basis, separately 
for cars and trucks, using the footprint attribute curves. EPA will 
calculate the fleet average emission level using actual production 
figures and, for each model type, CO2 emission test values 
generated at the time of a manufacturer's CAFE testing. EPA will then 
compare the actual fleet average to the manufacturer's footprint 
standard to determine compliance, taking into consideration use of 
averaging and credits.
    Final determination of compliance with fleet average CO2 
standards may not occur until several years after the close of the 
model year due to the flexibilities of carry-forward and carry-back 
credits and the remediation of deficits (see Section III.B). A failure 
to meet the fleet average standard after credit opportunities have been 
exhausted could ultimately result in penalties and injunctive orders 
under the CAA as described in Section III.E.6 below.
b. Required Minimum Testing For Fleet Average CO2
    EPA will require and use the same test data to determine a 
manufacturer's compliance with both the CAFE standard and the fleet 
average CO2 emissions standard. Please see Section III.E.2.b 
of the MY 2012-2016 final rule preamble (75 FR 25469) for details.
3. Vehicle Certification
    CAA section 203(a)(1) prohibits manufacturers from introducing a 
new motor vehicle into commerce unless the vehicle is covered by an 
EPA-issued certificate of conformity. Section 206(a)(1) of the CAA 
describes the requirements for EPA issuance of a certificate of 
conformity, based on a demonstration of compliance with the emission 
standards established by EPA under section 202 of the Act. The 
certification demonstration requires emission testing, and must be done 
for each model year.\365\
---------------------------------------------------------------------------

    \365\ CAA section 206(a)(1).
---------------------------------------------------------------------------

    Since compliance with a fleet average standard depends on actual 
production volumes, it is not possible to determine compliance with the 
fleet average at the time the manufacturer applies for and receives a 
certificate of conformity for a test group. Instead, EPA will continue 
to condition each certificate of conformity for the GHG program upon a 
manufacturer's demonstration of compliance with the manufacturer's 
fleet-wide average CO2 standard. Please see Section III.E.3 
of the MY 2012-2016 final rule preamble (75 FR 25470) for a discussion 
of how EPA will certify vehicles under the GHG standards.
4. Useful Life Compliance
    Section 202(a)(1) of the CAA requires emission standards to apply 
to vehicles throughout their statutory useful life, as further 
described in Section III.A. The in-use CO2 standard under 
the greenhouse gas program would apply to individual vehicles and is 
separate from the fleet-average standard. The in-use CO2 
standard for each model would be the model specific CO2 
level used in calculating the fleet average, adjusted to be 10% higher 
to account for test-to-test and production variability that might 
affect in-use test results. Please see Section III.E.4 of the MY 2012-
2016 final rule preamble (75 FR 25473 for a detailed discussion of the 
in-use standard, in-use testing requirements, and deterioration factors 
for CO2, N2O, and CH4.
5. Credit Program Implementation
    As described in Section III.C, several credit programs are 
available under this rulemaking. Please see Section III.E.5 of the MY 
2012-2016 final rule preamble (75 FR 25477) for a detailed explanation 
of credit program implementation, sample credit and deficit 
calculations, and end-of-year reporting requirements.
6. Enforcement
    The enforcement structure EPA promulgated under the MY 2012-2016 
rulemaking remains in place. Please see Section III.E.6 of the MY 2012-
2016 final rule preamble (75 FR 25482) for a discussion of these 
provisions.
Prohibited Acts in the CAA
    Section 203 of the Clean Air Act describes acts that are prohibited 
by law. This section and associated regulations apply equally to the 
greenhouse gas standards as to any other regulated emission. Acts that 
are prohibited by section 203 of the Clean Air Act include the 
introduction into commerce or the sale of a vehicle without a 
certificate of conformity, removing or otherwise defeating emission 
control equipment, the sale or installation of devices designed to 
defeat emission controls, and other actions. This proposal includes a 
section that details these prohibited acts, as did the 2012 greenhouse 
gas regulations.
7. Other Certification Issues
a. Carryover/Carry Across Certification Test Data
    EPA's certification program for vehicles allows manufacturers to 
carry certification test data over and across certification testing 
from one model year to the next, when no significant changes to models 
are made. EPA would continue to apply this policy to CO2, 
N2O and CH4 certification test data and would 
allow manufacturers to use carryover and carry across data to 
demonstrate CO2 fleet average compliance if they have done 
so for CAFE purposes.
b. Compliance Fees
    The CAA allows EPA to collect fees to cover the costs of issuing 
certificates of conformity for the classes of vehicles covered by this 
rule.
    At this time the extent of any added costs to EPA as a result of 
this rule is not known. EPA will assess its compliance testing and 
other activities associated with the rule and may amend its fees 
regulations in the future to include any warranted new costs.
c. Small Entity Exemption
    EPA would exempt small entities, and these entities (necessarily) 
would not be subject to the certification requirements of this rule.
    As discussed in Section III.B.7, businesses meeting the Small 
Business Administration (SBA) criterion of a small business as 
described in 13 CFR 121.201 would not be subject to the GHG 
requirements, pending future regulatory action. Small entities are 
currently covered by a number of EPA motor vehicle emission 
regulations, and they routinely submit information and data on an 
annual basis as part of their compliance responsibilities.

[[Page 75088]]

    As discussed in detail in Section III.B.5, small volume 
manufacturers with annual sales volumes of less than 5,000 vehicles 
would be required to meet primary GHG standards or to petition the 
Agency for alternative standards.
d. Onboard Diagnostics (OBD) and CO2 Regulations
    As under the current program, EPA would not require CO2, 
N2O, and CH4 emissions as one of the applicable 
standards required for the OBD monitoring threshold.
e. Applicability of Current High Altitude Provisions to Greenhouse 
Gases
    As under the current program, vehicles covered by this rule would 
be required to meet the CO2, N2O and 
CH4 standard at altitude but would not normally be required 
to submit vehicle CO2 test data for high altitude. Instead, 
they would submit an engineering evaluation indicating that common 
calibration approaches will be utilized at high altitude.
f. Applicability of Standards to Aftermarket Conversions
    With the exception of the small entity and small business 
exemptions, EPA's emission standards, including greenhouse gas 
standards, will continue to apply as stated in the applicability 
sections of the relevant regulations. EPA expects that some aftermarket 
conversion companies will qualify for and seek the small entity and/or 
small business exemption, but those that do not qualify will be 
required to meet the applicable emission standards, including the 
greenhouse gas standards to qualify for a tampering exemption under 40 
CFR subpart F. Fleet average standards are not generally appropriate 
for fuel conversion manufacturers because the ``fleet'' of vehicles to 
which a conversion system may be applied has already been accounted for 
under the OEM's fleet average standard. Therefore, EPA is proposing to 
retain the process promulgated in 40 CFR subpart F anti-tampering 
regulations whereby conversion manufacturers demonstrate compliance at 
the vehicle rather than the fleet level. Fuel converters will continue 
to show compliance with greenhouse gas standards by submitting data to 
demonstrate that the conversion EDV N2O, CH4 and 
CREE results are less than or equal to the OEM's in-use standard for 
that subconfiguration.. EPA is also proposing to continue to allow 
conversion manufacturers, on a test group basis, to convert 
CO2 overcompliance into CO2 equivalents of 
N2O and/or CH4 that can be subtracted from the 
CH4 and N2O measured values to demonstrate 
compliance with CH4 and/or N2O standards.
g. Geographical Location of Greenhouse Gas Fleet Vehicles
    EPA emission certification regulations require emission compliance 
\366\ in the 50 states, the District of Columbia, the Puerto Rico, the 
Virgin Islands, Guam, American Samoa and the Commonwealth of the 
Northern Mariana Islands.
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    \366\ Section 216 of the Clean Air Act defines the term commerce 
to mean ``(A) commerce between any place in any State and any place 
outside thereof; and (B) commerce wholly within the District of 
Columbia.''
    Section 302(d) of the Clean Air Act reads ``The term ``State'' 
means a State, the District of Columbia, the Commonwealth of Puerto 
Rico, the Virgin Islands, Guam, and American Samoa and includes the 
Commonwealth of the Northern Mariana Islands.'' In addition, 40 CFR 
85.1502 (14) regarding the importation of motor vehicles and motor 
vehicle engines defines the United States to include ``the States, 
the District of Columbia, the Commonwealth of Puerto Rico, the 
Commonwealth of the Northern Mariana Islands, Guam, American Samoa, 
and the U.S. Virgin Islands.''
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8. Warranty, Defect Reporting, and Other Emission-Related Components 
Provisions
    This rulemaking would retain warranty, defect reporting, and other 
emission-related component provisions promulgated in the MY 2012-2016 
rulemaking. Please see Section III.E.10 of the MY 2012-2016 final rule 
preamble (75 FR 25486) for a discussion of these provisions.
9. Miscellaneous Technical Amendments and Corrections
    EPA is proposing a number of noncontroversial amendments and 
corrections to the existing regulations. Because the regulatory 
provisions for the EPA greenhouse gas program, NHTSA's CAFE program, 
and the joint fuel economy and environment labeling program are all 
intertwined in 40 CFR Part 600, this proposed rule presents an 
opportunity to make corrections and clarifications to all or any of 
these programs. Consequently, a number of minor and non-substantive 
corrections are being proposed to the regulations that implement these 
programs.
    Amendments include the following:
     In section 86.135-12, we have removed references to the 
model year applicability of N2O measurement. This 
applicability is covered elsewhere in the regulations, and we believe 
that--where possible--testing regulations should be limited to the 
specifics of testing and measurement.
     The definition of ``Footprint'' in 86.1803-01 is revised 
to clarify measurement and rounding. The previous definition stated 
that track width is ``measured in inches,'' which may inadvertently 
imply measuring and recording to the nearest inch. The revised 
definition clarifies that measurements should be to the nearest one 
tenth of an inch, and average track width should be rounded to the 
nearest tenth of an inch.
    We are also proposing a solution to a situation in which a 
manufacturer of a clean alternative fuel conversion is attempting to 
comply with the fuel conversion regulations (see 40 CFR part 85 subpart 
F) at a point in time before which certain data is available from the 
original manufacturer of the vehicle. Clean alternative fuel 
conversions are subject to greenhouse gas standards if the vehicle as 
originally manufactured was subject to greenhouse gas standards, unless 
the conversion manufacturer qualifies for exemption as a small 
business. Compliance with light-duty vehicle greenhouse gas emission 
standards is demonstrated by complying with the N2O and 
CH4 standards and the in-use CO2 exhaust emission 
standard set forth in 40 CFR 86.1818-12(d) as determined by the 
original manufacturer for the subconfiguration that is identical to the 
fuel conversion emission data vehicle (EDV). However, the 
subconfiguration data may not be available to the fuel conversion 
manufacturer at the time they are seeking EPA certification. Several 
compliance options are currently provided to fuel conversion 
manufacturers that are consistent with the compliance options for the 
original equipment manufacturers. EPA is proposing to add another 
option that would be applicable starting with the 2012 model year. The 
new option would allow clean alternative fuel conversion manufacturers 
to satisfy the greenhouse gas standards if the sum of CH4 
plus N2O plus CREE emissions from the vehicle pre-conversion 
is less than the sum post-conversion, adjusting for the global warming 
potential of the constituents.
10. Base Tire Definition
    One of the factors in a manufacturer's calculation of vehicle 
footprint is the base tire. Footprint is based on a vehicle's wheel 
base and track width, and track width in turn is ``the lateral distance 
between the centerlines of the base tires at ground, including the 
camber angle.'' \367\ EPA's current definition of base tire is the 
``tire specified as standard equipment by the

[[Page 75089]]

manufacturer.'' \368\ EPA understands that some manufacturers may be 
applying this base tire definition in different ways, which could lead 
to differences across manufacturers in how they are ultimately 
calculating footprints. EPA invites public comment on whether the base 
tire definition should be clarified to ensure a more uniform 
application across manufacturers. For example, NHTSA is proposing a 
specific change to the base tire definition for the CAFE program (see 
Section IV.I.5.g, and proposed 49 CFR 523.2). Because the calculation 
of footprint is a fundamental aspect of both the greenhouse gas 
standards and the CAFE standards, EPA welcomes comments on whether the 
existing base tire definition should be clarified, and specific changes 
to the definition that would address this issue.
---------------------------------------------------------------------------

    \367\ See 40 CFR 86.1803-01.
    \368\ See 40 CFR 86.1803-01, and 40 CFR 600.002. Standard 
equipment means those features or equipment which are marketed on a 
vehicle over which the purchaser can exercise no choice.
---------------------------------------------------------------------------

11. Treatment of Driver-Selectable Modes and Conditions
    EPA is requesting comments on whether there is a need to clarify in 
the regulations how EPA treats driver-selectable modes (such as multi-
mode transmissions and other user-selectable buttons or switches) that 
may impact fuel economy and GHG emissions. New technologies continue to 
arrive on the market, with increasing complexity and an increasing 
array of ways a driver can make choices that affect the fuel economy 
and greenhouse gas emissions. For example, some start-stop systems may 
offer the driver the option of choosing whether or not the system is 
enabled. Similarly, vehicles with ride height adjustment or grill 
shutters may allow drivers to override those features.
    Under the current regulations, EPA draws a distinction between 
vehicles tested for purposes of CO2 emissions performance 
and fuel economy and vehicles tested for non-CO2 emissions 
performance. When testing emission data vehicles for certification 
under Part 86 for non-CO2 emissions standards, a vehicle 
that has multiple operating modes must meet the applicable emission 
standards in all modes, and on all fuels. Sometimes testing may occur 
in all modes, but more frequently the worst-case mode is selected for 
testing to represent the emission test group. For example, a vehicle 
that allows the user to disengage the start-stop capability must meet 
the standards with and without the start-stop system operating (in some 
cases EPA has determined that the operation of start-stop is the worst 
case for emissions controlled by the catalyst because of the spike in 
emissions associated with each start). Similarly, a plug-in hybrid 
electric vehicle is tested in charge-sustaining (i.e., gasoline-only) 
operation. Current regulations require the reporting of CO2 
emissions from certification tests conducted under Part 86, but EPA 
regulations also recognize that these values, from emission data 
vehicles that represent a test group, are ultimately not the values 
that are used to establish in-use CO2 standards (which are 
established on much more detailed sub-configuration-specific level) or 
the model type CO2 and fuel economy values used for fleet 
averaging under Part 600.
    When EPA tests vehicles for fuel economy and CO2 
emissions performance, user-selectable modes are treated somewhat 
differently, where the goals are different and where worst-case 
operation may not be the appropriate method. For example, EPA does not 
believe that the fuel economy and CO2 emissions value for a 
PHEV should ignore the use of grid electricity, or that other dual fuel 
vehicles should ignore the real-world use of alternative fuels that 
reduce GHG emissions. The regulations address the use of utility 
factors to properly weight the CO2 performance on the 
conventional fuel and the alternative fuel. Similarly, non-
CO2 emission certification testing may be done in a 
transmission mode that is not likely to be the predominant mode used by 
consumers. Testing under Part 600 must determine a single fuel economy 
value for each model type for the CAFE program and a single 
CO2 value for each model type for EPA's program. With 
respect to transmissions, Part 600 refers to 86.128, which states the 
following:

    All test conditions, except as noted, shall be run according to 
the manufacturer's recommendations to the ultimate purchaser, 
Provided, That: Such recommendations are representative of what may 
reasonably be expected to be followed by the ultimate purchaser 
under in-use conditions.

    For multi-mode transmissions EPA relies on guidance letter CISD-09-
19 (December 3, 2009) to guide the determination of what is 
``representative of what may reasonably be expected to be followed by 
the ultimate purchaser under in-use conditions.'' If EPA can make a 
determination that one mode is the ``predominant'' mode (meaning nearly 
total usage), then testing may be done in that mode. However, if EPA 
cannot be convinced that a single mode is predominant, then fuel 
economy and GHG results from each mode are typically averaged with 
equal weighting. There are also detailed provisions that explain how a 
manufacturer may conduct surveys to support a statement that a given 
mode is predominant. However, CISD-09-19 only addresses transmissions, 
and states the following regarding other technologies:

    ``Please contact EPA in advance to request guidance for vehicles 
equipped with future technologies not covered by this document, 
unusual default strategies or driver selectable features, e.g., 
hybrid electric vehicles where the multimode button or switch 
disables or modifies any fuel saving features of the vehicle (such 
as the stop-start feature, air conditioning compressor operation, 
electric-only operation, etc.).''

    The unique operating characteristics of these technologies 
essentially often requires that EPA determine fuel economy and 
CO2 testing and calculations on a case-by-case basis. 
Because the CAFE and CO2 programs require a single value to 
represent a model type, EPA must make a decision regarding how to 
account for multiple modes of operation. When a manufacturer brings 
such a technology to us for consideration, we will evaluate the 
technology (including possibly requiring that the manufacturer give us 
a vehicle to test) and provide the manufacturer with instructions on 
how to determine fuel economy and CO2 emissions. In general 
we will evaluate these technologies in the same way and following the 
same principles we use to evaluate transmissions under CISD-09-19, 
making a determination as to whether a given operating mode is 
predominant or not (using the criteria for predominance described in 
CISD-09-19). These instructions are provided to the manufacturer under 
the authority for special test procedures described in 40 CFR 600.111-
08. EPA would apply the same approach to testing for compliance with 
the in-use CO2 standard, so testing for the CO2 
fleet average and testing for compliance with the in-use CO2 
standard would be consistent. EPA requests comment on whether the 
current approach and regulatory provisions are sufficient, or whether 
additional regulations or guidance should be developed to describe 
EPA's process. EPA recognizes that ultimately no regulation can 
anticipate all options, devices, and operator controls that may arrive 
in the future, and adequate flexibility to address future situations is 
an important attribute for fuel economy and CO2 emissions 
testing.

[[Page 75090]]

F. How would this proposal reduce GHG emissions and their associated 
effects?

    This action is an important step towards curbing growth of GHG 
emissions from cars and light trucks. In the absence of control, GHG 
emissions worldwide and in the U.S. are projected to continue steady 
growth. Table III-54 shows emissions of CO2, methane 
(CH4), nitrous oxide (N2O) and air conditioning 
refrigerant (HFC-134a) on a CO2-equivalent basis for 
calendar years 2010, 2020, 2030, 2040 and 2050. As shown below, U.S. 
GHGs are estimated to make up roughly 15 percent of total worldwide 
emissions in 2010. Further, the contribution of direct emissions from 
cars and light-trucks to this U.S. share reaches an estimated 17 
percent of U.S. emissions by 2030 in the absence of control. As 
discussed later in this section, this steady rise in GHG emissions is 
associated with numerous adverse impacts on human health, food and 
agriculture, air quality, and water and forestry resources.
[GRAPHIC] [TIFF OMITTED] TP01DE11.119

     
---------------------------------------------------------------------------

    \369\ ADAGE and GCAM model projections of worldwide and U.S. GHG 
emissions are provided for context only. The baseline data in these 
models differ in certain assumptions from the baseline used in this 
proposal. For example, the ADAGE baseline is calibrated to AEO 2010, 
which includes the EISA 35 MPG by 2020 provision, but does not 
explicitly include the MYs 2012-2016 rule. All emissions data were 
rounded to two significant digits.
    \a\GCAM model.
    \370\ Based on the Representative Concentration Pathway scenario 
in GCAM available at http://www.globalchange.umd.edu/gcamrcp. See 
section III.F.3 and DRIA Chapter 6.4 for additional information on 
GCAM.
    \b\ ADAGE model.
    \371\ Based on the ADAGE reference case used in U.S. EPA (2010). 
``EPA Analysis of the American Power Act of 2010'' U.S. 
Environmental Protection Agency, Washington, DC, USA 
(http:www.epagov/climatechange/economics/economicanalyses.html).
    \c\ OMEGA model, Tailpipe CO2 and HFC134a only 
(includes impacts of MYs 2012-2016 rule).
---------------------------------------------------------------------------

    This rule will result in significant reductions as newer, cleaner 
vehicles come into the fleet. As discussed in Section I, this GHG rule 
is part of a joint National Program such that a large part of the 
projected benefits, but by no means all, would be achieved jointly with 
NHTSA's CAFE standards, which are described in detail in Section IV. 
EPA estimates the reductions attributable to the GHG program over time 
assuming the model year 2025 standards continue indefinitely post-2025, 
compared to a reference scenario in which the 2016 model year GHG 
standards continue indefinitely beyond 2016.
    EPA estimated greenhouse impacts from several sources including: 
(a) The impact of the standards on tailpipe CO2 emissions, 
(b) projected improvements in the efficiency of vehicle air 
conditioning systems, \372\ (c) reductions in direct emissions of the 
refrigerant and potent greenhouse gas HFC-134a from air conditioning 
systems, (d) ``upstream'' emission reductions from gasoline extraction, 
production and distribution processes as a result of reduced gasoline 
demand associated with this rule, and (e) ``upstream'' emission 
increases from power plants as electric powertrain vehicles increase in 
prevalence as a result of this rule. EPA additionally accounted for the 
greenhouse gas impacts of additional vehicle miles travelled (VMT) due 
to the ``rebound'' effect discussed in Section III.H.
---------------------------------------------------------------------------

    \372\ While EPA anticipates that the majority of mobile air 
conditioning systems will be improved in response to the MY 2012-
2016 rulemaking, the agency expects that the remainder will be 
improved as a result of this action.
---------------------------------------------------------------------------

    Using this approach EPA estimates the proposed standards would cut 
annual fleetwide car and light truck tailpipe CO2 emissions 
by approximately 230 MMT or 18 percent by 2030, when 85 percent of car 
and light truck miles will be travelled by vehicles meeting the MY 2017 
or later standards. An additional 65 MMTCO2eq of reduced 
emissions are attributable to reductions in gasoline production, 
distribution and transport. 15 MMTCO2eq of additional 
emissions will be attributable to increased electricity production. In 
total, EPA estimates that compared to a baseline of indefinite 2016 
model year standards, net GHG emission reductions from the program 
would be approximately 300 million metric tons CO2-
equivalent (MMTCO2eq) annually by 2030, which represents a 
reduction of 4% of total U.S. GHG emissions and 0.5% of total worldwide 
GHG emissions projected in that year. These GHG savings would result in 
savings of approximately 26 billion gallons of petroleum-based 
gasoline.\373\
---------------------------------------------------------------------------

    \373\ All estimates of fuel savings presented here assume that 
manufacturers use air conditioning leakage credits as part of their 
compliance strategy. If these credits were not used, the fuel 
savings would be larger.
---------------------------------------------------------------------------

    EPA projects the total reduction of the program over the full life 
of model year 2017-2025 vehicles to be about 1,970 MMTCO2eq, 
with fuel savings of 170 billion gallons (3.9 billion barrels) of 
gasoline over the life of these vehicles.
    The impacts on atmospheric CO2 concentrations, global 
mean surface temperature, sea level rise, and ocean pH resulting from 
these emission reductions are discussed in Section III.F.3.

[[Page 75091]]

1. Impact on GHG Emissions
    The modeling of fuel savings and greenhouse gas emissions is 
substantially similar to that which was conducted in the 2012-2016 
Final Rulemaking and the MY 2017-2025 Interim Joint Technical 
Assessment Report (TAR). As detailed in Draft RIA chapter 4, EPA 
estimated calendar year tailpipe CO2 reductions based on 
pre- and post-control CO2 gram per mile levels from EPA's 
OMEGA model, coupled with VMT projections derived from AEO 2011 Final 
Release. These estimates reflect the real-world CO2 
emissions reductions projected for the entire U.S. vehicle fleet in a 
specified calendar year. EPA also estimated full lifetime reductions 
for model years 2017-2025 using pre- and post-control CO2 
levels projected by the OMEGA model, coupled with projected vehicle 
sales and lifetime mileage estimates. These estimates reflect the real-
world CO2 emissions reductions projected for model years 
2017 through 2025 vehicles over their entire life. Upstream impacts 
from power plant emissions came from OMEGA estimates of EV/penetration 
into the fleet (approximately 3%). For both calendar year and model 
year assessments, EPA estimated the environmental impact of the 
advanced technology multiplier, pickup truck hybrid electric vehicle 
(HEV) and performance based incentives and air conditioning credits. 
The impact of the off-cycle credits were not explicitly estimated, as 
these credits are assumed to be inherently environmentally neutral 
(Section III.B). EPA also did not assess the impact of the credit 
banking carry-forward programs.
    As in the MY 2012-2016 rulemaking, this proposal allows 
manufacturers to earn credits for improvements to controls for both 
direct and indirect AC emissions. Since these improvements are 
relatively low cost, EPA again projects that manufacturers will take 
advantage of this flexibility, leading to reductions from emissions 
associated with vehicle air conditioning systems. As explained above, 
these reductions will come from both direct emissions of air 
conditioning refrigerant over the life of the vehicle and tailpipe 
CO2 emissions produced by the increased load of the A/C 
system on the engine. In particular, EPA estimates that direct 
emissions of HFC-134a, one of the most potent greenhouse gases, would 
be fully removed from light-duty vehicles through the phase-in of 
alternative refrigerants. More efficient air conditioning systems would 
also lead to fuel savings and additional reductions in upstream 
emissions from fuel production and distribution. Our estimated 
reductions from the A/C credit program assume that manufacturers will 
fully utilize the program by MY 2021.
    Upstream greenhouse gas emission reductions associated with the 
production and distribution of fuel were estimated using emission 
factors from DOE's GREET1.8 model, with modifications as detailed in 
Chapter 5 of the DRIA. These estimates include both international and 
domestic emission reductions, since reductions in foreign exports of 
finished gasoline and/or crude would make up a significant share of the 
fuel savings resulting from the GHG standards. Thus, significant 
portions of the upstream GHG emission reductions will occur outside of 
the U.S.; a breakdown of projected international versus domestic 
reductions is included in the DRIA.
    Electricity emission factors were derived from EPA's Integrated 
Planning Model (IPM). EPA uses IPM to analyze the projected impact of 
environmental policies on the electric power sector in the 48 
contiguous states and the District of Columbia. IPM is a multi-
regional, dynamic, deterministic linear programming model of the U.S. 
electric power sector. It provides forecasts of least-cost capacity 
expansion, electricity dispatch, and emission control strategies for 
meeting energy demand and environmental, transmission, dispatch, and 
reliability constraints. EPA derived average national CO2 
emission factors from the IPM version 4.10 base case run for the 
``Proposed Transport Rule.'' \374\ As discussed in Draft TSD Chapter 4, 
for the Final Rulemaking, EPA may consider emission factors other than 
national power generation, such as marginal power emission factors, or 
regional emission factors.
---------------------------------------------------------------------------

    \374\ EPA. IPM. http://www.epa.gov/airmarkt/progsregs/epa-ipm/BaseCasev410.html. ``Proposed Transport Rule/NODA version'' of IPM. 
TR--SB--Limited Trading v.4.10.
---------------------------------------------------------------------------

a. Calendar Year Reductions for Future Years
    Table III-55 shows reductions estimated from these GHG standards 
assuming a pre-control case of 2016 MY standards continuing 
indefinitely beyond 2016, and a post-control case in which 2025 MY GHG 
standards continue indefinitely beyond 2025. These reductions are 
broken down by upstream and downstream components, including air 
conditioning improvements, and also account for the offset from a 10 
percent VMT ``rebound'' effect as discussed in Section III.H. Including 
the reductions from upstream emissions, total reductions are estimated 
to reach 297 MMTCO2eq annually by 2030, and grow to over 540 
MMTCO2eq in 2050 as cleaner vehicles continue to come into 
the fleet.

[[Page 75092]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.120

    The total program emission reductions yield significant emission 
decreases relative to worldwide and national total emissions.
[GRAPHIC] [TIFF OMITTED] TP01DE11.121


[[Page 75093]]


b. Lifetime Reductions for 2017-2025 Model Years
    EPA also analyzed the emission reductions over the full life of the 
2017-2025 model year cars and light trucks that would be affected by 
this program.\375\ These results, including both upstream and 
downstream GHG contributions, are presented in Table III-57, showing 
lifetime reductions of about 2,065 MMTCO2eq.
---------------------------------------------------------------------------

    \375\ As detailed in DRIA Chapter 4 and TSD Chapter 4, for this 
analysis the full life of the vehicle is represented by average 
lifetime mileages for cars (197,000 miles [MY 2017] and 211,000 
miles [MY 2025]) and trucks (235,000 miles [MY 2017] and 249,000 
miles [MY 2025]). These estimates are a function of how far vehicles 
are driven per year and scrappage rates.
[GRAPHIC] [TIFF OMITTED] TP01DE11.122

c. Impacts of VMT Rebound Effect
    As noted above and discussed more fully in Section III.H., the 
effect of a decrease in fuel cost per mile on vehicle use (VMT 
``rebound'') was accounted for in our assessment of economic and 
environmental impacts of this proposed rule. A 10 percent rebound case 
was used for this analysis, meaning that VMT for affected model years 
is modeled as increasing by 10 percent as much as the decrease in fuel 
cost per mile; i.e., a 10 percent decrease in fuel cost per mile from 
our proposed standards would result in a 1 percent increase in VMT. 
Results are shown in Table III-58. This increase is accounted for in 
the reductions presented in Table III-55 and Table III-56). The table 
below compares the reductions under two different scenarios; one in 
which the VMT estimate is entirely insensitive to the cost of travel, 
and one in which both control and reference scenario VMT are affected 
by the rebound effect. This topic is further discussed in DRIA chapter 
4.
---------------------------------------------------------------------------

    \376\ This assessment assumes that owners of grid-electric 
powered vehicles react similarly to changes int eh cost of driving s 
owners of conventional gasoline vehicles. We seek comment on this 
approach in Section III.H.4c.

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[[Page 75094]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.123

d. Analysis of Alternatives
    EPA analyzed four alternative scenarios for this proposal (Table 
III-59). EPA assumed that manufacturers would use air conditioning 
improvements and the HEV and performance based pickup incentives in 
identical penetrations as in the primary scenario. EPA re-estimated the 
impact of the electric vehicle multiplier under each alternative. Under 
these assumptions, EPA expects achieved fleetwide average emission 
levels of 150 g/mile CO2 to 177 g/mile CO2eq (6%) 
in 2025. As in the primary scenario, EPA assumed that the fleet 
complied with the standards. For full details on modeling assumptions, 
please refer to DRIA Chapter 4. EPA's assessment of these alternative 
standards is discussed in Section III.D.6

[[Page 75095]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.124


[[Page 75096]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.125

2. Climate Change Impacts From GHG Emissions
    The impact of GHG emissions on the climate has been reviewed in the 
2012-2016 light-duty rulemaking and recent heavy-duty GHG rulemaking. 
See 75 FR at 25491; 76 FR at 57294. This section briefly discusses 
again some of the climate impact context for transportation emissions. 
These previous discussions noted that once emitted, GHGs that are the 
subject of this regulation can remain in the atmosphere for decades to 
millennia, meaning that 1) their concentrations become well-mixed 
throughout the global atmosphere regardless of emission origin, and 2) 
their effects on climate are long lasting. GHG emissions come mainly 
from the combustion of fossil fuels (coal, oil, and gas), with 
additional contributions from the clearing of forests, agricultural 
activities, cement production, and some industrial activities. 
Transportation activities, in aggregate, were the second largest 
contributor to total U.S. GHG emissions in 2009 (27 percent of total 
emissions).\377\
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    \377\ U.S. EPA (2011) Inventory of U.S. Greenhouse Gas Emissions 
and Sinks: 1990-2009. EPA 430-R-11-005. (Docket EPA-HQ-OAR-2010-
0799).
---------------------------------------------------------------------------

    The Administrator relied on thorough and peer-reviewed assessments 
of climate change science prepared by the Intergovernmental Panel on 
Climate Change (``IPCC''), the United States Global Change Research 
Program (``USGCRP''), and the National Research Council of the National 
Academies (``NRC'') \378\ as the primary scientific and technical basis 
for the Endangerment and Cause or Contribute Findings for Greenhouse 
Gases Under Section 202(a) of the Clean Air Act (74 FR 66496, December 
15, 2009). These assessments comprehensively address the scientific 
issues the Administrator had to examine, providing her both data and 
information on a wide range of issues pertinent to the Endangerment 
Finding. These assessments have been rigorously reviewed by the expert 
community, and also by United States government agencies and 
scientists, including by EPA itself.
---------------------------------------------------------------------------

    \378\ For a complete list of core references from IPCC, USGCRP/
CCSP, NRC and others relied upon for development of the TSD for 
EPA's Endangerment and Cause or Contribute Findings see section 
1(b), specifically, Table 1.1 of the TSD. (Docket EPA-HQ-OAR-2010-
0799).
---------------------------------------------------------------------------

    Based on these assessments, the Administrator determined, in 
essence, that greenhouse gases cause warming; that levels of greenhouse 
gases are increasing in the atmosphere due to human activity; the 
climate is warming; recent warming has been attributed to the increase 
in greenhouse gases; and that warming of the climate threatens human 
health and welfare. The Administrator further found that emissions of 
well-mixed greenhouse gases from new motor vehicles and engines 
contribute to the air pollution for which the endangerment finding was 
made. Specifically, the Administrator found under section 202(a) of the 
Act that six greenhouse gases (carbon dioxide, methane, nitrous oxide, 
hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride) taken in 
combination endanger both the public health and the public welfare of 
current and future generations, and further found that the combined 
emissions of these greenhouse gases from new motor vehicles and engines 
contribute to the greenhouse gas air pollution that endangers public 
health and welfare.
    More recent assessments have produced similar conclusions to those 
of the assessments upon which the Administrator relied. In May 2010, 
the NRC published its comprehensive assessment, ``Advancing the Science 
of Climate Change.'' \379\ It concluded that ``climate change is 
occurring, is caused largely by human activities, and poses significant 
risks for--and in many cases is already affecting--a broad range of 
human and natural systems.'' Furthermore, the NRC stated that this 
conclusion is based on findings that are ``consistent with the 
conclusions of recent assessments by the U.S. Global Change Research 
Program, the Intergovernmental Panel on Climate Change's Fourth 
Assessment Report, and other assessments of the state of scientific 
knowledge on climate change.'' These are the same assessments that 
served as the primary scientific references underlying the 
Administrator's Endangerment Finding. Another NRC assessment, ``Climate 
Stabilization Targets: Emissions, Concentrations, and Impacts over 
Decades to Millennia,'' was published

[[Page 75097]]

in 2011. This report found that climate change due to carbon dioxide 
emissions will persist for many centuries. The report also estimates a 
number of specific climate change impacts, finding that every degree 
Celsius (C) of warming could lead to increases in the heaviest 15% of 
daily rainfalls of 3 to 10%, decreases of 5 to 15% in yields for a 
number of crops (absent adaptation measures that do not presently 
exist), decreases of Arctic sea ice extent of 25% in September and 15% 
annually averaged, along with changes in precipitation and streamflow 
of 5 to 10% in many regions and river basins (increases in some 
regions, decreases in others). The assessment also found that for an 
increase of 4 degrees C nearly all land areas would experience summers 
warmer than all but 5% of summers in the 20th century, that for an 
increase of 1 to 2 degrees C the area burnt by wildfires in western 
North America will likely more than double, that coral bleaching and 
erosion will increase due both to warming and ocean acidification, and 
that sea level will rise 1.6 to 3.3 feet by 2100 in a 3 degree C 
scenario. The assessment notes that many important aspects of climate 
change are difficult to quantify but that the risk of adverse impacts 
is likely to increase with increasing temperature, and that the risk of 
abrupt climate changes can be expected to increase with the duration 
and magnitude of the warming.
---------------------------------------------------------------------------

    \379\ National Research Council (NRC) (2010). Advancing the 
Science of Climate Change. National Academy Press. Washington, DC. 
(Docket EPA-HQ-OAR-2010-0799).
---------------------------------------------------------------------------

    In the 2010 report cited above, the NRC stated that some of the 
largest potential risks associated with future climate change may come 
not from relatively smooth changes that are reasonably well understood, 
but from extreme events, abrupt changes, and surprises that might occur 
when climate or environmental system thresholds are crossed. Examples 
cited as warranting more research include the release of large 
quantities of GHGs stored in permafrost (frozen soils) across the 
Arctic, rapid disintegration of the major ice sheets, irreversible 
drying and desertification in the subtropics, changes in ocean 
circulation, and the rapid release of destabilized methane hydrates in 
the oceans.
    On ocean acidification, the same report noted the potential for 
broad, ``catastrophic'' impacts on marine ecosystems. Ocean acidity has 
increased 25 percent since pre-industrial times, and is projected to 
continue increasing. By the time atmospheric CO2 content 
doubles over its preindustrial value, there would be virtually no place 
left in the ocean that can sustain coral reef growth. Ocean 
acidification could have dramatic consequences for polar food webs 
including salmon, the report said.
    Importantly, these recent NRC assessments represent another 
independent and critical inquiry of the state of climate change 
science, separate and apart from the previous IPCC and USGCRP 
assessments.
3. Changes in Global Climate Indicators Associated With the Proposal's 
GHG Emissions Reductions
    EPA examined \380\ the reductions in CO2 and other GHGs 
associated with this rulemaking and analyzed the projected effects on 
atmospheric CO2 concentrations, global mean surface 
temperature, sea level rise, and ocean pH which are common variables 
used as indicators of climate change.\381\ The analysis projects that 
the proposed rule, if adopted, will reduce atmospheric concentrations 
of CO2, global climate warming, ocean acidification, and sea 
level rise relative to the reference case. Although the projected 
reductions and improvements are small in comparison to the total 
projected climate change, they are quantifiable, directionally 
consistent, and will contribute to reducing the risks associated with 
climate change. Climate change is a global phenomenon and EPA 
recognizes that this one national action alone will not prevent it: EPA 
notes this would be true for any given GHG mitigation action when taken 
alone or when considered in isolation. EPA also notes that a 
substantial portion of CO2 emitted into the atmosphere is 
not removed by natural processes for millennia, and therefore each unit 
of CO2 not emitted into the atmosphere due to this rule 
avoids essentially permanent climate change on centennial time scales.
---------------------------------------------------------------------------

    \380\ Using the Model for the Assessment of Greenhouse Gas 
Induced Climate Change (MAGICC) 5.3v2, http://www.cgd.ucar.edu/cas/wigley/magicc/ magicc/), EPA estimated the effects of this rulemaking's 
greenhouse gas emissions reductions on global mean temperature and 
sea level. Please refer to Chapter 6.4 of the DRIA for additional 
information.
    \381\ Due to timing constraints, this analysis was conducted 
with preliminary estimates of the emissions reductions projected 
from this proposal, which were similar to the final estimates.
---------------------------------------------------------------------------

    EPA determines that the projected reductions in atmospheric 
CO2, global mean temperature and sea level rise are 
meaningful in the context of this proposed action. In addition, EPA has 
conducted an analysis to evaluate the projected changes in ocean pH in 
the context of the changes in emissions from this rulemaking. The 
results of the analysis demonstrate that relative to the reference 
case, projected atmospheric CO2 concentrations are estimated 
by 2100 to be reduced by 3.29 to 3.68 part per million by volume 
(ppmv), global mean temperature is estimated to be reduced by 0.0076 to 
0.0184 [deg]C, and sea-level rise is projected to be reduced by 
approximately 0.074-0.166 cm, based on a range of climate 
sensitivities. The analysis also demonstrates that ocean pH will 
increase by 0.0018 pH units by 2100 relative to the reference case.
a. Estimated Reductions in Atmospheric CO2 Concentration, 
Global Mean Surface Temperatures, Sea Level Rise, and Ocean pH
    EPA estimated changes in the atmospheric CO2 
concentration, global mean temperature, and sea level rise out to 2100 
resulting from the emissions reductions in this rulemaking using the 
Global Change Assessment Model (GCAM, formerly MiniCAM), integrated 
assessment model \382\ coupled with the Model for the Assessment of 
Greenhouse Gas Induced Climate Change (MAGICC, version 5.3v2).\383\ 
GCAM was used to create the globally and temporally consistent set of 
climate relevant variables required for running MAGICC. MAGICC was then 
used to estimate the projected change in these variables over time. 
Given the magnitude of the estimated emissions reductions associated 
with this action, a simple climate model such as MAGICC is reasonable 
for estimating the atmospheric and climate response. This widely used, 
peer reviewed modeling tool was also used to project temperature and 
sea level rise under different emissions scenarios in the Third and 
Fourth Assessments of the IPCC.
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    \382\ GCAM is a long-term, global integrated assessment model of 
energy, economy, agriculture and land use, that considers the 
sources of emissions of a suite of GHGs, emitted in 14 globally 
disaggregated regions, the fate of emissions to the atmosphere, and 
the consequences of changing concentrations of greenhouse related 
gases for climate change. GCAM begins with a representation of 
demographic and economic developments in each region and combines 
these with assumptions about technology development to describe an 
internally consistent representation of energy, agriculture, land-
use, and economic developments that in turn shape global emissions. 
Brenkert A, S. Smith, S. Kim, and H. Pitcher, 2003: Model 
Documentation for the MiniCAM. PNNL-14337, Pacific Northwest 
National Laboratory, Richland, Washington. (Docket EPA-HQ-OAR-2010-
0799).
    \383\ Wigley, T.M.L. 2008. MAGICC 5.3.v2 User Manual. UCAR--
Climate and Global Dynamics Division, Boulder, Colorado. http://www.cgd.ucar.edu/cas/wigley/magicc/ (Docket EPA-HQ-OAR-2010-0799).
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    The integrated impact of the following pollutant and greenhouse gas 
emissions changes are considered: CO2, CH4, 
N2O, HFC-134a, NOX, CO, SO2, and 
volatile organic compounds (VOC). For these pollutants an annual time-
series of (upstream + downstream) emissions

[[Page 75098]]

reductions estimated from the rulemaking were applied as net reductions 
to a global reference case (or baseline) emissions scenario in GCAM to 
generate an emissions scenario specific to this proposed rule.\384\ The 
emissions reductions past 2050 for all gases were scaled with total 
U.S. road transportation fuel consumption from the GCAM reference 
scenario. Road transport fuel consumption past 2050 does not change 
significantly and thus emissions reductions remain relatively constant 
from 2050 through 2100. Specific details about the GCAM reference case 
scenario can be found in Chapter 6.4 of the DRIA that accompanies this 
proposal.
---------------------------------------------------------------------------

    \384\ Due to timing constraints, this analysis was conducted 
with preliminary estimates of the emissions reductions projected 
from this proposal, which were similar to the final estimates.
---------------------------------------------------------------------------

    MAGICC calculates the forcing response at the global scale from 
changes in atmospheric concentrations of CO2, 
CH4, N2O, HFCs, and tropospheric ozone 
(O3). It also includes the effects of temperature changes on 
stratospheric ozone and the effects of CH4 emissions on 
stratospheric water vapor. Changes in CH4, NOX, 
VOC, and CO emissions affect both O3 concentrations and 
CH4 concentrations. MAGICC includes the relative climate 
forcing effects of changes in sulfate concentrations due to changing 
SO2 emissions, including both the direct effect of sulfate 
particles and the indirect effects related to cloud interactions. 
However, MAGICC does not calculate the effect of changes in 
concentrations of other aerosols such as nitrates, black carbon, or 
organic carbon, making the assumption that the sulfate cooling effect 
is a proxy for the sum of all the aerosol effects. Therefore, the 
climate effects of changes in PM2.5 emissions and precursors 
(besides SO2) which are presented in the DRIA Chapter 6 were 
not included in the calculations in this chapter. MAGICC also 
calculates all climate effects at the global scale. This global scale 
captures the climate effects of the long-lived, well-mixed greenhouse 
gases, but does not address the fact that short-lived climate forcers 
such as aerosols and ozone can have effects that vary with location and 
timing of emissions. Black carbon in particular is known to cause a 
positive forcing or warming effect by absorbing incoming solar 
radiation, but there are uncertainties about the magnitude of that 
warming effect and the interaction of black carbon (and other co-
emitted aerosol species) with clouds. While black carbon is likely to 
be an important contributor to climate change, it would be premature to 
include quantification of black carbon climate impacts in an analysis 
of these proposed standards. See generally, EPA, Response to Comments 
to the Endangerment Finding Vol. 9 section 9.1.6.1 and the discussion 
of black carbon in the endangerment finding at 74 FR at 66520. 
Additionally, the magnitude of PM2.5 emissions changes (and 
therefore, black carbon emission changes) related to these proposed 
standards are small in comparison to the changes in the pollutants 
which have been included in the MAGICC model simulations.
    Changes in atmospheric CO2 concentration, global mean 
temperature, and sea level rise for both the reference case and the 
emissions scenarios associated with this action were computed using 
MAGICC. To calculate the reductions in the atmospheric CO2 
concentrations as well as in temperature and sea level resulting from 
this proposal, the output from the policy scenario associated with 
EPA's proposed standards was subtracted from an existing Global Change 
Assessment Model (GCAM, formerly MiniCAM) reference emission scenario. 
To capture some key uncertainties in the climate system with the MAGICC 
model, changes in atmospheric CO2, global mean temperature 
and sea level rise were projected across the most current IPCC range of 
climate sensitivities, from 1.5 [deg]C to 6.0 [deg]C.\385\ This range 
reflects the uncertainty for equilibrium climate sensitivity for how 
much global mean temperature would rise if the concentration of carbon 
dioxide in the atmosphere were to double. The information for this 
range come from constraints from past climate change on various time 
scales, and the spread of results for climate sensitivity from 
ensembles of models.\386\ Details about this modeling analysis can be 
found in the DRIA Chapter 6.4.
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    \385\ In IPCC reports, equilibrium climate sensitivity refers to 
the equilibrium change in the annual mean global surface temperature 
following a doubling of the atmospheric equivalent carbon dioxide 
concentration. The IPCC states that climate sensitivity is 
``likely'' to be in the range of 2 [deg]C to 4.5 [deg]C, ``very 
unlikely'' to be less than 1.5 [deg]C, and ``values substantially 
higher than 4.5 [deg]C cannot be excluded.'' IPCC WGI, 2007, Climate 
Change 2007--The Physical Science Basis, Contribution of Working 
Group I to the Fourth Assessment Report of the IPCC, http://www.ipcc.ch/ (Docket EPA-HQ-OAR-2010-0799).
    \386\ Meehl, G.A. et al. (2007) Global Climate Projections. In: 
Climate Change 2007: The Physical Science Basis. Contribution of 
Working Group I to the Fourth Assessment Report of the 
Intergovernmental Panel on Climate Change [Solomon, S., D. Qin, M. 
Manning, Z. Chen, M. Marquis, K.B. Averyt, M. Tignor and H.L. Miller 
(eds.)]. Cambridge University Press, Cambridge, United Kingdom and 
New York, NY, USA. (Docket EPA-HQ-OAR-2010-0799).
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    The results of this modeling, summarized in Table III-62, show 
small, but quantifiable, reductions in atmospheric CO2 
concentrations, projected global mean temperature and sea level 
resulting from this action, across all climate sensitivities. As a 
result of the emission reductions from the proposed standards, relative 
to the reference case the atmospheric CO2 concentration is 
projected to be reduced by 3.29-3.68 ppmv by 2100, the global mean 
temperature is projected to be reduced by approximately 0.0076-0.0184 
[deg]C by 2100, and global mean sea level rise is projected to be 
reduced by approximately 0.074-0.166 cm by 2100. The range of 
reductions in global mean temperature and sea level rise is larger than 
that for CO2 concentrations because CO2 
concentrations are only weakly coupled to climate sensitivity through 
the dependence on temperature of the rate of ocean absorption of 
CO2, whereas the magnitude of temperature change response to 
CO2 changes (and therefore sea level rise) is more tightly 
coupled to climate sensitivity in the MAGICC model.

[[Page 75099]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.126

    The projected reductions are small relative to the change in 
temperature (1.8-4.8 [deg]C), sea level rise (23-55 cm), and ocean 
acidity (-0.30 pH units) from 1990 to 2100 from the MAGICC simulations 
for the GCAM reference case. However, this is to be expected given the 
magnitude of emissions reductions expected from the program in the 
context of global emissions. This uncertainty range does not include 
the effects of uncertainty in future emissions. It should also be noted 
that the calculations in MAGICC do not include the possible effects of 
accelerated ice flow in Greenland and/or Antarctica: the recent NRC 
report estimated a likely sea level increase for a business-as-usual 
scenario of 0.5 to 1.0 meters.\387\ Further discussion of EPA's 
modeling analysis is found in the DRIA, Chapter 6.
---------------------------------------------------------------------------

    \387\ National Research Council (NRC), 2011. Climate 
Stabilization Targets: Emissions, Concentrations, and Impacts over 
Decades to Millennia. Washington, DC: National Academies Press. 
(Docket EPA-HQ-OAR-2010-0799).
---------------------------------------------------------------------------

    EPA used the computer program CO2SYS,\388\ version 1.05, to 
estimate projected changes in ocean pH for tropical waters based on the 
atmospheric CO2 concentration change (reduction) resulting 
from this proposal. The program performs calculations relating 
parameters of the CO2 system in seawater. EPA used the 
program to calculate ocean pH as a function of atmospheric 
CO2 concentrations, among other specified input conditions. 
Based on the projected atmospheric CO2 concentration 
reductions resulting from this proposal, the program calculates an 
increase in ocean pH of 0.0018 pH units in 2100 relative to the 
reference case (compared to a decrease of 0.3 pH units from 1990 to 
2100 in the reference case). Thus, this analysis indicates the 
projected decrease in atmospheric CO2 concentrations from 
the program will result in an increase in ocean pH. For additional 
validation, results were generated using different known constants from 
the literature. A comprehensive discussion of the modeling analysis 
associated with ocean pH is provided in the DRIA, Chapter 6.
---------------------------------------------------------------------------

    \388\ Lewis, E., and D. W. R. Wallace. 1998. Program Developed 
for CO2 System Calculations. ORNL/CDIAC-105. Carbon 
Dioxide Information Analysis Center, Oak Ridge National Laboratory, 
U.S. Department of Energy, Oak Ridge, Tennessee. (Docket EPA-HQ-OAR-
2010-0799).
---------------------------------------------------------------------------

    As discussed in III.F.2, the 2011 NRC assessment on ``Climate 
Stabilization Targets: Emissions, Concentrations, and Impacts over 
Decades to Millennia'' determined how a number of climate impacts--such 
as heaviest daily rainfalls, crop yields, and Arctic sea ice extent--
would change with a temperature change of 1 degree Celsius (C) of 
warming. These relationships of impacts with temperature change could 
be combined with the calculated reductions in warming in Table III-56 
to estimate changes in these impacts associated with this rulemaking.
b. Program's Effect on Climate
    As a substantial portion of CO2 emitted into the 
atmosphere is not removed by natural processes for millennia, each unit 
of CO2 not emitted into the atmosphere avoids essentially 
permanent climate change on centennial time scales. Reductions in 
emissions in the near-term are important in determining long-term 
climate stabilization and associated impacts experienced not just over 
the next decades but in the coming centuries and millennia.\389\ Though 
the magnitude of the avoided climate change projected here is small in 
comparison to the total projected changes, these reductions represent a 
reduction in the adverse risks associated with climate change (though 
these risks were not formally estimated for this action) across a range 
of equilibrium climate sensitivities.
---------------------------------------------------------------------------

    \389\ National Research Council (NRC) (2011). Climate 
Stabilization Targets: Emissions, Concentrations, and Impacts over 
Decades to Millennia. National Academy Press. Washington, DC. 
(Docket EPA-HQ-OAR-2010-0799).
---------------------------------------------------------------------------

    EPA's analysis of the program's impact on global climate conditions 
is intended to quantify these potential reductions using the best 
available science. EPA's modeling results show repeatable, consistent 
reductions relative to the reference case in changes of CO2 
concentration, temperature, sea-level rise, and ocean pH over the next 
century.

G. How would the proposal impact non-GHG emissions and their associated 
effects?

    Although this rule focuses on GHGs, it will also have an impact on 
non-GHG pollutants. Sections G.1 of this preamble details the criteria 
pollutant and air toxic inventory changes of this proposed rule. The 
following sections, G.2 and G.3, discuss the health and environmental 
effects associated with

[[Page 75100]]

the criteria and toxic air pollutants that are being impacted by this 
proposed rule. In Section G.4 we discuss the potential impact of this 
proposal on concentrations of criteria and air toxic pollutants in the 
ambient air. The tools and methodologies used in this analysis are 
substantially similar to those used in the MYs 2012-2016 light duty 
rulemaking.
1. Inventory
a. Impacts
    In addition to reducing the emissions of greenhouse gases, this 
rule would influence ``non-GHG'' pollutants, i.e., ``criteria'' air 
pollutants and their precursors, and air toxics. The proposal would 
affect emissions of carbon monoxide (CO), fine particulate matter 
(PM2.5), sulfur dioxide (SOX), volatile organic 
compounds (VOC), nitrogen oxides (NOX), benzene, 1,3-
butadiene, formaldehyde, acetaldehyde, and acrolein. Our estimates of 
these non-GHG emission impacts from the GHG program are shown by 
pollutant in Table III.G-1 and Table III.G-2 both in total and broken 
down by the three drivers of these changes: a) ``downstream'' emission 
changes, reflecting the estimated effects of VMT rebound (discussed in 
Sections III.F and III.H) and decreased consumption of fuel; b) 
``upstream'' emission reductions due to decreased extraction, 
production and distribution of motor vehicle gasoline; c) ``upstream'' 
emission increases from power plants as electric powertrain vehicles 
increase in prevalence as a result of this rule. Program impacts on 
criteria and toxics emissions are discussed below, followed by 
individual discussions of the methodology used to calculate each of 
these three sources of impacts.
    As shown in Table III-63, EPA estimates that the proposed light 
duty vehicle program would result in reductions of NOX, VOC, 
PM2.5 and SOX, but would increase CO 
emissions.\390\ For NOX, VOC, and PM2.5, we 
estimate net reductions because the net emissions reductions from 
reduced fuel refining, distribution and transport is larger than the 
emission increases due to increased VMT and increased electricity 
production. In the case of CO, we estimate slight emission increases, 
because there are relatively small reductions in upstream emissions, 
and thus the projected emission increases due to VMT rebound and 
electricity production are greater than the projected emission 
decreases due to reduced fuel production. For SOX, 
downstream emissions are roughly proportional to fuel consumption, 
therefore a decrease is seen in both downstream and fuel refining 
sources.
---------------------------------------------------------------------------

    \390\ While estimates for CY 2020 and 2030 are shown here, 
estimates through 2050 are shown in RIA Ch. 4.
---------------------------------------------------------------------------

    For all criteria pollutants the overall impact of the proposed 
program would be small compared to total U.S. inventories across all 
sectors. In 2030, EPA estimates that the program would reduce total 
NOX, PM and SOX inventories by 0.1 to 0.8 percent 
and reduce the VOC inventory by 1.1 percent, while increasing the total 
national CO inventory by 0.5 percent.
    As shown in Table III-64, EPA estimates that the proposed program 
would result in similarly small changes for air toxic emissions 
compared to total U.S. inventories across all sectors. In 2030, EPA 
estimates the proposed program would increase total 1,3 butadiene and 
acetaldehyde emissions by 0.1 to 0.4 percent. Total acrolein, benzene 
and formaldehyde emissions would decrease by similarly small amounts.

[[Page 75101]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.127


[[Page 75102]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.128

b. Methodology
    As in the MYs 2012-2016 rulemaking, for the downstream analysis, 
the current version of the EPA motor vehicle emission simulator 
(MOVES2010a) was used to estimate base VOC, CO, NOX, PM and 
air toxics emission rates. Additional emissions from light duty cars 
and trucks attributable to the rebound effect were then calculated 
using the OMEGA model post-processor. A more complete discussion of the 
inputs, methodology, and results is contained in RIA Chapter 4.
    This proposal assumes that MY 2017 and later vehicles are compliant 
with the agency's Tier 2 emission standards. This proposal does not 
model any future Tier 3 emission standards, because these standards 
have not yet been proposed (see Section III.A). We intend for the 
analysis assessing the impacts of both the final Tier 3 emission 
standards and the final 2017-2025 LD GHG to be included in the final 
Tier 3 rule. For the proposals, we are taking care to coordinate the 
modeling of each rule to

[[Page 75103]]

properly assess the air quality impact of each action independently 
without double counting.
    As in the MYs 2012-2016 GHG rulemaking, for this analysis we 
attribute decreased fuel consumption from this program to petroleum-
based fuels only, while assuming no effect on volumes of ethanol and 
other renewable fuels because they are mandated under the Renewable 
Fuel Standard (RFS2). For the purposes of this emission analysis, we 
assume that all gasoline in the timeframe of the analysis is blended 
with 10 percent ethanol (E10). However, as a consequence of the fixed 
volume of renewable fuels mandated in the RFS2 rulemaking and the 
decreasing petroleum consumption predicted here, we anticipate that 
this proposal would in fact increase the fraction of the U.S. fuel 
supply that is made up by renewable fuels. Although we are not modeling 
this effect in our analysis of this proposal, the Tier 3 rulemaking 
will make more refined assumptions about future fuel properties, 
including (in a final Tier 3 rule) accounting for the impacts of the LD 
GHG rule. In this rulemaking EPA modeled the three impacts on criteria 
pollutant emissions (rebound driving, changes in fuel production, and 
changes in electricity production) discussed above.
    While electric vehicles have zero tailpipe emissions, EPA assumes 
that manufacturers will plan for these vehicles in their regulatory 
compliance strategy for non-GHG emissions standards, and will not over-
comply with those standards. Since the Tier 2 emissions standards are 
fleet-average standards, we assume that if a manufacturer introduces 
EVs into its fleet, that it would correspondingly compensate through 
changes to vehicles elsewhere in its fleet, rather than meet an overall 
lower fleet-average emissions level.\391\ Consequently, EPA assumes 
neither tailpipe pollutant benefit (other than CO2) nor an 
evaporative emission benefit from the introduction of electric vehicles 
into the fleet. Other factors which may impact downstream non-GHG 
emissions, but are not estimated in this analysis, include: The 
potential for decreased criteria pollutant emissions due to increased 
air conditioner efficiency; reduced refueling emissions due to less 
frequent refueling events and reduced annual refueling volumes 
resulting from the GHG standards; and increased hot soak evaporative 
emissions due to the likely increase in number of trips associated with 
VMT rebound modeled in this proposal. In all, these additional analyses 
would likely result in small changes relative to the national 
inventory.
---------------------------------------------------------------------------

    \391\ Historically, manufacturers have reduced precious metal 
loading in catalysts in order to reduce costs. See http://www.platinum.matthey.com/media-room/our-view-on-.-.-./thrifting-of-precious-metals-in-autocatalysts/ Accessed 11/08/2011. 
Alternatively, manufacturers could also modify vehicle calibration.
---------------------------------------------------------------------------

    To determine the upstream fuel production impacts, EPA estimated 
the impact of reduced petroleum volumes on the extraction and 
transportation of crude oil as well as the production and distribution 
of finished gasoline. For the purpose of assessing domestic-only 
emission reductions it was necessary to estimate the fraction of fuel 
savings attributable to domestic finished gasoline, and of this 
gasoline what fraction is produced from domestic crude. For this 
analysis EPA estimated that 50 percent of fuel savings is attributable 
to domestic finished gasoline and that 90 percent of this gasoline 
originated from imported crude. Emission factors for most upstream 
emission sources are based on the GREET1.8 model, developed by DOE's 
Argonne National Laboratory,\392\ but in some cases the GREET values 
were modified or updated by EPA to be consistent with the National 
Emission Inventory (NEI).\393\ The primary updates for this analysis 
were to incorporate newer information on gasoline distribution 
emissions for VOC from the NEI, which were significantly higher than 
GREET estimates; and the incorporation of upstream emission factors for 
the air toxics estimated in this analysis: benzene, 1,3-butadiene, 
acetaldehyde, acrolein, and formaldehyde. The development of these 
emission factors is detailed in a memo to the docket. These emission 
factors were incorporated into the OMEGA post-processor.
---------------------------------------------------------------------------

    \392\ Greenhouse Gas, Regulated Emissions, and Energy Use in 
Transportation model (GREET), U.S. Department of Energy, Argonne 
National Laboratory, http://www.transportation.anl.gov/modeling_simulation/GREET/.
    \393\ U.S. EPA. 2002 National Emissions Inventory (NEI) Data and 
Documentation, http://www.epa.gov/ttn/chief/net/2002inventory.html.
---------------------------------------------------------------------------

    As with the GHG emission analysis discussed in section III.F, 
electricity emission factors were derived from EPA's Integrated 
Planning Model (IPM). EPA uses IPM to analyze the projected impact of 
environmental policies on the electric power sector in the 48 
contiguous states and the District of Columbia. IPM is a multi-
regional, dynamic, deterministic linear programming model of the U.S. 
electric power sector. It provides forecasts of least-cost capacity 
expansion, electricity dispatch, and emission control strategies for 
meeting energy demand and environmental, transmission, dispatch, and 
reliability constraints. EPA derived average national CO2 
emission factors from the IPM version 4.10 run for the ``Proposed 
Transport Rule.'' \394\ As discussed in Draft TSD Chapter 4, for the 
Final Rulemaking, EPA may consider emission factors other than national 
power generation, such as marginal power emission factors, or regional 
emission factors.
---------------------------------------------------------------------------

    \394\ EPA. IPM. http://www.epa.gov/airmarkt/progsregs/epa-ipm/BaseCasev410.html. ``Proposed Transport Rule/NODA version'' of IPM. 
TR--SB--Limited Trading v.4.10.
---------------------------------------------------------------------------

2. Health Effects of Non-GHG Pollutants
    In this section we discuss health effects associated with exposure 
to some of the criteria and air toxic pollutants impacted by the 
proposed vehicle standards.
a. Particulate Matter
i. Background
    Particulate matter is a generic term for a broad class of 
chemically and physically diverse substances. It can be principally 
characterized as discrete particles that exist in the condensed (liquid 
or solid) phase spanning several orders of magnitude in size. Since 
1987, EPA has delineated that subset of inhalable particles small 
enough to penetrate to the thoracic region (including the 
tracheobronchial and alveolar regions) of the respiratory tract 
(referred to as thoracic particles).\395\ Current National Ambient Air 
Quality Standards (NAAQS) use PM2.5 as the indicator for 
fine particles (with PM2.5 generally referring to particles 
with a nominal mean aerodynamic diameter less than or equal to 2.5 
micrometers ([micro]m), and use PM10 as the indicator for 
purposes of regulating the coarse fraction of PM10 (referred 
to as thoracic coarse particles or coarse-fraction particles; generally 
including particles with a nominal mean aerodynamic diameter greater 
than 2.5 [micro]m and less than or equal to 10 [micro]m, or 
PM10-2.5). Ultrafine particles are a subset of fine 
particles, generally less than 100 nanometers (0.1 [mu]m) in diameter.
---------------------------------------------------------------------------

    \395\ Regulatory definitions of PM size fractions, and 
information on reference and equivalent methods for measuring PM in 
ambient air, are provided in 40 CFR parts 50, 53, and 58.
---------------------------------------------------------------------------

    Fine particles are produced primarily by combustion processes and 
by transformations of gaseous emissions (e.g., sulfur oxides 
(SOX), nitrogen oxides (NOX), and volatile 
organic compounds (VOC)) in the atmosphere. The chemical and physical 
properties of PM2.5 may vary greatly with time, region, 
meteorology, and source

[[Page 75104]]

category. Thus, PM2.5 may include a complex mixture of 
different components including sulfates, nitrates, organic compounds, 
elemental carbon and metal compounds. These particles can remain in the 
atmosphere for days to weeks and travel hundreds to thousands of 
kilometers.
ii. Health Effects of Particulate Matter
    Scientific studies show ambient PM is associated with a series of 
adverse health effects. These health effects are discussed in detail in 
EPA's Integrated Science Assessment (ISA) for Particulate Matter.\396\ 
Further discussion of health effects associated with PM can also be 
found in the draft RIA. The ISA summarizes health effects evidence 
associated with both short-term and long-term exposures to 
PM2.5, PM10-2.5, and ultrafine particles.
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    \396\ U.S. EPA (2009) Integrated Science Assessment for 
Particulate Matter (Final Report). U.S. Environmental Protection 
Agency, Washington, DC, EPA/600/R-08/139F, Docket EPA-HQ-OAR-2010-
0799.
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    The ISA concludes that health effects associated with short-term 
exposures (hours to days) to ambient PM2.5 include 
mortality, cardiovascular effects, such as altered vasomotor function 
and hospital admissions and emergency department visits for ischemic 
heart disease and congestive heart failure, and respiratory effects, 
such as exacerbation of asthma symptoms in children and hospital 
admissions and emergency department visits for chronic obstructive 
pulmonary disease and respiratory infections.\397\ The ISA notes that 
long-term exposure (months to years) to PM2.5 is associated 
with the development/progression of cardiovascular disease, premature 
mortality, and respiratory effects, including reduced lung function 
growth, increased respiratory symptoms, and asthma development.\398\ 
The ISA concludes that the currently available scientific evidence from 
epidemiologic, controlled human exposure, and toxicological studies 
supports a causal association between short- and long-term exposures to 
PM2.5 and cardiovascular effects and mortality. Furthermore, 
the ISA concludes that the collective evidence supports likely causal 
associations between short- and long-term PM2.5 exposures 
and respiratory effects. The ISA also concludes that the scientific 
evidence is suggestive of a causal association for reproductive and 
developmental effects and cancer, mutagenicity, and genotoxicity and 
long-term exposure to PM2.5.\399\
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    \397\ See U.S. EPA, 2009 Final PM ISA, Note 396, at Section 
2.3.1.1.
    \398\ See U.S. EPA 2009 Final PM ISA, Note 396, at page 2-12, 
Sections 7.3.1.1 and 7.3.2.1.
    \399\ See U.S. EPA 2009 Final PM ISA, Note 396, at Section 
2.3.2.
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    For PM10-2.5, the ISA concludes that the current 
evidence is suggestive of a causal relationship between short-term 
exposures and cardiovascular effects. There is also suggestive evidence 
of a causal relationship between short-term PM10-2.5 
exposure and mortality and respiratory effects. Data are inadequate to 
draw conclusions regarding the health effects associated with long-term 
exposure to PM10-2.5.\400\
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    \400\ See U.S. EPA 2009 Final PM ISA, Note 396, at Section 
2.3.4, Table 2-6.
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    For ultrafine particles, the ISA concludes that there is suggestive 
evidence of a causal relationship between short-term exposures and 
cardiovascular effects, such as changes in heart rhythm and blood 
vessel function. It also concludes that there is suggestive evidence of 
association between short-term exposure to ultrafine particles and 
respiratory effects. Data are inadequate to draw conclusions regarding 
the health effects associated with long-term exposure to ultrafine 
particles.\401\
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    \401\ See U.S. EPA 2009 Final PM ISA, Note 396, at Section 
2.3.5, Table 2-6.
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b. Ozone
i. Background
    Ground-level ozone pollution is typically formed by the reaction of 
VOC and NOX in the lower atmosphere in the presence of 
sunlight. These pollutants, often referred to as ozone precursors, are 
emitted by many types of pollution sources, such as highway and nonroad 
motor vehicles and engines, power plants, chemical plants, refineries, 
makers of consumer and commercial products, industrial facilities, and 
smaller area sources.
    The science of ozone formation, transport, and accumulation is 
complex. Ground-level ozone is produced and destroyed in a cyclical set 
of chemical reactions, many of which are sensitive to temperature and 
sunlight. When ambient temperatures and sunlight levels remain high for 
several days and the air is relatively stagnant, ozone and its 
precursors can build up and result in more ozone than typically occurs 
on a single high-temperature day. Ozone can be transported hundreds of 
miles downwind from precursor emissions, resulting in elevated ozone 
levels even in areas with low local VOC or NOX emissions.
ii. Health Effects of Ozone
    The health and welfare effects of ozone are well documented and are 
assessed in EPA's 2006 Air Quality Criteria Document and 2007 Staff 
Paper.402 403 People who are more susceptible to effects 
associated with exposure to ozone can include children, the elderly, 
and individuals with respiratory disease such as asthma. Those with 
greater exposures to ozone, for instance due to time spent outdoors 
(e.g., children and outdoor workers), are of particular concern. Ozone 
can irritate the respiratory system, causing coughing, throat 
irritation, and breathing discomfort. Ozone can reduce lung function 
and cause pulmonary inflammation in healthy individuals. Ozone can also 
aggravate asthma, leading to more asthma attacks that require medical 
attention and/or the use of additional medication. Thus, ambient ozone 
may cause both healthy and asthmatic individuals to limit their outdoor 
activities. In addition, there is suggestive evidence of a contribution 
of ozone to cardiovascular-related morbidity and highly suggestive 
evidence that short-term ozone exposure directly or indirectly 
contributes to non-accidental and cardiopulmonary-related mortality, 
but additional research is needed to clarify the underlying mechanisms 
causing these effects. In a report on the estimation of ozone-related 
premature mortality published by NRC, a panel of experts and reviewers 
concluded that short-term exposure to ambient ozone is likely to 
contribute to premature deaths and that ozone-related mortality should 
be included in estimates of the health benefits of reducing ozone 
exposure.\404\ Animal toxicological evidence indicates that with 
repeated exposure, ozone can inflame and damage the lining of the 
lungs, which may lead to permanent changes in lung tissue and 
irreversible reductions in lung function. The respiratory effects 
observed in controlled human exposure studies and animal studies are 
coherent with the evidence from epidemiologic studies supporting a 
causal relationship between acute ambient ozone exposures and increased 
respiratory-related emergency room visits and

[[Page 75105]]

hospitalizations in the warm season. In addition, there is suggestive 
evidence of a contribution of ozone to cardiovascular-related morbidity 
and non-accidental and cardiopulmonary mortality.
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    \402\ U.S. EPA. (2006). Air Quality Criteria for Ozone and 
Related Photochemical Oxidants (Final). EPA/600/R-05/004aF-cF. 
Washington, DC: U.S. EPA. Docket EPA-HQ-OAR-2010-0799.
    \403\ U.S. EPA. (2007). Review of the National Ambient Air 
Quality Standards for Ozone: Policy Assessment of Scientific and 
Technical Information, OAQPS Staff Paper. EPA-452/R-07-003. 
Washington, DC, U.S. EPA. Docket EPA-HQ-OAR-2010-0799.
    \404\ National Research Council (NRC), 2008. Estimating 
Mortality Risk Reduction and Economic Benefits from Controlling 
Ozone Air Pollution. The National Academies Press: Washington, DC 
Docket EPA-HQ-OAR-2010-0799.
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c. Nitrogen Oxides and Sulfur Oxides
i. Background
    Nitrogen dioxide (NO2) is a member of the NOX 
family of gases. Most NO2 is formed in the air through the 
oxidation of nitric oxide (NO) emitted when fuel is burned at a high 
temperature. Sulfur Dioxide (SO2) a member of the sulfur 
oxide (SOX) family of gases, is formed from burning fuels 
containing sulfur (e.g., coal or oil derived), extracting gasoline from 
oil, or extracting metals from ore.
    SO2 and NO2 can dissolve in water droplets 
and further oxidize to form sulfuric and nitric acid which react with 
ammonia to form sulfates and nitrates, both of which are important 
components of ambient PM. The health effects of ambient PM are 
discussed in Section III.G.3.a.ii of this preamble. NOX and 
NMHC are the two major precursors of ozone. The health effects of ozone 
are covered in Section III.G.3.b.ii.
ii. Health Effects of NO2
    Information on the health effects of NO2 can be found in 
the EPA Integrated Science Assessment (ISA) for Nitrogen Oxides.\405\ 
The EPA has concluded that the findings of epidemiologic, controlled 
human exposure, and animal toxicological studies provide evidence that 
is sufficient to infer a likely causal relationship between respiratory 
effects and short-term NO2 exposure. The ISA concludes that 
the strongest evidence for such a relationship comes from epidemiologic 
studies of respiratory effects including symptoms, emergency department 
visits, and hospital admissions. The ISA also draws two broad 
conclusions regarding airway responsiveness following NO2 
exposure. First, the ISA concludes that NO2 exposure may 
enhance the sensitivity to allergen-induced decrements in lung function 
and increase the allergen-induced airway inflammatory response 
following 30-minute exposures of asthmatics to NO2 
concentrations as low as 0.26 ppm. Second, exposure to NO2 
has been found to enhance the inherent responsiveness of the airway to 
subsequent nonspecific challenges in controlled human exposure studies 
of asthmatic subjects. Small but significant increases in non-specific 
airway hyperresponsiveness were reported following 1-hour exposures of 
asthmatics to 0.1 ppm NO2. Enhanced airway responsiveness 
could have important clinical implications for asthmatics since 
transient increases in airway responsiveness following NO2 
exposure have the potential to increase symptoms and worsen asthma 
control. Together, the epidemiologic and experimental data sets form a 
plausible, consistent, and coherent description of a relationship 
between NO2 exposures and an array of adverse health effects 
that range from the onset of respiratory symptoms to hospital 
admission.
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    \405\ U.S. EPA (2008). Integrated Science Assessment for Oxides 
of Nitrogen--Health Criteria (Final Report). EPA/600/R-08/071. 
Washington, DC: U.S. EPA. Docket EPA-HQ-OAR-2010-0799.
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    Although the weight of evidence supporting a causal relationship is 
somewhat less certain than that associated with respiratory morbidity, 
NO2 has also been linked to other health endpoints. These 
include all-cause (nonaccidental) mortality, hospital admissions or 
emergency department visits for cardiovascular disease, and decrements 
in lung function growth associated with chronic exposure.
iii. Health Effects of SO2
    Information on the health effects of SO2 can be found in 
the EPA Integrated Science Assessment for Sulfur Oxides.\406\ 
SO2 has long been known to cause adverse respiratory health 
effects, particularly among individuals with asthma. Other potentially 
sensitive groups include children and the elderly. During periods of 
elevated ventilation, asthmatics may experience symptomatic 
bronchoconstriction within minutes of exposure. Following an extensive 
evaluation of health evidence from epidemiologic and laboratory 
studies, the EPA has concluded that there is a causal relationship 
between respiratory health effects and short-term exposure to 
SO2. Separately, based on an evaluation of the epidemiologic 
evidence of associations between short-term exposure to SO2 
and mortality, the EPA has concluded that the overall evidence is 
suggestive of a causal relationship between short-term exposure to 
SO2 and mortality.
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    \406\ U.S. EPA. (2008). Integrated Science Assessment (ISA) for 
Sulfur Oxides--Health Criteria (Final Report). EPA/600/R-08/047F. 
Washington, DC: U.S. Environmental Protection Agency. Docket EPA-HQ-
OAR-2010-0799.
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d. Carbon Monoxide
    Information on the health effects of CO can be found in the EPA 
Integrated Science Assessment (ISA) for Carbon Monoxide.\407\ The ISA 
concludes that ambient concentrations of CO are associated with a 
number of adverse health effects.\408\ This section provides a summary 
of the health effects associated with exposure to ambient 
concentrations of CO.\409\
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    \407\ U.S. EPA, 2010. Integrated Science Assessment for Carbon 
Monoxide (Final Report). U.S. Environmental Protection Agency, 
Washington, DC, EPA/600/R-09/019F, 2010. Available at http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=218686. Docket EPA-HQ-
OAR-2010-0799.
    \408\ The ISA evaluates the health evidence associated with 
different health effects, assigning one of five ``weight of 
evidence'' determinations: causal relationship, likely to be a 
causal relationship, suggestive of a causal relationship, inadequate 
to infer a causal relationship, and not likely to be a causal 
relationship. For definitions of these levels of evidence, please 
refer to Section 1.6 of the ISA.
    \409\ Personal exposure includes contributions from many 
sources, and in many different environments. Total personal exposure 
to CO includes both ambient and nonambient components; and both 
components may contribute to adverse health effects.
---------------------------------------------------------------------------

    Human clinical studies of subjects with coronary artery disease 
show a decrease in the time to onset of exercise-induced angina (chest 
pain) and electrocardiogram changes following CO exposure. In addition, 
epidemiologic studies show associations between short-term CO exposure 
and cardiovascular morbidity, particularly increased emergency room 
visits and hospital admissions for coronary heart disease (including 
ischemic heart disease, myocardial infarction, and angina). Some 
epidemiologic evidence is also available for increased hospital 
admissions and emergency room visits for congestive heart failure and 
cardiovascular disease as a whole. The ISA concludes that a causal 
relationship is likely to exist between short-term exposures to CO and 
cardiovascular morbidity. It also concludes that available data are 
inadequate to conclude that a causal relationship exists between long-
term exposures to CO and cardiovascular morbidity.
    Animal studies show various neurological effects with in-utero CO 
exposure. Controlled human exposure studies report inconsistent neural 
and behavioral effects following low-level CO exposures. The ISA 
concludes the evidence is suggestive of a causal relationship with both 
short- and long-term exposure to CO and central nervous system effects.
    A number of epidemiologic and animal toxicological studies cited in 
the ISA have evaluated associations between CO exposure and birth 
outcomes such as preterm birth or cardiac birth defects. The 
epidemiologic studies provide limited evidence of a CO-induced effect 
on preterm births and birth defects, with weak evidence for a decrease 
in birth weight. Animal

[[Page 75106]]

toxicological studies have found associations between perinatal CO 
exposure and decrements in birth weight, as well as other developmental 
outcomes. The ISA concludes these studies are suggestive of a causal 
relationship between long-term exposures to CO and developmental 
effects and birth outcomes.
    Epidemiologic studies provide evidence of effects on respiratory 
morbidity such as changes in pulmonary function, respiratory symptoms, 
and hospital admissions associated with ambient CO concentrations. A 
limited number of epidemiologic studies considered copollutants such as 
ozone, SO2, and PM in two-pollutant models and found that CO 
risk estimates were generally robust, although this limited evidence 
makes it difficult to disentangle effects attributed to CO itself from 
those of the larger complex air pollution mixture. Controlled human 
exposure studies have not extensively evaluated the effect of CO on 
respiratory morbidity. Animal studies at levels of 50-100 ppm CO show 
preliminary evidence of altered pulmonary vascular remodeling and 
oxidative injury. The ISA concludes that the evidence is suggestive of 
a causal relationship between short-term CO exposure and respiratory 
morbidity, and inadequate to conclude that a causal relationship exists 
between long-term exposure and respiratory morbidity.
    Finally, the ISA concludes that the epidemiologic evidence is 
suggestive of a causal relationship between short-term exposures to CO 
and mortality. Epidemiologic studies provide evidence of an association 
between short-term exposure to CO and mortality, but limited evidence 
is available to evaluate cause-specific mortality outcomes associated 
with CO exposure. In addition, the attenuation of CO risk estimates 
which was often observed in copollutant models contributes to the 
uncertainty as to whether CO is acting alone or as an indicator for 
other combustion-related pollutants. The ISA also concludes that there 
is not likely to be a causal relationship between relevant long-term 
exposures to CO and mortality.
e. Air Toxics
    Light-duty vehicle emissions contribute to ambient levels of air 
toxics known or suspected as human or animal carcinogens, or that have 
noncancer health effects. The population experiences an elevated risk 
of cancer and other noncancer health effects from exposure to the class 
of pollutants known collectively as ``air toxics.'' \410\ These 
compounds include, but are not limited to, benzene, 1,3-butadiene, 
formaldehyde, acetaldehyde, acrolein, polycyclic organic matter, and 
naphthalene. These compounds were identified as national or regional 
risk drivers or contributors in the 2005 National-Scale Air Toxics 
Assessment and have significant inventory contributions from mobile 
sources.\411\
---------------------------------------------------------------------------

    \410\ U.S. EPA. (2011) Summary of Results for the 2005 National-
Scale Assessment. http://www.epa.gov/ttn/atw/nata2005/05pdf/sum_results.pdf. Docket EPA-HQ-OAR-2010-0799.
    \411\ U.S. EPA (2011) 2005 National-Scale Air Toxics Assessment. 
http://www.epa.gov/ttn/atw/nata2005. Docket EPA-HQ-OAR-2010-0799.
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i. Benzene
    The EPA's Integrated Risk Information System (IRIS) database lists 
benzene as a known human carcinogen (causing leukemia) by all routes of 
exposure, and concludes that exposure is associated with additional 
health effects, including genetic changes in both humans and animals 
and increased proliferation of bone marrow cells in 
mice.412 413 414 EPA states in its IRIS database that data 
indicate a causal relationship between benzene exposure and acute 
lymphocytic leukemia and suggest a relationship between benzene 
exposure and chronic non-lymphocytic leukemia and chronic lymphocytic 
leukemia. The International Agency for Research on Carcinogens (IARC) 
has determined that benzene is a human carcinogen and the U.S. 
Department of Health and Human Services (DHHS) has characterized 
benzene as a known human carcinogen.415 416
---------------------------------------------------------------------------

    \412\ U.S. EPA. 2000. Integrated Risk Information System File 
for Benzene. This material is available electronically at http://www.epa.gov/iris/subst/0276.htm. Docket EPA-HQ-OAR-2010-0799.
    \413\ International Agency for Research on Cancer. 1982. 
Monographs on the evaluation of carcinogenic risk of chemicals to 
humans, Volume 29. Some industrial chemicals and dyestuffs, World 
Health Organization, Lyon, France, p. 345-389. Docket EPA-HQ-OAR-
2010-0799.
    \414\ Irons, R.D.; Stillman, W.S.; Colagiovanni, D.B.; Henry, 
V.A. 1992. Synergistic action of the benzene metabolite hydroquinone 
on myelopoietic stimulating activity of granulocyte/macrophage 
colony-stimulating factor in vitro, Proc. Natl. Acad. Sci. 89:3691-
3695. Docket EPA-HQ-OAR-2010-0799.
    \415\ See IARC, Note 413, above.
    \416\ U.S. Department of Health and Human Services National 
Toxicology Program 11th Report on Carcinogens available at: http://ntp.niehs.nih.gov/go/16183. Docket EPA-HQ-OAR-2010-0799.
---------------------------------------------------------------------------

    A number of adverse noncancer health effects including blood 
disorders, such as preleukemia and aplastic anemia, have also been 
associated with long-term exposure to benzene.417 418 The 
most sensitive noncancer effect observed in humans, based on current 
data, is the depression of the absolute lymphocyte count in 
blood.419 420 In addition, published work, including studies 
sponsored by the Health Effects Institute (HEI), provides evidence that 
biochemical responses are occurring at lower levels of benzene exposure 
than previously known.421 422 423 424 EPA's IRIS program has 
not yet evaluated these new data.
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    \417\ Aksoy, M. (1989). Hematotoxicity and carcinogenicity of 
benzene. Environ. Health Perspect. 82: 193-197. Docket EPA-HQ-OAR-
2010-0799.
    \418\ Goldstein, B.D. (1988). Benzene toxicity. Occupational 
medicine. State of the Art Reviews. 3: 541-554. Docket EPA-HQ-OAR-
2010-0799.
    \419\ Rothman, N., G.L. Li, M. Dosemeci, W.E. Bechtold, G.E. 
Marti, Y.Z. Wang, M. Linet, L.Q. Xi, W. Lu, M.T. Smith, N. Titenko-
Holland, L.P. Zhang, W. Blot, S.N. Yin, and R.B. Hayes (1996) 
Hematotoxicity among Chinese workers heavily exposed to benzene. Am. 
J. Ind. Med. 29: 236-246. Docket EPA-HQ-OAR-2010-0799.
    \420\ U.S. EPA (2002) Toxicological Review of Benzene (Noncancer 
Effects). Environmental Protection Agency, Integrated Risk 
Information System, Research and Development, National Center for 
Environmental Assessment, Washington DC. This material is available 
electronically at http://www.epa.gov/iris/subst/0276.htm. Docket 
EPA-HQ-OAR-2010-0799.
    \421\ Qu, O.; Shore, R.; Li, G.; Jin, X.; Chen, C.L.; Cohen, B.; 
Melikian, A.; Eastmond, D.; Rappaport, S.; Li, H.; Rupa, D.; 
Suramaya, R.; Songnian, W.; Huifant, Y.; Meng, M.; Winnik, M.; Kwok, 
E.; Li, Y.; Mu, R.; Xu, B.; Zhang, X.; Li, K. (2003) HEI Report 115, 
Validation & Evaluation of Biomarkers in Workers Exposed to Benzene 
in China. Docket EPA-HQ-OAR-2010-0799.
    \422\ Qu, Q., R. Shore, G. Li, X. Jin, L.C. Chen, B. Cohen, et 
al. (2002) Hematological changes among Chinese workers with a broad 
range of benzene exposures. Am. J. Industr. Med. 42: 275-285. Docket 
EPA-HQ-OAR-2010-0799.
    \423\ Lan, Qing, Zhang, L., Li, G., Vermeulen, R., et al. (2004) 
Hematotoxically in Workers Exposed to Low Levels of Benzene. Science 
306: 1774-1776. Docket EPA-HQ-OAR-2010-0799.
    \424\ Turtletaub, K.W. and Mani, C. (2003) Benzene metabolism in 
rodents at doses relevant to human exposure from Urban Air. Research 
Reports Health Effect Inst. Report No. 113. Docket EPA-HQ-OAR-2010-
0799.
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ii. 1,3-Butadiene
    EPA has characterized 1,3-butadiene as carcinogenic to humans by 
inhalation.425 426 The IARC has determined that 1,3-
butadiene is a human carcinogen and the U.S. DHHS has characterized 
1,3-butadiene as a known human carcinogen.427 428 There

[[Page 75107]]

are numerous studies consistently demonstrating that 1,3-butadiene is 
metabolized into genotoxic metabolites by experimental animals and 
humans. The specific mechanisms of 1,3-butadiene-induced carcinogenesis 
are unknown; however, the scientific evidence strongly suggests that 
the carcinogenic effects are mediated by genotoxic metabolites. Animal 
data suggest that females may be more sensitive than males for cancer 
effects associated with 1,3-butadiene exposure; there are insufficient 
data in humans from which to draw conclusions about sensitive 
subpopulations. 1,3-butadiene also causes a variety of reproductive and 
developmental effects in mice; no human data on these effects are 
available. The most sensitive effect was ovarian atrophy observed in a 
lifetime bioassay of female mice.429
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    \425\ U.S. EPA (2002) Health Assessment of 1,3-Butadiene. Office 
of Research and Development, National Center for Environmental 
Assessment, Washington Office, Washington, DC. Report No. EPA600-P-
98-001F. This document is available electronically at http://www.epa.gov/iris/supdocs/buta-sup.pdf. Docket EPA-HQ-OAR-2010-0799.
    \426\ U.S. EPA (2002) Full IRIS Summary for 1,3-butadiene (CASRN 
106-99-0). Environmental Protection Agency, Integrated Risk 
Information System (IRIS), Research and Development, National Center 
for Environmental Assessment, Washington, DC http://www.epa.gov/iris/subst/0139.htm. Docket EPA-HQ-OAR-2010-0799.
    \427\ International Agency for Research on Cancer (1999) 
Monographs on the evaluation of carcinogenic risk of chemicals to 
humans, Volume 71, Re-evaluation of some organic chemicals, 
hydrazine and hydrogen peroxide and Volume 97 (in preparation), 
World Health Organization, Lyon, France. Docket EPA-HQ-OAR-2010-
0799.
    \428\ U.S. Department of Health and Human Services (2005) 
National Toxicology Program 11th Report on Carcinogens available at: 
ntp.niehs.nih.gov/index.cfm?objectid=32BA9724-F1F6-975E-7FCE50709CB4C932. Docket EPA-HQ-OAR-2010-0799.
    \429\ Bevan, C.; Stadler, J.C.; Elliot, G.S.; et al. (1996) 
Subchronic toxicity of 4-vinylcyclohexene in rats and mice by 
inhalation. Fundam. Appl. Toxicol. 32:1-10. Docket EPA-HQ-OAR-2010-
0799.
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iii. Formaldehyde
    Since 1987, EPA has classified formaldehyde as a probable human 
carcinogen based on evidence in humans and in rats, mice, hamsters, and 
monkeys.\430\ EPA is currently reviewing epidemiological data published 
since that time. For instance, research conducted by the National 
Cancer Institute found an increased risk of nasopharyngeal cancer and 
lymphohematopoietic malignancies such as leukemia among workers exposed 
to formaldehyde.431, 432 In an analysis of the 
lymphohematopoietic cancer mortality from an extended follow-up of 
these workers, the National Cancer Institute confirmed an association 
between lymphohematopoietic cancer risk and peak exposures.\433\ A 
National Institute of Occupational Safety and Health study of garment 
workers also found increased risk of death due to leukemia among 
workers exposed to formaldehyde.\434\ Extended follow-up of a cohort of 
British chemical workers did not find evidence of an increase in 
nasopharyngeal or lymphohematopoietic cancers, but a continuing 
statistically significant excess in lung cancers was reported.\435\ In 
2006, the IARC re-classified formaldehyde as a human carcinogen (Group 
1).\436\
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    \430\ U.S. EPA (1987) Assessment of Health Risks to Garment 
Workers and Certain Home Residents from Exposure to Formaldehyde, 
Office of Pesticides and Toxic Substances, April 1987. Docket EPA-
HQ-OAR-2010-0799.
    \431\ Hauptmann, M..; Lubin, J. H.; Stewart, P. A.; Hayes, R. 
B.; Blair, A. 2003. Mortality from lymphohematopoetic malignancies 
among workers in formaldehyde industries. Journal of the National 
Cancer Institute 95: 1615-1623. Docket EPA-HQ-OAR-2010-0799.
    \432\ Hauptmann, M..; Lubin, J. H.; Stewart, P. A.; Hayes, R. 
B.; Blair, A. 2004. Mortality from solid cancers among workers in 
formaldehyde industries. American Journal of Epidemiology 159: 1117-
1130. Docket EPA-HQ-OAR-2010-0799.
    \433\ Beane Freeman, L. E.; Blair, A.; Lubin, J. H.; Stewart, P. 
A.; Hayes, R. B.; Hoover, R. N.; Hauptmann, M. 2009. Mortality from 
lymphohematopoietic malignancies among workers in formaldehyde 
industries: The National Cancer Institute cohort. J. National Cancer 
Inst. 101: 751-761. Docket EPA-HQ-OAR-2010-0799.
    \434\ Pinkerton, L. E. 2004. Mortality among a cohort of garment 
workers exposed to formaldehyde: an update. Occup. Environ. Med. 61: 
193-200. Docket EPA-HQ-OAR-2010-0799.
    \435\ Coggon, D, EC Harris, J Poole, KT Palmer. 2003. Extended 
follow-up of a cohort of British chemical workers exposed to 
formaldehyde. J National Cancer Inst. 95:1608-1615. Docket EPA-HQ-
OAR-2010-0799.
    \436\ International Agency for Research on Cancer. 2006. 
Formaldehyde, 2-Butoxyethanol and 1-tert-Butoxypropan-2-ol. Volume 
88. (in preparation), World Health Organization, Lyon, France. 
Docket EPA-HQ-OAR-2010-0799;
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    Formaldehyde exposure also causes a range of noncancer health 
effects, including irritation of the eyes (burning and watering of the 
eyes), nose and throat. Effects from repeated exposure in humans 
include respiratory tract irritation, chronic bronchitis and nasal 
epithelial lesions such as metaplasia and loss of cilia. Animal studies 
suggest that formaldehyde may also cause airway inflammation--including 
eosinophil infiltration into the airways. There are several studies 
that suggest that formaldehyde may increase the risk of asthma--
particularly in the young.437 438
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    \437\ Agency for Toxic Substances and Disease Registry (ATSDR). 
1999. Toxicological profile for Formaldehyde. Atlanta, GA: U.S. 
Department of Health and Human Services, Public Health Service. 
http://www.atsdr.cdc.gov/toxprofiles/tp111.html Docket EPA-HQ-OAR-
2010-0799.
    \438\ WHO (2002) Concise International Chemical Assessment 
Document 40: Formaldehyde. Published under the joint sponsorship of 
the United Nations Environment Programme, the International Labour 
Organization, and the World Health Organization, and produced within 
the framework of the Inter-Organization Programme for the Sound 
Management of Chemicals. Geneva. Docket EPA-HQ-OAR-2010-0799.
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iv. Acetaldehyde
    Acetaldehyde is classified in EPA's IRIS database as a probable 
human carcinogen, based on nasal tumors in rats, and is considered 
toxic by the inhalation, oral, and intravenous routes.\439\ 
Acetaldehyde is reasonably anticipated to be a human carcinogen by the 
U.S. DHHS in the 11th Report on Carcinogens and is classified as 
possibly carcinogenic to humans (Group 2B) by the 
IARC.440 441 EPA is currently conducting a reassessment of 
cancer risk from inhalation exposure to acetaldehyde.
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    \439\ U.S. EPA. 1991. Integrated Risk Information System File of 
Acetaldehyde. Research and Development, National Center for 
Environmental Assessment, Washington, DC. Available at http://www.epa.gov/iris/subst/0290.htm. Docket EPA-HQ-OAR-2010-0799.
    \440\ U.S. Department of Health and Human Services National 
Toxicology Program 11th Report on Carcinogens available at: http://ntp.niehs.nih.gov/index.cfm?objectid=32BA9724-F1F6-975E-7FCE50709CB4C932. Docket EPA-HQ-OAR-2010-0799.
    \441\ International Agency for Research on Cancer. 1999. Re-
evaluation of some organic chemicals, hydrazine, and hydrogen 
peroxide. IARC Monographs on the Evaluation of Carcinogenic Risk of 
Chemical to Humans, Vol 71. Lyon, France. Docket EPA-HQ-OAR-2010-
0799.
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    The primary noncancer effects of exposure to acetaldehyde vapors 
include irritation of the eyes, skin, and respiratory tract.\442\ In 
short-term (4 week) rat studies, degeneration of olfactory epithelium 
was observed at various concentration levels of acetaldehyde 
exposure.443 444 Data from these studies were used by EPA to 
develop an inhalation reference concentration. Some asthmatics have 
been shown to be a sensitive subpopulation to decrements in functional 
expiratory volume (FEV1 test) and bronchoconstriction upon acetaldehyde 
inhalation.\445\ The agency is currently conducting a reassessment of 
the health hazards from inhalation exposure to acetaldehyde.
---------------------------------------------------------------------------

    \442\ See Integrated Risk Information System File of 
Acetaldehyde, Note 439, above.
    \443\ Appleman, L. M., R. A. Woutersen, V. J. Feron, R. N. 
Hooftman, and W. R. F. Notten. 1986. Effects of the variable versus 
fixed exposure levels on the toxicity of acetaldehyde in rats. J. 
Appl. Toxicol. 6: 331-336. Docket EPA-HQ-OAR-2010-0799.
    \444\ Appleman, L.M., R.A. Woutersen, and V.J. Feron. 1982. 
Inhalation toxicity of acetaldehyde in rats. I. Acute and subacute 
studies. Toxicology. 23: 293-297. Docket EPA-HQ-OAR-2010-0799.
    \445\ Myou, S.; Fujimura, M.; Nishi K.; Ohka, T.; and Matsuda, 
T. 1993. Aerosolized acetaldehyde induces histamine-mediated 
bronchoconstriction in asthmatics. Am. Rev. Respir.Dis.148(4 Pt 1): 
940-3. Docket EPA-HQ-OAR-2010-0799.
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v. Acrolein
    Acrolein is extremely acrid and irritating to humans when inhaled, 
with acute exposure resulting in upper respiratory tract irritation, 
mucus hypersecretion and congestion. The intense irritancy of this 
carbonyl has been demonstrated during controlled tests in human 
subjects, who suffer intolerable eye and nasal mucosal

[[Page 75108]]

sensory reactions within minutes of exposure.\446\ These data and 
additional studies regarding acute effects of human exposure to 
acrolein are summarized in EPA's 2003 IRIS Human Health Assessment for 
acrolein.\447\ Evidence available from studies in humans indicate that 
levels as low as 0.09 ppm (0.21 mg/m\3\) for five minutes may elicit 
subjective complaints of eye irritation with increasing concentrations 
leading to more extensive eye, nose and respiratory symptoms.\448\ 
Lesions to the lungs and upper respiratory tract of rats, rabbits, and 
hamsters have been observed after subchronic exposure to acrolein.\449\ 
Acute exposure effects in animal studies report bronchial hyper-
responsiveness.\450\ In one study, the acute respiratory irritant 
effects of exposure to 1.1 ppm acrolein were more pronounced in mice 
with allergic airway disease by comparison to non-diseased mice which 
also showed decreases in respiratory rate.\451\ Based on these animal 
data and demonstration of similar effects in humans (e.g., reduction in 
respiratory rate), individuals with compromised respiratory function 
(e.g., emphysema, asthma) are expected to be at increased risk of 
developing adverse responses to strong respiratory irritants such as 
acrolein.
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    \446\ U.S. EPA (U.S. Environmental Protection Agency). (2003) 
Toxicological review of acrolein in support of summary information 
on Integrated Risk Information System (IRIS) National Center for 
Environmental Assessment, Washington, DC. EPA/635/R-03/003. p. 10. 
Available online at: http://www.epa.gov/ncea/iris/toxreviews/0364tr.pdf. Docket EPA-HQ-OAR-2010-0799.
    \447\ See U.S. EPA 2003 Toxicological review of acrolein, Note 
446, above.
    \448\ See U.S. EPA 2003 Toxicological review of acrolein, Note 
446, at p. 11.
    \449\ Integrated Risk Information System File of Acrolein. 
Office of Research and Development, National Center for 
Environmental Assessment, Washington, DC. This material is available 
at http://www.epa.gov/iris/subst/0364.htm Docket EPA-HQ-OAR-2010-
0799.
    \450\ See U.S. 2003 Toxicological review of acrolein, Note 446, 
at p. 15.
    \451\ Morris JB, Symanowicz PT, Olsen JE, et al. 2003. Immediate 
sensory nerve-mediated respiratory responses to irritants in healthy 
and allergic airway-diseased mice. J Appl Physiol 94(4):1563-1571. 
Docket EPA-HQ-OAR-2010-0799.
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    EPA determined in 2003 that the human carcinogenic potential of 
acrolein could not be determined because the available data were 
inadequate. No information was available on the carcinogenic effects of 
acrolein in humans and the animal data provided inadequate evidence of 
carcinogenicity.\452\ The IARC determined in 1995 that acrolein was not 
classifiable as to its carcinogenicity in humans.\453\
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    \452\ U.S. EPA. 2003. Integrated Risk Information System File of 
Acrolein. Research and Development, National Center for 
Environmental Assessment, Washington, DC. This material is available 
at http://www.epa.gov/iris/subst/0364.htm Docket EPA-HQ-OAR-2010-
0799.
    \453\ International Agency for Research on Cancer. 1995. 
Monographs on the evaluation of carcinogenic risk of chemicals to 
humans, Volume 63. Dry cleaning, some chlorinated solvents and other 
industrial chemicals, World Health Organization, Lyon, France. 
Docket EPA-HQ-OAR-2010-0799.
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vi. Polycyclic Organic Matter
    The term polycyclic organic matter (POM) defines a broad class of 
compounds that includes the polycyclic aromatic hydrocarbon compounds 
(PAHs). One of these compounds, naphthalene, is discussed separately 
below. POM compounds are formed primarily from combustion and are 
present in the atmosphere in gas and particulate form. Cancer is the 
major concern from exposure to POM. Epidemiologic studies have reported 
an increase in lung cancer in humans exposed to diesel exhaust, coke 
oven emissions, roofing tar emissions, and cigarette smoke; all of 
these mixtures contain POM compounds.454 455 Animal studies 
have reported respiratory tract tumors from inhalation exposure to 
benzo[a]pyrene and alimentary tract and liver tumors from oral exposure 
to benzo[a]pyrene. In 1997 EPA classified seven PAHs (benzo[a]pyrene, 
benz[a]anthracene, chrysene, benzo[b]fluoranthene, 
benzo[k]fluoranthene, dibenz[a,h]anthracene, and indeno[1,2,3-
cd]pyrene) as Group B2, probable human carcinogens.\456\ Since that 
time, studies have found that maternal exposures to PAHs in a 
population of pregnant women were associated with several adverse birth 
outcomes, including low birth weight and reduced length at birth, as 
well as impaired cognitive development in preschool children (3 years 
of age).457 458 EPA has not yet evaluated these studies.
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    \454\ Agency for Toxic Substances and Disease Registry (ATSDR). 
1995. Toxicological profile for Polycyclic Aromatic Hydrocarbons 
(PAHs). Atlanta, GA: U.S. Department of Health and Human Services, 
Public Health Service. Available electronically at http://www.atsdr.cdc.gov/ToxProfiles/TP.asp?id=122&tid=25.
    455 U.S. EPA (2002). Health Assessment Document for 
Diesel Engine Exhaust. EPA/600/8-90/057F Office of Research and 
Development, Washington, DC. http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=29060. Docket EPA-HQ-OAR-2010-0799
    \456\ U.S. EPA (1997). Integrated Risk Information System File 
of indeno(1,2,3-cd)pyrene. Research and Development, National Center 
for Environmental Assessment, Washington, DC. This material is 
available electronically at http://www.epa.gov/ncea/iris/subst/0457.htm.
    \457\ Perera, F.P.; Rauh, V.; Tsai, W-Y.; et al. (2002) Effect 
of transplacental exposure to environmental pollutants on birth 
outcomes in a multiethnic population. Environ Health Perspect. 111: 
201-205.
    458 Perera, F.P.; Rauh, V.; Whyatt, R.M.; Tsai, W.Y.; 
Tang, D.; Diaz, D.; Hoepner, L.; Barr, D.; Tu, Y.H.; Camann, D.; 
Kinney, P. (2006) Effect of prenatal exposure to airborne polycyclic 
aromatic hydrocarbons on neurodevelopment in the first 3 years of 
life among inner-city children. Environ Health Perspect 114: 1287-
1292.
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vii. Naphthalene
    Naphthalene is found in small quantities in gasoline and diesel 
fuels. Naphthalene emissions have been measured in larger quantities in 
both gasoline and diesel exhaust compared with evaporative emissions 
from mobile sources, indicating it is primarily a product of 
combustion. EPA released an external review draft of a reassessment of 
the inhalation carcinogenicity of naphthalene based on a number of 
recent animal carcinogenicity studies.\459\ The draft reassessment 
completed external peer review.\460\ Based on external peer review 
comments received, additional analyses are being undertaken. This 
external review draft does not represent official agency opinion and 
was released solely for the purposes of external peer review and public 
comment. The National Toxicology Program listed naphthalene as 
``reasonably anticipated to be a human carcinogen'' in 2004 on the 
basis of bioassays reporting clear evidence of carcinogenicity in rats 
and some evidence of carcinogenicity in mice.\461\ California EPA has 
released a new risk assessment for naphthalene, and the IARC has 
reevaluated naphthalene and re-classified it as Group 2B: possibly 
carcinogenic to humans.\462\ Naphthalene also causes a number of 
chronic non-cancer effects in animals, including abnormal cell changes 
and growth in respiratory and nasal tissues.\463\
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    \459\ U.S. EPA. 2004. Toxicological Review of Naphthalene 
(Reassessment of the Inhalation Cancer Risk), Environmental 
Protection Agency, Integrated Risk Information System, Research and 
Development, National Center for Environmental Assessment, 
Washington, DC. This material is available electronically at http://www.epa.gov/iris/subst/0436.htm. Docket EPA-HQ-OAR-2010-0799.
    \460\ Oak Ridge Institute for Science and Education. (2004). 
External Peer Review for the IRIS Reassessment of the Inhalation 
Carcinogenicity of Naphthalene. August 2004. http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=84403 Docket EPA-HQ-OAR-2010-0799.
    \461\ National Toxicology Program (NTP). (2004). 11th Report on 
Carcinogens. Public Health Service, U.S. Department of Health and 
Human Services, Research Triangle Park, NC. Available from: http://ntp-server.niehs.nih.gov. Docket EPA-HQ-OAR-2010-0799.
    \462\ International Agency for Research on Cancer. (2002). 
Monographs on the Evaluation of the Carcinogenic Risk of Chemicals 
for Humans. Vol. 82. Lyon, France. Docket EPA-HQ-OAR-2010-0799.
    \463\ U. S. EPA. 1998. Toxicological Review of Naphthalene, 
Environmental Protection Agency, Integrated Risk Information System, 
Research and Development, National Center for Environmental 
Assessment, Washington, DC. This material is available 
electronically at http://www.epa.gov/iris/subst/0436.htm Docket EPA-
HQ-OAR-2010-0799.

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[[Page 75109]]

viii. Other Air Toxics
    In addition to the compounds described above, other compounds in 
gaseous hydrocarbon and PM emissions from light-duty vehicles will be 
affected by this proposal. Mobile source air toxic compounds that would 
potentially be impacted include ethylbenzene, propionaldehyde, toluene, 
and xylene. Information regarding the health effects of these compounds 
can be found in EPA's IRIS database.\464\
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    \464\ U.S. EPA Integrated Risk Information System (IRIS) 
database is available at: http://www.epa.gov/iris.
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f. Exposure and Health Effects Associated With Traffic-Related Air 
Pollution
    Populations who live, work, or attend school near major roads 
experience elevated exposure to a wide range of air pollutants, as well 
as higher risks for a number of adverse health effects. While the 
previous sections of this preamble have focused on the health effects 
associated with individual criteria pollutants or air toxics, this 
section discusses the mixture of different exposures near major 
roadways, rather than the effects of any single pollutant. As such, 
this section emphasizes traffic-related air pollution, in general, as 
the relevant indicator of exposure rather than any particular 
pollutant.
    Concentrations of many traffic-generated air pollutants are 
elevated for up to 300-500 meters downwind of roads with high traffic 
volumes.\465\ Numerous sources on roads contribute to elevated roadside 
concentrations, including exhaust and evaporative emissions, and 
resuspension of road dust and tire and brake wear. Concentrations of 
several criteria and hazardous air pollutants are elevated near major 
roads. Furthermore, different semi-volatile organic compounds and 
chemical components of particulate matter, including elemental carbon, 
organic material, and trace metals, have been reported at higher 
concentrations near major roads.
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    \465\ Zhou, Y.; Levy, J.I. (2007) Factors influencing the 
spatial extent of mobile source air pollution impacts: a meta-
analysis. BMC Public Health 7: 89. doi:10.1186/1471-2458-7-89 Docket 
EPA-HQ-OAR-2010-0799.
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    Populations near major roads experience greater risk of certain 
adverse health effects. The Health Effects Institute published a report 
on the health effects of traffic-related air pollution.\466\ It 
concluded that evidence is ``sufficient to infer the presence of a 
causal association'' between traffic exposure and exacerbation of 
childhood asthma symptoms. The HEI report also concludes that the 
evidence is either ``sufficient'' or ``suggestive but not sufficient'' 
for a causal association between traffic exposure and new childhood 
asthma cases. A review of asthma studies by Salam et al. (2008) reaches 
similar conclusions.\467\ The HEI report also concludes that there is 
``suggestive'' evidence for pulmonary function deficits associated with 
traffic exposure, but concluded that there is ``inadequate and 
insufficient'' evidence for causal associations with respiratory health 
care utilization, adult-onset asthma, chronic obstructive pulmonary 
disease symptoms, and allergy. A review by Holguin (2008) notes that 
the effects of traffic on asthma may be modified by nutrition status, 
medication use, and genetic factors.\468\
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    \466\ HEI Panel on the Health Effects of Air Pollution. (2010) 
Traffic-related air pollution: a critical review of the literature 
on emissions, exposure, and health effects. [Online at http://www.healtheffects.org] Docket EPA-HQ-OAR-2010-0799.
    \467\ Salam, M.T.; Islam, T.; Gilliland, F.D. (2008) Recent 
evidence for adverse effects of residential proximity to traffic 
sources on asthma. Current Opin Pulm Med 14: 3-8. Docket EPA-HQ-OAR-
2010-0799.
    \468\ Holguin, F. (2008) Traffic, outdoor air pollution, and 
asthma. Immunol Allergy Clinics North Am 28: 577-588. Docket EPA-HQ-
OAR-2010-0799.
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    The HEI report also concludes that evidence is ``suggestive'' of a 
causal association between traffic exposure and all-cause and 
cardiovascular mortality. There is also evidence of an association 
between traffic-related air pollutants and cardiovascular effects such 
as changes in heart rhythm, heart attack, and cardiovascular disease. 
The HEI report characterizes this evidence as ``suggestive'' of a 
causal association, and an independent epidemiological literature 
review by Adar and Kaufman (2007) concludes that there is ``consistent 
evidence'' linking traffic-related pollution and adverse cardiovascular 
health outcomes.\469\
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    \469\ Adar, S.D.; Kaufman, J.D. (2007) Cardiovascular disease 
and air pollutants: evaluating and improving epidemiological data 
implicating traffic exposure. Inhal Toxicol 19: 135-149. Docket EPA-
HQ-OAR-2010-0799.
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    Some studies have reported associations between traffic exposure 
and other health effects, such as birth outcomes (e.g., low birth 
weight) and childhood cancer. The HEI report concludes that there is 
currently ``inadequate and insufficient'' evidence for a causal 
association between these effects and traffic exposure. A review by 
Raaschou-Nielsen and Reynolds (2006) concluded that evidence of an 
association between childhood cancer and traffic-related air pollutants 
is weak, but noted the inability to draw firm conclusions based on 
limited evidence.\470\
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    \470\ Raaschou-Nielsen, O.; Reynolds, P. (2006) Air pollution 
and childhood cancer: a review of the epidemiological literature. 
Int J Cancer 118: 2920-2929. Docket EPA-HQ-OAR-2010-0799.
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    There is a large population in the United States living in close 
proximity of major roads. According to the Census Bureau's American 
Housing Survey for 2007, approximately 20 million residences in the 
United States, 15.6% of all homes, are located within 300 feet (91 m) 
of a highway with 4+ lanes, a railroad, or an airport.\471\ Therefore, 
at current population of approximately 309 million, assuming that 
population and housing are similarly distributed, there are over 48 
million people in the United States living near such sources. The HEI 
report also notes that in two North American cities, Los Angeles and 
Toronto, over 40% of each city's population live within 500 meters of a 
highway or 100 meters of a major road. It also notes that about 33% of 
each city's population resides within 50 meters of major roads. 
Together, the evidence suggests that a large U.S. population lives in 
areas with elevated traffic-related air pollution.
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    \471\ U.S. Census Bureau (2008) American Housing Survey for the 
United States in 2007. Series H-150 (National Data), Table 1A-7. 
[Accessed at http://www.census.gov/hhes/www/housing/ahs/ahs07/ahs07.html on January 22, 2009] Docket EPA-HQ-OAR-2010-0799.
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    People living near roads are often socioeconomically disadvantaged. 
According to the 2007 American Housing Survey, a renter-occupied 
property is over twice as likely as an owner-occupied property to be 
located near a highway with 4+ lanes, railroad or airport. In the same 
survey, the median household income of rental housing occupants was 
less than half that of owner-occupants ($28,921/$59,886). Numerous 
studies in individual urban areas report higher levels of traffic-
related air pollutants in areas with high minority or poor 
populations.472 473 474
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    \472\ Lena, T.S.; Ochieng, V.; Carter, M.; Holgu[iacute]n-Veras, 
J.; Kinney, Public Law (2002) Elemental carbon and PM\2.5\ levels in 
an urban community heavily impacted by truck traffic. Environ Health 
Perspect 110: 1009-1015. Docket EPA-HQ-OAR-2010-0799.
    473 Wier, M.; Sciammas, C.; Seto, E.; Bhatia, R.; 
Rivard, T. (2009) Health, traffic, and environmental justice: 
collaborative research and community action in San Francisco, 
California. Am J Public Health 99: S499-S504. Docket EPA-HQ-OAR-
2010-0799.
    474 Forkenbrock, D.J. and L.A. Schweitzer, 
Environmental Justice and Transportation Investment Policy. Iowa 
City: University of Iowa, 1997. Docket EPA-HQ-OAR-2010-0799.
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    Students may also be exposed in situations where schools are 
located

[[Page 75110]]

near major roads. In a study of nine metropolitan areas across the 
United States, Appatova et al. (2008) found that on average greater 
than 33% of schools were located within 400 m of an Interstate, U.S., 
or state highway, while 12% were located within 100 m.\475\ The study 
also found that among the metropolitan areas studied, schools in the 
Eastern United States were more often sited near major roadways than 
schools in the Western United States.
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    \475\ Appatova, A.S.; Ryan, P.H.; LeMasters, G.K.; Grinshpun, 
S.A. (2008) Proximal exposure of public schools and students to 
major roadways: a nationwide U.S. survey. J Environ Plan Mgmt Docket 
EPA-HQ-OAR-2010-0799.
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    Demographic studies of students in schools near major roadways 
suggest that this population is more likely than the general student 
population to be of non-white race or Hispanic ethnicity, and more 
often live in low socioeconomic status 
locations.476, 477, 478 There is some inconsistency in the 
evidence, which may be due to different local development patterns and 
measures of traffic and geographic scale used in the studies.
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    \476\ Green, R.S.; Smorodinsky, S.; Kim, J.J.; McLaughlin, R.; 
Ostro, B. (2004) Proximity of California public schools to busy 
roads. Environ Health Perspect 112: 61-66. Docket EPA-HQ-OAR-2010-
0799.
    477 Houston, D.; Ong, P.; Wu, J.; Winer, A. (2006) 
Proximity of licensed child care facilities to near-roadway vehicle 
pollution. Am J Public Health 96: 1611-1617. Docket EPA-HQ-OAR-2010-
0799.
    478 Wu, Y.; Batterman, S. (2006) Proximity of schools 
in Detroit, Michigan to automobile and truck traffic. J Exposure Sci 
Environ Epidemiol 16: 457-470. Docket EPA-HQ-OAR-2010-0799.
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3. Environmental Effects of Non-GHG Pollutants
    In this section we discuss some of the environmental effects of PM 
and its precursors such as visibility impairment, atmospheric 
deposition, and materials damage and soiling, as well as environmental 
effects associated with the presence of ozone in the ambient air, such 
as impacts on plants, including trees, agronomic crops and urban 
ornamentals, and environmental effects associated with air toxics.
a. Visibility
    Visibility can be defined as the degree to which the atmosphere is 
transparent to visible light.\479\ Visibility impairment is caused by 
light scattering and absorption by suspended particles and gases. 
Visibility is important because it has direct significance to people's 
enjoyment of daily activities in all parts of the country. Individuals 
value good visibility for the well-being it provides them directly, 
where they live and work, and in places where they enjoy recreational 
opportunities. Visibility is also highly valued in significant natural 
areas, such as national parks and wilderness areas, and special 
emphasis is given to protecting visibility in these areas. For more 
information on visibility see the final 2009 p.m. ISA.\480\
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    \479\ National Research Council, 1993. Protecting Visibility in 
National Parks and Wilderness Areas. National Academy of Sciences 
Committee on Haze in National Parks and Wilderness Areas. National 
Academy Press, Washington, DC. Docket EPA-HQ-OAR-2010-0799. This 
book can be viewed on the National Academy Press Web site at http://www.nap.edu/books/0309048443/html/.
    \480\ See U.S. EPA 2009 Final PM ISA, Note 396.
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    EPA is pursuing a two-part strategy to address visibility 
impairment. First, EPA developed the regional haze program (64 FR 
35714) which was put in place in July 1999 to protect the visibility in 
Mandatory Class I Federal areas. There are 156 national parks, forests 
and wilderness areas categorized as Mandatory Class I Federal areas (62 
FR 38680-38681, July 18, 1997). These areas are defined in CAA section 
162 as those national parks exceeding 6,000 acres, wilderness areas and 
memorial parks exceeding 5,000 acres, and all international parks which 
were in existence on August 7, 1977. Second, EPA has concluded that 
PM2.5 causes adverse effects on visibility in other areas 
that are not protected by the Regional Haze Rule, depending on 
PM2.5 concentrations and other factors that control their 
visibility impact effectiveness such as dry chemical composition and 
relative humidity (i.e., an indicator of the water composition of the 
particles), and has set secondary PM2.5 standards to address 
these areas. The existing annual primary and secondary PM2.5 
standards have been remanded and are being addressed in the currently 
ongoing PM NAAQS review.
b. Plant and Ecosystem Effects of Ozone
    Elevated ozone levels contribute to environmental effects, with 
impacts to plants and ecosystems being of most concern. Ozone can 
produce both acute and chronic injury in sensitive species depending on 
the concentration level and the duration of the exposure. Ozone effects 
also tend to accumulate over the growing season of the plant, so that 
even low concentrations experienced for a longer duration have the 
potential to create chronic stress on vegetation. Ozone damage to 
plants includes visible injury to leaves and impaired photosynthesis, 
both of which can lead to reduced plant growth and reproduction, 
resulting in reduced crop yields, forestry production, and use of 
sensitive ornamentals in landscaping. In addition, the impairment of 
photosynthesis, the process by which the plant makes carbohydrates (its 
source of energy and food), can lead to a subsequent reduction in root 
growth and carbohydrate storage below ground, resulting in other, more 
subtle plant and ecosystems impacts.
    These latter impacts include increased susceptibility of plants to 
insect attack, disease, harsh weather, interspecies competition and 
overall decreased plant vigor. The adverse effects of ozone on forest 
and other natural vegetation can potentially lead to species shifts and 
loss from the affected ecosystems, resulting in a loss or reduction in 
associated ecosystem goods and services. Lastly, visible ozone injury 
to leaves can result in a loss of aesthetic value in areas of special 
scenic significance like national parks and wilderness areas. The final 
2006 Ozone Air Quality Criteria Document presents more detailed 
information on ozone effects on vegetation and ecosystems.
c. Atmospheric Deposition
    Wet and dry deposition of ambient particulate matter delivers a 
complex mixture of metals (e.g., mercury, zinc, lead, nickel, aluminum, 
cadmium), organic compounds (e.g., polycyclic organic matter, dioxins, 
furans) and inorganic compounds (e.g., nitrate, sulfate) to terrestrial 
and aquatic ecosystems. The chemical form of the compounds deposited 
depends on a variety of factors including ambient conditions (e.g., 
temperature, humidity, oxidant levels) and the sources of the material. 
Chemical and physical transformations of the compounds occur in the 
atmosphere as well as the media onto which they deposit. These 
transformations in turn influence the fate, bioavailability and 
potential toxicity of these compounds. Atmospheric deposition has been 
identified as a key component of the environmental and human health 
hazard posed by several pollutants including mercury, dioxin and 
PCBs.\481\
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    \481\ U.S. EPA (2000) Deposition of Air Pollutants to the Great 
Waters: Third Report to Congress. Office of Air Quality Planning and 
Standards. EPA-453/R-00-0005. Docket EPA-HQ-OAR-2010-0799.
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    Adverse impacts on water quality can occur when atmospheric 
contaminants deposit to the water surface or when material deposited on 
the land enters a waterbody through runoff. Potential impacts of 
atmospheric deposition to waterbodies include those related to both 
nutrient and toxic inputs. Adverse effects to human health and welfare 
can occur from the addition of excess nitrogen via atmospheric 
deposition. The nitrogen-nutrient enrichment

[[Page 75111]]

contributes to toxic algae blooms and zones of depleted oxygen, which 
can lead to fish kills, frequently in coastal waters. Deposition of 
heavy metals or other toxics may lead to the human ingestion of 
contaminated fish, impairment of drinking water, damage to freshwater 
and marine ecosystem components, and limits to recreational uses. 
Several studies have been conducted in U.S. coastal waters and in the 
Great Lakes Region in which the role of ambient PM deposition and 
runoff is investigated.482, 483, 484, 485, 486
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    \482\ U.S. EPA (2004) National Coastal Condition Report II. 
Office of Research and Development/Office of Water. EPA-620/R-03/
002. Docket EPA-HQ-OAR-2010-0799.
    483 Gao, Y., E.D. Nelson, M.P. Field, et al. 2002. 
Characterization of atmospheric trace elements on PM2.5 particulate 
matter over the New York-New Jersey harbor estuary. Atmos. Environ. 
36: 1077-1086. Docket EPA-HQ-OAR-2010-0799.
    484 Kim, G., N. Hussain, J.R. Scudlark, and T.M. 
Church. 2000. Factors influencing the atmospheric depositional 
fluxes of stable Pb, 210Pb, and 7Be into Chesapeake Bay. J. Atmos. 
Chem. 36: 65-79. Docket EPA-HQ-OAR-2010-0799.
    485 Lu, R., R.P. Turco, K. Stolzenbach, et al. 2003. 
Dry deposition of airborne trace metals on the Los Angeles Basin and 
adjacent coastal waters. J. Geophys. Res. 108(D2, 4074): AAC 11-1 to 
11-24. Docket EPA-HQ-OAR-2010-0799.
    486 Marvin, C.H., M.N. Charlton, E.J. Reiner, et al. 
2002. Surficial sediment contamination in Lakes Erie and Ontario: A 
comparative analysis. J. Great Lakes Res. 28(3): 437-450. Docket 
EPA-HQ-OAR-2010-0799.
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    Atmospheric deposition of nitrogen and sulfur contributes to 
acidification, altering biogeochemistry and affecting animal and plant 
life in terrestrial and aquatic ecosystems across the United States. 
The sensitivity of terrestrial and aquatic ecosystems to acidification 
from nitrogen and sulfur deposition is predominantly governed by 
geology. Prolonged exposure to excess nitrogen and sulfur deposition in 
sensitive areas acidifies lakes, rivers and soils. Increased acidity in 
surface waters creates inhospitable conditions for biota and affects 
the abundance and nutritional value of preferred prey species, 
threatening biodiversity and ecosystem function. Over time, acidifying 
deposition also removes essential nutrients from forest soils, 
depleting the capacity of soils to neutralize future acid loadings and 
negatively affecting forest sustainability. Major effects include a 
decline in sensitive forest tree species, such as red spruce (Picea 
rubens) and sugar maple (Acer saccharum), and a loss of biodiversity of 
fishes, zooplankton, and macro invertebrates.
    In addition to the role nitrogen deposition plays in acidification, 
nitrogen deposition also leads to nutrient enrichment and altered 
biogeochemical cycling. In aquatic systems increased nitrogen can alter 
species assemblages and cause eutrophication. In terrestrial systems 
nitrogen loading can lead to loss of nitrogen sensitive lichen species, 
decreased biodiversity of grasslands, meadows and other sensitive 
habitats, and increased potential for invasive species. For a broader 
explanation of the topics treated here, refer to the description in 
Section 6.1.2.2 of the RIA.
    Adverse impacts on soil chemistry and plant life have been observed 
for areas heavily influenced by atmospheric deposition of nutrients, 
metals and acid species, resulting in species shifts, loss of 
biodiversity, forest decline, damage to forest productivity and 
reductions in ecosystem services. Potential impacts also include 
adverse effects to human health through ingestion of contaminated 
vegetation or livestock (as in the case for dioxin deposition), 
reduction in crop yield, and limited use of land due to contamination.
    Atmospheric deposition of pollutants can reduce the aesthetic 
appeal of buildings and culturally important articles through soiling, 
and can contribute directly (or in conjunction with other pollutants) 
to structural damage by means of corrosion or erosion. Atmospheric 
deposition may affect materials principally by promoting and 
accelerating the corrosion of metals, by degrading paints, and by 
deteriorating building materials such as concrete and limestone. 
Particles contribute to these effects because of their electrolytic, 
hygroscopic, and acidic properties, and their ability to adsorb 
corrosive gases (principally sulfur dioxide).
d. Environmental Effects of Air Toxics
    Emissions from producing, transporting and combusting fuel 
contribute to ambient levels of pollutants that contribute to adverse 
effects on vegetation. Volatile organic compounds, some of which are 
considered air toxics, have long been suspected to play a role in 
vegetation damage.\487\ In laboratory experiments, a wide range of 
tolerance to VOCs has been observed.\488\ Decreases in harvested seed 
pod weight have been reported for the more sensitive plants, and some 
studies have reported effects on seed germination, flowering and fruit 
ripening. Effects of individual VOCs or their role in conjunction with 
other stressors (e.g., acidification, drought, temperature extremes) 
have not been well studied. In a recent study of a mixture of VOCs 
including ethanol and toluene on herbaceous plants, significant effects 
on seed production, leaf water content and photosynthetic efficiency 
were reported for some plant species.\489\
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    \487\ U.S. EPA. 1991. Effects of organic chemicals in the 
atmosphere on terrestrial plants. EPA/600/3-91/001. Docket EPA-HQ-
OAR-2010-0799.
    \488\ Cape JN, ID Leith, J Binnie, J Content, M Donkin, M 
Skewes, DN Price AR Brown, AD Sharpe. 2003. Effects of VOCs on 
herbaceous plants in an open-top chamber experiment. Environ. 
Pollut. 124:341-343. Docket EPA-HQ-OAR-2010-0799.
    \489\ Cape JN, ID Leith, J Binnie, J Content, M Donkin, M 
Skewes, DN Price AR Brown, AD Sharpe. 2003. Effects of VOCs on 
herbaceous plants in an open-top chamber experiment. Environ. 
Pollut. 124:341-343. Docket EPA-HQ-OAR-2010-0799.
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    Research suggests an adverse impact of vehicle exhaust on plants, 
which has in some cases been attributed to aromatic compounds and in 
other cases to nitrogen oxides.490 491 492 The impacts of 
VOCs on plant reproduction may have long-term implications for 
biodiversity and survival of native species near major roadways. Most 
of the studies of the impacts of VOCs on vegetation have focused on 
short-term exposure and few studies have focused on long-term effects 
of VOCs on vegetation and the potential for metabolites of these 
compounds to affect herbivores or insects.
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    \490\ Viskari E-L. 2000. Epicuticular wax of Norway spruce 
needles as indicator of traffic pollutant deposition. Water, Air, 
and Soil Pollut. 121:327-337. Docket EPA-HQ-OAR-2010-0799.
    \491\ Ugrekhelidze D, F Korte, G Kvesitadze. 1997. Uptake and 
transformation of benzene and toluene by plant leaves. Ecotox. 
Environ. Safety 37:24-29. Docket EPA-HQ-OAR-2010-0799.
    \492\ Kammerbauer H, H Selinger, R Rommelt, A Ziegler-Jons, D 
Knoppik, B Hock. 1987. Toxic components of motor vehicle emissions 
for the spruce Picea abies. Environ. Pollut. 48:235-243. Docket EPA-
HQ-OAR-2010-0799.
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4. Air Quality Impacts of Non-GHG Pollutants
a. Current Levels of Non-GHG Pollutants
    This proposal may have impacts on ambient concentrations of 
criteria and air toxic pollutants. Nationally, levels of 
PM2.5, ozone, NOX, SOX, CO and air 
toxics are declining.\493\ However, approximately 127 million people 
lived in counties that exceeded any NAAQS in 2008.\494\ These numbers 
do not include the people living in areas where there is a future risk 
of failing to maintain or attain the NAAQS. It is important to note 
that these numbers do not account for potential ozone, 
PM2.5, CO, SO2, NO2 or lead 
nonattainment

[[Page 75112]]

areas which have not yet been designated. Further, the majority of 
Americans continue to be exposed to ambient concentrations of air 
toxics at levels which have the potential to cause adverse health 
effects.\495\ The levels of air toxics to which people are exposed vary 
depending on where people live and work and the kinds of activities in 
which they engage, as discussed in detail in U.S. EPA's recent mobile 
source air toxics rule.\496\
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    \493\ U.S. EPA (2010) Our Nation's Air: Status and Trends 
through 2008. Office of Air Quality Planning and Standards, Research 
Triangle Park, NC. Publication No. EPA 454/R-09-002. http://www.epa.gov/airtrends/2010/. Docket EPA-HQ-OAR-2010-0799.
    \494\ See U.S. EPA Trends, Note 493.
    \495\ U.S. Environmental Protection Agency (2007). Control of 
Hazardous Air Pollutants from Mobile Sources; Final Rule. 72 FR 
8434, February 26, 2007.
    \496\ See U.S. EPA 2007, Note 495.
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b. Impacts of Proposed Standards on Future Ambient Concentrations of 
PM2.5, Ozone and Air Toxics
    Full-scale photochemical air quality modeling is necessary to 
accurately project levels of criteria pollutants and air toxics. For 
the final rulemaking, a national-scale air quality modeling analysis 
will be performed to analyze the impacts of the standards on 
PM2.5, ozone, and selected air toxics (i.e., benzene, 
formaldehyde, acetaldehyde, acrolein and 1,3-butadiene). The length of 
time needed to prepare the necessary emissions inventories, in addition 
to the processing time associated with the modeling itself, has 
precluded us from performing air quality modeling for this proposal.
    Sections III.G.1 and III.G.2 of the preamble present projections of 
the changes in criteria pollutant and air toxics emissions due to the 
proposed vehicle standards; the basis for those estimates is set out in 
Chapter 4 of the draft RIA. The atmospheric chemistry related to 
ambient concentrations of PM2.5, ozone and air toxics is 
very complex, and making predictions based solely on emissions changes 
is extremely difficult. However, based on the magnitude of the 
emissions changes predicted to result from the proposed standards, EPA 
expects that there will be an improvement in ambient air quality, 
pending a more comprehensive analysis for the final rulemaking.
    For the final rulemaking, EPA intends to use a Community Multi-
scale Air Quality (CMAQ) modeling platform as the tool for the air 
quality modeling. The CMAQ modeling system is a comprehensive three-
dimensional grid-based Eulerian air quality model designed to estimate 
the formation and fate of oxidant precursors, primary and secondary PM 
concentrations and deposition, and air toxics, over regional and urban 
spatial scales (e.g., over the contiguous United 
States).497 498 499 500 The CMAQ model is a well-known and 
well-established tool and is commonly used by EPA for regulatory 
analyses and by States in developing attainment demonstrations for 
their State Implementation Plans. The CMAQ model version 4.7 was most 
recently peer-reviewed in February of 2009 for the U.S. EPA.\501\
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    \497\ U.S. Environmental Protection Agency, Byun, D.W., and 
Ching, J.K.S., Eds, 1999. Science algorithms of EPA Models-3 
Community Multiscale Air Quality (CMAQ modeling system, EPA/600/R-
99/030, Office of Research and Development). Docket EPA-HQ-OAR-2010-
0799.
    \498\ Byun, D.W., and Schere, K.L., 2006. Review of the 
Governing Equations, Computational Algorithms, and Other Components 
of the Models-3 Community Multiscale Air Quality (CMAQ) Modeling 
System, J. Applied Mechanics Reviews, 59 (2), 51-77. Docket EPA-HQ-
OAR-2010-0799.
    \499\ Dennis, R.L., Byun, D.W., Novak, J.H., Galluppi, K.J., 
Coats, C.J., and Vouk, M.A., 1996. The next generation of integrated 
air quality modeling: EPA's Models-3, Atmospheric Environment, 30, 
1925-1938. Docket EPA-HQ-OAR-2010-0799.
    \500\ Carlton, A., Bhave, P., Napelnok, S., Edney, E., Sarwar, 
G., Pinder, R., Pouliot, G., and Houyoux, M. Model Representation of 
Secondary Organic Aerosol in CMAQv4.7. Ahead of Print in 
Environmental Science and Technology. Accessed at: http://pubs.acs.org/doi/abs/10.1021/es100636q?prevSearch=CMAQ&searchHistoryKey Docket EPA-HQ-OAR-2010-
0799.
    \501\ Allen, D. et al (2009). Report on the Peer Review of the 
Atmospheric Modeling and Analysis Division, National Exposure 
Research Laboratory, Office of Research and Development, U.S. EPA. 
http://www.epa.gov/asmdnerl/peer/reviewdocs.html Docket EPA-HQ-OAR-
2010-0799.
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    CMAQ includes many science modules that simulate the emission, 
production, decay, deposition and transport of organic and inorganic 
gas-phase and particle-phase pollutants in the atmosphere. EPA intends 
to use the most recent version of CMAQ, which reflects updates to 
version 4.7 to improve the underlying science. These include aqueous 
chemistry mass conservation improvements, improved vertical convective 
mixing and lowered CB05 mechanism unit yields for acrolein from 1,3-
butadiene tracer reactions which were updated to be consistent with 
laboratory measurements.
5. Other Unquantified Health and Environmental Effects
    In addition, EPA seeks comment on whether there are any other 
health and environmental impacts associated with advancements in 
vehicle GHG reduction technologies that should be considered. For 
example, the use of technologies and other strategies to reduce GHG 
emissions could have effects on a vehicle's life-cycle impacts (e.g., 
materials usage, manufacturing, end of life disposal), beyond the 
issues regarding fuel production and distribution (upstream) GHG 
emissions discussed in Section III.C.2. EPA seeks comment on any 
studies or research in this area that should be considered in the 
future to assess a fuller range of health and environmental impacts 
from the light-duty vehicle fleet moving to advanced GHG-reducing 
technologies.
    EPA is aware of some studies examining the lifecycle GHG emissions, 
including vehicle production-related emissions, for advanced technology 
vehicles.\502\ The American Iron and Steel Institute (AISI) has 
recommended that EPA consider basing future standards on lifecycle 
assessments that include vehicle production, use, and end-of-life 
impacts; AISI is working on related research with the University of 
California, Davis.\503\ At this point, EPA believes there is 
insufficient information about the lifecycle impacts of future advanced 
technologies to conduct the type of detailed assessments that would be 
needed in a regulatory context, but EPA seeks comment on any current or 
future studies and research underway on this topic.
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    \502\ For examples, see Chapter 6 of NHTSA's Draft Environmental 
Impact Statement for this proposed rulemaking, ``Literature 
Synthesis of Life-cycle Environmental Impacts of Certain Vehicle 
Materials and Technologies,'' Docket NHTSA-2011-0056.
    \503\ See AISI comments on the 2012-2016 rulemaking and NOI/
Interim Joint TAR: Document ID  EPA-HQ-OAR-2009-0472-7088 
and EPA-HQ-OAR-2010-0799-0313, respectively.
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H. What are the estimated cost, economic, and other impacts of the 
proposal?

    In this section, EPA presents the costs and impacts of the proposed 
GHG standards. It is important to note that NHTSA's CAFE standards and 
EPA's GHG standards will both be in effect, and each will lead to 
average fuel economy increases and CO2 emissions reductions. 
The two agencies' standards comprise the National Program, and this 
discussion of costs and benefits of EPA's GHG standard does not change 
the fact that both the CAFE and GHG standards, jointly, will be the 
source of the benefits and costs of the National Program. These costs 
and benefits are appropriately analyzed separately by each agency and 
should not be added together.
    This section outlines the basis for assessing the benefits and 
costs of the GHG standards and provides estimates of these costs and 
benefits. Some of these effects are private, meaning that they affect 
consumers and producers directly in their sales, purchases, and use of 
vehicles. These private effects include the increase in vehicle prices 
due to costs of the technology, fuel savings, and the benefits of 
additional driving and reduced refueling. Other

[[Page 75113]]

costs and benefits affect people outside the markets for vehicles and 
their use; these effects are termed external, because they affect 
people in ways other than the effect on the market for and use of new 
vehicles and are generally not taken into account by the purchaser of 
the vehicle. The external effects include the climate impacts, the 
effects on non-GHG pollutants, energy security impacts, and the effects 
on traffic, accidents, and noise due to additional driving. The sum of 
the private and external benefits and costs is the net social benefits 
of the standards.
    There is some debate about the behavior of private markets in the 
context of these standards: If consumers optimize their purchases of 
fuel economy, with full information and perfect foresight, in perfectly 
efficient markets, they should have already considered these benefits 
in their vehicle purchase decisions. If so, then no net private 
benefits would result from the program, because consumers would already 
buy vehicles with the amount of fuel economy that is optimal for them; 
requiring additional fuel economy would alter both the purchase prices 
of new cars and their lifetime streams of operating costs in ways that 
will inevitably reduce consumers' well-being. Section III.H.1 discusses 
this issue more fully.
    The net benefits of EPA's proposal consist of the effects of the 
proposed standards on:
     The vehicle costs;
     Fuel savings associated with reduced fuel usage resulting 
from the proposed program
     Greenhouse gas emissions;
     Other air pollutants;
     Other impacts, including noise, congestion, accidents;
     Energy security impacts;
     Changes in refueling events;
     Increased driving due to the ``rebound'' effect.
    EPA also presents the cost per ton of GHG reductions associated 
with the proposed GHG standards on a CO2eq basis, in Section 
III.H.3 below.
    The total present value of monetized benefits (excluding fuel 
savings) under the proposed standards are projected to be between $275 
to $764 billion, using a 3 percent discount rate and depending on the 
value used for the social cost of carbon. With a 7 percent discount 
rate, the total present value of monetized benefits (excluding fuel 
savings) under the proposed standards are projected to be between $124 
to $614 billion, depending on the value used for the social cost of 
carbon. These benefits are summarized below in Table III-80. The 
present value of costs of the proposed standards are estimated to be 
between $243 to $551 billion for new vehicle technology (assuming a 7 
and 3 percent discount rate, respectively), less $579 to $1,510 billion 
in savings realized by consumers through fewer fuel expenditures 
(calculated using pre-tax fuel prices and using a 7 and 3 percent 
discount rate, respectively). These costs are summarized below in Table 
III-78 and the fuel savings are summarized in Table III-79. The total 
net present value of net benefits under the proposed standards are 
projected to be between $1.2 and $1.7 trillion, using a 3 percent 
discount rate and depending on the value used for the social cost of 
carbon. With a 7 percent discount rate, the total net present value of 
net benefits under the proposed standards are projected to be between 
$460 billion to $950 billion, depending on the value used for the 
social cost of carbon. The estimates developed here use as a baseline 
for comparison the greenhouse gas performance and fuel economy 
associated with MY 2016 standards. To the extent that greater fuel 
economy improvements than those assumed to occur under the baseline may 
have occurred due to market forces alone (absent these proposed 
standards), the analysis overestimates private and social net benefits.
    While NHTSA and EPA each modeled their respective regulatory 
programs, the analyses were generally consistent and featured similar 
parameters. For this proposal, EPA has not conducted an overall 
uncertainty analysis of the impacts associated with its regulatory 
program, though it did conduct sensitivity analyses of individual 
components of the analysis (e.g., alternative SCC estimates, rebound 
effect, battery costs, mass reduction costs, the indirect cost markup 
factor, and cost learning curves); these analyses are found in Chapters 
3, 4, and 7 of the EPA DRIA. NHTSA, however, conducted a Monte Carlo 
simulation of the uncertainty associated with its regulatory program. 
The focus of the simulation model was variation around the chosen 
uncertainty parameters and their resulting impact on the key output 
parameters, fuel savings, and net benefits. Because of the similarities 
between the two analyses, EPA references NHTSA RIA Chapters X and XII 
as indicative of the relative magnitude, uncertainty and sensitivities 
of parameters of the cost/benefit analysis. For the final rule, EPA 
plans to perform sensitivity analyses for a wider variety of 
parameters. EPA has also analyzed the potential impact of this proposed 
rule on vehicle sales and employment. These impacts are not included in 
the analysis of overall costs and benefits of the proposed standards. 
Further information on these and other aspects of the economic impacts 
of EPA's proposed rule are summarized in the following sections and are 
presented in more detail in the DRIA for this rulemaking.
    EPA requests comment on all aspects of the cost, savings, and 
benefits analysis presented here and in the DRIA. EPA also requests 
comment on the inputs used in these analyses as described in the Draft 
Joint TSD.
1. Conceptual Framework for Evaluating Consumer Impacts
    For this proposed rule, EPA projects significant private gains to 
consumers in three major areas: (1) Reductions in spending on fuel, (2) 
for gasoline-fueled vehicles, time saved due to less refueling, and (3) 
additional driving that results from the rebound effect. In 
combination, these private benefits, mostly from fuel savings, appear 
to outweigh the costs of the standards, even without accounting for 
externalities.
    Admittedly, these findings pose an economic conundrum. On the one 
hand, consumers are expected to gain significantly from the rules, as 
the increased cost of fuel efficient cars is smaller than the fuel 
savings. Yet many of these technologies are readily available; 
financially savvy consumers could have sought vehicles with improved 
fuel efficiency, and auto makers seeking those customers could have 
offered them. Assuming full information, perfect foresight, perfect 
competition, and financially rational consumers and producers, standard 
economic theory suggests that normal market operations would have 
provided the private net gains to consumers, and the only benefits of 
the rule would be due to external benefits. If our analysis projects 
net private benefits that consumers have not realized in this perfectly 
functioning market, then, with the above assumptions, there must be 
additional costs of these private net benefits that are not accounted 
for. This calculation assumes that consumers accurately predict and act 
on all the fuel-saving benefits they will get from a new vehicle, and 
that producers market products providing those benefits. The estimate 
of large private net benefits from this rule, then, suggests either 
that the assumptions noted above do not hold, or that EPA's analysis 
has missed some factor(s) tied to improved fuel economy that reduce(s) 
consumer welfare.

[[Page 75114]]

    This subsection discusses the economic principles underlying the 
assessment of impacts on consumer well-being due to the proposed 
changes in the vehicles. Because conventional gasoline- and diesel-
fueled vehicles have quite different characteristics from advanced 
technology vehicles (especially electric vehicles), the principles for 
these different kinds vehicles are discussed separately below.
a. Conventional Vehicles
    For conventional vehicles, the estimates of technology costs 
developed for this proposed rule take into account the cost needed to 
ensure that vehicle utility (including performance, reliability, and 
size) stay constant, except for fuel economy and vehicle price, with 
some minor exceptions (e.g., see the discussion of the ``Atkinson-
cycle'' engine and towing capacity in III.D.3). For example, using a 4-
cylinder engine instead of a 6-cylinder engine reduces fuel economy, 
but also reduces performance; turbocharging the 4-cylinder engine, 
though, produces fuel savings while maintaining performance. The cost 
estimates assume turbocharging accompanies engine downsizing. As a 
result, if the market for fuel economy is efficient and these cost 
estimates are correct, then the existence of large private net benefits 
implies that there would need to be some other changed qualities, 
missed in the cost estimates, that would reduce the benefits consumers 
receive from their vehicles.\504\ We seek comments that identify any 
such changed qualities omitted from the analysis. Such comments should 
describe how changed qualities affect consumer benefits from vehicles, 
and provide cost estimates for eliminating the effects of the changes.
---------------------------------------------------------------------------

    \504\ It should be noted that adding fuel-saving technology does 
not preclude future improvements in performance, safety, or other 
attributes, though it is possible that the costs of these additions 
may be affected by the presence of fuel-saving technology.
---------------------------------------------------------------------------

    The central conundrum observed in this market, that consumers 
appear not to purchase products featuring levels of energy efficiency 
that are in their economic self-interest, has been referred to as the 
Energy Paradox in this setting (and in several others).\505\ There are 
many possible reasons discussed in academic research why this might 
occur: \506\
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    \505\ Jaffe, A. B., and Stavins, R. N. (1994). ``The Energy 
Paradox and the Diffusion of Conservation Technology.'' Resource and 
Energy Economics 16(2), 91-122. Docket EPA-HQ-OAR-2010-0799.
    \506\ For an overview, see Helfand, Gloria and Ann Wolverton, 
``Evaluating the Consumer Response to Fuel Economy: A Review of the 
Literature.'' International Review of Environmental and Resource 
Economics 5 (2011): 103-146. Docket EPA-HQ-OAR-2010-0799.
---------------------------------------------------------------------------

     Consumers might be ``myopic'' and hence undervalue future 
fuel savings in their purchasing decisions.
     Consumers might lack the information necessary to estimate 
the value of future fuel savings, or not have a full understanding of 
this information even when it is presented.
     Consumer may be accounting for uncertainty in future fuel 
savings when comparing upfront cost to future returns.
     Consumers may consider fuel economy after other vehicle 
attributes and, as such, not optimize the level of this attribute 
(instead ``satisficing'' or selecting vehicles that have some 
sufficient amount of fuel economy).
     Consumers might be especially averse to the short-term 
losses associated with the higher prices of energy efficient products 
relative to the future fuel savings (the behavioral phenomenon of 
``loss aversion'').
     Consumers might associate higher fuel economy with 
inexpensive, less well designed vehicles.
     Even if consumers have relevant knowledge, selecting a 
vehicle is a highly complex undertaking, involving many vehicle 
characteristics. In the face of such a complicated choice, consumers 
may use simplified decision rules.
     In the case of vehicle fuel efficiency, and perhaps as a 
result of one or more of the foregoing factors, consumers may have 
relatively few choices to purchase vehicles with greater fuel economy 
once other characteristics, such as vehicle class, are chosen.\507\
---------------------------------------------------------------------------

    \507\ For instance, in MY 2010, the range of fuel economy 
(combined city and highway) available among all listed 6-cylinder 
minivans was 18 to 20 miles per gallon. With a manual-transmission 
4-cylinder minivan, it is possible to get 24 mpg. See http://www.fueleconomy.gov, which is jointly maintained by the U.S. 
Department of Energy and the EPA.
---------------------------------------------------------------------------

    A great deal of work in behavioral economics identifies and 
elaborates factors of this sort, which help account for the Energy 
Paradox.\508\ This point holds in the context of fuel savings (the main 
focus here), but it applies equally to the other private benefits, 
including reductions in refueling frequency and additional driving. For 
example, it might well be questioned whether significant reductions in 
refueling frequency, and corresponding private savings, are fully 
internalized when consumers are making purchasing decisions.
---------------------------------------------------------------------------

    \508\ Jaffe, A. B., and Stavins, R. N. (1994). ``The Energy 
Paradox and the Diffusion of Conservation Technology.'' Resource and 
Energy Economics 16(2), 91-122. Docket EPA-HQ-OAR-2010-0799. See 
also Allcott and Wozny, supra note.
---------------------------------------------------------------------------

    EPA discussed this issue at length in the 2012-2016 light duty 
rulemaking and in the medium- and heavy-duty greenhouse gas rulemaking. 
See 75 FR at 25510-13; 76 FR 57315-19. Considerable research indicates 
that the Energy Paradox may be a real and significant phenomenon, 
although the literature has not reached a consensus about the reasons 
for its existence. Several researchers have found evidence suggesting 
that consumers do not give full or appropriate weight to fuel economy 
in purchasing decisions. For example, Sanstad and Howarth \509\ argue 
that consumers make decisions without the benefit of full information 
by resorting to imprecise but convenient rules of thumb. Some studies 
find that a substantial portion of this undervaluation can be explained 
by inaccurate assessments of energy savings, or by uncertainty and 
irreversibility of energy investments due to fluctuations in energy 
prices.\510\ For a number of reasons, consumers may undervalue future 
energy savings due to routine mistakes in how they evaluate these 
trade-offs. For instance, the calculation of fuel savings is complex, 
and consumers may not make it correctly.\511\ The attribute of fuel 
economy may be insufficiently salient, leading to a situation in which

[[Page 75115]]

consumers are not willing to pay $1 for an expected $1 present value of 
reduced gasoline costs.\512\ Larrick and Soll (2008) find that 
consumers do not understand how to translate changes in miles-per-
gallon into fuel savings.\513\ In addition, future fuel price (a major 
component of fuel savings) is highly uncertain. Consumer fuel savings 
also vary across individuals, who travel different amounts and have 
different driving styles. Cost calculations based on the average do not 
distinguish between those that may gain or lose as a result of the 
policy.\514\ In addition, it is possible that factors that might help 
explain why consumers don't purchase more fuel efficiency, such as 
transaction costs and differences in quality, may not be adequately 
measured.\515\ Studies regularly show that fuel economy plays a role in 
consumers' vehicle purchases, but modeling that role is still in 
development, and there is no consensus that most consumers make fully 
informed tradeoffs.\516\ A review commissioned by EPA finds great 
variability in estimates of the role of fuel economy in consumers' 
vehicle purchase decisions.\517\ Of 27 studies, significant numbers of 
them find that consumers undervalue, overvalue, or value approximately 
correctly the fuel savings that they will receive from improved fuel 
economy. The variation in the value of fuel economy in these studies is 
so high that it appears to be inappropriate to identify one central 
estimate of value from the literature. Thus, estimating consumer 
response to higher vehicle fuel economy is still unsettled science.
---------------------------------------------------------------------------

    \509\ Sanstad, A., and R. Howarth (1994). `` `Normal' Markets, 
Market Imperfections, and Energy Efficiency.'' Energy Policy 22(10): 
811-818 (Docket EPA-HQ-OAR-2010-0799).
    \510\ Greene, D., J. German, and M. Delucchi (2009). ``Fuel 
Economy: The Case for Market Failure'' in Reducing Climate Impacts 
in the Transportation Sector, Sperling, D., and J. Cannon, eds. 
Springer Science (Docket EPA-HQ-OAR-2010-0799); Dasgupta, S., S. 
Siddarth, and J. Silva[hyphen]Risso (2007). ``To Lease or to Buy? A 
Structural Model of a Consumer's Vehicle and Contract Choice 
Decisions.'' Journal of Marketing Research 44: 490-502 (Docket EPA-
HQ-OAR-2010-0799); Metcalf, G., and D. Rosenthal (1995). ``The `New' 
View of Investment Decisions and Public Policy Analysis: An 
Application to Green Lights and Cold Refrigerators,'' Journal of 
Policy Analysis and Management 14: 517-531 (Docket EPA-HQ-OAR-2010-
0799); Hassett, K., and G. Metcalf (1995), ``Energy Tax Credits and 
Residential Conservation Investment: Evidence from Panel Data,'' 
Journal of Public Economics 57: 201-217 (Docket EPA-HQ-OAR-2010-
0799); Metcalf, G., and K. Hassett (1999), ``Measuring the Energy 
Savings from Home Improvement Investments: Evidence from Monthly 
Billing Data,'' The Review of Economics and Statistics 81(3): 516-
528 (Docket EPA-HQ-OAR-2010-0799); van Soest D., and E. Bulte 
(2001), ``Does the Energy[hyphen]Efficiency Paradox Exist? 
Technological Progress and Uncertainty.'' Environmental and Resource 
Economics 18: 101-12 (Docket EPA-HQ-OAR-2010-0799).
    \511\ Turrentine, T. and K. Kurani (2007). ``Car Buyers and Fuel 
Economy?'' Energy Policy 35: 1213-1223 (Docket EPA-HQ-OAR-2009-
0472); Larrick, R. P., and J.B. Soll (2008). ``The MPG illusion.'' 
Science 320: 1593-1594 (Docket EPA-HQ-OAR-2010-0799).
    \512\ Allcott, Hunt, and Nathan Wozny, ``Gasoline Prices, Fuel 
Economy, and the Energy Paradox'' (2010), available at http://web.mit.edu/allcott/www/Allcott%20and%20Wozny%202010%20-%20Gasoline%20Prices,%20Fuel%20Economy,% (Docket EPA-HQ-OAR-2010-
0799). U.S. Department of Energy, 2011. ``Transportation and the 
Economy,'' Chapter 10 in ``Transportation Energy Data Book,'' http://cta.ornl.gov/data/tedb30/Edition30_Chapter10.pdf, Table 10.13, 
estimates that gas and oil costs were 15.4% of vehicle costs per 
mile in 2010.
    \513\ Sanstad, A., and R. Howarth (1994). `` `Normal' Markets, 
Market Imperfections, and Energy Efficiency.''Energy Policy 22(10): 
811-818 (Docket EPA-HQ-OAR-2010-0799); Larrick, R. P., and J.B. Soll 
(2008). ``The MPG illusion.'' Science 320: 1593-1594 (Docket EPA-HQ-
OAR-2010-0799).
    \514\ Hausman J., Joskow P. (1982). ``Evaluating the Costs and 
Benefits of Appliance Efficiency Standards.'' American Economic 
Review 72: 220-25 (Docket EPA-HQ-OAR-2010-0799).
    \515\ Jaccard, Mark. ``Paradigms of Energy Efficiency's Cost and 
their Policy Implications: D[eacute]j[agrave] Vu All Over Again.'' 
Modeling the Economics of Greenhouse Gas Mitigation: Summary of a 
Workshop, K. John Holmes, Rapporteur. National Academies Press, 
2010. http://www.nap.edu/openbook.php?record_id=13023&page=42 
(Docket EPA-HQ-OAR-2010-0799).
    \516\ E.g., Goldberg, Pinelopi Koujianou, ``Product 
Differentiation and Oligopoly in International Markets: The Case of 
the U.S. Automobile Industry,'' Econometrica 63(4) (July 1995): 891-
951 (Docket EPA-HQ-OAR-2010-0799); Goldberg, Pinelopi Koujianou, 
``The Effects of the Corporate Average Fuel Efficiency Standards in 
the U.S.,'' Journal of Industrial Economics 46(1) (March 1998): 1-33 
(Docket EPA-HQ-OAR-2010-0799); Busse, Meghan R., Christopher R. 
Knittel, and Florian Zettelmeyer (2009). ``Pain at the Pump: How 
Gasoline Prices Affect Automobile Purchasing in New and Used 
Markets,'' Working paper (accessed 11/1/11), available at http://web.mit.edu/knittel/www/papers/gaspaper_latest.pdf (Docket EPA-HQ-
OAR-2010-0799).
    \517\ Greene, David L. ``How Consumers Value Fuel Economy: A 
Literature Review.'' EPA Report EPA-420-R-10-008, March 2010 (Docket 
EPA-HQ-OAR-2010-0799).
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    EPA and NHTSA recently revised the fuel economy label on new 
vehicles in ways intended to improve information for consumers.\518\ 
For instance, it presents fuel consumption data in addition to miles 
per gallon, in response to the concern over the difficulties of 
translating mpg into fuel savings; it also reports expected fuel 
savings or additional costs relative to an average vehicle. Whether the 
new label will help consumers to overcome the ``energy paradox'' is not 
known at this point. A literature review that contributed to the fuel 
economy labeling rule points out that consumers increasingly do a great 
deal of research on the internet before going to an auto dealer.\519\ 
To the extent that the label improves consumers' understanding of the 
value of fuel economy, purchase decisions could change. Until the newly 
revised labels enter the marketplace with MY 2013 vehicles (or 
optionally sooner), the agencies may not be able to determine how 
vehicle purchase decisions are likely to change as a result of the new 
labels.
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    \518\ Environmental Protection Agency and Department of 
Transportation, ``Revisions and Additions to Motor Vehicle Fuel 
Economy Label,'' Federal Register 76(129) (July 6, 2011): 39478-
39587.
    \519\ PRR, Inc., ``Environmental Protection Agency Fuel Economy 
Label: Literature Review.'' EPA-420-R-10-906, August 2010, available 
at http://www.epa.gov/fueleconomy/label/420r10906.pdf 2010 (Docket 
EPA-HQ-OAR-2010-0799).
---------------------------------------------------------------------------

    If there is a difference between expected fuel savings and 
consumers' willingness to pay for those fuel savings, the next question 
is, which is the appropriate measure of consumer benefit? Fuel savings 
measure the actual monetary value that consumers will receive after 
purchasing a vehicle; the willingness to pay for fuel economy measures 
the value that, before a purchase, consumers place on additional fuel 
economy. As noted, there are a number of reasons that consumers may 
incorrectly estimate the benefits that they get from improved fuel 
economy, including risk or loss aversion, and poor ability to calculate 
savings. Also as noted, fuel economy may not be as salient as other 
vehicle characteristics when a consumer is considering vehicles. If 
these arguments are valid, then there will be significant gains to 
consumers of the government mandating additional fuel economy.
    While acknowledging the conundrum, EPA continues to value fuel 
savings from the proposed standards using the projected market value 
over the vehicles' entire lifetimes, and to report that value among 
private benefits of the proposed rule. Improved fuel economy will 
significantly reduce consumer expenditures on fuel, thus benefiting 
consumers. Real money is being saved and accrued by the initial buyer 
and subsequent owners. In addition, using a measure based on consumer 
consideration at the time of vehicle purchase would involve a very wide 
range of uncertainty, due to the lack of consensus on the value of 
additional fuel economy in vehicle choice models. Due partly to this 
factor, it is true that limitations in modeling affect our ability to 
estimate how much of these savings would have occurred in the absence 
of the rule. For example, some of the technologies predicted to be 
adopted in response to the rule may already be in the deployment 
process due to shifts in consumer demand for fuel economy, or due to 
expectations by auto makers of future GHG/fuel economy standards. It is 
not impossible that some of these savings would have occurred in the 
absence of the proposed standards.\520\ To the extent that greater fuel 
economy improvements than those assumed to occur under the baseline may 
have occurred due to market forces alone (absent the proposed 
standards), the analysis overestimates private and social benefits and 
costs. As discussed below, limitations in modeling also affect our 
ability to estimate the effects of the rule on net benefits in the 
market for vehicles.
---------------------------------------------------------------------------

    \520\ However, as discussed at section III.D above, the 
assumption of a flat baseline absent this rule rests on strong 
historic evidence of lack of increase in fuel economy absent either 
regulatory control or sharply rising fuel prices.
---------------------------------------------------------------------------

    Consumer vehicle choice models estimate what vehicles consumers buy 
based on vehicle and consumer characteristics. In principle, such 
models could provide a means of understanding both the role of fuel 
economy in consumers' purchase decisions and the effects of this rule 
on the benefits that consumers will get from vehicles. Helfand and 
Wolverton discuss the wide variation in the

[[Page 75116]]

structure and results of these models.\521\ Models or model results 
have not frequently been systematically compared to each other. When 
they have, the results show large variation over, for instance, the 
value that consumers place on additional fuel economy.
---------------------------------------------------------------------------

    \521\ Helfand, Gloria and Ann Wolverton, ``Evaluating the 
Consumer Response to Fuel Economy: A Review of the Literature.'' 
International Review of Environmental and Resource Economics 5 
(2011): 103-146 (Docket EPA-HQ-OAR-2010-0799).
---------------------------------------------------------------------------

    In order to develop greater understanding of these models, EPA is 
in the process of developing a vehicle choice model. It uses a ``nested 
logit'' structure common in the vehicle choice modeling literature. 
``Nesting'' refers to the decision-tree structure of buyers' choices 
among vehicles the model employs, and ``logit'' refers to the specific 
pattern by which buyers' choices respond to differences in the overall 
utility that individual vehicle models and their attributes 
provide.\522\ The nesting structure in EPA's model involves a hierarchy 
of choices. In its current form, at the initial decision node, 
consumers choose between buying a new vehicle or not. Conditional on 
choosing a new vehicle, consumers then choose among passenger vehicles, 
cargo vehicles, and ultra-luxury vehicles. The next set of choices 
subdivides each of these categories into vehicle type (e.g., standard 
car, minivan, SUV, etc.). Next, the vehicle types are divided into 
classes (small, medium, and large SUVs, for instance), and then, at the 
bottom, are the individual models. At this bottom level, vehicles that 
are similar to each other (such as standard subcompacts, or prestige 
large vehicles) end up in the same ``nest.'' Substitution within a nest 
is considered much more likely than substitution across nests, because 
the vehicles within a nest are more similar to each other than vehicles 
in different nests. For instance, a person is more likely to substitute 
between a Chevrolet Aveo and a Toyota Yaris (both subcompacts) than 
between an Aveo and a pickup truck. In addition, substitution is 
greater at low decision nodes (such as individual vehicles) than at 
higher decision nodes (such as the buy/no buy decision), because there 
are more choices at lower levels than at higher levels. Parameters for 
the model (including demand elasticities and the value of fuel economy 
in purchase decisions) are being selected based on a review of values 
found in the literature on vehicle choice modeling. Additional 
discussion of this model can be found in Chapter 8.1.2.8 of the DRIA. 
The model is still undergoing development; the agency will seek peer 
review on it before it is utilized. In addition, concerns remain over 
the ability of any vehicle choice model to make reasonable predictions 
of the response of the total number and composition of new vehicle 
sales to changes in the prices and characteristics of specific vehicle 
models. EPA seeks comments on the use of vehicle choice modeling for 
predicting changes in sales mix due to policies, and on methods to test 
the ability of a vehicle choice model to produce reasonable estimates 
of changes in fleet mix.
---------------------------------------------------------------------------

    \522\ Logit refers to a statistical analysis method used for 
analyzing the factors that affect discrete choices (i.e., yes/no 
decisions or the choice among a countable number of options).
---------------------------------------------------------------------------

    The next issue is the potential for loss in consumer welfare due to 
the rule. As mentioned above (and discussed more thoroughly in Section 
III.D.3 of this preamble), the technology cost estimates developed here 
for conventional vehicles take into account the costs to hold other 
vehicle attributes, such as size and performance, constant.\523\ In 
addition, the analysis assumes that the full technology costs are 
passed along to consumers. With these assumptions, because welfare 
losses are monetary estimates of how much consumers would have to be 
compensated to be made as well off as in the absence of the 
change,\524\ the price increase measures the loss to the buyer.\525\ 
Assuming that the full technology cost gets passed along to the buyer 
as an increase in price, the technology cost thus measures the welfare 
loss to the consumer. Increasing fuel economy would have to lead to 
other changes in the vehicles that consumers find undesirable for there 
to be additional losses not bounded by the technology costs.
---------------------------------------------------------------------------

    \523\ If the reference-case vehicles include different vehicle 
characteristics, such as improved acceleration or towing capacity, 
then the costs for the proposed standards would be, as here, the 
costs of adding compliance technologies to those reference-case 
vehicles. These costs may differ from those estimated here, due to 
our lack of information on how those vehicle characteristics might 
change between now and 2025.
    \524\ This approach describes the economic concept of 
compensating variation, a payment of money after a change that would 
make a consumer as well off after the change as before it. A related 
concept, equivalent variation, estimates the income change that 
would be an alternative to the change taking place. The difference 
between them is whether the consumer's point of reference is her 
welfare before the change (compensating variation) or after the 
change (equivalent variation). In practice, these two measures are 
typically very close together for marketed goods.
    \525\ Indeed, it is likely to be an overestimate of the loss to 
the consumer, because the consumer has choices other than buying the 
same vehicle with a higher price; she could choose a different 
vehicle, or decide not to buy a new vehicle. The consumer would 
choose one of those options only if the alternative involves less 
loss than paying the higher price. Thus, the increase in price that 
the consumer faces would be the upper bound of loss of consumer 
welfare, unless there are other changes to the vehicle due to the 
fuel economy improvements, unaccounted for in the costs, that make 
the vehicle less desirable to consumers.
---------------------------------------------------------------------------

b. Electric Vehicles and Other Advanced Technology Vehicles
    This proposal finds that electric vehicles (EVs) may form a part 
(albeit limited) of some manufacturers' compliance strategy. The 
following discussion will focus on EVs, because they are expected to 
play more of a role in compliance than vehicles with other alternative 
fuels, but related issues may arise for other alternatively fueled 
vehicles. It should be noted that EPA's projection of the penetration 
of EVs in the MY 2025 fleet is very small (under 3%).
    Electric vehicles (EVs), at the time of this rulemaking, have very 
different refueling infrastructures than conventional gasoline- or 
diesel-fueled vehicles: Refueling EVs requires either access to 
electric charging facilities or battery replacement. In addition, 
because of the expense of increased battery capacity, EVs commonly have 
a smaller driving range than conventional vehicles. Because of these 
differences, the vehicles cannot be considered conventional vehicles 
unmodified except for cost and fuel economy. As a result, the consumer 
welfare arguments presented above need to be modified to account for 
these differences.
    A first important point to observe is that, although auto makers 
are required to comply with the proposed standards, producing EVs as a 
compliance strategy is not specifically required. Auto makers will 
choose to provide EVs either if they have few alternative ways to 
comply, or if EVs are, for some range of production, likely to be more 
profitable (or less unprofitable) than other ways of complying.
    From the consumer perspective, it is important to observe that 
there is no mandate for any consumer to choose any particular kind of 
vehicle. An individual consumer will buy an EV only if the price and 
characteristics of the vehicle make it more attractive to her than 
other vehicles. If the range of vehicles in the conventional fleet does 
not shrink, the availability of EVs should not reduce consumer welfare 
compared to a fleet with no EVs: Increasing options should not reduce 
consumer well-being, because other existing options still are 
available. On the other hand, if the variety of vehicles in the 
conventional market does change, there may be consumers who are forced

[[Page 75117]]

to substitute to alternative vehicles. The use of the footprint-based 
standard is intended in part to help maintain the diversity of vehicle 
sizes. Because the agencies do not expect any vehicle classes to become 
unavailable, consumers who buy EVs therefore are expected to choose 
them voluntarily, in preference to the other vehicles available to 
them.
    From a practical perspective, the key issue is whether the consumer 
demand for EVs is large enough to absorb all the EVs that automakers 
will produce in order to comply with these standards, or whether 
automakers will need to increase consumer purchases by providing 
subsidies to consumers. If enough consumers find EVs more attractive 
than other vehicles, and automakers therefore do not need to subsidize 
their purchase, then both consumers and producers will benefit from the 
introduction of EVs. On the other hand, it is possible that automakers 
will find EVs to be part of a cost-effective compliance technology but 
nevertheless need to price them below cost them to sell sufficient 
numbers. If so, then there is a welfare loss associated with the sale 
of EVs beyond those that would be sold in the free market. The 
deadweight loss can be approximated as one-half of the size of the 
subsidy needed for the marginal purchaser, times the number of sales 
that would need the subsidy. Estimating this value would require 
knowing the number of sales necessary beyond the expected sales level 
in an unregulated market, and the amount of the subsidy that would be 
necessary to induce the desired number of sales. Given the fledgling 
state of the market for EVs, neither of these values is easily knowable 
for the 2017 to 2025 time frame.
    A number of factors will affect the likelihood of consumer 
acceptance of EVs. People with short commutes may find little obstacle 
in the relatively short driving range, but others who regularly drive 
long distances may find EVs' ranges limiting. The reduced tailpipe 
emissions and reduced noise may be attractive features to some 
consumers.\526\ Recharging at home could be a convenient, desirable 
feature for people who have garages with electric charging capability, 
but not for people who park on the street. If an infrastructure 
develops for recharging vehicles with the convenience approaching that 
of buying gasoline, range or home recharging may become less of a 
barrier to purchase. Of course, other attributes of the marketed EVs, 
such as their performance and their passenger and storage capacity, 
will also affect the share of consumers who will consider them. As 
infrastructure, EV technology, and costs evolve over time, consumer 
interest in EVs will adjust as well. Thus, modeling consumer response 
to advanced technology vehicles in the 2017-2025 time frame poses even 
more challenges than those associated with modeling consumer response 
for conventional vehicles.
---------------------------------------------------------------------------

    \526\ For instance, Hidrue et al. (Hidrue, Michael K., George R. 
Parsons, Willett Kempton, and Meryl P. Gardner. ``Willingness to Pay 
for Electric Vehicles and their Attributes.'' Resource and Energy 
Economics 33(3) (2011): 686-705 (Docket EPA-HQ-OAR-2010-0799)) find 
that some consumers are willing to pay $5100 for vehicles with 95% 
lower emissions than the vehicles they otherwise aim to purchase.
---------------------------------------------------------------------------

    Because range is a major factor in EV acceptability, it is starting 
to draw attention in the research community. For instance, several 
studies have examined consumers' willingness to pay for increased 
vehicle range. Results vary, depending on when the survey was conducted 
(studies from the early 1990s have much higher values than more recent 
studies) and on household income and other demographic factors; some 
find range to be statistically indistinguishable from zero, while 
others find the value of increasing range from 150 to 300 miles to be 
as much as $59,000 (2009$) (see RIA Chapter 8 for more discussion).
    Other research has examined how the range limitation may affect 
driving patterns. Pearre et al. observed daily driving patterns for 484 
vehicles in the Atlanta area over a year.\527\ In their sample, 9 
percent of vehicles never exceeded 100 miles in one day, and 21 percent 
never exceeded 150 miles in one day. Lin and Greene compared the cost 
of reduced range to the cost of additional battery capacity for 
EVs.\528\ They find that an ``optimized'' range of about 75 miles would 
be sufficient for 98% of days for ``modest'' drivers (those who average 
about 25 miles per day); the optimized EV range for ``average'' drivers 
(who average about 43 miles per day), close to 120 miles, would meet 
their needs on 97 percent of days. Turrentine et al. studied drivers 
who leased MINI E EVs (a conversion of the MINI Cooper) for a 
year.\529\ They found that drivers adapted their driving patterns in 
response to EV ownership: For instance, they modified where they 
shopped and increased their use of regenerative braking in order to 
reduce range as a constraint. These finding suggest that, for some 
consumers, range may be a limiting factor only occasionally. If those 
consumers are willing to consider alternative ways of driving long 
distances, such as renting a gasoline vehicle or exchanging vehicles 
within the household, then limited range may not be a barrier to 
adoption for them. These studies also raise the question whether 
analysis of EV use should be based on the driving patterns from 
conventional vehicles, because consumers may use EVs differently than 
conventional vehicles.
---------------------------------------------------------------------------

    \527\ Pearre, Nathaniel S., Willett Kempton, Randall L. 
Guensler, and Vetri V. Elango. ``Electric vehicles: How much range 
is required for a day's driving?'' Transportation Research Part C 
19(6) (2011): 1171-1184 (Docket EPA-HQ-OAR-2010-0799).
    \528\ Lin, Zhenhong, and David Greene. ``Rethinking FCV/BEV 
Vehicle Range: A Consumer Value Trade-off Perspective.'' The 25th 
World Battery, Hybrid and Fuel Cell Electric Vehicle Symposium and 
Exhibition, Shenzhen, China, Nov. 5-9, 2010 (Docket EPA-HQ-OAR-2010-
0799).
    \529\ Turrentine, Tom, Dahlia Garas, Andy Lentz, and Justin 
Woodjack. ``The UC Davis MINI E Consumer Study.'' UC Davis Institute 
of Transportation Research Report UCD-ITS-RR-11-05, May 4, 2011 
(Docket EPA-HQ-OAR-2010-0799).
---------------------------------------------------------------------------

    EVs themselves are expected to change over time, as battery 
technologies and costs develop. In addition, consumer interest in EVs 
is likely to change over time, as early adopters share their 
experiences. The initial research in the area suggests that consumers 
put a high value on increased range, though this value appears to be 
changing over time. The research also suggests that some segments of 
the driving public may experience little, if any, restriction on their 
driving due to range limitations if they were to purchase EVs. At this 
time it is not possible to estimate whether the number of people who 
will choose to purchase EVs at private-market prices will be more or 
less than the number that auto makers are expected to produce to comply 
with the standards. We note that our projections of technology 
penetrations indicate that a very small portion (fewer than 3 percent) 
of new vehicles produced in 2025 will need to be EVs. For the purposes 
of the analysis presented here for this proposal, we assume that the 
consumer market will be sufficient to absorb the number of EVs expected 
to be used for compliance under this rule. We seek comment and further 
research that might provide evidence on the consumer market for EVs in 
the 2017-2025 period.
c. Summary
    The Energy Paradox, also known as the efficiency gap, raises the 
question, why do private markets not provide energy savings that 
engineering, technology cost analyses find are cost-

[[Page 75118]]

effective? Though a number of hypotheses have been raised to explain 
the paradox, studies have not been able at this time to identify the 
relative importance of different explanations. As a result, it is not 
possible at this point to state with any degree of certainty whether 
the market for fuel efficiency is operating efficiently, or whether the 
market has failings.
    For conventional vehicles, the key implication is that the there 
may be two different estimates of the value of fuel savings. One value 
comes from the engineering estimates, based on consumers' expected 
driving patterns over the vehicle's lifetime; the other value is what 
the consumer factors into the purchase decision when buying a vehicle. 
Although economic theory suggests that these two values should be the 
same in a well functioning market, if engineering estimates accurately 
measure fuel savings that consumers will experience, the available 
evidence does not provide support for that theory. The fuel savings 
estimates presented here are based on expected consumers' in-use fuel 
consumption rather than the value they estimate at the time that they 
consider purchasing a vehicle. Though the cost estimates may not have 
taken into account some changes that consumers may not find desirable, 
those omitted costs would have to be of very considerable magnitude to 
have a significant effect on the net benefits of this rule. The costs 
imposed on the consumer are measured by the costs of the technologies 
needed to comply with the standards. Because the cost estimates have 
built into them the costs required to hold other vehicle attributes 
constant, then, in principle, compensating consumers for the increased 
costs would hold them harmless, even if they paid no attention to the 
fuel efficiency of vehicles when making their purchase decisions.
    For electric vehicles, and perhaps for other advanced-technology 
vehicles, other vehicle attributes are not expected to be held 
constant. In particular, their ranges and modes of refueling will be 
different from those of conventional vehicles. From a social welfare 
perspective, the key question is whether the number of consumers who 
will want to buy EVs at their private-market prices will exceed the 
number that auto makers are expected to produce to comply with the 
standards. If too few consumers are willing to buy them at their 
private-market prices, then auto makers will have to subsidize their 
prices. Though current research finds that consumers typically have a 
high value for increasing the range of EVs (and thus would consider a 
shorter range a cost of an EV), current research also suggests that 
consumers may find ways to adapt to the shorter range so that it is 
less constraining. The technologies, prices, infrastructure, and 
consumer experiences associated with EVs are all expected to evolve 
between the present and the period when this rule becomes effective. 
The analysis in this proposal assumes that the consumer market is 
sufficient to absorb the expected number of EVs without subsidies.
    We seek comment and further research on the efficiency of the 
market for fuel economy for conventional vehicles and on the likely 
size of the consumer market for EVs in 2017-2025.
2. Costs Associated With the Vehicle Standards
    In this section, EPA presents our estimate of the costs associated 
with the proposed vehicle program. The presentation here summarizes the 
vehicle level costs associated with the new technologies expected to be 
added to meet the proposed GHG standards, including hardware costs to 
comply with the proposed A/C credit program. The analysis summarized 
here provides our estimate of incremental costs on a per vehicle basis 
and on an annual total basis.
    The presentation here summarizes the outputs of the OMEGA model 
that was discussed in some detail in Section III.D of this preamble. 
For details behind the analysis such as the OMEGA model inputs and the 
estimates of costs associated with individual technologies, the reader 
is directed to Chapter 1 of the EPA's draft RIA and Chapter 3 of the 
draft Joint TSD. For more detail on the outputs of the OMEGA model and 
the overall vehicle program costs summarized here, the reader is 
directed to Chapters 3 and 5 of EPA's draft RIA.
    With respect to the aggregate cost estimations presented here, EPA 
notes that there are a number of areas where the results of our 
analysis may be conservative and, in general, EPA believes we have 
directionally overestimated the costs of compliance with these new 
standards, especially in not accounting for the full range of credit 
opportunities available to manufacturers. For example, some cost saving 
programs are considered in our analysis, such as full car/truck 
trading, while others are not, such as advanced vehicle technology 
credits.
a. Costs per Vehicle
    To develop costs per vehicle, EPA has used the same methodology as 
that used in the recent 2012-2016 final rule and the 2010 TAR. 
Individual technology direct manufacturing costs have been estimated in 
a variety of ways--vehicle and technology tear down, models developed 
by outside organizations, and literature review--and indirect costs 
have been estimated using the updated and revised indirect cost 
multiplier (ICM) approach that was first developed for the 2012-2016 
final rule. All of these individual technology costs are described in 
detail in Chapter 3 of the draft joint TSD. Also described there are 
the ICMs used in this proposal and the ways the ICMs have been updated 
and revised since the 2012-2016 final rule which results in 
considerably higher indirect costs in this proposal than estimated in 
the 2012-2016 final rule. Further, we describe in detail the 
adjustments to technology costs to account for manufacturing learning 
and the cost reductions that result from that learning. We note here 
that learning impacts are applied only to direct manufacturing costs 
which differs from the 2012-2016 final rule which applied learning to 
both direct and indirect costs. Lastly, we have included costs 
associated with stranded capital (i.e., capital investments that are 
not fully recaptured by auto makers because they would be forced to 
update vehicles on a more rapid schedule than they may have intended 
absent this proposal). Again, this is detailed in Chapter 3 of the 
draft joint TSD.
    EPA then used the technology costs to build GHG and fuel 
consumption reducing packages of technologies for each of 19 different 
vehicle types meant to fully represent the range of baseline vehicle 
technologies in the marketplace (i.e., number of cylinders, valve train 
configuration, vehicle class). This package building process as well as 
the process we use to determine the most cost effective packages for 
each of the 19 vehicle types is detailed in Chapter 1 of EPA's draft 
RIA. These packages are then used as inputs to the OMEGA model to 
estimate the most cost effective means of compliance with the proposed 
standards giving due consideration to the timing required for 
manufacturers to implement the needed technologies. That is, we assume 
that manufacturers cannot add the full suite of needed technologies in 
the first year of implementation. Instead, we expect them to add 
technologies to vehicles during the typical 4 to 5 year redesign cycle. 
As such, we expect that every vehicle can be redesigned to add 
significant levels of new technology every 4 to 5 years. Further, we do 
not expect manufacturers to redesign or refresh vehicles at a pace more 
rapid

[[Page 75119]]

than the industry standard four to five year cycle.
    The results, including costs associated with the air conditioning 
program and estimates of stranded capital as described in Chapter 3 of 
the draft joint TSD, are shown in Table III-65.
[GRAPHIC] [TIFF OMITTED] TP01DE11.129

b. Annual Costs of the Proposed National Program
    The costs presented here represent the incremental costs for newly 
added technology to comply with the proposed program. Together with the 
projected increases in car and truck sales, the increases in per-car 
and per-truck average costs shown in Table III-65, above result in the 
total annual costs presented in Table III-66 below. Note that the costs 
presented in Table III-66 do not include the fuel savings that 
consumers would experience as a result of driving a vehicle with 
improved fuel economy. Those impacts are presented in Section III.H.4. 
Note also that the costs presented here represent costs estimated to 
occur presuming that the proposed MY 2025 standards would continue in 
perpetuity. Any changes to the proposed standards would be considered 
as part of a future rulemaking. In other words, the proposed standards 
would not apply only to 2017-2025 model year vehicles--they would, in 
fact, apply to all 2025 and later model year vehicles.

[[Page 75120]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.130


[[Page 75121]]


3. Cost per Ton of Emissions Reduced
    EPA has calculated the cost per ton of GHG reductions associated 
with the proposed GHG standards on a CO2eq basis using the 
costs and the emissions reductions described in Section III.F. These 
values are presented in Table III-67 for cars, trucks and the combined 
fleet. The cost per metric ton of GHG emissions reductions has been 
calculated in the years 2020, 2030, 2040, and 2050 using the annual 
vehicle compliance costs and emission reductions for each of those 
years. The value in 2050 represents the long-term cost per ton of the 
emissions reduced. EPA has also calculated the cost per metric ton of 
GHG emission reductions including the savings associated with reduced 
fuel consumption (presented below in Section III.H.4). This latter 
calculation does not include the other benefits associated with this 
program such as those associated with energy security benefits as 
discussed later in Section III. By including the fuel savings, the cost 
per ton is generally less than $0 since the estimated value of fuel 
savings outweighs the program costs.
[GRAPHIC] [TIFF OMITTED] TP01DE11.131


[[Page 75122]]


4. Reduction in Fuel Consumption and Its Impacts
a. What are the projected changes in fuel consumption?
    The proposed CO2 standards will result in significant 
improvements in the fuel efficiency of affected vehicles. Drivers of 
those vehicles will see corresponding savings associated with reduced 
fuel expenditures. EPA has estimated the impacts on fuel consumption 
for both the tailpipe CO2 standards and the A/C credit 
program. While gasoline consumption would decrease under the proposed 
GHG standards, electricity consumption would increase slightly due to 
the small penetration of EVs and PHEVs (1-3% for the 2021 and 2025 
MYs). The fuel savings includes both the gasoline consumption 
reductions and the electricity consumption increases. Note that the 
total number of miles that vehicles are driven each year is different 
under the control case than in the reference case due to the ``rebound 
effect,'' which is discussed in Section III.H.4.c and in Chapter 4 of 
the draft joint TSD. EPA also notes that consumers who drive more than 
our average estimates for vehicle miles traveled (VMT) will experience 
more fuel savings; consumers who drive less than our average VMT 
estimates will experience less fuel savings.
    The expected impacts on fuel consumption are shown in Table III-68. 
The gallons reduced and kilowatt hours increased (kWh) as shown in the 
tables reflect impacts from the proposed CO2 standards, 
including the A/C credit program, and include increased consumption 
resulting from the rebound effect.

[[Page 75123]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.132

    b. What are the fuel savings to the consumer?
    Using the fuel consumption estimates presented in Section 
III.H.4.a, EPA can calculate the monetized fuel savings associated with 
the proposed standards. To do this, we multiply reduced fuel 
consumption in each year by the corresponding estimated average fuel 
price in that year, using the reference case taken from the AEO 2011 
Final Release.\530\ These estimates do not

[[Page 75124]]

account for the significant uncertainty in future fuel prices; the 
monetized fuel savings would be understated if actual future fuel 
prices are higher (or overstated if fuel prices are lower) than 
estimated. AEO is a standard reference used by NHTSA and EPA and many 
other government agencies to estimate the projected price of fuel. This 
has been done using both the pre-tax and post-tax gasoline prices. 
Since the post-tax gasoline prices are the prices paid at fuel pumps, 
the fuel savings calculated using these prices represent the savings 
consumers would see. The pre-tax fuel savings are those savings that 
society would see. Assuming no change in gasoline tax rates, the 
difference between these two columns represents the reduction in fuel 
tax revenues that will be received by state and federal governments--
about $82 million in 2017 and $17 billion by 2050. These results are 
shown in Table III-69. Note that in Section III.H.9, the overall 
benefits and costs of the proposal are presented and, for that reason, 
only the pre-tax fuel savings are presented there.
---------------------------------------------------------------------------

    \530\ In the Preface to AEO 2011, the Energy Information 
Administration describes the reference case. They state that, 
``Projections by EIA are not statements of what will happen but of 
what might happen, given the assumptions and methodologies used for 
any particular scenario. The Reference case projection is a 
business-as-usual trend estimate, given known technology and 
technological and demographic trends.

---------------------------------------------------------------------------

[[Page 75125]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.133

    As shown in Table III-69, the agencies are projecting that 
consumers would realize very large fuel savings as a result of the 
proposed standards. As discussed further in the introductory paragraphs 
of Section III.H.1, it is a conundrum from an economic perspective that 
these large fuel savings have not been provided by automakers

[[Page 75126]]

and purchased by consumers. A number of behavioral and market phenomena 
may lead to this disparity between the fuel economy that makes 
financial sense to consumers and the fuel economy they purchase. 
Regardless how consumers make their decisions on how much fuel economy 
to purchase, EPA expects that, in the aggregate, they will gain these 
fuel savings, which will provide actual money in consumers' pockets.
c. VMT Rebound Effect
    The rebound effect refers to the increase in vehicle use that 
results if an increase in fuel efficiency lowers the cost per mile of 
driving. For this proposal, EPA is using an estimate of 10 percent for 
the rebound effect (i.e., we assume a 10 percent decrease in fuel cost 
per mile from our proposed standards would result in a 1 percent 
increase in VMT).
    As we discussed in the 2012-2016 rulemaking and in Chapter 4 of the 
Joint TSD, this value was not derived from a single point estimate from 
a particular study, but instead represents a reasonable compromise 
between the historical estimates and the projected future estimates. 
This value is consistent with the rebound estimate for the most recent 
time period analyzed in the Small and Van Dender 2007 paper,\531\ and 
falls within the range of the larger body of historical work on the 
rebound effect.\532\ Recent work by David Greene on the rebound effect 
for light-duty vehicles in the U.S. supports the hypothesis that the 
rebound effect is decreasing over time,\533\ which could mean that 
rebound estimates based on recent time period data may be more reliable 
than historical estimates that are based on older time period data. New 
work by Hymel, Small, and Van Dender also supports the theory that the 
rebound effect is declining over time, although the Hymel et al. 
estimates are higher than the 2007 Small and Van Dender estimates.\534\ 
Furthermore, by using an estimate of the future rebound effect, 
analysis by Small and Greene show that the rebound effect could be in 
the range of 5% or lower.\535\
---------------------------------------------------------------------------

    \531\ Small, K. and K. Van Dender, 2007. ``Fuel Efficiency and 
Motor Vehicle Travel: The Declining Rebound Effect'', The Energy 
Journal, vol. 28, no. 1, pp. 25-51 (Docket EPA-HQ-OAR-2010-0799).
    \532\ Sorrell, S. and J. Dimitropoulos, 2007. ``UKERC Review of 
Evidence for the Rebound Effect, Technical Report 2: Econometric 
Studies'', UKERC/WP/TPA/2007/010, UK Energy Research Centre, London, 
October (Docket EPA-HQ-OAR-2010-0799).
    \533\ Greene, David, ``Rebound 2007: Analysis of National Light-
Duty Vehicle Travel Statistics,'' February 9, 2010 (Docket EPA-HQ-
OAR-2010-0799). This paper has been accepted for an upcoming special 
issue of Energy Policy, although the publication date has not yet 
been determined.
    \534\ Hymel, Kent M., Kenneth A. Small, and Kurt Van Dender, 
``Induced demand and rebound effects in road transport,'' 
Transportation Research Part B: Methodological, Volume 44, Issue 10, 
December 2010, Pages 1220-1241, ISSN 0191-2615, DOI: 10.1016/
j.trb.2010.02.007. (Docket EPA-HQ-OAR-2010-0799).
    \535\ Report by Kenneth A. Small of University of California at 
Irvine to EPA, ``The Rebound Effect from Fuel Efficiency Standards: 
Measurement and Projection to 2030'', June 12, 2009 (Docket EPA-HQ-
OAR-2010-0799). See also Greene, 2010.
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    Most studies that estimate the rebound effect use the fuel cost per 
mile of driving or gasoline prices as a surrogate for fuel efficiency. 
Recent work conducted by Kenneth Gillingham, however, provides 
suggestive evidence that consumers may be less responsive to changes in 
fuel efficiency than to changes in fuel prices.\536\ While this 
research pertains specifically to California, this finding suggests 
that the common assumption that consumers respond similarly to changes 
in gasoline prices and changes in fuel efficiency may overstate the 
potential rebound effect. Additional research is needed in this area, 
and EPA requests comments and data on this topic.
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    \536\ Gillingham, Kenneth. ``The Consumer Response to Gasoline 
Price Changes: Empirical Evidence and Policy Implications.'' Ph.D. 
diss., Stanford University, 2011. (Docket EPA-HQ-OAR-2010-0799).
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    Another factor discussed by Gillingham is whether consumers 
actually respond the same way to an increase in the cost of driving 
compared to a decrease in the cost of driving. There is some evidence 
in the literature that consumers are more responsive to an increase in 
prices than to a decrease in prices.537 538 539 Furthermore, 
it is also possible that consumers respond more to a large shock than a 
small, gradual change in prices. Since these proposed standards would 
decrease the cost of driving gradually over time, it is possible that 
the rebound effect would be much smaller than some of the estimates 
included in the historical literature. More research in this area is 
also important, and EPA invites comment and data on this aspect of the 
rebound effect.
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    \537\ Dargay, J.M., Gately, D., 1997. ``The demand for 
transportation fuels: imperfect price-reversibility?'' 
Transportation Research Part B 31(1). (Docket EPA-HQ-OAR-2010-0799).
    \538\ Dermot Gately, 1993. ``The Imperfect Price-Reversibility 
of World Oil Demand,'' The Energy Journal, International Association 
for Energy Economics, vol. 14(4), pages 163-182. (Docket EPA-HQ-OAR-
2010-0799).
    \539\ Sentenac-Chemin, E. (2010) Is the price effect on fuel 
consumption symmetric? Some evidence from an empirical study, Energy 
Policy (2010), doi:10.1016/j.enpol.2010.07.016 (Docket EPA-HQ-OAR-
2010-0799).
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    Finally, for purposes of analyzing the proposed standards, EPA 
assumes the rebound effect will be the same whether a consumer is 
driving a conventional gasoline vehicle or a vehicle powered by grid 
electricity. We are not aware of any research that has examined 
consumer responses to changes in the cost per mile of driving that 
result from driving an electric-powered vehicle instead of a 
conventional gasoline vehicle. EPA requests comment and data on this 
topic.
    Chapter 4.2.5 of the Joint TSD reviews the relevant literature and 
discusses in more depth the reasoning for the rebound value used here. 
The rebound effect is also discussed in Section II.E of the preamble. 
While EPA has used a weight of evidence approach for determining that 
10 percent is a reasonable value to use for the rebound effect, EPA 
requests comments on this and alternative methodologies for estimating 
the rebound effect over the period that our proposed standards would go 
into effect. EPA also invites the submission of new data regarding 
estimates of the rebound effect. We also discuss two approaches for 
modeling the rebound effect in Chapter 4 of the DRIA; we request 
comment on these modeling approaches.
5. CO2 Emission Reduction Benefits
    EPA has assigned a dollar value to reductions in CO2 
emissions using global estimates of the social cost of carbon (SCC). 
The SCC is an estimate of the monetized damages associated with an 
incremental increase in carbon emissions in a given year. It is 
intended to include (but is not limited to) changes in net agricultural 
productivity, human health, property damages from increased flood risk, 
and the value of ecosystem services due to climate change. The SCC 
estimates used in this analysis were developed through an interagency 
process that included EPA, DOT/NHTSA, and other executive branch 
entities, and concluded in February 2010. We first used these SCC 
estimates in the benefits analysis for the 2012-2016 light-duty GHG 
rulemaking; see 75 FR at 25520. We have continued to use these 
estimates in other rulemaking analyses, including the heavy-duty GHG 
rulemaking; see 76 FR at 57332. The SCC Technical Support Document (SCC 
TSD) provides a complete discussion of the methods used to develop 
these SCC estimates.\540\
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    \540\ Docket ID EPA-HQ-OAR-2010-0799, Technical Support 
Document: Social Cost of Carbon for Regulatory Impact Analysis Under 
Executive Order 12866, Interagency Working Group on Social Cost of 
Carbon, with participation by Council of Economic Advisers, Council 
on Environmental Quality, Department of Agriculture, Department of 
Commerce, Department of Energy, Department of Transportation, 
Environmental Protection Agency, National Economic Council, Office 
of Energy and Climate Change, Office of Management and Budget, 
Office of Science and Technology Policy, and Department of Treasury 
(February 2010). Also available at http://epa.gov/otaq/climate/regulations.htm.

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[[Page 75127]]

    The interagency group selected four SCC values for use in 
regulatory analyses, which we have applied in this analysis: $5, $22, 
$36, and $67 per metric ton of CO2 emissions in 2010, in 
2009 dollars.541 542 The first three values are based on the 
average SCC from three integrated assessment models, at discount rates 
of 5, 3, and 2.5 percent, respectively. SCCs at several discount rates 
are included because the literature shows that the SCC is quite 
sensitive to assumptions about the discount rate, and because no 
consensus exists on the appropriate rate to use in an intergenerational 
context. The fourth value is the 95th percentile of the SCC from all 
three models at a 3 percent discount rate. It is included to represent 
higher-than-expected impacts from temperature change further out in the 
tails of the SCC distribution. Low probability, high impact events are 
incorporated into all of the SCC values through explicit consideration 
of their effects in two of the three models as well as the use of a 
probability density function for equilibrium climate sensitivity. 
Treating climate sensitivity probabilistically results in more high 
temperature outcomes, which in turn lead to higher projections of 
damages.
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    \541\ The interagency group decided that these estimates apply 
only to CO2 emissions. Given that warming profiles and 
impacts other than temperature change (e.g., ocean acidification) 
vary across GHGs, the group concluded ``transforming gases into 
CO2-equivalents using GWP, and then multiplying the 
carbon-equivalents by the SCC, would not result in accurate 
estimates of the social costs of non-CO2 gases'' (SCC 
TSD, pg 13).
    \542\ The SCC estimates were converted from 2007 dollars to 2008 
dollars using a GDP price deflator (1.021) and again to 2009 dollars 
using a GDP price deflator (1.009) obtained from the Bureau of 
Economic Analysis, National Income and Product Accounts Table 1.1.4, 
Prices Indexes for Gross Domestic Product.
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    The SCC increases over time because future emissions are expected 
to produce larger incremental damages as physical and economic systems 
become more stressed in response to greater climatic change. Note that 
the interagency group estimated the growth rate of the SCC directly 
using the three integrated assessment models rather than assuming a 
constant annual growth rate. This helps to ensure that the estimates 
are internally consistent with other modeling assumptions. Table III-70 
presents the SCC estimates used in this analysis.
    When attempting to assess the incremental economic impacts of 
carbon dioxide emissions, the analyst faces a number of serious 
challenges. A recent report from the National Academies of Science 
points out that any assessment will suffer from uncertainty, 
speculation, and lack of information about (1) Future emissions of 
greenhouse gases, (2) the effects of past and future emissions on the 
climate system, (3) the impact of changes in climate on the physical 
and biological environment, and (4) the translation of these 
environmental impacts into economic damages.\543\ As a result, any 
effort to quantify and monetize the harms associated with climate 
change will raise serious questions of science, economics, and ethics 
and should be viewed as provisional.
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    \543\ National Research Council (2009). Hidden Costs of Energy: 
Unpriced Consequences of Energy Production and Use. National 
Academies Press. See docket ID EPA-HQ-OAR-2010-0799.
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    The interagency group noted a number of limitations to the SCC 
analysis, including the incomplete way in which the integrated 
assessment models capture catastrophic and non-catastrophic impacts, 
their incomplete treatment of adaptation and technological change, 
uncertainty in the extrapolation of damages to high temperatures, and 
assumptions regarding risk aversion. The limited amount of research 
linking climate impacts to economic damages makes the interagency 
modeling exercise even more difficult. The interagency group hopes that 
over time researchers and modelers will work to fill these gaps and 
that the SCC estimates used for regulatory analysis by the Federal 
government will continue to evolve with improvements in modeling.
    Another limitation of the GHG benefits analysis in this proposed 
rule is that it does not monetize the impacts associated with the non-
CO2 GHG reductions expected under the proposed standards (in 
this case, nitrous oxides, methane, and hydorfluorocarbons). The 
interagency group did not estimate the social costs of non-
CO2 GHG emissions when it developed the current social cost 
of CO2 values. EPA recently requested comment on a 
methodology to estimate the benefits associated with non-CO2 
GHG reductions under the proposed New Source Performance Standards 
(NSPS) for oil and gas exploration (76 FR at 52792). Referred to as the 
``global warming potential (GWP) approach,'' the calculation uses the 
GWP of the non-CO2 gas to estimate CO2 
equivalents and then multiplies these CO2 equivalent 
emission reductions by the social cost of CO2.
    EPA presented and requested comment on the GWP approach in the NSPS 
proposal as an interim method to produce estimates of the social cost 
of methane until the Administration develops such values. Similarly, we 
request comments in this proposed rulemaking on using the GWPs as an 
interim approach and more broadly about appropriate methods to monetize 
the climate benefits of non-CO2 GHG reductions.
    In addition, the U.S. government intends to revise the SCC 
estimates, taking into account new research findings that were not 
included in the first round, and has set a preliminary goal of 
revisiting the SCC values in the next few years or at such time as 
substantially updated models become available, and to continue to 
support research in this area. In particular, DOE and EPA hosted a 
series of workshops to help motivate and inform this process.\544\ The 
first workshop focused on conceptual and methodological issues related 
to integrated assessment modeling and valuing climate change impacts, 
along with methods of incorporating these estimates into policy 
analysis.
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    \544\ Improving the Assessment and Valuation of Climate Change 
Impacts for Policy and Regulatory Analysis, held November 18-19, 
2010 and January 27-28, 2011. Materials available at: http://yosemite.epa.gov/ee/epa/eerm.nsf/vwRepNumLookup/EE-0564?OpenDocument 
and http://yosemite.epa.gov/ee/epa/eerm.nsf/vwRepNumLookup/EE-0566?OpenDocument. See also Docket ID EPA-HQ-OAR-2010-0799.
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    Applying the global SCC estimates, shown in Table III-70, to the 
estimated reductions in CO2 emissions under the proposed 
standards, we estimate the dollar value of the GHG related benefits for 
each analysis year. For internal consistency, the annual benefits are 
discounted back to net present value terms using the same discount rate 
as each SCC estimate (i.e., 5%, 3%, and 2.5%) rather than 3% and 
7%.\545\ These estimates are provided in Table III-71.
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    \545\ It is possible that other benefits or costs of final 
regulations unrelated to CO2 emissions will be discounted 
at rates that differ from those used to develop the SCC estimates.

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[GRAPHIC] [TIFF OMITTED] TP01DE11.135

6. Non-Greenhouse Gas Health and Environmental Impacts
    This section presents EPA's analysis of the non-GHG health and 
environmental impacts that can be expected to occur as a result of the 
proposed 2017-2025 light-duty vehicle GHG standards. CO2 
emissions are predominantly the byproduct of fossil fuel combustion 
processes that also produce criteria and hazardous air pollutants. The 
vehicles that are subject to the proposed standards are also 
significant sources of mobile source air pollution such as direct PM, 
NOX, VOCs and air toxics. The proposed standards would 
affect exhaust emissions of these pollutants from vehicles. They would 
also affect emissions from upstream sources related to changes in fuel 
consumption. Changes in ambient

[[Page 75130]]

ozone, PM2.5, and air toxics that would result from the 
proposed standards are expected to affect human health in the form of 
premature deaths and other serious human health effects, as well as 
other important public health and welfare effects.
    It is important to quantify the health and environmental impacts 
associated with the proposed standard because a failure to adequately 
consider these ancillary co-pollutant impacts could lead to an 
incorrect assessment of their net costs and benefits. Moreover, co-
pollutant impacts tend to accrue in the near term, while any effects 
from reduced climate change mostly accrue over a time frame of several 
decades or longer.
    EPA typically quantifies and monetizes the health and environmental 
impacts related to both PM and ozone in its regulatory impact analyses 
(RIAs) when possible. However, EPA was unable to do so in time for this 
proposal. EPA attempts to make emissions and air quality modeling 
decisions early in the analytical process so that we can complete the 
photochemical air quality modeling and use that data to inform the 
health and environmental impacts analysis. Resource and time 
constraints precluded the Agency from completing this work in time for 
the proposal. Instead, EPA is using PM-related benefits-per-ton values 
as an interim approach to estimating the PM-related benefits of the 
proposal. EPA also provides a characterization of the health and 
environmental impacts that will be quantified and monetized for the 
final rulemaking.
    This section is split into two sub-sections: The first presents the 
PM-related benefits-per-ton values used to monetize the PM-related co-
benefits associated with the proposal; the second explains what PM- and 
ozone-related health and environmental impacts EPA will quantify and 
monetize in the analysis for the final rule. EPA bases its analyses on 
peer-reviewed studies of air quality and health and welfare effects and 
peer-reviewed studies of the monetary values of public health and 
welfare improvements, and is generally consistent with benefits 
analyses performed for the analysis of the final Cross-State Air 
Pollution Rule,\546\ the final 2014-2018 MY Heavy-Duty Vehicle 
Greenhouse Gas Rule,\547\ and the final Portland Cement National 
Emissions Standards for Hazardous Air Pollutants (NESHAP) RIA.\548\
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    \546\ Final Cross-State Air Pollution Rule. (76 FR 48208, August 
8, 2011).
    \547\ U.S. Environmental Protection Agency. (2011). Final 
Rulemaking to Establish Heavy-Duty Vehicle Greenhouse Gas Emission 
Standards and Corporate Average Fuel Economy Standards: Regulatory 
Impact Analysis, Assessment and Standards Division, Office of 
Transportation and Air Quality, EPA-420-R-10-009, July 2011. 
Available on the internet: http://www.epa.gov/otaq/climate/regulations/420r10009.pdf.
    \548\ U.S. Environmental Protection Agency (U.S. EPA). 2010. 
Regulatory Impact Analysis: National Emission Standards for 
Hazardous Air Pollutants from the Portland Cement Manufacturing 
Industry. Office of Air Quality Planning and Standards, Research 
Triangle Park, NC. Augues. Available on the Internet at < http://www.epa.gov/ttn/ecas/regdata/RIAs/portlandcementfinalria.pdf >. EPA-
HQ-OAR-2009-0472-0241.
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    Though EPA is characterizing the changes in emissions associated 
with toxic pollutants, we will not be able to quantify or monetize the 
human health effects associated with air toxic pollutants for either 
the proposal or the final rule analyses. Please refer to Section III.G 
for more information about the air toxics emissions impacts associated 
with the proposed standards.
a. Economic Value of Reductions in Criteria Pollutants
    As described in Section III.G, the proposed standards would reduce 
emissions of several criteria and toxic pollutants and precursors. In 
this analysis, EPA estimates the economic value of the human health 
benefits associated with reducing PM2.5 exposure. Due to 
analytical limitations, this analysis does not estimate benefits 
related to other criteria pollutants (such as ozone, NO2 or 
SO2) or toxic pollutants, nor does it monetize all of the 
potential health and welfare effects associated with PM2.5.
    This analysis uses a ``benefit-per-ton'' method to estimate a 
selected suite of PM2.5-related health benefits described 
below. These PM2.5 benefit-per-ton estimates provide the 
total monetized human health benefits (the sum of premature mortality 
and premature morbidity) of reducing one ton of directly emitted 
PM2.5, or its precursors (such as NOX, 
SOX, and VOCs), from a specified source. Ideally, the human 
health benefits would be estimated based on changes in ambient 
PM2.5 as determined by full-scale air quality modeling. 
However, this modeling was not possible in the timeframe for this 
proposal.
    The dollar-per-ton estimates used in this analysis are provided in 
Table III-72. In the summary of costs and benefits, Section III.H.9 of 
this preamble, EPA presents the monetized value of PM-related 
improvements associated with the proposal.

[[Page 75131]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.136

     
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    \a\ The benefit-per-ton estimates presented in this table are 
based on an estimate of premature mortality derived from the ACS 
study (Pope et al., 2002). If the benefit-per-ton estimates were 
based on the Six-Cities study (Laden et al., 2006), the values would 
be approximately two-and-a-half times larger. See below for a 
description of these studies.
    \b\ The benefit-per-ton estimates presented in this table assume 
either a 3 percent or 7 percent discount rate in the valuation of 
premature mortality to account for a twenty-year segmented cessation 
lag.
    \c\ Benefit-per-ton values were estimated for the years 2015, 
2020, and 2030. For intermediate years, such as 2017 (the year the 
standards begin), we interpolated exponentially. For years beyond 
2030 (including 2040), EPA and NHTSA extrapolated exponentially 
based on the growth between 2020 and 2030.
    \d\ Note that the benefit-per-ton value for SOx is based on the 
value for Stationary (Non-EGU) sources; no SOx value was estimated 
for mobile sources. The benefit-per-ton value for VOCs was estimated 
across all sources.
    \e\ Non-EGU denotes stationary sources of emissions other than 
electric generating units.

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[[Page 75132]]

    The benefit per-ton technique has been used in previous analyses, 
including EPA's 2012-2016 Light-Duty Vehicle Greenhouse Gas 
Rule,549 550 and the Portland Cement National Emissions 
Standards for Hazardous Air Pollutants (NESHAP) RIA.\551\ Table III-73 
shows the quantified and unquantified PM2.5-related co-
benefits captured in those benefit-per-ton estimates.
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    \549\ U.S. Environmental Protection Agency (U.S. EPA), 2010. 
Regulatory Impact Analysis, Final Rulemaking to Establish Light-Duty 
Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel 
Economy Standards. Office of Transportation and Air Quality. April. 
Available at http://www.epa.gov/otaq/climate/regulations/420r10009.pdf. EPA-420-R-10-009.
    \550\ U.S. Environmental Protection Agency (U.S. EPA). 2008. 
Regulatory Impact Analysis, 2008 National Ambient Air Quality 
Standards for Ground-level Ozone, Chapter 6. Office of Air Quality 
Planning and Standards, Research Triangle Park, NC. March. Available 
at http://www.epa.gov/ttn/ecas/regdata/RIAs/6-ozoneriachapter6.pdf.
    \551\ U.S. Environmental Protection Agency (U.S. EPA). 2010. 
Regulatory Impact Analysis: National Emission Standards for 
Hazardous Air Pollutants from the Portland Cement Manufacturing 
Industry. Office of Air Quality Planning and Standards, Research 
Triangle Park, NC. Augues. Available on the Internet at < http://www.epa.gov/ttn/ecas/regdata/RIAs/portlandcementfinalria.pdf. EPA-
HQ-OAR-2009-0472-0241
[GRAPHIC] [TIFF OMITTED] TP01DE11.137

    Consistent with the cost-benefit analysis that accompanied the 
NO2 NAAQS,552 553 the benefits estimates utilize 
the concentration-response functions as reported in the epidemiology 
literature. To calculate the total monetized impacts associated with 
quantified health impacts, EPA applies values derived from a number of 
sources. For premature mortality, EPA applies a value of a statistical 
life (VSL) derived from the mortality valuation literature. For certain 
health impacts, such as chronic bronchitis and a number of respiratory-
related ailments, EPA applies willingness-to-pay estimates derived from 
the valuation literature. For the remaining health impacts, EPA applies 
values derived from current cost-of-illness and/or wage estimates.
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    \552\ Although we summarize the main issues in this chapter, we 
encourage interested readers to see benefits chapter of the RIA that 
accompanied the NO2 NAAQS for a more detailed description 
of recent changes to the PM benefits presentation and preference for 
the no-threshold model. Note that the cost-benefit analysis was 
prepared solely for purposes of fulfilling analysis requirements 
under Executive Order 12866 and was not considered, or otherwise 
played any part, in the decision to revise the NO2 NAAQS.
    \553\ U.S. Environmental Protection Agency (U.S. EPA). 2010. 
Final NO2 NAAQS Regulatory Impact Analysis (RIA). Office 
of Air Quality Planning and Standards, Research Triangle Park, NC. 
April. Available on the Internet at http://www.epa.gov/ttn/ecas/regdata/RIAs/FinalNO2RIAfulldocument.pdf. Accessed March 15, 2010. 
EPA-HQ-OAR-2009-0472-0237 U.S. Environmental Protection Agency (U.S. 
EPA). 2009.
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    A more detailed description of the benefit-per-ton estimates is 
provided in Chapter 4 of the Draft Joint TSD that accompanies this 
rulemaking. Readers interested in reviewing the complete methodology 
for creating the benefit-per-ton estimates used in this analysis can 
consult the Technical Support

[[Page 75133]]

Document (TSD) \554\ accompanying the recent final ozone NAAQS RIA 
(U.S. EPA, 2008).\555\ Readers can also refer to Fann et al. (2009) 
\556\ for a detailed description of the benefit-per-ton 
methodology.\557\
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    \554\ U.S. Environmental Protection Agency (U.S. EPA). 2008. 
Technical Support Document: Calculating Benefit Per-Ton Estimates, 
Ozone NAAQS Docket EPA-HQ-OAR-2007-0225-0284. Office of Air 
Quality Planning and Standards, Research Triangle Park, NC. March. 
Available on the Internet at <http://www.regulations.gov>.
    \555\ U.S. Environmental Protection Agency (U.S. EPA). 2008. 
Regulatory Impact Analysis, 2008 National Ambient Air Quality 
Standards for Ground-level Ozone, Chapter 6. Office of Air Quality 
Planning and Standards, Research Triangle Park, NC. March. Available 
at <http://www.epa.gov/ttn/ecas/regdata/RIAs/6-ozoneriachapter6.pdf>. Note that the cost-benefit analysis was 
prepared solely for purposes of fulfilling analysis requirements 
under Executive Order 12866 and was not considered, or otherwise 
played any part, in the decision to revise the Ozone NAAQS.
    \556\ Fann, N. et al. (2009). The influence of location, source, 
and emission type in estimates of the human health benefits of 
reducing a ton of air pollution. Air Qual Atmos Health. Published 
online: 09 June, 2009.
    \557\ The values included in this report are different from 
those presented in the article cited above. Benefits methods change 
to reflect new information and evaluation of the science. Since 
publication of the June 2009 article, EPA has made two significant 
changes to its benefits methods: (1) We no longer assume that a 
threshold exists in PM-related models of health impacts; and (2) We 
have revised the Value of a Statistical Life to equal $6.3 million 
(year 2000$), up from an estimate of $5.5 million (year 2000$) used 
in the June 2009 report. Please refer to the following Web site for 
updates to the dollar-per-ton estimates: http://www.epa.gov/air/benmap/bpt.html.
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    As described in the documentation for the benefit per-ton estimates 
cited above, national per-ton estimates were developed for selected 
pollutant/source category combinations. The per-ton values calculated 
therefore apply only to tons reduced from those specific pollutant/
source combinations (e.g., NO2 emitted from mobile sources; 
direct PM emitted from stationary sources). Our estimate of 
PM2.5 benefits is therefore based on the total direct 
PM2.5 and PM-related precursor emissions controlled by 
sector and multiplied by each per-ton value.
    As Table III-72 indicates, EPA projects that the per-ton values for 
reducing emissions of non-GHG pollutants from both vehicle use and 
stationary sources such as fuel refineries and storage facilities will 
increase over time.\558\ These projected increases reflect rising 
income levels, which are assumed to increase affected individuals' 
willingness to pay for reduced exposure to health threats from air 
pollution.\559\ They also reflect future population growth and 
increased life expectancy, which expands the size of the population 
exposed to air pollution in both urban and rural areas, especially in 
older age groups with the highest mortality risk.\560\
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    \558\ As we discuss in the emissions chapter of EPA's DRIA 
(Chapter 4), the rule would yield emission reductions from upstream 
refining and fuel distribution due to decreased petroleum 
consumption.
    \559\ The issue is discussed in more detail in the PM NAAQS RIA 
from 2006. See U.S. Environmental Protection Agency. 2006. Final 
Regulatory Impact Analysis (RIA) for the Proposed National Ambient 
Air Quality Standards for Particulate Matter. Prepared by: Office of 
Air and Radiation. October 2006. Available at http://www.epa.gov/ttn/ecas/ria.html.
    \560\ For more information about EPA's population projections, 
please refer to the following: http://www.epa.gov/air/benmap/models/BenMAPManualAppendicesAugust2010.pdf (See Appendix K).
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    The benefit-per-ton estimates are subject to a number of 
assumptions and uncertainties:
     They do not reflect local variability in population 
density, meteorology, exposure, baseline health incidence rates, or 
other local factors that might lead to an overestimate or underestimate 
of the actual benefits of controlling fine particulates. EPA will 
conduct full-scale air quality modeling for the final rulemaking in an 
effort to capture this variability.
     This analysis assumes that all fine particles, regardless 
of their chemical composition, are equally potent in causing premature 
mortality. This is an important assumption, because PM2.5 
produced via transported precursors emitted from stationary sources may 
differ significantly from direct PM2.5 released from diesel 
engines and other industrial sources, but no clear scientific grounds 
exist for supporting differential effects estimates by particle type.
     This analysis assumes that the health impact function for 
fine particles is linear within the range of ambient concentrations 
under consideration. Thus, the estimates include health benefits from 
reducing fine particles in areas with varied concentrations of 
PM2.5, including both regions that are in attainment with 
fine particle standard and those that do not meet the standard down to 
the lowest modeled concentrations.
     There are several health benefits categories that EPA was 
unable to quantify due to limitations associated with using benefits-
per-ton estimates, several of which could be substantial. Because the 
NOX and VOC emission reductions associated with this 
proposal are also precursors to ozone, reductions in NOX and 
VOC would also reduce ozone formation and the health effects associated 
with ozone exposure. Unfortunately, ozone-related benefits-per-ton 
estimates do not exist due to issues associated with the complexity of 
the atmospheric air chemistry and nonlinearities associated with ozone 
formation. The PM-related benefits-per-ton estimates also do not 
include any human welfare or ecological benefits. Please refer to 
Chapter 6.3 of the DRIA that accompanies this proposal for a 
description of the agecy's plan to quantify and monetize the PM- and 
ozone-related health impacts for the FRM and a description of the 
unquantified co-pollutant benefits associated with this rulemaking.
     There are many uncertainties associated with the health 
impact functions used in this modeling effort. These include: Within-
study variability (the precision with which a given study estimates the 
relationship between air quality changes and health effects); across-
study variation (different published studies of the same pollutant/
health effect relationship typically do not report identical findings 
and in some instances the differences are substantial); the application 
of concentration-response functions nationwide (does not account for 
any relationship between region and health effect, to the extent that 
such a relationship exists); extrapolation of impact functions across 
population (we assumed that certain health impact functions applied to 
age ranges broader than that considered in the original epidemiological 
study); and various uncertainties in the concentration-response 
function, including causality and thresholds. These uncertainties may 
under- or over-estimate benefits.
     EPA has investigated methods to characterize uncertainty 
in the relationship between PM2.5 exposure and premature 
mortality. EPA's final PM2.5 NAAQS analysis provides a more 
complete picture about the overall uncertainty in PM2.5 
benefits estimates. For more information, please consult the 
PM2.5 NAAQS RIA (Table 5.5).\561\
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    \561\ U.S. Environmental Protection Agency. October 2006. Final 
Regulatory Impact Analysis (RIA) for the Final National Ambient Air 
Quality Standards for Particulate Matter. Prepared by: Office of Air 
and Radiation.
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     The benefit-per-ton estimates used in this analysis 
incorporate projections of key variables, including atmospheric 
conditions, source level emissions, population, health baselines and 
incomes, technology. These projections introduce some uncertainties to 
the benefit per ton estimates.
     As described above, using the benefit-per-ton value 
derived from the ACS study (Pope et al., 2002) alone provides an 
incomplete characterization of PM2.5 benefits. When placed 
in the

[[Page 75134]]

context of the Expert Elicitation results, this estimate falls toward 
the lower end of the distribution. By contrast, the estimated 
PM2.5 benefits using the coefficient reported by Laden in 
that author's reanalysis of the Harvard Six Cities cohort fall toward 
the upper end of the Expert Elicitation distribution results.
    As mentioned above, emissions changes and benefits-per-ton 
estimates alone are not a good indication of local or regional air 
quality and health impacts, as there may be localized impacts 
associated with the proposed rulemaking. Additionally, the atmospheric 
chemistry related to ambient concentrations of PM2.5, ozone 
and air toxics is very complex. Full-scale photochemical modeling is 
therefore necessary to provide the needed spatial and temporal detail 
to more completely and accurately estimate the changes in ambient 
levels of these pollutants and their associated health and welfare 
impacts. As discussed above, timing and resource constraints precluded 
EPA from conducting a full-scale photochemical air quality modeling 
analysis in time for the NPRM. For the final rule, however, a national-
scale air quality modeling analysis will be performed to analyze the 
impacts of the standards on PM2.5, ozone, and selected air 
toxics. The benefits analysis plan for the final rulemaking is 
discussed in the next section.
b. Human Health and Environmental Benefits for the Final Rule
i. Human Health and Environmental Impacts
    To model the ozone and PM air quality benefits of the final rule, 
EPA will use the Community Multiscale Air Quality (CMAQ) model (see 
Section III.G.5. for a description of the CMAQ model). The modeled 
ambient air quality data will serve as an input to the Environmental 
Benefits Mapping and Analysis Program (BenMAP).\562\ BenMAP is a 
computer program developed by EPA that integrates a number of the 
modeling elements used in previous RIAs (e.g., interpolation functions, 
population projections, health impact functions, valuation functions, 
analysis and pooling methods) to translate modeled air concentration 
estimates into health effects incidence estimates and monetized 
benefits estimates.
---------------------------------------------------------------------------

    \562\ Information on BenMAP, including downloads of the 
software, can be found at http://www.epa.gov/ttn/ecas/benmodels.html.
---------------------------------------------------------------------------

    Chapter 6.3 in the DRIA that accompanies this proposal lists the 
co-pollutant health effect concentration-response functions EPA will 
use to quantify the non-GHG incidence impacts associated with the final 
light-duty vehicles standard. These include PM- and ozone-related 
premature mortality, chronic bronchitis, nonfatal heart attacks, 
hospital admissions (respiratory and cardiovascular), emergency room 
visits, acute bronchitis, minor restricted activity days, and days of 
work and school lost.
ii. Monetized Impacts
    To calculate the total monetized impacts associated with quantified 
health impacts, EPA applies values derived from a number of sources. 
For premature mortality, EPA applies a value of a statistical life 
(VSL) derived from the mortality valuation literature. For certain 
health impacts, such as chronic bronchitis and a number of respiratory-
related ailments, EPA applies willingness-to-pay estimates derived from 
the valuation literature. For the remaining health impacts, EPA applies 
values derived from current cost-of-illness and/or wage estimates. 
Chapter 6.3 in the DRIA that accompanies this proposal presents the 
monetary values EPA will apply to changes in the incidence of health 
and welfare effects associated with reductions in non-GHG pollutants 
that will occur when these GHG control strategies are finalized.
iii. Other Unquantified Health and Environmental Impacts
    In addition to the co-pollutant health and environmental impacts 
EPA will quantify for the analysis of the final standard, there are a 
number of other health and human welfare endpoints that EPA will not be 
able to quantify or monetize because of current limitations in the 
methods or available data. These impacts are associated with emissions 
of air toxics (including benzene, 1,3-butadiene, formaldehyde, 
acetaldehyde, acrolein, and ethanol), ambient ozone, and ambient 
PM2.5 exposures. Chapter 6.3 of the DRIA lists these 
unquantified health and environmental impacts.
    While there will be impacts associated with air toxic pollutant 
emission changes that result from the final standard, EPA will not 
attempt to monetize those impacts. This is primarily because currently 
available tools and methods to assess air toxics risk from mobile 
sources at the national scale are not adequate for extrapolation to 
incidence estimations or benefits assessment. The best suite of tools 
and methods currently available for assessment at the national scale 
are those used in the National-Scale Air Toxics Assessment (NATA). The 
EPA Science Advisory Board specifically commented in their review of 
the 1996 NATA that these tools were not yet ready for use in a 
national-scale benefits analysis, because they did not consider the 
full distribution of exposure and risk, or address sub-chronic health 
effects.\563\ While EPA has since improved the tools, there remain 
critical limitations for estimating incidence and assessing benefits of 
reducing mobile source air toxics. EPA continues to work to address 
these limitations; however, EPA does not anticipate having methods and 
tools available for national-scale application in time for the analysis 
of the final rules.\564\
---------------------------------------------------------------------------

    \563\ Science Advisory Board. 2001. NATA--Evaluating the 
National-Scale Air Toxics Assessment for 1996--an SAB Advisory. 
http://www.epa.gov/ttn/atw/sab/sabrev.html.
    \564\ In April, 2009, EPA hosted a workshop on estimating the 
benefits of reducing hazardous air pollutants. This workshop built 
upon the work accomplished in the June 2000 Science Advisory Board/
EPA Workshop on the Benefits of Reductions in Exposure to Hazardous 
Air Pollutants, which generated thoughtful discussion on approaches 
to estimating human health benefits from reductions in air toxics 
exposure, but no consensus was reached on methods that could be 
implemented in the near term for a broad selection of air toxics. 
Please visit http://epa.gov/air/toxicair/2009workshop.html for more 
information about the workshop and its associated materials.
---------------------------------------------------------------------------

7. Energy Security Impacts
    The proposed GHG standards require improvements in light-duty 
vehicle fuel efficiency which, in turn, will reduce overall fuel 
consumption and help to reduce U.S. petroleum imports. Reducing U.S. 
petroleum imports lowers both the financial and strategic risks caused 
by potential sudden disruptions in the supply of imported petroleum to 
the U.S. The economic value of reductions in these risks provides a 
measure of improved U.S. energy security. This section summarizes EPA's 
estimates of U.S. oil import reductions and energy security benefits 
from this proposal. Additional discussion of this issue can be found in 
Chapter 4.2.8 of the Joint TSD.
a. Implications of Reduced Petroleum Use on U.S. Imports
    In 2010, U.S. petroleum import expenditures represented 14 percent 
of total U.S. imports of all goods and services.\565\ These 
expenditures rose to 18 percent by April of 2011.\566\ In 2010, the 
United States imported 49 percent of the petroleum it consumed,\567\ 
and the

[[Page 75135]]

transportation sector accounted for 71 percent of total U.S. petroleum 
consumption. This compares to approximately 37 percent of total U.S. 
petroleum supplied by imports and 55 percent of U.S. petroleum 
consumption in the transportation sector in 1975.\568\
---------------------------------------------------------------------------

    \565\ http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WTTIMUS2&f=W.
    \566\ http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbblpd_a.htm.
    \567\ http://www.eia.gov/dnav/pet/pet_pri_rac2_dcu_nus_m.htm.
    \568\ Source: U.S. Department of Energy, Annual Energy Review 
2008, Report No. DOE/EIA-0384(2008), Tables 5.1 and 5.13c, June 26, 
2009.
---------------------------------------------------------------------------

    Requiring vehicle technology that reduces GHGs and fuel consumption 
in light-duty vehicles is expected to lower U.S. oil imports. EPA's 
estimates of reductions in fuel consumption resulting from the proposed 
standards are discussed in Section III.H.3 above, and in EPA's draft 
RIA.\569\
---------------------------------------------------------------------------

    \569\ Due to timing constraints, the energy security premiums 
($/gallon) were derived using preliminary estimates of the gasoline 
consumption reductions projected from this proposal. The energy 
security benefits totals shown here were calculated with those $/
gallon values along with the final quantities of gasoline 
consumption avoided. Relative to the preliminary gasoline 
consumption reductions, the reductions presented in this proposal 
are roughly 3% lower in total from 2017 through 2050.
---------------------------------------------------------------------------

    The agencies conducted a detailed analysis of future changes in 
U.S. transportation fuel consumption, petroleum imports, and domestic 
fuel refining projected to occur under alternative economic growth and 
oil price scenarios reported by the EIA in its Annual Energy Outlook 
2011.\570\ On the basis of this analysis, we estimate that 
approximately 50 percent of the reduction in fuel consumption resulting 
from adopting improved GHG emission and fuel efficiency standards is 
likely to be reflected in reduced U.S. imports of refined fuel, while 
the remaining 50 percent is expected to be reflected in reduced 
domestic fuel refining. Of this latter figure, 90 percent is 
anticipated to reduce U.S. imports of crude petroleum for use as a 
refinery feedstock, while the remaining 10 percent is expected to 
reduce U.S. domestic production of crude petroleum. Thus, on balance, 
each gallon of fuel saved as a consequence of the GHG and fuel 
efficiency standards is anticipated to reduce total U.S. imports of 
petroleum by 0.95 gallon.\571\ Table III-74 below compares EPA's 
estimates of the reduction in imports of U.S. crude oil and petroleum-
based products from this program to projected total U.S. imports for 
selected years.
---------------------------------------------------------------------------

    \570\ Energy Information Administration, Annual Energy Outlook 
2011, Reference Case and other scenarios, available at http://www.eia.gov/oiaf/aeo/tablebrowser/ (last accessed October 12, 2011).
    \571\ This figure is calculated as 0.50 + 0.50*0.9 = 0.50 + 0.45 
= 0.95.
[GRAPHIC] [TIFF OMITTED] TP01DE11.138

b. Energy Security Implications
    In order to understand the energy security implications of reducing 
U.S. petroleum imports, EPA worked with Oak Ridge National Laboratory 
(ORNL), which has developed approaches for evaluating the economic 
costs and energy security implications of oil use. The energy security 
estimates provided below are based upon a methodology developed in a 
peer-reviewed study entitled, The Energy Security Benefits of Reduced 
Oil Use, 2006-2015, completed in March 2008. This study is included as 
part of the docket for this proposal.572 573
---------------------------------------------------------------------------

    \572\ Leiby, Paul N., Estimating the Energy Security Benefits of 
Reduced U.S. Oil Imports, Oak Ridge National Laboratory, ORNL/TM-
2007/028, Final Report, 2008. (Docket EPA-HQ-OAR-2010-0162)
    \573\ The ORNL study The Energy Security Benefits of Reduced Oil 
Use, 2006-2015, completed in March 2008, is an updated version of 
the approach used for estimating the energy security benefits of 
U.S. oil import reductions developed in an ORNL 1997 Report by 
Leiby, Paul N., Donald W. Jones, T. Randall Curlee, and Russell Lee, 
entitled Oil Imports: An Assessment of Benefits and Costs. (Docket 
EPA-HQ-OAR-2010-0162).

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[[Page 75136]]

    When conducting its analysis, ORNL considered the full economic 
cost of importing petroleum into the United States. The economic cost 
of importing petroleum into the U.S. is defined to include two 
components in addition to the purchase price of petroleum itself. These 
are: (1) the higher costs for oil imports resulting from the effect of 
increasing U.S. import demand on the world oil price and on the market 
power of the Organization of the Petroleum Exporting Countries (i.e., 
the ``demand'' or ``monopsony'' costs); and (2) the risk of reductions 
in U.S. economic output and disruption of the U.S. economy caused by 
sudden disruptions in the supply of imported petroleum to the U.S. 
(i.e., ``macroeconomic disruption/adjustment costs''). In its analysis 
of energy security benefits from reducing U.S. petroleum imports, 
however, the agencies included only the latter component (discussed 
below).
    ORNL's analysis of energy security benefits from reducing U.S. oil 
imports did not include an estimate of potential reductions in costs 
for maintaining a U.S. military presence to help secure stable oil 
supply from potentially vulnerable regions of the world because 
attributing military spending to particular missions or activities is 
difficult. Attempts to attribute some share of U.S. military costs to 
oil imports are further complicated by the need to estimate how those 
costs vary with incremental variations in U.S. oil imports. Several 
commenters for the 2012-2016 light-duty vehicle proposal recommended 
that the agencies attempt to estimate the avoided U.S. military costs 
associated with reductions in U.S. oil imports. The agencies request 
comment on this issue, including whether there are new studies that 
credibly estimate the military cost of securing stable oil supplies 
and, if so, how should these new estimates be factored into this 
proposal's energy security analysis. See Section 4.2.8 of the TSD for a 
more detailed discussion of the national security implications of this 
proposed rule.
    For this action, ORNL estimated energy security premiums by 
incorporating the most recently available AEO 2011 Reference Case oil 
price forecasts and market trends. Energy security premiums for the 
years 2020, 2030, 2035, 2040 and 2050 are presented in Table III-75 as 
well as a breakdown of the components of the energy security premiums 
for each of these years.\574\ The components of the energy security 
premium and their values are discussed in detail in the Joint TSD 
Chapter 4.2.8. The oil security premium rises over the future as a 
result of changing factors such as the world oil price, global supply/
demand balances, U.S. oil imports and consumption, and U.S. GDP (the 
size of economy at risk to oil shocks). The principal factor is 
steadily rising oil prices.
---------------------------------------------------------------------------

    \574\ AEO 2011 forecasts energy market trends and values only to 
2035. The energy security premium estimates post-2035 were assumed 
to be the 2035 estimate.

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[[Page 75137]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.139

    The literature on energy security for the last two decades has 
routinely combined the monopsony and the macroeconomic disruption 
components when calculating the total value of the energy security 
premium. However, in the context of using a global social cost of 
carbon (SCC) value, the question arises: How should the energy security 
premium be determined when a global perspective is taken? Monopsony 
benefits represent avoided payments by the United States to oil 
producers in foreign countries that result from a decrease in the world 
oil price as the U.S. decreases its consumption of imported oil.
    Although there is clearly a benefit to the U.S. when considered 
from a domestic perspective, the decrease in price due to decreased 
demand in the U.S. also represents a loss to other countries. Given the 
redistributive nature of this monopsony effect from a global 
perspective, it is excluded in the energy security benefits 
calculations for this proposal. In contrast, the other portion of the 
energy security premium, the U.S. macroeconomic disruption and 
adjustment cost that arises from U.S. petroleum imports, does not have 
offsetting impacts outside of the U.S., and, thus, is included in the 
energy security benefits estimated for this proposal. To summarize, EPA 
has included only the macroeconomic disruption portion of the energy 
security benefits to estimate the monetary value of the total energy 
security benefits of this program.
    For this proposal, using EPA's fuel consumption analysis in 
conjunction with ORNL's energy security premium 
estimates,575 576 the agencies developed estimates of the 
total energy security benefits for the years 2017 through 2050 as shown 
in Table III-76.\577\
---------------------------------------------------------------------------

    \575\ AEO 2011 forecasts energy market trends and values only to 
2035. The energy security premium estimates post-2035 were assumed 
to be the 2035 estimate.
    \576\ Due to timing constraints, the energy security premiums 
($/gallon) were derived using preliminary estimates of the gasoline 
consumption reductions projected from this proposal. The energy 
security benefits totals shown here were calculated with those $/
gallon values along with the final quantities of gasoline 
consumption avoided. Relative to the preliminary gasoline 
consumption reductions, the reductions presented in this proposal 
are roughly 3% lower in total from 2017 through 2050.
    \577\ Estimated reductions in U.S. imports of finished petroleum 
products and crude oil are 95% of 54.2 million barrels (MMB) in 
2020, 609 MMB in 2030, 962 MMB in 2040, and 1,140 MMB in 2050.

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[[Page 75138]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.140

    The energy security analysis conducted for this proposal estimates 
that the world price of oil will fall modestly in response to lower 
U.S. demand for refined fuel. One potential result of this decline in 
the world price of oil would be an increase in the consumption of 
petroleum products, particularly outside the U.S. In addition, other 
fuels could be displaced from the increasing use of oil worldwide. For 
example, if a decline in the world oil price causes an increase in oil 
use in China, India, or another country's industrial sector, this 
increase in oil consumption may displace natural gas usage. 
Alternatively, the increased oil use could result in a decrease in coal 
used to produce electricity. An increase in the consumption of 
petroleum products, particularly outside the U.S., could lead to a 
modest increase in emissions of greenhouse gases, criteria air 
pollutants, and airborne toxics from their refining and use. However, 
lower usage of, for example, displaced coal would result in a decrease 
in greenhouse gas emissions. Therefore, any assessment of the impacts 
on GHG emissions from a potential increase in world oil demand would 
need to take into account the impacts on all portions of the global 
energy sector. The agencies' analyses have not attempted to estimate 
these effects.

[[Page 75139]]

    Since EPA anticipates that more electric vehicles (EVs) and plug-in 
hybrid electric vehicles (PHEVs) will penetrate the U.S. automobile 
market over time as a result of this proposal, the Agency is 
considering analyzing the energy security implications of these 
vehicles and the fuels that they consume. These vehicles run on 
electricity either in whole (EVs), or in part (PHEVs), which displaces 
conventional transportation fuel such as gasoline and diesel. EPA does 
not have sufficient information for this proposal to conduct an 
analysis of the energy security implications of increased use of EVs/
PHEVs, but is considering how to conduct this type of analysis in the 
future. The Agency recognizes that the fleet penetration of EV/PHEV's 
will be relatively small in the time period of these standards (fewer 
than 3% of new vehicles in 2025), but views establishing a framework 
for examining the energy security implications of these vehicles as 
important for longer-term analysis.
    Key questions that arise with increased use of electricity in 
vehicles in the U.S. include whether there is the potential for 
disruptions in electricity supply in general, or more specifically, 
from increased electrification of the U.S. vehicle fleet. Also, if 
there is the potential for supply disruptions in electricity markets, 
how likely would the disruptions be associated with disruptions in the 
supply of oil? In addition, what is the overall expected impact, if 
any, of additional EV/PHEV use on the stability and flexibility of fuel 
and electricity markets? Finally, such analysis may also need to 
consider the source of electricity used to power EVs/PHEVs. EPA 
solicits comments on how to best conduct this type of analysis, 
including any studies or research that have been published on these 
issues.
8. Additional Impacts
    There are other impacts associated with the CO2 
emissions standards and associated reduced fuel consumption that vary 
with miles driven. Lower fuel consumption would, presumably, result in 
fewer trips to the filling station to refuel and, thus, time saved. The 
rebound effect, discussed in detail in Section III.H.4.c, produces 
additional benefits to vehicle owners in the form of consumer surplus 
from the increase in vehicle-miles driven, but may also increase the 
societal costs associated with traffic congestion, motor vehicle 
crashes, and noise. These effects are likely to be relatively small in 
comparison to the value of fuel saved as a result of the standards, but 
they are nevertheless important to include. Table III-77 summarizes the 
other economic impacts. Please refer to Preamble Section II.E and the 
Joint TSD that accompanies this rule for more information about these 
impacts and how EPA and NHTSA use them in their analyses.

[[Page 75140]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.141

9. Summary of Costs and Benefits
    In this section, the agencies present a summary of costs, benefits, 
and net benefits of the proposed program. Table III-78 shows the 
estimated annual monetized costs of the proposed program for the 
indicated calendar years. The table also shows the net present values 
of those costs for the calendar years 2012-2050 using both 3 percent 
and 7 percent discount rates.\578\ Table III-79 shows the undiscounted 
annual monetized fuel savings of the proposed program. The table also 
shows the net present values of those fuel savings for the same 
calendar years using both 3 percent and 7 percent discount rates. In 
this table, the aggregate value of fuel savings is calculated using 
pre-tax fuel prices since savings in fuel taxes do not represent a 
reduction in the value of economic resources utilized in producing and 
consuming fuel. Note that the fuel savings shown here result from 
reductions in fleet-wide fuel use. Thus, fuel savings grow over time as 
an increasing fraction of the fleet meets the proposed standards.
---------------------------------------------------------------------------

    \578\ For the estimation of the stream of costs and benefits, we 
assume that after implementation of the proposed MY 2017-2025 
standards, the 2025 standards apply to each year thereafter.

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[[Page 75141]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.142

    Table III-80 presents estimated annual monetized benefits for the 
indicated calendar years. The table also shows the net present values 
of those benefits for the calendar years 2012-2050 using both 3 percent 
and 7 percent discount rates. The table shows the benefits of reduced 
CO2 emissions--and consequently the annual quantified 
benefits (i.e., total benefits)--for each of the four social cost of 
carbon (SCC) values estimated by the interagency working group. As 
discussed in the RIA Chapter 7.2, there are some limitations to the SCC 
analysis, including the incomplete way in which the integrated 
assessment models capture catastrophic and non-catastrophic impacts, 
their incomplete treatment of adaptation and technological change, 
uncertainty in the extrapolation of damages to high temperatures, and 
assumptions regarding risk aversion.
    In addition, these monetized GHG benefits exclude the value of net 
reductions in non-CO2 GHG emissions (CH4, 
N2O, HFC) expected under this action. Although EPA has not 
monetized the benefits of reductions in non-CO2 GHGs, the 
value of these reductions should not be interpreted as zero. Rather, 
the net reductions in non-CO2 GHGs will contribute to this 
program's climate benefits, as explained in Section III.H.5.

[[Page 75142]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.143


[[Page 75143]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.144

    Table III-81 presents estimated annual net benefits for the 
indicated calendar years. The table also shows the net present values 
of those net benefits for the calendar years 2012-2050 using both 3 
percent and 7 percent discount

[[Page 75144]]

rates. The table includes the benefits of reduced CO2 
emissions (and consequently the annual net benefits) for each of the 
four SCC values considered by EPA.
[GRAPHIC] [TIFF OMITTED] TP01DE11.145

    EPA also conducted a separate analysis of the total benefits over 
the model year lifetimes of the 2017 through 2025 model year vehicles. 
In contrast to the calendar year analysis presented above in Table III-
78 through Table III-81, the model year lifetime analysis below shows 
the impacts of the proposed program on vehicles produced during each of 
the model years 2017 through 2025 over the course of their expected 
lifetimes. The net societal benefits over the full lifetimes of 
vehicles produced during each of the nine model years from 2017 through 
2025 are shown in Table III-82 and Table III-83 at both 3 percent and 7 
percent discount rates, respectively.
BILLING CODE 4910-59-P

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[[Page 75150]]


10. U.S. Vehicle Sales Impacts and Payback Period
a. Vehicle Sales Impacts and Payback Period
    Predicting the effects of this rule on vehicles entails comparing 
two effects. On the one hand, the vehicles designed to meet the 
proposed standards will become more expensive, which would, by itself, 
be expected to discourage sales. On the other hand, the vehicles will 
have improved fuel economy and thus lower operating costs, producing 
lower total costs over the life of vehicles, which makes them more 
attractive to consumers. Which of these effects dominates for potential 
vehicle buyers when they are considering a purchase will determine the 
effect on sales. However, assessing the net effect of these two 
competing effects is complex and uncertain, as it rests on how 
consumers value fuel savings at the time of purchase and the extent to 
which manufacturers and dealers reflect them in the purchase price. The 
empirical literature does not provide clear evidence on whether 
consumers fully consider the value of fuel savings at the time of 
purchase. It also generally does not speak to the efficiency of 
manufacturing and dealer pricing decisions. Thus, for the proposal we 
do not provide quantified estimates of potential sales impacts. Rather, 
we solicit comment on the issues raised here and on methods for 
estimating the effect of this rule on vehicle sales.
    For years, consumers have been gaining experience with the benefits 
that accrue to them from owning and operating vehicles with greater 
fuel efficiency. Many households already own vehicles with a fairly 
wide range of fuel economy, and thus already have an opportunity to 
learn about the value of fuel economy on their own. Among two-vehicle 
households, for example, the least fuel-efficient vehicle averages just 
over 22 mpg (EPA test rating), and the range between this and the fuel 
economy of their other vehicle averages nearly 7 mpg. Among households 
that own 3 or more vehicles, the typical range of the fuel economy they 
offer is much wider. Consumer demand may have shifted towards such 
vehicles, not only because of higher fuel prices but also if many 
consumers are learning about the value of purchases based not only on 
initial costs but also on the total cost of owning and operating a 
vehicle over its lifetime. This type of learning should continue before 
and during the model years affected by this rule, particularly given 
the new fuel economy labels that clarify potential economic effects and 
should therefore reinforce that learning.
    Today's proposed rule, combined with the new and easier-to-
understand fuel economy label required to be on all new vehicles 
beginning in 2012, may increase sales above baseline levels by 
hastening this very type of consumer learning. As more consumers 
experience, as a result of the rule, the savings in time and expense 
from owning more fuel efficient vehicles, demand may shift yet further 
in the direction of the vehicles mandated under the rule. This social 
learning can take place both within and across households, as consumers 
learn from one another.
    First and most directly, the time and fuel savings associated with 
operating more fuel efficient vehicles may be more salient to 
individuals who own them, which might cause their subsequent purchase 
decisions to shift closer to minimizing the total cost of ownership 
over the lifetime of the vehicle.
    Second, this appreciation may spread across households through word 
of mouth and other forms of communications.
    Third, as more motorists experience the time and fuel savings 
associated with greater fuel efficiency, the price of used cars will 
better reflect such efficiency, further reducing the cost of owning 
more efficient vehicles for the buyers of new vehicles (since the 
resale price will increase).
    If these induced learning effects are strong, the rule could 
potentially increase total vehicle sales over time. It is not possible 
to quantify these learning effects years in advance and that effect may 
be speeded or slowed by other factors that enter into a consumer's 
valuation of fuel efficiency in selecting vehicles.
    The possibility that the rule will (after a lag for consumer 
learning) increase sales need not rest on the assumption that 
automobile manufacturers are failing to pursue profitable opportunities 
to supply the vehicles that consumers demand. In the absence of the 
rule, no individual automobile manufacturer would find it profitable to 
move toward the more efficient vehicles mandated under the rule. In 
particular, no individual company can fully internalize the future 
boost to demand resulting from the rule. If one company were to make 
more efficient vehicles, counting on consumer learning to enhance 
demand in the future, that company would capture only a fraction of the 
extra sales so generated, because the learning at issue is not specific 
to any one company's fleet. Many of the extra sales would accrue to 
that company's competitors.
    In other words, consumer learning about the benefits of fuel 
efficient vehicles involves positive externalities (spillovers) from 
one company to the others.\579\ These positive externalities may lead 
to benefits for manufacturers as a whole. We emphasize that this 
discussion has been tentative and qualified. To be sure, social 
learning of related kinds has been identified in a number of 
contexts.\580\ Comments are invited on the discussion offered here, 
with particular reference to any relevant empirical findings.
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    \579\ Industrywide positive spillovers of this type are hardly 
unique to this situation. In many industries, companies form trade 
associations to promote industry-wide public goods. For example, 
merchants in a given locale may band together to promote tourism in 
that locale. Antitrust law recognizes that this type of coordination 
can increase output.
    \580\ See Hunt Allcott, Social Norms and Energy Conservation, 
Journal of Public Economics (forthcoming 2011), available at http://web.mit.edu/allcott/www/Allcott%202011%20JPubEc%20-%20Social%20Norms%20and%20Energy%20Conservation.pdf; Christophe 
Chamley, Rational Herds: Economic Models of Social Learning 
(Cambridge, 2003).
---------------------------------------------------------------------------

    In previous rulemakings, EPA and NHTSA conducted vehicle sales 
analyses by comparing the up-front costs of the vehicles with the 
present value of five years' worth of fuel savings. We assumed that the 
costs for the fuel-saving technologies would be passed along fully to 
vehicle buyers in the vehicle prices. The up-front vehicle costs were 
adjusted to take into account several factors that would affect 
consumer costs: The increased sales tax that consumers would pay, the 
increase in insurance premiums, the increase in loan payments that 
buyers would face, and a higher resale value, with all of these factors 
due to the higher up-front cost of the vehicle. Those calculations 
resulted in an adjusted increase in costs to consumers. We then assumed 
that consumers considered the present value of five years of fuel 
savings in their vehicle purchase, which is consistent with the length 
of a typical new light-duty vehicle loan, and is similar to the average 
time that a new vehicle purchaser holds onto the vehicle.\581\ The 
present value of fuel savings was subtracted from technology costs to 
get a net effect on vehicle cost of ownership. We then used a short-run 
demand elasticity of -1 to convert a change in price into a change in

[[Page 75151]]

quantity demanded of vehicles.\582\ An elasticity of -1 means that a 1% 
increase in price leads to a 1% reduction in quantity sold. In the 
vehicle sales analyses, if five years of fuel savings outweighed the 
adjusted technology costs, then vehicle sales were predicted to 
increase; if the fuel savings were smaller than the adjusted technology 
costs, sales would decrease, compared to a world without the standards.
---------------------------------------------------------------------------

    \581\ In this proposal, the 5-year payback assumption 
corresponds to an assumption that vehicle buyers take into account 
between 30 and 50 percent of the present value of lifetime vehicle 
fuel savings (with the variation depending on discount rate, model 
year, and car vs. truck).
    \582\ For a durable good such as an auto, the elasticity may be 
smaller in the long run: Though people may be able to change the 
timing of their purchase when price changes in the short run, they 
must eventually make the investment. We request comment on whether 
or when a long-run elasticity should be used for a rule that phases 
in over time, as well as how to find good estimates for the long-run 
elasticity.
---------------------------------------------------------------------------

    We do not here present a vehicle sales analysis using this 
approach. This rule takes effect for MY 2017-2025. In the intervening 
years, it is possible that the assumptions underlying this analysis, as 
well as market conditions, might change. Instead, we present a payback 
period analysis to estimate the number of years of fuel savings needed 
to recover the up-front costs of the new technologies. In other words, 
the payback period identifies the break-even point for new vehicle 
buyers.
    A payback period analysis examines how long it would take for the 
expected fuel savings to outweigh the increased cost of a new vehicle. 
For example, a new 2025 MY vehicle is estimated to cost $1,946 more (on 
average, and relative to the reference case vehicle) due to the 
addition of new GHG reducing/fuel economy improving technology (see 
Section III.D.6 for details on this cost estimate). This new technology 
will result in lower fuel consumption and, therefore, savings in fuel 
expenditures (see Section III.H.10 for details on fuel savings). But 
how many months or years would pass before the fuel savings exceed the 
upfront costs?
    The payback analysis uses annual miles driven (vehicle miles 
traveled, or VMT) and survival rates consistent with the emission and 
benefits analyses presented in Chapter 4 of the Joint TSD. The control 
case includes fuel savings associated with A/C controls. Not included 
here are the likely A/C-related maintenance savings as discussed in 
Chapter 2 of EPA's RIA. Further, this analysis does not include other 
private impacts, such as reduced refueling events, or other societal 
impacts, such as the potential rebound miles driven or the value of 
driving those rebound miles, or noise, congestion and accidents, since 
the focus is meant to be on those factors consumers think about most 
while in the showroom considering a new car purchase. Car/truck fleet 
weighting is handled as described in Chapter 1 of the Joint TSD. The 
costs take into account the effects of the increased costs on sales 
tax, insurance, resale value, and finance costs. More detail on this 
analysis can be found in Chapter 5 of EPA's draft RIA.
    Table III-84 presents results for MY 2021 because it is the last 
year before the mid-term review impacts, if any, will take place, and 
MY 2025 because it is the last year of the program. The payback period 
in 2021 is shorter than that in 2025, because the technologies required 
to meet the proposed MY 2021 standards are more cost-effective than 
those for MY 2025. In all cases, the payback periods are less than 4 
years.
[GRAPHIC] [TIFF OMITTED] TP01DE11.151

    Most people purchase a new vehicle using credit rather than paying 
cash up front. A common car loan today is a five year, 60 month loan. 
As of July, 2011, the national average interest rate for a 5 year new 
car loan was 5.52 percent.\583\ If the increased vehicle cost is spread 
out over 5 years at 5.52 percent, the analysis for a MY 2025 vehicle 
would

[[Page 75152]]

look like that shown in Table III-85. As can be seen in this table, the 
fuel savings immediately outweigh the increased payments on the car 
loan, amounting to $145 in discounted net savings (3% discount rate) in 
the first year and similar savings for the next four years although 
savings decline somewhat due to reduced VMT as the average vehicle 
ages. Results are similar using a 7% discount rate. This means that for 
every month that the average owner is making a payment for the 
financing of the average new vehicle their monthly fuel savings would 
be greater than the increase in the loan payments. This amounts to a 
savings on the order of $12 per month throughout the duration of the 5 
year loan. Note that in year six when the car loan is paid off, the net 
savings equal the fuel savings less the increased insurance premiums 
(as would be the case for the remaining years of ownership).
---------------------------------------------------------------------------

    \583\ ``National Auto Loan Rates for July 21, 2011,'' http://www.bankrate.com/finance/auto/national-auto-loan-rates-for-july-21-2011.aspx, accessed 7/26/11 (Docket EPA-HQ-OAR-2010-0799).
[GRAPHIC] [TIFF OMITTED] TP01DE11.152

    The lifetime fuel savings and net savings can also be calculated 
for those who purchase the vehicle using cash and for those who 
purchase the vehicle with credit. This calculation applies to the 
vehicle owner who retains the vehicle for its entire life and drives 
the vehicle each year at the rate equal to the national projected 
average. The results are shown in Table III-86. In either case, the 
present value of the lifetime net savings is greater than $4,200 at a 
3% discount rate, or $2,900 at a 7% discount rate.

[[Page 75153]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.153

    Note that throughout this consumer payback discussion, the analysis 
reflects the average number of vehicle miles traveled per year. Drivers 
who drive more miles than the average would incur fuel-related savings 
more quickly and, therefore, the payback would come sooner. Drivers who 
drive fewer miles than the average would incur fuel related savings 
more slowly and, therefore, the payback would come later.
    Another method to estimate effects on vehicle sales is to model the 
market for vehicles. Consumer vehicle choice models estimate what 
vehicles consumers buy based on vehicle and consumer characteristics. 
In principle, such models could provide a means of understanding both 
the role of fuel economy in consumers' purchase decisions and the 
effects of this rule on the benefits that consumers will get from 
vehicles. Helfand and Wolverton discuss the wide variation in the 
structure and results of these models.\584\ Models or model results 
have not frequently been systematically compared to each other. When 
they have, the results show large variation over, for instance, the 
value that consumers place on additional fuel economy. As discussed in 
Section III.H.1 and in Chapter 8.1.2.8 of the DRIA, EPA is exploring 
development of a consumer vehicle choice model, but the model is not 
sufficiently developed for use in this NPRM.
---------------------------------------------------------------------------

    \584\ Helfand, Gloria, and Ann Wolverton. ``Evaluating the 
Consumer Response to Fuel Economy: A Review of the Literature.'' 
International Review of Environmental and Resource Economics 5 
(2011): 103-146 (Docket EPA-HQ-OAR-2010-0799).
---------------------------------------------------------------------------

    The effect of this rule on the use and scrappage of older vehicles 
will be related to its effects on new vehicle prices, the fuel 
efficiency of new vehicle models, the fuel efficiency of used vehicles, 
and the total sales of new vehicles. If the value of fuel savings 
resulting from improved fuel efficiency to the typical potential buyer 
of a new vehicle outweighs the average increase in new models' prices, 
sales of new vehicles could rise, while scrappage rates of used 
vehicles will increase slightly. This will cause the turnover of the 
vehicle fleet (i.e., the retirement of used vehicles and their 
replacement by new models) to accelerate slightly, thus accentuating 
the anticipated effect of the rule on fleet-wide fuel consumption and 
CO2 emissions. However, if potential buyers value future 
fuel savings resulting from the increased fuel efficiency of new models 
at less than the increase in their average selling price, sales of new 
vehicles will decline, as will the rate at which used vehicles are 
retired from service. This effect will slow the replacement of used 
vehicles by new models, and thus partly reduce the anticipated effects 
of this rule on fuel use and emissions.
    Because of the uncertainty regarding how the value of projected 
fuel savings from this rule to potential buyers will compare to their 
estimates of increases in new vehicle prices, we have not attempted to 
estimate explicitly the effects of the rule on scrappage of older 
vehicles and the turnover of the vehicle fleet.
    Chapter 5 of EPA's DRIA provides more information on the payback 
period analysis, and Chapter 8 of EPA's DRIA has further discussion of 
methods for examining the effects of this rule on vehicle sales. We 
welcome comments on all aspects of this discussion, including the full 
range of considerations and assumptions which influence market behavior 
and outcomes and associated uncertainties. We also welcome comments on 
all the parameters described here, as well as other quantitative 
estimates of the effects of this proposal on sales, accompanied by 
detailed descriptions of the methodologies used.
11. Employment Impacts
a. Introduction
    Although analysis of employment impacts is not part of a cost-
benefit analysis (except to the extent that labor costs contribute to 
costs), employment impacts of federal rules are of particular concern 
in the current economic climate

[[Page 75154]]

of sizeable unemployment. When President Obama requested that the 
agencies develop this program, he sought a program that would 
``strengthen the [auto] industry and enhance job creation in the United 
States.'' \585\ The recently issued Executive Order 13563, ``Improving 
Regulation and Regulatory Review'' (January 18, 2011), states, ``Our 
regulatory system must protect public health, welfare, safety, and our 
environment while promoting economic growth, innovation, 
competitiveness, and job creation'' (emphasis added). EPA is 
accordingly providing partial estimates of the effects of this proposal 
on domestic employment in the auto manufacturing and parts sectors, 
while qualitatively discussing how it may affect employment in other 
sectors more generally.
---------------------------------------------------------------------------

    \585\ President Barack Obama. ``Presidential Memorandum 
Regarding Fuel Efficiency Standards. The White House, Office of the 
Press Secretary, May 21, 2010. http://www.whitehouse.gov/the-press-office/presidential-memorandum-regarding-fuel-efficiency-standards.
---------------------------------------------------------------------------

    This proposal is expected to affect employment in the United States 
through the regulated sector--the auto manufacturing industry--and 
through several related sectors, specifically, industries that supply 
the auto manufacturing industry (e.g., vehicle parts), auto dealers, 
the fuel refining and supply sectors, and the general retail sector. 
According to the U.S. Bureau of Labor Statistics, in 2010, about 
677,000 people in the U.S. were employed in the Motor Vehicle and Parts 
Manufacturing Sector (NAICS 3361, 3362, and 3363). About 129,000 people 
in the U.S. were employed specifically in the Automobile and Light 
Truck Manufacturing Sector (NAICS 33611), the directly regulated 
sector, since it encompasses the auto manufacturers that are 
responsible for complying with the proposed standards.\586\ The 
employment effects of this rule are expected to expand beyond the 
regulated sector. Though some of the parts used to achieve the proposed 
standards are likely to be built by auto manufacturers themselves, the 
auto parts manufacturing sector also plays a significant role in 
providing those parts, and will also be affected by changes in vehicle 
sales. Changes in light duty vehicle sales, discussed in Section 
III.H.10, could affect employment for auto dealers. As discussed in 
Chapter 5.4 of the DRIA, this proposal is expected to reduce the amount 
of fuel these vehicles use, and thus affect the petroleum refinery and 
supply industries. Finally, since the net reduction in cost associated 
with this proposal is expected to lead to lower household expenditures 
on fuel net of vehicle costs, consumers then will have additional 
discretionary income that can be spent on other goods and services.
---------------------------------------------------------------------------

    \586\ U.S. Bureau of Labor Statistics, Quarterly Census of 
Employment and Wages, as accessed on August 9, 2011.
---------------------------------------------------------------------------

    When the economy is at full employment, an environmental regulation 
is unlikely to have much impact on net overall U.S. employment; 
instead, labor would primarily be shifted from one sector to another. 
These shifts in employment impose an opportunity cost on society, 
approximated by the wages of the employees, as regulation diverts 
workers from other activities in the economy. In this situation, any 
effects on net employment are likely to be transitory as workers change 
jobs (e.g., some workers may need to be retrained or require time to 
search for new jobs, while shortages in some sectors or regions could 
bid up wages to attract workers).
    On the other hand, if a regulation comes into effect during a 
period of high unemployment, a change in labor demand due to regulation 
may affect net overall U.S. employment because the labor market is not 
in equilibrium. In such a period, both positive and negative employment 
effects are possible.\587\ Schmalansee and Stavins point out that net 
positive employment effects are possible in the near term when the 
economy is at less than full employment due to the potential hiring of 
idle labor resources by the regulated sector to meet new requirements 
(e.g., to install new equipment) and new economic activity in sectors 
related to the regulated sector.\588\ In the longer run, the net effect 
on employment is more difficult to predict and will depend on the way 
in which the related industries respond to the regulatory requirements. 
As Schmalansee and Stavins note, it is possible that the magnitude of 
the effect on employment could vary over time, region, and sector, and 
positive effects on employment in some regions or sectors could be 
offset by negative effects in other regions or sectors. For this 
reason, they urge caution in reporting partial employment effects since 
it can ``paint an inaccurate picture of net employment impacts if not 
placed in the broader economic context.''
---------------------------------------------------------------------------

    \587\ Masur and Posner, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1920441.
    \588\ Schmalensee, Richard, and Robert N. Stavins. ``A Guide to 
Economic and Policy Analysis of EPA's Transport Rule.'' White paper 
commissioned by Excelon Corporation, March 2011 (Docket EPA-HQ-OAR-
2010-0799).
---------------------------------------------------------------------------

    It is assumed that the official unemployment rate will have 
declined to 5.3 percent by the time this rule takes effect and so the 
effect of the regulation on labor will be to shift workers from one 
sector to another.\589\ Those shifts in employment impose an 
opportunity cost on society, approximated by the wages of the 
employees, as regulation diverts workers from other activities in the 
economy. In this situation, any effects on net employment are likely to 
be transitory as workers change jobs (e.g., some workers may need to be 
retrained or require time to search for new jobs, while shortages in 
some sectors or regions could bid up wages to attract workers). It is 
also possible that the state of the economy will be such that positive 
or negative employment effects will occur.
---------------------------------------------------------------------------

    \589\ Office of Management and Budget, ``Fiscal Year 2012 Mid-
Session Review: Budget of the U.S. Government.'' http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/12msr.pdf, p. 10.
---------------------------------------------------------------------------

    A number of different approaches have been used in published 
literature to conduct employment analysis. All potential methods of 
estimating employment impacts of a rule have advantages and 
limitations. We seek comment on the analytical approach presented here, 
other appropriate methods for analyzing employment impacts for this 
rulemaking, and the inputs used here for employment analysis.
b. Approaches to Quantitative Employment Analysis
    Measuring the employment impacts of a policy depend on a number of 
inputs and assumptions. For instance, as discussed, assumptions about 
the overall state of unemployment in the economy play a major role in 
measured job impacts. The inputs to the models commonly are the changes 
in quantities or expenditures in the affected sectors; model results 
may vary in different studies depending on the assumptions about the 
levels of those inputs, and which sectors receive those changes. Which 
sectors are included in the study can also affect the results. For 
instance, a study of this program that looks only at employment impacts 
in the refinery sector may find negative effects, because consumers 
will purchase less gasoline; a study that looks only at the auto parts 
sector, on the other hand, may find positive impacts, because the 
program will require redesigned or additional parts for vehicles. In 
both instances, these would only be partial perspectives

[[Page 75155]]

on the overall change in national employment due to Federal regulation.
i. Conceptual Framework for Employment Impacts in the Regulated Sector
    One study by Morgenstern, Pizer, and Shih \590\ provides a 
retrospective look at the impacts of regulation in employment in the 
regulated sectors by estimating the effects on employment of spending 
on pollution abatement for four highly polluting/regulated U.S. 
industries (pulp and paper, plastics, steel, and petroleum refining) 
using data for six years between 1979 and 1991. The paper provides a 
theoretical framework that can be useful for examining the impacts of a 
regulatory change on the regulated sector in the medium to longer term. 
In particular, it identifies three separate ways that employment levels 
may change in the regulated industry in response to a new (or more 
stringent) regulation.
---------------------------------------------------------------------------

    \590\ Morgenstern, Richard D., William A. Pizer, and Jhih-Shyang 
Shih. ``Jobs Versus the Environment: An Industry-Level 
Perspective.'' Journal of Environmental Economics and Management 43 
(2002): 412-436 (Docket EPA-HQ-OAR-2010-0799).
---------------------------------------------------------------------------

     Demand effect: higher production costs due to the 
regulation will lead to higher market prices; higher prices in turn 
reduce demand for the good, reducing the demand for labor to make that 
good. In the authors' words, the ``extent of this effect depends on the 
cost increase passed on to consumers as well as the demand elasticity 
of industry output.''
     Cost effect: as costs go up, plants add more capital and 
labor (holding other factors constant), with potentially positive 
effects on employment. In the authors' words, as ``production costs 
rise, more inputs, including labor, are used to produce the same amount 
of output.''
     Factor-shift effect: post-regulation production 
technologies may be more or less labor-intensive (i.e., more/less labor 
is required per dollar of output). In the authors' words, 
``environmental activities may be more labor intensive than 
conventional production,'' meaning that ``the amount of labor per 
dollar of output will rise,'' though it is also possible that ``cleaner 
operations could involve automation and less employment, for example.''

According to the authors, the ``demand effect'' is expected to have a 
negative effect on employment,\591\ the ``cost effect'' to have a 
positive effect on employment, and the ``factor-shift effect'' to have 
an ambiguous effect on employment. Without more information with 
respect to the magnitude of these competing effects, it is not possible 
to predict the total effect environmental regulation will have on 
employment levels in a regulated sector.
---------------------------------------------------------------------------

    \591\ As will be discussed below, the demand effect in this 
proposal is potentially an exception to this rule. While the 
vehicles become more expensive, they also produce reduced fuel 
expenditures; the reduced fuel costs provide a countervailing impact 
on vehicle sales. As discussed in Preamble Section III.H.1, this 
possibility that vehicles may become more attractive to consumers 
after the program poses a conundrum: Why have interactions between 
vehicle buyers and producers not provided these benefits without 
government intervention?
---------------------------------------------------------------------------

    The authors conclude that increased abatement expenditures 
generally have not caused a significant change in employment in those 
sectors. More specifically, their results show that, on average across 
the industries studied, each additional $1 million spent on pollution 
abatement results in a (statistically insignificant) net increase of 
1.5 jobs.
    This approach to employment analysis has the advantage of carefully 
controlling for many possibly confounding effects in order to separate 
the effect of changes in regulatory costs on employment. It was, 
however, conducted for only four sectors. It could also be very 
difficult to update the study for other sectors, because one of the 
databases on which it relies, the Pollution Abatement Cost and 
Expenditure survey, has been conducted infrequently since 1994, with 
the last survey conducted in 2005. The empirical estimates provided by 
Morgenstern et al. are not relevant to the case of fuel economy 
standards, which are very different from the pollution control 
standards on industrial facilities that were considered in that study. 
In addition, it does not examine the effects of regulation on 
employment in sectors related to but outside of the regulated sector. 
Nevertheless, the theory that Morgenstern et al. developed continues to 
be useful in this context.
    The following discussion of additional methodologies draws from 
Berck and Hoffmann's review of employment models.\592\
---------------------------------------------------------------------------

    \592\ Berck, Peter, and Sandra Hoffmann. ``Assessing the 
Employment Impacts of Environmental and Natural Resource Policy.'' 
Environmental and Resource Economics 22 (2002): 133-156 (Docket EPA-
HQ-OAR-2010-0799) (Docket EPA-HQ-OAR-2010-0799).
---------------------------------------------------------------------------

ii. Computable General Equilibrium (CGE) Models
    Computable general equilibrium (CGE) models are often used to 
assess the impacts of policy. These models include a stylized 
representation of supply and demand curves for all major markets in the 
economy. The labor market is commonly included. CGE models are very 
useful for looking at interaction effects of markets: ``They allow for 
substitution among inputs in production and goods in consumption.'' 
Thus, if one market experiences a change, such as a new regulation, 
then the effects can be observed in all other markets. As a result, 
they can measure the employment changes in the economy due to a 
regulation. Because they usually assume equilibrium in all markets, 
though, they typically lack involuntary unemployment. If the total 
amount of labor changes, it is due to people voluntarily entering or 
leaving the workforce. As a result, these models may not be appropriate 
for measuring effects of a policy on unemployment, because of the 
assumption that there is no involuntary unemployment. In addition, 
because of the assumptions of equilibrium in all markets and forward-
looking consumers and firms, they are designed for examining the long-
run effects of a policy but may offer little insight into its short-run 
effects.
iii. Input-Output (IO) Models
    Input-output models represent the economy through a matrix of 
coefficients that describe the connections between supplying and 
consuming sectors. In that sense, like CGE models, they describe the 
interconnections of the economy. These interconnections look at how 
changes in one sector ripple through the rest of the economy. For 
instance, a requirement for additional technology for vehicles requires 
additional steel, which requires more workers in both the auto and 
steel sectors; the additional workers in those sectors then have more 
money to spend, which leads to more employment in retail sectors. These 
are known as ``multiplier'' effects, because an initial impact in one 
sector gets multiplied through the economy. Unlike CGE models, input-
output models have fixed, linear relationships among the sectors (e.g., 
substitution among inputs or goods is not allowed), and quantity 
supplied need not equal quantity demanded. In particular, these models 
do not allow for price changes--an increase in the demand for labor or 
capital does not result in a change in its price to help reallocate it 
to its best use. As a result, these models cannot capture opportunity 
costs from using resources in one area of the economy over another. The 
multipliers take an initial impact and can increase it substantially.
    IO models are commonly used for regional analysis of projects. In a 
regional analysis, the markets are commonly considered small enough 
that wages and prices are determined outside the region, and any excess

[[Page 75156]]

supply or demand is due to exports and imports (or, in the case of 
labor, emigration or immigration). For national-level employment 
analysis, the use of input-output models requires the assumption that 
workers flow into or out of the labor market perfectly freely. Wages do 
not adjust; instead, people join into or depart from the labor pool as 
production requires them. For other markets as well, there is no 
substitution of less expensive inputs for more expensive ones. As a 
result, IO models provide an upper bound on employment impacts. As 
Berck and Hoffmann note, ``For the same reason, they can be thought of 
as simulating very short-run adjustment,'' in contrast to the CGE's 
implicit assumption of long-run adjustment. Changes in production 
processes, introducing new technologies, or learning over time due to 
new regulatory requirements are also generally not captured by IO 
models, as they are calibrated to already established relationships 
between inputs and outputs.
iv. Hybrid Models
    As Berck and Hoffmann note, input-output models and CGE models 
``represent a continuum of closely related models.'' Though not 
separately discussed by Berck and Hoffmann, some hybrid models combine 
some of the features of CGE models (e.g., prices that can change) with 
input-output relationships. For instance, a hybrid model may include 
the ability to examine disequilibrium phenomena, such as labor being at 
less than full employment. Hybrid models depend on assumptions about 
how adjustments in the economy occur. CGE models characterize 
equilibria but say little about the pathway between them, while IO 
models assume that adjustments are largely constrained by previously 
defined relationships; the effectiveness of hybrid models depends on 
their success in overcoming the limitations of each of these 
approaches. Hybrid models could potentially be used to model labor 
market impacts of various vehicle policy options, although a number of 
judgments need to be made about the appropriate assumptions underlying 
the model as well as the empirical basis for the modeling results.
v. Single Sectors
    It is possible to conduct a bottom-up analysis of the partial 
effect of regulation on employment in a single sector by estimating the 
change in output or expenditures in a sector and multiplying it by an 
estimate of the number of workers per unit of output or expenditures, 
under the assumption that labor demand is proportional to output or 
expenditures. As Berck and Hoffmann note, though, ``Compliance with 
regulations may create additional jobs that are not accounted for.'' 
While such an analysis can approximate the effects in that one sector 
in a simple way, it also may miss important connections to related 
sectors.
vi. Ex-Post Econometric Studies
    A number of ex-post econometric analyses examine the net effect of 
regulation on employment in regulated sectors. Morgenstern, Pizer, and 
Shih (2002), discussed above, and Berman and Bui (2001) are two notable 
examples that rely on highly disaggregated establishment-level time 
series data to estimate longer-run employment effects.\593\ While often 
a sophisticated treatment of the issues analyzed, these studies 
commonly analyze specific scenarios or sectors in the past; care needs 
to be taken in extrapolating their results to other scenarios and to 
the future. For instance, neither of these two studies examines the 
auto industry and are therefore of limited applicability in this 
context.
---------------------------------------------------------------------------

    \593\ Berman, Eli, and Linda T. Bui, (2001) ``Environmental 
Regulation and Labor Demand: Evidence from the South Coast Air 
Basin,'' Journal of Public Economics, 79, 265--295 (Docket EPA-HQ-
OAR-2010-0799).
---------------------------------------------------------------------------

vii. Summary
    All methods of estimating employment impacts of a regulation have 
advantages and limitations. CGE models may be most appropriate for 
long-term impacts, but the usual assumption of equilibrium in the 
employment market means that it is not useful for looking at changes in 
overall employment: overall levels are likely to be premised on full 
employment. IO models, on the other hand, may be most appropriate for 
small-scale, short-term effects, because they assume fixed 
relationships across sectors and do not require market equilibria. 
Hybrid models, which combine some features of CGEs with IO models, 
depend upon key assumptions and economic relationships that are built 
into them. Single-sector models are simple and straightforward, but 
they are often based on the assumptions that labor demand is 
proportional to output, and that other sectors are not affected. 
Finally, econometric models have been developed to evaluate the longer-
run net effects of regulation on sector employment, though these are 
ex-post analyses commonly of specific sectors or situations, and the 
results may not have direct bearing for the regulation being reviewed. 
We seek comment on the analytical approaches presented here, the inputs 
used below for employment analysis, and other appropriate methods for 
analyzing employment impacts for this rulemaking.
c. Employment analysis of this proposal
    As mentioned above, this program is expected to affect employment 
in the regulated sector (auto manufacturing) and other sectors directly 
affected by the proposal: auto parts suppliers, auto dealers, the fuel 
supply market (which will face reduced petroleum production due to 
reduced fuel demand but which may see additional demand for electricity 
or other fuels), and consumers (who will face higher vehicle costs and 
lower fuel expenditures). In addition, as the discussion above 
suggests, each of these sectors could potentially have ripple effects 
in the rest of the economy. These ripple effects depend much more 
heavily on the state of the macroeconomy than do the direct effects. At 
the national level, employment may increase in one industry or region 
and decrease in another, with the net effect being smaller than either 
individual-sector effect. EPA does not attempt to quantify the net 
effects of the regulation on overall national employment.
    The discussion that follows provides a partial, bottom-up 
quantitative estimate of the effects of this proposal on the regulated 
sector (the auto industry; for reasons discussed below, we include some 
quantitative assessment of effects on suppliers to the industry, 
although they are not regulated directly). It also includes qualitative 
discussion of the effects of the proposal on other sectors. Focusing 
quantification of employment impacts on the regulated sector has some 
advantages over quantifying all impacts. First, the analysis relies on 
data generated as part of the rulemaking process, which focuses on the 
regulated sector; as a result, what is presented here is based on 
internally consistent assumptions and estimates made in this proposal. 
Secondly, as discussed above, net effects on employment in the economy 
as a whole depend heavily on the overall state of the economy when this 
rule has its effects. Focusing on the regulated sector provides insight 
into employment effects in that sector without having to make 
assumptions about the state of the economy when this rule has its 
impacts. We include a qualitative discussion of employment effects 
other sectors to provide a broader perspective on the impacts of this 
rule.

[[Page 75157]]

    As noted above, in a full-employment economy, any changes in 
employment will result from people changing jobs or voluntarily 
entering or exiting the workforce. In a full-employment economy, 
employment impacts of this proposal will change employment in specific 
sectors, but it will have small, if any, effect on aggregate 
employment. This rule would take effect in 2017 through 2025; by then, 
the current high unemployment may be moderated or ended. For that 
reason, this analysis does not include multiplier effects, but instead 
focuses on employment impacts in the most directly affected industries. 
Those sectors are likely to face the most concentrated employment 
impacts. The agencies seek comment on other sectors that are likely to 
be significantly affected and thus warrant further analysis in the 
final rulemaking analysis.
i. Employment Impacts in the Auto Industry
    Following the Morgenstern et al. conceptual framework for the 
impacts of regulation on employment in the regulated sector, we 
consider three effects for the auto sector: the demand effect, the cost 
effect, and the factor shift effect. However, we are only able to offer 
quantitative estimates for the cost effect. We note that these 
estimates, based on extrapolations from current data, become more 
uncertain as time goes on.
(1) The Demand Effect
    The demand effect depends on the effects of this proposal on 
vehicle sales. If vehicle sales increase, then more people will be 
required to assemble vehicles and their components. If vehicle sales 
decrease, employment associated with these activities will 
unambiguously decrease. Unlike in Morgenstern et al.'s study, where the 
demand effect unambiguously decreased employment, there are 
countervailing effects in the vehicle market due to the fuel savings 
resulting from this program. On one hand, this proposal will increase 
vehicle costs; by itself, this effect would reduce vehicle sales. On 
the other hand, this proposal will reduce the fuel costs of operating 
the vehicle; by itself, this effect would increase vehicle sales, 
especially if potential buyers have an expectation of higher fuel 
prices. The sign of demand effect will depend on which of these effects 
dominates. Because, as described in Chapter 8.1, we have not quantified 
the impact on sales for this proposal, we do not quantify the demand 
effect.
(2) The Cost Effect
    The demand effect, discussed above, measures employment changes due 
to new vehicle sales only. The cost effect measures employment impacts 
due to the new or additional technologies needed for vehicles to comply 
with the proposed standards. As DRIA Chapter 8.2.3.1.3 explains, we 
estimate the cost effect by multiplying the costs of rule compliance by 
ratios of workers to each $1 million of expenditures in that sector. 
The magnitude and relative size of these ratios depends on the sectors' 
labor intensity of the production process.
    The use of these ratios has both advantages and limitations. It is 
often possible to estimate these ratios for quite specific sectors of 
the economy; as a result, it is not necessary to extrapolate employment 
ratios from possibly unrelated sectors. On the other hand, these 
estimates are averages for the sectors, covering all the activities in 
those sectors; they may not be representative of the labor required 
when expenditures are required on specific activities, as the factor 
shift effect (discussed below) indicates. In addition, these estimates 
do not include changes in sectors that supply these sectors, such as 
steel or electronics producers. They thus may best be viewed as the 
effects on employment in the auto sector due to the changes in 
expenditures in that sector, rather than as an assessment of all 
employment changes due to these changes in expenditures.
    Some of the costs of this proposal will be spent directly in the 
auto manufacturing sector, but some of the costs will be spent in the 
auto parts manufacturing sector. Because we do not have information on 
the proportion of expenditures in each sector, we separately present 
the ratios for both the auto manufacturing sector and the auto parts 
manufacturing sector. These are not additive, but should instead be 
considered as a range of estimates for the cost effect, depending on 
which sector adds technologies to the vehicles to comply with the 
regulation.
    We use several public sources for estimates of employment per $1 
million expenditures: The U.S. Bureau of Labor Statistics' (BLS) 
Employment Requirements Matrix (ERM); \594\ the Census Bureau's Annual 
Survey of Manufactures \595\ (ASM); and the Census Bureau's Economic 
Census. DRIA Chapter 8.2.3.1.2 provides details on all these sources. 
The ASM and the Economic Census have more sectoral detail than the ERM; 
we provide estimates for both Motor Vehicle Manufacturing and Light 
Duty Vehicle Manufacturing sectors for comparison purposes. For all of 
these, we adjust for the ratio of domestic production to domestic 
sales. The maximum value for employment impacts per $1 million 
expenditures (after accounting for the share of domestic production) in 
2009 was estimated to be 2.049 if all the additional costs are in the 
parts sector; the minimum value is 0.407, if all the additional costs 
are in the light-duty vehicle manufacturing sector: That is, the range 
of employment impacts is between 0.4 and 2 additional jobs per $1 
million expenditures in the sector. The different data sources provide 
similar magnitudes for the estimates for the sectors. Parts 
manufacturing appears to be more labor-intensive than vehicle 
manufacturing; light-duty vehicle manufacturing appears to be slightly 
less labor-intensive than motor vehicle manufacturing as a whole. As 
discussed in the DRIA, trends in the BLS ERM are used to estimate 
productivity improvements over time that are used to adjust these 
ratios over time. Table III-87 shows the cost estimates developed for 
this rule, discussed in Section III.H.2. Multiplying those cost 
estimates by the maximum and minimum values for the cost effect 
(maximum using the ASM ratio if all additional costs are in the parts 
sector, and minimum using the Economic Census ratio for the light-duty 
sector if all additional costs are borne by auto manufacturers) 
provides the cost effect employment estimates. This is a simple way to 
examine the relationship between labor required and expenditure, and we 
seek comment on refining this method.
---------------------------------------------------------------------------

    \594\ http://www.bls.gov/emp/ep_data_emp_requirements.htm.
    \595\ http://www.census.gov/manufacturing/asm/index.html.
---------------------------------------------------------------------------

    While we estimate employment impacts beginning with the first year 
of the standard (2017), some of these job gains may occur earlier as 
auto manufacturers and parts suppliers hire staff in anticipation of 
compliance with the standard.

[[Page 75158]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.154

(3) The Factor Shift Effect
    The factor shift effect looks at the effects on employment due to 
changes in labor intensity associated with a regulation. As noted 
above, the estimates of the cost effect assume constant labor per $1 
million in expenditures, though the new technologies may be either more 
or less labor-intensive than the existing ones. An estimate of the 
factor shift effect would either increase or decrease the estimate used 
for the cost effect.
    We are not quantifying the factor shift effect here, for lack of 
data on the labor intensity of all the possible technologies that 
manufacturers could use to comply with the proposed standards. As 
discussed in DRIA Chapter 8.2.3.1.3, though, for a subset of the 
technologies, EPA-sponsored research (discussed in Chapter 3.2.1.1 of 
the Joint TSD), which compared new technologies to existing ones at the 
level of individual components, found that labor use for the new 
technologies increased: The new fuel-saving technologies use more labor 
than the baseline technologies. For instance, switching from a 
conventional mid-size vehicle to a hybrid version of that vehicle 
involves an additional $395.85 in labor costs, which we estimate to 
require an additional 8.6 hours per vehicle.\596\ For a subset of the 
technologies likely to be used to meet the standards in this proposal, 
then, the factor shift effect increases labor demand, at least in the 
short run; in the long run, as with all technologies, the cost 
structure is likely to change due to learning, economies of scale, etc. 
The technologies examined in this research are, however, only a subset 
of the technologies that auto makers may use to comply with the 
standards proposed here. As a result, these results cannot be 
considered definitive evidence that the factor-shift effect increases 
employment for this rule. We therefore do not quantify the factor shift 
effect.
---------------------------------------------------------------------------

    \596\ FEV, Inc. ``Light Duty Technology Cost Analysis, Power-
Split and P2 HEV Case Studies.'' EPA Report EPA-420-R-11--015, 
November 2011 (Docket EPA-HQ-OAR-2010-0799).

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[[Page 75159]]

(4) Summary of Employment Effects in the Auto Sector
    While we are not able to quantify the demand or factor shift 
effects, the cost effect results show that the employment effects of 
the increased spending in the regulated sector (and, possibly, the 
parts sector) are expected to be positive and on the order of a few 
thousand in the initial years of the program. As noted above, the motor 
vehicle and parts manufacturing sectors employed about 677,000 people 
in 2010, with automobile and light truck manufacturing accounting for 
about 129,000 of that total.
ii. Effects on Employment for Auto Dealers
    The effects of the proposed standards on employment for auto 
dealers depend principally on the effects of the standards on light 
duty vehicle sales. In addition, auto dealers may be affected by 
changes in maintenance and service costs. Increases in those costs are 
likely to increase labor demand in dealerships.
    Although this proposal predicts very small penetration of advanced 
technology vehicles, the uncertainty on consumer acceptance of such 
technology vehicles is even greater. As discussed in Section III.H.1.b, 
consumers may find some characteristics of electric vehicles and plug-
in hybrid electric vehicles, such as the ability to fuel with 
electricity rather than gasoline, attractive; they may find other 
characteristics, such as the limited range for electric vehicles, 
undesirable. As a result, some consumers will find that EVs will meet 
their needs, but other buyers will choose more conventional vehicles. 
Auto dealers may play a major role in explaining the merits and 
disadvantages of these new technologies to vehicle buyers. There may be 
a temporary need for increased employment to train sales staff in the 
new technologies as the new technologies become available.
iii. Effects on Employment in the Auto Parts Sector
    As discussed in the context of employment in the auto industry, 
some vehicle parts are made in-house by auto manufacturers; others are 
made by independent suppliers who are not directly regulated, but who 
will be affected by the proposed standards as well. The additional 
expenditures on technologies are expected to have a positive effect on 
employment in the parts sector as well as the manufacturing sector; the 
breakdown in employment between the two sectors is difficult to 
predict. The effects on the parts sector also depend on the effects of 
the proposed standards on vehicle sales and on the labor intensity of 
the new technologies, qualitatively in the same ways as for the auto 
manufacturing sector.
iv. Effects on Employment for Fuel Suppliers
    In addition to the effects on the auto manufacturing and parts 
sectors, these rules will result in changes in fuel use that lower GHG 
emissions. Fuel saving, principally reductions in liquid fuels such as 
gasoline and diesel, will affect employment in the fuel suppliers 
industry sectors throughout the supply chain, from refineries to 
gasoline stations. To the extent that the proposed standards result in 
increased use of electricity, natural gas, or other fuels, employment 
effects will result from providing these fuels and developing the 
infrastructure to supply them to consumers.
    Expected petroleum fuel consumption reductions can be found in 
Section III.H.3. While those figures represent fuel savings for 
purchasers of fuel, it represents a loss in value of output for the 
petroleum refinery industry, fuel distribution, and gasoline stations. 
The loss of expenditures to petroleum fuel suppliers throughout the 
petroleum fuel supply chain, from the petroleum refiners to the 
gasoline stations, is likely to result in reduced employment in these 
sectors.
    This rule is also expected to lead to increases in electricity 
consumption by vehicles, as discussed in Section III.H.4. This new fuel 
may require additional infrastructure, such as electricity charging 
locations. Providing this infrastructure will require some increased 
employment. In addition, the generation of electricity will also 
require some additional labor. We have insufficient information at this 
time to predict whether the increases in labor associated with 
increased infrastructure provision and fuel generation for these newer 
fuels will be greater or less than the employment reductions associated 
with reduced demand for petroleum fuels.
v. Effects on Employment Due to Impacts on Consumer Expenditures
    As a result of these proposed standards, consumers will pay a 
higher up-front cost for the vehicles, but they will recover those 
costs in a fairly short payback period (see Section III.H.10.b); 
indeed, people who finance their vehicles are expected to find that 
their fuel savings per month exceed the increase in the loan cost 
(though this depends on the particular loan rate a consumer receives). 
As a result, consumers will have additional money to spend on other 
goods and services, though, for those who do not finance their 
vehicles, it will occur after the initial payback period. These 
increased expenditures will support employment in those sectors where 
consumers spend their savings.
    These increased expenditures will occur in 2017 and beyond. If the 
economy returns to full employment by that time, any change in consumer 
expenditures would primarily represent a shift in employment among 
sectors. If, on the other hand, the economy still has substantial 
unemployment, these expenditures would contribute to employment through 
increased consumer demand.
d. Summary
    The primary employment effects of this proposal are expected to be 
found throughout several key sectors: auto manufacturers, auto dealers, 
auto parts manufacturing, fuel production and supply, and consumers. 
This rule initially takes effect in model year 2017, a time period 
sufficiently far in the future that the current sustained high 
unemployment at the national level may be moderated or ended. In an 
economy with full employment, the primary employment effect of a 
rulemaking is likely to be to move employment from one sector to 
another, rather than to increase or decrease employment. For that 
reason, we focus our partial quantitative analysis on employment in the 
regulated sector, to examine the impacts on that sector directly. We 
discuss the likely direction of other impacts in the regulated sector 
as well as in other directly related sectors, but we do not quantify 
those impacts, because they are more difficult to quantify with 
reasonable accuracy, particularly so far into the future.
    For the regulated sector, we have not quantified the demand effect. 
The cost effect is expected to increase employment by 600-3,600 workers 
in 2017 depending on the share of that employment that is in the auto 
manufacturing sector compared to the auto parts manufacturing sector. 
As mentioned above, some of these job gains may occur earlier as auto 
manufacturers and parts suppliers hire staff to prepare to comply with 
the standard. The demand effect is ambiguous and depends on changes in 
vehicle sales, which are not quantified for this proposal. Though we do 
not have estimates of the factor shift effect for all potential 
compliance technologies, the evidence which we do have for some 
technologies suggests that

[[Page 75160]]

many of the technologies will have increased labor needs.
    Effects in other sectors that are predicated on vehicle sales are 
also ambiguous. Changes in vehicle sales are expected to affect labor 
needs in auto dealerships and in parts manufacturing. Increased 
expenditures for auto parts are expected to require increased labor to 
build parts, though this effect also depends on any changes in the 
labor intensity of production; as noted, the subset of potential 
compliance technologies for which data are available show increased 
labor requirements. Reduced fuel production implies less employment in 
the petroleum sectors. Finally, consumer spending is expected to affect 
employment through changes in expenditures in general retail sectors; 
net fuel savings by consumers are expected to increase demand (and 
therefore employment) in other sectors.

I. Statutory and Executive Order Reviews

a. Executive Order 12866: ``Regulatory Planning and Review and 
Executive Order 13563: Improving Regulation and Regulatory Review''
    Under section 3(f)(1) of Executive Order 12866 (58 FR 51735, 
October 4, 1993), this action is an ``economically significant 
regulatory action'' because it is likely to have an annual effect on 
the economy of $100 million or more. Accordingly, EPA submitted this 
action to the Office of Management and Budget (OMB) for review under 
Executive Orders 12866 and 13563 (76 FR 3821, January 21, 2011) and any 
changes made in response to OMB recommendations have been documented in 
the docket for this action as required by CAA section 307(d)(4)(B)(ii).
    In addition, EPA prepared an analysis of the potential costs and 
benefits associated with this action. This analysis is contained in the 
Draft Regulatory Impact Analysis, which is available in the docket for 
this rulemaking and at the docket internet address listed under 
ADDRESSES above.
b. Paperwork Reduction Act
    The information collection requirements in this proposed rule have 
been submitted for approval to the Office of Management and Budget 
(OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The 
Information Collection Request (ICR) document prepared by EPA has been 
assigned EPA ICR number 0783.61.
    The Agency proposes to collect information to ensure compliance 
with the provisions in this rule. This includes a variety of 
requirements for vehicle manufacturers. Section 208(a) of the Clean Air 
Act requires that vehicle manufacturers provide information the 
Administrator may reasonably require to determine compliance with the 
regulations; submission of the information is therefore mandatory. We 
will consider confidential all information meeting the requirements of 
section 208(c) of the Clean Air Act.
    As shown in Table III-88, the total annual reporting burden 
associated with this proposal is about 5,100 hours and $1.36 million, 
based on a projection of 33 respondents. The estimated burden for 
vehicle manufacturers is a total estimate for new reporting 
requirements. Burden means the total time, effort, or financial 
resources expended by persons to generate, maintain, retain, or 
disclose or provide information to or for a Federal agency. This 
includes the time needed to review instructions; develop, acquire, 
install, and utilize technology and systems for the purposes of 
collecting, validating, and verifying information, processing and 
maintaining information, and disclosing and providing information; 
adjust the existing ways to comply with any previously applicable 
instructions and requirements; train personnel to be able to respond to 
a collection of information; search data sources; complete and review 
the collection of information; and transmit or otherwise disclose the 
information.
[GRAPHIC] [TIFF OMITTED] TP01DE11.155

    An agency may not conduct or sponsor, and a person is not required 
to respond to a collection of information unless it displays a 
currently valid OMB control number. The OMB control numbers for EPA's 
regulations in 40 CFR are listed in 40 CFR part 9.
    To comment on the Agency's need for this information, the accuracy 
of the provided burden estimates, and any suggested methods for 
minimizing respondent burden, including the use of automated collection 
techniques, EPA has established a public docket for this rule, which 
includes this ICR, under Docket ID number EPA-HQ-OAR-2010-0799. Submit 
any comments related to the ICR for this proposed rule to EPA and OMB. 
See `Addresses' section at the beginning of this notice for where to 
submit comments to EPA. Send comments to OMB at the Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
725 17th Street NW., Washington, DC 20503, Attention: Desk Office for 
EPA. Since OMB is required to make a decision concerning the ICR 
between 30 and 60 days after December 1, 2011, a comment to OMB is best 
assured of having its full effect if OMB receives it by January 3, 
2012. The final rule will respond to any OMB or public comments on the 
information collection requirements contained in this proposal.
c. Regulatory Flexibility Act
    The Regulatory Flexibility Act (RFA) generally requires an agency 
to prepare a regulatory flexibility analysis of any rule subject to 
notice and comment rulemaking requirements under the Administrative 
Procedure Act or any other statute unless the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities. Small entities include small businesses, 
small organizations, and small governmental jurisdictions.

[[Page 75161]]

    For purposes of assessing the impacts of this rule on small 
entities, small entity is defined as: (1) A small business as defined 
by the Small Business Administration's (SBA) regulations at 13 CFR 
121.201 (see table below); (2) a small governmental jurisdiction that 
is a government of a city, county, town, school district or special 
district with a population of less than 50,000; and (3) a small 
organization that is any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.
    Table III-89 provides an overview of the primary SBA small business 
categories included in the light-duty vehicle sector:
[GRAPHIC] [TIFF OMITTED] TP01DE11.156

    After considering the economic impacts of today's proposal on small 
entities, EPA certifies that this action will not have a significant 
economic impact on a substantial number of small entities. As with the 
MY 2012-2016 GHG standards, EPA is proposing to exempt manufacturers 
meeting SBA's definition of small business as described in 13 CFR 
121.201 due to unique issues involved with establishing appropriate GHG 
standards for these small businesses and the potential need to develop 
a program that would be structured differently for them (which would 
require more time), and the extremely small emissions contribution of 
these entities. EPA would instead consider appropriate GHG standards 
for these entities as part of a future regulatory action.
    Potentially affected small entities fall into three distinct 
categories of businesses for light-duty vehicles: Small volume 
manufacturers (SVMs), independent commercial importers (ICIs), and 
alternative fuel vehicle converters. Based on our preliminary 
assessment, EPA has identified a total of about 21 entities that fit 
the Small Business Administration (SBA) criterion of a small business. 
There are about 4 small manufacturers, including three electric vehicle 
manufacturers, 8 ICIs, and 9 alternative fuel vehicle converters in the 
light-duty vehicle market which are small businesses (no major vehicle 
manufacturers meet the small-entity criteria as defined by SBA). EPA 
estimates that these small entities comprise less than 0.1 percent of 
the total light-duty vehicle sales in the U.S., and therefore the 
proposed exemption will have a negligible impact on the GHG emissions 
reductions from the proposed standards.
    As discussed in Section III.B.7, EPA is proposing to allow small 
businesses to waive their small entity exemption and optionally certify 
to the GHG standards. This would allow small entity manufacturers to 
earn CO2 credits under the GHG program, if their actual 
fleetwide CO2 performance was better

[[Page 75162]]

than their fleetwide CO2 target standard. EPA proposes to 
make the GHG program opt-in available starting in MY 2014, as the MY 
2012, and potentially the MY 2013, certification process will have 
already occurred by the time this rulemaking is finalized. EPA is also 
proposing that manufacturers certifying to the GHG standards for MY 
2014 would be eligible to generate early credits for vehicles sold in 
MY 2012 and MY 2013. Manufacturers waiving their small entity exemption 
would be required to meet all aspects of the GHG standards and program 
requirements across their entire product line. However, the exemption 
waiver would be optional for small entities and presumably 
manufacturers would only opt into the GHG program if it is economically 
advantageous for them to do so, for example through the generation and 
sale of CO2 credits. Therefore, EPA believes adding this 
voluntary option does not affect EPA's determination that the proposed 
standards would impose no significant adverse impact on small entities.
    Some commenters to the 2012-2016 light duty vehicle GHG rulemaking 
argued that EPA is obligated under the RFA to consider indirect impacts 
of the rules in assessing impacts on small businesses, in particular 
potential impacts on stationary sources that would not be directly 
regulated by the rule. EPA disagrees. When considering whether a rule 
should be certified, the RFA requires an agency to look only at the 
small entities to which the proposed rule will apply and which will be 
subject to the requirement of the specific rule in question. 5 U.S.C. 
603, 605 (b); Mid-Tex Elec. Coop. v. FERC, 773 F.3d 327, 342 (DC Cir. 
1985). Reading section 605 in light of section 603, we conclude that an 
agency may properly certify that no regulatory flexibility analysis is 
necessary when it determines that the rule will not have a significant 
economic impact on a substantial number of small entities that are 
subject to the requirements of the rule; see also Cement Kiln Recycling 
Coalition, v. EPA, 255 F.3d 855, 869 (DC Cir. 2001). DC Circuit has 
consistently rejected the contention that the RFA applies to small 
businesses indirectly affected by the regulation of other 
entities.\597\
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    \597\ In any case, any impacts on stationary sources arise 
because of express statutory requirements in the CAA, not as a 
result of vehicle GHG regulation. Moreover, GHGs have become subject 
to regulation under the CAA by virtue of other regulatory actions 
taken by EPA before this proposal.
---------------------------------------------------------------------------

    Since the proposal would regulate exclusively large motor vehicle 
manufacturers and small vehicle manufacturers are exempted from the 
standards, EPA is properly certifying that the 2017-2025 standards 
would not have a significant economic impact on a substantial number of 
small entities directly subject to the rule or otherwise would have a 
positive economic effect on all of the small entities opting in to the 
rule.
    We continue to be interested in the potential impacts of the 
proposed rule on small entities and welcome comments on issues related 
to such impacts.
d. Unfunded Mandates Reform Act
    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector.
    This proposal contains no Federal mandates (under the regulatory 
provisions of Title II of the UMRA) for State, local, or tribal 
governments. The rule imposes no enforceable duty on any State, local 
or tribal governments. This action is also not subject to the 
requirements of section 203 of UMRA because EPA has determined that 
this rule contains no regulatory requirements that might significantly 
or uniquely affect small governments. EPA has determined that this 
proposal contains a Federal mandate that may result in expenditures of 
$100 million or more for the private sector in any one year. EPA 
believes that the proposal represents the least costly, most cost-
effective approach to revise the light duty vehicle standards as 
authorized by section 202(a)(1). See Section III.A.2.a above. The costs 
and benefits associated with the proposal are discussed above and in 
the Draft Regulatory Impact Analysis, as required by the UMRA.
e. Executive Order 13132: ``Federalism''
    This proposed action would not have federalism implications. It 
will not have substantial direct effects on the States, on the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government, as specified in Executive Order 13132. This rulemaking 
would apply to manufacturers of motor vehicles and not to state or 
local governments; state and local governments that purchase new model 
year 2017 and later vehicles will enjoy substantial fuel savings from 
these more fuel efficient vehicles. Thus, Executive Order 13132 does 
not apply to this action. Although section 6 of Executive Order 13132 
does not apply to this action, EPA did consult with representatives of 
state and local governments in developing this action.
    In the spirit of Executive Order 13132, and consistent with EPA 
policy to promote communications between EPA and State and local 
governments, EPA specifically solicits comment on this proposed action 
from State and local officials.
f. Executive Order 13175: ``Consultation and Coordination with Indian 
Tribal Governments''
    This proposed rule does not have tribal implications, as specified 
in Executive Order 13175 (65 FR 67249, November 9, 2000). This rule 
will be implemented at the Federal level and impose compliance costs 
only on vehicle manufacturers. Tribal governments would be affected 
only to the extent they purchase and use regulated vehicles; tribal 
governments that purchase new model year 2017 and later vehicles will 
enjoy substantial fuel savings from these more fuel efficient vehicles. 
Thus, Executive Order 13175 does not apply to this rule. EPA 
specifically solicits additional comment on this proposed rule from 
tribal officials.
g. Executive Order 13045: ``Protection of Children from Environmental 
Health Risks and Safety Risks''
    This action is subject to EO 13045 (62 FR 19885, April 23, 1997) 
because it is an economically significant regulatory action as defined 
by EO 12866, and EPA believes that the environmental health or safety 
risk addressed by this action may have a disproportionate effect on 
children. Climate change impacts, and in particular the determinations 
of the Administrator in the Endangerment and Cause or Contribute 
Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act 
(74 FR 66496, December 15, 2009), are summarized in Section III.F.2. In 
making those Findings, the Administrator placed weight on the fact that 
certain groups, including children, are particularly vulnerable to 
climate-related health effects. In those Findings, the Administrator 
determined that the health effects of climate change linked to observed 
and projected elevated concentrations of GHGs include the increased 
likelihood of more frequent and intense heat waves, increases in ozone 
concentrations over broad areas of the country, an increase of the 
severity of extreme weather events such as hurricanes and floods, and 
increasing severity of coastal storms due to rising sea levels. These 
effects can all increase mortality and morbidity, especially in

[[Page 75163]]

vulnerable populations such as children, the elderly, and the poor. In 
addition, the occurrence of wildfires in North America have increased 
and are likely to intensify in a warmer future. PM emissions from these 
wildfires can contribute to acute and chronic illnesses of the 
respiratory system, including pneumonia, upper respiratory diseases, 
asthma, and chronic obstructive pulmonary disease, especially in 
children.
    EPA has estimated reductions in projected global mean surface 
temperature and sea level rise as a result of reductions in GHG 
emissions associated with the standards proposed in this action 
(Section III.F.3). Due to their vulnerability, children may receive 
disproportionate benefits from these reductions in temperature and the 
subsequent reduction of increased ozone and severity of weather events.
    The public is invited to submit comments or identify peer-reviewed 
studies and data that assess effects of early life exposure to the 
pollutants addressed by this proposed rule.
h. Executive Order 13211: ``Energy Effects''
    Executive Order 13211; \598\ applies to any rule that: (1) Is 
determined to be economically significant as defined under E.O. 12866, 
and is likely to have a significant adverse effect on the supply, 
distribution, or use of energy; or (2) that is designated by the 
Administrator of the Office of Information and Regulatory Affairs as a 
significant energy action. If the regulatory action meets either 
criterion, we must evaluate the adverse energy effects of the proposed 
rule and explain why the proposed regulation is preferable to other 
potentially effective and reasonably feasible alternatives considered 
by us.
---------------------------------------------------------------------------

    \598\ 66 FR 28355 (May 18, 2001).
---------------------------------------------------------------------------

    The proposed rule seeks to establish passenger car and light truck 
fuel economy standards that would significantly reduce the consumption 
of petroleum, would achieve energy security benefits, and would not 
have any adverse energy effects (Section III.H.7). In fact, this rule 
has a positive effect on energy supply and use. Because the GHG 
emission standards finalized today result in significant fuel savings, 
this rule encourages more efficient use of fuels. Accordingly, this 
proposed rulemaking action is not designated as a significant energy 
action as defined by E.O. 13211.
i. National Technology Transfer and Advancement Act
    Section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (``NTTAA''), Public Law 104-113, 12(d) (15 U.S.C. 272 note) 
directs EPA to use voluntary consensus standards in its regulatory 
activities unless to do so would be inconsistent with applicable law or 
otherwise impractical. Voluntary consensus standards are technical 
standards (e.g., materials, specifications, test methods, sampling 
procedures, and business practices) that are developed or adopted by 
voluntary consensus standards bodies. NTTAA directs EPA to provide 
Congress, through OMB, explanations when the Agency decides not to use 
available and applicable voluntary consensus standards.
    For CO2 emissions, EPA is proposing to collect data over 
the same tests that are used for the MY 2012-2016 CO2 
standards and for the CAFE program. This will minimize the amount of 
testing done by manufacturers, since manufacturers are already required 
to run these tests. For A/C credits, EPA is proposing to use a 
consensus methodology developed by the Society of Automotive Engineers 
(SAE) and also a new A/C test. EPA knows of no consensus standard 
available for the A/C test.
j. Executive Order 12898: ``Federal Actions To Address Environmental 
Justice in Minority Populations and Low-Income Populations''
    Executive Order (E.O.) 12898 (59 FR 7629 (Feb. 16, 1994)) 
establishes federal executive policy on environmental justice. Its main 
provision directs federal agencies, to the greatest extent practicable 
and permitted by law, to make environmental justice part of their 
mission by identifying and addressing, as appropriate, 
disproportionately high and adverse human health or environmental 
effects of their programs, policies, and activities on minority 
populations and low-income populations in the United States.
    With respect to GHG emissions, EPA has determined that this 
proposed rule will not have disproportionately high and adverse human 
health or environmental effects on minority or low-income populations 
because it increases the level of environmental protection for all 
affected populations without having any disproportionately high and 
adverse human health or environmental effects on any population, 
including any minority or low-income population. The reductions in 
CO2 and other GHGs associated with the proposed standards 
will affect climate change projections, and EPA has estimated 
reductions in projected global mean surface temperatures and sea-level 
rise (Section III.F.3). Within settlements experiencing climate change, 
certain parts of the population may be especially vulnerable; these 
include the poor, the elderly, those already in poor health, the 
disabled, those living alone, and/or indigenous populations dependent 
on one or a few resources.\599\ Therefore, these populations may 
receive disproportionate benefits from reductions in GHGs.
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    \599\ U.S. EPA. (2009). Technical Support Document for 
Endangerment or Cause or Contribute Findings for Greenhouse Gases 
under Section 202(a) of the Clean Air Act. Washington, DC: U.S. EPA. 
Retrieved on April 21, 2009 from http://epa.gov/climatechange/endangerment/downloads/TSD_Endangerment.pdf.
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    For non-GHG co-pollutants such as ozone, PM2.5, and 
toxics, EPA has concluded that it is not practicable to determine 
whether there would be disproportionately high and adverse human health 
or environmental effects on minority and/or low income populations from 
this proposed rule.

J. Statutory Provisions and Legal Authority

    Statutory authority for the vehicle controls proposed today is 
found in section 202(a) (which authorizes standards for emissions of 
pollutants from new motor vehicles which emissions cause or contribute 
to air pollution which may reasonably be anticipated to endanger public 
health or welfare), 202(d), 203-209, 216, and 301 of the Clean Air Act, 
42 U.S.C. 7521(a), 7521(d), 7522, 7523, 7524, 7525, 7541, 7542, 7543, 
7550, and 7601. Statutory authority for EPA to establish CAFE test 
procedures is found in section 32904(c) of the Energy Policy and 
Conservation Act, 49 U.S.C. section 32904(c).

IV. NHTSA Proposed Rule for Passenger Car and Light Truck CAFE 
Standards for Model Years 2017-2025

A. Executive Overview of NHTSA Proposed Rule

1. Introduction
    The National Highway Traffic Safety Administration (NHTSA) is 
proposing Corporate Average Fuel Economy (CAFE) standards for passenger 
automobiles (passenger cars) and nonpassenger automobiles (light 
trucks) for model years (MY) 2017-2025. NHTSA's proposed CAFE standards 
would require passenger cars and light trucks to meet an estimated 
combined average of 49.6 mpg in MY 2025. This represents an average 
annual increase of

[[Page 75164]]

4 percent from the estimated 34.4 mpg combined fuel economy level 
expected in MY 2016. Due to these proposed standards, we project total 
fuel savings of approximately 173 billion gallons over the lifetimes of 
the vehicles sold in model years 2017-2025, with corresponding net 
societal benefits of over $358 billion using a 3 percent discount 
rate,\600\ or $262 billion using a 7 percent discount rate.
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    \600\ This value is based on what NHTSA refers to as ``Reference 
Case'' inputs, which are based on the assumptions that NHTSA has 
employed for its main analysis (as opposed to sensitivity analyses 
to examine the effect of variations in the assumptions on costs and 
benefits). The Reference Case inputs include fuel prices based on 
the AEO 2011 Reference Case, a 3 percent and a 7 percent discount 
rate, a 10 percent rebound effect, a value for the social cost of 
carbon (SCC) of $22/metric ton CO2 (in 2010, rising to 
$45/metric ton in 2050, at a 3 percent discount rate), etc. For a 
full listing of the Reference Case input assumptions, see Section 
IV.C.3 below.
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    While NHTSA has been setting fuel economy standards since the 
1970s, as discussed in Section I, NHTSA's proposed MYs 2017-2025 CAFE 
standards are part of a National Program made up of complementary 
regulations by NHTSA and the Environmental Protection Agency. Today's 
proposed standards build upon the success of the first phase of the 
National Program, finalized on May 7, 2010, in which NHTSA and EPA set 
coordinated CAFE and greenhouse gas (GHG) standards for MYs 2012-2016 
passenger cars and light trucks. Because of the very close relationship 
between improving fuel economy and reducing carbon dioxide 
(CO2) tailpipe emissions, a large majority of the projected 
benefits are achieved jointly with EPA's GHG rule, described in detail 
above in Section III of this preamble. These proposed CAFE standards 
are consistent with the President's National Fuel Efficiency Policy 
announcement of May 19, 2009, which called for harmonized rules for all 
automakers, instead of three overlapping and potentially inconsistent 
requirements from DOT, EPA, and the California Air Resources Board. And 
finally, the proposed CAFE standards and the analysis supporting them 
also respond to President's Obama's May 2010 memorandum requesting the 
agencies to develop, through notice and comment rulemaking, a 
coordinated National Program for passenger cars and light trucks for 
MYs 2017 to 2025.
2. Why does NHTSA set CAFE standards for passenger cars and light 
trucks?
    Improving vehicle fuel economy has been long and widely recognized 
as one of the key ways of achieving energy independence, energy 
security, and a low carbon economy.\601\ The significance accorded to 
improving fuel economy reflects several factors. Conserving energy, 
especially reducing the nation's dependence on petroleum, benefits the 
U.S. in several ways. Improving energy efficiency has benefits for 
economic growth and the environment, as well as other benefits, such as 
reducing pollution and improving security of energy supply. More 
specifically, reducing total petroleum use decreases our economy's 
vulnerability to oil price shocks. Reducing dependence on oil imports 
from regions with uncertain conditions enhances our energy security. 
Additionally, the emission of CO2 from the tailpipes of cars 
and light trucks due to the combustion of petroleum is one of the 
largest sources of U.S. CO2 emissions.\602\ Using vehicle 
technology to improve fuel economy, and thereby reducing tailpipe 
emissions of CO2, is one of the three main measures for 
reducing those tailpipe emissions of CO2.\603\ The two other 
measures for reducing the tailpipe emissions of CO2 are 
switching to vehicle fuels with lower carbon content and changing 
driver behavior, i.e., inducing people to drive less.
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    \601\ Among the reports and studies noting this point are the 
following:
    John Podesta, Todd Stern and Kim Batten, ``Capturing the Energy 
Opportunity; Creating a Low-Carbon Economy,'' Center for American 
Progress (November 2007), pp. 2, 6, 8, and 24-29, available at: 
http://www.americanprogress.org/issues/2007/11/pdf/energy_chapter.pdf (last accessed Sept. 24, 2011).
    Sarah Ladislaw, Kathryn Zyla, Jonathan Pershing, Frank 
Verrastro, Jenna Goodward, David Pumphrey, and Britt Staley, ``A 
Roadmap for a Secure, Low-Carbon Energy Economy; Balancing Energy 
Security and Climate Change,'' World Resources Institute and Center 
for Strategic and International Studies (January 2009), pp. 21-22; 
available at: http://pdf.wri.org/secure_low_carbon_energy_economy_roadmap.pdf (last accessed Sept. 24, 2011).
    Alliance to Save Energy et al., ``Reducing the Cost of 
Addressing Climate Change Through Energy Efficiency'' (2009), 
available at: http://www.aceee.org/files/pdf/white-paper/ReducingtheCostofAddressingClimateChange_synopsis.pdf (last 
accessed Sept. 24, 2011).
    John DeCicco and Freda Fung, ``Global Warming on the Road; The 
Climate Impact of America's Automobiles,'' Environmental Defense 
(2006) pp. iv-vii; available at: http://www.edf.org/sites/default/files/5301_Globalwarmingontheroad_0.pdf (last accessed Sept. 24, 
2011).
    ``Why is Fuel Economy Important?,'' a Web page maintained by the 
Department of Energy and Environmental Protection Agency, available 
at http://www.fueleconomy.gov/feg/why.shtml (last accessed Sept. 24, 
2011);
    Robert Socolow, Roberta Hotinski, Jeffery B. Greenblatt, and 
Stephen Pacala, ``Solving The Climate Problem: Technologies 
Available to Curb CO2 Emissions,'' Environment, volume 
46, no. 10, 2004, pages 8-19, available at: http://www.princeton.edu/mae/people/faculty/socolow/ENVIRONMENTDec2004issue.pdf (last accessed Sept. 24, 2011).
    \602\ EPA Inventory of U.S. Greenhouse Gas Emissions and Sinks: 
1990-2008 (April 2010), pp. ES-5, ES-8, and 2-17. Available at 
http://www.epa.gov/climatechange/emissions/usgginv_archive.html 
(last accessed Sept. 25, 2011).
    \603\ Podesta et al., p. 25; Ladislaw et al. p. 21; DeCicco et 
al. p. vii; ``Reduce Climate Change, a Web page maintained by the 
Department of Energy and Environmental Protection Agency at http://www.fueleconomy.gov/feg/climate.shtml (last accessed Sept. 24, 
2011).
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Reducing Petroleum Consumption To Improve Energy Security and Save the 
U.S. Money
    In 1975, Congress enacted the Energy Policy and Conservation Act 
(EPCA), mandating that NHTSA establish and implement a regulatory 
program for motor vehicle fuel economy to meet the various facets of 
the need to conserve energy, including ones having energy independence 
and security, environmental, and foreign policy implications. The need 
to reduce energy consumption is even more crucial today than it was 
when EPCA was enacted. U.S. energy consumption has been outstripping 
U.S. energy production at an increasing rate. Improving our energy and 
national security by reducing our dependence on foreign oil has been a 
national objective since the first oil price shocks in the 1970s. Net 
petroleum imports accounted for approximately 51 percent of U.S. 
petroleum consumption in 2009.\604\ World crude oil production is 
highly concentrated, exacerbating the risks of supply disruptions and 
price shocks as the recent unrest in North Africa and the Persian Gulf 
highlights. The export of U.S. assets for oil imports continues to be 
an important component of U.S. trade deficits. Transportation accounted 
for about 71 percent of U.S. petroleum consumption in 2009.\605\ Light-
duty vehicles account for about 60 percent of transportation oil use, 
which means that they alone account for about 40 percent of all U.S. 
oil consumption.
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    \604\ Energy Information Administration, ``How dependent are we 
on foreign oil?'' Available at http://www.eia.gov/energy_in_brief/foreign_oil_dependence.cfm (last accessed August 28, 2011).
    \605\ Energy Information Administration, Annual Energy Outlook 
2011, ``Oil/Liquids.'' Available at http://www.eia.gov/forecasts/aeo/MT_liquidfuels.cfm (last accessed August 28, 2011).
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    Gasoline consumption in the U.S. has historically been relatively 
insensitive to fluctuations in both price and consumer income, and 
people in most parts of the country tend to view gasoline consumption 
as a non-discretionary expense. Thus, when gasoline's share in consumer 
expenditures rises, the public experiences fiscal distress. Recent 
tight

[[Page 75165]]

global oil markets led to prices over $100 per barrel, with gasoline 
reaching as high as $4 per gallon in many parts of the U.S., causing 
financial hardship for many families and businesses. This fiscal 
distress can, in some cases, have macroeconomic consequences for the 
economy at large.
    Additionally, since U.S. oil production is only affected by 
fluctuations in prices over a period of years, any changes in petroleum 
consumption (as through increased fuel economy levels for the on-road 
fleet) largely flow into changes in the quantity of imports. Since 
petroleum imports account for about 2 percent of GDP, increases in oil 
imports can create a discernible fiscal drag. As a consequence, 
measures that reduce petroleum consumption, like fuel economy 
standards, will directly benefit the balance-of-payments account, and 
strengthen the U.S. economy to some degree. And finally, U.S. foreign 
policy has been affected by decades by rising U.S. and world dependency 
on crude oil as the basis for modern transportation systems, although 
fuel economy standards have at best an indirect impact on U.S. foreign 
policy.
Reducing Petroleum Consumption To Reduce Climate Change Impacts
    CO2 is the natural by-product of the combustion of fuel 
to power motor vehicles. The more fuel-efficient a vehicle is, the less 
fuel it needs to burn to travel a given distance. The less fuel it 
burns, the less CO2 it emits in traveling that 
distance.\606\ Since the amount of CO2 emissions is 
essentially constant per gallon combusted of a given type of fuel, the 
amount of fuel consumption per mile is closely related to the amount of 
CO2 emissions per mile. Motor vehicles are the second 
largest GHG-emitting sector in the U.S. after electricity generation, 
and accounted for 27 percent of total U.S. GHG emissions in 2008.\607\ 
Concentrations of greenhouse gases are at unprecedented levels compared 
to the recent and distant past, which means that fuel economy 
improvements to reduce those emissions are a crucial step toward 
addressing the risks of global climate change. These risks are well 
documented in Section III of this notice, and in NHTSA's draft 
Environmental Impact Statement (DEIS) accompanying these proposed 
standards.
---------------------------------------------------------------------------

    \606\ Panel on Policy Implications of Greenhouse Warming, 
National Academy of Sciences, National Academy of Engineering, 
Institute of Medicine, ``Policy Implications of Greenhouse Warming: 
Mitigation, Adaptation, and the Science Base,'' National Academies 
Press, 1992, at 287. Available at http://www.nap.edu/catalog.php?record_id=1605 (last accessed Sept. 25, 2011).
    \607\ EPA Inventory of U.S. Greenhouse Gas Emissions and Sinks: 
1990-2008 (April 2010), p. 2-17. Available at http://www.epa.gov/climatechange/emissions/usgginv_archive.html (last accessed Sept. 
25, 2011).
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    Fuel economy gains since 1975, due both to the standards and to 
market factors, have resulted in saving billions of barrels of oil and 
avoiding billions of metric tons of CO2 emissions. In 
December 2007, Congress enacted the Energy Independence and Security 
Act (EISA), amending EPCA to require substantial, continuing increases 
in fuel economy. NHTSA thus sets CAFE standards today under EPCA, as 
amended by EISA, in order to help the U.S. passenger car and light 
truck fleet save fuel to promote energy independence, energy security, 
and a low carbon economy.
3. Why is NHTSA proposing CAFE standards for MYs 2017-2025 now?
a. President's Memorandum
    During the public comment period for the MY 2012-2016 proposed 
rulemaking, many stakeholders encouraged NHTSA and EPA to begin working 
toward standards for MY 2017 and beyond in order to maintain a single 
nationwide program. After the publication of the final rule 
establishing MYs 2012-2016 CAFE and GHG standards, President Obama 
issued a Memorandum on May 21, 2010 requesting that NHTSA, on behalf of 
the Department of Transportation, and EPA work together to develop a 
national program for model years 2017-2025.\608\ Specifically, he 
requested that the agencies develop ``* * * a coordinated national 
program under the CAA [Clean Air Act] and the EISA [Energy Independence 
and Security Act of 2007] to improve fuel efficiency and to reduce 
greenhouse gas emissions of passenger cars and light-duty trucks of 
model years 2017-2025.'' The President recognized that our country 
could take a leadership role in addressing the global challenges of 
improving energy security and reducing greenhouse gas pollution, 
stating that ``America has the opportunity to lead the world in the 
development of a new generation of clean cars and trucks through 
innovative technologies and manufacturing that will spur economic 
growth and create high-quality domestic jobs, enhance our energy 
security, and improve our environment.''
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    \608\ The Presidential Memorandum is found at: http://www.whitehouse.gov/the-press-office/presidential-memorandum-regarding-fuel-efficiency-standards. For the reader's reference, the 
President also requested the Administrators of EPA and NHTSA to 
issue joint rules under the CAA and EISA to establish fuel 
efficiency and greenhouse gas emissions standards for commercial 
medium-and heavy-duty on-highway vehicles and work trucks beginning 
with the 2014 model year. The agencies recently promulgated final 
GHG and fuel efficiency standards for heavy duty vehicles and 
engines for MYs 2014-2018. 76 FR 57106 (September 15, 2011).
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    The Presidential Memorandum stated ``The program should also seek 
to achieve substantial annual progress in reducing transportation 
sector greenhouse gas emissions and fossil fuel consumption, consistent 
with my Administration's overall energy and climate security goals, 
through the increased domestic production and use of existing, 
advanced, and emerging technologies, and should strengthen the industry 
and enhance job creation in the United States.'' Among other things, 
the agencies were tasked with researching and then developing standards 
for MYs 2017 through 2025 that would be appropriate and consistent with 
EPA's and NHTSA's respective statutory authorities, in order to 
continue to guide the automotive sector along the road to reducing its 
fuel consumption and GHG emissions, thereby ensuring corresponding 
energy security and environmental benefits. Several major automobile 
manufacturers and CARB sent letters to EPA and NHTSA in support of a 
MYs 2017 to 2025 rulemaking initiative as outlined in the President's 
May 21, 2010 announcement.\609\ The agencies began working immediately 
on the next phase of the National Program, work which has culminated in 
the standards proposed in this notice for MYs 2017-2025.
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    \609\ These commitment letters in response to the May 21, 2010 
Presidential Memorandum are available at http://www.epa.gov/otaq/climate/proposedregs.htm#cl; and http://www.nhtsa.gov/
Laws+&+Regulations/CAFE+-+Fuel+Economy/
Stakeholder+Commitment+Letters (last accessed August 28, 2011).
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b. Benefits of Continuing the National Program
    The National Program is both needed and possible because the 
relationship between improving fuel economy and reducing CO2 
tailpipe emissions is a very close one. In the real world, there is a 
single pool of technologies for reducing fuel consumption and 
CO2 emissions. Using these technologies in the way that 
minimizes fuel consumption also minimizes CO2 emissions. 
While there are emission control technologies that can capture or 
destroy the pollutants that are produced by imperfect combustion of 
fuel (e.g., carbon monoxide), there are at present no such technologies 
for CO2. In fact, the only way at present to reduce tailpipe 
emissions of CO2 is by reducing

[[Page 75166]]

fuel consumption. The National Program thus has dual benefits: it 
conserves energy by improving fuel economy, as required of NHTSA by 
EPCA and EISA; in the process, it necessarily reduces tailpipe 
CO2 emissions consonant with EPA's purposes and 
responsibilities under the Clean Air Act.
    Additionally, by setting harmonized Federal standards to regulate 
both fuel economy and greenhouse gas emissions, the agencies are able 
to provide a predictable regulatory framework for the automotive 
industry while preserving the legal authorities of NHTSA, EPA, and the 
State of California. Consistent, harmonized, and streamlined 
requirements under the National Program, both for MYs 2012-2016 and for 
MYs 2017-2025, hold out the promise of continuing to deliver energy and 
environmental benefits, cost savings, and administrative efficiencies 
on a nationwide basis that might not be available under a less 
coordinated approach. The National Program makes it possible for the 
standards of two different Federal agencies and the standards of 
California and other ``Section 177'' states to act in a unified fashion 
in providing these benefits. A harmonized approach to regulating 
passenger car and light truck fuel economy and GHG emissions is 
critically important given the interdependent goals of addressing 
climate change and ensuring energy independence and security. 
Additionally, a harmonized approach would help to mitigate the cost to 
manufacturers of having to comply with multiple sets of Federal and 
State standards.
    One aspect of this phase of the National Program that is unique for 
NHTSA, however, is that the passenger car and light truck CAFE 
standards for MYs 2022-2025 must be conditional, while EPA's standards 
for those model years will be legally binding when adopted in this 
round. EISA requires NHTSA to issue CAFE standards for ``at least 1, 
but not more than 5, model years.'' \610\ To maintain the harmonization 
benefits of the National Program, NHTSA will therefore propose and 
adopt standards for all 9 model years from 2017-2025, but the last 4 
years of standards will not be legally binding as part of this 
rulemaking. The passenger car and light truck CAFE standards for MYs 
2022-2025 will be determined with finality in a subsequent, de novo 
notice and comment rulemaking conducted in full compliance with EPCA/
EISA and other applicable law--beyond simply reviewing the analysis and 
findings in the present rulemaking to see whether they are still 
accurate and applicable, and taking a fresh look at all relevant 
factors based on the best and most current information available at 
that future time.
---------------------------------------------------------------------------

    \610\ 49 U.S.C. 32902(b)(3)(B).
---------------------------------------------------------------------------

    To facilitate that future effort, NHTSA and EPA will conduct a 
comprehensive mid-term evaluation. Up to date information will be 
developed and compiled for the evaluation, through a collaborative, 
robust, and transparent process, including notice and comment. The 
agencies fully expect to conduct the mid-term evaluation in close 
coordination with the California Air Resources Board (CARB), consistent 
with the agencies' commitment to maintaining a single national 
framework for regulation of fuel economy and GHG emissions.\611\ Prior 
to beginning NHTSA's rulemaking process and EPA's mid-term evaluation, 
the agencies will jointly prepare a draft Technical Assessment Report 
(TAR) to examine afresh the issues and, in doing so, conduct similar 
analyses and projections as those considered in the current rulemaking, 
including technical and other analyses and projections relevant to each 
agency's authority to set standards as well as any relevant new issues 
that may present themselves. The agencies will provide an opportunity 
for public comment on the draft TAR, and appropriate peer review will 
be performed of underlying analyses in the TAR. The assumptions and 
modeling underlying the TAR will be available to the public, to the 
extent consistent with law. The draft TAR is expected to be issued no 
later than November 15, 2017. After the draft TAR and public comment, 
the agencies will consult and coordinate as NHTSA develops its NPRM. 
NHTSA will ensure that the subsequent final rule will be timed to 
provide sufficient lead time for industry to make whatever changes to 
their products that the rulemaking analysis deems maximum feasible 
based on the new information available. At the very latest, NHTSA will 
complete its subsequent rulemaking on the standards with at least 18 
months lead time as required by EPCA,\612\ but additional lead time may 
be provided.
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    \611\ The agencies also fully expect that any adjustments to the 
standards as a result of the mid-term evaluation process from the 
levels enumerated in the current rulemaking will be made with the 
participation of CARB and in a manner that continues the 
harmonization of state and Federal vehicle standards.
    \612\ 49 U.S.C. 32902(a).
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B. Background

1. Chronology of Events Since the MY 2012-2016 Final Rule Was Issued
    Section I above covers the chronology of events in considerable 
detail, and we refer the reader there.
2. How has NHTSA developed the proposed CAFE standards since the 
President's announcement?
    The CAFE standards proposed in this NPRM are based on much more 
analysis conducted by the agencies since July 29, including in-depth 
modeling analysis by DOT/NHTSA to support the proposed CAFE standards, 
and further refinement of a number of our baseline, technology, and 
economic assumptions used to evaluate the proposed standards and their 
impacts. This NPRM, the draft joint TSD, and NHTSA's PRIA and EPA's 
DRIA contain much more information about the analysis underlying these 
proposed standards. The following sections provide the basis for 
NHTSA's proposed passenger car and light truck CAFE standards for MYs 
2017-2025, the standards themselves, the estimated impacts of the 
proposed standards, and much more information about the CAFE program 
relevant to the 2017-2025 timeframe.

C. Development and Feasibility of the Proposed Standards

1. How was the baseline vehicle fleet developed?
a. Why do the agencies establish a baseline and reference vehicle 
fleet?
    As also discussed in Section II.B above, in order to determine what 
levels of stringency are feasible in future model years, the agencies 
must project what vehicles will exist in those model years, and then 
evaluate what technologies can feasibly be applied to those vehicles in 
order to raise their fuel economy and lower their CO2 
emissions. The agencies therefore established a ``baseline'' vehicle 
fleet representing those vehicles, based on the best available 
transparent information. The agencies then developed a ``reference'' 
fleet, projecting the baseline fleet sales into MYs 2017-2025 and 
accounting for the effect that the MY 2012-2016 CAFE standards have on 
the baseline fleet.\613\ This

[[Page 75167]]

reference fleet is then used for comparisons of technologies' 
incremental cost and effectiveness, as well as for other relevant 
comparisons in the rule.
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    \613\ In order to calculate the impacts of the proposed future 
GHG and CAFE standards, it is necessary to estimate the composition 
of the future vehicle fleet absent those proposed standards in order 
to conduct comparisons. The first step in this process was to 
develop a fleet based on model year 2008 data. This 2008-based fleet 
includes vehicle sales volumes, GHG/fuel economy performance, and 
contains a listing of the base technologies on every 2008 vehicle 
sold. The second step was to project that 2008-based fleet volume 
into MYs 2017-2025. This is called the reference fleet, and it 
represents the fleet volumes (but, until later steps, not levels of 
technology) that the NHTSA and EPA expect would exist in MYs 2017-
2025 absent any change due to regulation in 2017-2025.
    After determining the reference fleet, a third step is needed to 
account for technologies (and corresponding increases in cost and 
reductions in fuel consumption and CO2 emissions) that 
could be added to MY 2008-technology vehicles in the future, taking 
into previously-promulgated standards, and assuming MY 2016 
standards are extended through MY2025. NHTSA accomplished this by 
using the CAFE model to add technologies to that MY 2008-based 
market forecast such that each manufacturer's car and truck CAFE and 
average CO2 levels reflect baseline standards. The 
model's output, the reference case (or adjusted baseline, or no-
action alternative), is the light-duty fleet estimated to exist in 
MYs 2017-2025 without new GHG/CAFE standards covering MYs 2017-2025.
---------------------------------------------------------------------------

b. What data did the agencies use to construct the baseline, and how 
did they do so?
    As explained in the draft joint TSD, both agencies used a baseline 
vehicle fleet constructed beginning with EPA fuel economy certification 
data for the 2008 model year, the most recent model year for which 
final data is currently available from manufacturers. These data were 
used as the source for MY 2008 production volumes and some vehicle 
engineering characteristics, such as fuel economy compliance ratings, 
engine sizes, numbers of cylinders, and transmission types.
    For this NPRM, NHTSA and EPA chose again to use MY 2008 vehicle 
data as the basis of the baseline fleet. MY 2008 is now the most recent 
model year for which the industry had what the agencies would consider 
to be ``normal'' sales. Complete MY 2009 data is now available for the 
industry, but the agencies believe that the model year was disrupted by 
the economic downturn and the bankruptcies of both General Motors and 
Chrysler. CAFE compliance data shows that there was a significant 
reduction in the number of vehicles sold by both companies and by the 
industry as a whole. These abnormalities led the agencies to conclude 
that MY 2009 data was likely not representative for projecting the 
future fleet for purposes of this analysis. While MY 2010 data is 
likely more representative for projecting the future fleet, it was not 
complete and available in time for it to be used for the NPRM analysis. 
Therefore, for purposes of the NPRM analysis, NHTSA and EPA chose to 
use MY 2008 CAFE compliance data for the baseline since it was the 
latest, most representative transparent data set that we had available. 
However, the agencies plan to use the MY 2010 data, if available, to 
develop an updated market forecast for use in the final rule. If and 
when the MY 2010 data becomes available, NHTSA will place a copy of 
this data into its rulemaking docket.
    Some information important for analyzing new CAFE standards is not 
contained in the EPA fuel economy certification data. EPA staff 
estimated vehicle wheelbase and track widths using data from 
Motortrend.com and Edmunds.com. This information is necessary for 
estimating vehicle footprint, which is required for the analysis of 
footprint-based standards.
    Considerable additional information regarding vehicle engineering 
characteristics is also important for estimating the potential to add 
new technologies in response to new CAFE standards. In general, such 
information helps to avoid ``adding'' technologies to vehicles that 
already have the same or a more advanced technology. Examples include 
valvetrain configuration (e.g., OHV, SOHC, DOHC), presence of cylinder 
deactivation, and fuel delivery (e.g., MPFI, SIDI). To the extent that 
such engineering characteristics were not available in certification 
data, EPA staff relied on data published by Ward's Automotive, 
supplementing this with information from Internet sites such as 
Motortrend.com and Edmunds.com. NHTSA staff also added some more 
detailed engineering characteristics (e.g., type of variable valve 
timing) using data available from ALLDATA[reg] Online. Combined with 
the certification data, all of this information yielded the MY 2008 
baseline vehicle fleet. NHTSA also reviewed information from 
manufacturers' confidential product plans submitted to the agency, but 
did not rely on that information for developing the baseline or 
reference fleets.
    After the baseline was created the next step was to project the 
sales volumes for 2017-2025 model years. EPA used projected car and 
truck volumes for this period from Energy Information Administration's 
(EIA's) 2011 Interim Annual Energy Outlook (AEO).\614\ However, AEO 
projects sales only at the car and truck level, not at the manufacturer 
and model-specific level, which are needed in order to estimate the 
effects new standards will have on individual manufacturers. Therefore, 
EPA purchased data from CSM-Worldwide and used their projections of the 
number of vehicles of each type predicted to be sold by manufacturers 
in 2017-2025.\615\ This provided the year-by-year percentages of cars 
and trucks sold by each manufacturer as well as the percentages of each 
vehicle segment. Using these percentages normalized to the AEO 
projected volumes then provided the manufacturer-specific market share 
and model-specific sales for model years 2011-2016.
---------------------------------------------------------------------------

    \614\ Department of Energy, Energy Information Administration, 
Annual Energy Outlook (AEO) 2011, Early Release. Available at http://www.eia.gov/forecasts/aeo/. Both agencies regard AEO a credible 
source not only of such forecasts, but also of many underlying 
forecasts, including forecasts of the size of the future light 
vehicle market. The agencies used the early release version of AEO 
2011 and confirmed later that changes reflected in the final version 
were insignificant with respect to the relative volumes of passenger 
cars and light trucks.
    \615\ The agencies explain in Chapter I of the draft Joint TSD 
why data from CSM was chosen for creating the baseline for this 
rulemaking.
---------------------------------------------------------------------------

    The processes for constructing the MY 2008 baseline vehicle fleet 
and subsequently adjusting sales volumes to construct the MY 2017-2025 
baseline vehicle fleet are presented in detail in Chapter 1 of the 
Joint Technical Support Document accompanying today's proposed rule.
    The agencies assume that without adoption of the proposed rule, 
that during the 2017-2025 period, manufacturers will not improve fuel 
economy levels beyond the levels required in the MY 2016 standards. 
However, it is possible that manufacturers may be driven by market 
forces to raise the fuel economy of their fleets. The recently-adopted 
fuel economy and environment labels (``window stickers''), for example, 
may make consumers more aware of the benefits of higher fuel economy, 
and may cause them to demand more fuel-efficient vehicles during that 
timeframe. Moreover, the agencies' analysis indicates that some fuel-
saving technologies may save money for manufacturers. In Chapter X of 
the PRIA, NHTSA examines the impact of an alternative ``market-driven'' 
baseline, which allows for some increases in fuel economy due to 
``voluntary overcompliance'' beyond the MY 2016 levels. NHTSA seeks 
comment on what assumptions about fuel economy increases are most 
likely to accurately predict what would happen in the absence of the 
proposed rule.
    NHTSA invites comment on the process used to develop the market 
forecast, and on whether the agencies should consider alternative 
approaches to producing a forecast at the level of detail we need for 
modeling. If commenters wish to offer alternatives, we ask that they 
address how manufacturers' future fleets would be

[[Page 75168]]

defined in terms of specific products, and the sales volumes and 
technical characteristics (e.g., fuel economy, technology content, 
vehicle weight, and other engineering characteristics) of those 
products. The agency also invites comment regarding what sensitivity 
analyses--if any--we should do related to the market forecast. For 
example, should the agency evaluate the extent to which its analysis is 
sensitive to projections of the size of the market, manufacturers' 
respective market shares, the relative growth of different market 
segments, and or the relative growth of the passenger car and light 
truck markets? If so, how would commenters suggest that we do that?
c. How is the development of the baseline fleet for this rule different 
from the baseline fleet that NHTSA used for the MY 2012-2016 (May 2010) 
final rule?
    The development of the baseline fleet for this rulemaking utilizes 
the same procedures used in the development of the baseline fleet for 
the MY 2012-2016 rulemaking. Compared to that rulemaking, the change in 
the baseline is much less dramatic--the MY 2012-2016 rulemaking was the 
first rulemaking in which NHTSA did not use manufacturer product plan 
data to develop the baseline fleet,\616\ so evaluating the difference 
between the baseline fleet used in the MY 2011 final rule and in the MY 
2012-2016 rulemaking was informative at that time regarding some of the 
major impacts of that switch. In this proposal, we are using basically 
the same MY 2008 based file as the starting point in the MY 2012-2016 
analysis, and simply using an updated AEO forecast and an updated CSM 
forecast. Of those, most differences are in input assumptions rather 
than the basic approach and methodology. These include changes in 
various macroeconomic assumptions underlying the AEO and CSM forecasts 
and the use of results obtained by using DOE's National Energy Modeling 
System (NEMS) to repeat the AEO 2011 analysis without forcing increased 
passenger car volumes, and without assuming post-MY 2016 increases in 
the stringency of CAFE standards.\617\
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    \616\ The agencies' reasons for not relying on product plan data 
for the development of the baseline fleet were discussed in the 
Regulatory Impact Analysis for the MYs 2012-2016 rulemaking and at 
74 FR 49487-89. While a baseline developed using publicly and 
commercially available sources has both advantages and disadvantages 
relative to a baseline developed using manufacturers' product plans, 
NHTSA currently concludes, as it did in the course of that prior 
rulemaking, that the advantages outweigh the disadvantages. 
Commenters generally supported the more transparent approach 
employed in the MYs 2012-2016 rulemaking.
    \617\ Similar to the analyses supporting the MYs 2012-2016 
rulemaking, the agencies have used the Energy Information 
Administration's (EIA's) National Energy Modeling System (NEMS) to 
estimate the future relative market shares of passenger cars and 
light trucks. However, NEMS methodology includes shifting vehicle 
sales volume, starting after 2007, away from fleets with lower fuel 
economy (the light-truck fleet) towards vehicles with higher fuel 
economies (the passenger car fleet) in order to facilitate 
compliance with CAFE and GHG MYs 2012-2016 standards. Because we use 
our market projection as a baseline relative to which we measure the 
effects of new standards, and we attempt to estimate the industry's 
ability to comply with new standards without changing product mix, 
the Interim AEO 2011-projected shift in passenger car market share 
as a result of required fuel economy improvements creates a 
circularity. Therefore, for the current analysis, the agencies 
developed a new projection of passenger car and light truck sales 
shares by running scenarios from the Interim AEO 2011 reference case 
that first deactivate the above-mentioned sales-volume shifting 
methodology and then hold post-2017 CAFE standards constant at MY 
2016 levels. Incorporating these changes reduced the projected 
passenger car share of the light vehicle market by an average of 
about 5 percent during 2017-2025. NHTSA and EPA refer to this as the 
``Unforced Reference Case.''
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    Another change in the baseline fleet from the last rulemaking 
involved our redefinition of the list of manufacturers to account for 
realignment and ownership changes taking place within the industry. The 
reported results supporting this rulemaking recognize that Volvo 
vehicles are no longer a part of Ford, but are reported as a separate 
company, Geely; that Saab vehicles are no longer part of GM, but are 
reported as part of Spyker which purchased Saab from GM in 2010; and 
that Chrysler, along with Ferrari and Maserati, are reported as Fiat.
    In addition, low volume specialty manufacturers omitted from the 
analysis supporting the MY 2012-2016 rulemaking have been included in 
the analysis supporting this rulemaking. These include Aston Martin, 
Lotus, and Tesla.
d. How is this baseline different quantitatively from the baseline that 
NHTSA used for the MY 2012-2016 (May 2010) final rule?
    As discussed above, the current baseline was developed from 
adjusted MY 2008 compliance data and covers MY 2017-2025. This section 
describes, for the reader's comparison, some of the differences between 
the current baseline and the MY 2012-2016 CAFE rule baseline. This 
comparison provides a basis for understanding general characteristics 
and measures of the difference between the two baselines. The current 
baseline, while developed using the same methods as the baseline used 
for MY 2012-2016 rulemaking, reflects updates to the underlying 
commercially-available forecast of manufacturer and market segment 
shares of the future passenger car and light truck market. Again, the 
differences are in input assumptions rather than the basic approach and 
methodology. It also includes changes in various macroeconomic 
assumptions underlying the AEO forecasts and the use of the AEO 
Unforced Reference Case. Another change in the market input data from 
the last rulemaking involved our redefinition of the list of 
manufacturers to account for realignment taking place within the 
industry.
    Estimated vehicle sales:
    The sales forecasts, based on the Energy Information 
Administration's (EIA's) Early Annual Energy Outlook for 2011 (Interim 
AEO 2011), used in the current baseline indicate that the total number 
of light vehicles expected to be sold during MYs 2012-2016 is 79 
million, or about 15.8 million vehicles annually. NHTSA's MY 2012-2016 
final rule forecast, based on AEO 2010, of the total number of light 
vehicles likely to be sold during MY 2012 through MY 2016 was 80 
million, or about 16 million vehicles annually. Light trucks are 
expected to make up 37 percent of the MY 2016 baseline market forecast 
in the current baseline, compared to 34 percent of the baseline market 
forecast in the MY 2012-2016 final rule. These changes in both the 
overall size of the light vehicle market and the relative market shares 
of passenger cars and light trucks reflect changes in the economic 
forecast underlying AEO, changes in AEO's forecast of future fuel 
prices, and use of the Unforced Reference Case.
    Estimated manufacturer market shares:
    These changes are reflected below in Table IV-1, which shows the 
agency's sales forecasts for passenger cars and light trucks under the 
current baseline and the MY 2012-2016 final rule. There has been a 
general decrease in MY 2016 forecast overall sales (from AEO) and for 
all manufacturers (reflecting CSM's forecast of manufacturers' market 
shares), with the exception of Chrysler, when the current baseline is 
compared to that used in the MY 2012-2016 rulemaking. There were no 
significant shifts in manufacturers' market shares between the two 
baselines. The effect of including the low volume specialty 
manufacturers and accounting for known corporate realignments in the 
current baseline appear to be negligible. For individual manufacturers, 
there have been shifts in the shares of passenger car and light trucks, 
as would

[[Page 75169]]

be expected given that the agency is relying on different underlying 
assumptions as discussed above and in Chapter 1 of the joint TSD.
---------------------------------------------------------------------------

    \618\ Again, Aston Martin, Alfa Romeo, Ferrari, Maserati, Lotus 
and Tesla were not included in the baseline of the MY 2012-2016 
rulemaking; Volvo vehicles were reported under Ford and Saab 
vehicles were reported under GM; and Chrysler was reported as a 
separate company whereas now it is reported as part of Fiat and 
includes Alfa Romeo, Ferrari, and Maserati.

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    Estimated achieved fuel economy levels:
    The current baseline market forecast shows industry-wide average 
fuel economy levels somewhat lower in MY 2016 than shown in the 
baseline market forecast for the MY 2012-2016 rulemaking. Under the 
current baseline, average fuel economy for MY 2016 is 27.0 mpg, versus 
27.3 mpg under the baseline in the MY 2012-2016 rulemaking. The 0.3 mpg 
change relative to the MY 2012-2016 rulemaking's baseline is the result 
of changes in the shares of passenger car

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and light trucks in the MY 2016 market as noted above--more light 
trucks generally equals lower average fuel economy--and not the result 
of changes in the capabilities of the car and truck fleets.
    These differences are shown in greater detail below in Table IV-2, 
which shows manufacturer-specific CAFE levels (not counting FFV credits 
that some manufacturers expect to earn) from the current baseline 
versus the MY 2012-2016 rulemaking baseline for passenger cars and 
light trucks. Table IV-3 shows the combined averages of these planned 
CAFE levels in the respective baseline fleets. These tables demonstrate 
that there are no significant differences in CAFE for either passenger 
cars or light trucks at the manufacturer level between the current 
baseline and the MY 2012-2016 rulemaking baseline. The differences 
become more significant at the manufacturer level when combined CAFE 
levels are considered. Here we see a general decline in CAFE at the 
manufacturer level due to the increased share of light trucks. Because 
the agencies have, as for the MY 2012-2016 rulemaking, based this 
market forecast on vehicles in the MY 2008 fleet, these changes in CAFE 
levels reflect changes in vehicle mix, not changes in the fuel economy 
achieved by individual vehicle models.
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    \619\ Again, Aston Martin, Alfa Romeo, Ferrari, Maserati, Lotus 
and Tesla were not included in the baseline of the MY 2012-2016 
rulemaking; Volvo vehicles were reported under Ford and Saab 
vehicles were reported under GM; and Chrysler was reported as a 
separate company whereas now it is reported as part of Fiat and 
includes Alfa Romeo, Ferrari, and Maserati.

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[GRAPHIC] [TIFF OMITTED] TP01DE11.159

     
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    \620\ Again, Aston Martin, Alfa Romeo, Ferrari, Maserati, Lotus 
and Tesla were not included in the baseline of the MY 2012-2016 
rulemaking; Volvo vehicles were reported under Ford and Saab 
vehicles were reported under GM; and Chrysler was reported as a 
separate company whereas now it is reported as part of Fiat and 
includes Alfa Romeo, Ferrari, and Maserati.
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BILLING CODE 4910-59-C
e. How does manufacturer product plan data factor into the baseline 
used in this rule?
    In December 2010, NHTSA requested that manufacturers provide 
information regarding future product plans, as well as information 
regarding the context for those plans (e.g., estimates of future fuel 
prices), and estimates of the future availability, cost, and efficacy 
of fuel-saving technologies.\621\ The purpose of this request was to 
acquire updated information regarding vehicle manufacturers' future 
product plans to assist the agency in assessing what corporate CAFE 
standards should be established for passenger cars and light trucks 
manufactured in model years 2017 and beyond. The request was being 
issued in preparation for today's joint NPRM.
---------------------------------------------------------------------------

    \621\ 75 FR 80430.
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    NHTSA indicated that it requested information for MYs 2010-2025 
primarily as a basis for subsequent discussions with individual 
manufacturers regarding their capabilities for the MYs 2017-2025 time 
frame as it worked to develop today's NPRM. NHTSA indicated that the 
information received would supplement other information to be used by 
NHTSA to develop a realistic forecast of the vehicle market in MY 2017 
and beyond, and to evaluate what technologies may feasibly be applied 
by manufacturers to

[[Page 75174]]

achieve compliance with potential future standards. NHTSA further 
indicated that information regarding later model years could help the 
agency gain a better understanding of how manufacturers' plans through 
MY 2025 relate to their longer-term expectations regarding foreseeable 
regulatory requirements, market trends, and prospects for more advanced 
technologies.
    NHTSA also indicated that it would consider information regarding 
the model years requested when considering manufacturers' planned 
schedules for redesigning and freshening their products, in order to 
examine how manufacturers anticipate tying technology introduction to 
product design schedules. In addition, the agency requested information 
regarding manufacturers' estimates of the future vehicle population, 
and fuel economy improvements and incremental costs attributed to 
technologies reflected in those plans.
    Given the importance that responses to this request for comment may 
have in informing NHTSA's proposed CAFE rulemaking, whether as part of 
the basis for the standards or as an independent check on them, NHTSA 
requested that commenters fully respond to each question, particularly 
by providing information regarding the basis for technology costs and 
effectiveness estimates.
    We have already noted that in past CAFE rulemakings, NHTSA used 
manufacturers' product plans--and other information--to build market 
forecasts providing the foundation for the agency's rulemaking 
analysis. This issue has been the subject of much debate over the past 
several rulemakings since NHTSA began actively working on CAFE again 
following the lifting of the appropriations riders in 2001. The agency 
continues to believe that these market forecasts reflected the most 
technically sound forecasts the agency could have then developed for 
this purpose. Because the agency could not disclose confidential 
business information in manufacturers' product plans, NHTSA provided 
summarized information, such as planned CAFE levels and technology 
application rates, rather than the fuel economy levels and technology 
content of specific vehicle model types.
    In preparing the MY 2012-2016 rule jointly with EPA, however, NHTSA 
revisited this practice, and concluded that for that rulemaking, it was 
important that all reviewers have equal access to all details of 
NHTSA's analysis. NHTSA provided this level of transparency by 
releasing not only the agency's CAFE modeling system, but also by 
releasing all model inputs and outputs for the agency's analysis, all 
of which are available on NHTSA's Web site at http://www.nhtsa.gov/fuel-economy. Therefore, NHTSA worked with EPA, as it did in preparing 
for analysis supporting today's proposal, to build a market forecast 
based on publicly- and commercially-available sources. NHTSA continues 
to believe that the potential technical benefits of relying on 
manufacturers' plans for future products are outweighed by the 
transparency gained in building a market forecast that does not rely on 
confidential business information, but also continues to find product 
plan information to be an important point of reference for meetings 
with individual manufacturers. We seek comment on what value 
manufacturer product plan might have in the future, and whether it 
continues to be useful to request manufacturer product plans to inform 
rulemaking analyses, specifically the baseline forecast used in 
rulemaking analyses.
f. What sensitivity analyses is NHTSA conducting on the baseline?
    As discussed below in Section IV.G, when evaluating the potential 
impacts of new CAFE standards, NHTSA considered the potential that, 
depending on how the cost and effectiveness of available technologies 
compare to the price of fuel, manufacturers would add more fuel-saving 
technology than might be required solely for purposes of complying with 
CAFE standards. This reflects that agency's consideration that there 
could, in the future, be at least some market for fuel economy 
improvements beyond the required MY 2016 CAFE levels. In this 
sensitivity analysis, this causes some additional technology to be 
applied, more so under baseline standards than under the more stringent 
standards proposed today by the agency. Results of this sensitivity 
analysis are summarized in Section IV.G and in NHTSA's PRIA 
accompanying today's notice.
g. How else is NHTSA considering looking at the baseline for the final 
rule?
    Beyond the sensitivity analysis discussed above, NHTSA is also 
considering developing and using a vehicle choice model to estimate the 
extent to which sales volumes would shift in response to changes in 
vehicle prices and fuel economy levels. As discussed IV.C.4, the agency 
is currently sponsoring research directed toward developing such a 
model. If that effort is successful, the agency will consider 
integrating the model into the CAFE modeling system and using the 
integrated system for future analysis of potential CAFE standards. If 
the agency does so, we expect that the vehicle choice model would 
impact estimated fleet composition not just under new CAFE standards, 
but also under baseline CAFE standards.
2. How were the technology inputs developed?
    As discussed above in Section II.E, for developing the technology 
inputs for these proposed MYs 2017-2025 CAFE and GHG standards, the 
agencies primarily began with the technology inputs used in the MYs 
2012-2016 CAFE final rule and in the 2010 TAR. The agencies have also 
updated information based on newly completed FEV tear down studies and 
new vehicle simulation work conducted by Ricardo Engineering, both of 
which were contracted by EPA. Additionally, the agencies relied on a 
model developed by Argonne National Laboratory to estimate hybrid, 
plug-in hybrid and electric vehicle battery costs. More detail is 
available regarding how the agencies developed the technology inputs 
for this proposal above in Section II.E, in Chapter 3 of the Joint TSD, 
and in Section V of NHTSA's PRIA.
a. What technologies does NHTSA consider?
    Section II.E.1 above describes the fuel-saving technologies 
considered by the agencies that manufacturers could use to improve the 
fuel economy of their vehicles during MYs 2017-2025. Many of the 
technologies described in this section are readily available, well 
known, and could be incorporated into vehicles once production 
decisions are made. Other technologies, added for this rulemaking 
analysis, are considered that are not currently in production, but are 
beyond the initial research phase, under development and are expected 
to be in production in the next 5-10 years. As discussed, the 
technologies considered fall into five broad categories: engine 
technologies, transmission technologies, vehicle technologies, 
electrification/accessory technologies, and hybrid technologies. Table 
IV-4 below lists all the technologies considered and provides the 
abbreviations used for them in the CAFE model,\622\ as well as their 
year of availability, which for purposes of NHTSA's analysis means the 
first model year in the rulemaking

[[Page 75175]]

period that the CAFE model is allowed to apply a technology to a 
manufacturer's fleet.\623\ ``Year of availability'' recognizes that 
technologies must achieve a level of technical viability before they 
can be implemented in the CAFE model, and are thus a means of 
constraining technology use until such time as it is considered to be 
technologically feasible. For a more detailed description of each 
technology and their costs and effectiveness, we refer the reader to 
Chapter 3 of the Joint TSD and Section V of NHTSA's PRIA.
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    \622\ The abbreviations are used in this section both for 
brevity and for the reader's reference if they wish to refer to the 
expanded decision trees and the model input and output sheets, which 
are available in Docket No. NHTSA-2010-0131 and on NHTSA's Web site.
    \623\ A date of 2012 means the technology can be applied in all 
model years, while a date of 2020 means the technology can only be 
applied in model years 2020 through 2025.
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BILLING CODE 4910-59-C
    For purposes of this proposal and as discussed in greater detail in 
the Joint TSD, NHTSA and EPA built upon the list of technologies used 
by agencies for the MYs 2017-2025 CAFE and GHG standards. NHTSA and EPA 
had additional technologies to the list that that the agencies expect 
to be in production during the MYs 2017-2025 timeframe. These new 
technologies included higher BMEP turbocharged and downsized engines, 
advanced diesel engines, higher efficiency transmissions, additional 
mass reduction levels, PHEVs, EVs, etc.
    b. How did NHTSA determine the costs and effectiveness of each of 
these technologies for use in its modeling analysis?
    Building on cost estimates developed for the MYs 2012-2016 CAFE and 
GHG final rule and the 2010 TAR, the agencies incorporated new cost and 
effectiveness estimates for the new technologies being considered and 
some of the technologies carried over from the MYs 2012-2016 final rule 
and 2010 TAR. This joint work is reflected in Chapter 3 of the Joint 
TSD and in Section II of this preamble, as summarized below. For more 
detailed information on the effectiveness and cost of fuel-saving 
technologies, please refer to Chapter 3 of the Joint TSD and Section V 
of NHTSA's PRIA.
    For this proposal the FEV tear down work was expanded to include an 
8-speed DCT, a power-split hybrid, which was used to determine a P2 
hybrid cost, and a mild hybrid with stop-start technology. 
Additionally, battery costs have been revised using Argonne National 
Laboratory's battery cost model. The model developed by ANL allows 
users to estimate unique battery pack cost using user customized input 
sets for different hybridization applications, such as strong hybrid, 
PHEV and EV. Based on staff input and public feedback EPA and NHTSA 
have modified how the indirect costs, using ICMs, were derived and 
applied. The updates are discussed at length in Chapter 3 of the Joint 
TSD and in Chapter 5 of NHTSA's PRIA.
    Some of the effectiveness estimates for technologies applied in MYs 
2012-2016 and 2010 TAR have remained the same. However, nearly all of 
the effectiveness estimates for carryover technologies have been 
updated based on a newer version of EPA's lumped parameter model, which 
was calibrated by the vehicle simulation work performed by Ricardo 
Engineering. The Ricardo simulation study was also used to estimate the 
effectiveness for the technologies newly considered for this proposal 
like higher BMEP turbocharged and downsized engine, advanced 
transmission technologies and P2 Hybrids. While NHTSA and EPA apply 
technologies differently, the agencies have sought to ensure that the 
resultant effectiveness of applying technologies is consistent between 
the two agencies.
    NHTSA notes that, in developing technology cost and effectiveness 
estimates, the agencies have made every effort to hold constant aspects 
of vehicle performance and utility typically valued by consumers, such 
as horsepower, carrying capacity, drivability, durability, noise, 
vibration and harshness (NVH) and towing and hauling capacity. For 
example, NHTSA includes in its analysis technology cost and 
effectiveness estimates that are specific to performance passenger cars 
(i.e., sports cars), as compared to nonperformance passenger cars. 
NHTSA seeks comment on the extent to which commenters believe that the 
agencies have been successful in holding constant these elements of 
vehicle performance and utility in developing the technology cost and 
effectiveness estimates.
    The agency notes that the technology costs included in this 
proposal take into account only those associated with the initial build 
of the vehicle. Although comments were received to the MYs

[[Page 75180]]

2012-2016 rulemaking that suggested there could be additional 
maintenance required with some new technologies (e.g., turbocharging, 
hybrids, etc.), and that additional maintenance costs could occur as a 
result, the agencies have not explicitly incorporated maintenance costs 
(or potential savings) as a separate element in this analysis. The 
agency requests comments on this topic and will undertake a more 
detailed review of these potential costs for the final rule.
    For some of the technologies, NHTSA's inputs, which are designed to 
be as consistent as practicable with EPA's, indicate negative 
incremental costs. In other words, the agency is estimating that some 
technologies, if applied in a manner that holds performance and utility 
constant, will, following initial investment (for, e.g., R&D and 
tooling) by the manufacturer and its suppliers, incrementally improve 
fuel savings and reduce vehicle costs. Nonetheless, in the agency's 
central analysis, these and other technologies are applied only insofar 
as is necessary to achieve compliance with standards defining any given 
regulatory alternative (where the baseline no action alternative 
assumes CAFE standards are held constant after MY 2016). The agency has 
also performed a sensitivity analysis involving market-based 
application of technology--that is, the application of technology 
beyond the point needed to achieve compliance, if the cost of the 
technology is estimated to be sufficiently attractive relative to the 
accompanying fuel savings. NHTSA has invited comment on all of its 
technology estimates, and specifically requests comment on the 
likelihood that each technology will, if applied in a manner that holds 
vehicle performance and utility constant, be able to both deliver the 
estimated fuel savings and reduce vehicle cost. The agency also invites 
comment on whether, for the final rule, its central analysis should be 
revised to include estimated market-driven application of technology.
    The tables below provide examples of the incremental cost and 
effectiveness estimates employed by the agency in developing this 
proposal, according to the decision trees used in the CAFE modeling 
analysis. Thus, the effectiveness and cost estimates are not absolute 
to a single reference vehicle, but are incremental to the technology or 
technologies that precede it.
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c. How does NHTSA use these assumptions in its modeling analysis?
    NHTSA relies on several inputs and data files to conduct the 
compliance analysis using the CAFE model, as discussed further below 
and in Chapter 5 of the PRIA. For the purposes of applying 
technologies, the CAFE model primarily uses three data files, one that 
contains data on the vehicles expected to be manufactured in the model 
years covered by the rulemaking and identifies the appropriate stage 
within the vehicle's life-cycle for the technology to be applied, one 
that contains data/parameters regarding the available technologies the 
model can apply, and one that contains economic assumption inputs for 
calculating the costs and benefits of the standards. The inputs for the 
first two data files are discussed below.
    As discussed above, the CAFE model begins with an initial state of 
the domestic vehicle market, which in this case is the market for 
passenger cars and light trucks to be sold during the period covered by 
the proposed standards. The vehicle market is defined on a year-by-
year, model-by-model, engine-by-engine, and transmission-by-
transmission basis, such that each defined vehicle model refers to a 
separately defined engine and a separately defined transmission. 
Comparatively, EPA's OMEGA model defines the vehicle market using 
representative vehicles at the vehicle platform level, which are binned 
into 5 year timeframes instead of year-by-year.
    For the current standards, which cover MYs 2017-2025, the light-
duty vehicle (passenger car and light truck) market forecast was 
developed jointly by NHTSA and EPA staff using MY 2008 CAFE compliance 
data. The MY 2008 compliance data includes about 1,100 vehicle models, 
about 400 specific engines, and about 200 specific transmissions, which 
is a somewhat lower level of detail in the representation of the 
vehicle market than that used by NHTSA in prior CAFE analyses--previous 
analyses would count a vehicle as ``new'' in any year when significant 
technology differences are made, such as at a redesign.\624\ However, 
within the limitations of information that can be made available to the 
public, it provides the foundation for a reasonable analysis of 
manufacturer-specific costs and the analysis of attribute-based CAFE 
standards, and is much greater than the level of detail used by many 
other models and analyses relevant to light-duty vehicle fuel 
economy.\625\
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    \624\ The market file for the MY 2011 final rule, which included 
data for MYs 2011-2015, had 5500 vehicles, about 5 times what we are 
using in this analysis of the MY 2008 certification data.
    \625\ Because CAFE standards apply to the average performance of 
each manufacturer's fleet of cars and light trucks, the impact of 
potential standards on individual manufacturers cannot be credibly 
estimated without analysis of the fleets that manufacturers can be 
expected to produce in the future. Furthermore, because required 
CAFE levels under an attribute-based CAFE standard depend on 
manufacturers' fleet composition, the stringency of an attribute-
based standard cannot be predicted without performing analysis at 
this level of detail.
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    In addition to containing data about each vehicle, engine, and 
transmission, this file contains information for each technology under 
consideration as it pertains to the specific vehicle (whether the 
vehicle is equipped with it or not), the estimated model year the 
vehicle is undergoing a refresh or redesign, and information about the 
vehicle's subclass for purposes of technology application. In essence, 
the model considers whether it is appropriate to apply a technology to 
a vehicle.
Is a vehicle already equipped, or can it not be equipped, with a 
particular technology?
    The market forecast file provides NHTSA the ability to identify, on 
a technology-by-technology basis, which technologies may already be 
present (manufactured) on a particular vehicle, engine, or 
transmission, or which technologies are not applicable (due to 
technical considerations or engineering constraints) to a particular 
vehicle, engine, or transmission. These identifications are made on a 
model-by-model, engine-by-engine, and transmission-by-transmission 
basis. For example, if the market forecast file indicates that 
Manufacturer X's Vehicle Y is manufactured with Technology Z, then for 
this vehicle Technology Z will be shown as used. Additionally, NHTSA 
has determined that some technologies are only suitable or unsuitable 
when certain vehicle, engine, or transmission conditions exist. For 
example, secondary axle disconnect is only suitable for 4WD vehicles 
and cylinder deactivation is unsuitable for any engine with fewer than 
6 cylinders. Similarly, comments received to the 2008 NPRM indicated 
that cylinder deactivation could not likely be applied to vehicles 
equipped with manual transmissions during the rulemaking timeframe, due 
primarily to the cylinder deactivation system not being able to 
anticipate gear shifts. The CAFE model employs ``engineering 
constraints'' to address issues like these, which are a programmatic 
method of controlling technology application that is independent of 
other constraints. Thus, the market forecast file would indicate that 
the technology in question should not be applied to the particular 
vehicle/engine/transmission (i.e., is unavailable). Since multiple 
vehicle models may be equipped with an engine or transmission, this may 
affect multiple models. In using this aspect of the market forecast 
file, NHTSA ensures the CAFE model only applies technologies in an 
appropriate manner, since before any application of a technology can 
occur, the model checks the market forecast to see if it is either 
already present or unavailable. NHTSA seeks comment on the continued 
appropriateness of the engineering constraints used by the model, and 
specifically whether many of the technical constraints will be resolved 
(and therefore the engineering constraints should be changed) given the 
increased focus of engineering resources that will be working to solve 
these technical challenges.
    Whether a vehicle can be equipped with a particular technology 
could also theoretically depend on certain technical considerations 
related to incorporating the technology into particular vehicles. For 
example, GM commented on the MY 2012-2016 NPRM that there are certain 
issues in implementing turbocharging and downsizing technologies on 
full-size trucks, like concerns related to engine knock, drivability, 
control of boost pressure, packaging complexity, enhanced cooling for 
vehicles that are designed for towing or hauling, and noise, vibration 
and harshness. NHTSA stated in response that we believed that such 
technical considerations are well recognized within the industry and it 
is standard industry practice to address each during the design and 
development phases of applying turbocharging and downsizing 
technologies. The cost and effectiveness estimates used in the final 
rule for MYs 2012-2016, as well as the cost and effectiveness estimates 
employed in this NPRM, are based on analysis that assumes each of these 
factors is addressed prior to production implementation of the 
technologies. NHTSA continues to believe that these issues are 
accounted for by industry, but we seek comment on whether the 
engineering constraints should be used to address concerns like these 
(and if so, how), or alternatively, whether some of the things that the 
agency currently treats as engineering constraints should be (or 
actually are) accounted for in the cost and effectiveness estimates 
through assumptions like those described above, and whether the agency 
might be double-constraining the application of technology.
Is a vehicle being redesigned or refreshed?
    Manufacturers typically plan vehicle changes to coincide with 
certain stages

[[Page 75191]]

of a vehicle's life cycle that are appropriate for the change, or in 
this case the technology being applied. In the automobile industry 
there are two terms that describe when technology changes to vehicles 
occur: Redesign and refresh (i.e., freshening). Vehicle redesign 
usually refers to significant changes to a vehicle's appearance, shape, 
dimensions, and powertrain. Redesign is traditionally associated with 
the introduction of ``new'' vehicles into the market, often 
characterized as the ``next generation'' of a vehicle, or a new 
platform. Vehicle refresh usually refers to less extensive vehicle 
modifications, such as minor changes to a vehicle's appearance, a 
moderate upgrade to a powertrain system, or small changes to the 
vehicle's feature or safety equipment content. Refresh is traditionally 
associated with mid-cycle cosmetic changes to a vehicle, within its 
current generation, to make it appear ``fresh.'' Vehicle refresh 
generally occurs no earlier than two years after a vehicle redesign, or 
at least two years before a scheduled redesign. To be clear, this is a 
general description of how manufacturers manage their product lines and 
refresh and redesign cycles but in some cases the timeframes could be 
shorter and others longer depending on market factors, regulations, 
etc. For the majority of technologies discussed today, manufacturers 
will only be able to apply them at a refresh or redesign, because their 
application would be significant enough to involve some level of 
engineering, testing, and calibration work.\626\
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    \626\ For example, applying material substitution through weight 
reduction, or even something as simple as low rolling-resistance 
tires, to a vehicle will likely require some level of validation and 
testing to ensure that the vehicle may continue to be certified as 
compliant with NHTSA's Federal Motor Vehicle Safety Standards 
(FMVSS). Weight reduction might affect a vehicle's crashworthiness; 
low rolling-resistance tires might change a vehicle's braking 
characteristics or how it performs in crash avoidance tests.
---------------------------------------------------------------------------

    Some technologies (e.g., those that require significant revision) 
are nearly always applied only when the vehicle is expected to be 
redesigned, like turbocharging and engine downsizing, or conversion to 
diesel or hybridization. Other technologies, like cylinder 
deactivation, electric power steering, and low rolling resistance tires 
can be applied either when the vehicle is expected to be refreshed or 
when it is expected to be redesigned, while low friction lubricants, 
can be applied at any time, regardless of whether a refresh or redesign 
event is conducted. Accordingly, the model will only apply a technology 
at the particular point deemed suitable. These constraints are intended 
to produce results consistent with how we assume manufacturers will 
apply technologies in the future based on how they have historically 
implemented new technologies. For each technology under consideration, 
NHTSA specifies whether it can be applied any time, at refresh/
redesign, or only at redesign. The data forms another input to the CAFE 
model. NHTSA develops redesign and refresh schedules for each of a 
manufacturer's vehicles included in the analysis, essentially based on 
the last known redesign year for each vehicle and projected forward 
using a 5 to 8-year redesign and a 2-3 year refresh cycle, and this 
data is also stored in the market forecast file. While most vehicles 
are projected to follow a 5-year redesign a few of the niche market or 
small-volume manufacturer vehicles (i.e. luxury and performance 
vehicles) and large trucks are assumed to have 6- to 8-year redesigns 
based on historic redesign schedules and the agency's understanding of 
manufacturers' intentions moving forward. This approach is used because 
of the nature of the current baseline, which as a single year of data 
does not contain its own refresh and redesign cycle cues for future 
model years, and to ensure the complete transparency of the agency's 
analysis. We note that this approach is different from what NHTSA has 
employed previously for determining redesign and refresh schedules, 
where NHTSA included the redesign and refresh dates in the market 
forecast file as provided by manufacturers in confidential product 
plans. Vehicle redesign/refresh assumptions are discussed in more 
detail in Chapter 5 of the PRIA and in Chapter 3 of the TSD.
    NHTSA has previously received comments stating that manufacturers 
do not necessarily adhere to strict five-year redesign cycles, and may 
add significant technologies by redesigning vehicles at more frequent 
intervals, albeit at higher costs. Conversely, other comments received 
stated that as compared to full-line manufacturers, small-volume 
manufacturers in fact may have 7 to 8-year redesign cycles.\627\ The 
agency believes that manufacturers can and will accomplish much 
improvement in fuel economy and GHG reductions while applying 
technology consistent with their redesign schedules.
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    \627\ In the MY 2011 final rule, NHTSA noted that the CAR report 
submitted by the Alliance, prepared by the Center for Automotive 
Research and EDF, stated that ``For a given vehicle line, the time 
from conception to first production may span two and one-half to 
five years,'' but that ``The time from first production 
(``Job1'') to the last vehicle off the line (``Balance 
Out'') may span from four to five years to eight to ten years or 
more, depending on the dynamics of the market segment.'' The CAR 
report then stated that ``At the point of final production of the 
current vehicle line, a new model with the same badge and similar 
characteristics may be ready to take its place, continuing the 
cycle, or the old model may be dropped in favor of a different 
product.'' See NHTSA-2008-0089-0170.1, Attachment 16, at 8 (393 of 
pdf). NHTSA explained that this description, which states that a 
vehicle model will be redesigned or dropped after 4-10 years, was 
consistent with other characterizations of the redesign and 
freshening process, and supported the 5-year redesign and 2-3 year 
refresh cycle assumptions used in the MY 2011 final rule. See id., 
at 9 (394 of pdf). Given that the situation faced by the auto 
industry today is not so wholly different from that in March 2009, 
when the MY 2011 final rule was published, and given that the 
commenters did not present information to suggest that these 
assumptions are unreasonable (but rather simply that different 
manufacturers may redesign their vehicles more or less frequently, 
as the range of cycles above indicates), NHTSA believes that the 
assumptions remain reasonable for purposes of this NPRM analysis. 
See also ``Car Wars 2009-2012, The U.S. automotive product 
pipeline,'' John Murphy, Research Analyst, Merrill Lynch research 
paper, May 14, 2008 and ``Car Wars 2010-2013, The U.S. automotive 
product pipeline,'' John Murphy, Research Analyst, Bank of America/
Merrill Lynch research paper, July 15, 2009. Available at http://www.autonews.com/assets/PDF/CA66116716.PDF (last accessed October 
11, 2011).
---------------------------------------------------------------------------

    Once the model indicates that a technology should be applied to a 
vehicle, the model must evaluate which technology should be applied. 
This will depend on the vehicle subclass to which the vehicle is 
assigned; what technologies have already been applied to the vehicle 
(i.e., where in the ``decision tree'' the vehicle is); when the 
technology is first available (i.e., year of availability); whether the 
technology is still available (i.e., ``phase-in caps''); and the costs 
and effectiveness of the technologies being considered. Technology 
costs may be reduced, in turn, by learning effects and short- vs. long-
term ICMs, while technology effectiveness may be increased or reduced 
by synergistic effects between technologies. In the technology input 
file, NHTSA has developed a separate set of technology data variables 
for each of the twelve vehicle subclasses. Each set of variables is 
referred to as an ``input sheet,'' so for example, the subcompact 
passenger car input sheet holds the technology data that is appropriate 
for the subcompact subclass. Each input sheet contains a list of 
technologies available for members of the particular vehicle subclass. 
The following items are provided for each technology: The name of the 
technology, its abbreviation, the decision tree with which it is 
associated, the (first) year in which it is available, the year-by-year 
cost estimates and effectiveness (fuel consumption reduction) 
estimates, its applicability and the consumer value

[[Page 75192]]

loss. The phase-in values and the potential stranded capital costs are 
common for all vehicle subclasses and are thus listed in a separate 
input sheet that is referenced for all vehicle subclasses.
To which vehicle subclass is the vehicle assigned?
    As part of its consideration of technological feasibility, the 
agency evaluates whether each technology could be implemented on all 
types and sizes of vehicles, and whether some differentiation is 
necessary in applying certain technologies to certain types and sizes 
of vehicles, and with respect to the cost incurred and fuel consumption 
and CO2 emissions reduction achieved when doing so. The 2010 
NAS Report differentiated technology application using eight vehicle 
``classes'' (4 car classes and 4 truck classes).\628\ NAS's purpose in 
separating vehicles into these classes was to create groups of ``like'' 
vehicles, i.e., vehicles similar in size, powertrain configuration, 
weight, and consumer use, and for which similar technologies are 
applicable. NAS also used these vehicle classes along with powertrain 
configurations (e.g..4 cylinder, 6 cylinder or 8 cylinder engines) to 
determine unique cost and effectiveness estimates for each class of 
vehicles.
---------------------------------------------------------------------------

    \628\ The NAS classes included two-seater convertibles and 
coupes; small cars; intermediate and large cars; high-performance 
sedans; unit-body standard trucks; unit-body high-performance 
trucks; body-on-frame small and midsize trucks; and body.
---------------------------------------------------------------------------

    NHTSA similarly differentiates vehicles by ``subclass'' for the 
purpose of applying technologies to ``like'' vehicles and assessing 
their incremental costs and effectiveness. NHTSA assigns each vehicle 
manufactured in the rulemaking period to one of 12 subclasses: For 
passenger cars, Subcompact, Subcompact Performance, Compact, Compact 
Performance, Midsize, Midsize Performance, Large, and Large 
Performance; and for light trucks, Small SUV/Pickup/Van, Midsize SUV/
Pickup/Van, Large SUV/Pickup/Van, and Minivan. The agency seeks comment 
on the appropriateness of these 12 subclasses for the MYs 2017-2025 
timeframe. The agency is also seeking comment on the continued 
appropriateness of maintaining separate ``performance'' vehicle classes 
or if as fuel economy stringency increases the market for performance 
vehicles will decrease.
    For this NPRM, NHTSA divides the vehicle fleet into subclasses 
based on model inputs, and applies subclass-specific estimates, also 
from model inputs, of the applicability, cost, and effectiveness of 
each fuel-saving technology. The model's estimates of the cost to 
improve the fuel economy of each vehicle model thus depend upon the 
subclass to which the vehicle model is assigned. Each vehicle's 
subclass is stored in the market forecast file. When conducting a 
compliance analysis, if the CAFE model seeks to apply technology to a 
particular vehicle, it checks the market forecast to see if the 
technology is available and if the refresh/redesign criteria are met. 
If these conditions are satisfied, the model determines the vehicle's 
subclass from the market data file, which it then uses to reference 
another input called the technology input file. NHTSA reviewed its 
methodology for dividing vehicles into subclasses for purposes of 
technology application that it used in the MY 2011 final rule and for 
the MYs 2012-2016 rulemaking, and concluded that the same methodology 
would be appropriate for this NPRM for MYs 2017-2025. Vehicle 
subclasses are discussed in more detail in Chapter 5 of the PRIA and in 
Chapter 3 of the TSD.
    For the reader's reference, the subclasses and example vehicles 
from the market forecast file are provided in the tables below.

[[Page 75193]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.173

What technologies have already been applied to the vehicle (i.e., where 
in the ``decision trees'' is it)?
    NHTSA's methodology for technology analysis evaluates the 
application of individual technologies and their incremental costs and 
effectiveness. Individual technologies are assessed relative to the 
prior technology state, which means that it is crucial to understand 
what technologies are already present on a vehicle in order to 
determine correct incremental cost and effectiveness values. The 
benefit of the incremental approach is transparency in accounting, 
insofar as when individual technologies are added incrementally to 
individual vehicles, it is clear and easy to determine how costs and 
effectiveness add up as technology levels increase and explicitly 
accounting for any synergies that exist between technologies which are 
already present on the vehicle and new technologies being applied.
    To keep track of incremental costs and effectiveness and to know 
which technology to apply and in which order, the CAFE model's 
architecture uses a logical sequence, which NHTSA refers to as 
``decision trees,'' for applying fuel economy-improving technologies to 
individual vehicles. For purposes of this proposal, NHTSA reviewed the 
MYs 2012-2016 final rule's technology sequencing architecture, which 
was based on the MY 2011 final rule's decision trees that were jointly 
developed by NHTSA and Ricardo, and, as appropriate, updated the 
decision trees to include new technologies that have been defined for 
the MYs 2017-2025 timeframe.
    In general, and as described in great detail in Chapter 5 of the 
current PRIA,\629\ each technology is assigned to one of the five 
following categories based on the system it affects or impacts: Engine, 
transmission, electrification/accessory, hybrid or

[[Page 75194]]

vehicle. Each of these categories has its own decision tree that the 
CAFE model uses to apply technologies sequentially during the 
compliance analysis. The decision trees were designed and configured to 
allow the CAFE model to apply technologies in a cost-effective, logical 
order that also considers ease of implementation. For example, software 
or control logic changes are implemented before replacing a component 
or system with a completely redesigned one, which is typically a much 
more expensive and integration intensive option. In some cases, and as 
appropriate, the model may combine the sequential technologies shown on 
a decision tree and apply them simultaneously, effectively developing 
dynamic technology packages on an as-needed basis. For example, if 
compliance demands indicate, the model may elect to apply LUB, EFR, and 
ICP on a dual overhead cam engine, if they are not already present, in 
one single step. An example simplified decision tree for engine 
technologies is provided below; the other simplified decision trees may 
be found in Chapter 5 of the PRIA. Expanded decision trees are 
available in the docket for this NPRM.
---------------------------------------------------------------------------

    \629\ Additional details about technologies are categorized can 
be found in the MY 2011 final rule.
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BILLING CODE 4910-59-P

[[Page 75195]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.174

    Each technology within the decision trees has an incremental cost 
and an incremental effectiveness estimate associated with it, and 
estimates are specific to a particular vehicle subclass (see the tables 
in Chapter 5 of the PRIA).

[[Page 75196]]

Each technology's incremental estimate takes into account its position 
in the decision tree path. If a technology is located further down the 
decision tree, the estimates for the costs and effectiveness values 
attributed to that technology are influenced by the incremental 
estimates of costs and effectiveness values for prior technology 
applications. In essence, this approach accounts for ``in-path'' 
effectiveness synergies, as well as cost effects that occur between the 
technologies in the same path. When comparing cost and effectiveness 
estimates from various sources and those provided by commenters in this 
and the previous CAFE rulemakings, it is important that the estimates 
evaluated are analyzed in the proper context, especially as concerns 
their likely position in the decision trees and other technologies that 
may be present or missing. Not all estimates available in the public 
domain or that have been (or will be) offered for the agencies' 
consideration can be evaluated in an ``apples-to-apples'' comparison 
with those used by the CAFE model, since in some cases the order of 
application, or included technology content, is inconsistent with that 
assumed in the decision tree.
    The MY 2011 final rule discussed in detail the revisions and 
improvements made to the CAFE model and decision trees during that 
rulemaking process, including the improved handling and accuracy of 
valve train technology application and the development and 
implementation of a method for accounting path-dependent correction 
factors in order to ensure that technologies are evaluated within the 
proper context. The reader should consult the MY 2011 final rule 
documents for further information on these modeling techniques, all of 
which continued to be utilized in developing this proposal.\630\ To the 
extent that the decision trees have changed for purposes of the MYs 
2012-2016 final rule and this NPRM, it was due not to revisions in the 
order of technology application, but rather to redefinitions of 
technologies or addition or subtraction of technologies.
---------------------------------------------------------------------------

    \630\ See, e.g., 74 FR 14238-46 (Mar. 30, 2009) for a full 
discussion of the decision trees in NHTSA's MY 2011 final rule, and 
Docket No. NHTSA-2009-0062-0003.1 for an expanded decision tree used 
in that rulemaking.
---------------------------------------------------------------------------

Is the next technology available in this model year?
    Some of technologies considered are available on vehicles today, 
and thus will be available for application (albeit in varying degrees) 
in the model starting in MY 2017. Other technologies, however, will not 
become available for purposes of NHTSA's analysis until later in the 
rulemaking time frame. When the model is considering whether to add a 
technology to a vehicle, it checks its year of availability--if the 
technology is available, it may be added; if it is not available, the 
model will consider whether to switch to a different decision tree to 
look for another technology, or will skip to the next vehicle in a 
manufacturer's fleet. The year of availability for each technology is 
provided above in Table IV-4.
    The agency has received comments previously stating that if a 
technology is currently available or available prior to the rulemaking 
timeframe that it should be immediately made available in the model. In 
response, as discussed above, technology ``availability'' is not 
determined based simply on whether the technology exists, but depends 
also on whether the technology has achieved a level of technical 
viability that makes it appropriate for widespread application. This 
depends in turn on component supplier constraints, capital investment 
and engineering constraints, and manufacturer product cycles, among 
other things. Moreover, even if a technology is available for 
application, it may not be available for every vehicle. Some 
technologies may have considerable fuel economy benefits, but cannot be 
applied to some vehicles due to technological constraints--for example, 
cylinder deactivation cannot be applied to vehicles with current 4-
cylinder engines (because not enough cylinders are present to 
deactivate some and continue moving the vehicle) or on vehicles with 
manual transmissions within the rulemaking timeframe. The agencies have 
provided for increases over time to reach the mpg level of the MY 2025 
standards precisely because of these types of constraints, because they 
have a real effect on how quickly manufacturers can apply technology to 
vehicles in their fleets. NHTSA seeks comment on the appropriateness of 
the assumed years of availability.
Has the technology reached the phase-in cap for this model year?
    Besides the refresh/redesign cycles used in the CAFE model, which 
constrain the rate of technology application at the vehicle level so as 
to ensure a period of stability following any modeled technology 
applications, the other constraint on technology application employed 
in NHTSA's analysis is ``phase-in caps.'' Unlike vehicle-level cycle 
settings, phase-in caps constrain technology application at the vehicle 
manufacturer level.\631\ They are intended to reflect a manufacturer's 
overall resource capacity available for implementing new technologies 
(such as engineering and development personnel and financial 
resources), thereby ensuring that resource capacity is accounted for in 
the modeling process. At a high level, phase-in caps and refresh/
redesign cycles work in conjunction with one another to avoid the 
modeling process out-pacing an OEM's limited pool of available 
resources during the rulemaking time frame and the years leading up to 
the rulemaking time frame, especially in years where many models may be 
scheduled for refresh or redesign. Even though this rulemaking is being 
proposed 5 years before it takes effect, OEM's will still be utilizing 
their limited resources to meet the MYs 2012-2016 CAFE standards. This 
helps to ensure technological feasibility and economic practicability 
in determining the stringency of the standards.
---------------------------------------------------------------------------

    \631\ While phase-in caps are expressed as specific percentages 
of a manufacturer's fleet to which a technology may be applied in a 
given model year, phase-in caps cannot always be applied as precise 
limits, and the CAFE model in fact allows ``override'' of a cap in 
certain circumstances. When only a small portion of a phase-in cap 
limit remains, or when the cap is set to a very low value, or when a 
manufacturer has a very limited product line, the cap might prevent 
the technology from being applied at all since any application would 
cause the cap to be exceeded. Therefore, the CAFE model evaluates 
and enforces each phase-in cap constraint after it has been exceeded 
by the application of the technology (as opposed to evaluating it 
before application), which can result in the described overriding of 
the cap.
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    NHTSA has been developing the concept of phase-in caps for purposes 
of the agency's modeling analysis over the course of the last several 
CAFE rulemakings, as discussed in greater detail in the MY 2011 final 
rule,\632\ in the MY 2012-2016 final rule and in Chapter 5 of the PRIA 
and Chapter 3 of the Joint TSD. The MYs 2012-2016 final rule like the 
MY 2011 final rule employed non-linear phase-in caps (that is, caps 
that varied from year to year) that were designed to respond to 
previously received comments on technology deployment.
---------------------------------------------------------------------------

    \632\ NEED A FOOTNOTE HERE
---------------------------------------------------------------------------

    For purposes of this NPRM for MYs 2017-2025, as in the MY 2011 and 
MYs 2012-2016 final rules, NHTSA combines phase-in caps for some groups 
of similar technologies, such as valve phasing technologies that are 
applicable to different forms of engine design (SOHC, DOHC, OHV), since 
they are very similar from an engineering and implementation 
standpoint. When the phase-in caps for two technologies are combined, 
the maximum total

[[Page 75197]]

application of either or both to any manufacturer's fleet is limited to 
the value of the cap.\633\
---------------------------------------------------------------------------

    \633\ See 74 FR at 14270 (Mar. 30, 2009) for further discussion 
and examples.
---------------------------------------------------------------------------

    In developing phase-in cap values for purposes of this NPRM, NHTSA 
reviewed the MYs 2012-2016 final rule's phase-in caps, which for the 
majority of technologies were set to reach 85 or 100 percent by MY 
2016, although more advanced technologies like diesels and strong 
hybrids reach only 15 percent by MY 2016. The phase-in caps used in the 
MYs 2012-2016 final were developed to harmonize with EPA's proposal and 
consider the fact that manufacturers, as part of the information shared 
during the discussions that occurred during summer 2011, appeared to be 
anticipating higher technology application rates than assumed in prior 
rules. NHTSA determined that these phase-in caps for MY 2016 were still 
reasonable and thus used those caps as the starting point for the MYs 
2017-2025 phase-in caps. For many of the carryover technologies this 
means that for MYs 2017-2025 the phase-in caps are assumed to be 100 
percent. NHTSA along with EPA used confidential OEM submissions, trade 
press articles, company publications and press releases to estimate the 
phase-in caps for the newly defined technologies that will be entering 
the market just before or during the MYs 2017-2025 time frame. For 
example, advanced cooled EGR engines have a phase-in cap of 3 percent 
per year through MY 2021 and then 10 percent per year through 2025. The 
agency seeks comment on the appropriateness of both the carryover 
phase-in caps and the newly defined ones proposed in this NPRM.
Is the technology less expensive due to learning effects?
    In the past two rulemakings NHTSA has explicitly accounted for the 
cost reductions a manufacturer might realize through learning achieved 
from experience in actually applying a technology. These cost 
reductions, due to learning effects, were taken into account through 
two kinds of mutually exclusive learning, ``volume-based'' and ``time-
based.'' NHTSA and EPA included a detailed description of the learning 
effect in the MYs 2012-2016 final rule and the more recent heavy-duty 
rule.\634\
---------------------------------------------------------------------------

    \634\ 76 FR 57106, 57320 (Sept. 15, 2011).
---------------------------------------------------------------------------

    Most studies of the effect of experience or learning on production 
costs appear to assume that cost reductions begin only after some 
initial volume threshold has been reached, but not all of these studies 
specify this threshold volume. The rate at which costs decline beyond 
the initial threshold is usually expressed as the percent reduction in 
average unit cost that results from each successive doubling of 
cumulative production volume, sometimes referred to as the learning 
rate. Many estimates of experience curves do not specify a cumulative 
production volume beyond which cost reductions would no longer occur, 
instead depending on the asymptotic behavior of the effect for learning 
rates below 100 percent to establish a floor on costs.
    In past rulemaking analyses, as noted above, both agencies have 
used a learning curve algorithm that applied a learning factor of 20 
percent for each doubling of production volume. NHTSA has used this 
approach in analyses supporting recent CAFE rules. In its analyses, EPA 
has simplified the approach by using an ``every two years'' based 
learning progression rather than a pure production volume progression 
(i.e., after two years of production it was assumed that production 
volumes would have doubled and, therefore, costs would be reduced by 20 
percent).\635\
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    \635\ To clarify, EPA has simplified the steep portion of the 
volume learning curve by assuming that production volumes of a given 
technology will have doubled within two years time. This has been 
done largely to allow for a presentation of estimated costs during 
the years of implementation, without the need to conduct a feedback 
loop that ensures that production volumes have indeed doubled. If 
EPA was to attempt such a feedback loop, it would need to estimate 
first year costs, feed those into OMEGA, review the resultant 
technology penetration rate and volume increase, calculate the 
learned costs, feed those into OMEGA (since lower costs would result 
in higher penetration rates, review the resultant technology 
penetration rate and volume increase, etc., until an equilibrium was 
reached. To do this for the dozens of technologies considered in the 
analysis for this rulemaking was deemed not feasible. Instead, EPA 
estimated the effects of learning on costs, fed those costs into 
OMEGA, and reviewed the resultant penetration rates. The assumption 
that volumes have doubled after two years is based solely on the 
assumption that year two sales are of equal or greater number than 
year one sales and, therefore, have resulted in a doubling of 
production. This could be done on a daily basis, a monthly basis, or 
a yearly basis as was done for this analysis.
---------------------------------------------------------------------------

    In the MYs 2012-2016 light-duty rule, the agencies employed an 
additional learning algorithm to reflect the volume-based learning cost 
reductions that occur further along on the learning curve. This 
additional learning algorithm was termed ``time-based'' learning simply 
as a means of distinguishing this algorithm from the volume-based 
algorithm mentioned above, although both of the algorithms reflect the 
volume-based learning curve supported in the literature. To avoid 
confusion, we are now referring to this learning algorithm as the 
``flat portion'' of the learning curve. This way, we maintain the 
clarity that all learning is, in fact, volume-based learning, and that 
the level of cost reductions depend only on where on the learning curve 
a technology's learning progression is. We distinguish the flat portion 
of the curve from the ``steep portion'' of the curve to indicate the 
level of learning taking place in the years following implementation of 
the technology. The agencies have applied the steep portion learning 
algorithm for those technologies considered to be newer technologies 
likely to experience rapid cost reductions through manufacturer 
learning, and the flat portion learning algorithm for those 
technologies considered to be mature technologies likely to experience 
only minor cost reductions through manufacturer learning. As noted 
above, the steep portion learning algorithm results in 20 percent lower 
costs after two full years of implementation (i.e., the MY 2016 costs 
are 20 percent lower than the MYs 2014 and 2015 costs). Once two steep 
portion learning steps have occurred (for technologies having the steep 
portion learning algorithm applied while flat portion learning would 
begin in year 2 for technologies having the flat portion learning 
algorithm applied), flat portion learning at 3 percent per year becomes 
effective for 5 years. Beyond 5 years of learning at 3 percent per 
year, 5 years of learning at 2 percent per year, then 5 at 1 percent 
per year become effective.
    Technologies assumed to be on the steep portion of the learning 
curve are hybrids and electric vehicles, while no learning is applied 
to technologies likely to be affected by commodity costs (LUB, ROLL) or 
that have loosely-defined BOMs (EFR, LDB), as was the case in the MY 
2012-2016 final rule. Chapter 3 of the Joint TSD and the PRIA shows the 
specific learning factors that NHTSA has applied in this analysis for 
each technology, and discusses learning factors and each agency's use 
of them further. EPA and NHTSA included discussion of learning cost 
assumptions in the RIAs and TSD Chapter 3. Since the agencies had to 
project how learning will occur with new technologies over a long 
period of time, we request comments on the assumptions of learning 
costs and methodology. In particular, we are interested in input on the 
assumptions for advanced 27-bar BMEP cooled EGR engines, which are 
currently still in the experimental stage and not expected to be 
available in

[[Page 75198]]

volume production until 2017. For our analysis, we have based estimates 
of the costs of high-BMEP engines on current (or soon to be current) 
production engines, and assumed that learning (and the associated cost 
reductions) begins as early as 2012. We seek comment on the 
appropriateness of these pre-production applications of learning.
Is the technology more or less effective due to synergistic effects?
    When two or more technologies are added to a particular vehicle 
model to improve its fuel efficiency and reduce CO2 
emissions, the resultant fuel consumption reduction may sometimes be 
higher or lower than the product of the individual effectiveness values 
for those items.\636\ This may occur because one or more technologies 
applied to the same vehicle partially address the same source (or 
sources) of engine, drivetrain or vehicle losses. Alternately, this 
effect may be seen when one technology shifts the engine operating 
points, and therefore increases or reduces the fuel consumption 
reduction achieved by another technology or set of technologies. The 
difference between the observed fuel consumption reduction associated 
with a set of technologies and the product of the individual 
effectiveness values in that set is referred to for purposes of this 
rulemaking as a ``synergy.'' Synergies may be positive (increased fuel 
consumption reduction compared to the product of the individual 
effects) or negative (decreased fuel consumption reduction). An example 
of a positive synergy might be a vehicle technology that reduces road 
loads at highway speeds (e.g., lower aerodynamic drag or low rolling 
resistance tires), that could extend the vehicle operating range over 
which cylinder deactivation may be employed. An example of a negative 
synergy might be a variable valvetrain system technology, which reduces 
pumping losses by altering the profile of the engine speed/load map, 
and a six-speed automatic transmission, which shifts the engine 
operating points to a portion of the engine speed/load map where 
pumping losses are less significant.
---------------------------------------------------------------------------

    \636\ More specifically, the products of the differences between 
one and the technology-specific levels of effectiveness in reducing 
fuel consumption. For example, not accounting for interactions, if 
technologies A and B are estimated to reduce fuel consumption by 10 
percent (i.e., 0.1) and 20 percent (i.e., 0.2) respectively, the 
``product of the individual effectiveness values'' would be 1-0.1 
times 1-0.2, or 0.9 times 0.8, which equals 0.72, corresponding to a 
combined effectiveness of 28 percent rather than the 30 percent 
obtained by adding 10 percent to 20 percent. The ``synergy factors'' 
discussed in this section further adjust these multiplicatively 
combined effectiveness values.
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    As the complexity of the technology combinations is increased, and 
the number of interacting technologies grows accordingly, it becomes 
increasingly important to account for these synergies. NHTSA and EPA 
determined synergistic impacts for this proposed rule using EPA's 
``lumped parameter'' analysis tool, which EPA describes at length in 
Chapter 3 of the TSD. The lumped parameter tool is a spreadsheet model 
that represents energy consumption in terms of average performance over 
the fuel economy test procedure, rather than explicitly analyzing 
specific drive cycles. The tool begins with an apportionment of fuel 
consumption across several loss mechanisms and accounts for the average 
extent to which different technologies affect these loss mechanisms 
using estimates of engine, drivetrain and vehicle characteristics that 
are averaged over the 2-cycle CAFE drive cycle. Results of this 
analysis were generally consistent with those of full-scale vehicle 
simulation modeling performed in 2010-2011 for EPA by Ricardo, Inc.
    For the current rulemaking, NHTSA is using an updated version of 
lumped parameter tool that incorporates results from simulation 
modeling performed in 2010-2011 by Ricardo, Inc. NHTSA and EPA 
incorporate synergistic impacts in their analyses in slightly different 
manners. Because NHTSA applies technologies individually in its 
modeling analysis, NHTSA incorporates synergistic effects between 
pairings of individual technologies. The use of discrete technology 
pair incremental synergies is similar to that in DOE's National Energy 
Modeling System (NEMS).\637\ Inputs to the CAFE model incorporate NEMS-
identified pairs, as well as additional pairs from the set of 
technologies considered in the CAFE model.
---------------------------------------------------------------------------

    \637\ U.S. Department of Energy, Energy Information 
Administration, Transportation Sector Module of the National Energy 
Modeling System: Model Documentation 2007, May 2007, Washington, DC, 
DOE/EIAM070(2007), at 29-30. Available at http://tonto.eia.doe.gov/ftproot/modeldoc/m070(2007).pdf (last accessed Sept. 25, 2011).
---------------------------------------------------------------------------

    NHTSA notes that synergies that occur within a decision tree are 
already addressed within the incremental values assigned and therefore 
do not require a synergy pair to address. For example, all engine 
technologies take into account incremental synergy factors of preceding 
engine technologies, and all transmission technologies take into 
account incremental synergy factors of preceding transmission 
technologies. These factors are expressed in the fuel consumption 
improvement factors in the input files used by the CAFE model.
    For applying incremental synergy factors in separate path 
technologies, the CAFE model uses an input table (see the tables in 
Chapter 3 of the TSD and in the PRIA) that lists technology pairings 
and incremental synergy factors associated with those pairings, most of 
which are between engine technologies and transmission/electrification/
hybrid technologies. When a technology is applied to a vehicle by the 
CAFE model, all instances of that technology in the incremental synergy 
table which match technologies already applied to the vehicle (either 
pre-existing or previously applied by the CAFE model) are summed and 
applied to the fuel consumption improvement factor of the technology 
being applied. Many of the synergies for the strong hybrid technology 
fuel consumption reductions are included in the incremental value for 
the specific hybrid technology block since the model applies all 
available electrification, engine and transmission technologies before 
applying strong hybrid technologies.
    The U.S. DOT Volpe Center has entered into a contract with Argonne 
National Laboratory (ANL) to provide full vehicle simulation modeling 
support for this MYs 2017-2025 rulemaking. While this modeling was not 
completed in time for use in this NPRM, NHTSA intends to use this 
modeling to validate/update technology effectiveness estimates and 
synergy factors for the final rulemaking analysis. This simulation 
modeling will be accomplished using ANL's full vehicle simulation tool 
called ``Autonomie,'' which is the successor to ANL's Powertrain System 
Analysis Toolkit (PSAT) simulation tool, and ANL's expertise with 
advanced vehicle technologies.
d. Where can readers find more detailed information about NHTSA's 
technology analysis?
    Much more detailed information is provided in Chapter 5 of the 
PRIA, and a discussion of how NHTSA and EPA jointly reviewed and 
updated technology assumptions for purposes of this NPRM is available 
in Chapter 3 of the TSD. Additionally, all of NHTSA's model input and 
output files are now public and available for the reader's review and 
consideration. The technology input files can be found in the docket 
for this NPRM, Docket No. NHTSA-2010-0131, and on NHTSA's Web site. And 
finally, because much of NHTSA's technology analysis for

[[Page 75199]]

purposes of this proposal builds on the work that was done for the MY 
2011 and MYs 2012-2016 final rules, we refer readers to those documents 
as well for background information concerning how NHTSA's methodology 
for technology application analysis has evolved over the past several 
rulemakings, both in response to comments and as a result of the 
agency's growing experience with this type of analysis.\638\
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    \638\ 74 FR 14233-308 (Mar. 30, 2009).
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3. How did NHTSA develop its economic assumptions?
    NHTSA's analysis of alternative CAFE standards for the model years 
covered by this rulemaking relies on a range of forecast variables, 
economic assumptions, and parameter values. This section describes the 
sources of these forecasts, the rationale underlying each assumption, 
and the agency's choices of specific parameter values. These economic 
values play a significant role in determining the benefits of 
alternative CAFE standards, as they have for the last several CAFE 
rulemakings. Under those alternatives where standards would be 
established by reference to their costs and benefits, these economic 
values also affect the levels of the CAFE standards themselves. Some of 
these variables have more important effects on the level of CAFE 
standards and the benefits from requiring alternative increases in fuel 
economy than do others, and the following discussion places more 
emphasis on these inputs.
    In reviewing these variables and the agency's estimates of their 
values for purposes of this proposed rule, NHTSA reconsidered comments 
it had previously received on the NPRM for MYs 2012-16 CAFE standards 
and to the NOI/Interim Joint TAR, and also reviewed newly available 
literature. The agency elected to revise some of its economic 
assumptions and parameter estimates for this rulemaking, while 
retaining others. For the reader's reference, Table IV-7 below 
summarizes the values used to calculate the economic benefits from each 
alternative.
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BILLING CODE 4910-59-C
a. Costs of Fuel Economy-Improving Technologies
    Building on cost estimates developed for the MYs 2012-2016 CAFE and 
GHG final rule and the 2010 TAR, the agencies incorporated new cost 
estimates for the new technologies being considered and some of the 
technologies carried over from the MYs 2012-2016 final rule and 2010 
TAR. This joint work is reflected in Chapter 3 of the Joint TSD and in 
Section II of this preamble, as summarized below. For more detailed 
information on cost of fuel-saving technologies, please refer to 
Chapter 3 of the Joint TSD and Chapter V of NHTSA's PRIA.
    The technology cost estimates used in this analysis are intended to 
represent manufacturers' direct costs for high-volume production of 
vehicles with these technologies. NHTSA explicitly accounts for the 
cost reductions a manufacturer might realize through

[[Page 75202]]

learning achieved from experience in actually applying a technology, 
which means that technologies become cheaper over the rulemaking time 
frame; learning effects are described above and in Chapter 3 of the 
draft joint TSD and Chapters V and VII of NHTSA's PRIA. NHTSA notes 
that, in developing technology cost estimates, the agencies have made 
every effort to hold constant aspects of vehicle performance and 
utility typically valued by consumers, such as horsepower, carrying 
capacity, drivability, durability, noise, vibration and harshness (NVH) 
and towing and hauling capacity. For example, NHTSA includes in its 
analysis technology cost estimates that are specific to performance 
passenger cars (i.e., sports cars), as compared to nonperformance 
passenger cars. NHTSA seeks comment on the extent to which commenters 
believe that the agencies have been successful in holding constant 
these elements of vehicle performance and utility in developing the 
technology cost estimates. Additionally, the agency notes that the 
technology costs included in this proposal take into account only those 
associated with the initial build of the vehicle. Although comments 
were received to the MYs 2012-2016 rulemaking that suggested there 
could be additional maintenance required with some new technologies 
(e.g., turbocharging, hybrids, etc.), and that additional maintenance 
costs could occur as a result. The agency requests comments on this 
topic and will undertake a more detailed review of these potential 
costs for the final rule.
    Additionally, NHTSA recognizes that manufacturers' actual costs for 
employing these technologies include additional outlays for 
accompanying design or engineering changes to models that use them, 
development and testing of prototype versions, recalibrating engine 
operating parameters, and integrating the technology with other 
attributes of the vehicle. Manufacturers' indirect costs for employing 
these technologies also include expenses for product development and 
integration, modifying assembly processes and training assembly workers 
to install them, increased expenses for operation and maintaining 
assembly lines, higher initial warranty costs for new technologies, any 
added expenses for selling and distributing vehicles that use these 
technologies, and manufacturer and dealer profit. These indirect costs 
have been accounted for in this rulemaking through use of ICMs, which 
have been revised for this rulemaking as discussed above, in Chapter 3 
of the draft joint TSD, and in Chapters V and VII of NHTSA's PRIA.
b. Potential Opportunity Costs of Improved Fuel Economy
    An important concern is whether achieving the fuel economy 
improvements required by the proposed CAFE standards will require 
manufacturers to modify the performance, carrying capacity, safety, or 
comfort of some vehicle models. To the extent that it does so, the 
resulting sacrifice in the value of those models represents an 
additional cost of achieving the required improvements in fuel economy. 
(This possibility is addressed in detail in Section IV.G.6.) Although 
exact dollar values that potential buyers attach to specific vehicle 
attributes are difficult to infer, differences in vehicle purchase 
prices and buyers' choices among competing models that feature varying 
combinations of these characteristics clearly demonstrate that changes 
in these attributes affect the utility and economic value they offer to 
potential buyers.\639\
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    \639\ See, e.g., Kleit A.N., 1990. ``The Effect of Annual 
Changes in Automobile Fuel Economy Standards.'' Journal of 
Regulatory Economics 2: 151-172 (Docket EPA-HQ-OAR-2009-0472-0015); 
Berry, Steven, James Levinsohn, and Ariel Pakes, 1995. ``Automobile 
Prices in Market Equilibrium,'' Econometrica 63(4): 841-940 (Docket 
NHTSA-2009-0059-0031); McCarthy, Patrick S., 1996.
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    NHTSA and EPA have approached this potential problem by developing 
cost estimates for fuel economy-improving technologies that include any 
additional manufacturing costs that would be necessary to maintain the 
originally planned levels of performance, comfort, carrying capacity, 
and safety of any light-duty vehicle model to which those technologies 
are applied. In doing so, the agencies followed the precedent 
established by the 2002 NAS Report, which estimated ``constant 
performance and utility'' costs for fuel economy technologies. NHTSA 
has followed this precedent in its efforts to refine the technology 
costs it uses to analyze alternative passenger car and light truck CAFE 
standards for MYs 2017-2025. Although the agency has reduced its 
estimates of manufacturers' costs for most technologies for use in this 
rulemaking, these revised estimates are still intended to represent 
costs that would allow manufacturers to maintain the performance, 
carrying capacity, and utility of vehicle models while improving their 
fuel economy.
    While we believe that our cost estimates for fuel economy-improving 
technologies include adequate provisions for accompanying costs that 
are necessary to prevent any degradation in other vehicle attributes, 
it is possible that they do not include adequate allowance to prevent 
sacrifices in these attributes on all vehicle models. If this is the 
case, the true economic costs of achieving higher fuel economy should 
include the opportunity costs to vehicle owners of any accompanying 
reductions vehicles' performance, carrying capacity, and utility, and 
omitting these will cause the agency's estimated technology costs to 
underestimate the true economic costs of improving fuel economy.
    It would be desirable to estimate explicitly the changes in vehicle 
buyers' welfare from the combination of higher prices for new vehicle 
models, increases in their fuel economy, and any accompanying changes 
in other vehicle attributes. The net change in buyer's welfare that 
results from the combination of these changes would provide a more 
accurate estimate of the true economic costs for improving fuel 
economy. The agency is in the process of developing a model of 
potential vehicle buyers' decisions about whether to purchase a new car 
or light truck and their choices from among the available models, which 
will allow it to conduct such an analysis. This process is expected to 
be completed for use in analyzing final CAFE standards for MY 2017-25; 
in the meantime, Section IV.G.6 below includes a detailed analysis and 
discussion of how omitting possible changes in vehicle attributes other 
than their prices and fuel economy might affect its estimates of 
benefits and costs resulting from the standards proposed in this NPRM.
c. The On-Road Fuel Economy ``Gap''
    Actual fuel economy levels achieved by light-duty vehicles in on-
road driving fall somewhat short of their levels measured under the 
laboratory-like test conditions used by EPA to establish its published 
fuel economy ratings for different models. In analyzing the fuel 
savings from alternative CAFE standards, NHTSA has previously adjusted 
the actual fuel economy performance of each light truck model downward 
from its rated value to reflect the expected size of this on-road fuel 
economy ``gap.'' On December 27, 2006, EPA adopted changes to its 
regulations on fuel economy labeling, which were intended to bring 
vehicles' rated fuel economy levels closer to their actual on-road fuel 
economy levels.\640\
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    \640\ 71 FR 77871 (Dec. 27, 2006).
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    In its Final Rule, however, EPA estimated that actual on-road fuel

[[Page 75203]]

economy for light-duty vehicles averages approximately 20 percent lower 
than published fuel economy levels, somewhat larger than the 15 percent 
shortfall it had previously assumed. For example, if the overall EPA 
fuel economy rating of a light truck is 20 mpg, EPA estimated that the 
on-road fuel economy actually achieved by a typical driver of that 
vehicle is expected to be only 80 percent of that figure, or 16 mpg 
(20*.80). NHTSA employed EPA's revised estimate of this on-road fuel 
economy gap in its analysis of the fuel savings resulting from 
alternative CAFE standards evaluated in the MY 2011 final rule.
    In the course of developing its CAFE standards for MY 2012-16, 
NHTSA conducted additional analysis of this issue. The agency used data 
on the number of passenger cars and light trucks of each model year 
that were registered for use during calendar years 2000 through 2006, 
average rated fuel economy for passenger cars and light trucks produced 
during each model year, and estimates of average miles driven per year 
by cars and light trucks of different ages. These data were combined to 
develop estimates of the average fuel economy that the U.S. passenger 
vehicle fleet would have achieved from 2000 through 2006 if cars and 
light trucks of each model year achieved the same fuel economy levels 
in actual on-road driving as they did under test conditions when new.
    Table IV-8 compares NHTSA's estimates of fleet-wide average fuel 
economy under test conditions for 2000 through 2006 to the Federal 
Highway Administration's (FHWA) published estimates of actual on-road 
fuel economy achieved by passenger cars and light trucks during each of 
those years.\641\ As it shows, FHWA's estimates of actual fuel economy 
for passenger cars ranged from 21-23 percent lower than NHTSA's 
estimates of its fleet-wide average value under test conditions over 
this period, and FHWA's estimates of actual fuel economy for light 
trucks ranged from 16-18 percent lower than NHTSA's estimates of its 
fleet-wide average value under test conditions. Thus, these results 
appear to confirm that the 20 percent on-road fuel economy gap 
represents a reasonable estimate for use in evaluating the fuel savings 
likely to result from more stringent fuel economy and CO2 
standards in MYs 2017-2025.
---------------------------------------------------------------------------

    \641\ Federal Highway Administration, Highway Statistics, 2000 
through 2006 editions, Table VM-1; See http://www.fhwa.dot.gov/policy/ohpi/hss/hsspubs.cfm (last accessed March 1, 2010).

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    The comparisons reported in this table must be interpreted with 
some caution, however, because the estimates of annual car and truck 
use used to develop these estimates are submitted to FHWA by individual 
states, which use differing definitions of passenger cars and light 
trucks. (For example, some states classify minivans as cars, while 
others define them as light trucks.) At the same time, while total 
gasoline consumption can be reasonably estimated from excise tax 
receipts, separate estimates of gasoline consumption by cars and trucks 
are not available. For these reasons, NHTSA has chosen not to rely on 
its separate estimates of the on-road fuel economy gap for cars and 
light trucks. However, the agency does believe that these results 
confirm that the 20 percent on-road fuel economy discount represents a 
reasonable estimate for use in evaluating the fuel savings likely to 
result from CAFE standards for both cars and light trucks. NHTSA 
employs this value for vehicles operating on liquid fuels (gasoline, 
diesel, and gasoline/alcohol blends), and uses it to analyze the 
impacts of proposed CAFE standards for model years 2017-25 on the use 
of these fuels.
    In the recent TAR, EPA and NHTSA assumed that the overall energy 
shortfall for the vehicles employing electric drivetrains, including 
plug-in hybrid and battery-powered electric vehicles, is 30 percent. 
This value was derived from the agencies' engineering judgment based on 
the limited available information. During the stakeholder meetings 
conducted prior to the technical assessment, confidential business 
information (CBI) was supplied by several manufacturers which indicated 
that electrically powered vehicles had greater variability in their on-
road energy consumption than vehicles powered by internal combustion 
engines, although other manufacturers suggested that the on-road/
laboratory differential attributable to electric operation should 
approach that of liquid fuel operation in the future. Second, data from 
EPA's 2006 analysis of the ``five cycle'' fuel economy label as part of 
the rulemaking discussed above supported a larger on-road shortfall for 
vehicles with hybrid-electric drivetrains, partly because real-world 
driving tends to have higher acceleration/deceleration rates than are 
employed on the 2-cycle test. This

[[Page 75205]]

diminishes the fuel economy benefits of regenerative braking, which can 
result in a higher test fuel economy for hybrids than is achieved under 
normal on-road conditions.\642\ Finally, heavy accessory load, 
extremely high or low temperatures, and aggressive driving have 
deleterious impacts of unknown magnitudes on battery performance. 
Consequently, the agencies judged that 30 percent was a reasonable 
estimate for use in the TAR, and NHTSA believes that it continues to 
represent the most reliable estimate for use in the current analysis.
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    \642\ EPA, Fuel Economy Labeling of Motor Vehicles: Revisions To 
Improve Calculation of Fuel Economy Estimates; Final Rule, 40 CFR 
parts 86 and 600, 71 FR 77872, 77879 (Dec. 27, 2006). Available at 
http://www.epa.gov/fedrgstr/EPA-AIR/2006/December/Day-27/a9749.pdf.
---------------------------------------------------------------------------

    One of the most significant factors responsible for the difference 
between test and on-road fuel economy is the use of air conditioning. 
While the air conditioner is turned off during the FTP and HFET tests, 
drivers often use air conditioning under warm, humid conditions. The 
air conditioning compressor can also be engaged during ``defrost'' 
operation of the heating system.\643\ In the MYs 2012-2016 rulemaking, 
EPA estimated the impact of an air conditioning system at approximately 
14.3 grams CO2/mile for an average vehicle without any of 
the improved air conditioning technologies discussed in that 
rulemaking. For a 27 mpg (330 g CO2/mile) vehicle, this 
would account for is approximately 20 percent of the total estimated 
on-road gap (or about 4 percent of total fuel consumption).
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    \643\ EPA, Final Technical Support Document: Fuel Economy 
Labeling of Motor Vehicle Revisions to Improve Calculation of Fuel 
Economy Estimates, at 70. Office of Transportation and Air Quality 
EPA420-R-06-017 December 2006, Chapter II, http://www.epa.gov/fueleconomy/420r06017.pdf.
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    In the MY 2012-2016 rule, EPA estimated that 85 percent of MY 2016 
vehicles would reduce their tailpipe CO2 emissions 
attributable to air conditioner efficiency by 40 percent through the 
use of advanced air conditioning technologies, and that incorporating 
this change would reduce the average on-road gap by about 2 
percent.\644\ However, air conditioning-related fuel consumption does 
not decrease proportionally as engine efficiency improves, because the 
engine load due attributable to air conditioner operation is 
approximately constant across engine efficiency and technology. As a 
consequence, air conditioning operation represents an increasing 
percentage of vehicular fuel consumption as engine efficiency 
increases.\645\ Because these two effects are expected approximately to 
counterbalance each other, NHTSA has elected not to adjust its estimate 
of the on-road gap for use in this proposal.
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    \644\ 4% of the on-road gap x 40% reduction in air conditioning 
fuel consumption x 85% of the fleet = ~2%.
    \645\ As an example, the air conditioning load of 14.3 g/mile of 
CO2 is a smaller percentage (4.3%) of 330 g/mile than 260 
(5.4%).
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d. Fuel Prices and the Value of Saving Fuel
    Future fuel prices are the single most important input into the 
economic analysis of the benefits of alternative CAFE standards because 
they determine the value of future fuel savings, which account for 
approximately 90% of total economic benefits from requiring higher fuel 
economy. NHTSA relies on the most recent fuel price projections from 
the U.S. Energy Information Administration's (EIA) Annual Energy 
Outlook (AEO) 2011 Reference Case to estimate the economic value of 
fuel savings projected to result from alternative CAFE standards for MY 
2017-25. The AEO 2011 Reference Case forecasts of gasoline and diesel 
fuel prices represents EIA's most up-to-date estimate of the most 
likely course of future prices for petroleum products. EIA is widely 
recognized as an impartial and authoritative source of analysis and 
forecasts of U.S. energy production, consumption, and prices, and its 
forecasts are widely relied upon by federal agencies for use in 
regulatory analysis and for other purposes. Its forecasts are derived 
using EIA's National Energy Modeling System (NEMS), which includes 
detailed representations of supply pathways, sources of demand, and 
their interaction to determine prices for different forms of energy.
    As compared to the gasoline prices used in NHTSA's Final Rule 
establishing CAFE standards for MY 2012-2016 (which relied on forecasts 
from AEO 2010), the AEO 2011 Reference Case fuel prices are slightly 
higher through the year 2020, but slightly lower for most years 
thereafter. Expressed in constant 2009 dollars, the AEO 2011 Reference 
Case forecast of retail gasoline prices (which include federal, state, 
and local taxes) during 2017 is $3.25 per gallon, rising gradually to 
$3.71 by the year 2035. However, valuing fuel savings over the full 
lifetimes of passenger cars and light trucks affected by the standards 
proposed for MYs 2017-25 requires fuel price forecasts that extend 
through 2060, approximately the last year during which a significant 
number of MY 2025 vehicles will remain in service.\646\ To obtain fuel 
price forecasts for the years 2036 through 2060, the agency assumes 
that retail fuel prices will continue to increase after 2035 at the 
average annual rate (0.7%) projected for 2017-2035 in the AEO 2011 
Reference Case. This assumption results in a projected retail price of 
gasoline that reaches $4.16 in 2050. Over the entire period from 2017-
2050, retail gasoline prices are projected to average $3.67, as Table 
IV-7 reported previously.
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    \646\ The agency defines the maximum lifetime of vehicles as the 
highest age at which more than 2 percent of those originally 
produced during a model year remain in service. In the case of light 
trucks, for example, this age has typically been 36 years for recent 
model years.
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    The value of fuel savings resulting from improved fuel economy to 
buyers of light-duty vehicles is determined by the retail price of 
fuel, which includes Federal, State, and any local taxes imposed on 
fuel sales. Because fuel taxes represent transfers of resources from 
fuel buyers to government agencies, however, rather than real resources 
that are consumed in the process of supplying or using fuel, NHTSA 
deducts their value from retail fuel prices to determine the value of 
fuel savings resulting from more stringent CAFE standards to the U.S. 
economy.
    NHTSA follows the assumptions used by EIA in AEO 2011 that State 
and local gasoline taxes will keep pace with inflation in nominal 
terms, and thus remain constant when expressed in constant dollars. In 
contrast, EIA assumes that Federal gasoline taxes will remain unchanged 
in nominal terms, and thus decline throughout the forecast period when 
expressed in constant dollars. These differing assumptions about the 
likely future behavior of Federal and State/local fuel taxes are 
consistent with recent historical experience, which reflects the fact 
that Federal as well as most State motor fuel taxes are specified on a 
cents-per-gallon rather than an ad valorem basis, and typically require 
legislation to change. Subtracting fuel taxes from the retail prices 
forecast in AEO 2011 results in projected values for saving gasoline of 
$3.29 per gallon during 2017, rising to $3.48 per gallon by the year 
2035, and to $3.65 by the year 2050. Over this entire period, pre-tax 
gasoline prices are projected to average $3.32 per gallon.
    EIA also includes forecasts reflecting high and low global oil 
prices in each year's complete AEO, which reflect uncertainties 
regarding OPEC behavior as well as future levels of oil production and 
demand. These alternative scenarios project retail gasoline prices that 
range from a low of $2.30 to a high

[[Page 75206]]

of $4.85 per gallon during 2020, and from $2.12 to $5.36 per gallon 
during 2035 (all figures in 2009 dollars). In conjunction with our 
assumption that fuel taxes will remain constant in real or inflation-
adjusted terms over this period, these forecasts imply pre-tax values 
of saving fuel ranging from $1.91 to $4.46 per gallon during 2020, and 
from $1.77 to $5.01 per gallon in 2035 (again, all figures are in 
constant 2009 dollars). In conducting the analysis of uncertainty in 
benefits and costs from alternative CAFE standards required by OMB, 
NHTSA evaluated the sensitivity of its benefits estimates to these 
alternative forecasts of future fuel prices; detailed results and 
discussion of this sensitivity analysis can be found in the agency's 
PRIA. Generally, this analysis confirms that the primary economic 
benefit resulting from the rule--the value of fuel savings--is 
extremely sensitive to alternative forecasts of future fuel prices.
e. Consumer Valuation of Fuel Economy and Payback Period
    The agency uses slightly different assumptions about the length of 
time over which potential vehicle buyers consider fuel savings from 
higher fuel economy, and about how they discount those future fuel 
savings, in different aspects of its analysis. For most purposes, the 
agency assumes that buyers value fuel savings over the first five years 
of a new vehicle's lifetime; the five-year figure represents 
approximately the current average term of consumer loans to finance the 
purchase of new vehicles.
    To simulate manufacturers' assessment of the net change in the 
value of an individual vehicle model to prospective buyers from 
improving its fuel economy, NHTSA discounts fuel savings over the first 
five years of its lifetime using a 7 percent rate. The resulting value 
is deducted from the technology costs that would be incurred by its 
manufacturer to improve that model's fuel economy, in order to 
determine the change in its value to potential buyers. Since this is 
also the additional amount its manufacturer could expect to receive 
when selling the vehicle after improving its fuel economy, this can 
also be viewed as the ``effective cost'' of the improvement from its 
manufacturers' perspective. The CAFE model uses these estimates of 
effective costs to identify the sequence in which manufacturers are 
likely to select individual models for improvements in fuel economy, as 
well as to identify the most cost-effective technologies for doing so.
    The average of effective cost to its manufacturer for increasing 
the fuel economy of a model also represents the change in its value 
from the perspective of potential buyers. Under the assumption that 
manufacturers change the selling price of each model by this amount, 
its average value also represents the average change in its net or 
effective price to would-be buyers. As part of our sensitivity case 
analyzing the potential for manufacturers to over-comply with CAFE 
standards--that is, to produce a lineup of vehicle models whose sales-
weighted average fuel economy exceeds that required by prevailing 
standards--NHTSA used the extreme assumption that potential buyers 
value fuel savings only during the first year they expect to own a new 
vehicle.
    The agency notes that these varying assumptions about future time 
horizons and discount rates for valuing fuel savings are used only to 
analyze manufacturers' responses to requiring higher fuel economy and 
buyers' behavior in response to manufacturers' compliance strategies. 
When estimating the aggregate value to the U.S. economy of fuel savings 
resulting from alternative increases in CAFE standards--or the 
``social'' value of fuel savings--the agency includes fuel savings over 
the entire expected lifetimes of vehicles that would be subject to 
higher standards, rather than over the shorter periods we assume 
manufacturers employ to represent the preferences of vehicle buyers, or 
that buyers use to assess changes in the net price or new vehicles.
    Valuing fuel savings over vehicles' entire lifetimes recognizes the 
savings in fuel costs that subsequent owners of vehicles will 
experience from higher fuel economy, even if their initial purchasers 
do not expect to recover the remaining value of fuel savings when they 
re-sell those vehicles, or for other reasons do not value fuel savings 
beyond the assumed five-year time horizon. The agency acknowledges that 
it has not accounted for any effects of increased costs for financing, 
insuring, or maintaining vehicles with higher fuel economy, over either 
this limited payback period or the full lifetimes of vehicles.
    The procedure the agency uses for calculating lifetime fuel savings 
is discussed in detail in the following section, while discussion about 
the time horizon over which potential buyers may consider fuel savings 
in their vehicle purchasing decisions is provided in more detail in 
Section IV.G.6 below.
f. Vehicle Survival and Use Assumptions
    NHTSA's analysis of fuel savings and related benefits from adopting 
more stringent fuel economy standards for MYs 2017-2025 passenger cars 
and light trucks begins by estimating the resulting changes in fuel use 
over the entire lifetimes of the affected vehicles. The change in total 
fuel consumption by vehicles produced during each model year is 
calculated as the difference between their total fuel use over their 
lifetimes with a higher CAFE standard in effect, and their total 
lifetime fuel consumption under a baseline in which CAFE standards 
remained at their 2016 levels. The first step in estimating lifetime 
fuel consumption by vehicles produced during a model year is to 
calculate the number expected to remain in service during each year 
following their production and sale.\647\ This is calculated by 
multiplying the number of vehicles originally produced during a model 
year by the proportion typically expected to remain in service at their 
age during each later year, often referred to as a ``survival rate.''
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    \647\ Vehicles are defined to be of age 1 during the calendar 
year corresponding to the model year in which they are produced; 
thus for example, model year 2000 vehicles are considered to be of 
age 1 during calendar year 2000, age 2 during calendar year 2001, 
and to reach their maximum age of 26 years during calendar year 
2025. NHTSA considers the maximum lifetime of vehicles to be the age 
after which less than 2 percent of the vehicles originally produced 
during a model year remain in service. Applying these conventions to 
vehicle registration data indicates that passenger cars have a 
maximum age of 26 years, while light trucks have a maximum lifetime 
of 36 years. See Lu, S., NHTSA, Regulatory Analysis and Evaluation 
Division, ``Vehicle Survivability and Travel Mileage Schedules,'' 
DOT HS 809 952, 8-11 (January 2006). Available at http://www-nrd.nhtsa.dot.gov/Pubs/809952.pdf (last accessed Sept. 26, 2011).
---------------------------------------------------------------------------

    As discussed in more detail in Section II.B.3 above and in Chapter 
1 of the TSD, to estimate production volumes of passenger cars and 
light trucks for individual manufacturers, NHTSA relied on a baseline 
market forecast constructed by EPA staff beginning with MY 2008 CAFE 
certification data. After constructing a MY 2008 baseline, EPA and 
NHTSA used projected car and truck volumes for this period from Energy 
Information Administration's (EIA's) Annual Energy Outlook (AEO) 2011 
in the NPRM analysis.\648\ However,

[[Page 75207]]

Annual Energy Outlook forecasts only total car and light truck sales, 
rather than sales at the manufacturer and model-specific level, which 
the agencies require in order to estimate the effects new standards 
will have on individual manufacturers.\649\
---------------------------------------------------------------------------

    \648\ Available at http://www.eia.gov/forecasts/aeo/index.cfm 
(last accessed Sept. 26, 2011). NHTSA and EPA made the simplifying 
assumption that projected sales of cars and light trucks during each 
calendar year from 2012 through 2016 represented the likely 
production volumes for the corresponding model year. The agency did 
not attempt to establish the exact correspondence between projected 
sales during individual calendar years and production volumes for 
specific model years.
    \649\ Because AEO 2011's ``car'' and ``truck'' classes did not 
reflect NHTSA's recent reclassification (in March 2009 for 
enforcement beginning MY 2011) of many two wheel drive SUVs from the 
non-passenger (i.e., light truck) fleet to the passenger car fleet, 
EPA staff made adjustments to account for such vehicles in the 
baseline.
---------------------------------------------------------------------------

    To estimate sales of individual car and light truck models produced 
by each manufacturer, EPA purchased data from CSM Worldwide and used 
its projections of the number of vehicles of each type (car or truck) 
that will be produced and sold by manufacturers in model years 2011 
through 2015.\650\ This provided year-by-year estimates of the 
percentage of cars and trucks sold by each manufacturer, as well as the 
sales percentages accounted for by each vehicle market segment. (The 
distributions of car and truck sales by manufacturer and by market 
segment for the 2016 model year and beyond were assumed to be the same 
as CSM's forecast for the 2015 calendar year.) Normalizing these 
percentages to the total car and light truck sales volumes projected 
for 2017 through 2025 in AEO 2011 provided manufacturer-specific market 
share and model-specific sales estimates for those model years. The 
volumes were then scaled to AEO 2011 total volume for each year.
---------------------------------------------------------------------------

    \650\ EPA also considered other sources of similar information, 
such as J.D. Powers, and concluded that CSM was better able to 
provide forecasts at the requisite level of detail for most of the 
model years of interest.
---------------------------------------------------------------------------

    To estimate the number of passenger cars and light trucks 
originally produced during model years 2017 through 2025 that will 
remain in use during subsequent years, the agency applied age-specific 
survival rates for cars and light trucks to its forecasts of passenger 
car and light truck sales for each of those model years. In 2008, NHTSA 
updated its previous estimates of car and light truck survival rates 
using the most current registration data for vehicles produced during 
recent model years, in order to ensure that they reflected recent 
increases in the durability and expected life spans of cars and light 
trucks.\651\ However, the agency does not attempt to forecast changes 
in those survival rates over the future.
---------------------------------------------------------------------------

    \651\ Lu, S., NHTSA, Regulatory Analysis and Evaluation 
Division, ``Vehicle Survivability and Travel Mileage Schedules,'' 
DOT HS 809 952, 8-11 (January 2006). Available at http://www-nrd.nhtsa.dot.gov/Pubs/809952.pdf (last accessed Sept. 26, 2011). 
These updated survival rates suggest that the expected lifetimes of 
recent-model passenger cars and light trucks are 13.8 and 14.5 
years.
---------------------------------------------------------------------------

    The next step in estimating fuel use is to calculate the total 
number of miles that cars and light trucks remaining in use will be 
driven each year. To estimate the total number of miles driven by cars 
or light trucks produced in a model year during each subsequent year, 
the number projected to remain in use during that year is multiplied by 
the average number of miles those vehicles are expected to be driven at 
the age they will have reached in that year. The agency estimated 
annual usage of cars and light trucks of each age using data from the 
Federal Highway Administration's 2001 National Household Travel Survey 
(NHTS).\652\ Because these estimates reflect the historically low 
gasoline prices that prevailed at the time the 2001 NHTS was conducted, 
however, NHTSA adjusted them to account for the effect on vehicle use 
of the higher fuel prices projected over the lifetimes of model year 
2017-25 cars and light trucks. Details of this adjustment are provided 
in Chapter VIII of the PRIA and Chapter 4 of the draft Joint TSD.
---------------------------------------------------------------------------

    \652\ For a description of the Survey, see http://nhts.ornl.gov/introduction.shtml#2001 (last accessed September 26, 2011).
---------------------------------------------------------------------------

    The estimates of annual miles driven at different vehicle ages 
derived from the 2001 NHTS were also adjusted to reflect projected 
future growth in average use for vehicles at every age over their 
lifetimes. Increases in average annual use of cars and light trucks, 
which have averaged approximately 1 percent annually over the past two 
decades, have been an important source of historical growth in the 
total number of miles they are driven each year. To estimate future 
growth in their average annual use for purposes of this rulemaking, 
NHTSA calculated the rate of growth in the adjusted mileage schedules 
derived from the 2001 NHTS that would be necessary for total car and 
light truck travel to increase at the rate forecast in the AEO 2011 
Reference Case.\653\ This rate was calculated to be consistent with 
future changes in the overall size and age distributions of the U.S. 
passenger car and light truck fleets that result from the agency's 
forecasts of total car and light truck sales and updated survival 
rates. The resulting growth rate in average annual car and light truck 
use is approximately 1.1 percent from 2017 through 2030, and declines 
to 0.5 percent per year thereafter. \654\ While the adjustment for 
future fuel prices reduces average annual mileage at each age from the 
values derived using the 2001 NHTS, the adjustment for expected future 
growth in average vehicle use increases it. The net effect of these two 
adjustments is to increase expected lifetime mileage for MY 2017-25 
passenger cars and light trucks by about 22 percent from the estimates 
originally derived from the 2001 NHTS.
---------------------------------------------------------------------------

    \653\ This approach differs from that used in the MY 2011 final 
rule, where it was assumed that future growth in the total number of 
cars and light trucks in use resulting from projected sales of new 
vehicles was adequate by itself to account for growth in total 
vehicle use, without assuming continuing growth in average vehicle 
use.
    \654\ While the adjustment for future fuel prices reduces 
average mileage at each age from the values derived from the 2001 
NHTS, the adjustment for expected future growth in average vehicle 
use increases it. The net effect of these two adjustments is to 
increase expected lifetime mileage by about 18 percent significantly 
for both passenger cars and about 16 percent for light trucks.
---------------------------------------------------------------------------

    Finally, the agency estimated total fuel consumption by passenger 
cars and light trucks remaining in use each year by dividing the total 
number of miles surviving vehicles are driven by the fuel economy they 
are expected to achieve under each alternative CAFE standard. Each 
model year's total lifetime fuel consumption is the sum of fuel use by 
the cars or light trucks produced during that model year over its life 
span. In turn, the savings in lifetime fuel use by cars or light trucks 
produced during each model year affected by this proposed rule that 
will result from each alternative CAFE standard is the difference 
between its lifetime fuel use at the fuel economy level it attains 
under the Baseline alternative, and its lifetime fuel use at the higher 
fuel economy level it is projected to achieve under that alternative 
standard.\655\
---------------------------------------------------------------------------

    \655\ To illustrate these calculations, the agency's adjustment 
of the AEO 2009 Revised Reference Case forecast indicates that 9.26 
million passenger cars will be produced during 2012, and the 
agency's updated survival rates show that 83 percent of these 
vehicles, or 7.64 million, are projected to remain in service during 
the year 2022, when they will have reached an age of 10 years. At 
that age, passenger achieving the fuel economy level they are 
projected to achieve under the Baseline alternative are driven an 
average of about 800 miles, so surviving model year 2012 passenger 
cars will be driven a total of 82.5 billion miles (= 7.64 million 
surviving vehicles x 10,800 miles per vehicle) during 2022. Summing 
the results of similar calculations for each year of their 26-year 
maximum lifetime, model year 2012 passenger cars will be driven a 
total of 1,395 billion miles under the Baseline alternative. Under 
that alternative, they are projected to achieve a test fuel economy 
level of 32.4 mpg, which corresponds to actual on-road fuel economy 
of 25.9 mpg (= 32.4 mpg x 80 percent). Thus their lifetime fuel use 
under the Baseline alternative is projected to be 53.9 billion 
gallons (= 1,395 billion miles divided by 25.9 miles per gallon).
---------------------------------------------------------------------------

g. Accounting for the Fuel Economy Rebound Effect

    The fuel economy rebound effect refers to the fact that some of the 
fuel

[[Page 75208]]

savings expected to result from higher fuel economy, such as an 
increase in fuel economy required by the adoption of higher CAFE 
standards, may be offset by additional vehicle use. The increase in 
vehicle use occurs because higher fuel economy reduces the fuel cost of 
driving, which is typically the largest single component of the 
monetary cost of operating a vehicle, and vehicle owners respond to 
this reduction in operating costs by driving more. Even with their 
higher fuel economy, this additional driving consumes some fuel, so 
this effect reduces the fuel savings that result when raising CAFE 
standards requires manufacturers to improve fuel economy. The rebound 
effect refers to the fraction of fuel savings expected to result from 
increased fuel economy that is offset by additional driving.\656\
---------------------------------------------------------------------------

    \656\ Formally, the rebound effect is often expressed as the 
elasticity of vehicle use with respect to the cost per mile driven. 
Additionally, it is consistently expressed as a positive percentage 
(rather than as a negative decimal fraction, as this elasticity is 
normally expressed).
---------------------------------------------------------------------------

    The magnitude of the rebound effect is an important determinant of 
the actual fuel savings that are likely to result from adopting 
stricter CAFE standards. Research on the magnitude of the rebound 
effect in light-duty vehicle use dates to the early 1980s, and 
generally concludes that a significant rebound effect occurs when 
vehicle fuel efficiency improves.\657\ The most common approach to 
estimating its magnitude has been to analyze survey data on household 
vehicle use, fuel consumption, fuel prices, and other factors affecting 
household travel behavior to estimate the response of vehicle use to 
differences in the fuel efficiency of individual vehicles. Because this 
approach most closely matches the definition of the rebound effect, 
which is the response of vehicle use to differences in fuel economy, 
the agency regards these studies as likely to produce the most reliable 
estimates of the rebound effect. Other studies have relied on 
econometric analysis of annual U.S. data on vehicle use, fuel 
efficiency, fuel prices, and other variables to estimate the response 
of total or average vehicle use to changes in fleet-wide average fuel 
economy and its effect on fuel cost per mile driven. More recent 
studies have analyzed yearly variation in vehicle ownership and use, 
fuel prices, and fuel economy among states over an extended time period 
in order to measure the response of vehicle use to changing fuel costs 
per mile.\658\
---------------------------------------------------------------------------

    \657\ Some studies estimate that the long-run rebound effect is 
significantly larger than the immediate response to increased fuel 
efficiency. Although their estimates of the adjustment period 
required for the rebound effect to reach its long-run magnitude 
vary, this long-run effect is probably more appropriate for 
evaluating the fuel savings and emissions reductions resulting from 
stricter standards that would apply to future model years.
    \658\ In effect, these studies treat U.S. states as a data 
``panel'' by applying appropriate estimation procedures to data 
consisting of each year's average values of these variables for the 
separate states.
---------------------------------------------------------------------------

    Another important distinction among studies of the rebound effect 
is whether they assume that the effect is constant, or allow it to vary 
in response to changes in fuel costs, personal income, or vehicle 
ownership. Most studies using aggregate annual data for the U.S. assume 
a constant rebound effect, although some of these studies test whether 
the effect varies as changes in retail fuel prices or average fuel 
efficiency alter fuel cost per mile driven. Studies using household 
survey data estimate significantly different rebound effects for 
households owning varying numbers of vehicles, with most concluding 
that the rebound effect is larger among households that own more 
vehicles. Finally, recent studies using state-level data conclude that 
the rebound effect varies directly in response to changes in personal 
income, the degree of urbanization of U.S. cities, and differences in 
traffic congestion levels, as well as fuel costs. Some studies conclude 
that the long-run rebound effect is significantly larger than the 
immediate response of vehicle use to increased fuel efficiency. 
Although their estimates of the time required for the rebound effect to 
reach its long-run magnitude vary, this long-run effect is probably 
more appropriate for evaluating the fuel savings likely to result from 
adopting stricter CAFE standards for future model years.
    In order to provide a more comprehensive overview of previous 
estimates of the rebound effect, NHTSA has updated its previous review 
of published studies of the rebound effect to include those conducted 
as recently as 2010. The agency performed a detailed analysis of 
several dozen separate estimates of the long-run rebound effect 
reported in these studies, which is summarized in Table IV-9 
below.\659\ As the table indicates, these estimates range from as low 
as 7 percent to as high as 75 percent, with a mean value of 23 percent. 
Both the type of data used and authors' assumption about whether the 
rebound effect varies over time have important effects on its estimated 
magnitude. The 34 estimates derived from analysis of U.S. annual time-
series data produce a mean estimate of 18 percent for the long-run 
rebound effect, while the mean of 23 estimates based on household 
survey data is considerably larger (31 percent), and the mean of 15 
estimates based on pooled state data (23 percent) is close to that for 
the entire sample. The 37 estimates assuming a constant rebound effect 
produce a mean of 23 percent, identical to the mean of the 29 estimates 
reported in studies that allowed the rebound effect to vary in response 
to fuel prices and fuel economy levels, vehicle ownership, or household 
income. Updated to reflect the most recent available information on 
these variables, the mean of these estimates is 19 percent, as Table 
IV-9 reports.
---------------------------------------------------------------------------

    \659\ In some cases, NHTSA derived estimates of the overall 
rebound effect from more detailed results reported in the studies. 
For example, where studies estimated different rebound effects for 
households owning different numbers of vehicles but did not report 
an overall value, the agency computed a weighted average of the 
reported values using the distribution of households among vehicle 
ownership categories.
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BILLING CODE 4910-59-P

[[Page 75209]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.178

BILLING CODE 4910-59-C

[[Page 75210]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.179

    Some recent studies provide evidence that the rebound effect has 
been declining over time. This result appears plausible for two 
reasons: First, the responsiveness of vehicle use to variation in fuel 
costs would be expected to decline as they account for a smaller 
proportion of the total monetary cost of driving, which has been the 
case until recently. Second, rising personal incomes would be expected 
to reduce the sensitivity of vehicle use to fuel costs as the time 
component of driving costs--which is likely to be related to income 
levels--accounts for a larger fraction the total cost of automobile 
travel. At the same time, however, rising incomes are strongly 
associated with higher auto ownership levels, which increase 
households' opportunities to substitute among vehicles in response to 
varying fuel prices and differences in their fuel economy levels. This 
is likely to increase the sensitivity of households' overall vehicle 
use to differences in the fuel economy levels of individual vehicles.
    Small and Van Dender combined time series data for states to 
estimate the rebound effect, allowing its magnitude to vary in response 
to fuel prices, fleet-wide average fuel economy, the degree of 
urbanization of U.S. cities, and personal income levels.\660\ The 
authors employ a model that allows the effect of fuel cost per mile on 
vehicle use to vary in response to changes in personal income levels 
and increasing urbanization of U.S. cities. For the time period 1966-
2001, their analysis implied a long-run rebound effect of 22 percent, 
which is consistent with previously published studies. Continued growth 
in personal incomes over this period reduces their estimate of the 
long-run rebound effect during its last five years (1997-2001) to 11 
percent, and an unpublished update through 2004 prepared by the authors 
reduced their estimate of the long-run rebound effect for the period 
2000-2004 to 6 percent.\661\
---------------------------------------------------------------------------

    \660\ Small, K. and K. Van Dender, 2007a. ``Fuel Efficiency and 
Motor Vehicle Travel: The Declining Rebound Effect'', The Energy 
Journal, vol. 28, no. 1, pp. 25-51.
    \661\ Small, K. and K. Van Dender, 2007b. ``Long Run Trends in 
Transport Demand, Fuel Price Elasticities and Implications of the 
Oil Outlook for Transport Policy,'' OECD/ITF Joint Transport 
Research Centre Discussion Papers 2007/16, OECD, International 
Transport Forum.
---------------------------------------------------------------------------

    More recently, Hymel, Small and Van Dender extended the previous 
analysis to include traffic congestion levels in urbanized areas.\662\ 
Although controlling for the effect of congestion on vehicle use 
increased their estimates of the rebound effect, these authors also 
found that the rebound effect appeared to be declining over time. For 
the time period 1966-2004, their estimate of the long-run rebound 
effect was 24 percent, while for the last year of that period their 
estimate was 13 percent, significantly above the previous Small and Van 
Dender estimate of a 6 percent

[[Page 75211]]

rebound effect for the period 2000-2004.
---------------------------------------------------------------------------

    \662\ Hymel, Kent M., Kenneth A. Small, and Kurt Van Dender, 
``Induced demand and rebound effects in road transport,'' 
Transportation Research Part B: Methodological, Volume 44, Issue 10, 
December 2010, Pages 1220-1241, ISSN 0191-2615, DOI: 10.1016/
j.trb.2010.02.007.
---------------------------------------------------------------------------

    Recent research by Greene (under contract to EPA) using U.S. 
national time-series data for the period 1966-2007 lends further 
support to the hypothesis that the rebound effect is declining over 
time.\663\ Greene found that fuel prices had a statistically 
significant impact on VMT, yet fuel efficiency did not, and statistical 
testing rejected the hypothesis of equal elasticities of vehicle use 
with respect to gasoline prices and fuel efficiency. Greene also tested 
model formulations that allowed the effect of fuel cost per mile on 
vehicle use to decline with rising per capita income; his preferred 
form of this model produced estimates of the rebound effect that 
declined to 12 percent in 2007.
---------------------------------------------------------------------------

    \663\ Greene, David, ``Rebound 2007: Analysis of National Light-
Duty Vehicle Travel Statistics,'' February 9, 2010. This paper has 
been accepted for an upcoming special issue of Energy Policy, 
although the publication date has not yet been determined.
---------------------------------------------------------------------------

    In light of findings from recent research, the agency's judgment is 
that the apparent decline over time in the magnitude of the rebound 
effect justifies using a value for future analysis that is lower than 
many historical estimates, which average 15-25 percent. Because the 
lifetimes of vehicles affected by the alternative CAFE standards 
considered in this rulemaking will extend from 2017 until 2060, a value 
that is at the low end of historical estimates appears to be 
appropriate. Thus as it elected to do in its previous analysis of the 
effects of raising CAFE standards for MY 2012-16 cars and light trucks, 
NHTSA uses a 10 percent rebound effect in its analysis of fuel savings 
and other benefits from higher CAFE standards for MY 2017-25 vehicles. 
Recognizing the wide range of uncertainty surrounding its correct 
value, however, the agency also employs estimates of the rebound effect 
ranging from 5 to 20 percent in its sensitivity testing. The 10 percent 
figure is at the low end of those reported in almost all previous 
research, and it is also below most estimates of the historical and 
current magnitude of the rebound effect developed by NHTSA. However, 
other recent research--particularly that conducted by Small and Van 
Dender and by Greene--suggests that the magnitude of the rebound effect 
has declined over time, and is likely to continue to do so. As a 
consequence, NHTSA concluded that a value at the low end of the 
historical estimates reported here is likely to provide a more reliable 
estimate of its magnitude during the future period spanned by NHTSA's 
analysis of the impacts of this rule. The 10 percent estimate lies 
between the 10-30 percent range of estimates for the historical rebound 
effect reported in most previous research, and is at the upper end of 
the 5-10 percent range of estimates for the future rebound effect 
reported in recent studies. In summary, the 10 percent value was not 
derived from a single estimate or particular study, but instead 
represents a compromise between historical estimates and projected 
future estimates. Chapter 4.2.5 of the Joint TSD reviews the relevant 
literature and discusses in more depth the reasoning for the rebound 
value used here.
h. Benefits From Increased Vehicle Use
    The increase in vehicle use from the rebound effect provides 
additional benefits to their users, who make more frequent trips or 
travel farther to reach more desirable destinations. This additional 
travel provides benefits to drivers and their passengers by improving 
their access to social and economic opportunities away from home. As 
evidenced by their decisions to make more frequent or longer trips when 
improved fuel economy reduces their costs for driving, the benefits 
from this additional travel exceed the costs drivers and passengers 
incur in traveling these additional distances.
    The agency's analysis estimates the economic benefits from 
increased rebound-effect driving as the sum of fuel costs drivers incur 
plus the consumer surplus they receive from the additional 
accessibility it provides.\664\ NHTSA estimates the value of the 
consumer surplus provided by added travel as one-half of the product of 
the decline in fuel cost per mile and the resulting increase in the 
annual number of miles driven, a standard approximation for changes in 
consumer surplus resulting from small changes in prices. Because the 
increase in travel depends on the extent of improvement in fuel 
economy, the value of benefits it provides differs among model years 
and alternative CAFE standards.
---------------------------------------------------------------------------

    \664\ The consumer surplus provided by added travel is estimated 
as one-half of the product of the decline in fuel cost per mile and 
the resulting increase in the annual number of miles driven.
---------------------------------------------------------------------------

i. The Value of Increased Driving Range
    Improving vehicles' fuel economy may also increase their driving 
range before they require refueling. By extending the upper limit of 
the range vehicles can travel before refueling is needed, the per-
vehicle average number of refueling trips per year is expected to 
decline. This reduction in refueling frequency provides a time savings 
benefit to owners.\665\
---------------------------------------------------------------------------

    \665\ If manufacturers respond to improved fuel economy by 
reducing the size of fuel tanks to maintain a constant driving 
range, the resulting cost saving will presumably be reflected in 
lower vehicle sales prices.
---------------------------------------------------------------------------

    NHTSA estimated a number of parameters regarding consumers' 
refueling habits using newly-available observational and interview data 
from a 2010-2011 NASS study conducted at fueling stations throughout 
the nation. A (non-exhaustive) list of key parameters derived from this 
study is as follows: Average number of gallons of fuel purchased, 
length of time to refuel and pay, length of time to drive to the 
fueling station, primary reason for refueling, and number of adult 
vehicle occupants.
    Using these and other parameters (detailed explanation of 
parameters and methodology provided in Chapter VIII of NHTSA's PRIA), 
NHTSA estimated the decrease in number of refueling cycles for each 
model year's fleet attributable to improvements in actual on-road MPG 
resulting from the proposed CAFE standards. NHTSA acknowledges--and 
adjusts for--the fact that many refueling trips occur for reasons other 
than a low reading on the gas gauge (for example, many consumers refuel 
on a fixed schedule). NHTSA separately estimated the value of vehicle-
hour refueling time and applied this to the projected decrease in 
number of refueling cycles to estimate the aggregate fleet-wide value 
of refueling time savings for each year that a given model year's 
vehicles are expected to remain in service.
    As noted in the PRIA, NHTSA assumed a constant fuel tank size in 
estimating the impact of higher CAFE requirements on the frequency of 
refueling. NHTSA seeks comment regarding this assumption. Specifically, 
NHTSA seeks comment from manufacturers regarding their intention to 
retain fuel tank size or driving range in their redesigned vehicles. 
Will fuel economy improvements translate into increased driving range, 
or will fuel tanks be reduced in size to maintain current driving 
range?
j. Added Costs From Congestion, Crashes and Noise
    Increased vehicle use associated with the rebound effect also 
contributes to increased traffic congestion, motor vehicle accidents, 
and highway noise. To estimate the economic costs associated with these 
consequences of added driving, NHTSA applies estimates of per-mile 
congestion, accident, and noise costs caused by

[[Page 75212]]

increased use of automobiles and light trucks developed previously by 
the Federal Highway Administration.\666\ These values are intended to 
measure the increased costs resulting from added congestion and the 
delays it causes to other drivers and passengers, property damages and 
injuries in traffic accidents, and noise levels contributed by 
automobiles and light trucks. NHTSA previously employed these estimates 
in its analysis accompanying the MY 2011 final CAFE rule, as well as in 
its analysis of the effects of higher CAFE standards for MY 2012-16. 
After reviewing the procedures used by FHWA to develop them and 
considering other available estimates of these values, the agency 
continues to find them appropriate for use in this proposal. The agency 
multiplies FHWA's estimates of per-mile costs by the annual increases 
in automobile and light truck use from the rebound effect to yield the 
estimated increases in congestion, accident, and noise externality 
costs during each future year.
---------------------------------------------------------------------------

    \666\ These estimates were developed by FHWA for use in its 1997 
Federal Highway Cost Allocation Study; See http://www.fhwa.dot.gov/policy/hcas/final/index.htm (last accessed March 1, 2010).
---------------------------------------------------------------------------

k. Petroleum Consumption and Import Externalities
i. Changes in Petroleum Imports
    Based on a detailed analysis of differences in fuel consumption, 
petroleum imports, and imports of refined petroleum products among 
alternative scenarios presented in AEO 2011, NHTSA estimates that 
approximately 50 percent of the reduction in fuel consumption resulting 
from adopting higher CAFE standards is likely to be reflected in 
reduced U.S. imports of refined fuel, while the remaining 50 percent 
would reduce domestic fuel refining.\667\ Of this latter figure, 90 
percent is anticipated to reduce U.S. imports of crude petroleum for 
use as a refinery feedstock, while the remaining 10 percent is expected 
to reduce U.S. domestic production of crude petroleum.\668\ Thus on 
balance, each 100 gallons of fuel saved as a consequence of higher CAFE 
standards is anticipated to reduce total U.S. imports of crude 
petroleum or refined fuel by 95 gallons.\669\
---------------------------------------------------------------------------

    \667\ Differences in forecast annual U.S. imports of crude 
petroleum and refined products among the Reference, High Oil Price, 
and Low Oil Price scenarios analyzed in EIA's Annual Energy Outlook 
2011 range from 35-74 percent of differences in projected annual 
gasoline and diesel fuel consumption in the U.S. These differences 
average 53 percent over the forecast period spanned by AEO 2011.
    \668\ Differences in forecast annual U.S. imports of crude 
petroleum among the Reference, High Oil Price, and Low Oil Price 
scenarios analyzed in EIA's Annual Energy Outlook 2011 range from 
67-104 percent of differences in total U.S. refining of crude 
petroleum, and average 90 percent over the forecast period spanned 
by AEO 2011.
    \669\ This figure is calculated as 50 gallons + 50 gallons * 90% 
= 50 gallons + 45 gallons = 95 gallons.
---------------------------------------------------------------------------

ii. Benefits From Reducing U.S. Petroleum Imports
    U.S. consumption and imports of petroleum products impose costs on 
the domestic economy that are not reflected in the market price for 
crude petroleum, or in the prices paid by consumers of petroleum 
products such as gasoline. These costs include (1) Higher prices for 
petroleum products resulting from the effect of U.S. petroleum demand 
on the world oil price; (2) the risk of disruptions to the U.S. economy 
caused by sudden reductions in the supply of imported oil to the U.S.; 
and (3) expenses for maintaining a U.S. military presence to secure 
imported oil supplies from unstable regions, and for maintaining the 
strategic petroleum reserve (SPR) to cushion against resulting price 
increases.\670\ Reducing these costs by lowering U.S. petroleum imports 
represents another source of benefits from stricter CAFE standards and 
the savings in consumption of petroleum-based fuels that would result 
from higher fuel economy. Higher U.S. imports of crude oil or refined 
petroleum products increase the magnitude of these external economic 
costs, thus increasing the true economic cost of supplying 
transportation fuels above their market prices. Conversely, lowering 
U.S. imports of crude petroleum or refined fuels by reducing domestic 
fuel consumption can reduce these external costs, and any reduction in 
their total value that results from improved fuel economy represents an 
economic benefit of more stringent CAFE standards, in addition to the 
value of saving fuel itself.
---------------------------------------------------------------------------

    \670\ See, e.g., Bohi, Douglas R. and W. David Montgomery 
(1982). Oil Prices, Energy Security, and Import Policy, Washington, 
DC: Resources for the Future, Johns Hopkins University Press; Bohi, 
D.R. and M.A. Toman (1993). ``Energy and Security: Externalities and 
Policies,'' Energy Policy 21:1093-1109 (Docket NHTSA-2009-0062-24); 
and Toman, M.A. (1993). ``The Economics of Energy Security: Theory, 
Evidence, Policy,'' in A.V. Kneese and J.L. Sweeney, eds. (1993) 
(Docket NHTSA-2009-0062-23). Handbook of Natural Resource and Energy 
Economics, Vol. III. Amsterdam: North-Holland, pp. 1167-1218.
---------------------------------------------------------------------------

    The first component of the external costs imposed by U.S. petroleum 
consumption and imports (often termed the ``monopsony cost'' of U.S. 
oil imports), measures the increase in payments from domestic oil 
consumers to foreign oil suppliers beyond the increased purchase price 
of petroleum itself that results when increased U.S. import demand 
raises the world price of petroleum.\671\ However, this monopsony cost 
or premium represents a financial transfer from consumers of petroleum 
products to oil producers, and does not entail the consumption of real 
economic resources. Thus the decline in its value that occurs when 
reduced U.S. demand for petroleum products causes a decline in global 
petroleum prices produces no savings in economic resources globally or 
domestically, although it does reduce the value of the financial 
transfer from U.S. consumers of petroleum products to foreign suppliers 
of petroleum. Accordingly, NHTSA's analysis of the benefits from 
adopting proposed CAFE standards for MY 2017-2025 cars and light trucks 
excludes the reduced value of monopsony payments by U.S. oil consumers 
that would result from lower fuel consumption.
---------------------------------------------------------------------------

    \671\ The reduction in payments from U.S. oil purchasers to 
domestic petroleum producers is not included as a benefit, since it 
represents a transfer that occurs entirely within the U.S. economy.
---------------------------------------------------------------------------

    The second component of external costs imposed by U.S. petroleum 
consumption and imports reflects the potential costs to the U.S. 
economy from disruptions in the supply of imported petroleum. These 
costs arise because interruptions in the supply of petroleum products 
reduces U.S. economic output, as well as because firms are unable to 
adjust prices, output levels, and their use of energy, labor and other 
inputs smoothly and rapidly in response to the sudden changes in prices 
for petroleum products that are caused by interruptions in their 
supply. Reducing U.S. petroleum consumption and imports lowers these 
potential costs, and the amount by which it does so represents an 
economic benefit in addition to the savings in fuel costs that result 
from higher fuel economy. NHTSA estimates and includes this value in 
its analysis of the economic benefits from adopting higher CAFE 
standards for MY 2017-2025 cars and light trucks.
    The third component of external costs imposed by U.S. petroleum 
consumption and imports includes expenses for maintaining a U.S. 
military presence to secure imported oil supplies from unstable 
regions, and for maintaining the strategic petroleum reserve (SPR) to 
cushion against resulting price increases. NHTSA recognizes that 
potential national and energy security risks exist due to the 
possibility of tension over oil supplies. Much of the world's oil and 
gas supplies are located in countries facing social, economic, and 
demographic challenges,

[[Page 75213]]

thus making them even more vulnerable to potential local instability. 
Because of U.S. dependence on oil, the military could be called on to 
protect energy resources through such measures as securing shipping 
lanes from foreign oil fields. Thus, to the degree to which the 
proposed rules reduce reliance upon imported energy supplies or promote 
the development of technologies that can be deployed by either 
consumers or the nation's defense forces, the United States could 
expect benefits related to national security, reduced energy costs, and 
increased energy supply. Although NHTSA recognizes that there clearly 
is a benefit to the United States from reducing dependence on foreign 
oil, we have been unable to calculate the monetary benefit that the 
United States will receive from the improvements in national security 
expected to result from this program. We have therefore included only 
the macroeconomic disruption portion of the energy security benefits to 
estimate the monetary value of the total energy security benefits of 
this program. We have calculated energy security in very specific 
terms, as the reduction of both financial and strategic risks caused by 
potential sudden disruptions in the supply of imported petroleum to the 
U.S. Reducing the amount of oil imported reduces those risks, and thus 
increases the nation's energy security.
    Similarly, while the costs for building and maintaining the SPR are 
more clearly attributable to U.S. petroleum consumption and imports, 
these costs have not varied historically in response to changes in U.S. 
oil import levels. Thus the agency has not attempted to estimate the 
potential reduction in the cost for maintaining the SPR that might 
result from lower U.S. petroleum imports, or to include an estimate of 
this value among the benefits of reducing petroleum consumption through 
higher CAFE standards.
    In analyzing benefits from its recent actions to increase light 
truck CAFE standards for model years 2005-07 and 2008-11, NHTSA relied 
on a 1997 study by Oak Ridge National Laboratory (ORNL) to estimate the 
value of reduced economic externalities from petroleum consumption and 
imports.\672\ More recently, ORNL updated its estimates of the value of 
these externalities, using the analytic framework developed in its 
original 1997 study in conjunction with recent estimates of the 
variables and parameters that determine their value.\673\ The updated 
ORNL study was subjected to a detailed peer review commissioned by EPA, 
and ORNL's estimates of the value of oil import externalities were 
subsequently revised to reflect their comments and recommendations of 
the peer reviewers.\674\ Finally, at the request of EPA, ORNL has 
repeatedly revised its estimates of external costs from U.S. oil 
imports to reflect changes in the outlook for world petroleum prices, 
as well as continuing changes in the structure and characteristics of 
global petroleum supply and demand.
---------------------------------------------------------------------------

    \672\ Leiby, Paul N., Donald W. Jones, T. Randall Curlee, and 
Russell Lee, Oil Imports: An Assessment of Benefits and Costs, ORNL-
6851, Oak Ridge National Laboratory, November 1, 1997. Available at 
http://www.esd.ornl.gov/eess/energy_analysis/files/ORNL6851.pdf 
(last accessed October 11, 2011).
    \673\ Leiby, Paul N., ``Estimating the Energy Security Benefits 
of Reduced U.S. Oil Imports,'' Oak Ridge National Laboratory, ORNL/
TM-2007/028, Revised July 23, 2007. Available at http://www.esd.ornl.gov/eess/energy_analysis/files/Leiby2007%20Estimating%20the%20Energy%20Security%20Benefits%20of%20Reduced%20U.S.%20Oil%20Imports%20ornl-tm-2007-028%20rev2007Jul25.pdf 
(last accessed October 11, 2011).
    \674\  Peer Review Report Summary: Estimating the Energy 
Security Benefits of Reduced U.S. Oil Imports, ICF, Inc., September 
2007. Available at Docket No. NHTSA-2009-0059-0160.
---------------------------------------------------------------------------

    As the preceding discussion indicates, NHTSA's analysis of benefits 
from adopting higher CAFE standards includes only the reduction in 
economic disruption costs that is anticipated to result from reduced 
consumption of petroleum-based fuels and the associated decline in U.S. 
petroleum imports. ORNL's updated analysis reports that this benefit, 
which is in addition to the savings in costs for producing fuel itself, 
is most likely to amount to $0.185 per gallon of fuel saved by 
requiring MY 2017-25 cars and light trucks to achieve higher fuel 
economy. However, considerable uncertainty surrounds this estimate, and 
ORNL's updated analysis also indicates that a range of values extending 
from a low of $0.091 per gallon to a high of $0.293 per gallon should 
be used to reflect this uncertainty.
    We note that the calculation of energy security benefits does not 
include energy security costs associated with reliance on foreign 
sources of lithium and rare earth metals for HEVs and EVs. The agencies 
intend to attempt to quantify this impact for the final rule stage, and 
seek public input on information that would enable agencies to develop 
this analysis. NHTSA also seeks public input on the projections that 
energy security benefits will grow rapidly through 2025.
l. Air Pollutant Emissions
i. Changes in Criteria Air Pollutant Emissions
    Criteria air pollutants include carbon monoxide (CO), hydrocarbon 
compounds (usually referred to as ``volatile organic compounds,'' or 
VOC), nitrogen oxides (NOX), fine particulate matter 
(PM2.5), and sulfur oxides (SOX). These 
pollutants are emitted during vehicle storage and use, as well as 
throughout the fuel production and distribution system. While 
reductions in domestic fuel refining, storage, and distribution that 
result from lower fuel consumption will reduce emissions of these 
pollutants, additional vehicle use associated with the fuel economy 
rebound effect will increase their emissions. The net effect of 
stricter CAFE standards on total emissions of each criteria pollutant 
depends on the relative magnitude of reductions in its emissions during 
fuel refining and distribution, and increases in its emissions 
resulting from additional vehicle use. Because the relationship between 
emissions in fuel refining and vehicle use is different for each 
criteria pollutant, the net effect of fuel savings from the proposed 
standards on total emissions of each pollutant is likely to differ.
    With the exception of SO2, NHTSA calculated annual 
emissions of each criteria pollutant resulting from vehicle use by 
multiplying its estimates of car and light truck use during each year 
over their expected lifetimes by per-mile emission rates for each 
vehicle class, fuel type, model year, and age. These emission rates 
were developed by U.S. EPA using its Motor Vehicle Emission Simulator 
(MOVES 2010a).\675\ Emission rates for SO2 were calculated 
by NHTSA using average fuel sulfur content estimates supplied by EPA, 
together with the assumption that the entire sulfur content of fuel is 
emitted in the form of SO2.\676\ Total SO2 
emissions under each alternative CAFE standard were calculated by 
applying the resulting emission rates directly to estimated annual 
gasoline and diesel fuel use by cars and light trucks.
---------------------------------------------------------------------------

    \675\ The MOVES model assumes that the per-mile rates at which 
these pollutants are emitted are determined by EPA regulations and 
the effectiveness of catalytic after-treatment of engine exhaust 
emissions, and are thus unaffected by changes in car and light truck 
fuel economy.
    \676\ These are 30 and 15 parts per million (ppm, measured on a 
mass basis) for gasoline and diesel respectively, which produces 
emission rates of 0.17 grams of SO2 per gallon of 
gasoline and 0.10 grams per gallon of diesel.
---------------------------------------------------------------------------

    Changes in emissions of criteria air pollutants resulting from 
alternative increases in CAFE standards for MY

[[Page 75214]]

2017-2025 cars and light trucks are calculated from the differences 
between emissions under each alternative increase in CAFE standards, 
and emissions under the baseline alternative.
    Emissions of criteria air pollutants also occur during each phase 
of fuel production and distribution, including crude oil extraction and 
transportation, fuel refining, and fuel storage and transportation. 
NHTSA estimates the reductions in criteria pollutant emissions from 
producing and distributing fuel that would occur under alternative CAFE 
standards using emission rates obtained by EPA from Argonne National 
Laboratories' Greenhouse Gases and Regulated Emissions in 
Transportation (GREET) model, which provides estimates of air pollutant 
emissions that occur in different phases of fuel production and 
distribution.677 678 EPA modified the GREET model to change 
certain assumptions about emissions during crude petroleum extraction 
and transportation, as well as to update its emission rates to reflect 
adopted and pending EPA emission standards.
---------------------------------------------------------------------------

    \677\ Argonne National Laboratories, The Greenhouse Gas and 
Regulated Emissions in Transportation (GREET) Model, Version 1.8, 
June 2007, available at http://www.transportation.anl.gov/modeling_simulation/GREET/index.html (last accessed October 11, 2011).
    \678\ Emissions that occur during vehicle refueling at retail 
gasoline stations (primarily evaporative emissions of volatile 
organic compounds, or VOCs) are already accounted for in the 
``tailpipe'' emission factors used to estimate the emissions 
generated by increased light truck use. GREET estimates emissions in 
each phase of gasoline production and distribution in mass per unit 
of gasoline energy content; these factors are then converted to mass 
per gallon of gasoline using the average energy content of gasoline.
---------------------------------------------------------------------------

    The resulting emission rates were applied to the agency's estimates 
of fuel consumption under alternative CAFE standards to develop 
estimates of total emissions of each criteria pollutant during fuel 
production and distribution. The agency then employed the estimates of 
the effects of changes in fuel consumption on domestic and imported 
sources of fuel supply discussed previously to calculate the effects of 
reductions in fuel use on changes in imports of refined fuel and 
domestic refining. NHTSA's analysis assumes that reductions in imports 
of refined fuel would reduce criteria pollutant emissions during fuel 
storage and distribution only. Reductions in domestic fuel refining 
using imported crude oil as a feedstock are assumed to reduce emissions 
during fuel refining, storage, and distribution. Finally, reduced 
domestic fuel refining using domestically produced crude oil is assumed 
to reduce emissions during all four phases of fuel production and 
distribution.\679\
---------------------------------------------------------------------------

    \679\ In effect, this assumes that the distances crude oil 
travels to U.S. refineries are approximately the same regardless of 
whether it travels from domestic oilfields or import terminals, and 
that the distances that gasoline travels from refineries to retail 
stations are approximately the same as those from import terminals 
to gasoline stations. We note that while assuming that all changes 
in upstream emissions result from a decrease in petroleum production 
and transport, our analysis of downstream criteria pollutant impacts 
assumes no change in the composition of the gasoline fuel supply.
---------------------------------------------------------------------------

    Finally, NHTSA calculated the net changes in domestic emissions of 
each criteria pollutant by summing the increases in emissions projected 
to result from increased vehicle use, and the reductions anticipated to 
result from lower domestic fuel refining and distribution.\680\ As 
indicated previously, the effect of adopting higher CAFE standards on 
total emissions of each criteria pollutant depends on the relative 
magnitude of the resulting reduction in emissions from fuel refining 
and distribution, and the increase in emissions from additional vehicle 
use. Although these net changes vary significantly among individual 
criteria pollutants, the agency projects that on balance, adopting 
higher CAFE standards for MY 2017-25 cars and light trucks would reduce 
emissions of all criteria air pollutants except carbon monoxide (CO).
---------------------------------------------------------------------------

    \680\ All emissions from increased vehicle use are assumed to 
occur within the U.S., since CAFE standards would apply only to 
vehicles produced for sale in the U.S.
---------------------------------------------------------------------------

    The net changes in direct emissions of fine particulates 
(PM2.5) and other criteria pollutants that contribute to the 
formation of ``secondary'' fine particulates in the atmosphere (such as 
NOX, SOX, and VOCs) are converted to economic 
values using estimates of the reductions in health damage costs per ton 
of emissions of each pollutant that is avoided, which were developed by 
EPA. These savings represent the estimated reductions in the value of 
damages to human health resulting from lower atmospheric concentrations 
and population exposure to air pollution that occur when emissions of 
each pollutant that contributes to atmospheric PM2.5 
concentrations are reduced. The value of reductions in the risk of 
premature death due to exposure to fine particulate pollution 
(PM2.5) accounts for a majority of EPA's estimated values of 
reducing criteria pollutant emissions, although the value of avoiding 
other health impacts is also included in these estimates.
    These values do not include a number of unquantified benefits, such 
as reduction in the welfare and environmental impacts of 
PM2.5 pollution, or reductions in health and welfare impacts 
related to other criteria air pollutants (ozone, NO2, and 
SO2) and air toxics. EPA estimates different per-ton values 
for reducing emissions of PM and other criteria pollutants from vehicle 
use than for reductions in emissions of those same pollutants during 
fuel production and distribution.\681\ NHTSA applies these separate 
values to its estimates of changes in emissions from vehicle use and 
from fuel production and distribution to determine the net change in 
total economic damages from emissions of these pollutants.
---------------------------------------------------------------------------

    \681\ These reflect differences in the typical geographic 
distributions of emissions of each pollutant, their contributions to 
ambient PM2.5 concentrations, pollution levels 
(predominantly those of PM2.5), and resulting changes in 
population exposure.
---------------------------------------------------------------------------

    EPA projects that the per-ton values for reducing emissions of 
criteria pollutants from both mobile sources (including motor vehicles) 
and stationary sources such as fuel refineries and storage facilities 
will increase over time. These projected increases reflect rising 
income levels, which are assumed to increase affected individuals' 
willingness to pay for reduced exposure to health threats from air 
pollution, as well as future population growth, which increases 
population exposure to future levels of air pollution.
ii. Reductions in CO2 Emissions
    Emissions of carbon dioxide and other greenhouse gases (GHGs) occur 
throughout the process of producing and distributing transportation 
fuels, as well as from fuel combustion itself. Emissions of GHGs also 
occur in generating electricity, which NHTSA's analysis anticipates 
will account for an increasing share of energy consumption by cars and 
light trucks produced in the model years that would be subject to their 
proposed rules. By reducing the volume of fuel consumed by passenger 
cars and light trucks, higher CAFE standards will reduce GHG emissions 
generated by fuel use, as well as throughout the fuel supply system. 
Lowering these emissions is likely to slow the projected pace and 
reduce the ultimate extent of future changes in the global climate, 
thus reducing future economic damages that changes in the global 
climate are expected to cause. By reducing the probability that climate 
changes with potentially catastrophic economic or environmental impacts 
will occur, lowering GHG emissions may also result in economic benefits 
that exceed the resulting reduction in the expected future economic 
costs caused

[[Page 75215]]

by more gradual changes in the earth's climatic systems.
    Quantifying and monetizing benefits from reducing GHG emissions is 
thus an important step in estimating the total economic benefits likely 
to result from establishing higher CAFE standards. Because carbon 
dioxide emissions account for nearly 95 percent of total GHG emissions 
that result from fuel combustion during vehicle use, NHTSA's analysis 
of the effect of higher CAFE standards on GHG emissions focuses mainly 
on estimating changes in emissions of CO2. The agency 
estimates emissions of CO2 from passenger car and light 
truck use by multiplying the number of gallons of each type of fuel 
(gasoline and diesel) they are projected to consume under alternative 
CAFE standards by the quantity or mass of CO2 emissions 
released per gallon of fuel consumed. This calculation assumes that the 
entire carbon content of each fuel is converted to CO2 
emissions during the combustion process.
    NHTSA estimates emissions of CO2 that occur during fuel 
production and distribution using emission rates for each stage of this 
process (feedstock production and transportation, fuel refining and 
fuel storage and distribution) derived from Argonne National 
Laboratories' Greenhouse Gases and Regulated Emissions in 
Transportation (GREET) model. For liquid fuels, NHTSA converts these 
rates to a per-gallon basis using the energy content of each fuel, and 
multiplies them by the number of gallons of each type of fuel produced 
and consumed under alternative standards to estimate total 
CO2 emissions from fuel production and distribution. GREET 
supplies emission rates for electricity generation that are expressed 
as grams of CO2 per unit of energy, so these rates are 
simply multiplied by the estimates of electrical energy used to charge 
the on-board storage batteries of plug-in hybrid and battery electric 
vehicles. As with all other effects of alternative CAFE standards, the 
reduction in CO2 emissions resulting from each alternative 
increase in standards is measured by the difference in total emissions 
from producing and consuming fuel energy used by MY 2017-25 cars and 
light trucks with those higher CAFE standards in effect, and total 
CO2 emissions from supplying and using fuel energy consumed 
under the baseline alternative. Unlike criteria pollutants, the 
agency's estimates of CO2 emissions include those occurring 
in domestic fuel production and consumption, as well as in overseas 
production of petroleum and refined fuel for export to the U.S. 
Overseas emissions are included because GHG emissions throughout the 
world contribute equally to the potential for changes in the global 
climate.
iii. Economic Value of Reductions in CO2 Emissions
    NHTSA takes the economic benefits from reducing CO2 
emissions into account in developing and analyzing the alternative CAFE 
standards it has considered for MY 2017-25. Because research on the 
impacts of climate change does not produce direct estimates of the 
economic benefits from reducing CO2 or other GHG emissions, 
these benefits are assumed to be the ``mirror image'' of the estimated 
incremental costs resulting from increases in emissions. Thus the 
benefits from reducing CO2 emissions are usually measured by 
the savings in estimated economic damages that an equivalent increase 
in emissions would otherwise have caused. The agency does not include 
estimates of the economic benefits from reducing GHGs other than 
CO2 in its analysis of alternative CAFE standards.
    NHTSA estimates the value of the reductions in emissions of 
CO2 resulting from adopting alternative CAFE standards using 
a measure referred to as the ``social cost of carbon,'' abbreviated 
SCC. The SCC is intended to provide a monetary measure of the 
additional economic impacts likely to result from changes in the global 
climate that would result from an incremental increase in 
CO2 emissions. These potential effects include changes in 
agricultural productivity, the economic damages caused by adverse 
effects on human health, property losses and damages resulting from 
rising sea levels, and the value of ecosystem services. The SCC is 
expressed in constant dollars per additional metric ton of 
CO2 emissions occurring during a specific year, and is 
higher for more distant future years because the damages caused by an 
additional ton of emissions increase with larger concentrations of 
CO2 in the earth's atmosphere.
    Reductions in CO2 emissions that are projected to result 
from lower fuel production and consumption during each year over the 
lifetimes of MY 2017-25 cars and light trucks are multiplied by the 
estimated SCC appropriate for that year to determine the economic 
benefit from reducing emissions during that year. The net present value 
of these annual benefits is calculated using a discount rate that is 
consistent with that used to develop the estimate of each SCC estimate. 
This calculation is repeated for the reductions in CO2 
emissions projected to result from each alternative increase in CAFE 
standards.
    NHTSA evaluates the economic benefits from reducing CO2 
emissions using estimates of the SCC developed by an interagency 
working group convened for the specific purpose of developing new 
estimates for use by U.S. Federal agencies in regulatory evaluations. 
The group's purpose in developing new estimates of the SCC was to allow 
Federal agencies to incorporate the social benefits of reducing 
CO2 emissions into cost-benefit analyses of regulatory 
actions that have relatively modest impacts on cumulative global 
emissions, as most Federal regulatory actions can be expected to have. 
NHTSA previously relied on the SCC estimates developed by this 
interagency group to analyze the alternative CAFE standards it 
considered for MY 2012-16 cars and light trucks, as well as the fuel 
efficiency standards it adopted for MY 014-18 heavy-duty vehicles.
    The interagency group convened on a regular basis over the period 
from June 2009 through February 2010, to explore technical literature 
in relevant fields and develop key inputs and assumptions necessary to 
generate estimates of the SCC. Agencies participating in the 
interagency process included the Environmental Protection Agency and 
the Departments of Agriculture, Commerce, Energy, Transportation, and 
Treasury. This process was convened by the Council of Economic Advisers 
and the Office of Management and Budget, with active participation and 
regular input from the Council on Environmental Quality, National 
Economic Council, Office of Energy and Climate Change, and Office of 
Science and Technology Policy.
    The interagency group's main objective was to develop a range of 
SCC values using clearly articulated input assumptions grounded in the 
existing scientific and economic literatures, in conjunction with a 
range of models that employ different representations of climate change 
and its economic impacts. The group clearly acknowledged the many 
uncertainties that its process identified, and recommended that its 
estimates of the SCC should be updated periodically to incorporate 
developing knowledge of the science and economics of climate impacts. 
Specifically, it set a preliminary goal to revisit the SCC values 
within two years, or as substantial improvements in understanding of 
the science and economics of climate impacts and updated models for 
estimating and

[[Page 75216]]

valuing these impacts become available. The group ultimately selected 
four SCC values for use in federal regulatory analyses. Three values 
were based on the average of SCC estimates developed using three 
different climate economic models (referred to as integrated assessment 
models), using discount rates of 2.5, 3, and 5 percent. The fourth 
value, which represents the 95th percentile SCC estimate from the 
combined distribution of values generated by the three models at a 3 
percent discount rate, represents the possibility of possibility of 
higher-than-expected impacts from the accumulation of GHGs in the 
earth's atmosphere, and the consequently larger economic damages.
    Table IV-10 summarizes the interagency group's estimates of the SCC 
during various future years, which the agency has updated to 2009 
dollars to correspond to the other values it uses to estimate economic 
benefits from the alternative CAFE standards considered in this 
NPRM.\682\
---------------------------------------------------------------------------

    \682\ The SCC estimates reported in the table assume that the 
damages resulting from increased emissions are constant for small 
departures from the baseline emissions forecast incorporated in each 
estimate, an approximation that is reasonable for policies with 
projected effects on CO2 emissions that are small 
relative to cumulative global emissions.
[GRAPHIC] [TIFF OMITTED] TP01DE11.178


[[Page 75217]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.179

    As Table IV-10 shows, the four SCC estimates selected by the 
interagency group for use in regulatory analyses are $5, $23, $38, and 
$70 per metric ton (in 2009 dollars) for emissions occurring in the 
year 2012. The value that the interagency group centered its attention 
on is the average SCC estimate developed using different models and a 3 
percent discount rate, or $23 per metric ton in 2012. To capture the 
uncertainties involved in regulatory impact analysis, however, the 
group emphasized the importance of considering the full range of 
estimated SCC values. As the table also shows, the SCC estimates also 
rise over time; for example, the average SCC at the 3 percent discount 
rate increases to $27 per metric ton of CO2 by 2020 and 
reaches $46 per metric ton of CO2 in 2050.
    Details of the process used by the interagency group to develop its 
SCC estimates, complete results including year-by-year estimates of 
each of the four values, and a thorough discussion of their intended 
use and limitations is provided in the document Social Cost of Carbon 
for Regulatory Impact Analysis Under Executive Order 12866, Interagency 
Working Group on Social Cost of Carbon, United States Government, 
February 2010.\683\
---------------------------------------------------------------------------

    \683\ This document is available in the docket for the 2012-2016 
rulemaking (NHTSA-2009-0059).
---------------------------------------------------------------------------

m. Discounting Future Benefits and Costs
    Discounting future fuel savings and other benefits accounts for the 
reduction in their value when they are deferred until some future date, 
rather than received immediately. The value of benefits that are not 
expected to occur until the future is lower partly because people value 
current consumption more highly than equivalent consumption at some 
future date--stated simply, they are impatient--and partly because they 
expect their living standards to be higher in the future, so additional 
consumption will improve their well-being by more today than it will in 
the future. The discount rate expresses the percent decline in the 
value of these benefits--as viewed from today's perspective--for each 
year they are deferred into the future. In evaluating the benefits from 
alternative increases in CAFE standards for MY 2017-2025 passenger cars 
and light trucks, NHTSA primarily employs a discount rate of 3 percent 
per year, but in accordance with OMB guidance, also presents these 
benefit and cost estimates using a 7 percent discount rate.
    While it presents results that reflect both discount rates, NHTSA 
believes that the 3 percent rate is more appropriate for discounting 
future benefits from increased CAFE standards, because the agency 
expects that most or all of vehicle manufacturers' costs for complying 
with higher CAFE standards will ultimately be reflected in higher 
selling prices for their new vehicle models. By increasing sales prices 
for new cars and light trucks, CAFE regulations will thus primarily 
affect vehicle purchases and other private consumption decisions. Both 
economic theory and OMB guidance on discounting indicate that the 
future benefits and costs of regulations that mainly affect private 
consumption

[[Page 75218]]

should be discounted at consumers' rate of time preference.\684\
---------------------------------------------------------------------------

    \684\ Id.
---------------------------------------------------------------------------

    Current OMB guidance also indicates that savers appear to discount 
future consumption at an average real (that is, adjusted to remove the 
effect of inflation) rate of about 3 percent when they face little risk 
about the future. Since the real interest rate that savers require to 
persuade them to defer consumption into the future represents a 
reasonable estimate of consumers' rate of time preference, NHTSA 
believes that the 3 percent rate is appropriate for discounting 
projected future benefits and costs resulting from higher CAFE 
standards.
    Because there is some uncertainty about whether vehicle 
manufacturers will completely recover their costs for complying with 
higher CAFE standards by increasing vehicle sales prices, however, 
NHTSA also presents benefit and cost estimates discounted using a 
higher rate. To the extent that manufacturers are unable to recover 
their costs for meeting higher CAFE standards by increasing new vehicle 
prices, these costs are likely to displace other investment 
opportunities available to them. OMB guidance indicates that the real 
economy-wide opportunity cost of capital is the appropriate discount 
rate to apply to future benefits and costs when the primary effect of a 
regulation is ``* * * to displace or alter the use of capital in the 
private sector,'' and OMB estimates that this rate currently averages 
about 7 percent.\685\ Thus the agency's analysis of alternative 
increases in CAFE standards for MY 2017-25 cars and light trucks also 
reports benefits and costs discounted at a 7 percent rate.
---------------------------------------------------------------------------

    \685\ Office of Management and Budget, Circular A-4, 
``Regulatory Analysis,'' September 17, 2003, 33. Available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf (last accessed Sept. 
26, 2011).
---------------------------------------------------------------------------

    One important exception to the agency's use of 3 percent and 7 
percent discount rates is arises in discounting benefits from reducing 
CO2 emissions over the lifetimes of MY 2017-2025 cars and 
light trucks to their present values. In order to ensure consistency in 
the derivation and use of the interagency group's estimates of the unit 
values of reducing CO2 emissions (or SCC), the benefits from 
reducing CO2 emissions during each future year are 
discounted using the same ``intergenerational'' discount rates that 
were used to derive each of the alternative values. As indicated in 
Table IV-10 above, these rates are 2.5 percent, 3 percent, and 5 
percent depending on which estimate of the SCC is being employed.\686\
---------------------------------------------------------------------------

    \686\ The fact that the 3 percent discount rate used by the 
interagency group to derive its central estimate of the SCC is 
identical to the 3 percent short-term or ``intra-generational'' 
discount rate used by NHTSA to discount future benefits other than 
reductions in CO2 emissions is coincidental, and should 
not be interpreted as a required condition that must be satisfied in 
future rulemakings.
---------------------------------------------------------------------------

n. Accounting for Uncertainty in Benefits and Costs
    In analyzing the uncertainty surrounding its estimates of benefits 
and costs from alternative CAFE standards, NHTSA considers alternative 
estimates of those assumptions and parameters likely to have the 
largest effect. These include the projected costs of fuel economy-
improving technologies and their anticipated effectiveness in reducing 
fuel consumption, forecasts of future fuel prices, the magnitude of the 
rebound effect, the reduction in external economic costs resulting from 
lower U.S. oil imports, and the discount rate applied to future 
benefits and costs. The range for each of these variables employed in 
the uncertainty analysis was previously identified in the sections of 
this notice discussing each variable.
    The uncertainty analysis was conducted by assuming either 
independent normal or beta probability distributions for each of these 
variables, using the low and high estimates for each variable as the 
values between which 90 percent of observed values are expected to 
fall. Each trial of the uncertainty analysis employed a set of values 
randomly drawn from these probability distributions, under the 
assumption that the value of each variable is independent from those of 
the others. In cases where the data on the possible distribution of 
parameters was relatively sparse, making a choice of distributions 
difficult, a beta distribution is commonly employed to give more weight 
to both tails than would be the case had a normal distribution been 
employed. Benefits and costs of each alternative standard were 
estimated using each combination of variables, and a total of nearly 
40,000 trials were used to estimate the likely range of estimated 
benefits and costs for each alternative standard.
o. Where can readers find more information about the economic 
assumptions?
    Much more detailed information is provided in Chapter VIII of the 
PRIA, and a discussion of how NHTSA and EPA jointly reviewed and 
updated economic assumptions for purposes of this proposal is available 
in Chapter 4 of the draft Joint TSD. In addition, all of NHTSA's model 
input and output files are now public and available for the reader's 
review and consideration. The economic input files can be found in the 
docket for this proposed rule, NHTSA-2010-0131, and on NHTSA's Web 
site.\687\
---------------------------------------------------------------------------

    \687\ See http://www.nhtsa.gov/fuel-economy.
---------------------------------------------------------------------------

    Finally, because much of NHTSA's economic analysis for purposes of 
this proposal builds on the work that was done for the final rule 
establishing CAFE standards for MYs 2012-16, we refer readers to that 
document as well. It contains valuable background information 
concerning how NHTSA's assumptions regarding economic inputs for CAFE 
analysis have evolved over the past several rulemakings, both in 
response to comments and as a result of the agency's growing experience 
with this type of analysis.\688\
---------------------------------------------------------------------------

    \688\ 74 FR 14308-14358 (Mar. 30, 2009).
---------------------------------------------------------------------------

4. How does NHTSA use the assumptions in its modeling analysis?
    In developing today's proposed CAFE standards, NHTSA has made 
significant use of results produced by the CAFE Compliance and Effects 
Model (commonly referred to as ``the CAFE Model'' or ``the Volpe 
model''), which DOT's Volpe National Transportation Systems Center 
developed specifically to support NHTSA's CAFE rulemakings. The model, 
which has been constructed specifically for the purpose of analyzing 
potential CAFE standards, integrates the following core capabilities:
    (1) Estimating how manufacturers could apply technologies in 
response to new fuel economy standards,
    (2) Estimating the costs that would be incurred in applying these 
technologies,
    (3) Estimating the physical effects resulting from the application 
of these technologies, such as changes in travel demand, fuel 
consumption, and emissions of carbon dioxide and criteria pollutants, 
and
    (4) Estimating the monetized societal benefits of these physical 
effects.
    An overview of the model follows below. Separate model 
documentation provides a detailed explanation of the functions the 
model performs, the calculations it performs in doing so, and how to 
install the model, construct inputs to the model, and interpret the 
model's outputs. Documentation of the model, along with model 
installation files, source code, and sample inputs are available at 
NHTSA's Web site. The model documentation is also available in the 
docket for today's proposed rule, as are inputs for and outputs from

[[Page 75219]]

analysis of today's proposed CAFE standards.
a. How does the model operate?
    As discussed above, the agency uses the CAFE model to estimate how 
manufacturers could attempt to comply with a given CAFE standard by 
adding technology to fleets that the agency anticipates they will 
produce in future model years. This exercise constitutes a simulation 
of manufacturers' decisions regarding compliance with CAFE standards.
    This compliance simulation begins with the following inputs: (a) 
The baseline and reference market forecast discussed above in Section 
IV.C.1 and Chapter 1 of the TSD, (b) technology-related estimates 
discussed above in Section IV.C.2 and Chapter 3 of the TSD, (c) 
economic inputs discussed above in Section IV.C.3 and Chapter 4 of the 
TSD, and (d) inputs defining baseline and potential new CAFE standards. 
For each manufacturer, the model applies technologies in a sequence 
that follows a defined engineering logic (``decision trees'' discussed 
in the MY 2011 final rule and in the model documentation) and a cost-
minimizing strategy in order to identify a set of technologies the 
manufacturer could apply in response to new CAFE standards.\689\ The 
model applies technologies to each of the projected individual vehicles 
in a manufacturer's fleet, considering the combined effect of 
regulatory and market incentives. Depending on how the model is 
exercised, it will apply technology until one of the following occurs:
---------------------------------------------------------------------------

    \689\ NHTSA does its best to remain scrupulously neutral in the 
application of technologies through the modeling analysis, to avoid 
picking technology ``winners.'' The technology application 
methodology has been reviewed by the agency over the course of 
several rulemakings, and commenters have been generally supportive 
of the agency's approach. See, e.g., 74 FR 14238-14246 (Mar. 30, 
2009).
---------------------------------------------------------------------------

    (1) The manufacturer's fleet achieves compliance \690\ with the 
applicable standard, and continuing to add technology in the current 
model year would be attractive neither in terms of stand-alone (i.e., 
absent regulatory need) cost effectiveness nor in terms of facilitating 
compliance in future model years; \691\
---------------------------------------------------------------------------

    \690\ The model has been modified to provide the ability--as an 
option--to account for credit mechanisms (i.e., carry-forward, 
carry-back, transfers, and trades) when determining whether 
compliance has been achieved. For purposes of determining maximum 
feasible CAFE standards, NHTSA cannot consider these mechanisms, and 
exercises the CAFE model without enabling these options.
    \691\ In preparation for the MY 2012-2016 rulemaking, the model 
was modified in order to apply additional technology in early model 
years if doing so will facilitate compliance in later model years. 
This is designed to simulate a manufacturer's decision to plan for 
CAFE obligations several years in advance, which NHTSA believes 
better replicates manufacturers' actual behavior as compared to the 
year-by-year evaluation which EPCA would otherwise require.
---------------------------------------------------------------------------

    (2) The manufacturer ``exhausts'' \692\ available technologies; or
---------------------------------------------------------------------------

    \692\ In a given model year, the model makes additional 
technologies available to each vehicle model within several 
constraints, including (a) Whether or not the technology is 
applicable to the vehicle model's technology class, (b) whether the 
vehicle is undergoing a redesign or freshening in the given model 
year, (c) whether engineering aspects of the vehicle make the 
technology unavailable (e.g., secondary axle disconnect cannot be 
applied to two-wheel drive vehicles), and (d) whether technology 
application remains within ``phase in caps'' constraining the 
overall share of a manufacturer's fleet to which the technology can 
be added in a given model year. Once enough technology is added to a 
given manufacturer's fleet in a given model year that these 
constraints make further technology application unavailable, 
technologies are ``exhausted'' for that manufacturer in that model 
year.
---------------------------------------------------------------------------

    (3) For manufacturers estimated to be willing to pay civil 
penalties, the manufacturer reaches the point at which doing so would 
be more cost-effective (from the manufacturer's perspective) than 
adding further technology.\693\
---------------------------------------------------------------------------

    \693\ This possibility was added to the model to account for the 
fact that under EPCA/EISA, manufacturers must pay fines if they do 
not achieve compliance with applicable CAFE standards. 49 U.S.C. 
32912(b). NHTSA recognizes that some manufacturers will find it more 
cost-effective to pay fines than to achieve compliance, and believes 
that to assume these manufacturers would exhaust available 
technologies before paying fines would cause unrealistically high 
estimates of market penetration of expensive technologies such as 
diesel engines and strong hybrid electric vehicles, as well as 
correspondingly inflated estimates of both the costs and benefits of 
any potential CAFE standards. NHTSA thus includes the possibility of 
manufacturers choosing to pay fines in its modeling analysis in 
order to achieve what the agency believes is a more realistic 
simulation of manufacturer decision-making. Unlike flex-fuel and 
other credits, NHTSA is not barred by statute from considering fine-
payment in determining maximum feasible standards under EPCA/EISA. 
49 U.S.C. 32902(h).
---------------------------------------------------------------------------

    As discussed below, the model has also been modified in order to--
as an option--apply more technology than may be necessary to achieve 
compliance in a given model year, or to facilitate compliance in later 
model years. This ability to simulate ``voluntary overcompliance'' 
reflects the potential that manufacturers will apply some technologies 
to some vehicles if doing so would be sufficiently inexpensive compared 
to the expected reduction in owners' outlays for fuel.
    The model accounts explicitly for each model year, applying most 
technologies when vehicles are scheduled to be redesigned or freshened, 
and carrying forward technologies between model years. The CAFE model 
accounts explicitly for each model year because EPCA requires that 
NHTSA make a year-by-year determination of the appropriate level of 
stringency and then set the standard at that level, while ensuring 
ratable increases in average fuel economy.\694\ The multiyear planning 
capability and (optional) simulation of ``voluntary overcompliance'' 
and EPCA credit mechanisms increase the model's ability to simulate 
manufacturers' real-world behavior, accounting for the fact that 
manufacturers will seek out compliance paths for several model years at 
a time, while accommodating the year-by-year requirement.
---------------------------------------------------------------------------

    \694\ 49 U.S.C. 32902(a) states that at least 18 months before 
the beginning of each model year, the Secretary of Transportation 
shall prescribe by regulation average fuel economy standards for 
automobiles manufactured by a manufacturer in that model year, and 
that each standard shall be the maximum feasible average fuel 
economy level that the Secretary decides the manufacturers can 
achieve in that year. NHTSA has long interpreted this statutory 
language to require year-by-year assessment of manufacturer 
capabilities. 49 U.S.C. 32902(b)(2)(C) also requires that standards 
increase ratably between MY 2011 and MY 2020.
---------------------------------------------------------------------------

    The model also calculates the costs, effects, and benefits of 
technologies that it estimates could be added in response to a given 
CAFE standard.\695\ It calculates costs by applying the cost estimation 
techniques discussed above in Section IV.C.2, and by accounting for the 
number of affected vehicles. It accounts for effects such as changes in 
vehicle travel, changes in fuel consumption, and changes in greenhouse 
gas and criteria pollutant emissions. It does so by applying the fuel 
consumption estimation techniques also discussed in Section IV.C.2, and 
the vehicle survival and mileage accumulation forecasts, the rebound 
effect estimate and the fuel properties and emission factors discussed 
in Section IV.C.3. Considering changes in travel demand and fuel 
consumption, the model estimates the monetized value of accompanying 
benefits to society, as discussed in Section IV.C.3. The model 
calculates both the undiscounted and discounted value of benefits that 
accrue over time in the future.
---------------------------------------------------------------------------

    \695\ As for all of its other rulemakings, NHTSA is required by 
Executive Order 12866 (as amended by Executive Order 13563) and DOT 
regulations to analyze the costs and benefits of CAFE standards. 
Executive Order 12866, 58 FR 51735 (Oct. 4, 1993); DOT Order 2100.5, 
``Regulatory Policies and Procedures,'' 1979, available at http://regs.dot.gov/rulemakingrequirements.htm (last accessed February 21, 
2010).
---------------------------------------------------------------------------

    The CAFE model has other capabilities that facilitate the 
development of a CAFE standard. The integration of (a) Compliance 
simulation and (b) the calculation of costs, effects,

[[Page 75220]]

and benefits facilitates analysis of sensitivity of results to model 
inputs. The model can also be used to evaluate many (e.g., 200 per 
model year) potential levels of stringency sequentially, and identify 
the stringency at which specific criteria are met. For example, it can 
identify the stringency at which net benefits to society are maximized, 
the stringency at which a specified total cost is reached, or the 
stringency at which a given average required fuel economy level is 
attained. This allows the agency to compare more easily the impacts in 
terms of fuel savings, emissions reductions, and costs and benefits of 
achieving different levels of stringency according to different 
criteria. The model can also be used to perform uncertainty analysis 
(i.e., Monte Carlo simulation), in which input estimates are varied 
randomly according to specified probability distributions, such that 
the uncertainty of key measures (e.g., fuel consumption, costs, 
benefits) can be evaluated.
b. Has NHTSA considered other models?
    As discussed in the most recent CAFE rulemaking, while nothing in 
EPCA requires NHTSA to use the CAFE model, and in principle, NHTSA 
could perform all of these tasks through other means, the model's 
capabilities have greatly increased the agency's ability to rapidly, 
systematically, and reproducibly conduct key analyses relevant to the 
formulation and evaluation of new CAFE standards.\696\
---------------------------------------------------------------------------

    \696\ 75 FR 25598-25599.
---------------------------------------------------------------------------

    NHTSA notes that the CAFE model not only has been formally peer-
reviewed and tested and reviewed through three rulemakings, but also 
has some features especially important for the analysis of CAFE 
standards under EPCA/EISA. Among these are the ability to perform year-
by-year analysis, and the ability to account for engineering 
differences between specific vehicle models.
    EPCA requires that NHTSA set CAFE standards for each model year at 
the level that would be ``maximum feasible'' for that year. Doing so 
requires the ability to analyze each model year and, when developing 
regulations covering multiple model years, to account for the 
interdependency of model years in terms of the appropriate levels of 
stringency for each one. Also, as part of the evaluation of the 
economic practicability of the standards, as required by EPCA, NHTSA 
has traditionally assessed the annual costs and benefits of the 
standards. In response to comments regarding an early version of the 
CAFE model, DOT modified the CAFE model in order to account for 
dependencies between model years and to better represent manufacturers' 
planning cycles, in a way that still allowed NHTSA to comply with the 
statutory requirement to determine the appropriate level of the 
standards for each model year.
    The CAFE model is also able to account for important engineering 
differences between specific vehicle models, and to thereby reduce the 
risk of applying technologies that may be incompatible with or already 
present on a given vehicle model. By combining technologies 
incrementally and on a model-by-model basis, the CAFE model is able to 
account for important engineering differences between vehicle models 
and avoid unlikely technology combinations
    The CAFE model also produces a single vehicle-level output file 
that, for each vehicle model, shows which technologies were present at 
the outset of modeling, which technologies were superseded by other 
technologies, and which technologies were ultimately present at the 
conclusion of modeling. For each vehicle, the same file shows resultant 
changes in vehicle weight, fuel economy, and cost. This provides for 
efficient identification, analysis, and correction of errors, a task 
with which the public can now assist the agency, since all inputs and 
outputs are public.
    Such considerations, as well as those related to the efficiency 
with which the CAFE model is able to analyze attribute-based CAFE 
standards and changes in vehicle classification, and to perform higher-
level analysis such as stringency estimation (to meet predetermined 
criteria), sensitivity analysis, and uncertainty analysis, lead the 
agency to conclude that the model remains the best available to the 
agency for the purposes of analyzing potential new CAFE standards.
c. What changes has DOT made to the model?
    Between promulgation of the MY 2012-2016 CAFE standards and today's 
proposal regarding MY 2017-2025 standards, the CAFE model has been 
revised to make some minor improvements, and to add some significant 
new capabilities: (1) Accounting for electricity used to charge 
electric vehicles (EVs) and plug-in hybrid electric vehicles (PHEVs), 
(2) accounting for use of ethanol blends in flexible-fuel vehicles 
(FFVs), (3) accounting for costs (i.e., ``stranded capital'') related 
to early replacement of technologies, (4) accounting for previously-
applied technology when determining the extent to which a manufacturer 
could expand use of the technology, (5) applying technology-specific 
estimates of changes in consumer value, (6) simulating the extent to 
which manufacturers might utilize EPCA's provisions regarding 
generation and use of CAFE credits, (7) applying estimates of fuel 
economy adjustments (and accompanying costs) reflecting increases in 
air conditioner efficiency, (8) reporting privately-valued benefits, 
(9) simulating the extent to which manufacturers might voluntarily 
apply technology beyond levels needed for compliance with CAFE 
standards, and (10) estimating changes in highway fatalities 
attributable to any applied reductions in vehicle mass. These 
capabilities are described below, and in greater detail in the CAFE 
model documentation.\697\
---------------------------------------------------------------------------

    \697\ Model documentation is available on NHTSA's Web site.
---------------------------------------------------------------------------

    To support evaluation of the effects electric vehicles (EVs) and 
plug-in hybrid vehicles (PHEVs) could have on energy consumption and 
associated costs and environmental effects, DOT has expanded the CAFE 
model to estimate the amount of electricity that would be required to 
charge these vehicles (accounting for the potential that PHEVs can also 
run on gasoline). The model calculates the cost of this electricity, as 
well as the accompanying upstream criteria pollutant and greenhouse gas 
emissions.
    Similar to this expansion to account for the potential the PHEVs 
can be refueled with gasoline or recharged with electricity, DOT has 
expanded the CAFE model to account for the potential that other 
flexible-fuel vehicles can be operated on multiple fuels. In 
particular, the model can account for ethanol FFVs consuming E85 or 
gasoline, and to report consumption of both fuels, as well as 
corresponding costs and upstream emissions.
    Among the concerns raised in the past regarding how technology 
costs are estimated has been one that stranded capital costs be 
considered. Capital becomes ``stranded'' when capital equipment is 
retired or its use is discontinued before the equipment has been fully 
depreciated and the equipment still retains some value or usefulness. 
DOT has modified the CAFE model to, if specified for a given 
technology, when that technology is replaced by a newly applied 
technology, apply a stream of costs representing the stranded capital 
cost of the replaced technology. This cost is in addition to the cost 
for producing the newly

[[Page 75221]]

applied technology in the first year of production.
    As documented in prior CAFE rulemakings, the CAFE model applies 
``phase-in caps'' to constrain technology application at the vehicle 
manufacturer level. They are intended to reflect a manufacturer's 
overall resource capacity available for implementing new technologies 
(such as engineering and development personnel and financial 
resources), thereby ensuring that resource capacity is accounted for in 
the modeling process. This helps to ensure technological feasibility 
and economic practicability in determining the stringency of the 
standards. When the MY 2012-2016 rulemaking analysis was completed, the 
model performed the relevant test by comparing a given phase-in cap to 
the amount (i.e., the share of the manufacturer's fleet) to which the 
technology had been added by the model. DOT has since modified the CAFE 
model to take into account the extent to which a given manufacturer has 
already applied the technology (i.e., as reflected in the market 
forecast specified as a model inputs), and to apply the relevant test 
based on the total application of the technology.
    The CAFE model requires inputs defining the technology-specific 
cost and efficacy (i.e., percentage reduction of fuel consumption), and 
has, to date, effectively assumed that these input values reflect 
application of the technology in a manner that holds vehicle 
performance and utility constant. Considering that some technologies 
may, nonetheless, offer owners greater or lesser value (beyond that 
related to fuel outlays, which the model calculates internally based on 
vehicle fuel type and fuel economy), DOT has modified the CAFE model to 
accept and apply technology-specific estimates of any value gain 
realized or loss incurred by vehicle purchasers.\698\
---------------------------------------------------------------------------

    \698\ For example, a value gain could be specified for a 
technology expected to improve ride quality, and a value loss could 
be specified for a technology expected to reduce vehicle range.
---------------------------------------------------------------------------

    For the MY 2012-2016 CAFE rulemaking analysis, DOT modified the 
CAFE model to accommodate specification and accounting for credits a 
manufacturer is assumed to earn by producing flexible fuel vehicles 
(FFVs). Although NHTSA cannot consider such credits when determining 
maximum feasible CAFE standards, the agency presented an analysis that 
included FFV credits, in order to communicate the extent to which use 
of such credits might cause actual costs, effects, and benefits to be 
lower than estimated in NHTSA's formal analysis. As DOT explained at 
the time, it was unable to account for other EPCA credit mechanisms, 
because attempts to do so had been limited by complex interactions 
between those mechanisms and the multiyear planning aspects of the CAFE 
model. DOT has since modified the CAFE model to provide the ability to 
account for any or all of the following flexibilities provided by EPCA: 
FFV credits, credit carry-forward and carry-back (between model years), 
credit transfers (between passenger car and light truck fleets), and 
credit trades (between manufacturers). The model accounts for EPCA-
specified limitations applicable to these flexibilities (e.g., limits 
on the amount of credit that can be transferred between passenger car 
and light truck fleets). These capabilities in the model provide a 
basis for more accurately estimating costs, effects, and benefits that 
may actually result from new CAFE standards. Insofar as some 
manufacturers actually do earn and use CAFE credits, this provides 
NHTSA with the ability to examine outcomes more realistically than EPCA 
allows for purposes of setting new CAFE standards.
    NHTSA is today proposing CAFE standards reflecting EPA's proposal 
to change fuel economy calculation procedures such that a vehicle's 
fuel consumption improvement will be accounted for if the vehicle has 
technologies that reduce the amount of energy needed to power the air 
conditioner. To facilitate analysis of these standards, DOT has 
modified the CAFE model to account for these adjustments, based on 
inputs specifying the average amount of improvement anticipated, and 
the estimated average cost to apply the underlying technology.
    Considering that past CAFE rulemakings indicate that most of the 
benefits of CAFE standards are realized by vehicle owners, DOT has 
modified the CAFE model to estimate not just social benefits, but also 
private benefits. The model accommodates separate discount rates for 
these two valuation methods (e.g., a 3% rate for social benefits with a 
7% rate for private benefits). When calculating private benefits, the 
model includes changes in outlays for fuel taxes (which, as economic 
transfers, are excluded from social benefits) and excludes changes in 
economic externalities (e.g., monetized criteria pollutant and 
greenhouse gas emissions).
    Since 2003, the CAFE model (and its predecessors) have provided the 
ability to estimate the extent to which a manufacturer with a history 
of paying civil penalties allowed under EPCA might decide to add some 
fuel-saving technology, but not enough to comply with CAFE standards. 
In simulating this decision-making, the model considers the cost to add 
the technology, the calculated reduction in civil penalties, and the 
calculated present value (at the time of vehicle purchase) of the 
change in fuel outlays over a specified ``payback period'' (e.g., 5 
years). For a manufacturer assumed to be willing to pay civil 
penalties, the model stops adding technology once paying fines becomes 
more attractive than continuing to add technology, considering these 
three factors. As an extension of this simulation approach, DOT has 
modified the CAFE model to, if specified, simulate the potential that a 
manufacturer would add more technology than required for purposes of 
compliance with CAFE standards. When set to operate in this manner, the 
model will continue to apply technology to a manufacturer's CAFE-
compliant fleet until applying further technology will incur more in 
cost than it will yield in calculated fuel savings over a specified 
``payback period'' that is set separately from the payback period 
applicable until compliance is achieved. In its analysis supporting MY 
2012-2016 standards adopted in 2010, NHTSA estimated the extent to 
which reductions in vehicle mass might lead to changes in the number of 
highway fatalities occurring over the useful life of the MY 2012-2016 
fleet. NHTSA performed these calculations outside the CAFE model (using 
vehicle-specific mass reduction calculations from the model), based on 
agency analysis of relevant highway safety data. DOT has since modified 
the CAFE model to perform these calculations, using an analytical 
structure indicated by an update to the underlying safety analysis. The 
model also applies an input value indicating the economic value of a 
statistical life, and includes resultant benefits (or disbenefits) in 
the calculation of total social benefits.
    In comments on recent NHTSA rulemakings, some reviewers have 
suggested that the CAFE model should be modified to estimate the extent 
to which new CAFE standards would induce changes in the mix of vehicles 
in the new vehicle fleet. NHTSA agrees that a ``market shift'' model, 
also called a consumer vehicle choice model, could provide useful 
information regarding the possible effects of potential new CAFE 
standards. NHTSA has contracted with the Brookings Institution (which 
has subcontracted with researchers at U.C. Davis, U.C. Irvine) to 
develop a vehicle choice model estimated at the vehicle configuration 
level that can be

[[Page 75222]]

implemented as part of DOT's CAFE model. As discussed further in 
Section V of the PRIA, past efforts by DOT staff demonstrated that a 
vehicle could be added to the CAFE model, but did not yield credible 
coefficients specifying such a model. If a suitable and credibly 
calibrated vehicle choice model becomes available in time--whether 
through the Brookings-led research or from other sources, DOT may 
integrate a vehicle choice model into the CAFE model for the final 
rule.
    NHTSA anticipates this integration of a vehicle choice model would 
be structurally and operationally similar to the integration we 
implemented previously. As under the version applied in support of 
today's announcement, the CAFE model would begin with an agency-
estimated market forecast, estimate to what extent manufacturers might 
apply additional fuel-saving technology to each vehicle model in 
consideration of future fuel prices and baseline or alternative CAFE 
standards and fuel prices, and calculate resultant changes in the fuel 
economy (and possibly fuel type) and price of individual vehicle 
models. With an integrated market share model, the CAFE model would 
then estimate how the sales volumes of individual vehicle models would 
change in response to changes in fuel economy levels and prices 
throughout the light vehicle market, possibly taking into account 
interactions with the used vehicle market. Having done so, the model 
would replace the sales estimates in the original market forecast with 
those reflecting these model-estimated shifts, repeating the entire 
modeling cycle until converging on a stable solution.
    Based on past experience, we anticipate that this recursive 
simulation will be necessary to ensure consistency between sales 
volumes and modeled fuel economy standards, because achieved CAFE 
levels depend on sales mix and, under attribute-based CAFE standards, 
required CAFE levels also depend on sales mix. NHTSA anticipates, 
therefore, that application of a market share model would impact 
estimates of all of the following for a given schedule of CAFE 
standards: overall market volume, manufacturer market shares and 
product mix, required and achieved CAFE levels, technology application 
rates and corresponding incurred costs, fuel consumption, greenhouse 
gas and criteria pollutant emissions, changes in highway fatalities, 
and economic benefits.
    Past testing by DOT/NHTSA staff did not indicate major shifts in 
broad measures (e.g., in total costs or total benefits), but that 
testing emphasized shorter modeling periods (e.g., 1-5 model years) and 
less stringent standards than reflected in today's proposal. Especially 
without knowing the characteristics of a future vehicle choice model, 
it is difficult to anticipate the potential degree to which its 
inclusion would impact analytical outcomes.
    NHTSA invites comment on the above changes to the CAFE model. The 
agency's consideration of any alternative approaches will be 
facilitated by specific recommendations regarding implementation within 
the model's overall structure. NHTSA also invites comment regarding 
above-mentioned prospects for inclusion of a vehicle choice model. The 
agency's consideration will be facilitated by specific information 
demonstrating that inclusion of such a model would lead to more 
realistic estimates of costs, effects, and benefits, or that inclusion 
of such a model would lead to less realistic estimates.
d. Does the model set the standards?
    Since NHTSA began using the CAFE model in CAFE analysis, some 
commenters have interpreted the agency's use of the model as the way by 
which the agency chooses the maximum feasible fuel economy standards. 
As the agency explained in its most recent CAFE rulemaking, this is 
incorrect.\699\ Although NHTSA currently uses the CAFE model as a tool 
to inform its consideration of potential CAFE standards, the CAFE model 
does not determine the CAFE standards that NHTSA proposes or 
promulgates as final regulations. The results it produces are 
completely dependent on inputs selected by NHTSA, based on the best 
available information and data available in the agency's estimation at 
the time standards are set. Ultimately, NHTSA's selection of 
appropriate CAFE standards is governed and guided by the statutory 
requirements of EPCA, as amended by EISA: NHTSA sets the standard at 
the maximum feasible average fuel economy level that it determines is 
achievable during a particular model year, considering technological 
feasibility, economic practicability, the effect of other standards of 
the Government on fuel economy, and the need of the nation to conserve 
energy.
---------------------------------------------------------------------------

    \699\ 75 FR 25600.
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e. How does NHTSA make the model available and transparent?
    Model documentation, which is publicly available in the rulemaking 
docket and on NHTSA's Web site, explains how the model is installed, 
how the model inputs (all of which are available to the public) \700\ 
and outputs are structured, and how the model is used. The model can be 
used on any Windows-based personal computer with Microsoft Office 2003 
or 2007 and the Microsoft .NET framework installed (the latter 
available without charge from Microsoft). The executable version of the 
model and the underlying source code are also available at NHTSA's Web 
site. The input files used to conduct the core analysis documented in 
this proposal are available in the public docket. With the model and 
these input files, anyone is capable of independently running the model 
to repeat, evaluate, and/or modify the agency's analysis.
---------------------------------------------------------------------------

    \700\ We note, however, that files from any supplemental 
analysis conducted that relied in part on confidential manufacturer 
product plans cannot be made public, as prohibited under 49 CFR part 
512.
---------------------------------------------------------------------------

    Because the model is available on NHTSA's web site, the agency has 
no way of knowing how widely the model has been used. The agency is, 
however, aware that the model has been used by other federal agencies, 
vehicle manufacturers, private consultants, academic researchers, and 
foreign governments. Some of these individuals have found the model 
complex and challenging to use. Insofar as the model's sole purpose is 
to help DOT staff efficiently analyze potential CAFE standards, DOT has 
not expended significant resources trying to make the model as ``user 
friendly'' as commercial software intended for wide use. However, DOT 
wishes to facilitate informed comment on the proposed standards, and 
encourages reviewers to contact the agency promptly if any difficulties 
using the model are encountered.
    NHTSA arranged for a formal peer review of an older version of the 
model, has responded to reviewers' comments, and has considered and 
responded to model-related comments received over the course of four 
CAFE rulemakings. In the agency's view, this steady and expanding 
outside review over the course of nearly a decade of model development 
has helped DOT to significantly strengthen the model's capabilities and 
technical quality, and has greatly increased transparency, such that 
all model code is publicly available, and all model inputs and outputs 
are publicly available in a form that should allow reviewers to 
reproduce the agency's analysis. NHTSA is currently preparing 
arrangements for a formal peer review of the current CAFE model. 
Depending on the schedule for that

[[Page 75223]]

review, DOT will consider possible model revisions and, as feasible, 
attempt to make any appropriate revisions before performing analysis 
supporting final CAFE standards for MY 2017 and beyond.

D. Statutory Requirements

1. EPCA, as Amended by EISA
a. Standard Setting
    EPCA, as amended by EISA, contains a number of provisions regarding 
how NHTSA must set CAFE standards. NHTSA must establish separate CAFE 
standards for passenger cars and light trucks \701\ for each model 
year,\702\ and each standard must be the maximum feasible that NHTSA 
believes the manufacturers can achieve in that model year.\703\ When 
determining the maximum feasible level achievable by the manufacturers, 
EPCA requires that the agency consider the four statutory factors of 
technological feasibility, economic practicability, the effect of other 
motor vehicle standards of the Government on fuel economy, and the need 
of the United States to conserve energy.\704\ In addition, the agency 
has the authority to and traditionally does consider other relevant 
factors, such as the effect of the CAFE standards on motor vehicle 
safety. The ultimate determination of what standards can be considered 
maximum feasible involves a weighing and balancing of these factors, 
and the balance may shift depending on the information before the 
agency about the expected circumstances in the model years covered by 
the rulemaking. Always in conducting that balancing, however, the 
implication of the ``maximum feasible'' requirement is that it calls 
for setting a standard that exceeds what might be the minimum 
requirement if the agency determines that the manufacturers can achieve 
a higher level, and that the agency's decision support the overarching 
purpose of EPCA, energy conservation.\705\
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    \701\ 49 U.S.C. 32902(b)(1).
    \702\ 49 U.S.C. 32902(a).
    \703\ Id.
    \704\ 49 U.S.C. 32902(f).
    \705\ Center for Biological Diversity v. NHTSA, 538 F.3d 1172, 
1197 (9th Cir. 2008) (``Whatever method it uses, NHTSA cannot set 
fuel economy standards that are contrary to Congress' purpose in 
enacting the EPCA--energy conservation.'').
---------------------------------------------------------------------------

    Besides the requirement that standards be maximum feasible for the 
fleet in question, EPCA/EISA also contains several other requirements. 
The standards must be attribute-based and expressed in the form of a 
mathematical function--NHTSA has thus far based standards on vehicle 
footprint, and for this rulemaking has expressed them in the form of a 
constrained linear function that generally sets higher (more stringent) 
mpg targets for smaller-footprint vehicles and lower (less stringent) 
mpg targets for larger-footprint vehicles. Second, the standards are 
subject to a minimum requirement regarding stringency: they must be set 
at levels high enough to ensure that the combined U.S. passenger car 
and light truck fleet achieves an average fuel economy level of not 
less than 35 mpg not later than MY 2020.\706\ Third, between MY 2011 
and MY 2020, the standards must ``increase ratably'' in each model 
year.\707\ This requirement does not have a precise mathematical 
meaning, particularly because it must be interpreted in conjunction 
with the requirement to set the standards for each model year at the 
level determined to be the maximum feasible level for that model year. 
Generally speaking, the requirement for ratable increases means that 
the annual increases should not be disproportionately large or small in 
relation to each other. The second and third requirements no longer 
apply after MY 2020, at which point standards must simply be maximum 
feasible. And fourth, EISA requires NHTSA to issue CAFE standards for 
``at least 1, but not more than 5, model years.''\708\ This issue is 
discussed in section IV.B above.
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    \706\ 49 U.S.C. 32902(b)(2)(A).
    \707\ 49 U.S.C. 32902(b)(2)(C).
    \708\ 49 U.S.C. 32902(b)(3)(B).
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    The following sections discuss the statutory factors behind 
``maximum feasible'' in more detail.
i. Statutory Factors Considered in Determining the Achievable Level of 
Average Fuel Economy
    As none of the four factors is defined in EPCA and each remains 
interpreted only to a limited degree by case law, NHTSA has 
considerable latitude in interpreting them. NHTSA interprets the four 
statutory factors as set forth below.
(1) Technological Feasibility
    ``Technological feasibility'' refers to whether a particular 
technology for improving fuel economy is available or can become 
available for commercial application in the model year for which a 
standard is being established. Thus, the agency is not limited in 
determining the level of new standards to technology that is already 
being commercially applied at the time of the rulemaking. It can, 
instead, set technology-forcing standards, i.e., ones that make it 
necessary for manufacturers to engage in research and development in 
order to bring a new technology to market. There are certain 
technologies that the agency has considered for this rulemaking, for 
example, that we know to be in the research phase now but which we are 
fairly confident can be commercially applied by the rulemaking 
timeframe, and very confident by the end of the rulemaking timeframe. 
It is important to remember, however, that while the technological 
feasibility factor may encourage the agency to look toward more 
technology-forcing standards, and while this could certainly be 
appropriate given EPCA's overarching purpose of energy conservation 
depending on the rulemaking, that factor must also be balanced with the 
other of the four statutory factors. Thus, while ``technological 
feasibility'' can drive standards higher by assuming the use of 
technologies that are not yet commercial, ``maximum feasible'' is still 
also defined in terms of economic practicability, for example, which 
might caution the agency against basing standards (even fairly distant 
future standards) entirely on such technologies. By setting standards 
at levels consistent with an analysis that assumes the use of these 
nascent technologies at levels that seem reasonable, the agency 
believes a more reasonable balance is ensured. Nevertheless, as the 
``maximum feasible'' balancing may vary depending on the circumstances 
at hand for the model years in which the standards are set, the extent 
to which technological feasibility is simply met or plays a more 
dynamic role may also shift.
(2) Economic Practicability
    ``Economic practicability'' refers to whether a standard is one 
``within the financial capability of the industry, but not so stringent 
as to'' lead to ``adverse economic consequences, such as a significant 
loss of jobs or the unreasonable elimination of consumer choice.'' 
\709\ The agency has explained in the past that this factor can be 
especially important during rulemakings in which the automobile 
industry is facing significantly adverse economic conditions (with 
corresponding risks to jobs). Consumer acceptability is also an element 
of economic practicability, one which is particularly difficult to 
gauge during times of uncertain fuel prices.\710\

[[Page 75224]]

In a rulemaking such as the present one, looking out into the more 
distant future, economic practicability is a way to consider the 
uncertainty surrounding future market conditions and consumer demand 
for fuel economy in addition to other vehicle attributes. In an attempt 
to ensure the economic practicability of attribute-based standards, 
NHTSA considers a variety of factors, including the annual rate at 
which manufacturers can increase the percentage of their fleet that 
employ a particular type of fuel-saving technology, the specific fleet 
mixes of different manufacturers, and assumptions about the cost of the 
standards to consumers and consumers' valuation of fuel economy, among 
other things.
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    \709\ 67 FR 77015, 77021 (Dec. 16, 2002).
    \710\ See, e.g., Center for Auto Safety v. NHTSA (CAS), 793 F.2d 
1322 (DC Cir. 1986) (Administrator's consideration of market demand 
as component of economic practicability found to be reasonable); 
Public Citizen v. NHTSA, 848 F.2d 256 (Congress established broad 
guidelines in the fuel economy statute; agency's decision to set 
lower standard was a reasonable accommodation of conflicting 
policies).
---------------------------------------------------------------------------

    At the same time, however, the law does not preclude a CAFE 
standard that poses considerable challenges to any individual 
manufacturer. The Conference Report for EPCA, as enacted in 1975, makes 
clear, and the case law affirms, ``(A) determination of maximum 
feasible average fuel economy should not be keyed to the single 
manufacturer which might have the most difficulty achieving a given 
level of average fuel economy.'' \711\ Instead, the agency is compelled 
``to weigh the benefits to the nation of a higher fuel economy standard 
against the difficulties of individual automobile manufacturers.'' 
\712\ The law permits CAFE standards exceeding the projected capability 
of any particular manufacturer as long as the standard is economically 
practicable for the industry as a whole. Thus, while a particular CAFE 
standard may pose difficulties for one manufacturer, it may also 
present opportunities for another. NHTSA has long held that the CAFE 
program is not necessarily intended to maintain the competitive 
positioning of each particular company. Rather, it is intended to 
enhance the fuel economy of the vehicle fleet on American roads, while 
protecting motor vehicle safety and being mindful of the risk to the 
overall United States economy.
---------------------------------------------------------------------------

    \711\ CEI-I, 793 F.2d 1322, 1352 (DC Cir. 1986).
    \712\ Id.
---------------------------------------------------------------------------

    Consequently, ``economic practicability'' must be considered in the 
context of the competing concerns associated with different levels of 
standards. Prior to the MY 2005-2007 rulemaking, the agency generally 
sought to ensure the economic practicability of standards in part by 
setting them at or near the capability of the ``least capable 
manufacturer'' with a significant share of the market, i.e., typically 
the manufacturer whose vehicles are, on average, the heaviest and 
largest. In the first several rulemakings establishing attribute-based 
standards, the agency applied marginal cost benefit analysis. This 
ensured that the agency's application of technologies was limited to 
those that would pay for themselves and thus should have significant 
appeal to consumers. We note that for this rulemaking, the agency can 
and has limited its application of technologies to those that are 
projected to be cost-effective within the rulemaking time frame, with 
or without the use of such analysis.
    Whether the standards maximize net benefits has thus been a 
touchstone in the past for NHTSA's consideration of economic 
practicability. Executive Order 12866, as amended by Executive Order 
13563, states that agencies should ``select, in choosing among 
alternative regulatory approaches, those approaches that maximize net 
benefits * * *'' In practice, however, agencies, including NHTSA, must 
consider situations in which the modeling of net benefits does not 
capture all of the relevant considerations of feasibility. In this 
case, the NHTSA balancing of the statutory factors suggests that the 
maximum feasible stringency for this rulemaking points to another level 
besides the modeled net benefits maximum, and such a situation is well 
within the guidance provided by EO's 12866 and 13563.\713\
---------------------------------------------------------------------------

    \713\ See 70 FR at 51435 (Aug. 30, 2005); CBD v. NHTSA, 538 F.3d 
at 1197 (9th Cir. 2008).
---------------------------------------------------------------------------

    The agency's consideration of economic practicability depends on a 
number of factors. Expected availability of capital to make investments 
in new technologies matters; manufacturers' expected ability to sell 
vehicles with new technologies matters; likely consumer choices matter; 
and so forth. NHTSA's analysis of the impacts of this rulemaking does 
incorporate assumptions to capture aspects of consumer preferences, 
vehicle attributes, safety, and other factors relevant to an impact 
estimate; however, it is difficult to capture every such constraint. 
Therefore, it is well within the agency's discretion to deviate from a 
modeled net benefits maximum in the face of evidence of economic 
impracticability, and if the agency concludes that the modeled net 
benefits maximum would not represent the maximum feasible level for 
future CAFE standards. Economic practicability is a complex factor, and 
like the other factors must also be considered in the context of the 
overall balancing and EPCA's overarching purpose of energy 
conservation. Depending on the conditions of the industry and the 
assumptions used in the agency's analysis of alternative stringencies, 
NHTSA could well find that standards that maximize net benefits, or 
that are higher or lower, could be economically practicable, and thus 
maximum feasible.
(3) The Effect of Other Motor Vehicle Standards of the Government on 
Fuel Economy
    ``The effect of other motor vehicle standards of the Government on 
fuel economy,'' involves an analysis of the effects of compliance with 
emission, safety, noise, or damageability standards on fuel economy 
capability and thus on average fuel economy. In previous CAFE 
rulemakings, the agency has said that pursuant to this provision, it 
considers the adverse effects of other motor vehicle standards on fuel 
economy. It said so because, from the CAFE program's earliest years 
\714\ until present, the effects of such compliance on fuel economy 
capability over the history of the CAFE program have been negative 
ones. In those instances in which the effects are negative, NHTSA has 
said that it is called upon to ``mak[e] a straightforward adjustment to 
the fuel economy improvement projections to account for the impacts of 
other Federal standards, principally those in the areas of emission 
control, occupant safety, vehicle damageability, and vehicle noise. 
However, only the unavoidable consequences should be accounted for. The 
automobile manufacturers must be expected to adopt those feasible 
methods of achieving compliance with other Federal standards which 
minimize any adverse fuel economy effects of those standards.'' \715\ 
For example, safety standards that have the effect of increasing 
vehicle weight lower vehicle fuel economy capability and thus decrease 
the level of average fuel economy that the agency can determine to be 
feasible.
---------------------------------------------------------------------------

    \714\ 42 FR 63184, 63188 (Dec. 15, 1977). See also 42 FR 33534, 
33537 (Jun. 30, 1977).
    \715\ 42 FR 33534, 33537 (Jun. 30, 1977).
---------------------------------------------------------------------------

    The ``other motor vehicle standards'' consideration has thus in 
practice functioned in a fashion similar to the provision in EPCA, as 
originally enacted, for adjusting the statutorily-specified CAFE 
standards for MY 1978-1980 passengers cars.\716\ EPCA did not permit 
NHTSA to amend those standards based on a finding that the maximum 
feasible level of average fuel economy for any of those three years was 
greater or less than the standard

[[Page 75225]]

specified for that year. Instead, it provided that the agency could 
only reduce the standards and only on one basis: if the agency found 
that there had been a Federal standards fuel economy reduction, i.e., a 
reduction in fuel economy due to changes in the Federal vehicle 
standards, e.g., emissions and safety, relative to the year of 
enactment, 1975.
---------------------------------------------------------------------------

    \716\ That provision was deleted as obsolete when EPCA was 
codified in 1994.
---------------------------------------------------------------------------

    The ``other motor vehicle standards'' provision is broader than the 
Federal standards fuel economy reduction provision. Although the 
effects analyzed to date under the ``other motor vehicle standards'' 
provision have been negative, there could be circumstances in which the 
effects are positive. In the event that the agency encountered such 
circumstances, it would be required to consider those positive effects. 
For example, if changes in vehicle safety technology led to NHTSA's 
amending a safety standard in a way that permits manufacturers to 
reduce the weight added in complying with that standard, that weight 
reduction would increase vehicle fuel economy capability and thus 
increase the level of average fuel economy that could be determined to 
be feasible.
    In the wake of Massachusetts v. EPA and of EPA's endangerment 
finding, granting of a waiver to California for its motor vehicle GHG 
standards, and its own establishment of GHG standards, NHTSA is 
confronted with the issue of how to treat those standards under EPCA/
EISA, such as in the context of the ``other motor vehicle standards'' 
provision. To the extent the GHG standards result in increases in fuel 
economy, they would do so almost exclusively as a result of inducing 
manufacturers to install the same types of technologies used by 
manufacturers in complying with the CAFE standards.
    Comment is requested on whether and in what way the effects of the 
California and EPA standards should be considered under EPCA/EISA, 
e.g., under the ``other motor vehicle standards'' provision, consistent 
with NHTSA's independent obligation under EPCA/EISA to issue CAFE 
standards. The agency has already considered EPA's proposal and the 
harmonization benefits of the National Program in developing its own 
proposal.
(4) The Need of the United States To Conserve Energy
    ``The need of the United States to conserve energy'' means ``the 
consumer cost, national balance of payments, environmental, and foreign 
policy implications of our need for large quantities of petroleum, 
especially imported petroleum.'' \717\ Environmental implications 
principally include those associated with reductions in emissions of 
criteria pollutants and CO2. A prime example of foreign 
policy implications are energy independence and energy security 
concerns.
---------------------------------------------------------------------------

    \717\ 42 FR 63184, 63188 (1977).
---------------------------------------------------------------------------

(a) Fuel Prices and the Value of Saving Fuel
    Projected future fuel prices are a critical input into the 
preliminary economic analysis of alternative CAFE standards, because 
they determine the value of fuel savings both to new vehicle buyers and 
to society, which is related to the consumer cost (or rather, benefit) 
of our need for large quantities of petroleum. In this rule, NHTSA 
relies on fuel price projections from the U.S. Energy Information 
Administration's (EIA) most recent Annual Energy Outlook (AEO) for this 
analysis. Federal government agencies generally use EIA's projections 
in their assessments of future energy-related policies.
(b) Petroleum Consumption and Import Externalities
    U.S. consumption and imports of petroleum products impose costs on 
the domestic economy that are not reflected in the market price for 
crude petroleum, or in the prices paid by consumers of petroleum 
products such as gasoline. These costs include (1) Higher prices for 
petroleum products resulting from the effect of U.S. oil import demand 
on the world oil price; (2) the risk of disruptions to the U.S. economy 
caused by sudden reductions in the supply of imported oil to the U.S.; 
and (3) expenses for maintaining a U.S. military presence to secure 
imported oil supplies from unstable regions, and for maintaining the 
strategic petroleum reserve (SPR) to provide a response option should a 
disruption in commercial oil supplies threaten the U.S. economy, to 
allow the United States to meet part of its International Energy Agency 
obligation to maintain emergency oil stocks, and to provide a national 
defense fuel reserve. Higher U.S. imports of crude oil or refined 
petroleum products increase the magnitude of these external economic 
costs, thus increasing the true economic cost of supplying 
transportation fuels above the resource costs of producing them. 
Conversely, reducing U.S. imports of crude petroleum or refined fuels 
or reducing fuel consumption can reduce these external costs.
(c) Air Pollutant Emissions
    While reductions in domestic fuel refining and distribution that 
result from lower fuel consumption will reduce U.S. emissions of 
various pollutants, additional vehicle use associated with the rebound 
effect \718\ from higher fuel economy will increase emissions of these 
pollutants. Thus, the net effect of stricter CAFE standards on 
emissions of each pollutant depends on the relative magnitudes of its 
reduced emissions in fuel refining and distribution, and increases in 
its emissions from vehicle use.\719\ Fuel savings from stricter CAFE 
standards also result in lower emissions of CO2, the main 
greenhouse gas emitted as a result of refining, distribution, and use 
of transportation fuels. Reducing fuel consumption reduces carbon 
dioxide emissions directly, because the primary source of 
transportation-related CO2 emissions is fuel combustion in 
internal combustion engines.
---------------------------------------------------------------------------

    \718\ The ``rebound effect'' refers to the tendency of drivers 
to drive their vehicles more as the cost of doing so goes down, as 
when fuel economy improves.
    \719\ See Section IV.G below for NHTSA's evaluation of this 
effect.
---------------------------------------------------------------------------

    NHTSA has considered environmental issues, both within the context 
of EPCA and the National Environmental Policy Act, in making decisions 
about the setting of standards from the earliest days of the CAFE 
program. As courts of appeal have noted in three decisions stretching 
over the last 20 years,\720\ NHTSA defined the ``need of the Nation to 
conserve energy'' in the late 1970s as including ``the consumer cost, 
national balance of payments, environmental, and foreign policy 
implications of our need for large quantities of petroleum, especially 
imported petroleum.'' \721\ In 1988, NHTSA included climate change 
concepts in its CAFE notices and prepared its first environmental 
assessment addressing that subject.\722\ It cited concerns about 
climate change as one of its reasons for limiting the extent of its 
reduction of the CAFE standard for MY 1989 passenger cars.\723\ Since 
then, NHTSA has considered the benefits of reducing tailpipe carbon 
dioxide emissions in its fuel economy

[[Page 75226]]

rulemakings pursuant to the statutory requirement to consider the 
nation's need to conserve energy by reducing fuel consumption.
---------------------------------------------------------------------------

    \720\ Center for Auto Safety v. NHTSA, 793 F.2d 1322, 1325 n. 12 
(DC Cir. 1986); Public Citizen v. NHTSA, 848 F.2d 256, 262-3 n. 27 
(DC Cir. 1988) (noting that ``NHTSA itself has interpreted the 
factors it must consider in setting CAFE standards as including 
environmental effects''); and Center for Biological Diversity v. 
NHTSA, 538 F.3d 1172 (9th Cir. 2007).
    \721\ 42 FR 63184, 63188 (Dec. 15, 1977) (emphasis added).
    \722\ 53 FR 33080, 33096 (Aug. 29, 1988).
    \723\ 53 FR 39275, 39302 (Oct. 6, 1988).
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ii. Other Factors Considered by NHTSA
    The agency historically has considered the potential for adverse 
safety consequences in setting CAFE standards. This practice is 
recognized approvingly in case law. As the courts have recognized, 
``NHTSA has always examined the safety consequences of the CAFE 
standards in its overall consideration of relevant factors since its 
earliest rulemaking under the CAFE program.'' Competitive Enterprise 
Institute v. NHTSA, 901 F.2d 107, 120 n. 11 (DC Cir. 1990) (``CEI I'') 
(citing 42 FR 33534, 33551 (June 30, 1977)). The courts have 
consistently upheld NHTSA's implementation of EPCA in this manner. See, 
e.g., Competitive Enterprise Institute v. NHTSA, 956 F.2d 321, 322 (DC 
Cir. 1992) (``CEI II'') (in determining the maximum feasible fuel 
economy standard, ``NHTSA has always taken passenger safety into 
account.'') (citing CEI I, 901 F.2d at 120 n. 11); Competitive 
Enterprise Institute v. NHTSA, 45 F.3d 481, 482-83 (DC Cir. 1995) 
(``CEI III'') (same); Center for Biological Diversity v. NHTSA, 538 
F.3d 1172, 1203-04 (9th Cir. 2008) (upholding NHTSA's analysis of 
vehicle safety issues associated with weight in connection with the MY 
2008-11 light truck CAFE rule). Thus, in evaluating what levels of 
stringency would result in maximum feasible standards, NHTSA assesses 
the potential safety impacts and considers them in balancing the 
statutory considerations and to determine the maximum feasible level of 
the standards.
    Under the universal or ``flat'' CAFE standards that NHTSA was 
previously authorized to establish, manufacturers were encouraged to 
respond to higher standards by building smaller, less safe vehicles in 
order to ``balance out'' the larger, safer vehicles that the public 
generally preferred to buy, which resulted in a higher mass 
differential between the smallest and the largest vehicles, with a 
correspondingly greater risk to safety. Under the attribute-based 
standards being proposed today, that risk is reduced because building 
smaller vehicles would tend to raise a manufacturer's overall CAFE 
obligation, rather than only raising its fleet average CAFE, and 
because all vehicles are required to continue improving their fuel 
economy. In prior rulemakings, NHTSA limited the application of mass 
reduction in our modeling analysis to vehicles over 5,000 lbs 
GVWR,\724\ but for purposes of today's proposed standards, NHTSA has 
revised its modeling analysis to allow some application of mass 
reduction for most types of vehicles, although it is concentrated in 
the largest and heaviest vehicles, because we believe that this is more 
consistent with how manufacturers will actually respond to the 
standards. However, as discussed above, NHTSA does not mandate the use 
of any particular technology by manufacturers in meeting the standards. 
More information on the approach to modeling manufacturer use of mass 
reduction is available in Chapter 3 of the draft Joint TSD and in 
Section V of the PRIA; and the estimated safety impacts that may be due 
to the proposed MY 2017-2025 CAFE standards are described in section 
IV.G below.
---------------------------------------------------------------------------

    \724\ See 74 FR 14396-14407 (Mar. 30, 2009).
---------------------------------------------------------------------------

    iii. Factors That NHTSA Is Prohibited From Considering
    EPCA also provides that in determining the level at which it should 
set CAFE standards for a particular model year, NHTSA may not consider 
the ability of manufacturers to take advantage of several EPCA 
provisions that facilitate compliance with the CAFE standards and 
thereby reduce the costs of compliance.\725\ As discussed further 
below, manufacturers can earn compliance credits by exceeding the CAFE 
standards and then use those credits to achieve compliance in years in 
which their measured average fuel economy falls below the standards. 
Manufacturers can also increase their CAFE levels through MY 2019 by 
producing alternative fuel vehicles. EPCA provides an incentive for 
producing these vehicles by specifying that their fuel economy is to be 
determined using a special calculation procedure that results in those 
vehicles being assigned a high fuel economy level.
---------------------------------------------------------------------------

    \725\ 49 U.S.C. 32902(h).
---------------------------------------------------------------------------

    The effect of the prohibitions against considering these statutory 
flexibilities in setting the CAFE standards is that the flexibilities 
remain voluntarily-employed measures. If the agency were instead to 
assume manufacturer use of those flexibilities in setting new 
standards, that assumption would result in higher standards and thus 
tend to require manufacturers to use those flexibilities. By keeping 
NHTSA from including them in our stringency determination, the 
provision ensures that the statutory credits remain described above 
remain true compliance flexibilities.
    On the other hand, NHTSA does not believe that flexibilities other 
than those expressly identified in EPCA are similarly prohibited from 
being included in the agency's determination of what standards would be 
maximum feasible. In order to better meet EPCA's overarching purpose of 
energy conservation, the agency is therefore considering manufacturers' 
ability to increase the calculated fuel economy levels of their 
vehicles through A/C efficiency improvements, as proposed by EPA, in 
the proposed CAFE stringency levels for passenger cars and light trucks 
for MYs 2017-2025. NHTSA would similarly consider manufacturers' 
ability to raise their fuel economy using off-cycle technologies as 
potentially relevant to our determination of maximum feasible CAFE 
standards, but because we and EPA do not believe that we can yet 
reasonably predict an average amount by which manufacturers will take 
advantage of this opportunity, it did not seem reasonable for the 
proposed standards to include it in our stringency determination at 
this time. We expect to re-evaluate whether and how to include off-
cycle credits in determining maximum feasible standards as the off-
cycle technologies and how manufacturers may be expected to employ them 
become better defined in the future.
    Additionally, because we interpret the prohibition against 
including the defined statutory credits in our determination of maximum 
feasible standards as applying only to the flexibilities expressly 
identified in 49 U.S.C. 32902(h), NHTSA must, for the first time in 
this rulemaking, determine how to consider the fuel economy of dual-
fueled automobiles after the statutory credit sunsets in MY 2019. Once 
there is no statutory credit to protect as a compliance flexibility, it 
does not seem reasonable to NHTSA to continue to interpret the statute 
as prohibiting the agency from setting maximum feasible levels at a 
higher standard, if possible, by considering the fuel economy of dual-
fueled automobiles as measured by EPA. The overarching purpose of EPCA 
is better served by interpreting 32902(h)(2) as moot once the statutory 
credits provided for in 49 U.S.C. 32905 and 32906 have expired.
    49 U.S.C. 32905(b) and (d) states that the special fuel economy 
measurement prescribed by Congress for dual-fueled automobiles applies 
only ``in model years 1993 through 2019.'' 49 U.S.C. 32906(a) also 
provides that the section 32905 calculation will sunset in 2019, as 
evidenced by the phase-out of the

[[Page 75227]]

allowable increase due to that credit; it is clear that the phase-out 
of the allowable increase in a manufacturer's CAFE levels due to use of 
dual-fueled automobiles relates only to the special statutory 
calculation (and not to other ways of incorporating the fuel economy of 
dual-fueled automobiles into the manufacturer's fleet calculation) by 
virtue of language in section 32906(b), which states that ``in applying 
subsection (a) [i.e., the phasing out maximum increase], the 
Administrator of the Environmental Protection Agency shall determine 
the increase in a manufacturer's average fuel economy attributable to 
dual fueled automobiles by subtracting from the manufacturer's average 
fuel economy calculated under section 32905(e) the number equal to what 
the manufacturer's average fuel economy would be if it were calculated 
by the formula under section 32904(a)(1). * * * '' By referring back to 
the special statutory calculation, Congress makes clear that the phase-
out applies only to increases in fuel economy attributable to dual-
fueled automobiles due to the special statutory calculation in sections 
32905(b) and (d). Similarly, we interpret Congress' statement in 
section 32906(a)(7) that the maximum increase in fuel economy 
attributable to dual-fueled automobiles is ``0 miles per gallon for 
model years after 2019'' within the context of the introductory 
language of section 32906(a) and the language of section 32906(b), 
which, again, refers clearly to the statutory credit, and not to dual-
fueled automobiles generally. It would be an absurd result if the 
phase-out of the credit meant that manufacturers would be effectively 
penalized, in CAFE compliance, for building dual-fueled automobiles 
like plug-in hybrid electric vehicles, which may be important 
``bridge'' vehicles in helping consumers move toward full electric 
vehicles.
    NHTSA has therefore considered the fuel economy of plug-in hybrid 
electric vehicles (the only dual-fueled automobiles that we predict in 
significant numbers in MY 2020 and beyond; E85-capable FFVs are not 
predicted in great numbers after the statutory credit sunsets, and we 
do not have sufficient information about potential dual-fueled CNG/
gasoline vehicles to make reasonable estimates now of their numbers in 
that time frame in determining the maximum feasible level of the MY 
2020-2025 CAFE standards for passenger cars and light trucks.
iv. Determining the Level of the Standards by Balancing the Factors
    NHTSA has broad discretion in balancing the above factors in 
determining the appropriate levels of average fuel economy at which to 
set the CAFE standards for each model year. Congress ``specifically 
delegated the process of setting * * * fuel economy standards with 
broad guidelines concerning the factors that the agency must 
consider.'' \726\ The breadth of those guidelines, the absence of any 
statutorily prescribed formula for balancing the factors and other 
considerations, the fact that the relative weight to be given to the 
various factors may change from rulemaking to rulemaking as the 
underlying facts change, and the fact that the factors may often be 
conflicting with respect to whether they militate toward higher or 
lower standards give NHTSA broad discretion to decide what weight to 
give each of the competing policies and concerns and then determine how 
to balance them. The exercise of that discretion is subject to the 
necessity of ensuring that NHTSA's balancing does not undermine the 
fundamental purpose of EPCA, energy conservation,\727\ and as long as 
that balancing reasonably accommodates ``conflicting policies that were 
committed to the agency's care by the statute.'' \728\ The balancing of 
the factors in any given rulemaking is highly dependent on the factual 
and policy context of that rulemaking and the agency's assumptions 
about the factual and policy context during the time frame covered by 
the standards at issue. Given the changes over time in facts bearing on 
assessment of the various factors, such as those relating to economic 
conditions, fuel prices, and the state of climate change science, the 
agency recognizes that what was a reasonable balancing of competing 
statutory priorities in one rulemaking may or may not be a reasonable 
balancing of those priorities in another rulemaking.\729\ Nevertheless, 
the agency retains substantial discretion under EPCA to choose among 
reasonable alternatives.
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    \726\ Center for Auto Safety v. NHTSA, 793 F.2d 1322, 1341 
(C.A.D.C. 1986).
    \727\ Center for Biological Diversity v. NHTSA, 538 F.3d 1172, 
1195 (9th Cir. 2008).
    \728\ CAS, 1338 (quoting Chevron U.S.A., Inc. v. Natural 
Resources Defense Council, Inc., 467 U.S. 837, 845).
    \729\ CBD v. NHTSA, 538 F.3d 1172, 1198 (9th Cir. 2008).
---------------------------------------------------------------------------

    EPCA neither requires nor precludes the use of any type of cost-
benefit analysis as a tool to help inform the balancing process. As 
discussed above, while NHTSA used marginal cost-benefit analysis in the 
first two rulemakings to establish attribute-based CAFE standards, it 
was not required to do so and is not required to continue to do so. 
Regardless of what type of analysis is or is not used, considerations 
relating to costs and benefits remain an important part of CAFE 
standard setting.
    Because the relevant considerations and factors can reasonably be 
balanced in a variety of ways under EPCA, and because of uncertainties 
associated with the many technological and cost inputs, NHTSA considers 
a wide variety of alternative sets of standards, each reflecting 
different balancing of those policies and concerns, to aid it in 
discerning reasonable outcomes. Among the alternatives providing for an 
increase in the standards in this rulemaking, the alternatives range in 
stringency from a set of standards that increase, on average, 2 percent 
annually to a set of standards that increase, on average, 7 percent 
annually.
v. Other Standards
(1) Minimum Domestic Passenger Car Standard
    The minimum domestic passenger car standard was added to the CAFE 
program through EISA, when Congress gave NHTSA explicit authority to 
set universal standards for domestically-manufactured passenger cars at 
the level of 27.5 mpg or 92 percent of the average fuel economy of the 
combined domestic and import passenger car fleets in that model year, 
whichever was greater.\730\ This minimum standard was intended to act 
as a ``backstop,'' ensuring that domestically-manufactured passenger 
cars reached a given mpg level even if the market shifted in ways 
likely to reduce overall fleet mpg. Congress was silent as to whether 
the agency could or should develop similar backstop standards for 
imported passenger cars and light trucks. NHTSA has struggled with this 
question since EISA was enacted.
---------------------------------------------------------------------------

    \730\ 49 U.S.C. 32902(b)(4).
---------------------------------------------------------------------------

    NHTSA has proposed minimum standards for domestically-manufactured 
passenger cars in Section IV.E below, but we also seek comment on 
whether to consider, for the final rule, the possibility of minimum 
standards for imported passenger cars and light trucks. Although we are 
not proposing such standards, we believe it may be prudent to explore 
this concept again given the considerable amount of time between now 
and 2017-2025 (particularly the later years), and the accompanying 
uncertainty in our market forecast and other assumptions,

[[Page 75228]]

that might make such minimum standards relevant to help ensure that 
currently-expected fuel economy improvements occur during that time 
frame. To help commenters' consideration of this question, Section IV.E 
presents illustrative levels of minimum standards for those other 
fleets.
    The minimum domestic passenger car standard was added to the CAFE 
program through EISA, when Congress gave NHTSA explicit authority to 
set universal standards for domestically-manufactured passenger cars at 
the level explained above. This minimum standard was intended to act as 
a ``backstop,'' ensuring that domestically-manufactured passenger cars 
reached a given mpg level even if the market shifted in ways likely to 
reduce overall fleet mpg. Congress was silent as to whether the agency 
could or should develop similar backstop standards for imported 
passenger cars and light trucks. NHTSA has struggled with this question 
since EISA was enacted.
    In the MY 2011 final rule, facing comments split fairly evenly 
between support and opposition to additional backstop standards, NHTSA 
noted Congress' silence with respect to minimum standards for imported 
passenger cars and light trucks and ``accept[ed] at least the 
possibility that * * * [it] could be reasonably interpreted as 
permissive rather than restrictive,'' but concluded based on the record 
for that rulemaking as a whole that additional minimum standards were 
not necessary for MY 2011, given the lack of leadtime for manufacturers 
to change their MY 2011 vehicles, the apparently-growing public 
preference for smaller vehicles, and the anti-backsliding 
characteristics of the footprint-based curves.\731\
---------------------------------------------------------------------------

    \731\ 74 FR at 14412 (Mar. 30, 2009).
---------------------------------------------------------------------------

    In the MYs 2012-2016 final rule where NHTSA declined to set minimum 
standards for imported passenger cars and light trucks, the agency did 
so not because we believed that we did not have authority to do so, but 
because we believed that our assumptions about the future fleet mix 
were reliable within the rulemaking time frame, and that backsliding 
was very unlikely and would not be sufficient to warrant the regulatory 
burden of additional minimum standards for those fleets.\732\ NHTSA 
also expressed concern about the possibility of additional minimum 
standards imposing inequitable regulatory burdens of the kind that 
attribute-based standards sought to avoid, stating that:
---------------------------------------------------------------------------

    \732\ 75 FR 25324, at 25368-70 (May 7, 2010).

    Unless the backstop was at a very weak level, above the high end 
of this range, then some percentage of manufacturers would be above 
the backstop even if the performance of the entire industry remains 
fully consistent with the emissions and fuel economy levels 
projected for the final standards. For these manufacturers and any 
other manufacturers who were above the backstop, the objectives of 
an attribute-based standard would be compromised and unnecessary 
costs would be imposed. This could directionally impose increased 
costs for some manufacturers. It would be difficult if not 
impossible to establish the level of a backstop standard such that 
costs are likely to be imposed on manufacturers only when there is a 
failure to achieve the projected reductions across the industry as a 
whole. An example of this kind of industry-wide situation could be 
when there is a significant shift to larger vehicles across the 
industry as a whole, or if there is a general market shift from cars 
to trucks. The problem the agencies are concerned about in those 
circumstances is not with respect to any single manufacturer, but 
rather is based on concerns over shifts across the fleet as a whole, 
as compared to shifts in one manufacturer's fleet that may be more 
than offset by shifts the other way in another manufacturer's fleet. 
However, in this respect, a traditional backstop acts as a 
manufacturer-specific standard.\733\
---------------------------------------------------------------------------

    \733\ Id. at 25369.

    NHTSA continues to believe that the risk of additional minimum 
standards imposing inequitable regulatory burdens on certain 
manufacturers is real, but at the same time, we recognize that given 
the time frame of the current rulemaking, the agency cannot be as 
certain about the unlikelihood of future market changes. Depending on 
the price of fuel and consumer preferences, the ``kind of industry-wide 
situation'' described in the MYs 2012-2016 rule is possible in the 
2017-2025 time frame, particularly in the later years.
    Because the agency does not have sufficient information at this 
time regarding what tradeoffs might be associated with additional 
minimum standards, specifically, whether the risk of backsliding during 
MYs 2017-2025 sufficiently outweighs the possibility of imposing 
inequitable regulatory burdens on certain manufacturers, we are seeking 
comment in this NPRM on these issues but not proposing additional 
minimum standards at this time. We also seek comment on how to 
structure additional minimum standards (e.g., whether they should be 
flat or attribute-based, and if the latter, how that would work), and 
at what level additional minimum standards should potentially be set. 
The tables in Section IV.E provide an illustration of what levels the 
additional minimum standards would require if the agency followed the 
same 92 percent guideline required by EISA for domestically-
manufactured passenger cars.
(2) Alternative Standards for Certain Manufacturers
    Because EPCA states that standards must be set for `` * * * 
automobiles manufactured by manufacturers,'' and because Congress 
provided specific direction on how small-volume manufacturers could 
obtain exemptions from the passenger car standards, NHTSA has long 
interpreted its authority as pertaining to setting standards for the 
industry as a whole. Prior to this NPRM, some manufacturers raised with 
NHTSA the possibility of NHTSA and EPA setting alternate standards for 
part of the industry that met certain (relatively low) sales volume 
criteria--specifically, that separate standards be set so that 
``intermediate-size,'' limited-line manufacturers do not have to meet 
the same levels of stringency that larger manufacturers have to meet 
until several years later. These manufacturers argued that the same 
level of standards would not be technologically feasible or 
economically practicable in the same time frame for them, due to their 
inability to spread compliance burden across a larger product lineup, 
and difficulty in obtaining fuel economy-improving technologies quickly 
from suppliers. NHTSA seeks comment on whether or how EPCA, as amended 
by EISA, could be interpreted to allow such alternate standards for 
certain parts of the industry.
2. Administrative Procedure Act
    To be upheld under the ``arbitrary and capricious'' standard of 
judicial review in the APA, an agency rule must be rational, based on 
consideration of the relevant factors, and within the scope of the 
authority delegated to the agency by the statute. The agency must 
examine the relevant data and articulate a satisfactory explanation for 
its action including a ``rational connection between the facts found 
and the choice made.'' Burlington Truck Lines, Inc. v. United States, 
371 U.S. 156, 168 (1962).
    Statutory interpretations included in an agency's rule are 
subjected to the two-step analysis of Chevron, U.S.A., Inc. v. Natural 
Resources Defense Council, 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 
(1984). Under step one, where a statute ``has directly spoken to the 
precise question at issue,'' id. at 842, 104 S.Ct. 2778, the court and 
the agency ``must give effect to the unambiguously

[[Page 75229]]

expressed intent of Congress,'' id. at 843, 104 S.Ct. 2778. If the 
statute is silent or ambiguous regarding the specific question, the 
court proceeds to step two and asks ``whether the agency's answer is 
based on a permissible construction of the statute.'' Id.
    If an agency's interpretation differs from the one that it has 
previously adopted, the agency need not demonstrate that the prior 
position was wrong or even less desirable. Rather, the agency would 
need only to demonstrate that its new position is consistent with the 
statute and supported by the record, and acknowledge that this is a 
departure from past positions. The Supreme Court emphasized this 
recently in FCC v. Fox Television, 129 S.Ct. 1800 (2009). When an 
agency changes course from earlier regulations, ``the requirement that 
an agency provide reasoned explanation for its action would ordinarily 
demand that it display awareness that it is changing position,'' but 
``need not demonstrate to a court's satisfaction that the reasons for 
the new policy are better than the reasons for the old one; it suffices 
that the new policy is permissible under the statute, that there are 
good reasons for it, and that the agency believes it to be better, 
which the conscious change of course adequately indicates.'' \734\ The 
APA also requires that agencies provide notice and comment to the 
public when proposing regulations,\735\ as we are doing here today.
---------------------------------------------------------------------------

    \734\ Ibid., 1181.
    \735\ 5 U.S.C. 553.
---------------------------------------------------------------------------

3. National Environmental Policy Act
    As discussed above, EPCA requires the agency to determine what 
level at which to set the CAFE standards for each model year by 
considering the four factors of technological feasibility, economic 
practicability, the effect of other motor vehicle standards of the 
Government on fuel economy, and the need of the United States to 
conserve energy. NEPA directs that environmental considerations be 
integrated into that process. To accomplish that purpose, NEPA requires 
an agency to compare the potential environmental impacts of its 
proposed action to those of a reasonable range of alternatives.
    To explore the environmental consequences in depth, NHTSA has 
prepared a draft environmental impact statement (``EIS''). The purpose 
of an EIS is to ``provide full and fair discussion of significant 
environmental impacts and [to] inform decisionmakers and the public of 
the reasonable alternatives which would avoid or minimize adverse 
impacts or enhance the quality of the human environment.'' 40 CFR 
1502.1.
    NEPA is ``a procedural statute that mandates a process rather than 
a particular result.'' Stewart Park & Reserve Coal., Inc. v. Slater, 
352 F.3d at 557. The agency's overall EIS-related obligation is to 
``take a `hard look' at the environmental consequences before taking a 
major action.'' Baltimore Gas & Elec. Co. v. Natural Res. Def. Council, 
Inc., 462 U.S. 87, 97, 103 S.Ct. 2246, 76 L.Ed.2d 437 (1983). 
Significantly, ``[i]f the adverse environmental effects of the proposed 
action are adequately identified and evaluated, the agency is not 
constrained by NEPA from deciding that other values outweigh the 
environmental costs.'' Robertson v. Methow Valley Citizens Council, 490 
U.S. 332, 350, 109 S.Ct. 1835, 104 L.Ed.2d 351 (1989).
    The agency must identify the ``environmentally preferable'' 
alternative, but need not adopt it. ``Congress in enacting NEPA * * * 
did not require agencies to elevate environmental concerns over other 
appropriate considerations.'' Baltimore Gas and Elec. Co. v. Natural 
Resources Defense Council, Inc., 462 U.S. 87, 97 (1983). Instead, NEPA 
requires an agency to develop alternatives to the proposed action in 
preparing an EIS. 42 U.S.C. 4332(2)(C)(iii). The statute does not 
command the agency to favor an environmentally preferable course of 
action, only that it make its decision to proceed with the action after 
taking a hard look at environmental consequences.

E. What are the proposed CAFE standards?

1. Form of the Standards
    Each of the CAFE standards that NHTSA is proposing today for 
passenger cars and light trucks is expressed as a mathematical function 
that defines a fuel economy target applicable to each vehicle model 
and, for each fleet, establishes a required CAFE level determined by 
computing the sales-weighted harmonic average of those targets.\736\
---------------------------------------------------------------------------

    \736\ Required CAFE levels shown here are estimated required 
levels based on NHTSA's current projection of manufacturers' vehicle 
fleets in MYs 2017-2025. Actual required levels are not determined 
until the end of each model year, when all of the vehicles produced 
by a manufacturer in that model year are known and their compliance 
obligation can be determined with certainty. The target curves, as 
defined by the constrained linear function, and as embedded in the 
function for the sales-weighted harmonic average, are the real 
``standards'' being proposed today.
---------------------------------------------------------------------------

    As discussed above in Section II.C, NHTSA has determined passenger 
car fuel economy targets using a constrained linear function defined 
according to the following formula:
[GRAPHIC] [TIFF OMITTED] TP01DE11.180

    Here, TARGET is the fuel economy target (in mpg) applicable to 
vehicles of a given footprint (FOOTPRINT, in square feet), b and a are 
the function's lower and upper asymptotes (also in mpg), respectively, 
c is the slope (in gallons per mile per square foot) of the sloped 
portion of the function, and d is the intercept (in gallons per mile) 
of the sloped portion of the function (that is, the value the sloped 
portion would take if extended to a footprint of 0 square feet). The 
MIN and MAX functions take the minimum and maximum, respectively of the 
included values.
    NHTSA is proposing, consistent with the standards for MYs 2011-
2016, that the CAFE level required of any given manufacturer be 
determined by calculating the production-weighted harmonic average of 
the fuel economy targets applicable to each vehicle model:
[GRAPHIC] [TIFF OMITTED] TP01DE11.181

    PRODUCTIONi is the number of units produced for sale in 
the United States of each i\th\ unique footprint within each model 
type, produced for sale in the United States, and TARGETi is 
the corresponding fuel economy target (according to the equation shown 
above and based on the corresponding

[[Page 75230]]

footprint), and the summations in the numerator and denominator are 
both performed over all unique footprint and model type combinations in 
the fleet in question.
    The proposed standards for passenger cars are, therefore, specified 
by the four coefficients defining fuel economy targets:
a = upper limit (mpg)
b = lower limit (mpg)
c = slope (gallon per mile per square foot)
d = intercept (gallon per mile)

    For light trucks, NHTSA is proposing to define fuel economy targets 
in terms of a mathematical function under which the target is the 
maximum of values determined under each of two constrained linear 
functions. The second of these establishes a ``floor'' reflecting the 
MY 2016 standard, after accounting for estimated adjustments reflecting 
increased air conditioner efficiency. This prevents the target at any 
footprint from declining between model years. The resultant 
mathematical function is as follows:
[GRAPHIC] [TIFF OMITTED] TP01DE11.182

    The proposed standards for light trucks are, therefore, specified 
by the eight coefficients defining fuel economy targets:

a = upper limit (mpg)
b = lower limit (mpg)
c = slope (gallon per mile per square foot)
d = intercept (gallon per mile)
e = upper limit (mpg) of ``floor''
f = lower limit (mpg) of ``floor''
g = slope (gallon per mile per square foot) of ``floor''
h = intercept (gallon per mile) of ``floor''
2. Passenger Car Standards for MYs 2017-2025
    For passenger cars, NHTSA is proposing CAFE standards defined by 
the following coefficients during MYs 2017-2025:
[GRAPHIC] [TIFF OMITTED] TP01DE11.183

    For reference, the coefficients defining the MYs 2012-2016 
passenger car standards are also provided below:
[GRAPHIC] [TIFF OMITTED] TP01DE11.184


[[Page 75231]]


    Also for reference, the following table presents the coefficients 
based on 2-cycle CAFE only for easier comparison to the MYs 2012-2016 
coefficients presented above. We emphasize, again, that the 
coefficients in Table IV-11 define the proposed standards.
[GRAPHIC] [TIFF OMITTED] TP01DE11.185

    Section II.C above and Chapter 2 of the draft Joint TSD discusses 
how the coefficients in Table IV-11 were developed for this proposed 
rule. The proposed coefficients result in the footprint-dependent 
targets shown graphically below for MYs 2017-2025. The MY 2012-2016 
final standards are also shown for comparison.
BILLING CODE 4910-59-P

[[Page 75232]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.186

    As discussed, the CAFE levels ultimately required of individual 
manufacturers will depend on the mix of vehicles they produce for sale 
in the United States. Based on the market forecast of future sales that 
NHTSA has used to examine today's proposed CAFE standards, the agency 
currently estimates that the target curves shown above will result in 
the following average required fuel economy levels for individual 
manufacturers during MYs 2017-2025 (an updated estimate of the average 
required fuel economy level under the final MY 2016 standard is also 
shown for comparison): \737\
---------------------------------------------------------------------------

    \737\ In the May 2010 final rule establishing MY 2016 standards 
for passenger cars and light trucks, NHTSA estimated that the 
required fuel economy levels for passenger cars would average 37.8 
mpg under the MY 2016 passenger car standard. Based on the agency's 
current forecast of the MY 2016 passenger car market, NHTSA again 
estimates that the average required fuel economy level for passenger 
cars will be 37.8 mpg in MY 2016.
    \738\ For purposes of CAFE compliance, ``Chrysler/Fiat'' is 
assumed to include Ferrari and Maserati in addition to the larger-
volume Chrysler and Fiat brands.

---------------------------------------------------------------------------

[[Page 75233]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.187


[[Page 75234]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.188

    Because a manufacturer's required average fuel economy level for a 
model year under the final standards will be based on its actual 
production numbers in that model year, its official required fuel 
economy level will not be known until the end of that model year. 
However, because the targets for each vehicle footprint will be 
established in advance of the model year, a manufacturer should be able 
to estimate its required level accurately. Readers should remember that 
the mpg levels describing the ``estimated required standards'' shown 
throughout this section are not necessarily the ultimate mpg level with 
which manufacturers will have to comply, for the reasons explained 
above, and that the mpg level designated as ``estimated required'' is 
exactly that, an estimate.
---------------------------------------------------------------------------

    \739\ For purposes of CAFE compliance, VW is assumed to include 
Audi-Bentley, Bugatti, and Lamborghini, along with the larger-volume 
VW brand.
---------------------------------------------------------------------------

    Additionally, again for reference, the following table presents 
estimated mpg levels based on 2-cycle CAFE for easier comparison to the 
MYs 2012-2016 standards.

[[Page 75235]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.189

3. Minimum Domestic Passenger Car Standards
    EISA expressly requires each manufacturer to meet a minimum fuel 
economy standard for domestically manufactured passenger cars in 
addition to meeting the standards set by NHTSA. According to the 
statute (49 U.S.C. 32902(b)(4)), the minimum standard shall be the 
greater of (A) 27.5 miles per gallon; or (B) 92 percent of the average 
fuel economy projected by the Secretary for the combined domestic and 
nondomestic passenger automobile fleets manufactured for sale in the 
United States by all manufacturers in

[[Page 75236]]

the model year. The agency must publish the projected minimum standards 
in the Federal Register when the passenger car standards for the model 
year in question are promulgated. As a practical matter, as standards 
for both cars and trucks continue to rise over time, 49 U.S.C. 
32902(b)(4)(A) will likely eventually cease to be relevant.
---------------------------------------------------------------------------

    \740\ For purposes of CAFE compliance, ``Chrysler/Fiat'' is 
assumed to include Ferrari and Maserati in addition to the larger-
volume Chrysler and Fiat brands.
    \741\ For purposes of CAFE compliance, VW is assumed to include 
Audi-Bentley, Bugatti, and Lamborghini, along with the larger-volume 
VW brand.
---------------------------------------------------------------------------

    As discussed in the final rule establishing the MYs 2012-2016 CAFE 
standards, because 49 U.S.C. 32902(b)(4)(B) states that the minimum 
domestic passenger car standard shall be 92 percent of the projected 
average fuel economy for the passenger car fleet, ``which projection 
shall be published in the Federal Register when the standard for that 
model year is promulgated in accordance with this section,'' NHTSA 
interprets EISA as indicating that the minimum domestic passenger car 
standard should be based on the agency's fleet assumptions when the 
passenger car standard for that year is promulgated.
    However, we note that we do not read this language to preclude any 
change, ever, in the minimum standard after it is first promulgated for 
a model year. As long as the 18-month lead-time requirement of 49 
U.S.C. 32902(a) is respected, NHTSA believes that the language of the 
statute suggests that the 92 percent should be determined anew any time 
the passenger car standards are revised. This issue will be 
particularly relevant for the current rulemaking, given the 
considerable leadtime involved and the necessity of a mid-term review 
for the MYs 2022-2025 standards. We seek comment on this 
interpretation, and on whether or not the agency should consider 
instead for MYs 2017-2025 designating the minimum domestic passenger 
car standards proposed here as ``estimated,'' just as the passenger car 
standards are ``estimated,'' and waiting until the end of each model 
year to finalize the 92 percent mpg value.
    We note also that in the MYs 2012-2016 final rule, we interpreted 
EISA as indicating that the 92 percent minimum standard should be based 
on the estimated required CAFE level rather than, as suggested by the 
Alliance, the estimated achieved CAFE level (which would likely be 
lower than the estimated required level if it reflected manufacturers' 
use of dual-fuel vehicle credits under 49 U.S.C. 32905, at least in the 
context of the MYs 2012-2016 standards). NHTSA continues to believe 
that this interpretation is appropriate.
    Based on NHTSA's current market forecast, the agency's estimates of 
these minimum standards under the proposed MYs 2017-2025 CAFE standards 
(and, for comparison, the final MY 2016 minimum domestic passenger car 
standard) are summarized below in Table IV-16.
[GRAPHIC] [TIFF OMITTED] TP01DE11.190

    Again, for the reader's reference, the following table the 
following table presents estimated mpg levels based on 2-cycle CAFE for 
easier comparison to the MYs 2012-2016 standards.
[GRAPHIC] [TIFF OMITTED] TP01DE11.191

    As discussed in Section IV.D above, NHTSA is also seeking comment 
on whether to consider, for the final rule, the possibility of minimum 
standards for imported passenger cars and light trucks. Although we are 
not proposing

[[Page 75237]]

such standards, we believe it may be prudent to explore this concept 
again given the considerable amount of time between now and 2017-2025 
(particularly the later years), and the accompanying uncertainty in our 
market forecast and other assumptions, that might make such minimum 
standards relevant to help ensure that currently-expected fuel economy 
improvements occur during that time frame. To help commenters' 
consideration of this question, illustrative levels of minimum 
standards for those other fleets are presented below.
[GRAPHIC] [TIFF OMITTED] TP01DE11.192

    NHTSA emphasizes again that we are not proposing additional minimum 
standards for imported passenger cars and light trucks at this time, 
but we may consider including them in the final rule if it seems 
reasonable and appropriate to do so based on the information provided 
by commenters and the agency's analysis. NHTSA also may wait until we 
are able to observe potential market changes during the implementation 
of the MYs 2012-2016 standards and consider additional minimum 
standards in a future rulemaking action. Any additional minimum 
standards for MYs 2022-2025 that may be set in the future would, like 
the primary standards, be subject to the mid-term review discussed in 
Section IV.B above, and potentially revised at that time.
4. Light Truck Standards
    For light trucks, NHTSA is proposing CAFE standards defined by the 
following coefficients during MYs 2017-2025:

[[Page 75238]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.193

    For reference, the coefficients defining the MYs 2012-2016 light 
truck standards (which did not include a ``floor'' term defined by 
coefficients e, f, g, and h) are also provided below:
[GRAPHIC] [TIFF OMITTED] TP01DE11.194

    The proposed coefficients result in the footprint-dependent targets 
shown graphically below for MYs 2017-2025. MYs 2012-2016 final 
standards are shown for comparison.
BILLING CODE 4910-59-9

[[Page 75239]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.195

BILLING CODE 4910-59-C
    Also for reference, the following table presents the coefficients 
based on2-cycle CAFE only for easier comparison to the MYs 2012-2016 
coefficients presented above. We emphasize, again, that the 
coefficients in Table IV-20 define the proposed standards.

[[Page 75240]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.196

    Again, given these targets, the CAFE levels required of individual 
manufacturers will depend on the mix of vehicles they produce for sale 
in the United States. Based on the market forecast NHTSA has used to 
examine today's proposed CAFE standards, the agency currently estimates 
that the targets shown above will result in the following average 
required fuel economy levels for individual manufacturers during MYs 
2017-2025 (an updated estimate of the average required fuel economy 
level under the final MY 2016 standard is shown for comparison): \742\
---------------------------------------------------------------------------

    \742\ In the May 2010 final rule establishing MYs 2012-2016 
standards for passenger cars and light trucks, NHTSA estimated that 
the required fuel economy levels for light trucks would average 28.8 
mpg under the MY 2016 light truck standard. Based on the agency's 
current forecast of the MY 2016 light truck market, NHTSA again 
estimates that the required fuel economy levels will average 28.8 
mpg in MY 2016. However, the agency's market forecast reflects less 
of a future market shift away from light trucks than reflected in 
the agency's prior market forecast; as a result, NHTSA currently 
estimates that the combined (i.e., passenger car and light truck) 
average required fuel economy in MY 2016 will be 33.8 mpg, 0.3 mpg 
lower than the agency's earlier estimate of 34.1 mpg. The agency has 
made no changes to MY 2016 standards and projects no changes in 
fleet-specific average requirements (although within-fleet market 
shifts could, under an attribute-based standard, produce such 
changes).
---------------------------------------------------------------------------

BILLING CODE 4910-59-P

[[Page 75241]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.197

BILLING CODE 4910-59-C
    As discussed above with respect to the proposed passenger cars 
standards, we note that a manufacturer's required light truck fuel 
economy level for a model year under the ultimate final standards will 
be based on its actual production numbers in that model year.
---------------------------------------------------------------------------

    \743\ For purposes of CAFE compliance, ``Chrysler/Fiat'' is 
assumed to include Ferrari and Maserati in addition to the larger-
volume Chrysler and Fiat brands.
    \744\ For purposes of CAFE compliance, VW is assumed to include 
Audi-Bentley, Bugatti, and Lamborghini, along with the larger-volume 
VW brand.
---------------------------------------------------------------------------

    Additionally, again for reference, the following table presents 
estimated mpg levels based on 2-cycle CAFE for easier comparison to the 
MYs 2012-2016 standards.
BILLING CODE 4910-59-P

[[Page 75242]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.198

BILLING CODE 4910-59-C

F. How do the proposed standards fulfill NHTSA's statutory obligations?

    The discussion that follows is necessarily complex, but the central 
points are straightforward. NHTSA has tentatively concluded that the 
standards presented above in Section IV.E are the maximum feasible 
standards for passenger cars and light trucks in MYs 2017-2025. EPCA/
EISA requires NHTSA to consider four statutory factors in determining 
the maximum feasible CAFE standards in a rulemaking: Specifically, 
technological

[[Page 75243]]

feasibility, economic practicability, the effect of other motor vehicle 
standards of the Government on fuel economy, and the need of the nation 
to conserve energy. The agency considered a number of regulatory 
alternatives in its analysis of potential CAFE standards for those 
model years, including several that increase stringency on average at 
set percentages each year, one that approximates the point at which the 
modeled net benefits are maximized in each model year, and one that 
approximates the point at which the modeled total costs equal total 
benefits in each model year. Some of those alternatives represent 
standards that would be more stringent than the proposed 
standards,\747\ and some are less stringent.\748\ As the discussion 
below explains, we tentatively conclude that the correct balancing of 
the relevant factors that the agency must consider in determining the 
maximum feasible standards recognizes economic practicability concerns 
as discussed below, and sets standards accordingly. We expect that the 
proposed standards will enable further research and development into 
the more advanced fuel economy-improving technologies, and enable 
significant fuel savings and environmental benefits throughout the 
program, with particularly substantial benefits in the later years of 
the program and beyond. Additionally, consistent with Executive Order 
13563, the agency believes that the benefits of the preferred 
alternative amply justify the costs; indeed, the monetized benefits 
exceed the monetized costs by $358 billion over the lifetime of the 
vehicles covered by the proposed standards. In full consideration of 
all of the information currently before the agency, we have weighed the 
statutory factors carefully and selected proposed passenger car and 
light truck standards that we believe are the maximum feasible for MYs 
2017-2025.
---------------------------------------------------------------------------

    \745\ For purposes of CAFE compliance, ``Chrysler/Fiat'' is 
assumed to include Ferrari and Maserati in addition to the larger-
volume Chrysler and Fiat brands.
    \746\ for purposes of CAFE compliance, VW is assumed to include 
Audi-Bentley, Bugatti, and Lamborghini, along with the larger-volume 
VW brand.
    \747\ We recognize that higher standards would help the need of 
the nation to conserve more energy and might potentially be 
technologically feasible (in the narrowest sense) during those model 
years, but based on our analysis and the evidence presented by the 
industry, we tentatively conclude that higher standards would not 
represent the proper balancing for MYs 2017-2025 cars and trucks, 
because they would raise serious questions about economic 
practicability. As explained above, NHTSA's modeled estimates 
necessarily do not perfectly capture all of the factors of economic 
practicability, and this conclusion regarding net benefits versus 
economic practicability is similar to the conclusion reached in the 
2012-2016 analysis.
    \748\ We also recognize that lower standards might be less 
burdensome on the industry, but considering the environmental 
impacts of the different regulatory alternatives as required under 
NEPA and the need of the nation to conserve energy, we do not 
believe they would have represented the appropriate balancing of the 
relevant factors, because they would have left technology, fuel 
savings, and emissions reductions on the table unnecessarily, and 
not contributed as much as possible to reducing our nation's energy 
security and climate change concerns. They would also have lower net 
benefits than the Preferred Alternative.
---------------------------------------------------------------------------

1. What are NHTSA's statutory obligations?
    As discussed above in Section IV.D, NHTSA sets CAFE standards under 
EPCA, as amended by EISA, and is also subject to the APA and NEPA in 
developing and promulgating CAFE standards.
    NEPA requires the agency to develop and consider the findings of an 
Environmental Impact Statement (EIS) for ``major Federal actions 
significantly affecting the quality of the human environment.'' NHTSA 
has determined that this action is such an action and therefore that an 
EIS is necessary, and has accordingly prepared a Draft EIS to inform 
its development and consideration of the proposed standards. The agency 
has evaluated the environmental impacts of a range of regulatory 
alternatives in our proposal, and integrated the results of that 
consideration into our balancing of the EPCA/EISA factors, as discussed 
below.
    The APA and relevant case law requires our rulemaking decision to 
be rational, based on consideration of the relevant factors, and within 
the scope of the authority delegated to the agency by EPCA/EISA. The 
relevant factors are those required by EPCA/EISA and the additional 
factors approved in case law as ones historically considered by the 
agency in determining the maximum feasible CAFE standards, such as 
safety. The statute requires us to set standards at the maximum 
feasible level for passenger cars and light trucks for each model year, 
and the agency tentatively concludes that the standards, if adopted as 
proposed, would satisfy this requirement. NHTSA has carefully examined 
the relevant data and other considerations, as discussed below in our 
explanation of our tentative conclusion that the proposed standards are 
the maximum feasible levels for those model years based on our 
evaluation of the information before us for this NPRM.
    As discussed in Section IV.D, EPCA/EISA requires that NHTSA 
establish separate passenger car and light truck standards at ``the 
maximum feasible average fuel economy level that it decides the 
manufacturers can achieve in that model year,'' based on the agency's 
consideration of four statutory factors: Technological feasibility, 
economic practicability, the effect of other standards of the 
Government on fuel economy, and the need of the nation to conserve 
energy.\749\ NHTSA has developed definitions for these terms over the 
course of multiple CAFE rulemakings\750\ and determines the appropriate 
weight and balancing of the terms given the circumstances in each CAFE 
rulemaking. For MYs 2011-2020, EPCA further requires that separate 
standards for passenger cars and for light trucks be set at levels high 
enough to ensure that the CAFE of the industry-wide combined fleet of 
new passenger cars and light trucks reaches at least 35 mpg not later 
than MY 2020. For model years after 2020, standards need simply be set 
at the maximum feasible level.
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    \749\ As explained in Section IV.D, EPCA also provides that in 
determining the level at which it should set CAFE standards for a 
particular model year, NHTSA may not consider the ability of 
manufacturers to take advantage of several statutory provisions that 
facilitate compliance with the CAFE standards and thereby reduce the 
costs of compliance. Specifically, in determining the maximum 
feasible level of fuel economy for passenger cars and light trucks, 
NHTSA cannot consider the fuel economy benefits of ``dedicated'' 
alternative fuel vehicles (like battery electric vehicles or natural 
gas vehicles), must consider dual-fueled automobiles to be operated 
only on gasoline or diesel fuel (at least through MY 2019), and may 
not consider the ability of manufacturers to use, trade, or transfer 
credits. This provision limits, to some extent, the fuel economy 
levels that NHTSA can find to be ``maximum feasible''--if NHTSA 
cannot consider the fuel economy of electric vehicles, for example, 
NHTSA cannot set standards predicated on manufacturers' usage of 
electric vehicles to meet the standards.
    \750\ These factors are defined in Section IV.D; for brevity, we 
do not repeat those definitions here.
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    The agency thus balances the relevant factors to determine the 
maximum feasible level of the CAFE standards for each fleet, in each 
model year. The next section discusses how the agency balanced the 
factors for this proposal, and why we believe the proposed standards 
are the maximum feasible.
2. How did the agency balance the factors for this NPRM?
    There are numerous ways that the relevant factors can be balanced 
(and thus weight given to each factor) depending on the agency's policy 
priorities and on the information before the agency regarding any given 
model year, and the agency therefore considered a range of alternatives 
that represent different regulatory options that we thought were 
potentially reasonable for purposes of this rulemaking. For this 
proposal, the regulatory alternatives considered in the agency's 
analysis include several alternatives for fuel economy levels that 
increase annually, on average, at set rates--specifically, 2%/year, 3%/
year, 4%/year, 5%/year, 6%/year, and 7%/

[[Page 75244]]

year.\751\ Analysis of these various rates of increase effectively 
encompasses the entire range of fuel economy improvements that, based 
on information currently available to the agency, could conceivably 
fall within the statutory boundary of ``maximum feasible'' standards. 
The regulatory alternatives also include two alternatives based on 
benefit-cost criteria, one in which standards would be set at the point 
where the modeled net benefits would be maximized for each fleet in 
each year (MNB), and another in which standards would be set at the 
point at which total costs would be most nearly equal to total benefits 
for each fleet in each year (TC=TB),\752\ as well as the preferred 
alternative, which is within the range of the other alternatives. These 
alternatives are discussed in more detail in Chapter III of the PRIA 
accompanying this NPRM, which also contains an extensive analysis of 
the relative impacts of the alternatives in terms of fuel savings, 
costs (both per-vehicle and aggregate), carbon dioxide emissions 
avoided, and many other metrics. Because the agency could conceivably 
select any of the regulatory alternatives above, all of which fall 
between 2%/year and 7%/year, inclusive, the Draft EIS that accompanies 
this proposal analyzes these lower and upper bounds as well as the 
preferred alternative. Additionally, the Draft EIS analyzes a ``No 
Action Alternative,'' which assumes that, for MYs 2017 and beyond, 
NHTSA would set standards at the same level as MY 2016. The No Action 
Alternative provides a baseline for comparing the environmental impacts 
of the other alternatives.
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    \751\ This is an approach similar to that used by the agency in 
the MY 2012-2016 rulemaking, in which we also considered several 
alternatives that increased annually, on average, at 3%, 4%, 5%, 6% 
and 7%/year. The ``percent-per-year'' alternatives in this proposal 
are somewhat different from those considered in the MY 2012-2016 
rulemaking, however, in terms of how the annual rate of increase is 
applied. For this proposal, the stringency curves are themselves 
advanced directly by the annual increase amount, without reference 
to any yearly changes in the fleet mix. In the 2012-2016 rule, the 
annual increases for the stringency alternatives reflected the 
estimated required fuel economy of the fleet which accounted for 
both the changes in the target curves and changes in the fleet mix.
    \752\ We included the MNB and TC=TB alternatives in part for the 
reference of commenters familiar with NHTSA's past several CAFE 
rulemakings--these alternatives represent balancings carefully 
considered by the agency in past rulemaking actions as potentially 
maximum feasible--and because Executive Orders 12866 and 13563 focus 
attention on an approach that maximizes net benefits. The assessment 
of maximum net benefits is challenging in the context of setting 
CAFE standards, in part because standards which maximize net 
benefits for each fleet, for each model year, would not necessarily 
be the standards that lead to the greatest net benefits over the 
entire rulemaking period.
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    NHTSA believes that this approach clearly communicates the level of 
stringency of each alternative and allows us to identify alternatives 
that represent different ways to balance NHTSA's statutory factors 
under EPCA/EISA. Each of the listed alternatives represents, in part, a 
different way in which NHTSA could conceivably balance different 
policies and considerations in setting the standards that achieve the 
maximum feasible levels. For example, the 2% Alternative, the least 
stringent alternative, would represent a balancing in which economic 
practicability--which include concerns about availability of 
technology, capital, and consumer preferences for vehicles built to 
meet the future standards--weighs more heavily in the agency's 
consideration, and the need of the nation to conserve energy would 
weigh less heavily. In contrast, under the 7% Alternative, one of the 
most stringent, the need of the nation to conserve energy--which 
includes energy conservation and climate change considerations--would 
weigh more heavily in the agency's consideration, and other factors 
would weigh less heavily. Balancing and assessing the feasibility of 
different alternative can also be influenced by differences and 
uncertainties in the way in which key economic factors (e.g., the price 
of fuel and the social cost of carbon) and technological inputs could 
be assessed and estimated or valued. While NHTSA believes that our 
analysis conducted in support of this NPRM uses the best and most 
transparent technology-related inputs and economic assumption inputs 
that the agencies could derive for MYs 2017-2025, we recognize that 
there is uncertainty in these inputs, and the balancing could be 
different if, for example, the inputs are adjusted in response to new 
information.
    This is the first CAFE rulemaking in which the agency has looked 
this far into the future, which makes our traditional approach to 
balancing more challenging than in past (even recent past) rulemakings. 
NHTSA does not presently believe, for example, that technological 
feasibility as the agency defines it is as constraining in this 
rulemaking as it has been in the past in light of the time frame of 
this rulemaking. ``Technological feasibility'' refers to whether a 
particular method of improving fuel economy can be available for 
commercial application in the model year for which a standard is being 
established. In previous CAFE rulemakings, it has been more difficult 
for the agency to say that the most advanced technologies would be 
available for commercial application in the model years for which 
standards were being established. For this rulemaking, which is longer 
term, NHTSA has considered all types of technologies that improve real-
world fuel economy, including air-conditioner efficiency and other off-
cycle technology, PHEVs, EVs, and highly-advanced internal combustion 
engines not yet in production, but all of which the agencies' expect to 
be commercially applicable by the rulemaking time frame. On the one 
hand, we recognize that some technologies that currently have limited 
commercial use cannot be deployed on every vehicle model in MY 2017, 
but require a realistic schedule for widespread commercialization to be 
feasible. On the other hand, however, the agency expects, based on our 
analysis, that all of the alternatives could narrowly be considered as 
technologically feasible, in that they could be achieved based on the 
existence or projected future existence of technologies that could be 
incorporated on future vehicles, and enable any of the alternatives to 
be achieved on a technical basis alone if the level of resources that 
might be required to implement the technologies is not considered. If 
all alternatives are at least theoretically technologically feasible in 
the MY 2017-2025 timeframe, and the need of the nation is best served 
by pushing standards as stringent as possible, then the agency might be 
inclined to select the alternative that results in the very most 
stringent standards considered.
    However, the agency must also consider what is required to 
practically implement technologies, which is part of economic 
practicability, and to which the most stringent alternatives give 
little weight. ``Economic practicability'' refers to whether a standard 
is one ``within the financial capability of the industry, but not so 
stringent as to lead to adverse economic consequences, such as a 
significant loss of jobs or the unreasonable elimination of consumer 
choice.'' Consumer acceptability is also an element of economic 
practicability, one that is particularly difficult to gauge during 
times of uncertain fuel prices.\753\ In a rulemaking such as the 
present one,

[[Page 75245]]

determining economic practicability requires consideration of the 
uncertainty surrounding relatively distant future market conditions and 
consumer demand for fuel economy in addition to other vehicle 
attributes. In an attempt to evaluate the economic practicability of 
attribute-based standards, NHTSA includes a variety of factors in its 
analysis, including the annual rate at which manufacturers can increase 
the percentage of their fleet that employ a particular type of fuel-
saving technology, the specific fleet mixes of different manufacturers, 
and assumptions about the cost of the standards to consumers and 
consumers' valuation of fuel economy, among other things. Ensuring that 
a reasonable amount of lead time exists to make capital investments and 
to devote the resources and time to design and prepare for commercial 
production of a more fuel efficient fleet is also relevant to the 
agency's consideration of economic practicability. Yet there are some 
aspects of economic practicability that the agency's analysis is not 
able to capture at this time--for example, the computer model that we 
use to analyze alternative standards does not account for all aspects 
of uncertainty, in part because the agency cannot know what we cannot 
know. The agency must thus account for uncertainty in the context of 
economic practicability as best as we can based on the entire record 
before us.
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    \753\ See, e.g., Center for Auto Safety v. NHTSA (CAS), 793 F.2d 
1322 (DC Cir. 1986) (Administrator's consideration of market demand 
as component of economic practicability found to be reasonable); 
Public Citizen v. NHTSA, 848 F.2d 256 (Congress established broad 
guidelines in the fuel economy statute; agency's decision to set 
lower standard was a reasonable accommodation of conflicting 
policies).
---------------------------------------------------------------------------

    Both technological feasibility and economic practicability enter 
into the agency's determination of the maximum feasible levels of 
stringency, and economic practicability concerns may cause the agency 
to decide that standards that might be technologically feasible are, in 
fact, beyond maximum feasible. Standards that require aggressive 
application of and widespread deployment of advanced technologies could 
raise serious issues with the adequacy of time to coordinate such 
significant changes with manufacturers' redesign cycles, as well as 
with the availability of engineering resources to develop and integrate 
the technologies into products, and the pace at which capital costs can 
be incurred to acquire and integrate the manufacturing and production 
equipment necessary to increase the production volume of the 
technologies. Moreover, the agency must consider whether consumers 
would be likely to accept a specific technological change under 
consideration, and how the cost to the consumer of making that change 
might affect their acceptance of it. The agency maintains, as it has in 
prior CAFE rulemakings, that there is an important distinction between 
considerations of technological feasibility and economic 
practicability. As explained above, a given level of performance may be 
technologically feasible (i.e., setting aside economic constraints) for 
a given vehicle model. However, it would not be economically 
practicable to require a level of fleet average performance that 
assumes every vehicle will in the first year of the standards perform 
at the highest technologically feasible level, because manufacturers do 
not have unlimited access to the financial resources or may not 
practically be able to hire enough engineers, build enough facilities, 
and install enough tooling.
    NHTSA therefore believes, based on the information currently before 
us, that economic practicability concerns render certain standards that 
might otherwise be technologically feasible to be beyond maximum 
feasible within the meaning of the statute for the 2017-2025 standards. 
Our analysis indicated that technologies seem to exist to meet the 
stringency levels required by future standards under nearly all of the 
regulatory alternatives; but it also indicated that manufacturers would 
not be able to apply those technologies quickly enough, given their 
redesign cycles, and the level of the resources that would be required 
to implement those technologies widely across their products, to meet 
all applicable standards in every model year under some of the 
alternatives.
    Another consideration for economic practicability is incremental 
per-vehicle increases in technology cost. In looking at the incremental 
technology cost results from our modeling analysis, the agency saw that 
in progressing from alternatives with lower stringencies to 
alternatives with higher stringencies, technology cost increases 
(perhaps predictably) at a progressively higher rate, until the model 
projects that manufacturers are unable to comply with the increasing 
standards and enter (or deepen) non-compliance. Table IV-25 and Table 
IV-26 show estimated cumulative lifetime fuel savings and estimated 
average vehicle cost increase for passenger cars and light trucks. The 
results show that there is a significant increase in technology cost 
between the 4% alternatives and the 5% alternatives.
BILLING CODE 4910-59-P

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[GRAPHIC] [TIFF OMITTED] TP01DE11.199


[[Page 75247]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.200

BILLING CODE 4910-59-C
    Thus, if technological feasibility and the need of the nation are 
not particularly limiting in a given rulemaking, then maximum feasible 
standards would be represented by the mpg levels that we could require 
of the industry to improve fuel economy before we reach a tipping point 
that presents risk of significantly adverse economic consequences. 
Standards that are lower than that point would likely not be maximum 
feasible, because such standards would leave fuel-saving technologies 
on the table unnecessarily; standards that are higher than that point 
would likely be beyond what the agency would consider economically 
practicable, and therefore beyond what we would consider maximum 
feasible, even if they might be technologically feasible or better meet 
the need of the nation to conserve energy. The agency does not believe 
that standards are balanced if they weight one or two factors so 
heavily as to ignore another.
    We explained above that part of the way that we try to evaluate 
economic practicability is through a variety of model inputs, such as 
phase-in caps (the annual rate at which manufacturers can increase the 
percentage of their fleet that employ a particular type of fuel-saving 
technology) and redesign schedules to account for needed lead time. 
These inputs limit how much technology can be applied to a 
manufacturer's fleet in the agency's analysis attempting to simulate a 
way for the manufacturer to

[[Page 75248]]

comply with standards set under different regulatory alternatives. If 
the limits (and technology cost-effectiveness) prevent enough 
manufacturers from meeting the required levels of stringency, the 
agency may decide that the standards under consideration may not be 
economically practicable. The difference between the required fuel 
economy level that applies to a manufacturer's fleet and the level of 
fuel economy that the agency projects the manufacturer would achieve in 
that year, based on our analysis, is called a ``compliance shortfall.'' 
\754\
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    \754\ The agency's modeling estimates how the application of 
technologies could increase vehicle costs, reduce fuel consumption, 
and reduce CO2 emissions, and affect other factors. As 
CAFE standards are performance-based, NHTSA does not mandate that 
specific technologies be used for compliance. CAFE modeling, 
therefore projects one way that manufacturers could comply. 
Manufacturers may choose a different mix of technologies based on 
their unique circumstances and products.
---------------------------------------------------------------------------

    We underscore again that the modeling analysis does not dictate the 
``answer,'' it is merely one source of information among others that 
aids the agency's balancing of the standards. These considerations, 
shortfalls and increases in incremental technology costs, do not 
entirely define economic practicability, but we believe they are 
symptomatic of it. In looking at the projected compliance shortfall 
results from our modeling analysis, the agency preliminarily concluded, 
based on the information before us at the time, that for both passenger 
car and for light trucks, the MNB and TC=TB alternatives, and the 5%, 
6% and 7% alternatives did not appear to be economically practicable, 
and were thus likely beyond maximum feasible levels for MYs 2017-2025. 
In other words, despite the theoretical technological feasibility of 
achieving these levels, various manufacturers would likely lack the 
financial and engineering resources and sufficient lead time to do so.
    The analysis showed that for the passenger car 5% alternative, 
there were significant compliance shortfalls for Chrysler in MY 2025, 
Ford in MYs 2021 and 2023-2025, GM in MYs 2022 and 2024-2025, Mazda in 
MYs 2021 and 2024-2025, and Nissan in MY 2025. For light trucks, the 
analysis showed the 5% alternative had significant compliance 
shortfalls for Chrysler in MYs 2022-2025, Ford in MY 2025, GM in MYs 
2023-2025, Kia in MY 2025, Mazda in MYs 2022 and 2025, and Nissan in 
MYs 2023-2025. However, the 4%, 3% and 2% alternatives did not appear, 
based on shortfalls, to be beyond the level of economic practicability, 
and thus appeared potentially to be within the range of alternatives 
that might yet be maximum feasible.
[GRAPHIC] [TIFF OMITTED] TP01DE11.201


[[Page 75249]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.202

    The preliminary analysis referred to above, in which the agency 
tentatively concluded that the 5%, 6%, 7%, MNB, and TC=TB alternatives 
were likely beyond the level of economic practicability based on the 
information available to the agency at the time, was conducted 
following the first SNOI and prior to the second SNOI--thus, between 
the end of 2010 and July 2011. The agencies stated in the first SNOI 
that we had not conducted sufficient analysis at the time to narrow the 
range of potential stringencies that had been discussed in the initial 
NOI and in the Interim Joint TAR, and that we would be conducting more 
analyses and continuing extensive dialogue with stakeholders in the 
coming months to refine our proposal. Based on our initial 
consideration of how the factors might be balanced to determine the 
maximum feasible standards to propose for MYs 2017-2025 (i.e., where 
technological feasibility did not appear to be particularly limiting 
and the need of the nation would counsel for choosing more stringent 
alternatives, but economic practicability posed significant 
limitations), NHTSA's preliminary analysis indicated that the 
alternatives including up to 4% per year for cars and 4% per year for 
trucks should reasonably remain under consideration.
    With that preliminary estimate of 4%/year for cars and trucks as 
the upper end of the range of alternatives that should reasonably 
remain under consideration for MYs 2017-2025, the agencies began 
meeting again intensely with stakeholders, including many individual 
manufacturers, between June 21, 2011 and July 27, 2011 to determine 
whether additional information would aid NHTSA in further 
consideration. Beginning in the June 21, 2011 meeting, NHTSA and EPA 
presented the 4% alternative target curves as a potential concept along 
with preliminary program flexibilities and provisions, in order to get 
feedback from the manufacturer stakeholders. Manufacturer stakeholders 
provided comments, much of which was confidential business information, 
which included projections of how they might comply with concept 
standards, the challenges that they expected, and their recommendations 
on program stringency and provisions.\755\
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    \755\ Feedback from these stakeholder meetings is summarized in 
section IV.B and documents that are referenced in that section.
---------------------------------------------------------------------------

    Regarding passenger cars, several manufacturers shared projections 
that they would be capable of meeting stringency levels similar to 
NHTSA's preliminary CAFE modeling projections for the 4% alternative in 
MY 2020 or in 2021, with some of those arguing that they faced 
challenges in the earlier years of that period with meeting a constant 
4% rate throughout the entire period. Some manufacturers shared 
projections that they could comply with stringencies that ramped up, 
increasing more slowly in MY 2017 and then progressively increasing 
through MY 2021. Most manufacturers provided limited projections beyond 
MY 2021, although some stated that they could meet the agency's concept 
stringency targets in MY 2025. Manufacturers generally suggested that 
the most significant challenges to meeting a constant 4% (or faster) 
year-over-year increase in the passenger car standards related to their 
ability to implement the

[[Page 75250]]

new technologies quickly enough to achieve the required levels, given 
their need to implement fuel economy improvements in both the passenger 
car and light truck fleets concurrently; challenges related to the 
cadence of redesign and refresh schedules; the pace at which new 
technology can be implemented considering economic factors such as 
availability of engineering resources to develop and integrate the 
technologies into products; and the pace at which capital costs can be 
incurred to acquire and integrate the manufacturing and production 
equipment necessary to increase the production volume of the 
technologies. Manufacturers often expressed concern that the 4% levels 
could require greater numbers of advanced technology vehicles than they 
thought they would be able to sell in that time frame, given their 
belief that the cost of some technologies was much higher than the 
agencies had estimated and their observations of current consumer 
acceptance of and willingness to pay for advanced technology vehicles 
that are available now in the marketplace. A number of manufacturers 
argued that they did not believe that they could create a sustainable 
business case under passenger car standards that increased at the rate 
required by the 4% alternative.
    Regarding light trucks, most manufacturers expressed significantly 
greater concerns over the 4% alternative for light trucks than for 
passenger cars. Many manufacturers argued that increases in light truck 
standard stringency should be slower than increases in passenger car 
standard stringency, based on, among other things, the greater payload, 
cargo capacity and towing utility requirements of light trucks, and 
what they perceived to be lower consumer acceptance of certain (albeit 
not all) advanced technologies on light trucks. Many manufacturers also 
commented that redesign cycles are longer on trucks than they are on 
passenger cars, which reduces the frequency at which significant 
changes can be made cost-effectively to comply with increasing 
standards, and that the significant increases in stringency in the MY 
2012-2016 program \756\ in combination with redesign schedules would 
not make it possible to comply with the 4% alternative in the earliest 
years of the MY 2017-2025 program, such that only significantly lower 
stringencies in those years would be feasible in their estimation. As 
for cars, most manufacturers provided limited projections beyond MY 
2021. Manufacturers generally stated that the most significant 
challenges to meeting a constant 4% (or faster) year-over-year increase 
in the light truck standards were similar to what they had described 
for passenger cars as enumerated in the paragraph above, but were 
compounded by concerns that applying technologies to meet the 4% 
alternative standards would result in trucks that were more expensive 
and provided less utility to consumers. As was the case for cars, 
manufacturers argued that their technology cost estimates were higher 
than the agencies' and consumers are less willing to accept/pay for 
some advanced technologies in trucks, but manufacturers argued that 
these concerns were more significant for trucks than for cars, and that 
they were not optimistic that they could recoup the costs through 
higher prices for vehicles with the technologies that would be needed 
to comply with the 4% alternative. Given their concerns about having to 
reduce utility and raise truck prices, and about their ability to apply 
technologies quickly enough given the longer redesign periods for 
trucks, a number of manufacturers argued that they did not believe that 
they could create a sustainable business case under light truck 
standards that increased at the rate required by the 4% alternative.
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    \756\ Some manufacturers indicated that their light truck fleet 
fuel economy would be below what they anticipated their required 
fuel economy level would be in MY 2016, and that they currently 
expect that they will need to employ available flexibilities to 
comply with that standard.
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    Other stakeholders, such as environmental and consumer groups, 
consistently stated that stringent standards are technically achievable 
and critical to important national interests, such as improving energy 
independence, reducing climate change, and enabling the domestic 
automobile industry to remain competitive in the global market. Labor 
interests stressed the need to carefully consider economic impacts and 
the opportunity to create and support new jobs, and consumer advocates 
emphasized the economic and practical benefits to consumers of improved 
fuel economy and the need to preserve consumer choice. In addition, a 
number of stakeholders stated that the standards under development 
should not have an adverse impact on safety.
    NHTSA, in collaboration with EPA and in coordination with CARB, 
carefully considered the inputs received from all stakeholders, 
conducted additional independent analyses, and deliberated over the 
feedback received on the agencies' analyses. NHTSA considered 
individual manufacturers' redesign cycles and, where available, the 
level of technologies planned for their future products that improve 
fuel economy, as well as some estimation of the resources that would 
likely be needed to support those plans and the potential future 
standards. The agency also considered whether we agreed that there 
could conceivably be compromises to vehicle utility depending on the 
technologies chosen to meet the potential new standards, and whether a 
change in the cadence of the rate at which standards increase could 
provide additional opportunity for industry to develop and implement 
technologies that would not adversely affect utility. NHTSA considered 
feedback on consumer acceptance of some advanced technologies and 
consumers' willingness to pay for improved fuel economy. In addition, 
the agency carefully considered whether manufacturer assertions about 
potential uncertainties in the agency's technical, economic, and 
consumer acceptance assumptions and estimates were potentially valid, 
and if so, what the potential effects of these uncertainties might be 
on economic practicability.
    Regarding passenger cars, after considering this feedback from 
stakeholders, the agency considered further how it thought the factors 
should be balanced to determine the maximum feasible passenger car 
standards for MYs 2017-2025. Based on that reconsideration of the 
information before the agency and how it informs our balancing of the 
factors, NHTSA tentatively concludes that the points raised may 
indicate that the agency's preliminary analysis supporting 
consideration of standards that increased up to 4%/year may not have 
captured fully the level of uncertainty that surrounds economic 
practicability in these future model years. Nevertheless, while we 
believe there may be some uncertainty, we do not agree that it is 
nearly as significant as a number of manufacturers maintained, 
especially for passenger cars. The most persuasive information received 
from stakeholders for passenger cars concerned practicability issues in 
the first phase of the MY 2017-2025 standards. We therefore tentatively 
conclude that the maximum feasible stringency levels for passenger cars 
are only slightly different from the 4%/year levels suggested as the 
high end preliminarily considered by the agency; increasing on average 
3.7%/year in MYs 2017-2021, and on average 4.5%/year in MYs 2022-2025. 
For the overall MY 2017-2025 period, the maximum feasible stringency 
curves increase on average at 4.1%/year, and our analysis

[[Page 75251]]

indicates that the costs and benefits attributable to the 4% 
alternative and the preferred alternative for passenger cars are very 
similar: The preferred alternative is 8.8 percent less expensive for 
manufacturers than the 4% alternative (estimated total costs are $113 
billion for the preferred alternative and $124 billion for the 4% 
alternative), and achieves only $20 billion less in total benefits than 
the 4% alternative (estimated total benefits are $310 billion for the 
preferred alternative and $330 billion for the 4% alternative), a very 
small difference given that benefits are spread across the entire 
lifetimes of all vehicles subject to the standards. The analysis also 
shows that the lifetime cumulative fuel savings is only 5 percent 
higher for the 4% alternative than the preferred alternative (the 
estimated fuel savings is 104 billion gallons for the preferred 
alternative, and 110 billion gallons for the 4% alternative).
    At the same time, the increase in average vehicle cost in MY 2025 
is 9.4 percent higher for the 4% alternative (the estimated cost 
increase for the average vehicle is $2,023 for the preferred 
alternative, and $2,213 for the 4% alternative). The rates of increase 
in stringency for each model year are summarized in Table IV-29. NHTSA 
emphasizes that under 49 U.S.C. 32902(b), the standards must be maximum 
feasible in each model year without reference to other model years, but 
we believe that the small amount of progressiveness in the proposed 
standards for MYs 2017-2021, which has very little effect on total 
benefits attributable to the proposed passenger car standards, will 
help to enable the continuation of, or increases in, research and 
development into the more advanced technologies that will enable 
greater stringency increases in MYs 2022-2025, and help to capture the 
considerable fuel savings and environmental benefits similar to the 4% 
alternative beginning in MY 2025.
    We are concerned that requiring manufacturers to invest that 
capital to meet higher standards in MYs 2017-2021, rather than allowing 
them to increase fuel economy in those years slightly more slowly, 
would reduce the levels that would be feasible in the second phase of 
the program by diverting research and development resources to those 
earlier model years. Thus, after considerable deliberation with EPA and 
consultation with CARB, NHTSA selected the preferred alternative as the 
maximum feasible alternative for MYs 2017-2025 passenger cars based on 
consideration of inputs from manufacturers and the agency's independent 
analysis, which reaches the stringency levels of the 4% alternative in 
MY 2025, but has a slightly slower ramp up rate in the earlier years.

[[Page 75252]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.203

    Regarding light trucks, while NHTSA does not agree with the 
manufacturer's overall cost assessments and believe that our technology 
cost and effectiveness assumptions should allow the most capable 
manufacturers to preserve all necessary vehicle utility, the agencies 
do believe there is merit to some of the concerns raised in stakeholder 
feedback. Specifically, concerns about longer redesign schedules for 
trucks, compounded by the need to invest simultaneously in raising 
passenger car fuel economy, may not have been fully captured in our 
preliminary analysis. This could lead manufacturers to implement 
technologies that do not maintain vehicle utility, based on the cadence 
of the standards under the 4% alternative. A number of manufacturers 
repeatedly stated, in providing feedback, that the MYs 2012-2016 
standards for trucks, while feasible, required significant investment 
to reach the required levels, and that given the redesign schedule for 
trucks, that level of investment throughout the entire MYs 2012-2025 
time period was not sustainable. Based on the confidential business 
information that manufacturers provided to us, we believe that this 
point may be valid. If the agency pushes CAFE increases that require 
considerable sustained investment at a faster rate than industry 
redesign cycles, adverse economic

[[Page 75253]]

consequences could ensue. The best information that the agency has at 
this time, therefore, indicates that requiring light truck fuel economy 
improvements at the 4% annual rate could create potentially severe 
economic consequences.
    Thus, evaluating the inputs from stakeholders and the agency's 
independent analysis, the agency also considered further how it thought 
the factors should be balanced to determine the maximum feasible light 
truck standards for MYs 2017-2025. Based on that consideration of the 
information before the agency and how it informs our balancing of the 
factors, NHTSA tentatively concludes that 4%/year CAFE stringency 
increases for light trucks in MYs 2017-2021 are likely beyond maximum 
feasible, and in fact, in the earliest model years of the MY 2017-2021 
period, that the 3%/year and 2%/year alternatives for trucks are also 
likely beyond maximum feasible. NHTSA therefore tentatively concludes 
that the preferred alternative, which would in MYs 2017-2021 increase 
on average 2.6%/year, and in MYs 2022-2025 would increase on average 
4.6%/year, is the maximum feasible level that the industry can reach in 
those model years. For the overall MY 2017-2025 period, the maximum 
feasible stringency curves would increase on average 3.5%/year. The 
rates of increase in stringency for each model year are summarized in 
Table IV-29 and Table IV-30.
    Our analysis indicates that the preferred alternative has 48 
percent lower cost than the 4% alternative (estimated total costs are 
$44 billion for the preferred alternative and $83 billion for the 4% 
alternative), and the total benefits of the preferred alternative are 
30 percent lower ($87 billion lower) than the 4% alternative (estimated 
total benefits are $206 billion for the preferred alternative and $293 
billion for the 4% alternative), spread across the entire lifetimes of 
all vehicles subject to the standards. The analysis also shows that the 
lifetime cumulative fuel savings is 42 percent higher for the 4% 
alternative than the preferred alternative (the estimated fuel savings 
is 69 billion gallons for the preferred alternative, and 98 billion 
gallons for the 4% alternative). At the same time, the increase in 
average vehicle cost in MY 2025 is 54 percent higher for the 4% 
alternative (the estimated cost increase for the average vehicle is 
$1,578 for the preferred alternative, and $2,423 for the 4% 
alternative).
    While these differences are larger than for passenger cars, NHTSA 
believes that standards set at these levels for these model years will 
help address concerns raised by manufacturer stakeholders and reduce 
the risk for adverse economic consequences, while at the same time 
ensuring most of the substantial improvements in fuel efficiency 
initially envisioned over the entire period and supported by other 
stakeholders. NHTSA believes that these stringency levels, along with 
the provisions for incentives for advanced technologies to encourage 
their development and implementation, and the agencies' expectation 
that some of the uncertainties surrounding consumer acceptance of new 
technologies in light trucks should have resolved themselves by that 
time frame based on consumers' experience with the advanced 
technologies, will enable these increases in stringency over the entire 
MY 2017-2025 period. Although, as stated above, the light truck 
standards must be maximum feasible in each model year without reference 
to other model years, we believe that standards set at the stated 
levels for MYs 2017-2021 and the incentives for advanced technologies 
for pickup trucks will create the best opportunity to ensure that the 
MY 2022-2025 standards are economically practicable, and avoid adverse 
consequences. The first phase of light truck standards, in that 
respect, acts as a kind of bridge to the second phase, in which 
industry should be able to realize considerable additional improvements 
in fuel economy.
    The proposed standards also account for the effect of EPA's 
standards, in light of the agencies' close coordination and the fact 
that both sets of standards were developed together to harmonize as 
part of the National Program. Given the close relationship between fuel 
economy and CO2 emissions, and the efforts NHTSA and EPA 
have made to conduct joint analysis and jointly deliberate on 
information and tentative conclusions,\757\ the agencies have sought to 
harmonize and align their proposed standards to the greatest extent 
possible, consistent with their respective statutory authorities. In 
comparing the proposed standards, the agencies' stringency curves are 
equivalent, except for the fact that the stringency of EPA's proposed 
passenger car standards reflect the ability to improve GHG emissions 
through reductions in A/C system refrigerant leakage and the use of 
lower GWP refrigerants (direct A/C improvements),\758\ and that EPA 
provides incentives for PHEV, EV and FCV vehicles, which NHTSA does not 
provide because statutory incentives have already been defined for 
these technologies. The stringency of NHTSA's proposed standards for 
passenger cars for MYs 2017-2025 align with the stringency of EPA's 
equivalent standards when these differences are considered.\759\ NHTSA 
is proposing the preferred alternative based on the tentative 
determination of maximum feasibility as described earlier in the 
section, but, based on efforts NHTSA and EPA have made to conduct joint 
analysis and jointly deliberate on information and tentative 
conclusions, NHTSA has also aligned the proposed CAFE standards with 
EPA's proposed standards.
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    \757\ NHTSA and EPA conducted joint analysis and jointly 
deliberated on information and tentative conclusions related to 
technology cost, effectiveness, manufacturers' capability to 
implement technologies, the cadence at which manufacturers might 
support the implementation of technologies, economic factors, and 
the assessment of comments from manufacturers.
    \758\ As these A/C system improvements do not influence fuel 
economy, the stringency of NHTSA's preferred alternatives do not 
reflect the availability of these technologies.
    \759\ We note, however, that the alignment is based on the 
assumption that manufacturers implement the same level of direct A/C 
system improvements as EPA currently forecasts for those model 
years, and on the assumption of PHEV, EV, and FCV penetration at 
specific levels. If a manufacturer implements a higher level of 
direct A/C improvement technology and/or a higher penetration of 
PHEVs, EVs and FCVs, then NHTSA's proposed standards would 
effectively be more stringent than EPA's. Conversely, if a 
manufacturer implements a lower level of direct A/C improvement 
technology and/or a lower penetration of PHEVs, EVs and FCVs, then 
EPA's proposed standards would effectively be more stringent than 
NHTSA's.
---------------------------------------------------------------------------

    Thus, consistent with President Obama's announcement on July 29, 
2011, and with the August 9, 2011 SNOI, NHTSA has tentatively concluded 
that the standards represented by the preferred alternative are the 
maximum feasible standards for passenger cars and light trucks in MYs 
2017-2025. We recognize that higher standards would help the need of 
the nation to conserve more energy and might potentially be 
technologically feasible (in the narrowest sense) during those model 
years, but based on our analysis and the evidence presented by the 
industry, we tentatively conclude that higher standards would not 
represent the proper balancing for MYs 2017-2025 cars and trucks.\760\ 
We

[[Page 75254]]

tentatively conclude that the correct balancing recognizes economic 
practicability concerns as discussed above, and sets standards at the 
levels that the agency is proposing in this NPRM.\761\ In the same 
vein, lower standards might be less burdensome on the industry, but 
considering the environmental impacts of the different regulatory 
alternatives as required under NEPA and the need of the nation to 
conserve energy, we do not believe they would have represented the 
appropriate balancing of the relevant factors, because they would have 
left technology, fuel savings, and emissions reductions on the table 
unnecessarily, and not contributed as much as possible to reducing our 
nation's energy security and climate change concerns. Standards set at 
the proposed levels for MYs 2017-2021 will provide the additional 
benefit of helping to promote further research and development into the 
more advanced fuel economy-improving technologies to provide a bridge 
to more stringent standards in MYs 2022-2025, and enable significant 
fuel savings and environmental benefits throughout the program, and 
particularly substantial benefits in the later years of the program and 
beyond. Additionally, consistent with Executive Order 13563, the agency 
believes that the benefits of the preferred alternative amply justify 
the costs; indeed, the monetized benefits exceed the monetized costs by 
$358 billion over the lifetime of the vehicles covered by the proposed 
standards. In full consideration of all of the information currently 
before the agency, we have weighed the statutory factors carefully and 
selected proposed passenger car and light truck standards that we 
believe are the maximum feasible for MYs 2017-2025.
---------------------------------------------------------------------------

    \760\ We note, for example, that while Executive Orders 12866 
and 13563 focus attention on an approach that maximizes net 
benefits, both Executive Orders recognize that this focus is subject 
to the requirements of the governing statute. In this rulemaking, 
the standards represented by the ``MNB'' alternative are more 
stringent than what NHTSA has tentatively concluded would be maximum 
feasible for MYs 2017-2025, and thus setting standards at that level 
would be inconsistent with the requirements of EPCA/EISA to set 
maximum feasible standards.
    \761\ We underscore that the agency's tentative decision 
regarding what standards would be maximum feasible for MYs 2017-2025 
is made with reference to the rulemaking time frame and 
circumstances of this proposal. Each CAFE rulemaking (indeed, each 
stage of any given CAFE rulemaking) presents the agency with new 
information that may affect how we balance the relevant actors.
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G. Impacts of the Proposed CAFE Standards

1. How will these standards improve fuel economy and reduce GHG 
emissions for MY 2017-2025 vehicles?
    As discussed above, the CAFE level required under an attribute-
based standard depends on the mix of vehicles produced for sale in the 
U.S. Based on the market forecast that NHTSA and EPA have used to 
develop and analyze the proposed CAFE and CO2 emissions 
standards, NHTSA estimates that the proposed new CAFE standards would 
lead average required fuel consumption (fuel consumption is the inverse 
of fuel economy) levels to increase by an average of 4.0 percent 
annually through MY 2025, reaching a combined average fuel economy 
requirement of 49.6 mpg in that model year:
[GRAPHIC] [TIFF OMITTED] TP01DE11.204


[[Page 75255]]


    Accounting for differences between fuel economy levels under 
laboratory conditions, NHTSA estimates that these requirements would 
translate into the following required average levels under real-world 
operating conditions:
[GRAPHIC] [TIFF OMITTED] TP01DE11.205

    If manufacturers apply technology only as far as necessary to 
comply with CAFE standards, NHTSA estimates that, setting aside factors 
the agency cannot consider for purposes of determining maximum feasible 
CAFE standards,\762\ average achieved fuel economy levels would 
correspondingly increase through MY 2025, but that manufacturers would, 
on average, under-comply \763\ in some model years and over-comply 
\764\ in others, reaching a combined average fuel economy of 47.4 mpg 
(taking into account estimated adjustments reflecting improved air 
conditioner efficiency) in MY 2025:
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    \762\ 49 U.S.C. 32902(h) states that NHTSA may not consider the 
fuel economy of dedicated alternative fuel vehicles, the 
alternative-fuel portion of dual-fueled automobile fuel economy, or 
the ability of manufacturers to earn and use credits for over-
compliance, in determining the maximum feasible stringency of CAFE 
standards.
    \763\ ``Under-compliance'' with CAFE standards can be mitigated 
either through use of FFV credits, use of existing or ``banked'' 
credits, or through fine payment. Although, as mentioned above, 
NHTSA cannot consider availability of statutorily-provided credits 
in setting standards, NHTSA is not prohibited from considering fine 
payment. Therefore, the estimated achieved CAFE levels presented 
here include the assumption that Aston Martin, BMW, Daimler (i.e., 
Mercedes), Geely (i.e., Volvo), Lotus, Porsche, Spyker (i.e., Saab), 
and, Tata (i.e., Jaguar and Rover), and Volkswagen will only apply 
technology up to the point that it would be less expensive to pay 
civil penalties.
    \764\ In NHTSA's analysis, ``over-compliance'' occurs through 
multi-year planning: manufacturers apply some ``extra'' technology 
in early model years (e.g., MY 2014) in order to carry that 
technology forward and thereby facilitate compliance in later model 
years (e.g., MY 2016).

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[[Page 75256]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.206

    Accounting for differences between fuel economy levels under 
laboratory conditions, NHTSA estimates that these requirements would 
translate into the following required average levels under real-world 
operating conditions:

[[Page 75257]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.207

    Setting aside the potential to produce additional EVs (or, prior to 
MY 2020, PHEVs) or take advantage of EPCA's provisions regarding CAFE 
credits, NHTSA estimates that today's proposed standards could increase 
achieved fuel economy levels by average amounts of up to 0.5 mpg during 
the few model years leading into MY 2017, as manufacturers apply 
technology during redesigns leading into model years covered by today's 
new standards.\765\ As shown below, these ``early'' fuel economy 
increases yield corresponding reductions in fuel consumption and 
greenhouse gas emissions, and incur corresponding increases in 
technology outlays.
---------------------------------------------------------------------------

    \765\ This outcome is a direct result of revisions, made to 
DOT's CAFE model in preparation for the MY 2012-2016 rule, to 
simulate ``multiyear planning'' effects--that is, the potential that 
manufacturers will apply ``extra'' technology in one model year if 
doing so will be sufficiently advantageous with respect to the 
ability to comply with CAFE standards in later model years. For 
example, for today's rulemaking analysis, NHTSA has estimated that 
Ford will redesign the F-150 pickup truck in MY 2015, and again in 
MY 2021. As explained in Chapter V of the PRIA, NHTSA expects that 
many technologies would be applied as part of a vehicle redesign. 
Therefore, in NHTSA's analysis, if Ford does not anticipate ensuing 
standards when redesigning the MY 2015 F-150, Ford may find it more 
difficult to comply with light truck standard during MY 2016-2020. 
Through simulation of multiyear planning effects, NHTSA's analysis 
indicates that Ford could apply more technology to the MY 2015 F-150 
if standards continue to increase after MY 2016 than Ford need apply 
if standards remain unchanged after MY 2016, and that this 
additional technology would yield further fuel economy improvements 
of up to 1.3 mpg, depending on pickup configuration.
---------------------------------------------------------------------------

    Within the context EPCA requires NHTSA to apply for purposes of 
determining maximum feasible stringency of CAFE standards (i.e., 
setting aside EVs, pre-MY 2020 PHEVs, and all statutory CAFE credit 
provisions), NHTSA estimates that these fuel economy increases would 
lead to fuel savings totaling 173 billion gallons during the useful 
lives of vehicles manufactured in MYs 2017-2025 and the few MYs 
preceding MY 2017:

[[Page 75258]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.208

    The agency also estimates that these new CAFE standards would lead 
to corresponding reductions of CO2 emissions totaling 1,834 
million metric tons (mmt) during the useful lives of vehicles sold in 
MYs 2017-2025 and the few MYs preceding MY 2017:
[GRAPHIC] [TIFF OMITTED] TP01DE11.209

2. How will these standards improve fleet-wide fuel economy and reduce 
GHG emissions beyond MY 2025?
    Under the assumption that CAFE standards at least as stringent as 
those being proposed today for MY 2025 would be established for 
subsequent model years, the effects of the proposed standards on fuel 
consumption and GHG emissions will continue to increase for many years. 
This will occur because over time, a growing fraction of the U.S. 
light-duty vehicle fleet will be comprised of cars and light trucks 
that meet at least the MY 2025 standard. The impact of the new 
standards on fuel use and GHG emissions would therefore continue to 
grow through approximately 2060, when virtually all cars and light 
trucks in service will have met standards as stringent as those 
established for MY 2025.
    As Table IV-41 shows, NHTSA estimates that the fuel economy 
increases resulting from the proposed standards will lead to reductions 
in total fuel consumption by cars and light trucks of 3 billion gallons 
during 2020, increasing to 40 billion gallons by 2060. Over the period 
from 2017, when the proposed standards would begin to take effect, 
through 2050, cumulative fuel savings would total 1,232 billion 
gallons, as Table IV-41 also indicates.

[[Page 75259]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.210

    The energy security analysis conducted for this rule estimates that 
the world price of oil will fall modestly in response to lower U.S. 
demand for refined fuel. One potential result of this decline in the 
world price of oil would be an increase in the consumption of petroleum 
products outside the U.S., which would in turn lead to a modest 
increase in emissions of greenhouse gases, criteria air pollutants, and 
airborne toxics from their refining and use. While additional 
information would be needed to analyze this ``leakage effect'' in 
detail, NHTSA provides a sample estimate of its potential magnitude in 
its Draft EIS. This analysis indicates that the leakage effect is 
likely to offset only a very small fraction of the reductions in fuel 
use and emissions projected to result from the rule.
    As a consequence of these reductions in fleet-wide fuel 
consumption, the agency also estimates that the new CAFE standards for 
MYs 2017-2025 would lead to corresponding reductions in CO2 
emissions from the U.S. light-duty vehicle fleet. Specifically, NHTSA 
estimates that total annual CO2 emissions associated with 
passenger car and light truck use in the U.S. use would decline by 32 
million metric tons (mmt) in 2020 as a consequence of the new CAFE 
standards, as Table IV-42 reports. The table also shows that this 
annual reduction is estimated to grow to nearly 488 million metric tons 
by the year 2060, and will total over 13 billion metric tons over the 
period from 2017, when the proposed standards would take effect, 
through 2060.
[GRAPHIC] [TIFF OMITTED] TP01DE11.211

    These reductions in fleet-wide CO2 emissions, together 
with corresponding reductions in other GHG emissions from fuel 
production and use, would lead to small but significant reductions in 
projected changes in the future global climate. These changes, based on 
analysis documented in the draft Environmental Impact Statement (EIS) 
that informed the agency's decisions regarding this proposal, are 
summarized in Table IV-43 below.

[[Page 75260]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.212

3. How will these proposed standards impact non-GHG emissions and their 
associated effects?
    Under the assumption that CAFE standards at least as stringent as 
those proposed for MY 2025 would be established for subsequent model 
years, the effects of the new standards on air quality and its 
associated health effects will continue to be felt over the foreseeable 
future. This will occur because over time a growing fraction of the 
U.S. light-duty vehicle fleet will be comprised of cars and light 
trucks that meet the MY 2025 standard, and this growth will continue 
until approximately 2060.
    Increases in the fuel economy of light-duty vehicles required by 
the new CAFE standards will cause a slight increase in the number of 
miles they are driven, through the fuel economy ``rebound effect.'' In 
turn, this increase in vehicle use will lead to increases in emissions 
of criteria air pollutants and some airborne toxics, since these are 
products of the number of miles vehicles are driven.
    At the same time, however, the projected reductions in fuel 
production and use reported in Table IV-40 and IV-41 above will lead to 
corresponding reductions in emissions of these pollutants that occur 
during fuel production and distribution (``upstream'' emissions). For 
most of these pollutants, the reduction in upstream emissions resulting 
from lower fuel production and distribution will outweigh the increase 
in emissions from vehicle use, resulting in a net decline in their 
total emissions.\766\
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    \766\ As stated elsewhere, while the agency's analysis assumes 
that all changes in upstream emissions result from a decrease in 
petroleum production and transport, the analysis of non-GHG 
emissions in future calendar years also assumes that retail gasoline 
composition is unaffected by this rule; as a result, the impacts of 
this rule on downstream non-GHG emissions (more specifically, on air 
toxics) may be underestimated. See also Section III.G above for more 
information.
---------------------------------------------------------------------------

    Tables IV-44 and IV-45 report estimated reductions in emissions of 
selected criteria air pollutants (or their chemical precursors) and 
airborne toxics expected to result from the proposed standards during 
calendar year 2040. By that date, cars and light trucks meeting the MY 
2025 CAFE standards will account for the majority of light-duty vehicle 
use, so these reductions provide a useful index of the long-term impact 
of the final standards on air pollution and its consequences for human 
health. In the tables below, positive values indicate increases in 
emissions, while negative values indicate reductions.

[[Page 75261]]

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[[Page 75262]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.214

    In turn, the reductions in emissions reported in Tables IV-44 and 
IV-45 are projected to result in significant declines in the adverse 
health effects that result from population exposure to these 
pollutants. Table IV-46 reports the estimated reductions in selected 
PM2.5-related human health impacts that are expected to 
result from reduced population exposure to unhealthful atmospheric 
concentrations of PM2.5. The estimates reported in Table IV-
46, based on analysis documented in the draft Environmental Impact 
Statement (EIS) that informed the agency's decisions regarding this 
proposed rule, are derived from PM2.5-related dollar-per-ton 
estimates that reflect the quantifiable reductions in health impacts 
likely to result from reduced population exposure to particular matter 
(PM2.5). They do not include all health impacts related to 
reduced exposure to PM, nor do they include any reductions in health 
impacts resulting from lower population exposure to other criteria air 
pollutants (particularly ozone) and air toxics.
    There may be localized air quality and health impacts associated 
with this rulemaking that are not reflected in the estimates of 
aggregate air quality changes and health impacts reported in this 
analysis. Emissions changes and dollar-per-ton estimates alone are not 
necessarily a good indication of local or regional air quality and 
health impacts, because the atmospheric chemistry governing formation 
and accumulation of ambient concentrations of PM2.5, ozone, 
and air toxics is very complex. Full-scale photochemical modeling would 
provide the necessary spatial and temporal detail to more completely 
and accurately estimate the changes in ambient levels of these 
pollutants and their associated health and welfare impacts. NHTSA 
intends to conduct such modeling for purposes of the final rule, but it 
was not available in time to inform these proposed standards or to be 
included in the Draft EIS.

[[Page 75263]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.215

4. What are the estimated costs and benefits of these proposed 
standards?
    NHTSA estimates that the proposed standards could entail 
significant additional technology beyond the levels that could be 
applied under baseline CAFE standards (i.e., the application of MY 2016 
CAFE standards to MYs 2017-2025). This additional technology will lead 
to increases in costs to manufacturers and vehicle buyers, as well as 
fuel savings to vehicle buyers. Also, as discussed above, NHTSA 
estimates that today's proposed standards could induce manufacturers to 
apply technology during redesigns leading into model years covered by 
today's new standards, and to incur corresponding increases in 
technology outlays.
    Technology costs are assumed to change over time due to the 
influence of cost learning and the conversion from short- to long-term 
ICMs. Table I-47 represents the CAFE model inputs for MY 2012, MY 2017, 
MY 2021 and MY 2025 approximate net (accumulated) technology costs for 
some of the key enabling technologies as applied to Midsize passenger 
cars.\768\ Additional details on technology cost estimates can be found 
in Chapter V of NHTSA's PRIA and Chapter 3 of the Joint Draft TSD.
---------------------------------------------------------------------------

    \768\ The net (accumulated) technology costs represent the costs 
from a baseline vehicle (i.e. the top of the decision tree) to each 
of the technologies listed in the table. The baseline vehicle is 
assumed to utilize a fixed-valve naturally aspirated inline 4 
cylinder engine, 5-speed transmission and no electrification/
hybridization improvements.

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[[Page 75264]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.216

    In order to pay for this additional technology (and, for some 
manufacturers, civil penalties), NHTSA estimates that the cost of an 
average passenger car and light truck will increase relative to levels 
resulting from compliance with baseline (MY 2016) standards by $228-
$2,023 and $44-$1,578, respectively, during MYs 2017-2025. The 
following tables summarize the agency's estimates of average cost 
increases for each manufacturer's passenger car, light truck, and 
overall fleets (with corresponding averages for the industry):
BILLING CODE 4910-59-P

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[[Page 75266]]


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[[Page 75267]]


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[[Page 75268]]


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[[Page 75269]]


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[[Page 75270]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.222

    These cost estimates reflect the potential that a given 
manufacturer's efforts to minimize overall regulatory costs could focus 
technology where the most fuel can be saved at the least cost, and not 
necessarily, for example, where the cost to add technology would be 
smallest relative to baseline production costs. Therefore, if average 
incremental vehicle cost increases (including any civil penalties) are 
measured as increases relative to baseline prices (estimated by adding 
baseline costs to MY 2008 prices), the agency's analysis shows relative 
cost increases declining as baseline vehicle price increases. Figure 
IV-3 shows the trend for MY 2025, for vehicles with estimated baseline 
prices up to $100,000:

[[Page 75271]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.223

    If manufacturers pass along these costs rather than reducing 
profits, and pass these costs along where they are incurred rather than 
``cross-subsidizing'' among products, the quantity of vehicles produced 
at different price levels would change. Shifts in production may 
potentially occur, which could create marketing challenges for 
manufacturers that are active in certain segments. We recognize, 
however, that many manufacturers do in fact cross-subsidize to some 
extent, and take losses on some vehicles while continuing to make 
profits from others. NHTSA has no evidence to indicate that 
manufacturers will inevitably shift production plans in response to 
these proposed standards, but nevertheless believes that this issue is 
worth monitoring in the market going forward. NHTSA seeks comment on 
potential market effects related to this issue.
    As mentioned above, these estimated costs derive primarily from the 
additional application of technology under the proposed standards. The 
following three tables summarize the incremental extent to which the 
agency estimates technologies could be added to the passenger car, 
light truck, and overall fleets in each model year in response to the 
proposed standards. Percentages reflect the technology's additional 
application in the market, relative to the estimated application under 
baseline standards (i.e., application of MY 2016 standards through MY 
2025), and are negative in cases where one technology is superseded 
(i.e., displaced) by another. For example, the agency estimates that 
manufacturers could apply many improvements to transmissions (e.g., 
dual clutch transmissions, denoted below by ``DCT'') through MY 2025 
under baseline standards. However, the agency also estimates that 
manufacturers could apply even more advanced high efficiency 
transmissions (denoted below by ``HETRANS'') under the proposed 
standards, and that these transmissions would supersede DCTs and other 
transmission advances. Therefore, as shown in the following three 
tables, the incremental application of DCTs under the proposed 
standards is negative.
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[[Page 75279]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.231

    Based on the agencies' estimates of manufacturers' future sales 
volumes, and taking into account early outlays attributable to 
multiyear planning effects (discussed above), the cost increases 
associated with this additional application of technology will lead to 
a total of nearly $157 billion in incremental outlays during MYs 2017-
2025 (and model years leading up to MY 2017) for additional technology 
attributable to the proposed standards:
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[[Page 75281]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.233


[[Page 75282]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.234

    NHTSA notes that these estimates of the economic costs for meeting 
higher CAFE standards omit certain potentially important categories of 
costs, and may also reflect underestimation (or possibly 
overestimation) of some costs that are included. For example, although 
the agency's analysis is intended--with very limited exceptions\769\--
to hold vehicle performance, capacity, and utility constant when 
applying fuel-saving technologies to vehicles, the analysis imputes no 
cost to any actual reductions in vehicle performance, capacity, and 
utility that may result from manufacturers' efforts to comply with the 
proposed CAFE standards. Although these costs are difficult to estimate 
accurately, they nonetheless represent a notable category of omitted 
costs if they have not been adequately accounted for in the cost 
estimates. Similarly, the agency's estimates of net benefits for 
meeting higher CAFE standards includes estimates of the economic value 
of potential changes in motor vehicle fatalities that could result from 
reductions in the size or weight of vehicles, but not of changes in 
non-fatal injuries that could result from reductions in vehicle size 
and/or weight.
---------------------------------------------------------------------------

    \769\ For example, the agencies have assumed no cost changes due 
to our assumption that HEV towing capability is not maintained; due 
to potential drivability issues with the P2 HEV; and due to 
potential drivability and NVH issues with the shift optimizer.
---------------------------------------------------------------------------

    Finally, while NHTSA is confident that the cost estimates are the 
best available and appropriate for purposes of this proposed rule, it 
is possible that the agency may have underestimated or overestimated 
manufacturers' direct costs for applying some fuel economy 
technologies, or the increases in manufacturer's indirect costs 
associated with higher vehicle manufacturing costs. In either case, the 
technology outlays reported here will not correctly represent the costs 
of meeting higher CAFE standards. Similarly, NHTSA's estimates of 
increased costs of congestion, accidents, and noise associated with 
added vehicle use are drawn from a 1997 study, and the correct 
magnitude of these values may have changed since they were developed. 
If this is the case, the costs of increased vehicle use associated with 
the fuel economy rebound effect will differ from the agency's estimates 
in this analysis. Thus, like the agency's estimates of economic 
benefits, estimates of total compliance costs reported here may 
underestimate or overestimate the true economic costs of the proposed 
standards.
    However, offsetting these costs, the achieved increases in fuel 
economy will also produce significant benefits to society. Most of 
these benefits are attributable to reductions in fuel consumption; fuel 
savings are valued using forecasts of pretax prices in EIA's reference 
case forecast from AEO 2011. The total benefits also include other 
benefits and dis-benefits, examples of which include the social values 
of reductions in CO2 and criteria pollutant emissions, the 
value of additional travel (induced by the rebound effect), and the 
social costs of additional congestion, accidents, and noise 
attributable to that additional travel. The PRIA accompanying today's 
proposed rule presents a detailed analysis of the rule's specific 
benefits.
    As Tables IV-59 and 60 show, NHTSA estimates that at the discount 
rates of 3 percent prescribed in OMB guidance for regulatory analysis, 
the present value of total benefits from the proposed CAFE standards 
over the lifetimes of MY 2017-2025 (and, accounting for multiyear 
planning effects discussed above, model years leading up to MY 2017) 
passenger cars and light trucks will be $515 billion.


[[Page 75283]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.235

    Tables IV-61 and 62 report that the present value of total benefits 
from requiring cars and light trucks to achieve the fuel economy levels 
specified in the proposed CAFE standards for MYs 2017-25 will be $419 
billion when discounted at the 7 percent rate also required by OMB 
guidance. Thus the present value of fuel savings and other benefits 
over the lifetimes of the vehicles covered by the proposed standards is 
$96 billion--or about 19 percent--lower when discounted at a 7 percent 
annual rate than when discounted using the 3 percent annual rate.\771\
---------------------------------------------------------------------------

    \770\ Unless otherwise indicated, all tables in Section IV 
report benefits calculated using the Reference Case input 
assumptions, with future benefits resulting from reductions in 
carbon dioxide emissions discounted at the 3 percent rate prescribed 
in the interagency guidance on the social cost of carbon.
    \771\ For tables that report total or net benefits using a 7 
percent discount rate, future benefits from reducing carbon dioxide 
emissions are discounted at 3 percent in order to maintain 
consistency with the discount rate used to develop the reference 
case estimate of the social cost of carbon. All other future 
benefits reported in these tables are discounted using the 7 percent 
rate.

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[[Page 75284]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.236

    For both the passenger car and light truck fleets, NHTSA estimates 
that the benefits of today's proposed standards will exceed the 
corresponding costs in every model year, so that the net social 
benefits from requiring higher fuel economy--the difference between the 
total benefits that result from higher fuel economy and the technology 
outlays required to achieve it--will be substantial. Because the 
technology outlays required to achieve the fuel economy levels required 
by the proposed standards are incurred during the model years when the 
vehicles are produced and sold, however, they are not subject to 
discounting, so that their present value does not depend on the 
discount rate used. Thus the net benefits of the proposed standards 
differ depending on whether the 3 percent or 7 percent discount rate is 
used, but only because the choice of discount rates affects the present 
value of total benefits, and not that of technology costs.
    As Tables IV-63 and 64 show, over the lifetimes of the affected (MY 
2017-2025, and MYs leading up to MY 2017) vehicles, the agency 
estimates that when the benefits of the proposed standards are 
discounted at a 3 percent rate, they will exceed the costs of the 
proposed standards by $358 billion:

[[Page 75285]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.237

    As indicated previously, when fuel savings and other future 
benefits resulting from the proposed standards are discounted at the 7 
percent rate prescribed in OMB guidance, they are $96 billion lower 
than when the 3 percent discount rate is applied. Because technology 
costs are not subject to discounting, using the higher 7 percent 
discount rate reduces net benefits by exactly this same amount. 
Nevertheless, Tables IV-65 and 66 show that the net benefits from 
requiring passenger cars and light trucks to achieve higher fuel 
economy are still substantial even when future benefits are discounted 
at the higher rate, totaling $262 billion over MYs 2017-25. Net 
benefits are thus about 27 percent lower when future benefits are 
discounted at a 7 percent annual rate than at a 3 percent rate.

[[Page 75286]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.238

    NHTSA's estimates of economic benefits from establishing higher 
CAFE standards are subject to considerable uncertainty. Most important, 
the agency's estimates of the fuel savings likely to result from 
adopting higher CAFE standards depend critically on the accuracy of the 
estimated fuel economy levels that will be achieved under both the 
baseline scenario, which assumes that manufacturers will continue to 
comply with the MY 2016 CAFE standards, and under alternative increases 
in the standards that apply to MYs 2017-25 passenger cars and light 
trucks. Specifically, if the agency has underestimated the fuel economy 
levels that manufacturers would have achieved under the baseline 
scenario--or is too optimistic about the fuel economy levels that 
manufacturers will actually achieve under the proposed standards--its 
estimates of fuel savings and the resulting economic benefits 
attributable to this rule will be too large.
    Another major source of potential overestimation in the agency's 
estimates of benefits from requiring higher fuel economy stems from its 
reliance on the Reference Case fuel price forecasts reported in AEO 
2011. Although NHTSA believes that these forecasts are the most 
reliable that are available, they are nevertheless significantly higher 
than the fuel price projections reported in most previous editions of 
EIA's Annual Energy Outlook, and reflect projections of world oil 
prices that are well above forecasts issued by other firms and 
government agencies. If the future fuel prices projected in AEO 2011 
prove to be too high, the agency's estimates of the value of future 
fuel savings--the major component of benefits from this rule--will also 
be too high.
    However, it is also possible that NHTSA's estimates of economic 
benefits from establishing higher CAFE standards underestimate the true 
economic benefits of the fuel savings those standards would produce. If 
the AEO 2011 forecast of fuel prices proves to be too low, for example, 
NHTSA will have underestimated the value of fuel savings that will 
result from adopting higher CAFE standards for MY 2017-25. As another 
example, the agency's estimate of benefits from reducing the threat of 
economic damages from disruptions in the supply of imported petroleum 
to the U.S. applies to calendar year 2020. If the magnitude of this 
estimate would be expected to grow after 2015 in response to increases 
in U.S. petroleum imports, growth in the level of U.S. economic 
activity, or increases in the likelihood of disruptions in the supply 
of imported petroleum, the agency may have underestimated the benefits 
from the reduction in petroleum imports expected to result from 
adopting higher CAFE standards.
    NHTSA's benefit estimates could also be too low because they 
exclude or understate the economic value of certain potentially 
significant categories of benefits from reducing fuel consumption. As 
one example, EPA's estimates of the economic value of reduced damages 
to human health resulting from lower exposure to criteria air 
pollutants includes only the effects

[[Page 75287]]

of reducing population exposure to PM2.5 emissions. Although 
this is likely to be the most significant component of health benefits 
from reduced emissions of criteria air pollutants, it excludes the 
value of reduced damages to human health and other impacts resulting 
from lower emissions and reduced population exposure to other criteria 
air pollutants, including ozone and nitrous oxide (N2O), as 
well as to airborne toxics. EPA's estimates exclude these benefits 
because no reliable dollar-per-ton estimates of the health impacts of 
criteria pollutants other than PM2.5 or of the health 
impacts of airborne toxics were available to use in developing 
estimates of these benefits.
    Similarly, the agency's estimate of the value of reduced climate-
related economic damages from lower emissions of GHGs excludes many 
sources of potential benefits from reducing the pace and extent of 
global climate change.\772\ For example, none of the three models used 
to value climate-related economic damages includes those resulting from 
ocean acidification or loss of species and wildlife. The models also 
may not adequately capture certain other impacts, including potentially 
abrupt changes in climate associated with thresholds that govern 
climate system responses, interregional interactions such as global 
security impacts of extreme warming, or limited near-term 
substitutability between damage to natural systems and increased 
consumption. Including monetized estimates of benefits from reducing 
the extent of climate change and these associated impacts would 
increase the agency's estimates of benefits from adopting higher CAFE 
standards.
---------------------------------------------------------------------------

    \772\ Social Cost of Carbon for Regulatory Impact Analysis Under 
Executive Order 12866, Interagency Working Group on Social Cost of 
Carbon, United States Government, February 2010. Available in Docket 
No. NHTSA-2009-0059.
---------------------------------------------------------------------------

    The following tables present itemized costs and benefits for the 
combined passenger car and light truck fleets for each model year 
affected by the proposed standards and for all model years combined, 
using both discount rates prescribed by OMB regulatory guidance. Tables 
IV-67 and 68 report technology outlays, each separate component of 
benefits (including costs associated with additional driving due to the 
rebound effect, labeled ``dis-benefits''), the total value of benefits, 
and net benefits using the 3 percent discount rate. (Numbers in 
parentheses represent negative values.)
BILLING CODE 4910-59-P

[[Page 75288]]

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[[Page 75289]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.240


[[Page 75290]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.241


[[Page 75291]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.242

BILLING CODE 4910-59-C
    Similarly, Tables IV-69 and 70 below report technology outlays, the 
individual components of benefits (including ``dis-benefits'' resulting 
from additional driving) and their total and net benefits using the 7 
percent discount rate. (Again, numbers in parentheses represent 
negative values.)
BILLING CODE 4910-59-P

[[Page 75292]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.243

     
---------------------------------------------------------------------------

    \774\ Using the central value of $22 per metric ton for the SCC, 
and discounting future benefits from reduced CO2 
emissions at a 3 percent annual rate. Additionally, we note that the 
$22 per metric ton value for the SCC applies to calendar year 2010, 
and increases over time. See the interagency guidance on SCC for 
more information.

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[GRAPHIC] [TIFF OMITTED] TP01DE11.244


[[Page 75294]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.245


[[Page 75295]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.246

BILLING CODE 4910-59-C
    These benefit and cost estimates do not reflect the availability 
and use of certain flexibility mechanisms, such as compliance credits 
and credit trading, because EPCA prohibits NHTSA from considering the 
effects of those mechanisms in setting CAFE standards. However, the 
agency notes that, in reality, manufacturers are likely to rely to some 
extent on flexibility mechanisms and would thereby reduce the cost of 
complying with the proposed standards to a meaningful extent.
    As discussed in the PRIA, NHTSA has performed an analysis to 
estimate costs and benefits taking into account EPCA's provisions 
regarding EVs, PHEVs produced before MY 2020, FFV credits, and other 
CAFE credit provisions. Accounting for these provisions indicates that 
achieved fuel economies would be 0.5-1.6 mpg lower than when these 
provisions are not considered:

[[Page 75296]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.247

    As a result, NHTSA estimates that, when EPCA AFV and credit 
provisions are taken into account, fuel savings will total 163 billion 
gallons--5.8 percent less than the 173 billion gallons estimated when 
these flexibilities are not considered:

[[Page 75297]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.248

    The agency similarly estimates CO2 emissions reductions 
will total 1,742 million metric tons (mmt), 5.0 percent less than the 
1,834 mmt estimated when these EPCA provisions are not considered: 
\775\
---------------------------------------------------------------------------

    \775\ Differences in the application of diesel engines and plug-
in hybrid electric vehicles lead to differences in the percentage 
changes in fuel consumption and carbon dioxide emissions between the 
with- and without-credit cases.

---------------------------------------------------------------------------

[[Page 75298]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.249

    This analysis further indicates that significant reductions in 
outlays for additional technology will result when EPCA's AFV and 
credit provisions are taken into account. Tables IV-77 and 78 below 
show that, total technology costs are estimated to decline to $133 
billion as a result of manufacturers' use of these provisions, or about 
15 percent less than the $157 billion estimated when excluding these 
flexibilities:

[[Page 75299]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.250

    Because NHTSA's analysis indicated that these EPCA provisions will 
modestly reduce fuel savings and related benefits, the agency's 
estimate of the present value of total benefits will be $488 billion 
when discounted at a 3 percent annual rate, as Tables IV-79 and 80 
below report. This estimate of total benefits is $27 billion, or 5.2 
percent, lower than the $515 billion reported previously for the 
analysis that excluded these provisions:

[[Page 75300]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.251

    Similarly, NHTSA estimates that the present value of total benefits 
will decline modestly from its previous estimate when future fuel 
savings and other benefits are discounted at the higher 7 percent rate. 
Tables IV-81 and 82 report that the present value of benefits from 
requiring higher fuel economy for MY 2017-25 cars and light trucks will 
total $397 billion when discounted using a 7 percent rate, about $22 
billion (5.3 percent) below the previous $419.2 billion estimate of 
total benefits when FFV credits were not permitted:

[[Page 75301]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.252

    Although the discounted present value of total benefits will be 
modestly lower when EPCA AFV and credit provisions are taken into 
account, the agency estimates that these provisions will reduce net 
benefits by a smaller proportion. As Tables IV-83 and 84 show, the 
agency estimates that these will reduce net benefits from the proposed 
CAFE standards to $355 billion from the previously-reported estimate of 
$358 billion without those credits, or by only about 1 percent.

[[Page 75302]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.253

    Similarly, Tables IV-85 and 86 immediately below show that NHTSA 
estimates manufacturers' use of EPCA AFV and credit provisions will 
increase net benefits from requiring higher fuel economy for MY 2017-25 
cars and light trucks, but very slightly--to $264 billion--if a 7 
percent discount rate is applied to future benefits. This estimate is 
$2 billion--or 0.8 percent--higher than the previously-reported $262 
billion estimate of net benefits without the availability of EPCA AFV 
and credit provisions using that same discount rate.

[[Page 75303]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.254

    The agency has performed several sensitivity analyses to examine 
important assumptions. All sensitivity analyses were based on the 
``standard setting'' output of the CAFE model. We examine sensitivity 
with respect to the following economic parameters:
    (1) The price of gasoline: The main analysis (i.e., the Reference 
Case) uses the AEO 2011 Reference Case estimate for the price of 
gasoline. In this sensitivity analysis we examine the effect of using 
the AEO 2011 High Price Case or Low Price Case forecast estimates 
instead.
    (2) The rebound effect: The main analysis uses a rebound effect of 
10 percent to project increased miles traveled as the cost per mile 
driven decreases. In the sensitivity analysis, we examine the effect of 
using a 5, 15, or 20 percent rebound effect instead.
    (3) The value of CO2 benefits: The main analysis uses 
$22 per ton discounted at a 3 percent discount rate to quantify the 
benefits of reducing CO2 emissions and $0.174 per gallon to 
quantify the benefits of reducing fuel consumption. In the sensitivity 
analysis, we examine the following values and discount rates applied 
only to the social cost of carbon to value carbon benefits, considering 
low, high, and very high valuations of approximately $5, $36, and $67 
per ton, respectively with regard to the benefits of reducing 
CO2 emissions.\776\ These are the 2010 values, which 
increase over time. These values can be translated into cents per 
gallon by multiplying by 0.0089,\777\ giving the following values:
---------------------------------------------------------------------------

    \776\ The low, high, and very high valuations of $5, $36, and 
$67 are rounded for brevity; the exact values are $4.86, $36.13, and 
$66.88, respectively. While the model uses the unrounded values, the 
use of unrounded values is not intended to imply that the chosen 
values are precisely accurate to the nearest cent; rather, they are 
average levels resulting from the many published studies on the 
topic.
    \777\ The molecular weight of Carbon (C) is 12, the molecular 
weight of Oxygen (O) is 16, thus the molecular weight of 
CO2 is 44. 1 gallon of gas weighs 2,819 grams, of that 
2,433 grams are carbon. One ton of CO2/One ton of C (44/
12)* 2433grams C/gallon *1 ton/1000kg * 1 kg/1000g = (44 * 
2433*1*1)/(12*1*1000 * 1000) = 0.0089. Thus, one ton of 
CO2*0.0089 = 1 gallon of gasoline.
---------------------------------------------------------------------------

     ($4.86 per ton CO2) x 0.0089 = $0.043 per 
gallon discounted at 5%
     ($22.00 per ton CO2) x 0.0089 = $0.196 per 
gallon discounted at 3% (used in the main analysis)
     ($36.13 per ton CO2) x0.0089 = $0.322 per 
gallon discounted at 2.5%
     And a 95th percentile estimate of
     ($66.88 per ton CO2) x 0.0089 = $0.595 per 
gallon discounted at 3%
    (4) Military security: The main analysis does not assign a value to 
the military security benefits of reducing fuel consumption. In the 
sensitivity analysis, we examine the impact of using a value of 12 
cents per gallon instead.
    (5) Consumer Benefit: The main analysis assumes there is no loss in 
value to consumers resulting from vehicles that have an increase in 
price and higher fuel economy. This sensitivity analysis assumes that 
there is a 25, or 50 percent loss in value to consumers--equivalent to 
the assumption that consumers will only value the calculated benefits 
they will achieve at 75, or 50 percent,

[[Page 75304]]

respectively, of the main analysis estimates.
    (6) Battery cost: The agency conducted a sensitivity analysis of 
technology cost in relation to battery costs for HEV, PHEV, and EV 
batteries. The ranges are based on recommendations from technical 
experts in the field of battery energy storage technologies at the 
Department of Energy (DOE) and at Argonne National Laboratories (ANL), 
and were developed using the Battery Performance and Cost (BatPac) 
model developed by ANL and funded by DOE.\778\ The values for these 
ranges are shown in the table below and are calculated with 95 percent 
confidence intervals after analyzing the confidence bound using the 
BatPac model.
---------------------------------------------------------------------------

    \778\ Section 3.4.3.9 in Chapter 3 of the draft Joint TSD has a 
detailed description of the history of the BatPac model and how the 
agencies used it in this NPRM analysis.
[GRAPHIC] [TIFF OMITTED] TP01DE11.255

    (7) Mass reduction cost: Due to the wide range of mass reduction 
costs as discussed in Chapter 3 of the draft joint TSD, a sensitivity 
analysis was performed examining the impact of the cost of vehicle mass 
reduction to the total technology cost. The direct manufacturing cost 
(DMC) for mass reduction is represented as a linear function between 
the unit DMC versus percent of mass reduction, as shown in the figure 
below:
[GRAPHIC] [TIFF OMITTED] TP01DE11.256

The slope of the line used in the central analysis for this NPRM is 
$4.32 per pound per percent of mass reduction. The slope of the line is 
varied + 40% as the upper and lower bound for this sensitivity study. 
The resultant values

[[Page 75305]]

for the range of mass reduction cost are shown in the table below:
[GRAPHIC] [TIFF OMITTED] TP01DE11.257

    (8) Market-driven response: The baseline for the central analysis 
is based on the MY 2016 CAFE standards and assumes that manufacturers 
will make no changes in the fuel economy from that level through MY 
2025. A sensitivity analysis was performed to simulate potential 
increases in fuel economy over the compliance level required if MY 2016 
standards were to remain in place. The assumption is that the market 
would drive manufacturers to put technologies into their vehicles that 
they believe consumers would value and be willing to pay for. Using 
parameter values consistent with the central analysis, the agency 
simulated a market-driven response by applying a payback period of one 
year for purposes of calculating the value of future fuel savings when 
simulating whether manufacturers would apply additional technology to 
an already CAFE-compliant fleet. In other words we assumed that 
manufacturers that were above their MY 2016 CAFE level would compare 
the cost to consumers to the fuel savings in the first year of 
operation and decide to voluntarily apply those technologies to their 
vehicles when benefits for the first year exceeded costs for the 
consumer. For a manufacturer's fleet that has not yet achieved 
compliance with CAFE standards, the agency continued to apply a five-
year payback period. In other words, for this sensitivity analysis the 
agency assumed that manufacturers that have not yet met CAFE standards 
for future model years will apply technology as if buyers were willing 
to pay for the technologies as long as the fuel savings throughout the 
first five years of vehicle ownership exceeded their costs. Once having 
complied with those standards, however, manufacturers are assumed to 
consider making further improvements in fuel economy as if buyers were 
only willing to pay for fuel savings to be realized during the first 
year of vehicle ownership. The `market-driven response' assumes that 
manufacturers will overcomply if additional technology is sufficiently 
cost-effective. Because this assumption has a greater impact under the 
baseline standards, its application reduces the incremental costs, 
effects, and benefits attributable to the new standards. This does not 
mean that costs, effects, and benefits would actually be smaller with a 
market-driven response; rather, it means that costs, effects, and 
benefits would be at least as great, but would be partially 
attributable not to the new standards, but instead to the market.
    Varying each of these eight parameters in isolation results in a 
variety of economic scenarios, in addition to the Reference case. These 
are listed in Table IV-87 below.
BILLING CODE 4910-59-P

[[Page 75306]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.258

BILLING CODE 4910-59-C
    The basic results of this sensitivity analysis are contained in 
Chapter X of the PRIA, but several selected findings are as follows:

[[Page 75307]]

    (1) Varying the economic assumptions has almost no impact on 
achieved mpg. The mass reduction cost sensitivities, battery cost 
reduction sensitivities, and the market-based baseline are the only 
cases in which achieved mpg differs from the Reference Case of the 
Preferred Alternative. None of these alter the outcome by more than 0.2 
mpg for either fleet.
    (2) Varying the economic assumptions has, at most, a small impact 
on per-vehicle costs, fuel saved, and CO2 emissions 
reductions, with none of the variations impacting the outcomes by more 
than 10 percent from their central analysis levels, save for several 
exceptions including alternate fuel price sensitivities and the 
sensitivity involving a 20 percent rebound effect.
    (3) The category most affected by variations in the economic 
parameters considered in these sensitivity analyses is net benefits. 
The sensitivity analyses examining the AEO Low and High fuel price 
scenarios demonstrate the potential to negatively impact net benefits 
by up to 40.3 percent or to increase net benefits by 29.5 percent 
relative to those of the Preferred Alternative. Other large impacts on 
net benefits occurred with the 20 percent rebound effect (-38.4%), 
valuing benefits at 50 and 75 percent (-63.0% and -31.5%, 
respectively), and valuing the reduction in CO2 emissions at 
$67/ton (+28.1%).
    (4) Even if consumers value the benefits achieved at 50% of the 
main analysis assumptions, total benefits still exceed costs.
    Regarding the lower fuel savings and CO2 emissions 
reductions predicted by the sensitivity analysis as fuel price 
increases, which initially may seem counterintuitive, we note that 
there are some counterbalancing factors occurring. As fuel price 
increases, people will drive less and so fuel savings and 
CO2 emissions reductions may decrease.
    The agency performed two additional sensitivity analyses presented 
in Tables IV-88 and IV-89. First, the agency analyzed the impact that 
having a retail price equivalent (RPE) factor of 1.5 for all 
technologies would have on the various alternatives instead of using 
the indirect cost methodology (ICM). The ICM methodology in an overall 
markup factor of 1.2 to 1.25 compared to the RPE markup factor from 
variable cost of 1.5. Next, the agency conducted a separate sensitivity 
analysis using values that were derived from the 2011 NAS Report. This 
analysis used an RPE markup factor of 1.5 for non-electrification 
technologies, which is consistent with the NAS estimation for 
technologies manufactured by suppliers, and an RPE markup factor of 
1.33 for electrification technologies (HEV, PHEV, and EV); three types 
of learning which include no learning for mature technologies, 1.25 
percent annual learning for evolutionary technologies, and 2.5 percent 
annual learning for revolutionary technologies; technology cost 
estimates for 52 percent (33 out of 63) technologies; and technology 
effectiveness estimates for 56 percent (35 out of 63) technologies. 
Cost learning was applied to technology costs in a manner similar to 
how cost learning is applied in the central analysis for many 
technologies which have base costs that are applicable to recent or 
near-term future model years. As noted above, the cost learning factors 
used for the sensitivity case are different from the values used in the 
central analysis. For the other inputs in the sensitivity case, where 
the NAS study has inconsistent information or lacks projections, NHTSA 
used the same input values that were used in the central analysis.

[[Page 75308]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.259


[[Page 75309]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.260

    For today's rulemaking analysis, the agency has also performed a 
sensitivity analysis where manufacturers are allowed to voluntarily 
apply more technology than would be required to comply with CAFE 
standards for each model year. Manufacturers are assumed to do so as 
long as applying each additional technology would increase vehicle 
production costs (including markup) by less than it would reduce 
buyers' fuel costs during the first year they own the vehicle. This 
analysis makes use of the ``voluntary overcompliance'' simulation 
capability DOT has recently added to its CAFE model. This capability, 
which is discussed further above in section IV.C.4.c and in the CAFE 
model documentation, is a logical extension of the model's simulation 
of some manufacturers' decisions to respond to EPCA by paying civil 
penalties once additional technology becomes

[[Page 75310]]

economically unattractive. It attempts to simulate manufacturers' 
responses to buyers' demands for higher fuel economy levels than 
prevailing CAFE standards would require when fuel costs are 
sufficiently high, and technologies that manufacturers have not yet 
fully utilized are available to improve fuel economy at relatively low 
costs.
    NHTSA performed this analysis because some stakeholders commenting 
on the recently-promulgated standards for medium- and heavy-duty 
vehicles indicated that it would be unrealistic for the agency to 
assume that in the absence of new regulations, technology and fuel 
economy would not improve at all in the future. In other words, these 
stakeholders argued that market forces are likely to result in some 
fuel economy improvements over time, as potential vehicle buyers and 
manufacturers respond to changes in fuel prices and in the availability 
and costs of technologies to increase fuel economy. NHTSA agrees that, 
in principle, its analysis should estimate a potential that 
manufacturers will apply technology as if buyers place some value on 
fuel economy improvements. Considering current uncertainties discussed 
below regarding the degree to which manufacturers will do so, the 
agency currently judges it appropriate to conduct its central 
rulemaking analysis without attempting to simulate these effects. 
Nonetheless, the agency believes that voluntary overcompliance is 
sufficiently plausible that corresponding sensitivity analysis is 
warranted.
    NHTSA performed this analysis by simulating potential 
overcompliance under the no-action alternative, the preferred 
alternative, and other regulatory alternatives. In doing so, the agency 
used all the same parameter values as in the agency's central analysis, 
but applied a payback period of one year for purposes of calculating 
the value of future fuel savings when simulating whether a manufacturer 
would apply additional technology to an already CAFE-compliant fleet. 
For technologies applied to a manufacturer's fleet that has not yet 
achieved compliance with CAFE standards, the agency continued to apply 
a five-year payback period.
    In other words, for this sensitivity analysis the agency assumed 
that manufacturers that have not yet met CAFE standards for future 
model years will apply technology as if buyers were willing to pay for 
fuel savings throughout the first five years of vehicle ownership. Once 
having complied with those standards, however, manufacturers are 
assumed to consider making further improvements in fuel economy as if 
buyers were only willing to pay for fuel savings to be realized during 
the first year of vehicle ownership. This reflects the agency's 
assumptions for this sensitivity analysis, that (1) civil penalties, 
though legally available, carry a stigma that manufacturers will strive 
to avoid, and that (2) having achieved compliance with CAFE standards, 
manufacturers will avoid competitive risks entailed in charging higher 
prices for vehicles that offer additional fuel economy, rather than 
offering additional performance or utility.
    Since CAFE standards were first introduced, some manufacturers have 
consistently exceeded those standards, and the industry as a whole has 
consistently overcomplied with both the passenger car and light truck 
standards. Although the combined average fuel economy of cars and light 
trucks declined in some years, this resulted from buyers shifting their 
purchases from passenger cars to light trucks, not from undercompliance 
with either standard. Even with those declines, the industry still 
overcomplied with both passenger car and light truck standards. In 
recent years, between MYs 1999 and 2009, fuel economy overcompliance 
has been increasing on average for both the passenger car and the light 
truck fleets. NHTSA considers it impossible to say with certainty why 
past fuel economy levels have followed their observed path. If the 
agency could say with certainty how fuel economy would have changed in 
the absence of CAFE standards, it might be able to answer this 
question; however, NHTSA regards this ``counterfactual'' case as simply 
unknowable.
    NHTSA has, however, considered other relevant indications regarding 
manufacturers' potential future decisions. Published research regarding 
how vehicle buyers have previously viewed fuel economy suggests that 
they have only a weak quantitative understanding of the relationship 
between fuel economy and future fuel outlays, and that potential buyers 
value fuel economy improvements by less than theoretical present-value 
calculations of lifetime fuel savings would suggest. These findings are 
generally consistent with manufacturers' confidential and, in some 
cases, public statements. Manufacturers have tended to communicate not 
that buyers absolutely ``don't care'' about fuel economy, but that 
buyers have, in the past, not been willing to pay the full cost of most 
fuel economy improvements. Manufacturers have also tended to indicate 
that sustained high fuel prices would provide a powerful incentive for 
increased fuel economy; this implies that manufacturers believe buyers 
are willing to pay for some fuel economy increases, but that buyers' 
willingness to do so depends on their expectations for future fuel 
prices. In their confidential statements to the agency, manufacturers 
have also tended to indicate that in their past product planning 
processes, they have assumed buyers would only be willing to pay for 
technologies that ``break even'' within a relatively short time--
generally the first two to four years of vehicle ownership.
    NHTSA considers it not only feasible but appropriate to simulate 
such effects by calculating the present value of fuel savings over some 
``payback period.'' The agency also believes it is appropriate to 
assume that specific improvements in fuel economy will be implemented 
voluntarily if manufacturers' costs for adding the technology necessary 
to implement them to specific models would be lower than potential 
buyers' willingness to pay for the resulting fuel savings. This 
approach takes fuel costs directly into account, and is therefore 
responsive to manufacturers' statements regarding the role that fuel 
prices play in influencing buyers' demands and manufacturers' planning 
processes. Under this approach, a short payback period can be employed 
if manufacturers are expected to act as if buyers place little value on 
fuel economy. Conversely, a longer payback period can be used if 
manufacturers are expected to act as if buyers will place comparatively 
greater value on fuel economy.
    NHTSA cannot be certain to what extent vehicle buyers will, in the 
future, be willing to pay for fuel economy improvements, or to what 
extent manufacturers would, in the future, voluntarily apply more 
technology than needed to comply with fuel economy standards. The 
agency is similarly hopeful that future vehicle buyers will be more 
willing to pay for fuel economy improvements than has historically been 
the case. In meetings preceding today's proposed standards, two 
manufacturers stated they expected fuel economy to increase two percent 
to three percent per year after MY 2016, absent more stringent 
regulations. And in August 2010, one manufacturer stated its combined 
fleet would achieve 50 mpg by MY 2025, supporting that at a minimum 
some manufacturers believe that exceeding fuel economy standards will 
provide them a competitive advantage. The agency is hopeful that future 
vehicle buyers will be better-informed than has historically been the 
case, in part because recently-

[[Page 75311]]

promulgated requirements regarding vehicle labels will provide clearer 
information regarding fuel economy and the dollar value of resulting 
fuel savings. The agency is similarly hopeful that future vehicle 
buyers will be more willing to pay for fuel economy improvements than 
past buyers. In meetings preceding today's proposed standards, many 
manufacturers indicated significant shifts in their product plans--
shifts consistent with expectations that compared to past buyers, 
future buyers will ``care more'' about fuel economy.
    Nevertheless, considering the uncertainties mentioned above, NHTSA 
continues to consider it appropriate to conduct its central rulemaking 
analysis in a manner that ignores the possibility that in the future, 
manufacturers will voluntarily apply more technology than the minimum 
necessary to comply with CAFE standards. Also, in conducting its 
sensitivity analysis to simulate voluntary overcompliance with the 
proposed standards, the agency has applied the extremely conservative 
assumption that when considering whether to employ ``extra'' 
technology, manufacturers will act as if buyers' value the resulting 
savings in fuel costs only during their first year of ownership (i.e., 
as if a 1-year payback period applies).
    Results of the agency's analysis simulating this potential for 
voluntary overcompliance are summarized below. Compared to results from 
the agencies' central analysis presented above, differences are 
greatest for the baseline scenario (i.e., the No-Action Alternative), 
under which CAFE standards remain unchanged after MY 2016. These 
results also suggest, as the agency would expect, that because 
increasingly stringent standards require progressively more technology 
than the market will demand, the likelihood of voluntary overcompliance 
will decline with increasing stringency. Achieved fuel economy levels 
under baseline standards are as follows:
[GRAPHIC] [TIFF OMITTED] TP01DE11.261

    With no change in standards after MY 2016, while combined average 
fuel economy is the same in MY 2017 both with and without simulated 
voluntary overcompliance, differences grow over time, reaching 0.8 mpg 
in MY 2025. In other words, without simulating voluntary 
overcompliance, the agency estimated that combined average achieved 
fuel economy would reach 35.2 mpg in MY 2025, whereas the agency 
estimates that it would reach 36.0 mpg in that year if voluntary 
overcompliance occurred.
    In contrast, the effect on achieved fuel economy levels of allowing 
voluntary overcompliance with the proposed standards was minimal. 
Allowing manufacturers to overcomply with the proposed standards for MY 
2025 led to combined average achieved fuel economy levels approximately 
equal to levels of values obtained without simulating voluntary 
overcompliance:

[[Page 75312]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.262

    As a result, NHTSA estimates that, when the potential for voluntary 
overcompliance is taken into account, fuel savings attributable to more 
stringent standards will total 162 billion gallons--6.4 percent less 
than the 173 billion gallons estimated when potential voluntary 
overcompliance is not taken into account:

[[Page 75313]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.263

    The agency is not projecting, however, that fuel consumption will 
be greater when voluntary overcompliance is taken into account. Rather, 
under today's proposed standards, the agency's analysis shows virtually 
identical fuel consumption (0.2 percent less over the useful lives of 
MY 2017-2025 vehicles) when potential voluntary overcompliance is taken 
into account. Simulation of voluntary overcompliance, therefore, does 
not reduce the agency's estimate of future fuel savings over the 
baseline scenario. Rather it changes the attribution of those fuel 
savings to the proposed standards, because voluntary overcompliance 
attributes some of the fuel savings to the market. The same holds for 
the attribution of costs, other effects, and monetized benefits--
inclusion of voluntary overcompliance does not necessarily change their 
amounts, but it does attribute some of each cost, effect, or benefit to 
the workings of the market, rather than to the proposed standards.
    The agency similarly estimates CO2 emissions reductions 
attributable to today's proposed standards will total 1,726 million 
metric tons (mmt), 5.8 percent less than the 1,834 mmt estimated when 
potential voluntary overcompliance is not taken into account: \779\
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    \779\ Differences in the application of diesel engines and plug-
in hybrid electric vehicles lead to differences in the incremental 
percentage changes in fuel consumption and carbon dioxide emissions.

---------------------------------------------------------------------------

[[Page 75314]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.264

    Conversely, this analysis indicates slightly greater outlays for 
additional technology under the proposed standards when potential 
voluntary overcompliance is taken into account. This increase is 
attributable to slight increases in technology application when 
potential voluntary overcompliance is taken into account. Tables IV-99 
and 100 below show that total technology costs attributable to today's 
proposed standards are estimated to increase to $159 billion, or 1.3 
percent more than the $157 billion estimated when potential voluntary 
overcompliance was not taken into account:

[[Page 75315]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.265

    Because NHTSA's analysis indicated that voluntary overcompliance 
with baseline standards will slightly reduce the share of fuel savings 
attributable to today's standards, the agency's estimate of the present 
value of total benefits will be $484 billion when discounted at a 3 
percent annual rate, as Tables IV-101 and 102 following report. This 
estimate of total benefits is $31 billion, or about 6 percent, lower 
than the $515 billion reported previously for the analysis in which 
potential voluntary overcompliance was not taken into account:

[[Page 75316]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.266

    Similarly, when accounting for potential voluntary overcompliance, 
NHTSA estimates that the present value of total benefits will decline 
from its previous estimate when future fuel savings and other benefits 
are discounted at the higher 7 percent rate. Tables IV-103 and 104 
report that the present value of benefits from requiring higher fuel 
economy for MY 2017-25 cars and light trucks will total $394 billion 
when discounted using a 7 percent rate, about $25 billion (or 6 
percent) below the previous $419 billion estimate of total benefits 
when potential voluntary overcompliance is not taken into account:

[[Page 75317]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.267

    Based primarily on the reduction of benefits attributable to the 
proposed standards when voluntary overcompliance is taken into account, 
the agency estimates, as shown in Tables IV-105 and 106, that net 
benefits from the proposed CAFE standards will be $325 billion--or 9.2 
percent--less than the previously-reported estimate of $358 billion, 
which did not incorporate the potential for voluntary overcompliance.

[[Page 75318]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.268

    Similarly, Tables IV-107 and 108 immediately below show that NHTSA 
estimates voluntary overcompliance could reduce net benefits 
attributable to today's proposed standards to $235 billion if a 7 
percent discount rate is applied to future benefits. This estimate is 
$24 billion--or 10.3 percent--lower than the previously-reported $262 
billion estimate of net benefits when potential voluntary 
overcompliance is not taken into account, using that same discount 
rate.

[[Page 75319]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.269

    As discussed above, these reductions in fuel savings and avoided 
CO2 emissions (and correspondingly, in total and net 
benefits) attributable to today's proposed standards, do not indicate 
that fuel consumption and CO2 emissions will be higher when 
potential voluntary overcompliance with standards is taken into account 
than when it is set aside. Rather, these reductions reflect differences 
in attribution; when potential voluntary overcompliance is taken into 
account, portions of the avoided fuel consumption and CO2 
emissions (and, correspondingly, in total and net benefits) are 
effectively attributed to the actions of the market, rather than to the 
proposed CAFE standards.
    NHTSA invites comment on this sensitivity analysis, in particular 
regarding the following questions:
     Is it reasonable to assume that, having achieved 
compliance with CAFE standards, a manufacturer might consider further 
fuel economy improvements, depending on technology costs and fuel 
prices?
     If so, does the agency's approach--comparing technology 
costs to the present value of fuel savings over some payback period--
provide a reasonable means to simulate manufacturers' decisions? DOT's 
consideration of any alternative methods will be facilitated by 
specific suggestions regarding their integration into DOT's CAFE model.
     Is it appropriate to assume different effective payback 
periods before and after compliance has been achieved? Why, or why not?
     What payback period is (or, if more than one, are) most 
likely to reflect manufacturers' decisions regarding technology 
application through MY 2025?
    For more detailed information regarding NHTSA's sensitivity 
analyses for this proposed rule, please see Chapter X of NHTSA's PRIA.
    Additionally, due to the uncertainty and difficulty in projecting 
technology cost and efficacy through 2025, and consistent with Circular 
A-4, NHTSA conducted a full probabilistic uncertainty analysis, which 
is included in Chapter XII of the PRIA. Results of the uncertainty 
analysis are summarized below for model years 2017-2025 passenger car 
and light truck fleets combined:
     Total Benefits at 7% discount rate: Societal benefits will 
total $46 billion to $725 billion, with a mean estimate of $373 
billion.
     Total Benefits at 3% discount rate: Societal benefits will 
total $53 billion to $877 billion, with a mean estimate of $453 
billion.
     Total Costs at 7% discount rate: Costs will total between 
$125 billion and $247 billion, with a mean estimate of $175 billion.
     Total Costs at 3% discount rate: Costs will total between 
$109 billion and $294 billion, with a mean estimate of $175 billion
5. How would these proposed standards impact vehicle sales?
    In past fuel economy analyses, the agency has made estimates of 
sales impacts comparing increases in vehicle price to the savings in 
fuel over a 5 year period. We chose 5 years because this is

[[Page 75320]]

the average length of time of a financing agreement.\780\ As discussed 
below, for this analysis we have conducted a fresh search of the 
literature for additional estimates of consumer valuation of fuel 
savings, in order to determine whether the 5 year assumption was 
accurate or whether it should be revised. That search has led us to the 
conclusion for this proposed rule that consumer valuation of future 
fuel savings is highly uncertain. A negative impact on sales is 
certainly possible, because the proposed rule will lead to an increase 
in the initial price of vehicles. A positive impact is also possible, 
because the proposed rule will lead to a significant decrease in the 
lifetime cost of vehicles, and with consumer learning over time, this 
effect may produce an increase in sales. In light of the relevant 
uncertainties, the agency therefore decided not to include a 
quantitative sales estimate and requests comments on all of the 
discussion here, including the question whether a quantitative estimate 
(or range) is possible.
---------------------------------------------------------------------------

    \780\ National average financing terms for automobile loans are 
available from the Board of Governors of the Federal Reserve System 
G.19 ``Consumer Finance'' release. See http://www.federalreserve.gov/releases/g19/ (last accessed August 25, 
2011). The average new car loan at an auto finance company in the 
first quarter of 2011 is for 62 months at 4.73%.
---------------------------------------------------------------------------

    The effect of this rule on sales of new vehicles depends largely on 
how potential buyers evaluate and respond to its effects on vehicle 
prices and fuel economy. The rule will make new cars and light trucks 
more expensive, as manufacturers attempt to recover their costs for 
complying with the rule by raising vehicle prices. At the same time, 
the rule will require manufacturers to improve the fuel economy of many 
of their models, which will lower their operating costs. The initial 
cost of vehicles will increase but the overall cost will decrease. The 
net effect on sales will depend on the extent to which consumers are 
willing to pay for fuel economy.
    The earlier discussion of consumer welfare suggests that by itself, 
a net decrease in overall cost may not produce a net increase in sales, 
because many consumers are more affected by upfront cost than by 
overall cost, and will not be willing to purchase vehicles with greater 
fuel economy even when it appears to be in their economic interest to 
do so (assuming standard discount rates). But there is considerable 
uncertainty in the economics literature about the extent to which 
consumers value fuel savings from increased fuel economy, and there is 
still more uncertainty about possible changes in consumer behavior over 
time (especially with the likelihood of consumer learning). The effect 
of this proposed regulation on vehicle sales will depend upon whether 
the overall value that potential buyers place on the increased fuel 
economy is greater or less than the increase in vehicle prices and how 
automakers factor that into price setting for the various models.
    Two economic concepts bear on how consumers might value fuel 
savings. The first relates to the length of time that consumers 
consider when valuing fuel savings and the second relates to the 
discount rate that consumers apply to future savings. These two 
concepts are used together to determine consumer valuation of future 
fuel savings. The length of time that consumers consider when valuing 
future fuel savings can significantly affect their decision when they 
compare their estimates of fuel savings with the increased cost of 
purchasing higher fuel economy. There is a significant difference in 
fuel savings if you consider the savings over 1 year, 3 years, 5 years, 
10 years, or the lifetime of the vehicle. The discount rate that 
consumers use to discount future fuel savings to present value can also 
have a significant impact. If consumers value fuel savings over a short 
period, such as 1 to 2 years, then the discount rate is less important. 
If consumers value fuel savings over a long period, then the discount 
rate is important.
The Length of Time Consumers Consider When Valuing Fuel Savings
    Information regarding the number of years that consumers value fuel 
savings (or undervalue fuel savings) come from several sources. In past 
analyses NHTSA has used five years as representing the average new 
vehicle loan. A recent paper by David Greene \781\ examined studies 
from the past 20 years of consumers' willingness to pay for fuel 
economy and found that ``the available literature does not provide a 
reasonable consensus.'' In his paper Greene states that ``manufacturers 
have repeatedly stated that consumers will pay, in increased vehicle 
price, for only 2-4 years in fuel savings.'' These estimates were 
derived from manufacturer's own market research. And the National 
Research Council \782\ used a 3 year payback period as one of its ways 
to compare benefits to a full lifetime discounting. A survey conducted 
for the Department of Energy in 2004,\783\ which asked 1,000 households 
how much they would pay for a vehicle that saved them $400 or $1,200 
per year in fuel costs, found implied payback periods of 1.5 to 2.5 
years In reviewing this survey, Greene concluded: ``The striking 
similarity of the implied payback periods from the two subsamples would 
seem to suggest that consumers understand the questions and are giving 
consistent and reliable responses: They require payback in 1.5 to 2.5 
years.''
---------------------------------------------------------------------------

    \781\ ``Why the Market for New Passenger Cars Generally 
Undervalues Fuel Economy'', David Greene, Oak Ridge National 
Laboratory, 2010, Pg. 17, http://www.internationaltransportforum.org/jtrc/DiscussionPapers/DP201006.pdf
    \782\ National Research Council (2002) ``Effectiveness and 
Impact of Corporate Average Fuel Economy (CAFE) Standards'', 
National Academies Press, Washington DC.
    \783\ Opinion Research Corporation (2004), ``CARAVAN'' ORC study 
7132218, for the National Renewable Energy Laboratory 
Princeton, New Jersey, May 20, 2004.
---------------------------------------------------------------------------

    However, Turrentine and Kurani's \784\ in-depth interviews of 57 
households found almost no evidence that consumers think about fuel 
economy in terms of payback periods. When asked such questions, some 
consumers became confused while others offered time periods that were 
meaningful to them for other reasons, such as the length of their car 
loan or lease.
---------------------------------------------------------------------------

    \784\ Turrentine, T.S. and K.S. Kurani, 2007. ``Car Buyers and 
Fuel Economy,'' Energy Policy, vol. 35, pp. 1213-1223.
---------------------------------------------------------------------------

The Discount Rate That Consumers Apply to Future Fuel Savings
    The effective discount rate that consumers have used in the past to 
value future fuel economy savings has been studied in many different 
ways and by many different economists. Greene \785\ examined and 
compiled many of these analyses and found: ``Implicit consumer discount 
rates were estimated by Greene (1983) based on eight early mutinomial 
logit choice models. * * * The estimates range from 0 to 73% * * * Most 
fall between 4 and 40%.'' Greene added: ``The more recent studies 
exhibit as least a wide a range as the earlier studies.''
---------------------------------------------------------------------------

    \785\ ``Why the Market for New Passenger Cars Generally 
Undervalues Fuel Economy'', David Greene, Oak Ridge National 
Laboratory, 2010.
---------------------------------------------------------------------------

    With such uncertainty about how consumers value future fuel savings 
and the discount rates they might use to determine the present value of 
future fuel savings, NHTSA would utilize the standard 3 and 7 percent 
discount rates. It is true that some consumers appear to show higher 
discount rates, which would affect the analysis of likely sales 
consequences; NHTSA invites comments on the nature and extent of that 
effect.
    In past analyses, NHTSA assumed that consumers would consider the 
fuel savings they would obtain over the first

[[Page 75321]]

five years of vehicle ownership, which is consistent with the average 
loan rates and the average length of first vehicle ownership. The five-
year span is somewhat longer than the period found to be used by 
consumers in some studies, but use of a shorter period may also reflect 
a lack of salience or related factors, and as noted, use of the five-
year span has the advantage of tracking the average length of first 
vehicle ownership. NHTSA continues to use the five-year period here. As 
with discount rates, NHTSA invites comments on this issue and in 
particular on the possible use of a shorter period.
    It is true that the payback period and discount rate are conceptual 
proxies for consumer decisions that may often be made without any 
corresponding explicit quantitative analysis. For example, some buyers 
choosing among some set of vehicles may know what they have been paying 
recently for gasoline, may know what they are likely to pay to buy each 
of the vehicles consider, and may know some of the attributes--
including labeled fuel economies--of those vehicles. Such buyers may 
then make a choice without actually trying to estimate how much they 
would pay to fuel each of the vehicles they are considering buying. In 
other words, for such buyers, the idea of a payback period and discount 
rate may have no explicit meaning. This does not, however, limit the 
utility of these concepts for the agency's analysis. If, as a group, 
buyers behave as if they value fuel consumption considering a payback 
period and discount rate, these concepts remain useful as a basis for 
estimating the market response to increases in fuel economy accompanied 
by increases in price.
NHTSA's Previous Analytical Approach Updated
    There is a broad consensus in the economic literature that the 
price elasticity for demand for automobiles is approximately -
1.0.786 787 788 Thus, every one percent increase in the 
price of the vehicle would reduce sales by one percent. Elasticity 
estimates assume no perceived change in the quality of the product. 
However, in this case, vehicle price increases result from adding 
technologies that improve fuel economy. This elasticity is generally 
considered to be a short-run elasticity, reflecting the immediate 
impacts of a price change on vehicle sales.
---------------------------------------------------------------------------

    \786\ Kleit, A.N. (1990). ``The Effect of Annual Changes in 
Automobile Fuel Economy Standards,'' Journal of Regulatory 
Economics, vol. 2, pp 151-172. Docket EPA-HQ-OAR-2009-0472-0015.
    787 Bordley, R. (1994). ``An Overlapping Choice Set 
Model of Automotive Price Elasticities,'' Transportation Research B, 
vol 28B, no 6, pp 401-408. Docket NHTSA-2009-0059-0153.
    788 McCarthy, P.S. (1996). ``Market Price and Income 
Elasticities of New Vehicle Demands,'' The Review of Economics and 
Statistics, vol. LXXVII, no. 3, pp. 543-547. Docket NHTSA-2009-0059-
0039
---------------------------------------------------------------------------

    For a durable good such as an auto, the elasticity may be smaller 
in the long run: though people may be able to change the timing of 
their purchase when price changes in the short run, they must 
eventually make the investment. Using a smaller elasticity would reduce 
the magnitude of the estimates presented here for vehicle sales, but it 
would not change the direction. A short-run elasticity is more valid 
for initial responses to changes in price, but, over time, a long-run 
elasticity may better reflect behavior; thus, the results presented for 
the initial years of the program may be more appropriate for modeling 
with the short-run elasticity than the later years of the program. A 
search of the literature has not found studies more recent than the 
1970s that specifically investigate long-run elasticities.\789\
---------------------------------------------------------------------------

    \789\ E.g., Hymans, Saul H. ``Consumer Durable Spending: 
Explanation and Prediction.'' Brookings Papers on Economic Activity 
1 (1970): 173-206.
    http://www.brookings.edu/~/media/Files/Programs/ES/BPEA/1970--
2--bpea--papers/1970b--bpea--hymans--ackley--juster.pdf finds a 
short-run elasticity of auto expenditures (not sales) with respect 
to price of 0.78 to 1.17, and a long-run elasticity of 0.3 to 0.46.
---------------------------------------------------------------------------

    One approach to determine the breakeven point between vehicle 
prices and fuel savings is to look at the payback periods shown earlier 
in this analysis. For example at a 3 percent discount rate, the payback 
period for MY 2025 vehicles is 2 years for light trucks and 4 years for 
passenger cars.
    In determining the payback period we make several assumptions. For 
example, we follow along with the calculations that are used for a 5 
year payback period, as we have used in previous analyses. For the fuel 
savings part of the equation, we assumed as a starting point that the 
average purchaser considers the fuel savings they would receive over a 
5 year timeframe. The present values of these savings were calculated 
using a 3 and 7 percent discount rate. We used a fuel price forecast 
(see Table VIII-3) that included taxes, because this is what consumers 
must pay. Fuel savings were calculated over the first 5 years and 
discounted back to a present value.
    The agency believes that consumers may consider several other 
factors over the 5 year horizon when contemplating the purchase of a 
new vehicle. The agency added these factors into the calculation to 
represent how an increase in technology costs might affect consumers' 
buying considerations.
    First, consumers might consider the sales taxes they have to pay at 
the time of purchasing the vehicle. We took sales taxes in 2010 by 
state and weighted them by population by state to determine a national 
weighted-average sales tax of 5.5 percent.\790\
---------------------------------------------------------------------------

    \790\ Based on data found in http://www.api.org/statistics/fueltaxes/
---------------------------------------------------------------------------

    Second, we considered insurance costs over the 5 year period. More 
expensive vehicles will require more expensive collision and 
comprehensive (e.g., theft) car insurance. The increase in insurance 
costs is estimated from the average value of collision plus 
comprehensive insurance as a proportion of average new vehicle price. 
Collision plus comprehensive insurance is the portion of insurance 
costs that depend on vehicle value. The Insurance Information Institute 
\791\ provides the average value of collision plus comprehensive 
insurance in 2006 as $448, which is $480 in 2009$. The average consumer 
expenditure for a new passenger car in 2010, according to the Bureau of 
Economic Analysis was $24,092 and the average price of a new light 
truck $30,641 in $2009.\792\ Using sales volumes from the Bureau, we 
determined an average passenger car and an average light truck price 
was $27,394 in $2009 dollars. Average prices and estimated sales 
volumes are needed because price elasticity is an estimate of how a 
percent increase in price affects the percent decrease in sales.
---------------------------------------------------------------------------

    \791\ Insurance Information Institute, 2008, ``Average 
Expenditures for Auto Insurance By State, 2005-2006,'' available at 
http://www.iii.org/media/facts/statsbyissue/auto/ (last accessed 
March 4, 2010).
    \792\ U.S. Department of Commerce, Bureau of Economic Analysis, 
Table 7.2.5S. Auto and Truck Unit Sales, Production, Inventories, 
Expenditures, and Price, available at http://www.bea.gov/national/nipaweb/nipa_underlying/TableView.asp?SelectedTable=55&ViewSeries=NO&Java=.
---------------------------------------------------------------------------

    Dividing the insurance cost by the average price of a new vehicle 
gives the proportion of comprehensive plus collision insurance as 1.75% 
of the price of a vehicle. If we assume that this premium is 
proportional to the new vehicle price, it represents about 1.75 percent 
of the new vehicle price and insurance is paid each year for the five 
year period we are considering for payback. Discounting that stream of 
insurance costs back to present value indicates that the present value 
of the component of insurance costs that vary with vehicle price is 
equal to 8.0 percent of the vehicle's price at a 3 percent discount 
rate.
    Third, we considered that 70 percent of new vehicle purchasers take 
out loans

[[Page 75322]]

to finance their purchase. The average new vehicle loan in the first 
quarter of 2011 is 5.3 percent.\793\ At these terms the average person 
taking a loan will pay 14 percent more for their vehicle over the 5 
years than a consumer paying cash for the vehicle at the time of 
purchase.\794\ Discounting the additional 2.8 percent (14 percent/5 
years) per year over the 5 years using a 3 percent mid-year discount 
rate \795\ results in a discounted present value of 12.73 percent 
higher for those taking a loan. Multiplying that by the 70 percent that 
take a loan, means that the average consumer would pay 8.9 percent more 
than the retail price for loans the consumer discounted at a 3 percent 
discount rate.
---------------------------------------------------------------------------

    \793\ New car loan rates in the first quarter of 2011 averaged 
5.86 percent at commercial banks and 4.73 percent at auto finance 
companies, so their average is close to 5.3 percent.
    \794\ Based on www.bankrate.com auto loan calculator for a 5 
year loan at 5.3 percent.
    \795\ For a 3 percent discount rate, the summation of 2.8 
percent x 0.9853 in year one, 2.8 x 0.9566 in year two, 2.8 x 0.9288 
in year three, 2.8 x 0.9017 in year 4, and 2.8 x 0.8755 in year 
five.
---------------------------------------------------------------------------

    Fourth, we considered the residual value (or resale value) of the 
vehicle after 5 years and expressed this as a percentage of the new 
vehicle price. If the price of the vehicle increases due to fuel 
economy technologies, the resale value of the vehicle will go up 
proportionately. The average resale price of a vehicle after 5 years is 
about 35% \796\ of the original purchase price. Discounting the 
residual value back 5 years using a 3 percent discount rate (35 percent 
* .8755) gives an effective residual value of 30.6 percent. Note that 
added CAFE technology could also result in more expensive or more 
frequent repairs. However, we do not have data to verify the extent to 
which this would be a factor during the first 5 years of vehicle life.
---------------------------------------------------------------------------

    \796\ Consumer Reports, August 2008,''What That Car Really Costs 
to Own,'' available at http://www.consumerreports.org/cro/cars/pricing/what-that-car-really-costs-to-own-4-08/overview/what-that-car-really-costs-to-own-ov.htm (last accessed March 4, 2010).
---------------------------------------------------------------------------

    We add these four factors together. At a 3 percent discount rate, 
the consumer considers he could get 30.6 percent back upon resale in 5 
years, but will pay 5.5 percent more for taxes, 8.1 percent more in 
insurance, and 8.9 percent more for loans, results in a 8.1 percent 
return on the increase in price for fuel economy technology (30.6 
percent - 5.5 percent - 8.1 percent - 8.9 percent). Thus, the increase 
in price per vehicle would be multiplied by 0.919 (1 - 0.081) before 
subtracting the fuel savings to determine the overall net consumer 
valuation of the increase of costs on this purchase decision. This 
process results in estimates of the payback period for MY 2025 vehicles 
of 2 years for light trucks and 4 years for passenger cars at a 3 
percent discount rate.
A General Discussion of Consumer Considerations
    If consumers do not value improved fuel economy at all, and 
consider nothing but the increase in price in their purchase decisions, 
then the estimated impact on sales from price elasticity could be 
applied directly. However, the agency anticipates that consumers will 
place some value improved fuel economy, because they reduce the 
operating cost of the vehicles, and because, based on recently-
promulgated EPA and DOT regulations, vehicles sold during through 2025 
will display labels that more clearly communicate to buyers the fuel 
savings, economic, and environmental benefits of more efficient 
vehicles. The magnitude of this effect remains unclear, and how much 
consumers value fuel economy is an ongoing debate. We know that 
different consumers value different aspects of their vehicle 
purchase,\797\ but we do not have reliable evidence of consumer 
behavior on this issue. Several past consumer surveys lead to different 
conclusions (and surveys themselves, as opposed to actual behavior, may 
not be entirely informative). We also expect that consumers will 
consider other factors that affect their costs, and have included these 
in the analysis.
---------------------------------------------------------------------------

    \797\ For some consumers there will be a cash-flow problem in 
that the vehicle is purchased at a higher price on day 1 and fuel 
savings occur over the lifetime of the vehicle. Increases in prices 
have sometimes led to longer loan periods, which would lead to 
higher overall costs of the loan.
---------------------------------------------------------------------------

    One issue that significantly affects this sales analysis is: How 
much of the retail price increase needed to cover the fuel economy 
technology investments will manufacturers be able to pass on to 
consumers? NHTSA typically assumes that manufacturers will be able to 
pass all of their costs to improve fuel economy on to consumers. 
Consumer valuation of fuel economy improvements often depends upon the 
price of gasoline, which has recently been very volatile.
    Sales losses would occur only if consumers fail to value fuel 
economy improvements at least as much as they pay in higher prices. If 
manufacturers are unable to raise prices beyond the level of consumer's 
valuation of fuel savings, then manufacturer's profit levels would fall 
but there would be no impact on sales. Likewise, if fuel prices rise 
beyond levels used in this analysis, consumer's valuation of improved 
fuel economy could increase to match or exceed their initial 
investment, resulting in no impact or even an increase in sales levels.
    The agency has been exploring the question why there is not more 
consumer demand for higher fuel economy today when linked with our 
methodology that results in projecting increasing sales for the future 
when consumers are faced with rising vehicle prices and rising fuel 
economy. Some of the discussion of salience, focus on the short-term, 
loss aversion, and related factors (see above) bears directly on that 
question. It is possible, in that light, that consumers will not demand 
increased fuel economy even when such increases would produce net 
benefits for them.
    Nonetheless, some current vehicle owners, including those who 
currently drive gas guzzlers, will undoubtedly realize the net benefits 
to be gained by purchasing a more efficient vehicle. Some vehicle 
owners may also react to persistently higher vehicle costs by owning 
fewer vehicles, and keeping existing vehicles in service for somewhat 
longer. For these consumers, the possibility exists that there may be 
permanent sales losses, compared with a situation in which vehicle 
prices are lower.
    There is a wide variety in the number of miles that owners drive 
per year. Some drivers only drive 5,000 miles per year and others drive 
25,000 miles or more. Rationally those that drive many miles have more 
incentive to buy vehicles with high fuel economy levels
    In summary, there are a variety of types of consumers that are in 
different financial situations and drive different mileages per year. 
Since consumers are different and use different reasoning in purchasing 
vehicles, and we do not yet have an account of the distribution of 
their preferences or how that may change over time as a result of this 
rulemaking -- in other words, the answer is quite ambiguous. Some may 
be induced by better fuel economy to purchase vehicles more often to 
keep up with technology, some may purchase no new vehicles because of 
the increase in vehicle price, and some may purchase fewer vehicles and 
hold onto their vehicles longer. There is great uncertainty about how 
consumers value fuel economy, and for this reason, the impact of this 
fuel economy proposal on sales is uncertain.
    For years, consumers have been learning about the benefits that 
accrue to them from owning and operating vehicles with greater fuel 
efficiency. Consumer demand has thus shifted towards such vehicles, not 
only because of higher fuel prices but also because

[[Page 75323]]

many consumers are learning about the value of purchases based not only 
on initial costs but also on the total cost of owning and operating a 
vehicle over its lifetime. This type of learning is expected to 
continue before and during the model years affected by this rule, 
particularly given the new fuel economy labels that clarify potential 
economic effects and should therefore reinforce that learning. 
Therefore, some increase in the demand for, and production of, more 
fuel efficient vehicles is incorporated in the alternative baseline 
(i.e., without these rules) developed by NHTSA. The agency requests 
comment on the appropriateness of using a flat or rising baseline after 
2016.
    Today's proposed rule, combined with the new and easier-to-
understand fuel economy label required to be on all new vehicles 
beginning in 2012, may increase sales above baseline levels by 
hastening this very type of consumer learning. As more consumers 
experience, as a result of the rule, the savings in time and expense 
from owning more fuel efficient vehicles, demand may shift yet further 
in the direction of the vehicles mandated under the rule. This social 
learning can take place both within and across households, as consumers 
learn from one another.
    First and most directly, the time and fuel savings associated with 
operating more fuel efficient vehicles will be more salient to 
individuals who own them, causing their subsequent purchase decisions 
to shift closer to minimizing the total cost of ownership over the 
lifetime of the vehicle. Second, this appreciation may spread across 
households through word of mouth and other forms of communications. 
Third, as more motorists experience the time and fuel savings 
associated with greater fuel efficiency, the price of used cars will 
better reflect such efficiency, further reducing the cost of owning 
more efficient vehicles for the buyers of new vehicles (since the 
resale price will increase).
    If these induced learning effects are strong, the rule could 
potentially increase total vehicle sales over time. These increased 
sales would not occur in the model years first affected by the rule, 
but they could occur once the induced learning takes place. It is not 
possible to quantify these learning effects years in advance and that 
effect may be speeded or slowed by other factors that enter into a 
consumer's valuation of fuel efficiency in selecting vehicles.
    The possibility that the rule will (after a lag for consumer 
learning) increase sales need not rest on the assumption that 
automobile manufacturers are failing to pursue profitable opportunities 
to supply the vehicles that consumers demand. In the absence of the 
rule, no individual automobile manufacturer would find it profitable to 
move toward the more efficient vehicles mandated under the rule. In 
particular, no individual company can fully internalize the future 
boost to demand resulting from the rule. If one company were to make 
more efficient vehicles, counting on consumer learning to enhance 
demand in the future, that company would capture only a fraction of the 
extra sales so generated, because the learning at issue is not specific 
to any one company's fleet. Many of the extra sales would accrue to 
that company's competitors.
    In the language of economics, consumer learning about the benefits 
of fuel efficient vehicles involves positive externalities (spillovers) 
from one company to the others.\798\ These positive externalities may 
lead to benefits for manufacturers as a whole.
---------------------------------------------------------------------------

    \798\ Industry-wide positive spillovers of this type are hardly 
unique to this situation. In many industries, companies form trade 
associations to promote industry-wide public goods. For example, 
merchants in a given locale may band together to promote tourism in 
that locale. Antitrust law recognizes that this type of coordination 
can increase output.
---------------------------------------------------------------------------

    We emphasize that this discussion has been tentative and qualified. 
To be sure, social learning of related kinds has been identified in a 
number of contexts.\799\ Comments are invited on the discussion offered 
here, with particular reference to any relevant empirical findings.
---------------------------------------------------------------------------

    \799\ See Hunt Alcott, Social Norms and Energy Conservation, 
Journal of Public Economics (forthcoming 2011), available at http://web.mit.edu/allcott/www/Allcott%202011%20JPubEc%20-%20Social%20Norms%20and%20Energy%20Conservation.pdf; Christophe 
Chamley, Rational Herds: Economic Models of Social Learning 
(Cambridge, 2003).
---------------------------------------------------------------------------

How does NHTSA plan to address this issue for the final rule?
    NHTSA seeks comment on how to attempt to quantify sales impacts of 
the proposed MYs 2017-2025 CAFE standards in light of the uncertainty 
discussed above. The agency is currently sponsoring work to develop a 
vehicle choice model for potential use in the agency's future 
rulemaking analysis--this work may help to better estimate the market's 
effective valuation of future fuel economy improvements. The agency 
hopes to evaluate those potential impacts through use of a ``market 
shift'' or ``consumer vehicle choice'' model, discussed in Section IV 
of the NPRM preamble. With an integrated market share model, the CAFE 
model would then estimate how the sales volumes of individual vehicle 
models would change in response to changes in fuel economy levels and 
prices throughout the light vehicle market, possibly taking into 
account interactions with the used vehicle market. Having done so, the 
model would replace the sales estimates in the original market forecast 
with those reflecting these model-estimated shifts, repeating the 
entire modeling cycle until converging on a stable solution. We seek 
comment on the potential for this approach to help the agency estimate 
sales effects for the final rule.
Others Studies of the Sales Effect of This CAFE Proposal
    We outline here other relevant studies and seek comment on their 
assumptions and projections.
    A recent study on the effects on sales, attributed to regulatory 
programs, including the fuel economy program was undertaken by the 
Center for Automotive Research (CAR).\800\ CAR examined the impacts of 
alternative fuel economy increases of 3%, 4%, 5%, and 6% per year on 
the general outlook for the U.S. motor vehicle market, the likely 
increase in costs for fuel economy (based on the NAS report, which 
estimates higher costs than NHTSA's current estimates) and required 
safety features, the technologies used and how they would affect the 
market, production, and automotive manufacturing employment in the year 
2025. The required safety mandates were assumed to cost $1,500 per 
vehicle in 2025, but CAR did not value the safety benefits from those 
standards. NHTSA does not believe that the assumed safety mandates 
should be a part of this analysis without estimating the benefits 
achieved by the safety mandates.
---------------------------------------------------------------------------

    \800\ ``The U.S. Automotive Market and Industry in 2025'', 
Center for Automotive Research, June 2011. http://www.cargroup.org/pdfs/ami.pdf.
---------------------------------------------------------------------------

    There are many factors that go into the CAR analysis of sales. CAR 
assumes a 22.0 mpg baseline, two gasoline price scenarios of $3.50 and 
$6.00 per gallon, VMT schedules by age, and a rebound rate of 10 
percent (although it appears that the CAR report assumes a rebound 
effect even for the baseline and thus negates the impact of the rebound 
effect). Fuel savings are assumed to be valued by consumers over a 5 
year period at a 10 percent discount rate. The impact on sales varies 
by scenario, the estimates of the cost of technology, the price of 
gasoline, etc. At $3.50 per gallon, the net change in consumer savings 
(costs minus the fuel savings

[[Page 75324]]

valued by consumers) is a net cost to consumers of $359 for the 3% 
scenario, a net cost of $1,644 for the 4% scenario, a net cost of 
$2,858 for the 5% scenario, and a net consumer cost of $6,525 for the 
6% scenario. At $6.00 per gallon, the net change in consumer savings 
(costs minus the fuel savings valued by consumers) is a net savings to 
consumers of $2,107 for the 3% scenario, a net savings of $1,131 for 
the 4% scenario, a net savings of $258 for the 5% scenario, and a net 
consumer cost of $3,051 for the 6% scenario. Thus, the price of 
gasoline can be a significant factor in affecting how consumers view 
whether they are getting value for their expenditures on technology.
    Table 14 on page 42 of the CAR report presents the results of their 
estimates of the 4 alternative mpg scenarios and the 2 prices of 
gasoline on light vehicle sales and automotive employment. The table 
below shows these estimates. The baseline for the CAR report is 17.9 
million sales and 877,075 employees. The price of gasoline at $6.00 per 
gallon, rather than $3.50 per gallon results in about 2.1 million 
additional sales per year and 100,000 more employees in year 2025.
[GRAPHIC] [TIFF OMITTED] TP01DE11.270

    Figure 13 on page 44 of the CAR report shows a graph of historical 
automotive labor productivity, indicating that there has been a long 
term 0.4 percent productivity growth rate from 1960-2008, to indicate 
that there will be 12.26 vehicles produced in the U.S. per worker in 
2025 (which is higher than NHTSA's estimate--see below). In addition, 
the CAR report discusses the jobs multiplier. For every one automotive 
manufacturing job, they estimate the economic contribution to the U.S. 
economy of 7.96 jobs \801\ stating ``In 2010, about 1 million direct 
U.S. jobs were located at an auto and auto parts manufacturers; these 
jobs generated an additional 1.966 million supplier jobs, largely in 
non-manufacturing sectors of the economy. The combined total of 2.966 
million jobs generated a further spin-off of 3.466 million jobs that 
depend on the consumer spending of direct and supplier employees, for a 
total jobs contribution from U.S. auto manufacturing of 6.432 million 
jobs in 2010. The figure actually rises to 7.96 million when direct 
jobs located at new vehicle dealerships (connected to the sale and 
service of new vehicles) are considered.''
---------------------------------------------------------------------------

    \801\ Kim Hill, Debbie Menk, and Adam Cooper, ``Contribution of 
the Automotive Industry to the Economies of All Fifty States and the 
United States'', The Center for Automotive Research, Ann Arbor MI, 
April 2010.
---------------------------------------------------------------------------

    CAR uses econometric estimates of the sensitivity of new vehicle 
purchases to prices and consumer incomes and forecasts of income growth 
through 2025 to translate these estimated changes in net vehicle prices 
to estimates of changes in sales of MY 2025 vehicles; higher net 
prices--which occur when increases in vehicle prices exceeds the value 
of fuel savings--reduce vehicle sales, while lower net prices increase 
new vehicle sales in 2025. We do not have access to the statistical 
models that CAR develops to estimate the effects of price and income 
changes on vehicle sales. CAR's analysis assumes continued increases in 
labor productivity over time and then translates the estimated impacts 
of higher CAFE standards on net vehicle prices into estimated impacts 
on sales and employment in the automobile production and related 
industries. The agency disagrees with the cost estimates in the CAR 
report for new technologies, the addition of safety mandates into the 
costs, and various other assumptions.
    An analysis conducted by Ceres and Citigroup Global Markets 
Inc.\802\ examined the impact on automotive sales in 2020, with a 
baseline assumption of an industry fuel economy standard of 42 mpg, a 
$4.00 price of

[[Page 75325]]

gasoline, a 12.2 percent discount rate and an assumption that buyers 
value 48% of fuel savings over seven years in purchasing vehicles. The 
main finding on sales was that light vehicle sales were predicted to 
increase by 6% from 16.3 million to 17.3 million in 2020. Elasticity is 
not provided in the report but it states that they use a complex model 
of price elasticity and cross elasticities developed by GM. A fuel 
price risk factor \803\ was utilized. Little rationale was provided for 
the baseline assumptions, but sensitivity analyses were examined around 
the price of fuel ($2, $4, and $7 per gallon), the discount rate (5.2%, 
12.2%, 17.2%), purchasers consider fuel savings over (3, 7, or 15 
years), fuel price risk factor of (30%, 70%, or 140%), and VMT of 
(10,000, 15,000, and 20,000 in the first year and declining 
thereafter).
---------------------------------------------------------------------------

    \802\ ``U.S. Autos, CAFE and GHG Emissions'', March 2011, Citi 
Ceres, UMTRI, Baum and Associates, Meszler Engineering Services, and 
the Natural Resources Defense Council. http://www.ceres.org/resources/reports/fuel-economy-focus.
    \803\ Fuel price risk factor measures the rate at which 
consumers are willing to trade reductions in fuel costs for 
increases in purchase price. For example, a fuel price risk factor 
of 1.0 would indicate the consumers would be willing to pay $1 for 
an improvement in fuel economy that resulted in reducing by $1 the 
present value of the savings in fuel costs.
---------------------------------------------------------------------------

6. Social Benefits, Private Benefits, and Potential Unquantified 
Consumer Welfare Impacts of the Proposed Standards
    There are two viewpoints for evaluating the costs and benefits of 
the increase in CAFE standards: the private perspective of vehicle 
buyers themselves on the higher fuel economy levels that the rule would 
require, and the economy-wide or ``social'' perspective on the costs 
and benefits of requiring higher fuel economy. In order to appreciate 
how these viewpoints may diverge, it is important to distinguish 
between costs and benefits that are ``private'' and costs and benefits 
that are ``social,'' The agency's analysis of benefits and costs from 
requiring higher fuel efficiency, presented above, includes several 
categories of benefits (identified as ``social benefits'') that are not 
limited to automobile purchasers, and that extend throughout the U.S. 
economy. Examples of these benefits include reductions in the energy 
security costs associated with U.S. petroleum imports, and in the 
economic damages expected to result from air pollution (including, but 
not limited to, climate change). In contrast, other categories of 
benefits--principally future fuel savings projected to result from 
higher fuel economy, but also, for example, time savings--will be 
experienced exclusively by the initial purchasers and subsequent owners 
of vehicle models whose fuel economy manufacturers elect to improve 
(``private benefits'').
    The economy-wide or ``social'' benefits from requiring higher fuel 
economy represent an important share of the total economic benefits 
from raising CAFE standards. At the same time, NHTSA estimates that 
benefits to vehicle buyers themselves will significantly exceed vehicle 
manufacturers' costs for complying with the stricter fuel economy 
standards this rule establishes. In short, consumers will benefit on 
net. Since the agency also assumes that the costs of new technologies 
manufacturers will employ to improve fuel economy will ultimately be 
borne by vehicle buyers in the form of higher purchase prices, NHTSA 
concludes that the benefits to potential vehicle buyers from requiring 
higher fuel efficiency will far outweigh the costs they will be 
required to pay to obtain it. NHTSA also recognizes that this 
conclusion raises certain issues, addressed directly below; NHTSA also 
seeks public comment on its discussion here.
    As an illustration, Tables IV-110 and 111 report the agency's 
estimates of the average lifetime values of fuel savings for MY 2017-
2025 passenger cars and light trucks calculated using projected future 
retail fuel prices. The table compares NHTSA's estimates of the average 
lifetime value of fuel savings for cars and light trucks to the price 
increases it expects to occur as manufacturers attempt to recover their 
costs for complying with increased CAFE standards. As the table shows, 
the agency's estimates of the present value of lifetime fuel savings 
(discounted using the OMB-recommended 3% rate) substantially outweigh 
projected vehicle price increases for both cars and light trucks in 
every model year, even under the assumption that all of manufacturers' 
technology outlays are passed on to buyers in the form of higher 
selling prices for new cars and light trucks. By model year 2025, NHTSA 
projects that average lifetime fuel savings will exceed the average 
price increase by more than $2,900 for cars, and by more than $5,200 
for light trucks.

[[Page 75326]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.271

    The comparisons above immediately raise the question of why current 
vehicle purchasing patterns do not already result in average fuel 
economy levels approaching those that this rule would require, and why 
raising CAFE standards should be necessary to increase the fuel economy 
of new cars and light trucks. They also raise the question of whether 
it is appropriate to assume that manufacturers would not elect to 
provide higher fuel economy even in the absence of increases in CAFE 
standards, since the comparisons in Tables IV-109 and 110 suggest that 
doing so would increase the market value (and thus the selling prices) 
of many new vehicle models by far more than it would raise the cost of 
producing them. Thus, increasing fuel economy would be expected to 
increase sales of new vehicles and manufacturers' profits. More 
specifically, why would potential buyers of new vehicles

[[Page 75327]]

hesitate to purchase models offering higher fuel economy, when doing so 
would produce the substantial economic returns illustrated by the 
comparisons presented in Tables IV-109 and 110? And why would 
manufacturers voluntarily forego opportunities to increase the 
attractiveness, value, and competitive positioning of their car and 
light truck models--and thus their own profits--by improving their fuel 
economy?
    One explanation for why this situation might persist is that the 
market for vehicle fuel economy does not appear to work perfectly, in 
which case properly designed CAFE standards would be expected to 
increase consumer welfare. Some of these imperfections might stem from 
standard market failures, such as limited availability of information 
to consumers about the value of higher fuel economy. It is true, of 
course, that such information is technically available and that new 
fuel economy and environment vehicle labels, emphasizing economic 
effects, will provide a wide range of relevant information. Other 
explanations would point to phenomena observed elsewhere in the field 
of behavioral economics, including loss aversion, inadequate consumer 
attention to long-term savings, or a lack of salience of relevant 
benefits (such as fuel savings, or time savings associated with 
refueling) to consumers at the time they make purchasing decisions. 
Both theoretical and empirical research suggests that many consumers 
are unwilling to make energy-efficient investments even when those 
investments appear to pay off in the relatively short-term.\804\ This 
research is in line with related findings that consumers may undervalue 
benefits or costs that are less salient, or that they will realize only 
in the future.\805\
---------------------------------------------------------------------------

    \804\ Jaffe, A. B., and Stavins, R. N. (1994). The Energy 
Paradox and the Diffusion of Conservation Technology. Resource and 
Energy Economics, 16(2); see Hunt Alcott and Nathan Wozny, Gasoline 
Prices, Fuel Economy, and the Energy Paradox (2009), available at 
http://web.mit.edu/allcott/www/Allcott%20and%20Wozny%202010%20-%20Gasoline%20Prices,%20Fuel%20Economy,%20and%20the%20Energy%20Paradox.pdf (last accessed Sept. 26, 2011). For relevant background, with 
an emphasis on the importance of salience and attention, see 
Kahneman, D. Thinking, Fast and Slow (2011).
    \805\ Mutulinggan, S., C. Corbett, S. Benzarti, and B. 
Oppenheim. ``Investment in Energy Efficiency by Small and Medium-
Size Firms: An Empirical Analysis of the Adoption of Process 
Improvement Recommendations'' (2011), available at http://papers.ssrn.com/sol3/papers/cfm?abstract_id=1947330. Hossain, 
Janjim, and John Morgan (2009). '' * * * Plus Shipping and Handling: 
Revenue (Non)Equivalence in Field Experiments on eBay,'' Advances in 
Economic Analysis and Policy vol. 6; Barber, Brad, Terrence Odean, 
and Lu Zheng (2005). ``Out of Sight, Out of Mind: The Effects of 
Expenses on Mutual Fund Flows,'' Journal of Business vol. 78, no. 6, 
pp. 2095-2020.
---------------------------------------------------------------------------

    Previous research provides some support for the agency's conclusion 
that the benefits buyers will receive from requiring manufacturers to 
increase fuel economy outweigh the costs they will pay to acquire those 
benefits, even if private markets have not provided that amount of fuel 
economy. This research identifies aspects of normal behavior that may 
explain the market not providing vehicles whose higher fuel economy 
appears to offer an attractive economic return. For example, consumers' 
aversion to the prospect of losses (``loss aversion'') and especially 
immediate, certain losses, may affect their decisions when they also 
have a sense of uncertainty about the value of future fuel savings. 
Loss aversion, accompanied with a sense of uncertainty about gains, may 
make purchasing a more fuel-efficient vehicle seem unattractive to some 
potential buyers, even when doing so is likely to be a sound economic 
decision. As an illustration, Greene et al. (2009) calculate that the 
expected net present value of increasing the fuel economy of a 
passenger car from 28 to 35 miles per gallon falls from $405 when 
calculated using standard net present value calculations, to nearly 
zero when uncertainty regarding future cost savings and buyers' 
reluctance to accept the risk of losses are taken into account.\806\
---------------------------------------------------------------------------

    \806\ Greene, D., J. German, and M. Delucchi (2009). ``Fuel 
Economy: The Case for Market Failure'' in Reducing Climate Impacts 
in the Transportation Sector, Sperling, D., and J. Cannon, eds. 
Springer Science. Surprisingly, the authors find that uncertainty 
regarding the future price of gasoline appears to be less important 
than uncertainty surrounding the expected lifetimes of new vehicles. 
(Docket NHTSA-2009-0059-0154). On loss aversion in general, and its 
relationship to prospect theory (which predicts that certain losses 
will loom larger than probabilistic gains of higher expected value), 
see Kahneman.
---------------------------------------------------------------------------

    The well-known finding that as gas prices rise, consumers show more 
willingness to pay for fuel-efficient vehicles is not necessarily 
inconsistent with the possibility that many consumers undervalue 
potential savings in gasoline costs and fuel economy when purchasing 
new vehicles. In ordinary circumstances, such costs may be a relatively 
``shrouded'' attribute in consumers' decisions, in part because the 
savings from purchasing a more fuel efficient vehicle are cumulative 
and extend over a significant period of time. At the same time, it may 
be difficult for potential buyers to disentangle the cost of purchasing 
a more fuel-efficient vehicle from its overall purchase price, or to 
isolate the value of higher fuel economy form accompanying differences 
in other vehicle attributes. This possibility is consistent with recent 
evidence to the effect that many consumers are willing to pay less than 
$1 upfront to obtain a $1 reduction in the discounted present value of 
future gasoline costs.\807\
---------------------------------------------------------------------------

    \807\ See, e.g., Alcott and Wozny. On shrouded attributes and 
their importance, see Gabaix, Xavier, and David Laibson, 2006. 
``Shrouded Attributes, Consumer Myopia, and Information Suppression 
in Competitive Markets.'' Quarterly Journal of Economics 121(2): 
505-540.
---------------------------------------------------------------------------

    Some research suggests that the market's apparent unwillingness to 
provide more fuel efficient vehicles stems from consumers' inability to 
value future fuel savings correctly. For example, Larrick and Soll 
(2008) find evidence that consumers do not understand how to translate 
changes in fuel economy, which is denominated in miles per gallon 
(MPG), into resulting changes in fuel consumption, measured for example 
in gallons 100 miles traveled or per month or year.\808\ It is true 
that the recently redesigned fuel economy and environment label should 
help overcome this difficulty, because it draws attention to purely 
economic effects of fuel economy, but MPG remains a prominent measure. 
Sanstad and Howarth (1994) argue that consumers often resort to 
imprecise but convenient rules of thumb to compare vehicles that offer 
different fuel economy ratings, and that this can cause many buyers to 
underestimate the value of fuel savings, particularly from significant 
increases in fuel economy.\809\ If the behavior identified in these 
studies is widespread, then the agency's estimates suggesting that the 
benefits to vehicle owners from requiring higher fuel economy 
significantly exceed the costs of providing it may be consistent with 
private markets not providing that fuel economy level.
---------------------------------------------------------------------------

    \808\ Larrick, R. P., and J. B. Soll (2008). ``The MPG 
illusion'' Science 320: 1593-1594.
    \809\ Sanstad, A., and R. Howarth (1994). `` `Normal' Markets, 
Market Imperfections, and Energy Efficiency.'' Energy Policy 22(10): 
811-818.
---------------------------------------------------------------------------

    The agency projects that the typical vehicle buyer will experience 
net savings from the proposed standards, yet it is not simple to 
reconcile this projection with the fact that the average fuel economy 
of new vehicles sold currently falls well short of the level those 
standards would require. The foregoing discussion offers several 
possible explanations. One possible explanation for this apparent 
inconsistency is that many of the technologies projected by the agency 
to be available through MY 2025 offer significantly improved efficiency 
per unit of cost, but were not available for application to new 
vehicles sold currently. Another is that the perceived and real values 
of future savings resulting from the proposed standards will vary 
widely among potential

[[Page 75328]]

vehicle buyers. When they purchase a new vehicle, some buyers value 
fuel economy very highly, and others value fuel economy very little, if 
at all. These differences undoubtedly reflect variation in the amount 
they drive, differences in their driving styles affect the fuel economy 
they expect to achieve, and varying expectations about future fuel 
prices, but they may also partly reflect differences in buyers' 
understanding of what increased fuel economy is likely to mean to them 
financially, or in buyers' preferences for paying lower prices today 
versus anticipated savings over the future.
    Unless the agency has overestimated their average value, however, 
the fact that the value of fuel savings varies among potential buyers 
cannot explain why typical buyers do not currently purchase what appear 
to be cost-saving increases in fuel economy. A possible explanation for 
this situation is that the effects of differing fuel economy levels are 
relatively modest when compared to those provided by other, more 
prominent features of new vehicles, such as passenger and cargo-
carrying capacity, performance, or safety. In this situation, it may 
simply not be in many shoppers' interest to spend the time and effort 
necessary to determine the economic value of higher fuel economy, to 
isolate the component of a new vehicle's selling price that is related 
to its fuel economy, and compare these two. (This possibility is 
consistent with the view that fuel economy is a relatively ``shrouded'' 
attribute.) In this case, the agency's estimates of the average value 
of fuel savings that will result from requiring cars and light trucks 
to achieve higher fuel economy may be correct, yet those savings may 
not be large enough to lead a sufficient number of buyers to purchase 
vehicles with higher fuel economy to raise average fuel economy above 
its current levels.
    Defects in the market for cars and light trucks could also lead 
manufacturers to undersupply fuel economy, even in cases where many 
buyers were willing to pay the increased prices necessary to compensate 
manufacturers for providing it. To be sure, the market for new 
automobiles as a whole exhibits a great deal of competition. But this 
apparently vigorous competition among manufacturers may not extend to 
the provision of some individual vehicle attributes. Incomplete or 
``asymmetric'' access to information about vehicle attributes such as 
fuel economy--whereby manufacturers of new cars and light trucks or 
sellers of used models have more complete knowledge about vehicles' 
actual fuel economy performance than is available to their potential 
buyers--may also prevent sellers of new or used vehicles from being 
able to capture its full value. In this situation, the level of fuel 
efficiency provided in the markets for new or used vehicles might 
remain persistently lower than that demanded by well-informed potential 
buyers.
    Constraints on the combinations of fuel economy, carrying capacity, 
and performance that manufacturers can offer in individual vehicle 
models using current technologies undoubtedly limit the range of fuel 
economy available within certain vehicle classes, particularly those 
including larger vehicles. However, it is also possible that deliberate 
decisions by manufacturers of cars and light trucks further limit the 
range of fuel economy available to buyers within individual vehicle 
market segments, such as large automobiles, SUVs, or minivans. 
Manufacturers may deliberately limit the range of fuel economy levels 
they offer in those market segments (by choosing not to invest in fuel 
economy and investing instead in providing a range of other vehicle 
attributes) because they underestimate the premiums that prospective 
buyers of those models are willing to pay for improved fuel economy, 
and thus mistakenly believe it will be unprofitable for them to offer 
more fuel-efficient models within those segments. Of course, this 
possibility is most realistic if it is also assumed that buyers are 
imperfectly informed, or if fuel economy savings are not sufficiently 
salient to shoppers in those particular market segments. As an 
illustration, once a potential buyer has decided to purchase a minivan, 
the range of highway fuel economy ratings among current models extends 
from 22 to 28 mpg, while their combined city and highway ratings extend 
only from 18 to 20 mpg.\810\ If this phenomenon is widespread, the 
average fuel efficiency of their entire new vehicle fleet could remain 
below the levels that potential buyers demand and are willing to pay 
for.
---------------------------------------------------------------------------

    \810\ This is the range of combined city and highway fuel 
economy levels from lowest (Toyota Sienna AWD) to highest (Honda 
Odyssey) available for model year 2010; http://www.fueleconomy.gov/feg/bestworstEPAtrucks.htm (last accessed September 26, 2011).
---------------------------------------------------------------------------

    Another possible explanation for the paradox posed by buyers' 
apparent unwillingness to invest in higher fuel economy when it appears 
to offer such large financial returns is that NHTSA's estimates of 
benefits and costs from requiring manufacturers to improve fuel 
efficiency do not match potential buyers' assessment of the likely 
benefits and costs from purchasing models with higher fuel economy 
ratings. This could occur because the agency's underlying assumptions 
about some of the factors that affect the value of fuel savings differ 
from those made by potential buyers, because NHTSA has used different 
estimates for some components of the benefits from saving fuel from 
those of buyers, or simply because the agency has failed to account for 
some potential costs of achieving higher fuel economy.
    For example, buyers may not value increased fuel economy as highly 
as the agency's calculations suggest, because they have shorter time 
horizons than the full vehicle lifetimes NHTSA uses in these 
calculations, or because they discount future fuel savings using higher 
rates than those prescribed by OMB for evaluating Federal regulations. 
Potential buyers may also anticipate lower fuel prices in the future 
than those forecast by the Energy Information Administration, or may 
expect larger differences between vehicles' MPG ratings and their own 
actual on-road fuel economy than the 20 percent gap (30 percent for 
HEVs) the agency estimates.
    To illustrate the first of these possibilities, Table IV-111 shows 
the effect of differing assumptions about vehicle buyers' time horizons 
on their assessment of the value of future fuel savings. Specifically, 
the table reports the value of fuel savings consumers might consider 
when purchasing a MY 2025 car or light truck that features the higher 
fuel economy levels required by the proposed rule, when those fuel 
savings are evaluated over different time horizons. The table then 
compares these values to the agency's estimates of the increases in 
these vehicles' prices that are likely to result from the standards 
proposed for MY 2025. This table shows that when fuel savings are 
evaluated over the average lifetime of a MY 2025 car (approximately 14 
years) or light truck (about 16 years), their present value (discounted 
at 3 percent) exceeds the estimated average price increase by more than 
$2,500 for cars and by over $4,500 for light trucks.
    If buyers are instead assumed to consider fuel savings over only a 
10-year time horizon, Table IV-112 shows that this reduces the 
difference between the present value of fuel savings and the projected 
price increase for a MY 2025 car to about $1,800, and to about $3,350 
for a MY 2025 light truck. Finally, Table IV-112 shows that if buyers 
consider fuel savings only over the length of time for which they 
typically finance new car

[[Page 75329]]

purchases (slightly more than 5 years during 2011), the value of fuel 
savings exceeds the estimated increase in the price of a MY 2025 car by 
only about $200, while the corresponding difference is reduced to 
slightly more than $1,200 for a MY 2025 light truck.
[GRAPHIC] [TIFF OMITTED] TP01DE11.158

    Potential vehicle buyers may also discount future fuel savings 
using higher rates than those typically used to evaluate Federal 
regulations. OMB guidance prescribes that future benefits and costs of 
regulations that mainly affect private consumption decisions, as will 
be the case if manufacturers' costs for complying with higher fuel 
economy standards are passed on to vehicle buyers, should be discounted 
using a consumption rate of time preference.\811\ OMB estimates that 
savers currently discount future consumption at an average real or 
inflation-adjusted rate of about 3 percent when they face little risk 
about its likely level, which makes it a reasonable estimate of the 
consumption rate of time preference.
---------------------------------------------------------------------------

    \811\ Office of Management and Budget, Circular A-4, 
``Regulatory Analysis,'' September 17, 2003, 33. Available at http://www.whitehouse.gov/omb/assets/regulatory_matters_pdf/a-4.pdf 
(last accessed Sept. 26, 2010).
---------------------------------------------------------------------------

    However, vehicle buyers may view the value of future fuel savings 
that results from purchasing a vehicle with higher fuel economy as 
risky or uncertain, or they may instead discount future consumption at 
rates reflecting their costs for financing the higher capital outlays 
required to purchase more fuel-efficient models. In either case, buyers 
comparing models with different fuel economy ratings are likely to 
discount the future fuel savings from purchasing one that offers higher 
fuel economy at rates well above the 3% assumed in NHTSA's evaluation.
    Table IV-113 shows the effects of higher discount rates on vehicle 
buyers' evaluation of the fuel savings projected to result from the 
CAFE standards proposed in this NPRM, again using MY 2025 passenger 
cars and light trucks as an example. As Table IV-112 showed previously, 
average future fuel savings discounted at the OMB 3 percent consumer 
rate exceed the agency's estimated price increases by more than $2,500 
for MY 2025 passenger cars and by about $4,500 for MY 2025 light 
trucks. If vehicle buyers instead discount future fuel savings at the 
typical new-car loan rate prevailing during 2010 (approximately 5.2 
percent), however, these differences decline to slightly more than 
$2,000 for cars and $3,900 for light trucks, as Table IV-113 
illustrates. This is a plausible alternative assumption, because buyers 
are likely to finance the increases in purchase prices resulting from 
compliance with higher CAFE standards as part of the process of 
financing the vehicle purchase itself.
    Finally, as the table also shows, discounting future fuel savings 
using a consumer credit card rate (which averaged almost 14 percent 
during 2010) reduces these differences to less than $900 for a MY 2025 
passenger car and about $2,250 for the typical MY 2025 light truck. 
Even at these significantly higher discount rates, however, the table 
shows that the private net benefits from purchasing new vehicles with 
the levels of fuel economy this rule would

[[Page 75330]]

require--rather than those that would result from simply extending the 
MY 2016 CAFE standards to apply to future model years--remain large.
[GRAPHIC] [TIFF OMITTED] TP01DE11.000

    Some evidence also suggests that vehicle buyers may employ 
combinations of high discount rates and short time horizons in their 
purchase decisions. For example, consumers surveyed by Kubik (2006) 
reported that fuel savings would have to be adequate to pay back the 
additional purchase price of a more fuel-efficient vehicle in less than 
3 years to persuade them to purchase it, and that even over this short 
time horizon they were likely to discount fuel savings using credit 
card-like rates.\814\ Combinations of a shorter time horizon and a 
higher discount rate could further reduce--or potentially even 
eliminate--the difference between the value of fuel savings and the 
agency's estimates of increases in vehicle prices. One plausible 
combination would be for buyers to discount fuel savings over the term 
of a new car loan, using the interest rate on that loan as a discount 
rate. Doing so would reduce the amount by which future fuel savings 
exceed the estimated increase in the prices of MY 2025 vehicles 
considerably further, to about $117 for passenger cars and $1,250 for 
light trucks.
---------------------------------------------------------------------------

    \812\ Interest rates on 48-month new vehicle loans made by 
commercial banks during 2010 averaged 6.21%, while new car loan 
rates at auto finance companies averaged 4.26%; See Board of 
Governors of the Federal Reserve System, Federal Reserve Statistical 
Release G.19, Consumer Credit. Available at http://www.federalreserve.gov/releases/g19/Current (last accessed September 
27, 2011).
    \813\ The average rate on consumer credit card accounts at 
commercial banks during 2010 was 13.78%; See Board of Governors of 
the Federal Reserve System, Federal Reserve Statistical Release 
G.19, Consumer Credit. Available at http://www.federalreserve.gov/releases/g19/Current (last accessed September 27, 2011).
    \814\ Kubik, M. (2006). Consumer Views on Transportation and 
Energy. Second Edition. Technical Report: National Renewable Energy 
Laboratory. Available at Docket No. NHTSA-2009-0059-0038.
---------------------------------------------------------------------------

    As these comparisons illustrate, reasonable alternative assumptions 
about how consumers might evaluate future fuel savings, the major 
private benefit from requiring higher fuel economy, can significantly 
affect the benefits they consider when deciding whether to purchase 
more fuel-efficient vehicles. Readily imaginable combinations of 
shorter time horizons, higher discount rates, and lower expectations 
about future fuel prices or annual vehicle use and fuel savings could 
make potential buyers hesitant--or perhaps even unwilling--to purchase 
vehicles offering the increased fuel economy levels this proposed rule 
would require manufacturers to provide in future model years. Thus, 
vehicle buyers' assessment of the benefits and costs of this proposal 
in their purchase decisions may differ markedly from NHTSA's estimates.

[[Page 75331]]

    If consumers' views about critical variables such as future fuel 
prices or the appropriate discount rate differ sufficiently from the 
assumptions used by the agency, some or perhaps many potential vehicle 
buyers might conclude that the value of fuel savings and other benefits 
from higher fuel economy they are considering are not sufficient to 
justify the increase in purchase prices they expect to pay. In 
conjunction with the possibility that manufacturers misinterpret 
potential buyers' willingness to pay for improved fuel economy, this 
might explain why the current choices among available models do not 
result in average fuel economy levels approaching those this rule would 
require.
    Another possibility is that achieving the fuel economy improvements 
required by stricter fuel economy standards might lead manufacturers to 
forego planned future improvements in performance, carrying capacity, 
safety, or other features of their vehicle models that provide 
important sources of utility to their owners, even if it is 
technologically feasible to have both improvements in those other 
features and improved fuel economy. Although the specific economic 
values that vehicle buyers attach to individual vehicle attributes such 
as fuel economy, performance, passenger- and cargo-carrying capacity, 
or other features are difficult to infer from vehicle prices or buyers' 
choices among competing models, changes in vehicle attributes can 
significantly affect the overall utility that vehicles offer to 
potential buyers. Thus if requiring manufacturers to provide higher 
fuel economy leads them to sacrifice improvements in these or other 
highly-valued attributes, potential buyers are likely to view these 
sacrifices as an additional cost of improving fuel economy. If those 
attributes are of sufficient value, or if the range of vehicles offered 
ensures that vehicles with those attributes will continue to be 
offered, then vehicle buyers will still have the opportunity to choose 
those attributes, though at increased cost compared to models without 
the fuel economy improvements.
    As indicated in its previous discussion of technology costs, NHTSA 
has approached this potential problem by attempting to develop cost 
estimates for fuel economy-improving technologies that include 
allowances for any additional costs that would be necessary to maintain 
the reference fleet (or baseline) levels of performance, comfort, 
capacity, or safety of light-duty vehicle models to which those 
technologies are applied. In doing so, the agency followed the 
precedent established by the 2002 NAS Report on improving fuel economy, 
which estimated ``constant performance and utility'' costs for 
technologies that manufacturers could employ to increase the fuel 
efficiency of cars or light trucks. Although NHTSA has revised its 
estimates of manufacturers' costs for some technologies significantly 
for use in this rulemaking, these revised estimates are still intended 
to represent costs that would allow manufacturers to maintain the 
performance, safety, carrying capacity, and utility of vehicle models 
while improving their fuel economy, in the majority of cases. The 
agency's continued specification of footprint-based CAFE standards also 
addresses this concern, by establishing less demanding fuel economy 
targets for larger cars and light trucks.
    Finally, vehicle buyers may simply prefer the choices of vehicle 
models they now have available to the combinations of price, fuel 
economy, and other attributes that manufacturers are likely to offer 
when required to achieve the higher overall fuel economy levels 
proposed in this NPRM. This explanation assumes that auto makers decide 
to change vehicle attributes other than price and fuel economy in 
response to this rule. If this is the case, their choices among 
models--and even some buyers' decisions about whether to purchase a new 
vehicle--will respond accordingly, and their responses to these new 
choices will reduce their overall welfare. Some may buy models with 
combinations of price, fuel efficiency, and other attributes that they 
consider less desirable than those they would otherwise have purchased, 
while others may simply postpone buying a new vehicle. It leaves open 
the question, though, why auto makers would change those other vehicle 
characteristics if consumers liked them as they were; as noted, the 
assumption of ``constant performance and utility'' built into the cost 
estimates means that these changes are not necessary.
    As the foregoing discussion makes clear, the agency cannot offer a 
complete answer to the question of why the apparently large differences 
between its estimates of private benefits from requiring higher fuel 
economy and the costs of supplying it would not result in higher fuel 
economy for new cars and light trucks in the absence of this rule. One 
explanation is that these estimates are reasonable, but that for the 
reasons outlined above, the market for fuel economy is not operating 
efficiently. NHTSA believes the existing literature offers some support 
for the view that various failures in the market for fuel economy 
prevent it from providing an economically desirable outcome, which 
implies that on balance there are likely to be substantial private 
gains from the proposed rule. The agency will continue to investigate 
new empirical literature addressing this question as it becomes 
available, and seeks comment on all of the relevant questions.
    NHTSA acknowledges the possibility that it has incorrectly 
characterized the impact on the market of the CAFE standards this rule 
proposes, and that this could cause its estimates of benefits and costs 
to misrepresent the effects of the proposed rule. To recognize this 
possibility, this section presents an alternative accounting of the 
benefits and costs of CAFE standards for MYs 2017-2025 passenger cars 
and light trucks and discusses its implications. Table IV-114 displays 
the economic impacts of the rule as viewed from the perspective of 
potential buyers.
    As the table shows, the proposed rule's total benefits to vehicle 
buyers (line 4) consist of the value of fuel savings over vehicles' 
full lifetimes at retail fuel prices (line 1), the economic value of 
vehicle occupants' savings in refueling time (line 2), and the economic 
benefits from added rebound-effect driving (line 3). As the zero 
entries in line 5 of the table suggest, no losses in consumer welfare 
from changes in vehicle attributes (other than those from increases in 
vehicle prices) are assumed to occur. Thus there is no reduction in the 
total private benefits to vehicle owners, so that net private benefits 
to vehicle buyers (line 6) are equal to total private benefits 
(reported previously in line 4).
    As Table IV-114 also shows, the decline in fuel tax revenues (line 
7) that results from reduced fuel purchases is a transfer of funds 
between consumers and government and is thus not a social cost.\815\ 
(Thus the sum of lines 1 and 7 equals the savings in fuel production 
costs that were reported previously as the value of fuel savings at 
pre-tax prices in the agency's previous accounting of benefits and 
costs.) Lines 8 and 9 of Table IV-114 report the value of reductions in 
air pollution and climate-related externalities resulting from lower 
emissions of criteria air

[[Page 75332]]

pollutants and GHGs during fuel production and consumption, while line 
10 reports the savings in energy security externalities to the U.S. 
economy from reduced consumption and imports of petroleum and refined 
fuel. Line 12 reports the costs of increased congestion delays, 
accidents, and noise that result from additional driving due to the 
fuel economy rebound effect. Net external benefits from the proposed 
CAFE standards (line 13) are thus the sum of the change in fuel tax 
revenues, the reduction in environmental and energy security 
externalities, and increased external costs from added driving.
---------------------------------------------------------------------------

    \815\ Strictly speaking, fuel taxes represent a transfer of 
resources from consumers of fuel to government agencies and not a 
use of economic resources. Reducing the volume of fuel purchases 
simply reduces the value of this transfer, and thus cannot produce a 
real economic cost or benefit. Representing the change in fuel tax 
revenues in effect as an economy-wide cost is necessary to offset 
the portion of fuel savings included in line 1 that represents 
savings in fuel tax payments by consumers. This prevents the savings 
in tax revenues from being counted as a benefit from the economy-
wide perspective.
---------------------------------------------------------------------------

    Line 14 of Table IV-114 shows manufacturers' technology outlays for 
meeting higher CAFE standards for passenger cars and light trucks, 
which represent the principal private and social cost of requiring 
higher fuel economy. The net social benefits (line 15 of the table) 
resulting from the proposed rule consist of the sum of private (line 6) 
and external (line 13) benefits, minus technology costs (line 14). As 
expected, the figures reported in line 15 of the table are identical to 
those reported previously in Table IV-63.
    Table IV-114 highlights several important features of this rule's 
economic impacts. First, comparing the rule's net private (line 6) and 
external (line 13) benefits makes it clear that a very large proportion 
of the proposed rule's benefits would be experienced by vehicle buyers, 
while the small remaining fraction would be experienced throughout the 
remainder of the U.S. economy. In turn, the vast majority of private 
benefits resulting from the higher fuel economy levels the proposed 
rule would require stem from fuel savings to vehicle buyers. Net 
external benefits from the proposed rule are expected to be small, 
because the value of reductions in environmental and energy security 
externalities is likely almost exactly offset by the increased costs 
associated with added vehicle use. As a consequence, the net social 
benefits of the rule mirror almost exactly its net private benefits to 
vehicle buyers, under the assumption that manufacturers will recover 
their technology outlays for achieving higher fuel economy by raising 
new car and light truck prices. Once again, this result highlights the 
extreme importance of accounting for any other effects of the rule on 
the economic welfare of vehicle buyers.

[[Page 75333]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.274


[[Page 75334]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.275

    As discussed in detail previously, NHTSA believes that the 
aggregate benefits from this proposed rule amply justify its total 
costs, but it remains possible that the agency has overestimated the 
role of fuel savings to

[[Page 75335]]

buyers and subsequent owners of the cars and light trucks to which the 
higher CAFE standards it proposes would apply. It is also possible that 
the agency has failed to develop cost estimates that do not require 
manufacturers to make changes in vehicle attributes as part of their 
efforts to achieve higher fuel economy. To acknowledge these 
possibilities, NHTSA has examined their potential impact on its 
estimates of the proposed rule's benefits and costs. This analysis, 
which appears in Chapter VIII of the Preliminary RIA accompanying this 
proposed rule, shows the rule's economic impacts under alternative 
assumptions about the private benefits from higher fuel economy, and 
the value of potential changes in other vehicle attributes. One 
conclusion is that even if the private savings are significantly 
overstated, the benefits of the proposed standards continue to exceed 
the costs. We seek comment on that analysis and the discussion above.
7. What other impacts (quantitative and unquantifiable) will these 
proposed standards have?
    In addition to the quantified benefits and costs of fuel economy 
standards, the final standards will have other impacts that we have not 
quantified in monetary terms. The decision on whether or not to 
quantify a particular impact depends on several considerations:
     How likely is it to occur, and can the magnitude of the 
impact reasonably be attributed to the outcome of this rulemaking?
     Would quantification of its physical magnitude or economic 
value help NHTSA and the public evaluate the CAFE standards that may be 
set in rulemaking?
     Is the impact readily quantifiable in physical terms?
     If so, can it readily be translated into an economic 
value?
     Is this economic value likely to be material?
     Can the impact be quantified with a sufficiently narrow 
range of uncertainty so that the estimate is useful?
    NHTSA expects that this rulemaking will have a number of genuine, 
material impacts that have not been quantified due to one or more of 
these considerations. In some cases, further research may yield 
estimates that are useful for future rulemakings.
Technology Forcing
    The proposed rule will improve the fuel economy of the U.S. new 
vehicle fleet, but it will also increase the cost (and presumably, the 
price) of new passenger cars and light trucks built during MYs 2017-
2025. We anticipate that the cost, scope, and duration of this rule, as 
well as the steadily rising standards it requires, will cause 
automakers and suppliers to devote increased attention to methods of 
improving vehicle fuel economy.
    This increased attention will stimulate additional research and 
engineering, and we anticipate that, over time, innovative approaches 
to reducing the fuel consumption of light duty vehicles will emerge. 
These innovative approaches may reduce the cost of the proposed rule in 
its later years, and also increase the set of feasible technologies in 
future years. We have attempted to estimate the effect of learning 
effects on the costs of producing known technologies within the period 
of the rulemaking, which is one way that technologies become cheaper 
over time, and may reflect innovations in application and use of 
existing technologies to meet the proposed future. However, we have not 
attempted to estimate the extent to which not-yet-invented technologies 
will appear, either within the time period of the current rulemaking or 
that might be available after MY 2016, or whether technologies 
considered but not applied in the current rulemaking, due to concern 
about the likelihood of their commercialization in the rulemaking 
timeframe, will in fact be helped towards commercialization as a result 
of the proposed standards. NHTSA seeks comment on whether there are 
quantifiable costs and benefits associated with the potential 
technology forcing effects of the proposed standards, and if so, how 
the agency should consider attempting to account for them in the final 
rule analysis.
Effects on Vehicle Costs
    Actions that increases the cost of new vehicles could subsequently 
make such vehicles more costly to maintain, repair, and insure. In 
general, NHTSA expects that this effect to be a positive linear 
function of vehicle costs. In its central analysis, NHTSA estimates 
that the proposed rule could raise average vehicle technology costs by 
over $1,800 by 2025, and for some manufacturers, average costs will 
increase by more than $3,000 (for some specific vehicle models, we 
estimate that the proposed rule could increase technology costs by more 
than $10,000). Depending on the retail price of the vehicle, this could 
represent a significant increase in the overall vehicle cost and 
subsequently increase insurance rates, operation costs, and maintenance 
costs. Comprehensive and collision insurance costs are likely to be 
directly related to price increases, but liability premiums will go up 
by a smaller proportion because the bulk of liability coverage reflects 
the cost of personal injury. Also, although they represent economic 
transfers, sales and excise taxes would also increase with increases in 
vehicle prices (unless rates are reduced). The impact on operation and 
maintenance costs is less clear, because the maintenance burden and 
useful life of each technology are not known. However, one of the 
common consequences of using more complex or innovative technologies is 
a decline in vehicle reliability and an increase in maintenance costs. 
These costs are borne in part by vehicle manufacturers (through 
warranty costs, which are included in the indirect costs of 
production), and in part by vehicle owners. NHTSA believes that this 
effect is difficult to quantify for purposes of this proposed rule, but 
we seek comment on how we might attempt to do so for the final rule.
    Related, to the extent that the proposed standards require 
manufacturers to build and sell more PHEVs and EVs, vehicle 
manufacturers and owners may face additional costs for charging 
infrastructure and battery disposal. While Chapter 3 of the draft Joint 
TSD discusses the costs of charging infrastructure, neither of these 
costs have been incorporated into the rulemaking analysis due to time 
constraints. We intend to attempt to quantify these additional costs 
for the final rule stage, but we believe that doing so will be 
difficult and we seek comment on how we might go about it. We also seek 
comment on other costs or cost savings that are not accounted for in 
this analysis and how we might go about quantifying them for the final 
rule.
    And finally on the subject of vehicle operation, NHTSA has received 
comments in the past that premium (higher octane) fuel may be necessary 
if certain advanced fuel economy-improving technologies are required by 
stringent CAFE standards. The agencies have not assumed in our 
development of technology costs that premium fuel would be required. We 
seek comment on this assumption.
Effects on Vehicle Miles Traveled (VMT)
    While NHTSA has estimated the impact of the rebound effect on the 
use of MY 2017-25 vehicles, we have not estimated how a change in new 
vehicle sales would impact aggregate vehicle use. Changes in new 
vehicle sales may be accompanied by complex but

[[Page 75336]]

difficult-to-quantify effects on overall vehicle use and its 
composition by vehicle type and age, because the same factors affecting 
sales of new vehicles are also likely to influence their use, as well 
as how intensively older vehicles are used and when they are retired 
from service. These changes may have important consequences for total 
fleet-wide fuel consumption. NHTSA believes that this effect is 
difficult to quantify for purposes of this proposed rule, but we seek 
comment on how we might attempt to do so for the final rule, if 
commenters agree that attempting quantification of this effect could be 
informative.
Effect on Composition of Passenger Car and Light Truck Sales
    To the extent that manufacturers pass on costs to buyers by raising 
prices for new vehicle models, they may distribute these price 
increases across their model lineups in ways that affect the 
composition of their total sales. To the extent that changes in the 
composition of sales occur, this could affect fuel savings to some 
degree. However, NHTSA's view is that the scope for such effects is 
relatively small, since most vehicles will to some extent be impacted 
by the standards. Compositional effects might be important with respect 
to compliance costs for individual manufacturers, but are unlikely to 
be material for the rule as a whole.
    NHTSA is continuing to develop methods of estimating the effects of 
these proposed standards on the sales of individual vehicle models, and 
plans to apply these methods in analyzing the impacts of its final CAFE 
standards for MY 2017-25. In the meantime, the agency seeks comment on 
the possibility that significant shifts in the composition of new 
vehicle sales by type or model could occur, the potential effects of 
such shifts on fuel consumption and fuel savings from the proposed 
standards, and methods for analyzing the potential extent and patterns 
of shifts in sales.
Effects on the Used Vehicle Market
    The effect of this rule on the lifetimes, use, and retirement dates 
(``scrappage'') of older vehicles will be related to its effects on new 
vehicle prices, the fuel efficiency of new vehicle models, and total 
sales of new vehicles. If the value of fuel savings resulting from 
improved fuel efficiency to the typical potential buyer of a new 
vehicle outweighs the average increase in new models' prices, sales of 
new vehicles will rise, while scrappage rates of used vehicles will 
increase slightly. This will cause the ``turnover'' of the vehicle 
fleet--that is, the retirement of used vehicles and their replacement 
by new models--to accelerate slightly, thus accentuating the 
anticipated effect of the rule on fleet-wide fuel consumption and 
CO2 emissions. However, if potential buyers value future 
fuel savings resulting from the increased fuel efficiency of new models 
at less than the increase in their average selling price, sales of new 
vehicles will decline, as will the rate at which used vehicles are 
retired from service. This effect will slow the replacement of used 
vehicles by new models, and thus partly offset the anticipated effects 
of the final rules on fuel use and emissions.
    Because the agencies are uncertain about how the value of projected 
fuel savings from the final rules to potential buyers will compare to 
their estimates of increases in new vehicle prices, we have not 
attempted to estimate explicitly the effects of the rule on scrappage 
of older vehicles and the turnover of the vehicle fleet.
Impacts of Changing Fuel Composition on Costs, Benefits, and Emissions
    EPAct, as amended by EISA, creates a Renewable Fuels Standard that 
sets targets for greatly increased usage of renewable fuels over the 
next decade. The law requires fixed volumes of renewable fuels to be 
used--volumes that are not linked to actual usage of transportation 
fuels.
    Ethanol and biodiesel (in the required volumes) may increase or 
decrease the cost of blended gasoline and diesel, depending on crude 
oil prices and tax subsidies offered for renewable fuels. The potential 
extra cost of renewable fuels would be borne through a cross-subsidy: 
the price of every gallon of blended gasoline could rise sufficiently 
to pay for any extra cost of using renewable fuels in these blends. 
However, if the price of gasoline or diesel increases enough, the 
consumer could actually realize a savings through the increased usage 
of renewable fuels. By reducing total fuel consumption, the CAFE 
standards proposed in this rule could tend to increase any necessary 
cross-subsidy per gallon of fuel, and hence raise the market price of 
transportation fuels, while there would be no change in the volume or 
cost of renewable fuels used.
    These effects are indirectly incorporated in NHTSA's analysis of 
the proposed CAFE rule because they are reflected in EIA's projections 
of future gasoline and diesel prices in the Annual Energy Outlook, 
which incorporates in its baseline both a Renewable Fuel Standard and 
an CAFE standards.
    The net effect of incorporating an RFS then might be to slightly 
reduce the benefits of the rule because affected vehicles might be 
driven slightly less if the RFS makes blended gasoline relatively more 
expensive, and because fuels blended with more ethanol emit slightly 
fewer greenhouse gas emissions per gallon. In addition, there might be 
corresponding benefit losses from the induced reduction in VMT. All of 
these effects are difficult to estimate, because of uncertainty in 
future crude oil prices, uncertainty in future tax policy, and 
uncertainty about how petroleum marketers will actually comply with the 
RFS, but they are likely to be small, because the cumulative deviation 
from baseline fuel consumption induced by the final rule will itself be 
small.
Distributional Effects
    The agency's analysis of the proposed rule reports impacts only as 
nationwide aggregate or per-vehicle average values. NHTSA also shows 
the effects of the EIA high and low fuel price forecasts on the 
aggregate benefits in its sensitivity analysis. Generally, this 
proposed rule would have its largest effects on individuals who 
purchase new vehicles produced during the model years it would affect 
(2017-25). New vehicle buyers who drive more than the agency's 
estimates of average vehicle use will experience larger fuel savings 
and economic benefits than the average values reported in this NPRM, 
while those who drive less than our average estimates will experience 
smaller fuel savings and benefits. NHTSA believes that this effect is 
difficult to quantify for purposes of this proposed rule, but we seek 
comment on how we might attempt to do so for the final rule, if 
commenters agree that attempting quantification of this effect could be 
informative.

H. Vehicle Classification

    Vehicle classification, for purposes of the CAFE program, refers to 
whether NHTSA considers a vehicle to be a passenger car or a light 
truck, and thus subject to either the passenger car or the light truck 
standards.\816\ As NHTSA explained in the MY 2011 rulemaking and in the 
MYs 2012-2016 rulemaking, vehicle classification is based in part on 
EPCA/EISA, and in part on NHTSA's regulations. EPCA categorizes some 
light 4-wheeled vehicles as ``passenger automobiles'' (cars) and the 
balance as ``non-passenger automobiles'' (light trucks). EPCA defines 
passenger

[[Page 75337]]

automobiles as any automobile (other than an automobile capable of off-
highway operation) which NHTSA decides by rule is manufactured 
primarily for use in the transportation of not more than 10 
individuals.\817\ NHTSA created regulatory definitions for passenger 
automobiles and light trucks, found at 49 CFR Part 523, to guide the 
agency and manufacturers in classifying vehicles.
---------------------------------------------------------------------------

    \816\ For the purpose of the MYs 2012-2016 standards and this 
NPRM for the MYs 2017-2025 standards, EPA has agreed to use NHTSA's 
regulatory definitions for determining which vehicles would be 
subject to which CO2 standards.
    \817\ EPCA 501(2), 89 Stat. 901, codified at 49 U.S.C. 32901(a).
---------------------------------------------------------------------------

    Under EPCA, there are two general groups of automobiles that 
qualify as non-passenger automobiles or light trucks: (1) Those defined 
by NHTSA in its regulations as other than passenger automobiles due to 
their having design features that indicate they were not manufactured 
``primarily'' for transporting up to ten individuals; and (2) those 
expressly excluded from the passenger category by statute due to their 
capability for off-highway operation, regardless of whether they might 
have been manufactured primarily for passenger transportation.\818\ 49 
CFR 523 directly tracks those two broad groups of non-passenger 
automobiles in subsections (a) and (b), respectively. We note that 
NHTSA tightened the definition of light truck in the MY 2011 rulemaking 
to ensure that only vehicles that actually have 4WD will be classified 
as off-highway vehicles by reason of having 4WD (to prevent 2WD SUVs 
that also come in a 4WD ``version'' from qualifying automatically as 
``off-road capable'' simply by reason of the existence of the 4WD 
version), which resulted in the reclassification of over 1 million 
vehicles from the truck fleet to the car fleet.
---------------------------------------------------------------------------

    \818\ 49 U.S.C. 32901(a)(18). The statute refers both to 
vehicles that are 4WD and to vehicles over 6,000 lbs GVWR as 
potential candidates for off-road capability, if they also meet the 
``significant feature * * * designed for off-highway operation'' as 
defined by the Secretary. We note that we consider ``AWD'' vehicles 
as 4WD for purposes of this determination--they send power to all 
wheels of the vehicle all the time, while 4WD vehicles may only do 
so part of the time, which appears to make them equal candidates for 
off-road capability given other necessary characteristics. We also 
underscore, as we have in the past, that despite comments in prior 
rulemakings suggesting that any vehicle that appears to be 
manufactured ``primarily'' for transporting passengers must be 
classified as a passenger car, the statute as currently written 
clearly provides that vehicles that are off-highway capable are not 
passenger cars.
---------------------------------------------------------------------------

    Since the original passage of EPCA, and consistently through the 
passage of EISA, Congress has expressed its intent that different 
vehicles with different characteristics and capabilities should be 
subject to different CAFE standards in two ways: first, through whether 
a vehicle is classified as a passenger car or as a light truck, and 
second, by requiring NHTSA to set separate standards for passenger cars 
and for light trucks.\819\ Creating two categories of vehicles and 
requiring separate standards for each, however, can lead to two issues 
which may either detract from the fuel savings that the program is able 
to achieve, or increase regulatory burden for manufacturers simply 
because they are trying to meet market demand. Specifically,
---------------------------------------------------------------------------

    \819\ See, e.g., discussion of legislative history in 42 FR 
38362, 38365-66 (Jul. 28, 1977).
---------------------------------------------------------------------------

    (1) If the stringency of the standards that NHTSA establishes seems 
to favor either cars or trucks, manufacturers may have incentive to 
change their vehicles' characteristics in order to reclassify them and 
average them into the ``easier'' fleet; and
    (2) ``Like'' vehicles, such as the 2WD and 4WD versions of the same 
CUV, may have generally similar fuel economy-achieving capabilities, 
but different targets due to differences in the car and truck curves.
    NHTSA recognizes that manufacturers may have an incentive to 
classify vehicles as light trucks if the fuel economy target for light 
trucks with a given footprint is less stringent than the target for 
passenger cars with the same footprint. This is often the case given 
the current fleet. Because of characteristics like 4WD and towing and 
hauling capacity (and correspondingly, although not necessarily, 
heavier weight), the vehicles in the current light truck fleet are 
generally less capable of achieving higher fuel economy levels as 
compared to the vehicles in the passenger car fleet. 2WD SUVs are the 
vehicles that could be most readily redesigned so that they can be 
``moved'' from the passenger car to the light truck fleet. A 
manufacturer could do this by adding a third row of seats, for example, 
or boosting GVWR over 6,000 lbs for a 2WD SUV that already meets the 
ground clearance requirements for ``off-road capability.'' A change 
like this may only be possible during a vehicle redesign, but since 
vehicles are redesigned, on average, every 5 years, at least some 
manufacturers could possibly choose to make such changes before or 
during the model years covered by this rulemaking, either because of 
market demands or because of interest in changing the vehicle's 
classification.
    NHTSA continues to believe that the definitions as they currently 
exist are consistent with the text of EISA and with Congress' original 
intent. However, the time frame of this rulemaking is longer than any 
CAFE rulemaking that NHTSA has previously undertaken, and no one can 
predict with certainty how the market will change between now and 2025. 
The agency therefore has less assurance than in prior rulemakings that 
manufacturers will not have greater incentives and opportunities during 
that time frame to make more deliberate redesign efforts to move 
vehicles out of the car fleet and into the truck fleet in order to 
obtain the lower target, and potentially reducing overall fuel savings. 
Recognizing this possibility, we seek comment on how best to avoid it 
while still classifying vehicles appropriately based on their 
characteristics and capabilities.
    One of the potential options that we explored in the MYs 2012-2016 
rulemaking for MYs 2017 and beyond was changing the definition of light 
truck to remove paragraph (5) of 49 CFR 523.5(a), which allows vehicles 
to be classified as light trucks if they have three or more rows of 
seats that can either be removed or folded flat to allow greater cargo-
carrying capacity. NHTSA has received comments in the past arguing that 
vehicles with three or more rows of seats, unless they are capable of 
transporting more than 10 individuals, should be classified as 
passenger cars rather than as light trucks because they would not need 
to have so many seats if they were not intended primarily to carry 
passengers.
    NHTSA recognizes that there are arguments both for and against 
maintaining the definition as currently written for MYs 2017 and 
beyond. The agency continues to believe that three or more rows of 
seats that can be removed or folded flat is a reasonable proxy for a 
vehicle's ability to provide expanded cargo space, consistent with the 
agency's original intent in developing the light truck definitions that 
expanded cargo space is a fundamentally ``truck-like'' characteristic. 
Much of the public reaction to this definition, which is mixed, tends 
to be visceral and anecdotal--for example, for parents with minivans 
and multiple children, the ability of seats to fold flat to provide 
more room for child-related cargo may have been a paramount 
consideration in purchasing the vehicle, while for CUV owners with 
cramped and largely unused third rows, those extra seats may seem to 
have sprung up entirely in response to the regulation, rather than in 
response to the consumer's need for utility. If we believe, for the 
sake of argument, that the agency's decision might be reasonable from 
both a policy and a legal perspective whether we decided to change the 
definition or to leave it alone, the most important questions in making 
the decision become (1) whether removing

[[Page 75338]]

523.5(a)(5), and thus causing vehicles with three or more rows to be 
classified as passenger cars in the future, will save more fuel, and 
(2) if more fuel will be saved, at what cost.
    In considering these questions in the MYs 2012-2016 rulemaking, 
NHTSA conducted an analysis in the final rule to attempt to consider 
the impact of moving these vehicles. We identified all of the 3-row 
vehicles in the baseline (MY 2008) fleet,\820\ and then considered 
whether any could be properly classified as a light truck under a 
different provision of 49 CFR 523.5--about 40 vehicles were 
classifiable under Sec.  523.5(b) as off-highway capable. We then 
transferred those remaining 3-row vehicles from the light truck to the 
passenger car input sheets for the CAFE model, re-estimated the 
relative stringency of the passenger car and light truck standards, 
shifted the curves to obtain the same overall average required fuel 
economy as under the final standards, and ran the model to evaluate 
potential impacts (in terms of costs, fuel savings, etc.) of moving 
these vehicles. The agency's hypothesis had been that moving 3-row 
vehicles from the truck to the car fleet would tend to bring the 
achieved fuel economy levels down in both fleets--the car fleet 
achieved levels could theoretically fall due to the introduction of 
many more vehicles that are relatively heavy for their footprint and 
thus comparatively less fuel economy-capable, while the truck fleet 
achieved levels could theoretically fall due to the characteristics of 
the vehicles remaining in the fleet (4WDs and pickups, mainly) that are 
often comparatively less fuel economy-capable than 3-row vehicles, 
although more vehicles would be subject to the relatively more 
stringent passenger car standards, assuming the curves were not refit 
to the data.
---------------------------------------------------------------------------

    \820\ Of the 430 light truck models in the fleet, 175 of these 
had 3 rows.
---------------------------------------------------------------------------

    As the agency found, however, moving the vehicles reduced the 
stringency of the passenger car standards by approximately 0.8 mpg on 
average for the five years of the rule, and reduced the stringency of 
the light truck standards by approximately 0.2 mpg on average for the 
five years of the rule, but it also resulted in approximately 676 
million fewer gallons of fuel consumed (equivalent to about 1 percent 
of the reduction in fuel consumption under the final standards) and 7.1 
mmt fewer CO2 emissions (equivalent to about 1 percent of 
the reduction in CO2 emissions under the final standards) 
over the lifetime of the MYs 2012-2016 vehicles. This result was 
attributable to slight differences (due to rounding precision) in the 
overall average required fuel economy levels in MYs 2012-2014, and to 
the retention of the relatively high lifetime mileage accumulation 
(compared to ``traditional'' passenger cars) of the vehicles moved from 
the light truck fleet to the passenger car fleet. The net effect on 
technology costs was approximately $200 million additional spending on 
technology each year (equivalent to about 2 percent of the average 
increase in annual technology outlays under the final standards). 
Assuming manufacturers would pass that cost forward to consumers by 
increasing vehicle costs, NHTSA estimated that vehicle prices would 
increase by an average of approximately $13 during MYs 2012-2016. With 
less fuel savings and higher costs, and a substantial disruption to the 
industry, removing 523.5(a)(5) did not seem advisable in the context of 
the MYs 2012-2016 rulemaking.
    Looking forward, however, and given the considerable uncertainty 
regarding the incentive to reclassify vehicles in the MYs 2017 and 
beyond timeframe, the agency considered whether a fresh attempt at this 
analysis would be warranted, but did not believe that it would be 
informative given the uncertainty. One important point to note in the 
comparative analysis in the MYs 2012-2016 rulemaking is that, due to 
time constraints, the agency did not attempt to refit the respective 
fleet target curves or to change the intended required stringency in MY 
2016 of 34.1 mpg for the combined fleets. If we had refitted curves, 
considering the vehicles in question, we might have obtained a somewhat 
steeper passenger car curve, and a somewhat flatter light truck curve, 
which could have affected the agency's findings. The same is true 
today. Without refitting the curves and changing the required levels of 
stringency for cars and trucks, simply moving vehicles from one fleet 
to another will not inform the agency in any substantive way as to the 
impacts of a change in classification. Moreover, even if we did attempt 
to make those changes, the results would be somewhat speculative; for 
example, the agencies continue to use the same MY 2008 baseline used in 
the MYs 2012-2016 rulemaking, which may have limited utility for 
predicting relatively small changes (moving only 40 vehicles, as noted 
above) in the fleet makeup during the rulemaking timeframe. As a 
result, NHTSA did not attempt to quantify the impact of such a 
reclassification of 3-row vehicles, but we seek comment on whether and 
how we should do so for the final rule. If commenters believe that we 
should attempt to quantify the impact, we specifically seek comment on 
how to refit the footprint curves and how the agency should consider 
stringency levels under such a scenario.
    Another potential option that we explored in the MYs 2012-2016 
rulemaking for MYs 2017 and beyond was classifying ``like'' vehicles 
together. Many commenters objected in the rulemaking for the MY 2011 
standards to NHTSA's regulatory separation of ``like'' vehicles. 
Industry commenters argued that it was technologically inappropriate 
for NHTSA to place 4WD and 2WD versions of the same SUV in separate 
classes. They argued that the vehicles are the same, except for their 
drivetrain features, thus giving them similar fuel economy improvement 
potential. They further argued that all SUVs should be classified as 
light trucks. Environmental and consumer group commenters, on the other 
hand, argued that 4WD SUVs and 2WD SUVs that are ``off-highway 
capable'' by virtue of a GVWR above 6,000 pounds should be classified 
as passenger cars, since they are primarily used to transport 
passengers. In the MY 2011 rulemaking, NHTSA rejected both of these 
sets of arguments. NHTSA concluded that 2WD SUVs that were neither 
``off-highway capable'' nor possessed ``truck-like'' functional 
characteristics were appropriately classified as passenger cars. At the 
same time, NHTSA also concluded that because Congress explicitly 
designated vehicles with GVWRs over 6,000 pounds as ``off-highway 
capable'' (if they meet the ground clearance requirements established 
by the agency), NHTSA did not have authority to move these vehicles to 
the passenger car fleet.
    NHTSA continues to believe that this would not be an appropriate 
solution for addressing either the risk of gaming or perceived 
regulatory inequity going forward. As explained in the MYs 2012-2016 
final rule, with regard to the first argument, that ``like'' vehicles 
should be classified similarly (i.e., that 2WD SUVs should be 
classified as light trucks because, besides their drivetrain, they are 
``like'' the 4WD version that qualifies as a light truck), NHTSA 
continues to believe that 2WD SUVs that do not meet any part of the 
existing regulatory definition for light trucks should be classified as 
passenger cars. However, NHTSA recognizes the additional point raised 
by industry commenters in the MY 2011 rulemaking that manufacturers may 
respond to this tighter classification by ceasing to build 2WD versions 
of SUVs, which could

[[Page 75339]]

reduce fuel savings. In response to that point, NHTSA stated in the MY 
2011 final rule that it expects that manufacturer decisions about 
whether to continue building 2WD SUVs will be driven in much greater 
measure by consumer demand than by NHTSA's regulatory definitions. If 
it appears, in the course of the next several model years, that 
manufacturers are indeed responding to the CAFE regulatory definitions 
in a way that reduces overall fuel savings from expected levels, it may 
be appropriate for NHTSA to review this question again. At this time, 
however, since so little time has passed since our last rulemaking 
action, we do not believe that we have enough information about changes 
in the fleet to ascertain whether this is yet ripe for consideration. 
We seek comment on how the agency might go about reviewing this 
question as more information about manufacturer behavior is accumulated 
over time.

I. Compliance and Enforcement

1. Overview
    NHTSA's CAFE enforcement program is largely established by 
statute--unlike the CAA, EPCA, as amended by EISA, is very prescriptive 
with regard to enforcement. EPCA and EISA also clearly specify a number 
of flexibilities that are available to manufacturers to help them 
comply with the CAFE standards. Some of those flexibilities are 
constrained by statute--for example, while Congress required that NHTSA 
allow manufacturers to transfer credits earned for over-compliance from 
their car fleet to their truck fleet and vice versa, Congress also 
limited the amount by which manufacturers could increase their CAFE 
levels using those transfers.\821\ NHTSA believes Congress balanced the 
energy-saving purposes of the statute against the benefits of certain 
flexibilities and incentives and intentionally placed some limits on 
certain statutory flexibilities and incentives. With that goal in mind, 
of maximizing compliance flexibility while also implementing EPCA/
EISA's overarching purpose of energy conservation as fully as possible, 
NHTSA has done its best in crafting the credit transfer and trading 
regulations authorized by EISA to ensure that total fuel savings are 
preserved when manufacturers exercise their statutorily-provided 
compliance flexibilities.
---------------------------------------------------------------------------

    \821\ See 49 U.S.C. 32903(g).
---------------------------------------------------------------------------

    Furthermore, to achieve the level of standards described in this 
proposal for the 2017-2025 program, NHTSA expects automakers to 
continue increasing the use of innovative and advanced technologies as 
they evolve. Additional incentive programs may encourage early adoption 
of these innovative and advanced technologies and help to maximize both 
compliance flexibility and energy conservation. These incentive 
programs for CAFE compliance would not be under NHTSA's EPCA/EISA 
authority, but under EPA's EPCA authority--as discussed in more detail 
below and in Section III of this preamble, EPA measures and calculates 
manufacturer compliance with the CAFE standards, and it would be in the 
calculation of fuel economy levels that additional incentives would 
most appropriately be applied, as a practical matter. Specifically, to 
be included in the CAFE program, EPA is proposing: (1) Fuel economy 
performance adjustments due to improvements in air conditioning system 
efficiency; (2) utilization of ``game changing'' technologies installed 
on full size pick-up trucks including hybridization; and (3) 
installation of ``off-cycle'' technologies. In addition, for model 
years 2020 and later, EPA is proposing calculation methods for dual-
fueled vehicles, to fill the gap left in EPCA/EISA by the expiration of 
the dual-fuel incentive. A more thorough description of the basis for 
the new incentive programs can be found in Section III.
    The following sections explain how NHTSA determines whether 
manufacturers are in compliance with the CAFE standards for each model 
year, and how manufacturers may address potential non-compliance 
situations through the use of compliance flexibilities or fine payment. 
The following sections also explain, for the reader's reference, the 
proposed new incentives and calculations, but we also refer readers to 
Section III.C for EPA's explanation of its authority and more specific 
detail regarding these proposed changes to the CAFE program.
2. How does NHTSA determine compliance?
a. Manufacturer Submission of Data and CAFE Testing by EPA
    NHTSA begins to determine CAFE compliance by reviewing projected 
estimates in pre- and mid-model year reports submitted by manufacturers 
pursuant to 49 CFR part 537, Automotive Fuel Economy Reports.\822\ 
Those reports for each compliance model year are submitted to NHTSA by 
December of the calendar year prior to the corresponding subsequent 
model year (for the pre-model year report) and in July of the given 
model year (for the mid-model year report). NHTSA has already received 
pre-and mid-model year reports from manufacturers for MY 2011. NHTSA 
uses these reports for reference to help the agency, and the 
manufacturers who prepare them, anticipate potential compliance issues 
as early as possible, and help manufacturers plan compliance 
strategies. NHTSA also uses the reports for auditing and testing 
purposes, which helps manufacturers correct errors prior to the end of 
the model year and facilitates acceptance of their final CAFE report by 
EPA. In addition, NHTSA issues reports to the public twice a year that 
provide a summary of manufacturers' fleet fuel economy projected 
performances using pre- and mid model year data. Currently, NHTSA 
receives manufacturers' CAFE reports in paper form. In order to 
facilitate submission by manufacturers, NHTSA amended part 537 to allow 
for electronic submission of the pre- and mid-model year CAFE reports 
in 2010 (see 75 FR 25324). Electronic reports are optional and must be 
submitted in a pdf format. NHTSA proposes to modify these provisions in 
this NPRM, as described below, in order to eliminate hardcopy 
submissions and help the agency more readily process and utilize the 
electronically-submitted data.
---------------------------------------------------------------------------

    \822\ 49 CFR part 537 is authorized by 49 U.S.C. 32907.
---------------------------------------------------------------------------

    Throughout the model year, NHTSA audits manufacturers' reports and 
conducts vehicle testing to confirm the accuracy of track width and 
wheelbase measurements as a part of its footprint validation 
program,\823\ which helps the agency understand better how 
manufacturers may adjust vehicle characteristics to change a vehicle's 
footprint measurement, and thus its fuel economy target. NHTSA resolve 
discrepancies with the manufacturer prior to the end of the calendar 
year corresponding to the respective model year with the primary goal 
of manufacturers submitting accurate final reports to EPA. NHTSA makes 
its ultimate determination of a manufacturer's CAFE compliance 
obligation based on official reported and verified CAFE data received 
from EPA. Pursuant to 49 U.S.C. 32904(e), EPA is responsible for 
calculating manufacturers' CAFE values so that NHTSA can determine 
compliance with its CAFE standards. The EPA-verified data is based on 
any considerations from NHTSA testing, its own vehicle testing, and 
final model year data

[[Page 75340]]

submitted by manufacturers to EPA pursuant to 40 CFR 600.512. A 
manufacturer's final model year report must be submitted to EPA no 
later than 90 days after December 31st of the model year. EPA test 
procedures including those used to establish the new incentive fuel 
economy performance values for model year 2017 to 2025 vehicles are 
contained in sections 40 CFR Part 600 and 40 CFR Part 86.
---------------------------------------------------------------------------

    \823\ See http://www.nhtsa.gov/DOT/NHTSA/Vehicle%20Safety/Test%20Procedures/Associated%20Files/TP-537-01.pdf
---------------------------------------------------------------------------

b. NHTSA Then Analyzes EPA-Certified CAFE Values for Compliance
    NHTSA's determination of CAFE compliance is fairly straightforward: 
after testing, EPA verifies the data submitted by manufacturers and 
issues final CAFE reports sent to manufacturers and to NHTSA in a pdf 
format between April and October of each year (for the previous model 
year), and NHTSA then identifies the manufacturers' compliance 
categories (fleets) that do not meet the applicable CAFE fleet 
standards. NHTSA plans to construct a new, more automated database 
system in the near future to store manufacturer data and the EPA data. 
The new database is expected to simplify data submissions to NHTSA, 
improve the quality of the agency's data, expedite public reporting, 
improve audit verifications and testing, and enable more efficient 
tracking of manufacturers' CAFE credits with greater transparency.
    NHTSA uses the verified data from EPA to compare fleet average 
standards with performance. A manufacturer complies with NHTSA's fuel 
economy standard if its fleet average performance is greater than or 
equal to its required standard, or if it is able to use available 
compliance flexibilities to resolve its non-compliance difference. 
NHTSA calculates a cumulative credit status for each of a 
manufacturer's vehicle compliance categories according to 49 U.S.C. 
32903. If a manufacturer's compliance category exceeds the applicable 
fuel economy standard, NHTSA adds credits to the account for that 
compliance category. The amount of credits earned in a given year are 
determined by multiplying the number of tenths of an mpg by which a 
manufacturer exceeds a standard for a particular category of 
automobiles by the total volume of automobiles of that category 
manufactured by the manufacturer for that model year. Credits may be 
used to offset shortfalls in other model years, subject to the three 
year ``carry-back'' and five-year ``carry-forward'' limitations 
specified in 49 U.S.C. 32903(a); NHTSA does not have authority to allow 
credits to be carried forward or back for periods longer than that 
specified in the statute. A manufacturer may also transfer credits to 
another compliance category, subject to the limitations specified in 49 
U.S.C. 32903(g)(3), or trade them to another manufacturer. The value of 
each credit received via trade or transfer, when used for compliance, 
is adjusted using the adjustment factor described in 49 CFR 536.4, 
pursuant to 49 U.S.C. 32903(f)(1). As part of this rulemaking, NHTSA is 
proposing to set the VMT values that are part of the adjustment factor 
for credits earned in MYs 2017-2025 at a single level that does not 
change from model year to model year, as discussed further below.
    If a manufacturer's vehicles in a particular compliance category 
fall below the standard fuel economy value, NHTSA will provide written 
notification to the manufacturer that it has not met a particular fleet 
standard. The manufacturer will be required to confirm the shortfall 
and must either submit a plan indicating it will allocate existing 
credits, or if it does not have sufficient credits available in that 
fleet, how it will earn, transfer and/or acquire credits, or pay the 
appropriate civil penalty. The manufacturer must submit a plan or 
payment within 60 days of receiving agency notification. Credit 
allocation plans received from the manufacturer will be reviewed and 
approved by NHTSA. NHTSA will approve a credit allocation plan unless 
it finds the proposed credits are unavailable or that it is unlikely 
that the plan will result in the manufacturer earning sufficient 
credits to offset the subject credit shortfall. If a plan is approved, 
NHTSA will revise the manufacturer's credit account accordingly. If a 
plan is rejected, NHTSA will notify the manufacturer and request a 
revised plan or payment of the appropriate fine.
    In the event that a manufacturer does not comply with a CAFE 
standard even after the consideration of credits, EPCA provides for the 
assessment of civil penalties. The Act specifies a precise formula for 
determining the amount of civil penalties for noncompliance.\824\ The 
penalty, as adjusted for inflation by law, is $5.50 for each tenth of a 
mpg that a manufacturer's average fuel economy falls short of the 
standard for a given model year multiplied by the total volume of those 
vehicles in the affected fleet (i.e., import or domestic passenger car, 
or light truck), manufactured for that model year. The amount of the 
penalty may not be reduced except under the unusual or extreme 
circumstances specified in the statute. All penalties are paid to the 
U.S. Treasury and not to NHTSA itself.
---------------------------------------------------------------------------

    \824\ See 49 U.S.C. 32912.
---------------------------------------------------------------------------

    Unlike the National Traffic and Motor Vehicle Safety Act, EPCA does 
not provide for recall and remedy in the event of a noncompliance. The 
presence of recall and remedy provisions \825\ in the Safety Act and 
their absence in EPCA is believed to arise from the difference in the 
application of the safety standards and CAFE standards. A safety 
standard applies to individual vehicles; that is, each vehicle must 
possess the requisite equipment or feature that must provide the 
requisite type and level of performance. If a vehicle does not, it is 
noncompliant. Typically, a vehicle does not entirely lack an item or 
equipment or feature. Instead, the equipment or features fails to 
perform adequately. Recalling the vehicle to repair or replace the 
noncompliant equipment or feature can usually be readily accomplished.
---------------------------------------------------------------------------

    \825\ 49 U.S.C. 30120, Remedies for defects and noncompliance.
---------------------------------------------------------------------------

    In contrast, a CAFE standard applies to a manufacturer's entire 
fleet for a model year. It does not require that a particular 
individual vehicle be equipped with any particular equipment or feature 
or meet a particular level of fuel economy. It does require that the 
manufacturer's fleet, as a whole, comply. Further, although under the 
attribute-based approach to setting CAFE standards fuel economy targets 
are established for individual vehicles based on their footprints, the 
vehicles are not required to comply with those targets on a model-by-
model or vehicle-by-vehicle basis. However, as a practical matter, if a 
manufacturer chooses to design some vehicles so they fall below their 
target levels of fuel economy, it will need to design other vehicles so 
they exceed their targets if the manufacturer's overall fleet average 
is to meet the applicable standard.
    Thus, under EPCA, there is no such thing as a noncompliant vehicle, 
only a noncompliant fleet. No particular vehicle in a noncompliant 
fleet is any more, or less, noncompliant than any other vehicle in the 
fleet.
    After enforcement letters are sent, NHTSA continues to monitor 
receipt of credit allocation plans or civil penalty payments that are 
due within 60 days from the date of receipt of the letter by the 
vehicle manufacturer, and takes further action if the manufacturer is 
delinquent in responding. If NHTSA receives and approves a 
manufacturer's carryback plan to earn future credits within the 
following three years in order to comply with current regulatory

[[Page 75341]]

obligations, NHTSA will defer levying fines for non-compliance until 
the date(s) when the manufacturer's approved plan indicates that 
credits will be earned or acquired to achieve compliance, and upon 
receiving confirmed CAFE data from EPA. If the manufacturer fails to 
acquire or earn sufficient credits by the plan dates, NHTSA will 
initiate compliance proceedings. 49 CFR part 536 contains the detailed 
regulations governing the use and application of CAFE credits 
authorized by 49 U.S.C. 32903.
3. What compliance flexibilities are available under the CAFE program 
and how do manufacturers use them?
    There are three basic flexibilities outlined by EPCA/EISA that 
manufacturers can currently use to achieve compliance with CAFE 
standards beyond applying fuel economy-improving technologies: (1) 
Building dual- and alternative-fueled vehicles; (2) banking (carry-
forward and carry-back), trading, and transferring credits earned for 
exceeding fuel economy standards; and (3) paying civil penalties. We 
note that while these flexibility mechanisms will reduce compliance 
costs to some degree for most manufacturers, 49 U.S.C. 32902(h) 
expressly prohibits NHTSA from considering the availability of 
statutorily-established credits (either for building dual- or 
alternative-fueled vehicles or from accumulated transfers or trades) in 
determining the level of the standards. Thus, NHTSA may not raise CAFE 
standards because manufacturers have enough of those credits to meet 
higher standards. This is an important difference from EPA's authority 
under the CAA, which does not contain such a restriction, and which 
allows EPA to set higher standards as a result.
a. Dual- and Alternative-Fueled Vehicles
    As discussed at length in prior rulemakings, EPCA encourages 
manufacturers to build alternative-fueled and dual- (or flexible-) 
fueled vehicles by providing special fuel economy calculations for 
``dedicated'' (that is, 100 percent) alternative fueled vehicles and 
``dual-fueled'' (that is, capable of running on either the alternative 
fuel or gasoline/diesel) vehicles. Consistent with the overarching 
purpose of EPCA/EISA, these statutory incentives help to reduce 
petroleum usage and thus improve our nation's energy security. Per 
EPCA, the fuel economy of a dedicated alternative fuel vehicle is 
determined by dividing its fuel economy in equivalent miles per gallon 
of gasoline or diesel fuel by 0.15.\826\ Thus, a 15 mpg dedicated 
alternative fuel vehicle would be rated as 100 mpg.
---------------------------------------------------------------------------

    \826\ 49 U.S.C. 32905(a).
---------------------------------------------------------------------------

    For dual-fueled vehicles, EPA measures the vehicle's fuel economy 
rating by determining the average of the fuel economy on gasoline or 
diesel and the fuel economy on the alternative fuel vehicle divided by 
0.15.\827\ This calculation procedure, provided in EPCA, turns a dual-
fueled vehicle that averages 25 mpg on gasoline or diesel into a 40 mpg 
vehicle for CAFE purposes. This assumes that (1) the vehicle operates 
on gasoline or diesel 50 percent of the time and on alternative fuel 50 
percent of the time; (2) fuel economy while operating on alternative 
fuel is 15 mpg (15/.15 = 100 mpg); and (3) fuel economy while operating 
on gas or diesel is 25 mpg. Thus:
---------------------------------------------------------------------------

    \827\ 49 U.S.C. 32905(b).

CAFE FE = 1/{0.5/(mpg gas) + 0.5/(mpg alt fuel){time}  = 1/{0.5/25 + 
---------------------------------------------------------------------------
0.5/100{time}  = 40 mpg

    In the case of natural gas, EPA's calculation is performed in a 
similar manner. The fuel economy is the weighted average while 
operating on natural gas and operating on gas or diesel. The statute 
specifies that 100 cubic feet (ft\3\) of natural gas is equivalent to 
0.823 gallons of gasoline. The CAFE fuel economy while operating on the 
natural gas is determined by dividing its fuel economy in equivalent 
miles per gallon of gasoline by 0.15.\828\ Thus, if a vehicle averages 
25 miles per 100 ft\3\ of natural gas, then:
---------------------------------------------------------------------------

    \828\ 49 U.S.C. 32905(c).

---------------------------------------------------------------------------
CAFE FE = (25/100) * (100/.823)*(1/0.15) = 203 mpg

    Congress extended the dual-fueled vehicle incentive in EISA for 
dual-fueled automobiles through MY 2019, but provided for its phase-out 
between MYs 2015 and 2019.\829\ The maximum fleet fuel economy increase 
attributable to this statutory incentive is thus as follows:
---------------------------------------------------------------------------

    \829\ 49 U.S.C. 32906(a). NHTSA notes that the incentive for 
dedicated alternative-fuel automobiles, automobiles that run 
exclusively on an alternative fuel, at 49 U.S.C. 32905(a), was not 
phased-out by EISA.
    We note additionally and for the reader's reference that EPA 
will be treating dual- and alternative-fueled vehicles under its GHG 
program similarly to the way EPCA/EISA provides for CAFE through MY 
2015, but for MY 2016, EPA established CO2 emission 
levels for alternative fuel vehicles based on measurement of actual 
CO2 emissions during testing, plus a manufacturer 
demonstration that the vehicles are actually being run on the 
alternative fuel. The manufacturer would then be allowed to weight 
the gasoline and alternative fuel test results based on the 
proportion of actual usage of both fuels. Because EPCA/EISA provides 
the explicit CAFE measurement methodology for EPA to use for 
dedicated vehicles and dual-fueled vehicles through MY 2019, we 
explained in the MYs 2012-2016 final rule that the CAFE program 
would not require that vehicles manufactured for the purpose of 
obtaining the credit actually be run on the alternative fuel.

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    49 CFR part 538 codifies in regulation the statutory alternative-
fueled and dual-fueled automobile manufacturing incentive.
    Given that the statutory incentive for dual-fueled vehicles in 49 
U.S.C. 32906 and the measurement methodology specified in 49 U.S.C. 
32905(b) and (d) expire in MY 2019, the question becomes, how should 
the fuel economy of dual-fueled vehicles be determined for CAFE 
compliance in MYs 2020 and beyond? NHTSA and EPA believe that the 
expiration of the dual-fueled vehicle measurement methodology in the 
statute leaves a gap to be filled, to avoid the absurd result of dual-
fueled vehicles' fuel economy being measured like that of conventional 
gasoline vehicles. If the overarching purpose of the statute is energy 
conservation and reducing petroleum usage, the agencies believe that 
that goal is best met by continuing to reflect through CAFE 
calculations the reduced petroleum usage that dual-fueled vehicles 
achieve.
    As discussed in more detail in Section III.B.10, for MYs 2020 and 
beyond, to fill the gap left by the expiration of the statutory CAFE 
measurement methodology for dual-fueled vehicles, EPA is proposing to 
harmonize with the approach it uses under the GHG program to measure 
the emissions of dual-fueled vehicles, to reflect the real-world 
percentage of usage of alternative fuels by dual-fueled vehicles, but 
also to continue to incentivize the use of certain alternative fuels in 
dual-fueled vehicles as appropriate under EPCA/EISA to reduce petroleum 
usage. Specifically, for MYs 2020 and beyond, EPA will calculate the 
fuel economy test values for a plug-in hybrid electric vehicle (PHEV, 
that runs on both gasoline and electricity) and for CNG-gasoline 
vehicles on both the alternative fuel and on gasoline, but rather than 
assuming that the dual-fueled vehicle runs on the alternative fuel 50 
percent of the time as the current statutory measurement methodology 
requires, EPA will instead use the Society of Automotive Engineers 
(SAE) ``utility factor'' methodology (based on vehicle range on the 
alternative fuel and typical daily travel mileage) to determine the 
assumed percentage of operation on gasoline/diesel and percentage of 
operation on the alternative fuel for those vehicles. Using the utility 
factor, rather than making an a priori assumption about the amount of 
alternative fuel used by dual-fueled vehicles, recognizes that once a 
consumer has paid several thousand dollars to be able to use a fuel 
that is considerably cheaper than gasoline or diesel, it is very likely 
that the consumer will seek to use the cheaper fuel as much as 
possible. Consistent with this approach, however, EPA is not proposing 
to extend the utility factor method to flexible fueled vehicles (FFVs) 
that use E-85 and gasoline, since there is not a significant cost 
differential between an FFV and conventional gasoline vehicle and 
historically consumers have only fueled these vehicles with E85 a very 
small percentage of the time. Therefore, EPA is proposing for CAFE 
compliance in MYs 2020 and beyond to continue treatment of E85 and 
other FFVs as finalized in the MY 2016 GHG program, based on actual 
usage of the alternative fuel which represents a real-world reduction 
attributed to alternative fuels. For clarification in our regulations, 
NHTSA is proposing to add Part 536.10(d) which states that for model 
years 2020 and beyond a manufacturer must calculate the fuel economy of 
dual fueled vehicles in accordance with 40 CFR 600.500-12(c), (2)(v) 
and (vii), the sections of EPA's calculation regulations where EPA is 
proposing to incorporate these changes.
    Additionally, to avoid manufacturers building only dedicated 
alternative fuel vehicles (which may be harder to refuel in some 
instances) because of the continued statutory 0.15 CAFE divisor under 
49 U.S.C. 32905(a) and the calculation for EV fuel economy under 49 
U.S.C. 32904, and declining to build dual-fueled vehicles which might 
not get a similar bonus, EPA is proposing to use the Petroleum 
Equivalency Factor (PEF) and a 0.15 divisor for calculating the fuel 
economy of PHEVs' electrical operation and for natural gas operation of 
CNG-gasoline vehicles.\830\ This is consistent with the statutory 
approach for dedicated alternative fuel vehicles, and continues to 
incentivize the usage of alternative fuels and reduction of petroleum 
usage, but when combined with the utility factor approach described 
above, does not needlessly over-incentivize their usage--it gives 
credit for what is used, and does not give credit for what is not used. 
Because it does not give credit for what is not used, EPA would propose 
that manufacturers may increase their calculated fleet fuel economy for 
dual-

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fueled vehicles by an unlimited amount using these flexibilities.
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    \830\ EPA is also seeking comment on an approach that would not 
use the PEF and 0.15 multiplier, as discussed above in Section III.
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    As an example, for MYs 2020 and beyond, the calculation procedure 
for a dual-fueled vehicle that uses both gasoline and CNG could result 
in a combined fuel economy value of 150 mpg for CAFE purposes. This 
assumes that (1) the ``utility factor'' for the alternative fuel is 
found to be 95 percent, and so the vehicle operates on gasoline for the 
remaining 5 percent of the time; (2) fuel economy while operating on 
natural gas is 203 mpg [(25/100) * (100/.823) * (1/0.15)] as shown 
above utilizing the PEF and the .15 incentive factor; and (3) fuel 
economy while operating on gasoline is 25 mpg. Thus:

CAFE FE = 1/{0.05/(mpg gas) + 0.95/(mpg CNG){time}  = 1/{0.05/25 + 
0.95/203{time}  = 150 mpg

    The agencies seek comment on this approach.
b. Credit Trading and Transfer
    As part of the MY 2011 final rule, NHTSA created 49 CFR part 536 
for credit trading and transfer. Part 536 implements the provisions in 
EISA authorizing NHTSA to establish by regulation a credit trading 
program and directing it to establish by regulation a credit transfer 
program.\831\ Since its enactment, EPCA has permitted manufacturers to 
earn credits for exceeding the standards and to carry those credits 
backward or forward. EISA extended the ``carry-forward'' period from 
three to five model years, and left the ``carry-back'' period at three 
model years. Under part 536, credit holders (including, but not limited 
to, manufacturers) will have credit accounts with NHTSA, and will be 
able to hold credits, use them to achieve compliance with CAFE 
standards, transfer them between compliance categories, or trade them. 
A credit may also be cancelled before its expiration date, if the 
credit holder so chooses. Traded and transferred credits are subject to 
an ``adjustment factor'' to ensure total oil savings are preserved, as 
required by EISA. EISA also prohibits credits earned before MY 2011 
from being transferred, so NHTSA has developed several regulatory 
restrictions on trading and transferring to facilitate Congress' intent 
in this regard. As discussed above, EISA establishes a ``cap'' for the 
maximum increase in any compliance category attributable to transferred 
credits: for MYs 2011-2013, transferred credits can only be used to 
increase a manufacturer's CAFE level in a given compliance category by 
1.0 mpg; for MYs 2014-2017, by 1.5 mpg; and for MYs 2018 and beyond, by 
2.0 mpg.
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    \831\ Congress required that DOT establish a credit 
``transferring'' regulation, to allow individual manufacturers to 
move credits from one of their fleets to another (e.g., using a 
credit earned for exceeding the light truck standard for compliance 
with the domestic passenger car standard). Congress allowed DOT to 
establish a credit ``trading'' regulation, so that credits may be 
bought and sold between manufacturers and other parties.
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    As part of this rulemaking, NHTSA is proposing to set the VMT 
estimates used in the credit adjustment factor at 195,264 miles for 
passenger car credits and 225,865 miles for light truck credits for 
credits earned in MYs 2017-2025. The VMT estimates for MYs 2012-2016 
would not change. NHTSA is proposing these values in the interest of 
harmonizing with EPA's GHG program, and seeks comment on this approach 
as compared to the prior approach of adjustment factors with VMT 
estimates that vary by year. Additionally, NHTSA is proposing to 
include VMT estimates for MY 2011 which the agency neglected to include 
in Part 536 as part of the MYs 2012-2016 rulemaking. The proposed MY 
2011 VMT estimate for passenger cars is 152,922 miles, and for light 
trucks is 172,552 miles.
c. Payment of Civil Penalties
    If a manufacturer's average miles per gallon for a given compliance 
category (domestic passenger car, imported passenger car, light truck) 
falls below the applicable standard, and the manufacturer cannot make 
up the difference by using credits earned or acquired, the manufacturer 
is subject to penalties. The penalty, as mentioned, is $5.50 for each 
tenth of a mpg that a manufacturer's average fuel economy falls short 
of the standard for a given model year, multiplied by the total volume 
of those vehicles in the affected fleet, manufactured for that model 
year. NHTSA has collected $794,921,139.50 to date in CAFE penalties, 
the largest ever being paid by DaimlerChrysler for its MY 2006 import 
passenger car fleet, $30,257,920.00. For their MY 2009 fleets, six 
manufacturers paid CAFE fines for not meeting an applicable standard--
Fiat, which included Ferrari, Maserati, and Alfa Romeo; Daimler 
(Mercedes-Benz); Porsche; and Tata (Jaguar Land Rover)--for a total of 
$9,148,425.00. As mentioned above, civil penalties paid for CAFE non-
compliance go to the U.S. Treasury, and not to DOT or NHTSA.
    NHTSA recognizes that some manufacturers may use the option to pay 
civil penalties as a CAFE compliance flexibility--presumably, when 
paying civil penalties is deemed more cost-effective than applying 
additional fuel economy-improving technology, or when adding fuel 
economy-improving technology would fundamentally change the 
characteristics of the vehicle in ways that the manufacturer believes 
its target consumers would not accept. NHTSA has no authority under 
EPCA/EISA to prevent manufacturers from turning to payment of civil 
penalties if they choose to do so. This is another important difference 
from EPA's authority under the CAA, which allows EPA to revoke a 
manufacturer's certificate of conformity that permits it to sell 
vehicles if EPA determines that the manufacturer is in non-compliance, 
and does not permit manufacturers to pay fines in lieu of compliance 
with applicable standards.
    NHTSA has grappled repeatedly with the issue of whether civil 
penalties are motivational for manufacturers, and whether raising them 
would increase manufacturers' compliance with the standards. EPCA 
authorizes increasing the civil penalty very slightly up to $10.00, 
exclusive of inflationary adjustments, if NHTSA decides that the 
increase in the penalty ``will result in, or substantially further, 
substantial energy conservation for automobiles in the model years in 
which the increased penalty may be imposed; and will not have a 
substantial deleterious impact on the economy of the United States, a 
State, or a region of a State.'' 49 U.S.C. 32912(c).
    To support a decision that increasing the penalty would result in 
``substantial energy conservation'' without having ``a substantial 
deleterious impact on the economy,'' NHTSA would likely need to provide 
some reasonably certain quantitative estimates of the fuel that would 
be saved, and the impact on the economy, if the penalty were raised. 
Comments received on this issue in the past have not explained in clear 
quantitative terms what the benefits and drawbacks to raising the 
penalty might be. Additionally, it may be that the range of possible 
increase that the statute provides, i.e., up to $10 per tenth of a mpg, 
is insufficient to result in substantial energy conservation, although 
changing this would require an amendment to the statute by Congress. 
NHTSA continues to seek to gain information on this issue and requests 
that commenters wishing to address this issue please provide, as 
specifically as possible, estimates of how raising or not raising the 
penalty amount will or will not substantially raise energy conservation 
and impact the economy.

[[Page 75344]]

4. What new incentives are being added to the CAFE program for MYs 
2017-2025?
    All of the CAFE compliance incentives discussed below are being 
proposed by EPA under its EPCA authority to calculate fuel economy 
levels for individual vehicles and for fleets. Because they are EPA 
proposals, we refer the reader to Section III for more details, as well 
as Chapter 5 of the draft Joint TSD for more information on the precise 
mechanics of the incentives, but we present them here in summary form 
so that the reader may understand more comprehensively what compliance 
options are proposed to be available for manufacturers for meeting the 
MYs 2017-2025 CAFE standards.
    As mentioned above with regard to EPA's proposed changes for the 
calculation of dual-fueled automobile fuel economy for MYs 2020 and 
beyond, NHTSA is proposing to modify its own regulations to reflect the 
fact that these incentives may be used as part of the determination of 
a manufacturer's CAFE level. The requirements for determining the 
vehicle and fleet average performance for passenger cars and light 
trucks inclusive of the proposed incentives are defined in 49 CFR part 
531 and 49 CFR part 533, respectively. Part 531.6(a) specifies that the 
average fuel economy of all passenger automobiles that are manufactured 
by a manufacturer in a model year shall be determined in accordance 
with procedures established by the Administrator of the Environmental 
Protection Agency under 49 U.S.C. 32904 of the Act and set forth in 40 
CFR part 600. Part 533.6 (b) specifies that the average fuel economy of 
all non-passenger automobiles is required to be determined in 
accordance with the procedures established by the Administrator of the 
Environmental Protection Agency under 49 U.S.C. 32904 and set forth in 
40 CFR part 600. Proposed changes to these sections would simply 
clarify that in model years 2017 to 2025, manufacturers may adjust 
their vehicle fuel economy performance values in accordance with 40 CFR 
Part 600 for improvements due to the new incentives. We seek comment on 
this proposed change.
a. ``Game Changing'' Technologies For Full Size Pick-Up Trucks
    EPA is proposing to adopt two new types of incentives for improving 
the fuel economy performance of full size pickup trucks. The first 
incentive would provide a credit to manufacturers that employ 
significant quantities of hybridization on full size pickup trucks. The 
second incentive would provide a performance-based incentive for full 
size pickup trucks that achieve a significant reduction in fuel 
consumption as compared to the applicable fuel economy target for the 
vehicle in question. These incentives are proposed due to the 
significant difficulty of large trucks, including full size pickup 
trucks, in meeting CAFE standards while still maintaining the levels of 
utility to which consumers have become accustomed, which require higher 
payload and towing capabilities and greater cargo volumes than other 
light-duty vehicles. Technologies that provide substantial fuel economy 
benefits are often not attractive to manufacturers of large trucks due 
to these tradeoffs in utility purposes, and therefore have not been 
taken advantage of to the same extent as they have in other vehicle 
classes. The goal of these incentives is to facilitate the application 
of these ``game changing'' technologies for large pickups, both to save 
more fuel and to help provide a bridge for industry to more stringent 
light truck standards in MYs 2022-2025--as manufacturers gain 
experience with applying more fuel-saving technology for these vehicles 
and consumers become more accustomed to certain advanced technologies 
in pickup trucks, the agencies anticipate that higher CAFE levels will 
be more feasible for the fleet as a whole.\832\ In the context of the 
CAFE program, these incentives would be used as an adjustment to a full 
size pickup truck's fuel economy performance. The same vehicle would 
not be allowed to receive an adjustment to its calculated fuel economy 
for both the hybridization incentive and the performance-based 
incentive, to avoid double-counting.
---------------------------------------------------------------------------

    \832\ NHTSA is not prohibited from considering this availability 
of this incentive in determining the maximum feasible levels of 
stringency for the light truck standards, because it is not one of 
the statutory flexibilities enumerated in 49 U.S.C. 32902(h).
---------------------------------------------------------------------------

    To accommodate the proposed changes to the CAFE program, NHTSA is 
proposing to adopt new definitions into regulation, 49 CFR part 523, 
``Vehicle Classification.'' Part 523 was established by NHTSA to 
include its regulatory definitions for passenger automobiles and trucks 
and to guide the agency and manufacturers in classifying vehicles. 
NHTSA proposes to add a definition in Part 523.2 defining the 
characteristics that identify full size pickup trucks. NHTSA believes 
that the definition is needed to help explain to readers which 
characteristics of full size pickup truck make them eligible to gain 
fuel economy improvement values allowed after a manufacturer meets 
either a minimum penetration of hybridized technologies or has other 
technologies that significantly reduce fuel consumption. The proposed 
improvement would be available on a per-vehicle basis for mild and 
strong HEVs, as well as for other technologies that significantly 
improve the efficiency of full sized pickup trucks. The proposed 
definition would specify that trucks meeting an overall bed width and 
length as well as a minimum towing or payload capacity could be 
qualified as full size pickup trucks. NHTSA is also proposing to modify 
Part 523 to include definitions for mild and strong hybrid electric 
full size pickup trucks, and to include the references in Part 533 
mentioned above.
i. Pickup Truck Hybridization
    One proposed incentive would provide an adjustment to the fuel 
economy of a manufacturer's full size pickup trucks if the manufacturer 
employs certain defined hybrid technologies on defined significant 
quantities of its full size pickup trucks. After meeting the minimum 
production percentages, manufacturers would gain an adjustment to the 
fuel economy performance for each ``mild'' or ``strong'' hybrid full 
size pickup truck it produces. Manufacturers producing mild hybrid 
pickup trucks, as defined in Chapter 5 of the draft Joint TSD, would 
gain the incentive by applying mild hybrid technology to at least 30 
percent of the company's full sized pickups produced in MY 2017, which 
would increase each year up to at least 80 percent of the company's 
full size pickups produced in MY 2021, after which point the adjustment 
is no longer applicable. For strong hybrids, also defined in Chapter 5 
of the draft Joint TSD, the strong hybrid technology must be applied to 
at least 10 percent of a company's full sized pickup production in each 
year for model years 2017-2025. The fuel economy adjustment for each 
mild hybrid full size pickup would be a decrease in measured fuel 
consumption of 0.0011gal/mi; for each strong hybrid full size pickup, 
the decrease in measured fuel consumption would be 0.0023 gal/mi. These 
adjustments are consistent with the GHG credits under EPA's program of 
10 g/mi CO2 for mild hybrid pickups and 20 g/mi 
CO2 for strong hybrid pickups. A manufacturer would then be 
allowed to adjust the fuel economy performance of its light truck fleet 
by converting the benefit gained from those improvements in accordance 
with the procedures specified in 40 CFR part 600.

[[Page 75345]]

ii. Performance-Based Incentive for Full-Size Pickups
    Another proposed incentive for full size pickup trucks would 
provide an adjustment to the fuel economy of a manufacturer's full 
sized pickup truck if it achieves a fuel economy performance level 
significantly above the CAFE target for that footprint. This incentive 
recognizes that not all manufacturers may wish to pursue hybridization 
for their pickup trucks, but still rewards them for applying fuel-
saving technologies above and beyond what they might otherwise do. The 
fuel economy adjustment for each full size pickup that exceeds its 
applicable footprint curve target by 15 percent would be a decrease in 
measured fuel consumption of 0.0011gal/mi; for each full size pickup 
that exceeds its applicable footprint curve target by 20 percent, the 
decrease in measured fuel consumption would be 0.0023 gal/mi. These 
adjustments are consistent with the GHG credits under EPA's program of 
10 g/mi CO2 and 20 g/mi CO2, respectively, for 
beating the applicable CO2 targets by 15 and 20 percent, 
respectively.
    The 0.0011 gal/mi performance-based adjustment would be available 
for MYs 2017 to 2021, and a vehicle meeting the requirement in a given 
model year would continue to receive the credit until MY 2021--that is, 
the credit remains applicable to that vehicle model if the target is 
exceeded in only one model year--unless its fuel consumption increases. 
The 0.0023 gal/mi adjustment would be available for a maximum of 5 
years within model years 2017-2025, provided the vehicle model's fuel 
consumption does not increase. As explained above for the hybrid 
incentive, a manufacturer would then be allowed to adjust the fuel 
economy performance of its light truck fleet by converting the benefit 
gained from those improvements in accordance with the procedures 
specified in 40 CFR Part 600.
    We note that in today's analyses, the agencies have projected that 
PHEV technology is not available to large pickups. While it is 
technically possible to electrify such vehicles, there are tradeoffs in 
terms of cost, electric range, and utility that may reduce the appeal 
of the vehicle to a narrower market. Due to this consideration, the 
agencies have not considered giving credit to PHEVs for large pickup 
truck. However, the agencies seek comments on this and will give 
further consideration during the final rule. Also, the agencies note 
that under today's proposal, a PHEV that captures a sufficient 
proportion of braking energy could quality for the HEV adjustment; 
alternatively, a PHEV pickup achieving sufficiently high fuel economy 
and low CO2 emission could qualify for a performance-based 
adjustment.
b. A/C Efficiency-Improving Technologies
    Air conditioning (A/C) use places excess load on an engine, which 
results in additional fuel consumption. A number of methods related to 
the A/C system components and their controls can be used to improve A/C 
system efficiencies. Starting in MY 2017, EPA is proposing to allow 
manufacturers to include fuel consumption reductions resulting from the 
use of improved A/C systems in their CAFE calculations. This will more 
accurately account for achieved real-world fuel economy improvements 
due to improved A/C technologies, and better fulfill EPCA's overarching 
purpose of energy conservation. Manufacturers would not be allowed to 
claim CAFE-related benefits for reducing A/C leakage or switching to an 
A/C refrigerant with a lower global warming potential, because while 
these improvements reduce GHGs consistent with the purpose of the CAA, 
they do not improve fuel economy and thus are not relevant to the CAFE 
program.
    The improvements that manufacturers would likely use to increase A/
C efficiency would focus primarily, but not exclusively, on the 
compressor, electric motor controls, and system controls which reduce 
load on the A/C system (such as reduced ``reheat'' of the cooled air 
and increased use of re-circulated cabin air).
    Fuel consumption improvement values for CAFE resulting from A/C 
efficiency improvements would be quantified using a two-step process, 
the same as for the related CO2 credits for EPA's GHG 
program. First, the vehicle with the improved A/C system would be 
tested in accordance with EPA testing guidelines, and compared with the 
baseline fuel consumption value for that vehicle. Second, the 
difference between the baseline fuel consumption value and the value 
for the vehicle with improved A/C technologies would be calculated, 
which would determine the fuel consumption improvement value.
    In the GHG program for MYs 2012 to 2016, EPA finalized the idle 
test method for measuring CO2reductions from improved AC 
systems. The idle test method measures CO2 in grams per 
minute (g/min) while the vehicle is stationary and idling. For MYs 
2017-2025, EPA is proposing that a new test called ``A/C 17'' replace 
the idle test to measure A/C related CO2emissions 
reductions. Some aspects of the AC17 test are still being developed and 
improved, but the basic procedure is sufficiently complete for EPA to 
propose it as a reporting option alternative to the Idle Test threshold 
in 2014, and a replacement for the Idle Test in 2017, as a prerequisite 
for generating Efficiency Credits. Manufacturers will use this test to 
measure A/C-related CO2 emissions from vehicles with 
improved A/C systems, which would be translated to fuel consumption to 
establish the ratio between the baseline vehicle and the improved-A/C 
vehicle to determine the value of the fuel consumption improvement. The 
A/C 17 test procedure is described briefly below.
i. What is the proposed testing approach?
    The A/C 17 test is a more extensive test than the idle test and has 
four elements, including two drive cycles, US03 and the highway fuel 
economy cycle, which capture steady state and transient operating 
conditions. It also includes a solar soak period to measure the energy 
required to cool down a car that has been sitting in the sun, as well 
as a pre-conditioning cycle. The A/C 17 test cycle will be able to 
capture improvements in all areas related to efficient operation of a 
vehicle's A/C system. The A/C 17 test cycle measures CO2 
emissions in grams per mile (g/mi), and requires that baseline 
emissions be measured in addition to emissions from vehicles with 
improved A/C systems. EPA is taking comment on whether the A/C 17 test 
is appropriate for estimating the effectiveness of new efficiency-
improving A/C technologies.
ii. How are fuel consumption improvement values then estimated?
    Manufacturers would run the A/C 17 test procedure on each vehicle 
platform that incorporates the new technologies, with the A/C system 
off and then on, and then report these test results to the EPA. In 
addition to reporting the test results, EPA will require that 
manufacturers provide detailed vehicle and A/C system information for 
each vehicle tested (e.g. vehicle class, model type, curb weight, 
engine size, transmission type, interior volume, climate control type, 
refrigerant type, compressor type, and evaporator/condenser 
characteristics). For vehicle models which manufacturers are seeking to 
earn A/C related fuel consumption improvement values, the A/C 17 test 
would be run to validate that the performance and efficiency of a 
vehicle's A/C technology is commensurate to the level of

[[Page 75346]]

improvement value that is being earned. To determine whether the 
efficiency improvements of these technologies are being realized, the 
results of an A/C 17 test performed on a new vehicle model will be 
compared to a ``baseline'' vehicle which does not incorporate the 
efficiency-improving technologies. The baseline vehicle is defined as 
one with characteristics which are similar to the new vehicle, only it 
is not equipped with efficiency-improving technologies (or they are de-
activated).
    Manufacturers then take the results of the A/C 17 test and access a 
credit menu (shown in the table below) to determine A/C related fuel 
consumption improvement values. The maximum value possible is limited 
to 0.000563 gal/mi for cars and 0.000810 gal/mi for trucks. As an 
example, a manufacturer uses two technologies listed in the table, for 
which the combined improvement value equals 0.000282 gal/mi. If the 
results of the A/C 17 tests for the baseline and vehicle with improved 
A/C system demonstrates a 0.000282 gal/mi improvement, then the full 
fuel consumption improvement value for those two technologies can be 
taken. If the A/C 17 test result falls short of the improvement value 
for the two technologies, then a fraction of the improvement value may 
be counted in CAFE calculations. The improvement value fraction is 
calculated in the following way: The A/C 17 test result for both the 
baseline vehicle and the vehicle with an improved A/C system are 
measured. The difference in the test result of the baseline and the 
improved vehicle is divided by the test result of the baseline vehicle. 
This fraction is multiplied by the fuel consumption improvement value 
for the specific technologies. Thus, if the A/C 17 test yielded an 
improvement equal to \2/3\ of the summed values listed in the table, 
then \2/3\ of the summed fuel consumption improvement values can be 
counted.
BILLING CODE 4910-59-P

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[GRAPHIC] [TIFF OMITTED] TP01DE11.277


[[Page 75348]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.278

    As stated above, if more than one technology is utilized by a 
manufacturer for a given vehicle model, the A/C fuel consumption 
improvement values can be added, but the maximum value possible is 
limited to 0.000563 gal/mi for cars and 0.000810 gal/mi for trucks. 
More A/C related fuel consumption improvement values are discussed in 
the off-cycle credits section of this chapter. The approach for 
determining the manufacturers' adjusted fleet fuel economy performance 
due to improvements in A/C efficiency is described in 40 CFR Part 600.
    The agencies seek comment on the proposal to allow manufacturers to 
estimate fuel consumption reductions from the use of A/C efficiency-
improving technologies and to apply these reductions to their CAFE 
calculations.
c. Off-Cycle Technologies and Adjustments
    For MYs 2012-2016, EPA provided an optional credit for new and 
innovative ``off-cycle'' technologies that reduce vehicle 
CO2 emissions, but for which the CO2 reduction 
benefits are not recognized under the 2-cycle test procedure used to 
determine compliance with the fleet average standards. The off-cycle 
credit option was intended to encourage the introduction of off-cycle 
technologies that achieve real-world benefits. The off-cycle credits 
were to be determined using the 5-cycle methodology currently used to 
determine fuel economy label values, which EPA established to better 
represent real-world factors impacting fuel economy, including higher 
speeds and more aggressive driving, colder temperature operation, and 
the use of air conditioning. A manufacturer must determine whether the 
benefit of the technology could be captured using the 5-cycle test; if 
this determination is affirmative, the manufacture must follow the 5-
cycle procedures to determine the CO2 reductions. If the 
manufacturer finds that the technology is such that the benefit is not 
adequately captured using the 5-cycle approach, then the manufacturer 
would have to develop a robust methodology, subject to EPA approval, to 
demonstrate the benefit and determine the appropriate CO2 
gram per mile credit. The demonstration program must be robust, 
verifiable, and capable of demonstrating the real-world emissions 
benefit of the technology with strong statistical significance. The 
non-5-cycle approach includes an opportunity for public comment as part 
of the approval process.
    EPA has been encouraged by automakers' interest in off-cycle 
credits since the program was finalized and believes that extending the 
program to MY 2017 and beyond may continue to encourage automakers to 
invest in off-cycle technologies that could have the benefit of 
realizing additional reductions in the light-duty fleet over the 
longer-term. Therefore, EPA is proposing to extend the off-cycle 
credits program to 2017 and later model years. EPA is also proposing, 
under its EPCA authority, to make available a comparable off-cycle 
technology incentive under the CAFE program beginning in MY 2017. 
However, instead of manufacturers gaining credits as done under the GHG 
program, a direct adjustment would be made to the manufacturer's fuel 
economy performance value.
    Starting with MY 2017, manufacturers may generate fuel economy 
improvements by applying technologies listed on the pre-defined and 
pre-approved technology list provided in Table IV-117. These credits 
would be verified and approved as part of certification, with no prior 
approval process needed. This new option should

[[Page 75349]]

significantly simplify the program for manufacturers and provide 
certainty that improvement values may be generated through the use of 
pre-approved technologies. For improvements from technologies not on 
the pre-defined list, EPA is proposing to clarify the step-by-step 
application process for demonstration of fuel consumption reductions 
and approval.
[GRAPHIC] [TIFF OMITTED] TP01DE11.279

    An example of technologies that could be used to generate off-cycle 
improvements are those that reduce electrical load and as a result, 
fuel consumption. The 2-cycle test does not require that all electrical 
components be turned on during testing. Headlights, for example, are 
always turned off during testing. Turning the headlights on during 
normal driving will add an additional load on the vehicle's electrical 
system and will affect fuel economy. More efficient electrical systems 
or technologies that offset electrical loads will have a real-world 
impact on fuel economy but are not captured in the 2-cycle test. 
Therefore, technologies that reduce or offset

[[Page 75350]]

electrical loads related to the operation or safety of the vehicle 
should merit consideration for off-cycle improvements. Reducing the 
electrical load on a vehicle by 100W will result in an average of 
0.000337 gallons/mile reduction in fuel consumption over the course of 
a 2-cycle test, or 0.00042 gallons/mile over a 5-cycle test. To 
determine the off-cycle benefit of certain 100W electrical load 
reduction technologies, the benefit of the technology on the 2-cycle 
test is subtracted from the benefit of the technology on the 5-cycle 
test. This determines the actual benefit of the technology not realized 
in the 2-cycle test methodology, which in this case is 0.000416 gal/mi 
minus 0.000337 gal/mi, or 0.000078 gal/mi. This method will avoid 
double-counting the benefit of the electrical load reduction, which is 
already counted on the 2-cycle test.
    Regardless of whether the off-cycle technology fuel consumption 
benefit is obtained from the table (columns 2 or 3) above or is based 
on an approved testing protocol as indicated in the preceding example, 
under the CAFE program the benefit or credit is treated as an 
adjustment and subtracted from the subject vehicle's fuel consumption 
performance value determined from the required CAFE program 2-cycle 
test results. A manufacturer would then be allowed to adjust the fuel 
economy performance of its fleets by converting the benefit gained from 
those improvements in accordance with the procedures specified in 40 
CFR Part 600.
    Since one purpose of the off-cycle improvement incentive is to 
encourage market penetration of the technologies (see 75 FR at 25438), 
EPA is proposing to require minimum penetration rates for non-hybrid 
based listed technologies as a condition for generating improvements 
from the list as a way to further encourage their widespread adoption 
by MY 2017 and later. At the end of the model year for which the off-
cycle improvement is claimed, manufacturers would need to demonstrate 
that production of vehicles equipped with the technologies for that 
model year exceeded the percentage thresholds in order to receive the 
listed improvement. EPA proposes to set the threshold at 10 percent of 
a manufacturer's overall combined car and light truck production for 
all technologies not specific to HEVs. 10 percent would seem to be an 
appropriate threshold as it would encourage manufacturers to develop 
technologies for use on larger volume models and bring the technologies 
into the mainstream. For solar roof panels and electric heat 
circulation pumps, which are HEV-specific, EPA is not proposing a 
minimum penetration rate threshold for credit generation. Hybrids may 
be a small subset of a manufacturer's fleet, less than 10 percent in 
some cases, and EPA does not believe that establishing a threshold for 
hybrid-based technologies would be useful and could unnecessarily 
complicate the introduction of these technologies. The agencies request 
comments on applying this type of threshold, the appropriateness of 10 
percent as the threshold for listed technologies that are not HEV-
specific, and the proposed treatment of hybrid-based technologies.
    Because the proposed improvements are based on limited data, 
however, and because some uncertainty is introduced when credits are 
provided based on a general assessment of off-cycle performance as 
opposed to testing on the individual vehicle models, as part of the 
incentive EPA is proposing to cap the amount of improvement a 
manufacturer could generate using the above list to 0.001125 gal/mile 
per year on a combined car and truck fleet-wide average basis. The cap 
would not apply on a vehicle model basis, allowing manufacturers the 
flexibility to focus off-cycle technologies on certain vehicle models 
and generate improvements for that vehicle model in excess of 0.001125 
gal/mile. If manufacturers wish to generate improvements in excess of 
the 0.001125 gal/mile limit using listed technologies, they could do so 
by generating necessary data and going through the approval process.
    For more details on the testing protocols used for determining off-
cycle technology benefits and the step-by-step EPA review and approval 
process, refer to Section III.C.5.b.iii and v. The approach for 
determining a manufacturer's adjusted fuel economy performance for off-
cycle technologies is described in 40 CFR Part 600. NHTSA also proposes 
to incorporate references in Part 531.6 and 533.6 to allow 
manufacturers to adjust their fleet performance for off-cycle 
technologies as described above.
5. Other CAFE Enforcement Issues
a. Electronic Reporting
    Pursuant to 49 CFR part 537, manufacturers submit pre-model year 
fuel economy reports to NHTSA by December 31st prior to the model year, 
and mid-model year reports by July 31st of the model year. 
Manufacturers may also provide supplemental reports whenever changes 
are needed to a previously submitted CAFE report. NHTSA receives both 
non-confidential and confidential versions of reports, the basic 
difference being the inclusion of projected upcoming production sales 
volumes in reports seeking confidentiality. Manufacturers must include 
a request for confidentiality, in accordance with 49 CFR part 512, 
along with the report for which confidential treatment is sought.\833\ 
Manufacturers may submit reports either in paper form or electronically 
to a secure email address, cafe@dot.gov, that allows for the safe 
handling of confidential materials. All electronic submissions 
submitted to the CAFE email must be provided in a pdf format. NHTSA 
added electronic reporting to the 2012-2016 CAFE rule as an approach to 
simplify reporting for manufacturers and NHTSA alike. Currently, most 
manufacturers submit both electronic and paper reports.\834\
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    \833\ Pursuant to Sec.  537.12, NHTSA's Office of Chief Counsel 
normally grants confidentiality to reports with projected production 
sales volumes until after the model year ends.
    \834\ For model year 2011, NHTSA received electronic mid-model 
year reports from 12 manufacturers. Each of the manufacturers also 
provided hardcopy reports.
---------------------------------------------------------------------------

    NHTSA is proposing to modify its reporting requirements to receive 
all CAFE reports in electronic format, thereby eliminating the 
requirement for paper submissions. In the revised requirements, a 
manufacturer could either submit its reports on a CD-ROM or through the 
existing email procedures. Under the proposal, the contents of the CD 
must include the manufacturer's request for confidentiality, the cover 
letter, and any other supporting documents in a pdf format. Any data 
included in the report must be provided in a Microsoft Excel 
spreadsheet format. The same approach is also proposed for submitting 
information by email. NHTSA emphasizes that submitting reports to the 
CAFE email address is completely voluntary, but if the option is 
selected, the manufacturer must follow the normal deadline dates as 
specified in 49 CFR 537.5. NHTSA believes that receiving CAFE data 
through electronic reports would be a significant improvement, 
improving the quality of its CAFE data, simplifying enforcement 
activities (e.g., auditing the data), and helping to expedite the 
tracking and reporting of CAFE credits. The agency also plans to 
eventually develop an XML schema for submitting CAFE reports 
electronically that will available through its Web site. Ultimately, 
the XML schema would be used as part of the new database system NHTSA 
plans to construct in the future to store its

[[Page 75351]]

CAFE data. NHTSA seeks comments on the appropriateness of ending paper 
submissions, as well as information on any other electronic formats 
that should be considered for submissions.
b. Reporting of How a Vehicle Is Classified as a Light Truck
    As part of the reporting provisions in 49 CFR part 537, NHTSA 
requires manufacturers to provide information on some, but not all, of 
the functions and features that a manufacturer uses to classify an 
automobile as a light truck. The required data is distributed 
throughout the report, making it difficult for the agency to clearly 
and easily determine exactly what functions or features a manufacturer 
is actually using to make this determination. For example, related to 
the functions specified in 49 CFR 523.5(a) and discussed in Section 
IV.H above, manufacturers must provide the vehicles' passenger and 
cargo carrying volumes,\835\ and identify whether their vehicles are 
equipped with three rows of seats that can be removed or folded flat 
for expanded cargo carrying purposes or if the vehicle includes 
temporary living quarters.\836\ Manufacturers are not required to 
identify whether the vehicles can transport more than 10 persons or if 
the vehicles are equipped with an open cargo bed. Related to the 
functions specified in Section 523.5(b), for each model type classified 
as an automobile capable of off-highway operation, manufacturers are 
required to provide the five suspension parameter measurements and 
indicate the existence of 4-wheel drive,\837\ but they are not required 
to identify a vehicle's GVWR, which is necessary for off-road 
determination when the vehicle is not equipped with 4-wheel drive. 
NHTSA proposes to eliminate the language requesting vehicle attribute 
information in Sections 537.7(c)(4)(xvi)(A)(3) to (6) and (B)(3) to (6) 
and to relocate that language into a revised Section 537.7(c)(5) to 
include identification of all the functions and features that can be 
used by a manufacturer for making a light truck classification 
determination. By incorporating all the requirements into one section, 
the agency believes the classification process will become 
significantly more accurate and efficient. NHTSA seeks comment on this 
proposed change.
---------------------------------------------------------------------------

    \835\ 49 CFR 537.7(c)(4)(xvi)(B).
    \836\ 49 CFR 537.7(c)(4)(xvii) and (xviii).
    \837\ 49 CFR 537.7(c)(5).
---------------------------------------------------------------------------

c. Base Tire Definition
    Beginning in model year 2011, manufacturers of light trucks and 
passenger cars are required to use vehicle footprint to determine the 
CAFE standards applicable to each of their vehicle fleets. To determine 
the appropriate footprint-based standards, a manufacturer must 
calculate each vehicle's footprint value, which is the product of the 
vehicle track width and wheelbase dimensions. Vehicle track width 
dimensions are determined with a vehicle equipped with ``base tires,'' 
\838\ which NHTSA defines as the tire specified as standard equipment 
by a manufacturer on each vehicle configuration of a model type.
---------------------------------------------------------------------------

    \838\ See 49 CFR 523.2.
---------------------------------------------------------------------------

    NHTSA is concerned that the definition for ``base tire'' is 
insufficiently descriptive, and may lead to inconsistencies among 
manufacturers' base tire selections. In meetings relating to CAFE 
enforcement, manufacturers have stated that various approaches in 
selecting base tires exist due to differences in the tires considered 
as standard equipment.\839\ Standard equipment is defined by EPA 
regulation as those features or equipment which are marketed on a 
vehicle over which the purchaser can exercise no choice,\840\ but NHTSA 
regulations have no comparable definition. NHTSA considered whether 
adding a definition for ``standard equipment'' would clarify and 
strengthen the NHTSA regulations, but some manufacturers indicated that 
the definition of standard equipment provided by EPA does not 
effectively prevent differences in their interpretations. Some 
manufacturers, for example, view the base tire as the tire equipped as 
standard equipment for each trim level of a model type, as each trim 
level has standard equipment over which the purchaser cannot exercise a 
choice. This view can allow multiple base tires and footprint values 
within each model type: A manufacturer may have two vehicle 
configurations for a particular model type, with each configuration 
having three trim levels with different standard tires sizes. In that 
scenario, the model type could have 6 different trim level vehicle 
configurations, each having three or more unique footprint values with 
slightly different targets. The additional target fuel economy values 
could allow the manufacturer to reduce its required fleet standard 
despite a vehicle model type not having any inherent differences in 
physical feature between vehicle configurations other than the tire 
sizes. Other manufacturers, in contrast, avoid designating multiple 
base tires and choose the standard tire equipped on the most basic 
vehicle configuration of a model type, even if the most basic vehicle 
is rarely actually sold. In this scenario, the tires being used to 
derive a manufacturer fleet standard are not the same size tire 
equipped on the representative number of vehicles being sold. Yet 
others designate the base tire as the tire most commonly installed on a 
model type having the highest production volume. This approach most 
realistically reflects the manufacturer's sales production fleet.
---------------------------------------------------------------------------

    \839\ NHTSA has confirmed these differences in approach for the 
designating base tire exist through review of manufacturer-submitted 
CAFE reports.
    \840\ In the EPA regulation 40 CFR 600.002-08, standard 
equipment means those features or equipment which are marketed on a 
vehicle over which the purchaser can exercise no choice.
---------------------------------------------------------------------------

    To attempt to reconcile the varied approaches for designating base 
tires, NHTSA is proposing to modify its definition for base tire in 49 
CFR 523.2. The proposed modification changes the definition of the base 
tire by dropping the reference to ``standard equipment'' and adding a 
reference to the ``the tire installed by the vehicle manufacturer that 
is used on the highest production sales volume of vehicles within the 
configuration.'' This modification should ensure that the tires 
installed on the vehicle most commonly sold within a vehicle 
configuration become the basis for setting a manufacturer's fuel 
economy standards. It is NHTSA's goal that a change to the definition 
of base tire for purposes of CAFE will help to reduce inconsistencies 
and confusion for both the agency and the manufacturers. NHTSA seeks 
comments on this approach, as well as other approaches that could be 
used for selecting the base tire(s).
d. Confirming Target and Fleet Standards
    NHTSA requires manufacturers to provide reports containing fleet 
and model type CAFE standards and projections of expected performance 
results for each model year.\841\ The footprint, track width and 
wheelbase values are provided for each vehicle configuration within the 
model types making up the manufacturer's fleets, along with other model 
type-specific information. Because this information is organized by 
vehicle configuration, instead of by each vehicle with a unique model 
type and footprint combination, it is not in the format needed to 
calculate performance standards. EPA, in contrast, requires 
manufacturers to provide all of the information necessary

[[Page 75352]]

to calculate footprint values and CAFE standards. EPA provides an 
additional calculator (in the form of an Excel spreadsheet), which all 
manufacturers use and submit as part of their end-of-the-year reports, 
which includes the appropriate breakdown of footprint values for 
calculating standards.
---------------------------------------------------------------------------

    \841\ 49 CFR part 537.
---------------------------------------------------------------------------

    Since NHTSA only requires a breakdown of footprint values by 
vehicle configurations, instead of by each unique model type and 
footprint combination, NHTSA is currently unable to verify 
manufacturers' reported target standards. By standardizing with EPA's 
requirements for reported data, NHTSA would both simplify manufacturer 
reporting efforts and gain the necessary information for calculating 
attribute-based CAFE standards. Therefore, NHTSA is proposing to 
eliminate the language requesting information in Sec.  
537.7(c)(4)((xvi)(A)(3) through (6) and (B)(3) through (6), and to 
relocate that language into a revised Sec.  537.7(b)(3).
    NHTSA requests comment on this proposed change.

J. Regulatory Notices and Analyses

1. Executive Order 12866, Executive Order 13563, and DOT Regulatory 
Policies and Procedures
    Executive Order 12866, ``Regulatory Planning and Review'' (58 FR 
51735, Oct. 4, 1993), as amended by Executive Order 13563, ``Improving 
Regulation and Regulatory Review'' (76 FR 3821, Jan. 21, 2011), 
provides for making determinations whether a regulatory action is 
``significant'' and therefore subject to OMB review and to the 
requirements of the Executive Order. The Order defines a ``significant 
regulatory action'' as one that is likely to result in a rule that may:
    (1) Have an annual effect on the economy of $100 million or more or 
adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or Tribal governments or 
communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    The rulemaking proposed in this NPRM will be economically 
significant if adopted. Accordingly, OMB reviewed it under Executive 
Order 12866. The rule, if adopted, would also be significant within the 
meaning of the Department of Transportation's Regulatory Policies and 
Procedures.
    The benefits and costs of this proposal are described above. 
Because the proposed rule would, if adopted, be economically 
significant under both the Department of Transportation's procedures 
and OMB guidelines, the agency has prepared a Preliminary Regulatory 
Impact Analysis (PRIA) and placed it in the docket and on the agency's 
Web site. Further, pursuant to Circular A-4, we have prepared a formal 
probabilistic uncertainty analysis for this proposal. The circular 
requires such an analysis for complex rules where there are large, 
multiple uncertainties whose analysis raises technical challenges or 
where effects cascade and where the impacts of the rule exceed $1 
billion. This proposal meets these criteria on all counts.
2. National Environmental Policy Act
    Concurrently with this NPRM, NHTSA is releasing a Draft 
Environmental Impact Statement (Draft EIS), pursuant to the National 
Environmental Policy Act, 42 U.S.C. 4321-4347, and implementing 
regulations issued by the Council on Environmental Quality (CEQ), 40 
CFR part 1500, and NHTSA, 49 CFR part 520. NHTSA prepared the Draft EIS 
to analyze and disclose the potential environmental impacts of the 
proposed CAFE standards and a range of alternatives. The Draft EIS 
analyzes direct, indirect, and cumulative impacts and analyzes impacts 
in proportion to their significance.
    Because of the link between the transportation sector and GHG 
emissions, the Draft EIS considers the possible impacts on climate and 
global climate change in the analysis of the effects of these proposed 
CAFE standards. The Draft EIS also describes potential environmental 
impacts to a variety of resources. Resources that may be affected by 
the proposed action and alternatives include water resources, 
biological resources, land use and development, safety, hazardous 
materials and regulated wastes, noise, socioeconomics, fuel and energy 
use, air quality, and environmental justice. These resource areas are 
assessed qualitatively in the Draft EIS.
    For additional information on NHTSA's NEPA analysis, please see the 
Draft EIS.
3. Regulatory Flexibility Act
    Pursuant to the Regulatory Flexibility Act (5 U.S.C. 601 et seq., 
as amended by the Small Business Regulatory Enforcement Fairness Act 
(SBREFA) of 1996), whenever an agency is required to publish a notice 
of rulemaking for any proposed or final rule, it must prepare and make 
available for public comment a regulatory flexibility analysis that 
describes the effect of the rule on small entities (i.e., small 
businesses, small organizations, and small governmental jurisdictions). 
The Small Business Administration's regulations at 13 CFR part 121 
define a small business, in part, as a business entity ``which operates 
primarily within the United States.'' 13 CFR 121.105(a). No regulatory 
flexibility analysis is required if the head of an agency certifies the 
rule will not have a significant economic impact of a substantial 
number of small entities.
    I certify that the proposed rule would not have a significant 
economic impact on a substantial number of small entities. The 
following is NHTSA's statement providing the factual basis for the 
certification (5 U.S.C. 605(b)).
    If adopted, the proposal would directly affect nineteen large 
single stage motor vehicle manufacturers.\842\ Based on our preliminary 
assessment, the proposal would also affect a total of about 21 entities 
that fit the Small Business Administration's criteria for a small 
business. According to the Small Business Administration's small 
business size standards (see 13 CFR 121.201), a single stage automobile 
or light truck manufacturer (NAICS code 336111, Automobile 
Manufacturing; 336112, Light Truck and Utility Vehicle Manufacturing) 
must have 1,000 or fewer employees to qualify as a small business. 
There are about 4 small manufacturers, including 3 electric vehicle 
manufacturers, 8 independent commercial importers, and 9 alternative 
fuel vehicle converters in the passenger car and light truck market 
which are small businesses. We believe that the rulemaking would not 
have a significant economic impact on these small vehicle manufacturers 
because under 49 CFR part 525, passenger car manufacturers making fewer 
than 10,000 vehicles per year can petition NHTSA to have alternative 
standards set for those manufacturers. Manufacturers that produce only 
electric vehicles, or that modify vehicles to make them electric or 
some other kind of dedicated alternative fuel vehicle, will have 
average fuel economy values far beyond

[[Page 75353]]

those proposed today, so we would not expect them to need a petition 
for relief. A number of other small vehicle manufacturers already 
petition the agency for relief under Part 525. If the standard is 
raised, it has no meaningful impact on those manufacturers, because 
they are expected to still go through the same process to petition for 
relief. Given that there is already a mechanism for handling small 
businesses, which is the purpose of the Regulatory Flexibility Act, a 
regulatory flexibility analysis was not prepared, but we welcome 
comments on this issue for the final rule.
---------------------------------------------------------------------------

    \842\ BMW, Daimler (Mercedes), Fiat/Chrysler (which also 
includes Ferrari and Maserati for CAFE compliance purposes), Ford, 
Geely (Volvo), General Motors, Honda, Hyundai, Kia, Lotus, Mazda, 
Mitsubishi, Nissan, Porsche, Subaru, Suzuki, Tata (Jaguar Land 
Rover), Toyota, and Volkswagen/Audi.
---------------------------------------------------------------------------

4. Executive Order 13132 (Federalism)
    Executive Order 13132 requires NHTSA to develop an accountable 
process to ensure ``meaningful and timely input by State and local 
officials in the development of regulatory policies that have 
federalism implications.'' \843\ The Order defines the term ``Policies 
that have federalism implications'' to include regulations that have 
``substantial direct effects on the States, on the relationship between 
the national government and the States, or on the distribution of power 
and responsibilities among the various levels of government.'' Under 
the Order, NHTSA may not issue a regulation that has federalism 
implications, that imposes substantial direct compliance costs, and 
that is not required by statute, unless the Federal government provides 
the funds necessary to pay the direct compliance costs incurred by 
State and local governments, or NHTSA consults with State and local 
officials early in the process of developing the proposed regulation.
---------------------------------------------------------------------------

    \843\ 64 FR 43255 (Aug. 10, 1999).
---------------------------------------------------------------------------

    NHTSA solicits comment on this proposed action from State and local 
officials. The agency believes that it is unnecessary to address the 
question of preemption further at this time because of the consistent 
and coordinated Federal standards that would apply nationally under the 
proposed National Program.
5. Executive Order 12988 (Civil Justice Reform)
    Pursuant to Executive Order 12988, ``Civil Justice Reform,'' \844\ 
NHTSA has considered whether this rulemaking would have any retroactive 
effect. This proposed rule does not have any retroactive effect.
---------------------------------------------------------------------------

    \844\ 61 FR 4729 (Feb. 7, 1996).
---------------------------------------------------------------------------

6. Unfunded Mandates Reform Act
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires Federal agencies to prepare a written assessment of the costs, 
benefits, and other effects of a proposed or final rule that includes a 
Federal mandate likely to result in the expenditure by State, local, or 
tribal governments, in the aggregate, or by the private sector, of more 
than $100 million in any one year (adjusted for inflation with base 
year of 1995). Adjusting this amount by the implicit gross domestic 
product price deflator for 2009 results in $134 million (109.729/81.606 
= 1.34). Before promulgating a rule for which a written statement is 
needed, section 205 of UMRA generally requires NHTSA to identify and 
consider a reasonable number of regulatory alternatives and adopt the 
least costly, most cost-effective, or least burdensome alternative that 
achieves the objectives of the rule. The provisions of section 205 do 
not apply when they are inconsistent with applicable law. Moreover, 
section 205 allows NHTSA to adopt an alternative other than the least 
costly, most cost-effective, or least burdensome alternative if the 
agency publishes with the final rule an explanation of why that 
alternative was not adopted.
    This proposed rule will not result in the expenditure by State, 
local, or tribal governments, in the aggregate, of more than $134 
million annually, but it will result in the expenditure of that 
magnitude by vehicle manufacturers and/or their suppliers. In 
developing this proposal, NHTSA considered a variety of alternative 
average fuel economy standards lower and higher than those proposed. 
NHTSA is statutorily required to set standards at the maximum feasible 
level achievable by manufacturers based on its consideration and 
balancing of relevant factors, and has tentatively concluded that the 
proposed fuel economy standards are the maximum feasible standards for 
the passenger car and light truck fleets for MYs 2017-2025 in light of 
the statutory considerations.
7. Regulation Identifier Number
    The Department of Transportation assigns a regulation identifier 
number (RIN) to each regulatory action listed in the Unified Agenda of 
Federal Regulations. The Regulatory Information Service Center 
publishes the Unified Agenda in April and October of each year. You may 
use the RIN contained in the heading at the beginning of this document 
to find this action in the Unified Agenda.
8. Executive Order 13045
    Executive Order 13045 \845\ applies to any rule that: (1) is 
determined to be economically significant as defined under E.O. 12866, 
and (2) concerns an environmental, health, or safety risk that NHTSA 
has reason to believe may have a disproportionate effect on children. 
If the regulatory action meets both criteria, we must evaluate the 
environmental, health, or safety effects of the proposed rule on 
children, and explain why the proposed regulation is preferable to 
other potentially effective and reasonably foreseeable alternatives 
considered by us.
---------------------------------------------------------------------------

    \845\ 62 FR 19885 (Apr. 23, 1997).
---------------------------------------------------------------------------

    Chapter 5 of NHTSA's DEIS notes that breathing PM can cause 
respiratory ailments, heart attack, and arrhythmias (Dockery et al. 
1993, Samet et al. 2000, Pope et al. 1995, 2002, 2004, Pope and Dockery 
2006, Dominici et al. 2006, Laden et al. 2006, all in Ebi et al. 2008). 
Populations at greatest risk could include children, the elderly, and 
those with heart and lung disease, diabetes (Ebi et al. 2008), and high 
blood pressure (K[uuml]nzli et al. 2005, in Ebi et al. 2008). Chronic 
exposure to PM could decrease lifespan by 1 to 3 years (Pope 2000, in 
American Lung Association 2008). Increasing PM concentrations are 
expected to have a measurable adverse impact on human health 
(Confalonieri et al. 2007).
    Additionally, the DEIS notes that substantial morbidity and 
childhood mortality has been linked to water- and food-borne diseases. 
Climate change is projected to alter temperature and the hydrologic 
cycle through changes in precipitation, evaporation, transpiration, and 
water storage. These changes, in turn, potentially affect water-borne 
and food-borne diseases, such as salmonellosis, campylobacter, 
leptospirosis, and pathogenic species of vibrio. They also have a 
direct impact on surface water availability and water quality. It has 
been estimated that more than 1 billion people in 2002 did not have 
access to adequate clean water (McMichael et al. 2003, in Epstein et 
al. 2006). Increased temperatures, greater evaporation, and heavy rain 
events have been associated with adverse impacts on drinking water 
through increased waterborne diseases, algal blooms, and toxins (Chorus 
and Bartram 1999, Levin et al. 2002, Johnson and Murphy 2004, all in 
Epstein et al. 2006). A seasonal signature has been associated with 
water-borne disease outbreaks (EPA 2009b). In the United States, 68 
percent of all water-borne diseases between 1948 and 1994 were observed 
after

[[Page 75354]]

heavy rainfall events (Curriero et al. 2001a, in Epstein et al. 2006).
    Climate change could further impact a pathogen by directly 
affecting its lifecycle (Ebi et al. 2008). The global increase in the 
frequency, intensity, and duration of red tides could be linked to 
local impacts already associated with climate change (Harvell et al. 
1999, in Epstein et al. 2006); toxins associated with red tide directly 
affect the nervous system (Epstein et al. 2006).
    Many people do not report or seek medical attention for their 
ailments of water-borne or food-borne diseases; hence, the number of 
actual cases with these diseases is greater than clinical records 
demonstrate (Mead et al. 1999, in Ebi et al. 2008). Many of the 
gastrointestinal diseases associated with water-borne and food-borne 
diseases can be self-limiting; however, vulnerable populations include 
young children, those with a compromised immune system, and the 
elderly.
    Thus, as detailed in the DEIS, NHTSA has evaluated the 
environmental, health, and safety effects of the proposed rule on 
children. The DEIS also explains why the proposed regulation is 
preferable to other potentially effective and reasonably foreseeable 
alternatives considered by the agency.
9. National Technology Transfer and Advancement Act
    Section 12(d) of the National Technology Transfer and Advancement 
Act (NTTAA) requires NHTSA to evaluate and use existing voluntary 
consensus standards in its regulatory activities unless doing so would 
be inconsistent with applicable law (e.g., the statutory provisions 
regarding NHTSA's vehicle safety authority) or otherwise 
impractical.\846\
---------------------------------------------------------------------------

    \846\ 15 U.S.C. 272.
---------------------------------------------------------------------------

    Voluntary consensus standards are technical standards developed or 
adopted by voluntary consensus standards bodies. Technical standards 
are defined by the NTTAA as ``performance-based or design-specific 
technical specification and related management systems practices.'' 
They pertain to ``products and processes, such as size, strength, or 
technical performance of a product, process or material.''
    Examples of organizations generally regarded as voluntary consensus 
standards bodies include the American Society for Testing and Materials 
(ASTM), the Society of Automotive Engineers (SAE), and the American 
National Standards Institute (ANSI). If NHTSA does not use available 
and potentially applicable voluntary consensus standards, we are 
required by the Act to provide Congress, through OMB, an explanation of 
the reasons for not using such standards.
    There are currently no voluntary consensus standards relevant to 
today's proposed CAFE standards.
10. Executive Order 13211
    Executive Order 13211 \847\ applies to any rule that: (1) is 
determined to be economically significant as defined under E.O. 12866, 
and is likely to have a significant adverse effect on the supply, 
distribution, or use of energy; or (2) that is designated by the 
Administrator of the Office of Information and Regulatory Affairs 
(OIRA) as a significant regulatory action. If the regulatory action 
meets either criterion, we must evaluate the adverse energy effects of 
the proposed rule and explain why the proposed regulation is preferable 
to other potentially effective and reasonably foreseeable alternatives 
considered by us.
---------------------------------------------------------------------------

    \847\ 66 FR 28355 (May 22, 2001).
---------------------------------------------------------------------------

    The proposed rule seeks to establish passenger car and light truck 
fuel economy standards that will reduce the consumption of petroleum 
and will not have any adverse energy effects. Accordingly, this 
proposed rulemaking action is not designated as a significant energy 
action.
11. Department of Energy Review
    In accordance with 49 U.S.C. 32902(j)(1), we submitted this 
proposed rule to the Department of Energy for review. That Department 
did not make any comments that we have not addressed.
12. Plain Language
    Executive Order 12866 requires each agency to write all rules in 
plain language. Application of the principles of plain language 
includes consideration of the following questions:
     Have we organized the material to suit the public's needs?
     Are the requirements in the rule clearly stated?
     Does the rule contain technical jargon that isn't clear?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the rule easier to understand?
     Would more (but shorter) sections be better?
     Could we improve clarity by adding tables, lists, or 
diagrams?
     What else could we do to make the rule easier to 
understand?
    If you have any responses to these questions, please include them 
in your comments on this proposal.
13. Privacy Act
    Anyone is able to search the electronic form of all comments 
received into any of our dockets by the name of the individual 
submitting the comment (or signing the comment, if submitted on behalf 
of an organization, business, labor union, etc.). You may review DOT's 
complete Privacy Act statement in the Federal Register (65 FR 19477-78, 
April 11, 2000) or you may visit http://www.dot.gov/privacy.html.

List of Subjects

40 CFR Part 85

    Confidential business information, Imports, Labeling, Motor vehicle 
pollution, Reporting and recordkeeping requirements, Research, 
Warranties.

40 CFR Part 86

    Administrative practice and procedure, Confidential business 
information, Incorporation by reference, Labeling, Motor vehicle 
pollution, Reporting and recordkeeping requirements.

40 CFR Part 600

    Administrative practice and procedure, Electric power, Fuel 
economy, Incorporation by reference, Labeling, Reporting and 
recordkeeping requirements.

49 CFR Parts 523, 531, and 533

    Fuel Economy.

49 CFR Parts 536 and 537

    Fuel economy, Reporting and recordkeeping requirements.

Environmental Protection Agency

40 CFR Chapter I

    For the reasons set forth in the preamble, the Environmental 
Protection Agency proposes to amend parts 85, 86, and 600 of title 40, 
Chapter I of the Code of Federal Regulations as follows:

PART 85--CONTROL OF AIR POLLUTION FROM MOBILE SOURCES

    1. The authority citation for part 86 continues to read as follows:

    Authority:  42 U.S.C. 7401-7671q.

Subpart F--[Amended]

    2. Section 85.525 is amended by adding paragraph (a)(2)(i)(D) to 
read as follows:


Sec.  85.525  Applicable standards.

* * * * *
    (a) * * *

[[Page 75355]]

    (2) * * *
    (i) * * *
    (D) Optionally, compliance with greenhouse gas emission 
requirements may be demonstrated by comparing the sum of CH4 
plus N2O plus CO2 emissions from the before fuel 
conversion FTP results to the after fuel conversion FTP results. This 
comparison is based on test results from the emission data vehicle 
(EDV) from the conversion test group at issue. The summation of the 
post fuel conversion test results must be lower than the summation of 
the before conversion greenhouse gas emission results. CO2 
emissions are calculated as specified in 40 CFR 600.113-12. 
CH4 and N2O emissions, before and after fuel 
conversion, are adjusted by applying multiplicative factors of 25 and 
298, respectively, to account for their increased global warming 
potential. If statements of compliance are applicable and accepted in 
lieu of measuring N2O, as permitted by EPA regulation, the 
comparison of the greenhouse gas results also need not measure or 
include N2O in the before and after emission comparisons.
* * * * *

PART 86--CONTROL OF EMISSIONS FROM NEW AND IN-USE HIGHWAY VEHICLES 
AND ENGINES

    3. The authority citation for part 86 continues to read as follows:

    Authority:  42 U.S.C. 7401-7671q.

    4. Section 86.1 is revised to read as follows:


Sec.  86.1  Reference materials.

    (a) Certain material is incorporated by reference into this part 
with the approval of the Director of the Federal Register under 5 
U.S.C. 552(a) and 1 CFR part 51. To enforce any edition other than that 
specified in this section, the Environmental Protection Agency must 
publish a notice of the change in the Federal Register and the material 
must be available to the public. All approved material is available for 
inspection at U.S. EPA, Air and Radiation Docket and Information 
Center, 1301 Constitution Ave. NW., Room B102, EPA West Building, 
Washington, DC 20460, (202) 202-1744, and is available from the sources 
listed below. It is also available for inspection at the National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, call (202) 741-6030, or go to: 
http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html and is available from the sources 
listed below:
    (b) American Society for Testing and Materials, 100 Barr Harbor 
Drive, P.O. Box C700, West Conshohocken, PA, 19428-2959, (610) 832-
9585, http://www.astm.org/.
    (1) ASTM D 975-04c, Standard Specification for Diesel Fuel Oils, 
IBR approved for Sec. Sec.  86.1910, 86.213-11.
    (2) ASTM D1945-91, Standard Test Method for Analysis of Natural Gas 
by Gas Chromatography, IBR approved for Sec. Sec.  86.113-94, 86.513-
94, 86.1213-94, 86.1313-94.
    (3) ASTM D2163-91, Standard Test Method for Analysis of Liquefied 
Petroleum (LP) Gases and Propane Concentrates by Gas Chromatography, 
IBR approved for Sec. Sec.  86.113-94, 86.1213-94, 86.1313-94.
    (4) ASTM D2986-95a, Reapproved 1999, Standard Practice for 
Evaluation of Air Assay Media by the Monodisperse DOP (Dioctyl 
Phthalate) Smoke Test, IBR approved for Sec. Sec.  86.1310-2007.
    (5) ASTM D5186-91, Standard Test Method for Determination of 
Aromatic Content of Diesel Fuels by Supercritical Fluid Chromatography, 
IBR approved for Sec. Sec.  86.113-07, 86.1313-91, 86.1313-94, 86.1313-
98, 1313-2007.
    (6) ASTM E29-67, Reapproved 1980, Standard Recommended Practice for 
Indicating Which Places of Figures Are To Be Considered Significant in 
Specified Limiting Values, IBR approved for Sec.  86.1105-87.
    (7) ASTM E29-90, Standard Practice for Using Significant Digits in 
Test Data to Determine Conformance with Specifications, IBR approved 
for Sec. Sec.  86.609-84, 86.609-96, 86.609-97, 86.609-98, 86.1009-84, 
86.1009-96, 86.1442, 86.1708-99, 86.1709-99, 86.1710-99, 86.1728-99.
    (8) ASTM E29-93a, Standard Practice for Using Significant Digits in 
Test Data to Determine Conformance with Specifications, IBR approved 
for Sec. Sec.  86.098-15, 86.004-15, 86.007-11, 86.007-15, 86.1803-01, 
86.1823-01, 86.1824-01, 86.1825-01, 86.1837-01.
    (9) ASTM F1471-93, Standard Test Method for Air Cleaning 
Performance of a High-Efficiency Particulate Air-Filter System, IBR 
approved Sec.  86.1310-2007.
    (10) ASTM E903-96, Standard Test Method for Solar Absorptance, 
Reflectance, and Transmittance of Materials Using Integrating Spheres 
(Withdrawn 2005), IBR approved for Sec.  86.1866-12.
    (11) ASTM E1918-06, Standard Test Method for Measuring Solar 
Reflectance of Horizontal and Low-Sloped Surfaces in the Field, IBR 
approved for Sec.  86.1866-12.
    (12) ASTM C1549-09, Standard Test Method for Determination of Solar 
Reflectance Near Ambient Temperature Using a Portable Solar 
Reflectometer (2009) IBR approved for Sec.  86.1866-12.
    (c) Society of Automotive Engineers, 400 Commonwealth Dr., 
Warrendale, PA 15096-0001, (877) 606-7323 (U.S. and Canada) or (724) 
776-4970 (outside the U.S. and Canada), http://www.sae.org.
    (1) SAE J1151, December 1991, Methane Measurement Using Gas 
Chromatography, 1994 SAE Handbook--SAE International Cooperative 
Engineering Program, Volume 1: Materials, Fuels, Emissions, and Noise; 
Section 13 and page 170 (13.170), IBR approved for Sec. Sec.  86.111-
94; 86.1311-94.
    (2) SAE J1349, June 1990, Engine Power Test Code--Spark Ignition 
and Compression Ignition, IBR approved for Sec. Sec.  86.094-8, 86.096-
8.
    (3) SAE J1850, July 1995, Class B Data Communication Network 
Interface, IBR approved for Sec. Sec.  86.099-17, 86.1806-01.
    (4) SAE J1850, Revised May 2001, Class B Data Communication Network 
Interface, IBR approved for Sec. Sec.  86.005-17, 86.007-17, 86.1806-
04, 86.1806-05.
    (5) SAE J1877, July 1994, Recommended Practice for Bar-Coded 
Vehicle Identification Number Label, IBR approved for Sec. Sec.  
86.095-35, 86.1806-01.
    (6) SAE J1892, October 1993, Recommended Practice for Bar-Coded 
Vehicle Emission Configuration Label, IBR approved for Sec. Sec.  
86.095-35, 86.1806-01.
    (7) SAE J1930, Revised May 1998, Electrical/Electronic Systems 
Diagnostic Terms, Definitions, Abbreviations, and Acronyms, IBR 
approved for Sec. Sec.  86.096-38, 86.004-38, 86.007-38, 86.010-38, 
86.1808-01, 86.1808-07.
    (8) SAE J1930, Revised April 2002, Electrical/Electronic Systems 
Diagnostic Terms, Definitions, Abbreviations, and Acronyms--Equivalent 
to ISO/TR 15031-2: April 30, 2002, IBR approved for Sec. Sec.  86.005-
17, 86.007-17, 86.010-18, 86.1806-04, 86.1806-05.
    (9) SAE J1937, November 1989, Engine Testing with Low Temperature 
Charge Air Cooler Systems in a Dynamometer Test Cell, IBR approved for 
Sec. Sec.  86.1330-84, 86.1330-90.
    (10) SAE J1939, Revised October 2007, Recommended Practice for a 
Serial Control and Communications Vehicle Network, IBR approved for 
Sec. Sec.  86.010-18.
    (11) SAE J1939-11, December 1994, Physical Layer--250K bits/s, 
Shielded Twisted Pair, IBR approved for Sec. Sec.  86.005-17, 86.1806-
05.

[[Page 75356]]

    (12) SAE J1939-11, Revised October 1999, Physical Layer--250K bits/
s, Shielded Twisted Pair, IBR approved for Sec. Sec.  86.005-17, 
86.007-17, 86.1806-04, 86.1806-05.
    (13) SAE J1939-13, July 1999, Off-Board Diagnostic Connector, IBR 
approved for Sec. Sec.  86.005-17, 86.007-17, 86.1806-04, 86.1806-05.
    (14) SAE J1939-13, Revised March 2004, Off-Board Diagnostic 
Connector, IBR approved for Sec.  86.010-18.
    (15) SAE J1939-21, July 1994, Data Link Layer, IBR approved for 
Sec. Sec.  86.005-17, 86.1806-05.
    (16) SAE J1939-21, Revised April 2001, Data Link Layer, IBR 
approved for Sec. Sec.  86.005-17, 86.007-17, 86.1806-04, 86.1806-05.
    (17) SAE J1939-31, Revised December 1997, Network Layer, IBR 
approved for Sec. Sec.  86.005-17, 86.007-17, 86.1806-04, 86.1806-05.
    (18) SAE J1939-71, May 1996, Vehicle Application Layer, IBR 
approved for Sec. Sec.  86.005-17, 86.1806-05.
    (19) SAE J1939-71, Revised August 2002, Vehicle Application Layer--
J1939-71 (through 1999), IBR approved for Sec. Sec.  86.005-17, 86.007-
17, 86.1806-04, 86.1806-05.
    (20) SAE J1939-71, Revised January 2008, Vehicle Application Layer 
(Through February 2007), IBR approved for Sec.  86.010-38.
    (21) SAE J1939-73, February 1996, Application Layer--Diagnostics, 
IBR approved for Sec. Sec.  86.005-17, 86.1806-05.
    (22) SAE J1939-73, Revised June 2001, Application Layer--
Diagnostics, IBR approved for Sec. Sec.  86.005-17, 86.007-17, 86.1806-
04, 86.1806-05.
    (23) SAE J1939-73, Revised September 2006, Application Layer--
Diagnostics, IBR approved for Sec. Sec.  86.010-18, 86.010-38.
    (24) SAE J1939-81, July 1997, Recommended Practice for Serial 
Control and Communications Vehicle Network Part 81--Network Management, 
IBR approved for Sec. Sec.  86.005-17, 86.007-17, 86.1806-04, 86.1806-
05.
    (25) SAE J1939-81, Revised May 2003, Network Management, IBR 
approved for Sec.  86.010-38.
    (26) SAE J1962, January 1995, Diagnostic Connector, IBR approved 
for Sec. Sec.  86.099-17, 86.1806-01.
    (27) SAE J1962, Revised April 2002, Diagnostic Connector Equivalent 
to ISO/DIS 15031-3; December 14, 2001, IBR approved for Sec. Sec.  
86.005-17, 86.007-17, 86.010-18, 86.1806-04, 86.1806-05.
    (28) SAE J1978, Revised April 2002, OBD II Scan Tool--Equivalent to 
ISO/DIS 15031-4; December 14, 2001, IBR approved for Sec. Sec.  86.005-
17, 86.007-17, 86.010-18, 86.1806-04, 86.1806-05.
    (29) SAE J1979, July 1996, E/E Diagnostic Test Modes, IBR approved 
for Sec. Sec.  86.099-17, 86.1806-01.
    (30) SAE J1979, Revised September 1997, E/E Diagnostic Test Modes, 
IBR approved for Sec. Sec.  86.096-38, 86.004-38, 86.007-38, 86.010-38, 
86.1808-01, 86.1808-07.
    (31) SAE J1979, Revised April 2002, E/E Diagnostic Test Modes--
Equivalent to ISO/DIS 15031-5; April 30, 2002, IBR approved for 
Sec. Sec.  86.099-17, 86.005-17, 86.007-17, 86.1806-01, 86.1806-04, 
86.1806-05.
    (32) SAE J1979, Revised May 2007, (R) E/E Diagnostic Test Modes, 
IBR approved for Sec.  86.010-18, 86.010-38.
    (33) SAE J2012, July 1996, Recommended Practice for Diagnostic 
Trouble Code Definitions, IBR approved for Sec. Sec.  86.099-17, 
86.1806-01.
    (34) SAE J2012, Revised April 2002, (R) Diagnostic Trouble Code 
Definitions Equivalent to ISO/DIS 15031-6: April 30, 2002, IBR approved 
for Sec. Sec.  86.005-17, 86.007-17, 86.010-18, 86.1806-04, 86.1806-05.
    (35) SAE J2284-3, May 2001, High Speed CAN (HSC) for Vehicle 
Applications at 500 KBPS, IBR approved for Sec. Sec.  86.096-38, 
86.004-38, 86.007-38, 86.010-38, 86.1808-01, 86.1808-07.
    (36) SAE J2403, Revised August 2007, Medium/Heavy-Duty E/E Systems 
Diagnosis Nomenclature--Truck and Bus, IBR approved for Sec. Sec.  
86.007-17, 86.010-18, 86.010-38, 86.1806-05.
    (37) SAE J2534, February 2002, Recommended Practice for Pass-Thru 
Vehicle Programming, IBR approved for Sec. Sec.  86.096-38, 86.004-38, 
86.007-38, 86.010-38, 86.1808-01, 86.1808-07.
    (38) SAE J2534-1, Revised December 2004, (R) Recommended Practice 
for Pass-Thru Vehicle Programming, IBR approved for Sec.  86.010-38.
    (39) SAE J2064, Revised December 2005, R134a Refrigerant Automotive 
Air-Conditioned Hose, IBR approved for Sec.  86.166-12.
    (40) SAE J2765, October, 2008, Procedure for Measuring System COP 
[Coefficient of Performance] of a Mobile Air Conditioning System on a 
Test Bench, IBR approved for Sec.  86.1866-12.
    (41) SAE J1711, Recommended Practice for Measuring the Exhaust 
Emissions and Fuel Economy of Hybrid-Electric Vehicles, Including Plug-
In Hybrid Vehicles, June 2010, IBR approved for Sec.  86.1811-04(n).
    (42) SAE J1634, Electric Vehicle Energy Consumption and Range Test 
Procedure, Cancelled October 2002, IBR approved for Sec.  86.1811-
04(n).
    (43) SAE J1100, November, 2009, Motor Vehicle Dimensions, IBR 
approved for Sec.  86.1866-12(d).
    (44) SAE J2064, Revised December 2005, R134a Refrigerant Automotive 
Air-Conditioned Hose, IBR approved for Sec.  86.166-12(d).
    (d) American National Standards Institute, 25 W 43rd Street, 4th 
Floor, New York, NY 10036, (212) 642-4900, http://www.ansi.org.
    (1) ANSI/AGA NGV1-1994, Standard for Compressed Natural Gas Vehicle 
(NGV) Fueling Connection Devices, IBR approved for Sec. Sec.  86.001-9, 
86.004-9, 86.098-8, 86.099-8, 86.099-9, 86.1810-01.
    (2) [Reserved]
    (e) California Air Resources Board, (916) 322-2884, http://www.arb.ca.gov.
    (1) California Regulatory Requirements Applicable to the ``LEV II'' 
Program, including:
    (i) [Reserved]
    (ii) California Non-Methane Organic Gas Test Procedures, August 5, 
1999, IBR approved for Sec. Sec.  86.1803-01, 86.1810-01, 86.1811-04.
    (2) California Regulatory Requirements Applicable to the National 
Low Emission Vehicle Program, October 1996, IBR approved for Sec. Sec.  
86.113-04, 86.612-97, 86.1012-97, 86.1702-99, 86.1708-99, 86.1709-99, 
86.1717-99, 86.1735-99, 86.1771-99, 86.1775-99, 86.1776-99, 86.1777-99, 
Appendix XVI, Appendix XVII.
    (3) California Regulatory Requirements known as On-board 
Diagnostics II (OBD-II), Approved on April 21, 2003, Title 13, 
California Code Regulations, Section 1968.2, Malfunction and Diagnostic 
System Requirements for 2004 and Subsequent Model-Year Passenger Cars, 
Light-Duty Trucks, and Medium-Duty Vehicles and Engines (OBD-II), IBR 
approved for Sec.  86.1806-05.
    (4) California Regulatory Requirements known as On-board 
Diagnostics II (OBD-II), Approved on November 9, 2007, Title 13, 
California Code Regulations, Section 1968.2, Malfunction and Diagnostic 
System Requirements for 2004 and Subsequent Model-Year Passenger Cars, 
Light-Duty Trucks, and Medium-Duty Vehicles and Engines (OBD-II), IBR 
approved for Sec. Sec.  86.007-17, 86.1806-05.
    (f) International Organization for Standardization, Case Postale 
56, CH-1211 Geneva 20, Switzerland, 41-22-749-01-11, http://www.iso.org.
    (1) ISO 9141-2, February 1, 1994, Road vehicles--Diagnostic 
systems--Part 2: CARB requirements for interchange of digital 
information, IBR approved for Sec. Sec.  86.099-17, 86.005-17, 86.007-
17, 86.1806-01, 86.1806-04, 86.1806-05.
    (2) ISO 14230-4:2000(E), June 1, 2000, Road vehicles--Diagnostic 
systems--

[[Page 75357]]

KWP 2000 requirements for Emission-related systems, IBR approved for 
Sec. Sec.  86.099-17, 86.005-17, 86.007-17, 86.1806-01, 86.1806-04, 
86.1806-05.
    (3) ISO 15765-4.3:2001, December 14, 2001, Road Vehicles--
Diagnostics on Controller Area Networks (CAN)--Part 4: Requirements for 
emissions-related systems, IBR approved for Sec. Sec.  86.005-17, 
86.007-17, 86.1806-04, 86.1806-05.
    (4) ISO 15765-4:2005(E), January 15, 2005, Road Vehicles--
Diagnostics on Controller Area Networks (CAN)--Part 4: Requirements for 
emissions-related systems, IBR approved for Sec. Sec.  86.007-17, 
86.010-18, 86.1806-05.
    (5) ISO 13837:2008, May 30, 2008, Road Vehicles--Safety glazing 
materials. Method for the determination of solar transmittance, IBR 
approved for Sec.  86.1866-12.
    (g) Government Printing Office, Washington, DC 20402, (202) 512-
1800 http://www.nist.gov.
    (1) NIST Special Publication 811, 1995 Edition, Guide for the Use 
of the International System of Units (SI), IBR approved for Sec.  
86.1901.
    (2) [Reserved]
    (h) Truck and Maintenance Council, 950 North Glebe Road, Suite 210, 
Arlington, VA 22203-4181, (703) 838-1754.
    (1) TMC RP 1210B, Revised June 2007, WINDOWSTMCOMMUNICATION API, 
IBR approved for Sec.  86.010-38.
    (2) [Reserved]
    (i) U.S. EPA, Office of Air and Radiation, 2565 Plymouth Road, Ann 
Arbor, MI 48105, http://www.epa.gov:
    (1) EPA Vehicle Simulation Tool, Version x.x, November 2011; IBR 
approved for Sec.  86.1866-12. The computer code for this model is 
available as noted in paragraph (a) of this section. A working version 
of this software is also available for download at http://www.epa.gov/otaq/climate/ldst.htm.
    (2) [Reserved]

Subpart B--[Amended]

    5. Section 86.111-94 is amended by revising paragraph (b) 
introductory text to read as follows:


Sec.  86.111-94  Exhaust gas analytical system.

* * * * *
    (b) Major component description. The exhaust gas analytical system, 
Figure B94-7, consists of a flame ionization detector (FID) (heated, 
235 [deg]15[emsp14][deg]F (113 [deg]8 [deg]C) 
for methanol-fueled vehicles) for the determination of THC, a methane 
analyzer (consisting of a gas chromatograph combined with a FID) for 
the determination of CH4,non-dispersive infrared analyzers 
(NDIR) for the determination of CO and CO2, a 
chemiluminescence analyzer (CL) for the determination of 
NOX, and an analyzer meeting the requirements specified in 
40 CFR 1065.275 for the determination of N2O. A heated flame 
ionization detector (HFID) is used for the continuous determination of 
THC from petroleum-fueled diesel-cycle vehicles (may also be used with 
methanol-fueled diesel-cycle vehicles), Figure B94-5 (or B94-6). The 
analytical system for methanol consists of a gas chromatograph (GC) 
equipped with a flame ionization detector. The analysis for 
formaldehyde is performed using high-pressure liquid chromatography 
(HPLC) of 2,4-dinitrophenylhydrazine (DNPH) derivatives using 
ultraviolet (UV) detection. The exhaust gas analytical system shall 
conform to the following requirements:
* * * * *
    6. Section 86.135-12 is amended by revising paragraph (a) to read 
as follows:


Sec.  86.135-12  Dynamometer procedure.

    (a) Overview. The dynamometer run consists of two tests, a ``cold'' 
start test, after a minimum 12-hour and a maximum 36-hour soak 
according to the provisions of Sec. Sec.  86.132 and 86.133, and a 
``hot'' start test following the ``cold'' start by 10 minutes. Engine 
startup (with all accessories turned off), operation over the UDDS, and 
engine shutdown make a complete cold start test. Engine startup and 
operation over the first 505 seconds of the driving schedule complete 
the hot start test. The exhaust emissions are diluted with ambient air 
in the dilution tunnel as shown in Figure B94-5 and Figure B94-6. A 
dilution tunnel is not required for testing vehicles waived from the 
requirement to measure particulates. Six particulate samples are 
collected on filters for weighing; the first sample plus backup is 
collected during the first 505 seconds of the cold start test; the 
second sample plus backup is collected during the remainder of the cold 
start test (including shutdown); the third sample plus backup is 
collected during the hot start test. Continuous proportional samples of 
gaseous emissions are collected for analysis during each test phase. 
For gasoline-fueled, natural gas-fueled and liquefied petroleum gas-
fueled Otto-cycle vehicles, the composite samples collected in bags are 
analyzed for THC, CO, CO2, CH4, NOX, 
and N2O. For petroleum-fueled diesel-cycle vehicles 
(optional for natural gas-fueled, liquefied petroleum gas-fueled and 
methanol-fueled diesel-cycle vehicles), THC is sampled and analyzed 
continuously according to the provisions of Sec.  86.110-94. Parallel 
samples of the dilution air are similarly analyzed for THC, CO, 
CO2, CH4, NOX, and N2O. For 
natural gas-fueled, liquefied petroleum gas-fueled and methanol-fueled 
vehicles, bag samples are collected and analyzed for THC (if not 
sampled continuously), CO, CO2, CH4, 
NOX, and N2O. For methanol-fueled vehicles, 
methanol and formaldehyde samples are taken for both exhaust emissions 
and dilution air (a single dilution air formaldehyde sample, covering 
the total test period may be collected). For ethanol-fueled vehicles, 
methanol, ethanol, acetaldehyde, and formaldehyde samples are taken for 
both exhaust emissions and dilution air (a single dilution air 
formaldehyde sample, covering the total test period may be collected). 
Parallel bag samples of dilution air are analyzed for THC, CO, 
CO2, CH4, NOX, and N2O.
* * * * *
    7. Section 86.165-12 is amended by revising paragraphs (c)(1) and 
(2) to read as follows:


Sec.  86.165-12  Air conditioning idle test procedure.

* * * * *
    (c) * * *
    (1) Ambient humidity within the test cell during all phases of the 
test sequence shall be controlled to an average of 40-60 grains of 
water/pound of dry air.
    (2) Ambient air temperature within the test cell during all phases 
of the test sequence shall be controlled to 73-80[emsp14][deg]F on 
average and 75  5[emsp14][deg]F as an instantaneous 
measurement. Air temperature shall be recorded continuously at a 
minimum of 30 second intervals.
* * * * *
    8. Section 86.166-12 is amended as follows:
    a. By revising paragraph (b) introductory text.
    b. By revising paragraph (b).
    c. By revising paragraph (d).


Sec.  86.166-12  Method for calculating emissions due to air 
conditioning leakage.

* * * * *
    (b) Rigid pipe connections. For 2017 and later model years, 
manufacturers may test the leakage of system connections by 
pressurizing the system with Helium and using a mass spectrometer to 
measure the leakage of the connections within the system. Connections 
that are demonstrated to be free of leaks using Helium mass 
spectrometry are considered to have a relative emission factor of 10 
and are

[[Page 75358]]

accounted for separately in the equation in paragraph (b)(2) of this 
section.
    (1) The following equation shall be used for the 2012 through 2016 
model years, and for 2017 and later model years in cases where the 
connections are not demonstrated to be leak-free using Helium mass 
spectrometry:

Grams/YRRP = 0.00522 x [(125 x SO) + (75 x SCO) + (50 x MO) 
+ (10 x SW) + (5 x SWO) + (MG)]

Where:

Grams/YRRP = Total emission rate for rigid pipe 
connections in grams per year.
SO = The number of single O-ring connections.
SCO = The number of single captured O-ring connections.
MO = The number of multiple O-ring connections.
SW = The number of seal washer connections.
SWO = The number of seal washer with O-ring connections.
MG = The number of metal gasket connections.

    (2) For 2017 and later model years, manufacturers may test the 
leakage of system connections by pressurizing the system with Helium 
and using a mass spectrometer to measure the leakage of the connections 
within the system. Connections that are demonstrated to be free of 
leaks using Helium mass spectrometry are considered to have a relative 
emission factor of 10 and are accounted for separately in the following 
equation:

Grams/YRRP = 0.00522 x [(125 x SO) + (75 x SCO) + (50 x MO) 
+ (10 x SW) + (10 x LTO) + (5 x SWO) + (MG)]

Where:

Grams/YRRP = Total emission rate for rigid pipe 
connections in grams per year.
SO = The number of single O-ring connections.
SCO = The number of single captured O-ring connections.
MO = The number of multiple O-ring connections.
SW = The number of seal washer connections.
LTO = The total number of O-ring connections (single, single 
captured, and multiple) that have demonstrated no leakage using 
Helium mass spectrometry. Connections included here should not be 
counted elsewhere in the equation, and all connections counted here 
must be tested using Helium mass spectrometry and demonstrated as 
free of leaks.
SWO = The number of seal washer with O-ring connections.
MG = The number of metal gasket connections.
* * * * *
    (d) Flexible hoses. Determine the permeation emission rate in grams 
per year for each segment of flexible hose using the following 
equation, and then sum the values for all hoses in the system to 
calculate a total flexible hose emission rate for the system. Hose end 
connections shall be included in the calculations in paragraph (b) of 
this section.

Grams/YRFH = 0.00522 x (3.14159 x ID x L x ER)

Where:

Grams/YRFH = Emission rate for a segment of flexible hose 
in grams per year.
ID = Inner diameter of hose, in millimeters.
L = Length of hose, in millimeters.
ER = Emission rate per unit internal surface area of the hose, in g/
mm\2\, selected from the following table, or, for 2017 and later 
model years, calculated according to SAE J2064 ``R134a Refrigerant 
Automotive Air-Conditioned Hose'' (incorporated by reference; see 
86.1):
[GRAPHIC] [TIFF OMITTED] TP01DE11.280

* * * * *
    9. Section 86.167-17 is added to read as follows:


Sec.  86.167-17  AC17 Air Conditioning Efficiency Test Procedure.

    (a) Overview. The dynamometer operation consists of four elements: 
a pre-conditioning cycle, a 30-minute soak period under simulated solar 
heat, an SC03 drive cycle, and a Highway Fuel Economy Test (HFET) drive 
cycle. The vehicle is preconditioned with the UDDS to bring the vehicle 
to a warmed-up stabilized condition. This preconditioning is followed 
by a 30 minute vehicle soak (engine off) that proceeds directly into 
the SC03 driving schedule, during which continuous proportional samples 
of gaseous emissions are collected for analysis. The SC03 driving 
schedule is followed immediately by the HFET cycle, during which 
continuous proportional samples of gaseous emissions are collected for 
analysis. The entire test, including the preconditioning driving, 
vehicle soak, and SC03 and HFET official test cycles, is conducted in 
an environmental test facility. The environmental test facility must be 
capable of providing the following nominal ambient test conditions of: 
77[emsp14][deg]F air temperature, 50 percent relative humidity, a solar 
heat load intensity of 850 W/m\2\, and vehicle cooling air flow 
proportional to vehicle speed. Section 86.161-00 discusses the minimum 
facility requirements and corresponding control tolerances for air 
conditioning ambient test conditions. The entire test sequence is run 
twice; with and without the vehicle's air conditioner operating during 
the SC03 and HFET test cycles. For gasoline-fueled Otto-cycle vehicles, 
the composite samples collected in bags are analyzed for THC, CO, 
CO2, and CH4. For petroleum-fueled diesel-cycle 
vehicles, THC is sampled and analyzed continuously according to the 
provisions of Sec.  86.110. Parallel bag samples of dilution air are 
analyzed for THC, CO, CO2, and CH4. The following 
figure shows the basic sequence of the test procedure.
BILLING CODE 4910-59-P

[[Page 75359]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.281

BILLING CODE 4910-59-C
    (b) Dynamometer requirements. (1) Tests shall be run on a large 
single roll electric dynamometer or an equivalent dynamometer 
configuration that satisfies the requirements of Sec.  86.108-00.
    (2) Position (vehicle can be driven) the test vehicle on the 
dynamometer and restrain.
    (3) Required dynamometer inertia weight class selections are 
determined by the test vehicle's test weight basis and corresponding 
equivalent weight as listed in the tabular information of Sec.  86.129-
00(a) and discussed in Sec.  86.129-00(e) and (f).
    (4) Set the dynamometer test inertia weight and roadload horsepower 
requirements for the test vehicle (see Sec.  86.129-00 (e) and (f)). 
The dynamometer's horsepower adjustment settings shall be set such that 
the force imposed during dynamometer operation matches actual road load 
force at all speeds.
    (5) The vehicle speed as measured from the dynamometer rolls shall 
be used. A speed vs. time recording, as evidence of dynamometer test 
validity, shall be supplied at request of the Administrator.
    (6) The drive wheel tires may be inflated up to a gauge pressure of 
45 psi (310 kPa), or the manufacturer's recommended pressure if higher 
than 45 psi, in order to prevent tire damage. The drive wheel tire 
pressure shall be reported with the test results.
    (7) The driving distance, as measured by counting the number of

[[Page 75360]]

dynamometer roll or shaft revolutions, shall be determined for the 
test.
    (8) Four-wheel drive and all-wheel drive vehicles may be tested 
either in a four-wheel drive or a two-wheel drive mode of operation. In 
order to test in the two-wheel drive mode, four-wheel drive and all-
wheel drive vehicles may have one set of drive wheels disengaged; four-
wheel and all-wheel drive vehicles which can be shifted to a two-wheel 
mode by the driver may be tested in a two-wheel drive mode of 
operation.
    (c) Test cell ambient conditions. (1) Ambient air temperature. (i) 
Ambient air temperature is controlled, within the test cell, during all 
phases of the test sequence to 77 2[emsp14][deg]F on 
average and 77 5[emsp14][deg]F as an instantaneous 
measurement.
    (ii) Air temperature is recorded continuously at a minimum of 30 
second intervals. Records of cell air temperatures and values of 
average test temperatures are maintained by the manufacturer for all 
certification related programs.
    (2) Ambient humidity. (i) Ambient humidity is controlled, within 
the test cell, during all phases of the test sequence to an average of 
69 5 grains of water/pound of dry air.
    (ii) Humidity is recorded continuously at a minimum of 30 second 
intervals. Records of cell humidity and values of average test humidity 
are maintained by the manufacturer for all certification related 
programs.
    (3) Solar heat loading. The requirements of 86.161-00(d) regarding 
solar heat loading specifications shall apply. The solar load of 850 W/
m\2\ is applied only during specified portions of the test sequence.
    (d) Interior temperature measurement. The interior temperature of 
the vehicle shall be measured during the emission sampling phases of 
the test(s).
    (1) Interior temperatures shall be measured by placement of 
thermocouples at the following locations:
    (i) The outlet of the center duct on the dash.
    (ii) Behind the driver and passenger seat headrests. The location 
of the temperature measuring devices shall be 30 mm behind each 
headrest and 330 mm below the roof.
    (2) The temperature at each location shall be recorded a minimum of 
every 5 seconds.
    (e) Air conditioning system settings. For the portion of the test 
where the air conditioner is required to be operating the settings 
shall be as follows:
    (1) Automatic systems shall be set to automatic and the temperature 
control set to 72 deg F.
    (2) Manual systems shall be set at the start of the SC03 drive 
cycle to full cool with the fan on the highest setting and the airflow 
setting to ``recirculation.'' Within the first idle period of the SC03 
drive cycle (186 to 204 seconds) the fan speed shall be reduced to the 
setting closest to 6 volts at the motor, the temperature setting shall 
be adjusted to provide 55 deg F at the center dash air outlet, and the 
airflow setting changed to ``outside air.''
    (f) Vehicle and test activities. The AC17 air conditioning test in 
an environmental test cell is composed of the following sequence of 
activities.
    (1) Drain and fill the vehicle's fuel tank to 40 percent capacity 
with test fuel. If a vehicle has gone through the drain and fuel 
sequence less than 72 hours previously and has remained under 
laboratory ambient temperature conditions, this drain and fill 
operation can be omitted (see Sec.  86.132-00(c)(2)(ii)).
    (2)(i) Position the variable speed cooling fan in front of the test 
vehicle with the vehicle's hood down. This air flow should provide 
representative cooling at the front of the test vehicle (air 
conditioning condenser and engine) during the driving cycles. See Sec.  
86.161-00(e) for a discussion of cooling fan specifications.
    (ii) In the case of vehicles with rear engine compartments (or if 
this front location provides inadequate engine cooling), an additional 
cooling fan shall be placed in a position to provide sufficient air to 
maintain vehicle cooling. The fan capacity shall normally not exceed 
5300 cfm (2.50 m\3\/s). If, however, it can be demonstrated that during 
road operation the vehicle receives additional cooling, and that such 
additional cooling is needed to provide a representative test, the fan 
capacity may be increased or additional fans used if approved in 
advance by the Administrator.
    (3) Open all vehicle windows.
    (4) Connect the emission test sampling system to the vehicle's 
exhaust tail pipe(s).
    (5) Set the environmental test cell ambient test conditions to the 
conditions defined in paragraph (c) of this section, except that the 
solar heat shall be off.
    (6) Set the air conditioning system controls to off.
    (7) Start the vehicle (with air conditioning system off) and 
conduct a preconditioning EPA urban dynamometer driving cycle (Sec.  
86.115).
    (i) If engine stalling should occur during any air conditioning 
test cycle operation, follow the provisions of Sec.  86.136-90 (Engine 
starting and restarting).
    (ii) For manual transmission vehicles, the vehicle shall be shifted 
according the provisions of Sec.  86.128-00.
    (8) Following the preconditioning cycle, the test vehicle and 
cooling fan(s) are turned off, all windows are rolled up, and the 
vehicle is allowed to soak in the ambient conditions of paragraph 
(c)(1) of this section for 30 1 minutes. The solar heat 
system must be turned on and generating 850 W/m \2\ within 1 minute of 
turning the engine off.
    (9) Air conditioning on test. (i) Start engine (with air 
conditioning system also running). Fifteen seconds after the engine 
starts, place vehicle in gear.
    (ii) Eighteen seconds after the engine starts, begin the initial 
vehicle acceleration of the SC03 driving schedule.
    (iii) Operate the vehicle according to the SC03 driving schedule, 
as described in appendix I, paragraph (h), of this part, while sampling 
the exhaust gas.
    (iv) At the end of the deceleration which is scheduled to occur at 
594 seconds, simultaneously switch the sample flows from the SC03 bags 
and samples to the ``HFET'' bags and samples, switch off gas flow 
measuring device No. 1, switch off the No. 1 petroleum-fueled diesel 
hydrocarbon integrator, mark the petroleum-fueled diesel hydrocarbon 
recorder chart, and start gas flow measuring device No. 2, and start 
the petroleum-fueled diesel hydrocarbon integrator No. 2.
    (v) Allow the vehicle to idle for 14-16 seconds. Before the end of 
this idle period, record the measured roll or shaft revolutions and 
reset the counter or switch to a second counter. As soon as possible 
transfer the SC03 exhaust and dilution air samples to the analytical 
system and process the samples according to Sec.  86.140 obtaining a 
stabilized reading of the bag exhaust sample on all analyzers within 20 
minutes of the end of the sample collection phase of the test. Obtain 
methanol and formaldehyde sample analyses, if applicable, within 24 
hours of the end of the sample collection phase of the test.
    (vi) Operate the vehicle according to the HFET driving schedule, as 
described in 40 CFR 600.109-08, while sampling the exhaust gas.
    (vii) Turn the engine off 2 seconds after the end of the last 
deceleration.
    (viii) Five seconds after the engine stops running, simultaneously 
turn off gas flow measuring device No. 2 and if applicable, turn off 
the petroleum-fueled diesel hydrocarbon integrator No. 2, mark the 
hydrocarbon recorder chart, and position the sample selector valves

[[Page 75361]]

to the ``standby'' position. Record the measured roll or shaft 
revolutions (both gas meter or flow measurement instrumentation 
readings), and re-set the counter. As soon as possible, transfer the 
``HFET'' exhaust and dilution air samples to the analytical system and 
process the samples according to Sec.  86.140, obtaining a stabilized 
reading of the exhaust bag sample on all analyzers within 20 minutes of 
the end of the sample collection phase of the test. Obtain methanol and 
formaldehyde sample analyses, if applicable, within 24 hours of the end 
of the sample period.
    (10) Air conditioning off test. The air conditioning off test is 
identical to the steps identified in paragraphs (d)(1) through (9) of 
this section, except that the air conditioning system and fan speeds 
are set to complete off or the lowest. It is preferred that the air 
conditioning off test be conducted sequentially after the air 
conditioning on test, following a 10-15 minute soak.
    (g) Records required and reporting requirements. For each test the 
manufacturer shall record the information specified in 86.142-90. 
Emission results must be reported for each phase of the test. The 
manufacturer must also report the following information for each 
vehicle tested: vehicle class, model type, carline, curb weight engine 
displacement, transmission class and configuration, interior volume, 
climate control system type and characteristics, refrigerant used, 
compressor type, and evaporator/condenser characteristics.

Subpart S--[Amended]

    10. Section 86.1801-12 is amended by revising paragraphs (b), (j), 
and (k) introductory text to read as follows:


Sec.  86.1801-12  Applicability.

* * * * *
    (b) Clean alternative fuel conversions. The provisions of this 
subpart apply to clean alternative fuel conversions as defined in 40 
CFR 85.502, of all model year light-duty vehicles, light-duty trucks, 
medium duty passenger vehicles, and complete Otto-cycle heavy-duty 
vehicles.
    (j) Exemption from greenhouse gas emission standards for small 
businesses. (1) Manufacturers that qualify as a small business under 
the Small Business Administration regulations in 13 CFR part 121 are 
exempt from the greenhouse gas emission standards specified in Sec.  
86.1818-12 and in associated provisions in this part and in part 600 of 
this chapter. This exemption applies to both U.S.-based and non-U.S.-
based businesses. The following categories of businesses (with their 
associated NAICS codes) may be eligible for exemption based on the 
Small Business Administration size standards in 13 CFR 121.201.
    (i) Vehicle manufacturers (NAICS code 336111).
    (ii) Independent commercial importers (NAICS codes 811111, 811112, 
811198, 423110, 424990, and 441120).
    (iii) Alternate fuel vehicle converters (NAICS codes 335312, 
336312, 336322, 336399, 454312, 485310, and 811198).
    (2) Effective for the 2014 and later model years, a manufacturer 
that would otherwise be exempt under the provisions of paragraph (j)(1) 
of this section may optionally comply with the greenhouse gas emission 
standards specified in Sec.  86.1818. A manufacturer making this choice 
is required to comply with all the applicable standards and provisions 
in Sec.  86.1818 and in associated provisions in this part and in part 
600 of this chapter. Manufacturers may optionally earn early credits in 
the 2012 and/or 2013 model years by demonstrating CO2 
emission levels below the fleet average CO2 standard that 
would have been applicable in those model years if the manufacturer had 
not been exempt. Manufacturers electing to earn these early credits 
must comply with the model year reporting requirements in Sec.  
600.512-12 for each model year.
    (k) Conditional exemption from greenhouse gas emission standards. 
Manufacturers meeting the eligibility requirements described in 
paragraphs (k)(1) and (2) of this section may request a conditional 
exemption from compliance with the emission standards described in 
Sec.  86.1818-12(c) through (e) and associated provisions in this part 
and in part 600 of this chapter. A conditional exemption under this 
paragraph (k) may be requested for the 2012 through 2016 model years. 
The terms ``sales'' and ``sold'' as used in this paragraph (k) shall 
mean vehicles produced and delivered for sale (or sold) in the states 
and territories of the United States. For the purpose of determining 
eligibility the sales of related companies shall be aggregated 
according to the provisions of Sec.  86.1838-01(b)(3).
* * * * *
    11. Section 86.1803-01 is amended as follows:
    a. By revising the definition for ``footprint.''
    b. By adding a definition for ``good engineering judgment.''
    c. By adding a definition for ``gross combination weight rating.''
    d. By revising the definition for ``gross vehicle weight rating.''
    e. By adding a definition for ``platform.''
    The revisions and additions read as follows:


Sec.  86.1803-01  Definitions.

* * * * *
    Footprint is the product of average track width (rounded to the 
nearest tenth of an inch) and wheelbase (measured in inches and rounded 
to the nearest tenth of an inch), divided by 144 and then rounded to 
the nearest tenth of a square foot, where the average track width is 
the average of the front and rear track widths, where each is measured 
in inches and rounded to the nearest tenth of an inch.
* * * * *
    Good engineering judgment has the meaning given in 40 CFR 1068.30. 
See 40 CFR 1068.5 for the administrative process we use to evaluate 
good engineering judgment.
    Gross combination weight rating (GCWR) means the value specified by 
the vehicle manufacturer as the maximum weight of a loaded vehicle and 
trailer, consistent with good engineering judgment.
* * * * *
    Gross vehicle weight rating (GVWR) means the value specified by the 
manufacturer as the maximum design loaded weight of a single vehicle, 
consistent with good engineering judgment.
* * * * *
    Platform means a group of vehicles with common body floor plan and 
construction, chassis construction and components, basic engine, and 
transmission class. Platform does not consider any level of 
d[eacute]cor or opulence, or characteristics such as roof line, number 
of doors, seats, or windows. A single platform may include multiple 
fuel economy label classes or car lines, and may include both cars and 
trucks.
* * * * *
    12. Section 86.1818-12 is amended as follows:
    a. By adding paragraph (b)(4).
    b. By revising paragraphs (c)(2)(i)(A) through (C).
    c. By revising paragraphs (c)(3)(i)(A) through (C).
    d. By adding paragraph (c)(3)(i)(D).
    e. By adding paragraph (c)(4).
    f. By revising paragraph (f) introductory text.
    g. By revising paragraph (f)(3).
    h. By adding paragraph (g).
    i. By adding paragraph (h).
    The additions and revisions read as follows:

[[Page 75362]]

Sec.  86.1818-12  Greenhouse gas emission standards for light-duty 
vehicles, light-duty trucks, and medium-duty passenger vehicles.

* * * * *
    (b) * * *
    (4) Emergency vehicle means a motor vehicle manufactured primarily 
for use as an ambulance or combination ambulance-hearse or for use by 
the United States Government or a State or local government for law 
enforcement.
    (c) * * *
    (2) * * *
    (i) * * *
    (A) For passenger automobiles with a footprint of less than or 
equal to 41 square feet, the gram/mile CO2 target value 
shall be selected for the appropriate model year from the following 
table:
[GRAPHIC] [TIFF OMITTED] TP01DE11.700


[[Page 75363]]


    (B) For passenger automobiles with a footprint of greater than 56 
square feet, the gram/mile CO2 target value shall be 
selected for the appropriate model year from the following table:
[GRAPHIC] [TIFF OMITTED] TP01DE11.701

BILLING CODE 4910-59-C
    (C) For passenger automobiles with a footprint that is greater than 
41 square feet and less than or equal to 56 square feet, the gram/mile 
CO2 target value shall be calculated using the following 
equation and rounded to the nearest 0.1 grams/mile:

Target CO2 = [a x f ] + b

Where:
f is the vehicle footprint, as defined in Sec.  86.1803; and
a and b are selected from the following table for the appropriate 
model year:

[[Page 75364]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.704

* * * * *
    (3) * * *
    (i) * * *
    (A) For light trucks with a footprint of less than or equal to 41 
square feet, the gram/mile CO2 target value shall be 
selected for the appropriate model year from the following table:

[[Page 75365]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.705

    (B) For light trucks with a footprint that is greater than 41 
square feet and less than or equal to the maximum footprint value 
specified in the table below for each model year, the gram/mile 
CO2 target value shall be calculated using the following 
equation and rounded to the nearest 0.1 grams/mile:

Target CO2 = (a x f) + b

Where:

f is the footprint, as defined in Sec.  86.1803; and
a and b are selected from the following table for the appropriate 
model year:

[[Page 75366]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.706

    (C) For light trucks with a footprint that is greater than the 
minimum footprint value specified in the table below and less than or 
equal to the maximum footprint value specified in the table below for 
each model year, the gram/mile CO2 target value shall be 
calculated using the following equation and rounded to the nearest 0.1 
grams/mile:

Target CO2 = (a x f) + b

Where:
f is the footprint, as defined in Sec.  86.1803; and
a and b are selected from the following table for the appropriate 
model year:

[[Page 75367]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.708

    (D) For light trucks with a footprint greater than the minimum 
value specified in the table below for each model year, the gram/mile 
CO2 target value shall be selected for the appropriate model 
year from the following table:

[[Page 75368]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.709

* * * * *
    (4) Emergency vehicles. Emergency vehicles may be excluded from the 
fleet average CO2 exhaust emission standards described in 
paragraph (c) of this section. The manufacturer should notify the 
Administrator that they are making such an election in the model year 
reports required under Sec.  600.512 of this chapter. Such vehicles 
should be excluded from both the calculation of the fleet average 
standard for a manufacturer under this paragraph (c) and from the 
calculation of the fleet average carbon-related exhaust emissions in 
86.510-12.
* * * * *
    (f) Nitrous oxide (N2O) and methane (CH4) 
exhaust emission standards for passenger automobiles and light trucks. 
Each manufacturer's fleet of combined passenger automobile and light 
trucks must comply with N2O and CH4 standards 
using either the provisions of paragraph (f)(1), (2), or (3) of this 
section. Except with prior EPA approval, a manufacturer may not use the 
provisions of both paragraphs (f)(1) and (2) of this section in a model 
year. For example, a manufacturer may not use the provisions of 
paragraph (f)(1) of this section for their passenger automobile fleet 
and the provisions of

[[Page 75369]]

paragraph (f)(2) for their light truck fleet in the same model year. 
The manufacturer may use the provisions of both paragraphs (f)(1) and 
(3) of this section in a model year. For example, a manufacturer may 
meet the N2O standard in paragraph (f)(1)(i) of this section 
and an alternative CH4 standard determined under paragraph 
(f)(3) of this section.
* * * * *
    (3) Optional use of alternative N2O and/or 
CH4 standards. Manufacturers may select an alternative 
standard applicable to a test group, for either N2O or 
CH4, or both. For example, a manufacturer may choose to meet 
the N2O standard in paragraph (f)(1)(i) of this section and 
an alternative CH4 standard in lieu of the standard in 
paragraph (f)(1)(ii) of this section. The alternative standard for each 
pollutant must be greater than the applicable exhaust emission standard 
specified in paragraph (f)(1) of this section. Alternative 
N2O and CH4 standards apply to emissions measured 
according to the Federal Test Procedure (FTP) described in Subpart B of 
this part for the full useful life, and become the applicable 
certification and in-use emission standard(s) for the test group. 
Manufacturers using an alternative standard for N2O and/or 
CH4 must calculate emission debits according to the 
provisions of paragraph (f)(4) of this section for each test group/
alternative standard combination. Debits must be included in the 
calculation of total credits or debits generated in a model year as 
required under Sec.  86.1865-12(k)(5). For flexible fuel vehicles (or 
other vehicles certified for multiple fuels) you must meet these 
alternative standards when tested on any applicable test fuel type.
* * * * *
    (g) Alternative fleet average standards for manufacturers with 
limited U.S. sales. Manufacturers meeting the criteria in this 
paragraph (g) may request that the Administrator establish alternative 
fleet average CO2 standards that would apply instead of the 
standards in paragraph (c) of this section. The provisions of this 
paragraph (g) are applicable only to the 2017 and later model years.
    (1) Eligibility for alternative standards. Eligibility as 
determined in this paragraph (g) shall be based on the total sales of 
combined passenger automobiles and light trucks. The terms ``sales'' 
and ``sold'' as used in this paragraph (g) shall mean vehicles produced 
and delivered for sale (or sold) in the states and territories of the 
United States. For the purpose of determining eligibility the sales of 
related companies shall be aggregated according to the provisions of 
Sec.  86.1838-01(b)(3). To be eligible for alternative standards 
established under this paragraph (g), the manufacturer's average sales 
for the three most recent consecutive model years must remain below 
5,000. If a manufacturer's average sales for the three most recent 
consecutive model years exceeds 4,999, the manufacturer will no longer 
be eligible for exemption and must meet applicable emission standards 
starting with the model year according to the provisions in this 
paragraph (g)(1).
    (i) If a manufacturer's average sales for three consecutive model 
years exceeds 4,999, and if the increase in sales is the result of 
corporate acquisitions, mergers, or purchase by another manufacturer, 
the manufacturer shall comply with the emission standards described in 
Sec.  86.1818-12(c) and (d), as applicable, beginning with the first 
model year after the last year of the three consecutive model years.
    (ii) If a manufacturer's average sales for three consecutive model 
years exceeds 4,999 and is less than 50,000, and if the increase in 
sales is solely the result of the manufacturer's expansion in vehicle 
production (not the result of corporate acquisitions, mergers, or 
purchase by another manufacturer), the manufacturer shall comply with 
the emission standards described in Sec.  86.1818-12(c) through (e), as 
applicable, beginning with the second model year after the last year of 
the three consecutive model years.
    (2) Requirements for new entrants into the U.S. market. New 
entrants are those manufacturers without a prior record of automobile 
sales in the United States and without prior certification to (or 
exemption from, under Sec.  86.1801-12(k)) greenhouse gas emission 
standards in Sec.  86.1818-12. In addition to the eligibility 
requirements stated in paragraph (g)(1) of this section, new entrants 
must meet the following requirements:
    (i) In addition to the information required under paragraph (g)(4) 
of this section, new entrants must provide documentation that shows a 
clear intent by the company to actually enter the U.S. market in the 
years for which alternative standards are requested. Demonstrating such 
intent could include providing documentation that shows the 
establishment of a U.S. dealer network, documentation of work underway 
to meet other U.S. requirements (e.g., safety standards), or other 
information that reasonably establishes intent to the satisfaction of 
the Administrator.
    (ii) Sales of vehicles in the U.S. by new entrants must remain 
below 5,000 vehicles for the first two model years in the U.S. market 
and the average sales for any three consecutive years within the first 
five years of entering the U.S. market must remain below 5,000 
vehicles. Vehicles sold in violation of these limits will be considered 
not covered by the certificate of conformity and the manufacturer will 
be subject to penalties on an individual-vehicle basis for sale of 
vehicles not covered by a certificate. In addition, violation of these 
limits will result in loss of eligibility for alternative standards 
until such point as the manufacturer demonstrates two consecutive model 
years of sales below 5,000 automobiles.
    (iii) A manufacturer with sales in the most recent model year of 
less than 5,000 automobiles, but where prior model year sales were not 
less than 5,000 automobiles, is eligible to request alternative 
standards under this paragraph (g). However, such a manufacturer will 
be considered a new entrant and subject to the provisions regarding new 
entrants in this paragraph (g), except that the requirement to 
demonstrate an intent to enter the U.S. market it paragraph (g)(2)(i) 
of this section shall not apply.
    (3) How to request alternative fleet average standards. Eligible 
manufacturers may petition for alternative standards for up to five 
consecutive model years if sufficient information is available on which 
to base such standards.
    (i) To request alternative standards starting with the 2017 model 
year, eligible manufacturers must submit a completed application no 
later than July 30, 2013.
    (ii) To request alternative standards starting with a model after 
2017, eligible manufacturers must submit a completed request no later 
than 36 months prior to the start of the first model year to which the 
alternative standards would apply.
    (iii) The request must contain all the information required in 
paragraph (g)(4) of this section, and must be signed by a chief officer 
of the company. If the Administrator determines that the content of the 
request is incomplete or insufficient, the manufacturer will be 
notified and given an additional 30 days to amend the request.
    (4) Data and information submittal requirements. Eligible 
manufacturers requesting alternative standards under this paragraph (g) 
must submit the following information to the Environmental Protection 
Agency. The Administrator may request additional information as she 
deems appropriate. The completed request must be sent to

[[Page 75370]]

the Environmental Protection Agency at the following address: Director, 
Compliance and Innovative Strategies Division, U.S. Environmental 
Protection Agency, 2000 Traverwood Drive, Ann Arbor, Michigan 48105.
    (i) Vehicle model and fleet information. (A) The model years to 
which the requested alternative standards would apply, limited to five 
consecutive model years.
    (B) Vehicle models and projections of production volumes for each 
model year.
    (C) Detailed description of each model, including the vehicle type, 
vehicle mass, power, footprint, and expected pricing.
    (D) The expected production cycle for each model, including new 
model introductions and redesign or refresh cycles.
    (ii) Technology evaluation information. (A) The CO2 
reduction technologies employed by the manufacturer on each vehicle 
model, including information regarding the cost and CO2-
reducing effectiveness. Include technologies that improve air 
conditioning efficiency and reduce air conditioning system leakage, and 
any ``off-cycle'' technologies that potentially provide benefits 
outside the operation represented by the Federal Test Procedure and the 
Highway Fuel Economy Test.
    (B) An evaluation of comparable models from other manufacturers, 
including CO2 results and air conditioning credits generated 
by the models. Comparable vehicles should be similar, but not 
necessarily identical, in the following respects: vehicle type, 
horsepower, mass, power-to-weight ratio, footprint, retail price, and 
any other relevant factors. For manufacturers requesting alternative 
standards starting with the 2017 model year, the analysis of comparable 
vehicles should include vehicles from the 2012 and 2013 model years, 
otherwise the analysis should at a minimum include vehicles from the 
most recent two model years.
    (C) A discussion of the CO2-reducing technologies 
employed on vehicles offered outside of the U.S. market but not 
available in the U.S., including a discussion as to why those vehicles 
and/or technologies are not being used to achieve CO2 
reductions for vehicles in the U.S. market.
    (D) An evaluation, at a minimum, of the technologies projected by 
the Environmental Protection Agency in a final rulemaking as those 
technologies likely to be used to meet greenhouse gas emission 
standards and the extent to which those technologies are employed or 
projected to be employed by the manufacturer. For any technology that 
is not projected to be fully employed, explain why this is the case.
    (iii) Alternative fleet average CO2 standards. (A) The 
most stringent CO2 level estimated to be feasible for each 
model, in each model year, and the technological basis for this 
estimate.
    (B) For each model year, a projection of the lowest feasible sales-
weighted fleet average CO2 value, separately for passenger 
automobiles and light trucks, and an explanation demonstrating that 
these projections are reasonable.
    (C) A copy of any application, data, and related information 
submitted to NHTSA in support of a request for alternative Corporate 
Average Fuel Economy standards filed under 49 CFR Part 525.
    (iv) Information supporting eligibility. (A) U.S. sales for the 
three previous model years and projected sales for the model years for 
which the manufacturer is seeking alternative standards.
    (B) Information regarding ownership relationships with other 
manufacturers, including details regarding the application of the 
provisions of Sec.  86.1838-01(b)(3) regarding the aggregation of sales 
of related companies,
    (5) Alternative standards. Upon receiving a complete application, 
the Administrator will review the application and determine whether an 
alternative standard is warranted. If the Administrator judges that an 
alternative standard is warranted, the Administrator will publish a 
proposed determination in the Federal Register to establish alternative 
standards for the manufacturer that the Administrator judges are 
appropriate. Following a 30 day public comment period, the 
Administrator will issue a final determination establishing alternative 
standards for the manufacturer. If the Administrator does not establish 
alternative standards for an eligible manufacturer prior to 12 months 
before the first model year to which the alternative standards would 
apply, the manufacturer may request an extension of the exemption under 
86.1801-12(k) or an extension of previously approved alternative 
standards, whichever may apply.
    (6) Restrictions on credit trading. Manufacturers subject to 
alternative standards approved by the Administrator under this 
paragraph (g) may not trade credits to another manufacturer. Transfers 
between car and truck fleets within the manufacturer are allowed.
    (h) Mid-term evaluation of standards. No later than April 1, 2018, 
the Administrator shall determine whether the standards established in 
paragraph (c) of this section for the 2022 through 2025 model years are 
appropriate under section 202(a) of the Clean Air Act, in light of the 
record then before the Administrator. An opportunity for public comment 
shall be provided before making such determination. If the 
Administrator determines they are not appropriate, the Administrator 
shall initiate a rulemaking to revise the standards, to be either more 
or less stringent as appropriate.
    (1) In making the determination required by this paragragh (h), the 
Administrator shall consider the information available on the factors 
relevant to setting greenhouse gas emission standards under section 
202(a) of the Clean Air Act for model years 2022 through 2025, 
including but not limited to:
    (i) The availability and effectiveness of technology, and the 
appropriate lead time for introduction of technology;
    (ii) The cost on the producers or purchasers of new motor vehicles 
or new motor vehicle engines;
    (iii) The feasibility and practicability of the standards;
    (iv) The impact of the standards on reduction of emissions, oil 
conservation, energy security, and fuel savings by consumers;
    (v) The impact of the standards on the automobile industry;
    (vi) The impacts of the standards on automobile safety;
    (vii) The impact of the greenhouse gas emission standards on the 
Corporate Average Fuel Economy standards and a national harmonized 
program; and
    (viii) The impact of the standards on other relevant factors.
    (2) The Administrator shall make the determination required by this 
paragraph (h) based upon a record that includes the following:
    (i) A draft Technical Assessment Report addressing issues relevant 
to the standard for the 2022 through 2025 model years;
    (ii) Public comment on the draft Technical Assessment Report;
    (iii) Public comment on whether the standards established for the 
2022 through 2025 model years are appropriate under section 202(a) of 
the Clean Air Act; and
    (iv) Such other materials the Administrator deems appropriate.
    (3) No later than November 15, 2017, the Administrator shall issue 
a draft Technical Assessment Report addressing issues relevant to the 
standards for the 2022 through 2025 model years.
    (4) The Administrator will set forth in detail the bases for the 
determination

[[Page 75371]]

required by this paragraph (h), including the Administrator's 
assessment of each of the factors listed in paragraph (h)(1) of this 
section.
    13. Section 86.1823-08 is amended by revising paragraph (m)(2)(iii) 
to read as follows:


Sec.  86.1823-08  Durability demonstration procedures for exhaust 
emissions.

* * * * *
    (m) * * *
    (2) * * *
    (iii) For the 2012 through 2016 model years only, manufacturers may 
use alternative deterioration factors. For N2O, the 
alternative deterioration factor to be used to adjust FTP and HFET 
emissions is the deterioration factor determined for (or derived from, 
using good engineering judgment) NOX emissions according to 
the provisions of this section. For CH4, the alternative 
deterioration factor to be used to adjust FTP and HFET emissions is the 
deterioration factor determined for (or derived from, using good 
engineering judgment) NMOG or NMHC emissions according to the 
provisions of this section.
* * * * *
    14. Section 86.1829-01 is amended by revising paragraph (b)(1)(iii) 
to read as follows:


Sec.  86.1829-01  Durability and emission testing requirements; 
waivers.

* * * * *
    (b) * * *
    (1) * * *
    (iii) Data submittal waivers. (A) In lieu of testing a methanol-
fueled diesel-cycle light truck for particulate emissions a 
manufacturer may provide a statement in its application for 
certification that such light trucks comply with the applicable 
standards. Such a statement shall be based on previous emission tests, 
development tests, or other appropriate information and good 
engineering judgment.
    (B) In lieu of testing an Otto-cycle light-duty vehicle, light-duty 
truck, or heavy-duty vehicle for particulate emissions for 
certification, a manufacturer may provide a statement in its 
application for certification that such vehicles comply with the 
applicable standards. Such a statement must be based on previous 
emission tests, development tests, or other appropriate information and 
good engineering judgment.
    (C) A manufacturer may petition the Administrator for a waiver of 
the requirement to submit total hydrocarbon emission data. If the 
waiver is granted, then in lieu of testing a certification light-duty 
vehicle or light-duty truck for total hydrocarbon emissions the 
manufacturer may provide a statement in its application for 
certification that such vehicles comply with the applicable standards. 
Such a statement shall be based on previous emission tests, development 
tests, or other appropriate information and good engineering judgment.
    (D) A manufacturer may petition the Administrator to waive the 
requirement to measure particulate emissions when conducting Selective 
Enforcement Audit testing of Otto-cycle vehicles.
    (E) In lieu of testing a gasoline, diesel, natural gas, liquefied 
petroleum gas, or hydrogen fueled Tier 2 or interim non-Tier 2 vehicle 
for formaldehyde emissions when such vehicles are certified based upon 
NMHC emissions, a manufacturer may provide a statement in its 
application for certification that such vehicles comply with the 
applicable standards. Such a statement must be based on previous 
emission tests, development tests, or other appropriate information and 
good engineering judgment.
    (F) In lieu of testing a petroleum-, natural gas-, liquefied 
petroleum gas-, or hydrogen-fueled heavy-duty vehicle for formaldehyde 
emissions for certification, a manufacturer may provide a statement in 
its application for certification that such vehicles comply with the 
applicable standards. Such a statement must be based on previous 
emission tests, development tests, or other appropriate information and 
good engineering judgment.
    (G) For the 2012 through 2016 model years only, in lieu of testing 
a vehicle for N2O emissions, a manufacturer may provide a 
statement in its application for certification that such vehicles 
comply with the applicable standards. Such a statement must be based on 
previous emission tests, development tests, or other appropriate 
information and good engineering judgment.
* * * * *
    15. Section 86.1865-12 is amended as follows:
    a. By revising paragraph (k)(5) introductory text.
    b. By redesignating paragraph (k)(5)(iv) as paragraph (k)(5)(v).
    c. By adding new paragraph (k)(5)(iv).
    d. By revising paragraph (k)(6).
    e. By revising paragraph (k)(7)(i).
    f. By revising paragraph (k)(8)(iv)(A).
    g. By revising paragraph (l)(1)(ii) introductory text.
    h. By revising paragraph (l)(1)(ii)(F).
    The revisions read as follows:


Sec.  86.1865-12  How to comply with the fleet average CO2 
standards.

* * * * *
    (k) * * *
    (5) Total credits or debits generated in a model year, maintained 
and reported separately for passenger automobiles and light trucks, 
shall be the sum of the credits or debits calculated in paragraph 
(k)(4) of this section and any of the following credits, if applicable, 
minus any N2O and/or CH4 CO2-
equivalent debits calculated according to the provisions of Sec.  
86.1818-12(f)(4):
* * * * *
    (iv) Full size pickup truck credits earned according to the 
provisions of Sec.  86.1866-12(e).
    (6) The expiration date of unused CO2 credits is based 
on the model year in which the credits are earned, as follows:
    (i) Unused CO2 credits from the 2009 model year shall 
retain their full value through the 2014 model year. Credits remaining 
at the end of the 2014 model year shall expire.
    (ii) Unused CO2 credits from the 2010 through 2015 model 
years shall retain their full value through the 2021 model year. 
Credits remaining at the end of the 2021 model year shall expire.
    (iii) Unused CO2 credits from the 2016 and later model 
years shall retain their full value through the five subsequent model 
years after the model year in which they were generated. Credits 
remaining at the end of the fifth model year after the model year in 
which they were generated shall expire.
    (7) * * *
    (i) Credits generated and calculated according to the method in 
paragraphs (k)(4) and (5) of this section may not be used to offset 
deficits other than those deficits accrued with respect to the standard 
in Sec.  86.1818. Credits may be banked and used in a future model year 
in which a manufacturer's average CO2 level exceeds the 
applicable standard. Credits may be transferred between the passenger 
automobile and light truck fleets of a given manufacturer. Credits may 
also be traded to another manufacturer according to the provisions in 
paragraph (k)(8) of this section. Before trading or carrying over 
credits to the next model year, a manufacturer must apply available 
credits to offset any deficit, where the deadline to offset that credit 
deficit has not yet passed.
* * * * *
    (8) * * *
    (iv) * * *
    (A) If a manufacturer ceases production of passenger automobiles 
and light trucks, the manufacturer continues to be responsible for 
offsetting any debits outstanding within the required time period. Any 
failure to offset the debits will be considered a

[[Page 75372]]

violation of paragraph (k)(8)(i) of this section and may subject the 
manufacturer to an enforcement action for sale of vehicles not covered 
by a certificate, pursuant to paragraphs (k)(8)(ii) and (iii) of this 
section.
* * * * *
    (l) * * *
    (1) * * *
    (ii) Manufacturers producing any passenger automobiles or light 
trucks subject to the provisions in this subpart must establish, 
maintain, and retain all the following information in adequately 
organized records for each passenger automobile or light truck subject 
to this subpart:
* * * * *
    (F) Carbon-related exhaust emission standard, N2O 
emission standard, and CH4 emission standard to which the 
passenger automobile or light truck is certified.
* * * * *
    16. Section 86.1866-12 is amended as follows:
    a. By revising the heading,
    b. By revising paragraphs (a) and (b).
    c. By revising paragraph (c) introductory text.
    d. By revising paragraphs (c)(1) through (3).
    e. By revising paragraph (c)(5) introductory text.
    f. By revising paragraph (c)(5)(i).
    g. By revising paragraph (c)(5)(iii) introductory text.
    h. By redesignating paragraph (c)(5)(iv) and paragraph (c)(5)(v).
    i. By adding new paragraph (c)(5)(iv).
    j. By redesignating paragraph (c)(6) as (c)(8).
    k. By adding paragraphs (c)(6) and (7).
    l. By revising paragraph (d).
    m. By adding paragraph (e).
    The revisions and additions read as follows:


Sec.  86.1866-12  CO2 fleet average credit and incentive 
programs.

    (a) Advanced technology vehicles. (1) Electric vehicles, plug-in 
hybrid electric vehicles, and fuel cell vehicles, as those terms are 
defined in Sec.  86.1803-01, that are certified and produced and 
delivered for sale in the United States in the 2012 through 2025 model 
years may use a value of zero (0) grams/mile of CO2 to 
represent the proportion of electric operation of a vehicle that is 
derived from electricity that is generated from sources that are not 
onboard the vehicle.
    (i) Model years 2012 through 2016: The use of zero (0) grams/mile 
CO2 is limited to the first 200,000 combined electric 
vehicles, plug-in hybrid electric vehicles, and fuel cell vehicles 
produced and delivered for sale by a manufacturer in the 2012 through 
2016 model years, except that a manufacturer that produces and delivers 
for sale 25,000 or more such vehicles in the 2012 model year shall be 
subject to a limitation on the use of zero (0) grams/mile 
CO2 to the first 300,000 combined electric vehicles, plug-in 
hybrid electric vehicles, and fuel cell vehicles produced and delivered 
for sale by a manufacturer in the 2012 through 2016 model years.
    (ii) Model years 2017 through 2021: For electric vehicles, plug-in 
hybrid electric vehicles, and fuel cell vehicles produced and delivered 
for sale in the 2017 through 2021 model years, such use of zero (0) 
grams/mile CO2 is unrestricted.
    (iii) Model years 2022 through 2025: The use of zero (0) grams/mile 
CO2 is limited to the first 200,000 combined electric 
vehicles, plug-in hybrid electric vehicles, and fuel cell vehicles 
produced and delivered for sale by a manufacturer in the 2022 through 
2025 model years, except that a manufacturer that produces and delivers 
for sale 300,000 or more such vehicles in the 2019 through 2021 model 
years shall be subject to a limitation on the use of zero (0) grams/
mile CO2 to the first 600,000 combined electric vehicles, 
plug-in hybrid electric vehicles, and fuel cell vehicles produced and 
delivered for sale by a manufacturer in the 2022 through 2025 model 
years.
    (2) For electric vehicles, plug-in hybrid electric vehicles, and 
fuel cell vehicles, as those terms are defined in Sec.  86.1803-01, 
that are certified and produced and delivered for sale in the United 
States in the 2017 through 2021 model years and that meet the 
additional specifications in this section, the manufacturer may use the 
production multipliers in this paragraph (a)(2) when determining the 
manufacturer's fleet average carbon-related exhaust emissions under 
Sec.  600.512 of this chapter. Full size pickup trucks eligible for and 
using a production multiplier are not eligible for the performance-
based credits described in paragraph (e)(3) of this section.
    (i) The production multipliers, by model year, for electric 
vehicles and fuel cell vehicles, are as follows:
[GRAPHIC] [TIFF OMITTED] TP01DE11.710

    (ii) (A) The production multipliers, by model year, for plug-in 
hybrid electric vehicles, are as follows:

[[Page 75373]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.711

    (B) The minimum all-electric driving range that a plug-in hybrid 
electric vehicle must have in order to qualify for use of a production 
multiplier is 10.2 miles on its nominal storage capacity of electricity 
when operated on the highway fuel economy test cycle. Alternatively, a 
plug-in hybrid electric vehicle may qualify for use of a production 
multiplier by having an equivalent all-electric driving range greater 
than or equal to 10.2 miles during its actual charge-depleting range as 
measured on the highway fuel economy test cycle and tested according to 
the requirements of SAE J1711, Recommended Practice for Measuring the 
Exhaust Emissions and Fuel Economy of Hybrid-Electric Vehicles, 
Including Plug-In Hybrid Vehicles (incorporated by reference, see Sec.  
86.1). The equivalent all-electric range of a PHEV is determined from 
the following formula:
[GRAPHIC] [TIFF OMITTED] TP01DE11.712

Where:

EAER = the equivalent all-electric range attributed to charge-
depleting operation of a plug-in hybrid electric vehicle on the 
highway fuel economy test cycle.
RCDA = The actual charge-depleting range determined 
according to SAE J1711, Recommended Practice for Measuring the 
Exhaust Emissions and Fuel Economy of Hybrid-Electric Vehicles, 
Including Plug-In Hybrid Vehicles (incorporated by reference, see 
Sec.  86.1).
CO2CS = The charge-sustaining CO2 emissions in 
grams per mile on the highway fuel economy test determined according 
to SAE J1711, Recommended Practice for Measuring the Exhaust 
Emissions and Fuel Economy of Hybrid-Electric Vehicles, Including 
Plug-In Hybrid Vehicles (incorporated by reference, see Sec.  86.1).
CO2CD = The charge-depleting CO2 emissions in 
grams per mile on the highway fuel economy test determined according 
to SAE J1711, Recommended Practice for Measuring the Exhaust 
Emissions and Fuel Economy of Hybrid-Electric Vehicles, Including 
Plug-In Hybrid Vehicles (incorporated by reference, see Sec.  86.1).

    (iii) The actual production of qualifying vehicles may be 
multiplied by the applicable value according to the model year, and the 
result, rounded to the nearest whole number, may be used to represent 
the production of qualifying vehicles when calculating average carbon-
related exhaust emissions under Sec.  600.512 of this chapter.
    (b) Credits for reduction of air conditioning refrigerant leakage. 
Manufacturers may generate credits applicable to the CO2 
fleet average program described in Sec.  86.1865-12 by implementing 
specific air conditioning system technologies designed to reduce air 
conditioning refrigerant leakage over the useful life of their 
passenger automobiles and/or light trucks. Credits shall be calculated 
according to this paragraph (b) for each air conditioning system that 
the manufacturer is using to generate CO2 credits. 
Manufacturers may also generate early air conditioning refrigerant 
leakage credits under this paragraph (b) for the 2009 through 2011 
model years according to the provisions of Sec.  86.1867-12(b).
    (1) The manufacturer shall calculate an annual rate of refrigerant 
leakage from an air conditioning system in grams per year according to 
the provisions of Sec.  86.166-12.
    (2) The CO2-equivalent gram per mile leakage reduction 
to be used to calculate the total leakage credits generated by the air 
conditioning system shall be determined according to the following 
formulae, rounded to the nearest tenth of a gram per mile:
    (i) Passenger automobiles:
    [GRAPHIC] [TIFF OMITTED] TP01DE11.713
    
Where:

HiLeakDis means the high leak disincentive, which is zero for model 
years 2012 through 2016, and for 2017 and later model years is 
determined using the following equation, except that if 
GWPREF is greater than 150 or if the result is less than 
zero HiLeakDis shall be set equal to zero and if the result is 
greater than 1.8 g/mi HiLeakDis shall be set to 1.8 g/mi:

[[Page 75374]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.714

MaxCredit is 12.6 (grams CO2-equivalent/mile) for air 
conditioning systems using HFC-134a, and 13.8 (grams CO2-
equivalent/mile) for air conditioning systems using a refrigerant 
with a lower global warming potential.
LeakScore means the annual refrigerant leakage rate determined 
according to the provisions of Sec.  86.166-12(a), except if the 
calculated rate is less than 8.3 grams/year (4.1 grams/year for 
systems using only electric compressors), the rate for the purpose 
of this formula shall be 8.3 grams/year (4.1 grams/year for systems 
using only electric compressors).
The constant 16.6 is the average passenger automobile impact of air 
conditioning leakage in units of grams/year;
GWPREF means the global warming potential of the 
refrigerant as indicated in paragraph (b)(5) of this section or as 
otherwise determined by the Administrator;
GWPHFC134a means the global warming potential of HFC-134a 
as indicated in paragraph (b)(5) of this section or as otherwise 
determined by the Administrator.
MinScore is 8.3 grams/year, except that for systems using only 
electric compressors it is 4.1 grams/year.

    (ii) Light trucks:
    [GRAPHIC] [TIFF OMITTED] TP01DE11.715
    
Where:

HiLeakDis means the high leak disincentive, which is zero for model 
years 2012 through 2016, and for 2017 and later model years is 
determined using the following equation, except that if 
GWPREF is greater than 150 or if the result is less than 
zero HiLeakDis shall be set equal to zero and if the result is 
greater than 2.1 g/mi HiLeakDis shall be set to 2.1g/mi:
[GRAPHIC] [TIFF OMITTED] TP01DE11.716

MaxCredit is 15.6 (grams CO2-equivalent/mile) for air 
conditioning systems using HFC-134a, and 17.2 (grams CO2-
equivalent/mile) for air conditioning systems using a refrigerant 
with a lower global warming potential.
Leakage means the annual refrigerant leakage rate determined 
according to the provisions of Sec.  86.166-12(a), except if the 
calculated rate is less than 10.4 grams/year (5.2 grams/year for 
systems using only electric compressors), the rate for the purpose 
of this formula shall be 10.4 grams/year (5.2 grams/year for systems 
using only electric compressors).
The constant 20.7 is the average light truck impact of air 
conditioning leakage in units of grams/year.
GWPREF means the global warming potential of the 
refrigerant as indicated in paragraph (b)(5) of this section or as 
otherwise determined by the Administrator.
GWPR134a means the global warming potential of HFC-134a 
as indicated in paragraph (b)(5) of this section or as otherwise 
determined by the Administrator.
MinScore is 10.4 grams/year, except that for systems using only 
electric compressors it is 5.2 grams/year.

    (3) The total leakage reduction credits generated by the air 
conditioning system shall be calculated separately for passenger 
automobiles and light trucks according to the following formula:

Total Credits (megagrams) = (Leakage x Production x VLM) / 1,000,000

Where:

Leakage = the CO2-equivalent leakage credit value in 
grams per mile determined in paragraph (b)(2) of this section.
Production = The total number of passenger automobiles or light 
trucks, whichever is applicable, produced with the air conditioning 
system to which to the leakage credit value from paragraph (b)(2) of 
this section applies.
VLM = vehicle lifetime miles, which for passenger automobiles shall 
be 195,264 and for light trucks shall be 225,865.

    (4) The results of paragraph (b)(3) of this section, rounded to the 
nearest whole number, shall be included in the manufacturer's credit/
debit totals calculated in Sec.  86.1865-12(k)(5).
    (5) The following values for refrigerant global warming potential 
(GWPREF), or alternative values as determined by the 
Administrator, shall be used in the calculations of this paragraph (b). 
The Administrator will determine values for refrigerants not included 
in this paragraph (b)(5) upon request by a manufacturer.
    (i) For HFC-134a, GWPREF = 1430;
    (ii) For HFC-152a, GWPREF = 124;
    (iii) For HFO-1234yf, GWPREF = 4;
    (iv) For CO2, GWPREF = 1.
    (c) Credits for improving air conditioning system efficiency. 
Manufacturers may generate credits applicable to the CO2 
fleet average program described in Sec.  86.1865-12 by implementing 
specific air conditioning system technologies designed to reduce air 
conditioning-related CO2 emissions over the useful life of 
their passenger automobiles and/or light trucks. Credits shall be 
calculated according to this paragraph (c) for each air conditioning 
system that the manufacturer is using to generate CO2 
credits. Manufacturers may also generate early air conditioning 
efficiency credits under this paragraph (c) for the 2009 through 2011 
model years according to the provisions of Sec.  86.1867-12(b). For 
model years 2012 and 2013 the manufacturer may determine air 
conditioning efficiency credits using the requirements in paragraphs 
(c)(1) through (4) of this section. For model years 2014 and later the 
eligibility requirements specified in either paragraph (c)(5) or (6) of 
this section must be met before an air conditioning system is allowed 
to generate credits.
    (1)(i) 2012 through 2016 model year air conditioning efficiency 
credits are available for the following technologies in the gram per 
mile amounts indicated in the following table:
BILLING CODE 4910-59-P

[[Page 75375]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.717


[[Page 75376]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.718

BILLING CODE 4910-59-C
    (i) 2017 and later model year air conditioning efficiency credits 
are available for the following technologies in the gram per mile 
amounts indicated for each vehicle category in the following table:
BILLING CODE 4910-59-P

[[Page 75377]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.719


[[Page 75378]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.720


[[Page 75379]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.721

BILLING CODE 4910-59-C
    (2) Air conditioning efficiency credits are determined on an air 
conditioning system basis. For each air conditioning system that is 
eligible for a credit based on the use of one or more of the items 
listed in paragraph (c)(1) of this section, the total credit value is 
the sum of the gram per mile values listed in paragraph (c)(1) of this 
section for each item that applies to the air conditioning system.
    (i) In the 2012 through 2016 model years the total credit value for 
an air conditioning system may not be greater than 5.7 grams per mile.
    (ii) In the 2017 and later model years the total credit value for 
an air conditioning system may not be greater than 5.0 grams per mile 
for any passenger automobile or 7.2 grams per mile for any light truck.
    (3) The total efficiency credits generated by an air conditioning 
system shall be calculated separately for passenger automobiles and 
light trucks according to the following formula:

Total Credits (Megagrams) = (Credit x Production x VLM) / 1,000,000

Where:

Credit = the CO2 efficiency credit value in grams per 
mile determined in paragraph (c)(2) or (c)(5) of this section, 
whichever is applicable.
Production = The total number of passenger automobiles or light 
trucks, whichever is applicable, produced with the air conditioning 
system to which to the efficiency credit value from paragraph (c)(2) 
of this section applies.
VLM = vehicle lifetime miles, which for passenger automobiles shall 
be 195,264 and for light trucks shall be 225,865.
* * * * *
    (5) For the 2014 through 2016 model years, manufacturers must 
validate air conditioning credits by using the Air Conditioning Idle 
Test Procedure according to the provisions of this paragraph (c)(5). In 
lieu of using the Air Conditioning Idle Test Procedure to determine 
eligibility to generate air conditioning efficiency credits in the 2014 
through 2016 model years, the manufacturer may choose the AC17 
reporting option specified in paragraph (c)(7) of this section.
    (i) After the 2013 model year, for each air conditioning system 
selected by the manufacturer to generate air conditioning efficiency 
credits, the manufacturer shall perform the Air Conditioning Idle Test 
Procedure specified in Sec.  86.165-12 of this part.
* * * * *
    (iii) For an air conditioning system to be eligible to generate 
credits in the 2014 through 2016 model years the increased 
CO2 emissions as a result of the operation of that air 
conditioning system determined according to the Idle Test Procedure in 
Sec.  86.165-14 must be less than 21.3 grams per minute. In lieu of 
using 21.3 grams per minute, manufacturers may optionally use the 
procedures in paragraph (c)(5)(iv) of this section to determine an 
alternative limit value.
* * * * *
    (iv) Optional Air Conditioning Idle Test limit value for 2014 
through 2016 model years. For an air conditioning system to be eligible 
to generate credits in the 2014 through 2016 model years, the increased 
CO2 emissions as a result of the operation of that air 
conditioning system determined according to the Idle Test Procedure in 
Sec.  86.165-12 must be less than the value calculated by the following 
equation and rounded to the nearest tenth of gram per minute:
[GRAPHIC] [TIFF OMITTED] TP01DE11.722

    (A) If the increased CO2 emissions determined from the 
Idle Test Procedure in Sec.  86.165-12 is less than or equal to the 
Idle Test Threshold, the total credit value for use in paragraph (c)(3) 
of this section shall be as determined in paragraph (c)(2) of this 
section.
    (B) If the increased CO2 emissions determined from the 
Idle Test Procedure in Sec.  86.165-12 is greater than the Idle Test 
Threshold and less than the Idle Test Threshold plus 6.4, the total 
credit value for use in paragraph (c)(3) of this section shall be as 
determined according to the following formula:
[GRAPHIC] [TIFF OMITTED] TP01DE11.723

Where:

TCV = The total credit value for use in paragraph (c)(3) of this 
section;
TCV1 = The total credit value determined according to 
paragraph (c)(2) of this section; and

[[Page 75380]]

ITP = the increased CO2 emissions determined from the 
Idle Test Procedure in Sec.  86.165-14.
ITT = the Idle Test Threshold from paragraph (c)(5)(iii) or 
(c)(5)(iv) of this section, whichever is applicable.

    (6) For the 2017 and later model years, manufacturers must validate 
air conditioning credits by using the AC17 Test Procedure according to 
the provisions of this paragraph (c)(6).
    (i) For each air conditioning system selected by the manufacturer 
to generate air conditioning efficiency credits, the manufacturer shall 
perform the AC17 Air Conditioning Efficiency Test Procedure specified 
in Sec.  86.167-14 of this part, according to the requirements of this 
paragraph (c)(6).
    (ii) Each air conditioning system shall be tested as follows:
    (A) Perform the AC17 test on a vehicle that incorporates the air 
conditioning system with the credit-generating technologies.
    (B) Perform the AC17 test on a vehicle which does not incorporate 
the credit-generating technologies. The tested vehicle must be similar 
to the vehicle tested under paragraph (c)(6)(ii)(A) of this section.
    (C) Subtract the CO2 emissions determined from testing 
under paragraph (c)(6)(ii)(A) of this section from the CO2 
emissions determined from testing under paragraph (c)(6)(ii)(B) of this 
section and round to the nearest 0.1 grams/mile. If the result is less 
than or equal to zero, the air conditioning system is not eligible to 
generate credits. If the result is greater than or equal to the total 
of the gram per mile credits determined in paragraph (c)(2) of this 
section, then the air conditioning system is eligible to generate the 
maximum allowable value determined in paragraph (c)(2) of this section. 
If the result is greater than zero but less than the total of the gram 
per mile credits determined in paragraph (c)(2) of this section, then 
the air conditioning system is eligible to generate credits in the 
amount determined by subtracting the CO2 emissions 
determined from testing under paragraph (c)(6)(ii)(A) of this section 
from the CO2 emissions determined from testing under 
paragraph (c)(6)(ii)(B) of this section and rounding to the nearest 0.1 
grams/mile.
    (iii) For the first model year for which an air conditioning system 
is expected to generate credits, the manufacturer must select for 
testing the highest-selling subconfiguration within each vehicle 
platform that uses the air conditioning system. Credits may continue to 
be generated by the air conditioning system installed in a vehicle 
platform provided that:
    (A) The air conditioning system components and/or control 
strategies do not change in any way that could be expected to cause a 
change in its efficiency;
    (B) The vehicle platform does not change in design such that the 
changes could be expected to cause a change in the efficiency of the 
air conditioning system; and
    (C) The manufacturer continues to test at least one sub-
configuration within each platform using the air conditioning system, 
in each model year, until all sub-configurations within each platform 
have been tested.
    (iv) Each air conditioning system must be tested and must meet the 
testing criteria in order to be allowed to generate credits. Using good 
engineering judgment, in the first model year for which an air 
conditioning system is expected to generate credits, the manufacturer 
must select for testing the highest-selling subconfiguration within 
each vehicle platform using the air conditioning system. Credits may 
continue to be generated by an air conditioning system in subsequent 
model years if the manufacturer continues to test at least one sub-
configuration within each platform on an annual basis, as long as the 
air conditioning system and vehicle platform do not change 
substantially.
    (7) AC17 reporting requirements for model years 2014 through 2016. 
As an alternative to the use of the Air Conditioning Idle Test to 
demonstrate eligibility to generate air conditioning efficiency 
credits, manufacturers may use the provisions of this paragraph (c)(7).
    (i) The manufacturer shall perform the AC17 test specified in Sec.  
86.167-14 of this part on each vehicle platform for which the 
manufacturer intends to accrue air conditioning efficiency credits and 
report the results separately for all four phases of the test to the 
Environmental Protection Agency.
    (ii) The manufacturer shall also report the following information 
for each vehicle tested: The vehicle class, model type, curb weight, 
engine displacement, transmission class and configuration, interior 
volume, climate control system type and characteristics, refrigerant 
used, compressor type, and evaporator/condenser characteristics.
    (d) Off-cycle credits. Manufacturers may generate credits for 
CO2-reducing technologies where the CO2 reduction 
benefit of the technology is not adequately captured on the Federal 
Test Procedure and/or the Highway Fuel Economy Test. These technologies 
must have a measurable, demonstrable, and verifiable real-world 
CO2 reduction that occurs outside the conditions of the 
Federal Test Procedure and the Highway Fuel Economy Test. These 
optional credits are referred to as ``off-cycle'' credits. Off-cycle 
technologies used to generate emission credits are considered emission-
related components subject to applicable requirements, and must be 
demonstrated to be effective for the full useful life of the vehicle. 
Unless the manufacturer demonstrates that the technology is not subject 
to in-use deterioration, the manufacturer must account for the 
deterioration in their analysis. The manufacturer must use one of the 
three options specified in this paragraph (d) to determine the 
CO2 gram per mile credit applicable to an off-cycle 
technology. Note that the option provided in paragraph (d)(1) of this 
section applies only to the 2017 and later model years. The 
manufacturer should notify EPA in their pre-model year report of their 
intention to generate any credits under this paragraph (d).
    (1) Credit available for certain off-cycle technologies. The 
provisions of this paragraph (d)(1) are applicable only to 2017 and 
later model year vehicles.
    (i) The manufacturer may generate a CO2 gram/mile credit 
for certain technologies as specified in the following table, provided 
that each technology is applied to the minimum percentage of the 
manufacturer's total U.S. production of passenger automobiles and light 
trucks specified in the table in each model year for which credit is 
claimed. Technology definitions are in paragraph (d)(1)(iv) of this 
section.

[[Page 75381]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.724

    (A) Credits may also be accrued for thermal control technologies as 
defined in paragraph (d)(1)(iv) of this section in the amounts shown in 
the following table:

[[Page 75382]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.725

    (B) The maximum credit allowed for thermal control technologies is 
limited to 3.0 g/mi for passenger automobiles and to 4.3 g/mi for light 
trucks. The maximum credit allowed for glass or glazing is limited to 
3.0 g/mi for passenger automobiles and to 4.3 g/mi for light trucks.
    (C) Glass or glazing credits are calculated using the following 
equation:
[GRAPHIC] [TIFF OMITTED] TP01DE11.726

Where:

Credit = the total glass or glazing credits, in grams per mile, for 
a vehicle, which may not exceed 3.0 g/mi for passenger automobiles 
or 4.3 g/mi for light trucks;
Z = 0.3 for passenger automobiles and 0.4 for light trucks;
Gi = the measured glass area of window i, in square meters and 
rounded to the nearest tenth;
G = the total glass area of the vehicle, in square meters and 
rounded to the nearest tenth;
Ti = the estimated temperature reduction for the glass area of 
window i, determined using the following formula:
[GRAPHIC] [TIFF OMITTED] TP01DE11.727

Where:

Ttsnew = the total solar transmittance of the glass, 
measured according to ISO 13837, ``Safety glazing materials--Method 
for determination of solar transmittance'' (incorporated by 
reference; see Sec.  86.1).
Ttsbase = 62 for the windshield, side-front, side-rear, 
rear-quarter, and backlite locations, and 40 for rooflite locations.

    (ii) The maximum allowable decrease in the manufacturer's combined 
passenger automobile and light truck fleet average CO2 
emissions attributable to use of the default credit values in paragraph 
(d)(1)(i) of this section is 10 grams per mile. If the total of the 
CO2 g/mi credit values from the table in paragraph (d)(1)(i) 
of this section does not exceed 10 g/mi for any passenger automobile or 
light truck in a manufacturer's fleet, then the total off-cycle credits 
may be calculated according to paragraph (d)(5) of this section. If the 
total of the CO2 g/mi credit values from the table in 
paragraph (d)(1)(i) of this section exceeds 10 g/mi for any passenger 
automobile or light truck in a manufacturer's fleet, then the gram per 
mile decrease for the combined passenger automobile and light truck 
fleet must be determined according to paragraph (d)(1)(ii)(A) of this 
section to determine whether the 10 g/mi limitation has been exceeded.
    (A) Determine the gram per mile decrease for the combined passenger 
automobile and light truck fleet using the following formula:
[GRAPHIC] [TIFF OMITTED] TP01DE11.728

Where:

Credits = The total of passenger automobile and light truck credits, 
in Megagrams, determined according to paragraph (d)(5) of this 
section and limited to those credits accrued by using the default 
gram per mile values in paragraph (d)(1)(i) of this section.
ProdC = The number of passenger automobiles produced by 
the manufacturer and delivered for sale in the U.S.
ProdT = The number of light trucks produced by the 
manufacturer and delivered for sale in the U.S.

    (B) If the value determined in paragraph (d)(1)(ii)(A) of this 
section is greater than 10 grams per mile, the total credits, in 
Megagrams, that may be accrued by a manufacturer using the default gram 
per mile values in paragraph (d)(1)(i) of this section shall be 
determined using the following formula:

[[Page 75383]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.729

Where:

ProdC = The number of passenger automobiles produced by 
the manufacturer and delivered for sale in the U.S.
ProdT = The number of light trucks produced by the 
manufacturer and delivered for sale in the U.S.

    (C) If the value determined in paragraph (d)(1)(ii)(A) of this 
section is not greater than 10 grams per mile, then the credits that 
may be accrued by a manufacturer using the default gram per mile values 
in paragraph (d)(1)(i) of this section do not exceed the allowable 
limit, and total credits may be determined for each category of 
vehicles according to paragraph (d)(5) of this section.
    (D) If the value determined in paragraph (d)(1)(ii)(A) of this 
section is greater than 10 grams per mile, then the combined passenger 
automobile and light truck credits, in Megagrams, that may be accrued 
using the calculations in paragraph (d)(5) of this section must not 
exceed the value determined in paragraph (d)(1)(ii)(B) of this section. 
This limitation should generally be done by reducing the amount of 
credits attributable to the vehicle category that caused the limit to 
be exceeded such that the total value does not exceed the value 
determined in paragraph (d)(1)(ii)(B) of this section.
    (iii) In lieu of using the default gram per mile values specified 
in paragraph (d)(1)(i) of this section for specific technologies, a 
manufacturer may determine an alternative value for any of the 
specified technologies. An alternative value must be determined using 
one of the methods specified in paragraph (d)(2) or (3) of this 
section.
    (iv) Definitions for the purposes of this paragraph (d)(1) are as 
follows:
    (A) Active aerodynamic improvements means technologies that are 
activated only at certain speeds to improve aerodynamic efficiency by a 
minimum of three percent, while preserving other vehicle attributes or 
functions.
    (B) Electric heater circulation pump means a pump system installed 
in a stop-start equipped vehicle or in a hybrid electric vehicle or 
plug-in hybrid electric vehicle that continues to circulate hot coolant 
through the heater core when the engine is stopped during a stop-start 
event. This system must be calibrated to keep the engine off for 1 
minute or more when the external ambient temperature is 30 deg F.
    (C) High efficiency exterior lighting means a lighting technology 
that, when installed on the vehicle, is expected to reduce the total 
electrical demand of the exterior lighting system by a minimum of 60 
watts when compared to conventional lighting systems. To be eligible 
for this credit the high efficiency lighting must be installed in the 
following components: Parking/position, front and rear turn signals, 
front and rear side markers, stop/brake lights (including the center-
mounted location), taillights, backup/reverse lights, and license plate 
lighting.
    (D) Engine start-stop means a technology which enables a vehicle to 
automatically turn off the engine when the vehicle comes to a rest and 
restart the engine when the driver applies pressure to the accelerator 
or releases the brake. Off-cycle engine start-stop credits will only be 
allowed if the Administrator has made a determination under the testing 
and calculation provisions in 40 CFR part 600 that engine start-stop is 
the predominant operating mode.
    (E) Solar roof panels means the installation of solar panels on an 
electric vehicle or a plug-in hybrid electric vehicle such that the 
solar energy is used to provide energy to the electric drive system of 
the vehicle by charging the battery or directly providing power to the 
electric motor with the equivalent of at least 50 Watts of rated 
electricity output.
    (F) Active transmission warmup means a system that uses waste heat 
from the exhaust system to warm the transmission fluid to an operating 
temperature range quickly using a heat exchanger in the exhaust system, 
increasing the overall transmission efficiency by reducing parasitic 
losses associated with the transmission fluid, such as losses related 
to friction and fluid viscosity.
    (G) Active engine warmup means a system using waste heat from the 
exhaust system to warm up targeted parts of the engine so that it 
reduces engine friction losses and enables the closed-loop fuel control 
more quickly. It would allow a faster transition from cold operation to 
warm operation, decreasing CO2 emissions, and increasing 
fuel economy.
    (H) Engine heat recovery means a system that captures heat that 
would otherwise be lost through the exhaust system or through the 
radiator and converting that heat to electrical energy that is used to 
meet the electrical requirements of the vehicle. Such a system must 
have a capacity of at least 100W to achieve 0.7 g/mi of credit. Every 
additional 100W of capacity will result in an additional 0.7 g/mi of 
credit.
    (I) Active seat ventilation means a device which draws air from the 
seating surface which is in contact with the occupant and exhausts it 
to a location away from the seat.
    (J) Solar reflective paint means a vehicle paint or surface coating 
which reflects at least 65 percent of the impinging infrared solar 
energy, as determined using ASTM standards E903, E1918-06, or C1549-09. 
These ASTM standards are incorporated by reference; see Sec.  86.1.
    (K) Passive cabin ventilation means ducts or devices which utilize 
convective airflow to move heated air from the cabin interior to the 
exterior of the vehicle.
    (L) Active cabin ventilation means devices which mechanically move 
heated air from the cabin interior to the exterior of the vehicle.
    (2) Technology demonstration using EPA 5-cycle methodology. To 
demonstrate an off-cycle technology and to determine a CO2 
credit using the EPA 5-cycle methodology, the manufacturer shall 
determine the off-cycle city/highway combined carbon-related exhaust 
emissions benefit by using the EPA 5-cycle methodology described in 40 
CFR Part 600. Testing shall be performed on a representative vehicle, 
selected using good engineering judgment, for each model type for which 
the credit is being demonstrated. The emission benefit of a technology 
is determined by testing both with and without the off-cycle technology 
operating. Multiple off-cycle technologies may be demonstrated on a 
test vehicle. The manufacturer shall conduct the following steps and 
submit all test data to the EPA.
    (i) Testing without the off-cycle technology installed and/or 
operating. Determine carbon-related exhaust emissions over the FTP, the 
HFET, the US06, the SC03, and the cold temperature FTP test procedures 
according to the test procedure provisions specified in 40 CFR part 600 
subpart B and using the calculation procedures specified in Sec.  
600.113-08 of this chapter. Run each of these tests a minimum of three 
times without the off-cycle technology installed and operating and 
average the per phase (bag) results

[[Page 75384]]

for each test procedure. Calculate the 5-cycle weighted city/highway 
combined carbon-related exhaust emissions from the averaged per phase 
results, where the 5-cycle city value is weighted 55% and the 5-cycle 
highway value is weighted 45%. The resulting combined city/highway 
value is the baseline 5-cycle carbon-related exhaust emission value for 
the vehicle.
    (ii) Testing with the off-cycle technology installed and/or 
operating. Determine carbon-related exhaust emissions over the US06, 
the SC03, and the cold temperature FTP test procedures according to the 
test procedure provisions specified in 40 CFR part 600 subpart B and 
using the calculation procedures specified in Sec.  600.113-08 of this 
chapter. Run each of these tests a minimum of three times with the off-
cycle technology installed and operating and average the per phase 
(bag) results for each test procedure. Calculate the 5-cycle weighted 
city/highway combined carbon-related exhaust emissions from the 
averaged per phase results, where the 5-cycle city value is weighted 
55% and the 5-cycle highway value is weighted 45%. Use the averaged per 
phase results for the FTP and HFET determined in paragraph (d)(2)(i) of 
this section for operation without the off-cycle technology in this 
calculation. The resulting combined city/highway value is the 5-cycle 
carbon-related exhaust emission value showing the off-cycle benefit of 
the technology but excluding any benefit of the technology on the FTP 
and HFET.
    (iii) Subtract the combined city/highway value determined in 
paragraph (d)(2)(i) of this section from the value determined in 
paragraph (d)(2)(ii) of this section. The result is the off-cycle 
benefit of the technology or technologies being evaluated. If this 
benefit is greater than or equal to three percent of the value 
determined in paragraph (d)(2)(i) of this section then the manufacturer 
may use this value, rounded to the nearest tenth of a gram per mile, to 
determine credits under paragraph (d)(4) of this section.
    (iv) If the value calculated in paragraph (d)(2)(iii) of this 
section is less than three percent of the value determined in paragraph 
(d)(2)(i) of this section, then the manufacturer must repeat the 
testing required under paragraphs (d)(2)(i) and (ii) of this section, 
except instead of running each test three times they shall run each 
test two additional times. The off-cycle benefit of the technology or 
technologies being evaluated shall be calculated as in paragraph 
(d)(2)(iii) of this section using all the tests conducted under 
paragraph (d) of this section. If the value calculated in paragraph 
(d)(2)(iii) of this section is less than three percent of the value 
determined in paragraph (d)(2)(i) of this section, then the 
manufacturer must verify the emission reduction potential of the off-
cycle technology or technologies using the EPA Vehicle Simulation Tool 
(incorporated by reference; see Sec.  86.1), and if the results support 
a credit value that is less than three percent of the value determined 
in paragraph (d)(2)(i) of this section then the manufacturer may use 
the off-cycle benefit of the technology or technologies calculated as 
in paragraph (d)(2)(iii) of this section using all the tests conducted 
under paragraph (d) of this section, rounded to the nearest tenth of a 
gram per mile, to determine credits under paragraph (d)(4) of this 
section.
    (3) Technology demonstration using alternative EPA-approved 
methodology. (i) This option may be used only with EPA approval, and 
the manufacturer must be able to justify to the Administrator why the 
5-cycle option described in paragraph (d)(2) of this section 
insufficiently characterizes the effectiveness of the off-cycle 
technology. In cases where the EPA 5-cycle methodology described in 
paragraph (d)(2) of this section cannot adequately measure the emission 
reduction attributable to an innovative off-cycle technology, the 
manufacturer may develop an alternative approach. Prior to a model year 
in which a manufacturer intends to seek these credits, the manufacturer 
must submit a detailed analytical plan to EPA. The manufacturer may 
seek EPA input on the proposed methodology prior to conducting testing 
or analytical work, and EPA will provide input on the manufacturer's 
analytical plan. The alternative demonstration program must be approved 
in advance by the Administrator and should:
    (A) Use modeling, on-road testing, on-road data collection, or 
other approved analytical or engineering methods;
    (B) Be robust, verifiable, and capable of demonstrating the real-
world emissions benefit with strong statistical significance;
    (C) Result in a demonstration of baseline and controlled emissions 
over a wide range of driving conditions and number of vehicles such 
that issues of data uncertainty are minimized;
    (D) Result in data on a model type basis unless the manufacturer 
demonstrates that another basis is appropriate and adequate.
    (ii) Notice and opportunity for public comment. The Administrator 
will publish a notice of availability in the Federal Register notifying 
the public of a manufacturer's proposed alternative off-cycle credit 
calculation methodology. The notice will include details regarding the 
proposed methodology, but will not include any Confidential Business 
Information. The notice will include instructions on how to comment on 
the methodology. The Administrator will take public comments into 
consideration in the final determination, and will notify the public of 
the final determination. Credits may not be accrued using an approved 
methodology until the first model year for which the Administrator has 
issued a final approval.
    (4) Review and approval process for off-cycle credits. (i) Initial 
steps required. (A) A manufacturer requesting off-cycle credits under 
the provisions of paragraph (d)(2) of this section must conduct the 
testing and/or simulation described in that paragraph.
    (B) A manufacturer requesting off-cycle credits under the 
provisions of paragraph (d)(3) of this section must develop a 
methodology for demonstrating and determining the benefit of the off-
cycle technology, and carry out any necessary testing and analysis 
required to support that methodology.
    (C) A manufacturer requesting off-cycle credits under paragraph (d) 
of this section must conduct testing and/or prepare engineering 
analyses that demonstrate the in-use durability of the technology for 
the full useful life of the vehicle.
    (ii) Data and information requirements. The manufacturer seeking 
off-cycle credits must submit an application for off-cycle credits 
determined under paragraphs (d)(2) and (d)(3) of this section. The 
application must contain the following:
    (A) A detailed description of the off-cycle technology and how it 
functions to reduce CO2 emissions under conditions not 
represented on the FTP and HFET.
    (B) A list of the vehicle model(s) which will be equipped with the 
technology.
    (C) A detailed description of the test vehicles selected and an 
engineering analysis that supports the selection of those vehicles for 
testing.
    (D) All testing and/or simulation data required under paragraph 
(d)(2) or (d)(3) of this section, as applicable, plus any other data 
the manufacturer has considered in the analysis.
    (E) For credits under paragraph (d)(3) of this section, a complete 
description of the methodology used to estimate the off-cycle benefit 
of the technology and all supporting data, including vehicle testing 
and in-use activity data.

[[Page 75385]]

    (F) An estimate of the off-cycle benefit by vehicle model and the 
fleetwide benefit based on projected sales of vehicle models equipped 
with the technology.
    (G) An engineering analysis and/or component durability testing 
data or whole vehicle testing data demonstrating the in-use durability 
of the off-cycle technology components.
    (iii) EPA review of the off-cycle credit application. Upon receipt 
of an application from a manufacturer, EPA will do the following:
    (A) Review the application for completeness and notify the 
manufacturer within 30 days if additional information is required.
    (B) Review the data and information provided in the application to 
determine if the application supports the level of credits estimated by 
the manufacturer.
    (C) For credits under paragraph (d)(3) of this section, EPA will 
make the application available to the public for comment, as described 
in paragraph (d)(3)(ii) of this section, within 60 days of receiving a 
complete application. The public review period will be specified as 30 
days, during which time the public may submit comments. Manufacturers 
may submit a written rebuttal of comments for EPA consideration or may 
revise their application in response to comments. A revised application 
should be submitted after the end of the public review period, and EPA 
will review the application as if it was a new application submitted 
under this paragraph (d)(4)(iii).
    (iv) EPA decision. (A) For credits under paragraph (d)(2) of this 
section, EPA will notify the manufacturer of its decision within 60 
days of receiving a complete application.
    (B) For credits under paragraph (d)(3) of this section, EPA will 
notify the manufacturer of its decision after reviewing and evaluating 
the public comments. EPA will make the decision and rationale available 
to the public.
    (C) EPA will notify the manufacturer in writing of its decision to 
approve or deny the application, and will provide the reasons for the 
decision. EPA will make the decision and rationale available to the 
public.
    (5) Calculation of total off-cycle credits. Total off-cycle credits 
in Megagrams of CO2 (rounded to the nearest whole number) 
shall be calculated separately for passenger automobiles and light 
trucks according to the following formula:

Total Credits (Megagrams) = (Credit x Production x VLM) / 1,000,000

Where:

Credit = the credit value in grams per mile determined in paragraph 
(d)(1), (d)(2) or (d)(3) of this section.
Production = The total number of passenger automobiles or light 
trucks, whichever is applicable, produced with the off-cycle 
technology to which to the credit value determined in paragraph 
(d)(1), (d)(2), or (d)(3) of this section applies.
VLM = vehicle lifetime miles, which for passenger automobiles shall 
be 195,264 and for light trucks shall be 225,865.

    (e) Credits for certain full-size pickup trucks. Full-size pickup 
trucks may be eligible for additional credits based on the 
implementation of hybrid technologies or on exhaust emission 
performance, as described in this paragraph (e). Credits may be 
generated under either paragraph (e)(2) or (e)(3) of this section for a 
qualifying pickup truck, but not both.
    (1) The following definitions apply for the purposes of this 
paragraph (e).
    (i) Full size pickup truck means a light truck which has a 
passenger compartment and an open cargo box and which meets the 
following specifications:
    (A) A minimum cargo bed width between the wheelhouses of 48 inches, 
measured as the minimum lateral distance between the limiting 
interferences (pass-through) of the wheelhouses. The measurement shall 
exclude the transitional arc, local protrusions, and depressions or 
pockets, if present. An open cargo box means a vehicle where the cargo 
box does not have a permanent roof. Vehicles sold with detachable 
covers are considered ``open'' for the purposes of these criteria.
    (B) A minimum open cargo box length of 60 inches, where the length 
is defined by the lesser of the pickup bed length at the top of the 
body and the pickup bed length at the floor, where the length at the 
top of the body is defined as the longitudinal distance from the inside 
front of the pickup bed to the inside of the closed endgate as measured 
at the cargo floor surface along vehicle centerline, and the length at 
the floor is defined as the longitudinal distance from the inside front 
of the pickup bed to the inside of the closed endgate as measured at 
the cargo floor surface along vehicle centerline.
    (C) A minimum towing capability of 5,000 pounds, where minimum 
towing capability is determined by subtracting the gross vehicle weight 
rating from the gross combined weight rating, or a minimum payload 
capability of 1,700 pounds, where minimum payload capability is 
determined by subtracting the curb weight from the gross vehicle weight 
rating.
    (ii) Mild hybrid gasoline-electric vehicle means a vehicle that has 
start/stop capability and regenerative braking capability, where the 
recaptured braking energy over the Federal Test Procedure is at least 
15 percent but less than 75 percent of the total braking energy, where 
the percent of recaptured braking energy is measured and calculated 
according to Sec.  600.116-12(c).
    (iii) Strong hybrid gasoline-electric vehicle means a vehicle that 
has start/stop capability and regenerative braking capability, where 
the recaptured braking energy over the Federal Test Procedure is at 
least 75 percent of the total braking energy, where the percent of 
recaptured braking energy is measured and calculated according to Sec.  
600.116-12(c).
    (2) Credits for implementation of gasoline-electric hybrid 
technology. Full size pickup trucks that implement hybrid gasoline-
electric technologies may be eligible for an additional credit under 
this paragraph (e)(2). Pickup trucks using the credits under this 
paragraph (e)(2) may not use the credits described in paragraph (e)(3) 
of this section.
    (i) Full size pickup trucks that are mild hybrid gasoline-electric 
vehicles and that are produced in the 2017 through 2021 model years are 
eligible for a credit of 10 grams/mile. To receive this credit, the 
manufacturer must produce a quantity of mild hybrid full size pickup 
trucks such that the proportion of production of such vehicles, when 
compared to the manufacturer's total production of full size pickup 
trucks, is not less than the amount specified in the table below for 
each model year.

[[Page 75386]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.730

    (ii) Full size pickup trucks that are strong hybrid gasoline-
electric vehicles and that are produced in the 2017 through 2025 model 
years are eligible for a credit of 20 grams/mile. To receive this 
credit, the manufacturer must produce a quantity of strong hybrid full 
size pickup trucks such that the proportion of production of such 
vehicles, when compared to the manufacturer's total production of full 
size pickup trucks, is not less than 10 percent for each model year.
    (3) Credits for emission reduction performance. Full size pickup 
trucks that achieve carbon-related exhaust emission values below the 
applicable target value determined in 86.1818-12(c)(3) may be eligible 
for an additional credit. For the purposes of this paragraph (e)(3), 
carbon-related exhaust emission values may include any applicable air 
conditioning leakage and/or efficiency credits as determined in 
paragraphs (b) and (c) of this section. Pickup trucks using the credits 
under this paragraph (e)(3) may not use the credits described in 
paragraph (e)(2) of this section or the production multipliers 
described in paragraph (a)(2) of this section.
    (i) Full size pickup trucks that achieve carbon-related exhaust 
emissions less than or equal to the applicable target value determined 
in 86.1818-12(c)(3) multiplied by 0.85 (rounded to the nearest gram/
mile) and greater than the applicable target value determined in 
86.1818-12(c)(3) multiplied by 0.80 (rounded to the nearest gram/mile) 
in a model year are eligible for a credit of 10 grams/mile. A pickup 
truck that qualifies for this credit in a model year may claim this 
credit for subsequent model years through the 2021 model year if the 
carbon-related exhaust emissions of that pickup truck do not increase 
relative to the emissions in the model year in which the pickup truck 
qualified for the credit. To qualify for this credit in each model 
year, the manufacturer must produce a quantity of full size pickup 
trucks that meet the initial emission eligibility requirements of this 
paragraph (e)(3)(i) such that the proportion of production of such 
vehicles, when compared to the manufacturer's total production of full 
size pickup trucks, is not less than the amount specified in the table 
below for each model year.

[[Page 75387]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.731

    (ii) Full size pickup trucks that achieve carbon-related exhaust 
emissions less than or equal to the applicable target value determined 
in 86.1818-12(c)(3) multiplied by 0.80 (rounded to the nearest gram/
mile) in a model year are eligible for a credit of 20 grams/mile. A 
pickup truck that qualifies for this credit in a model year may claim 
this credit for a maximum of five subsequent model years if the carbon-
related exhaust emissions of that pickup truck do not increase relative 
to the emissions in the model year in which the pickup truck first 
qualified for the credit. This credit may not be claimed in any model 
year after 2025. To qualify for this credit, the manufacturer must 
produce a quantity of full size pickup trucks that meet the emission 
requirements of this paragraph (e)(3)(i) such that the proportion of 
production of such vehicles, when compared to the manufacturer's total 
production of full size pickup trucks, is not less than 10 percent in 
each model year. A pickup truck that qualifies for this credit in a 
model year and is subject to a major redesign in a subsequent model 
year such that it qualifies for the credit in the model year of the 
redesign may be allowed to qualify for an additional five years (not to 
go beyond the 2025 model year) with the approval of the Administrator.
    (4) Calculation of total full size pickup truck credits. Total 
credits in Megagrams of CO2 (rounded to the nearest whole 
number) shall be calculated for qualifying full size pickup trucks 
according to the following formula:

Total Credits (Megagrams) = ([(10 x Production10) + (20 x 
Production20)] x 225,865) / 1,000,000
Where:

Production10 = The total number of full size pickup 
trucks produced with a credit value of 10 grams per mile from 
paragraphs (e)(2) and (e)(3).
Production20 = The total number of full size pickup 
trucks produced with a credit value of 20 grams per mile from 
paragraphs (e)(2) and (e)(3).

    17. Section 86.1867-12 is amended by revising paragraph (a)(2)(i) 
to read as follows:


Sec.  86.1867-12  Optional early CO2 credit programs.

* * * * *
    (a) * * *
    (2) * * *
    (i) Credits under this pathway shall be calculated according to the 
provisions of paragraph (a)(1) of this section, except credits may only 
be generated by vehicles sold in a model year in California and in 
states with a section 177 program in effect in that model year. For the 
purposes of this section, ``section 177 program'' means State 
regulations or other laws that apply to vehicle emissions from any of 
the following categories of motor vehicles: Passenger automobiles, 
light-duty trucks up through 6,000 pounds GVWR, and medium-duty 
vehicles from 6,001 to 14,000 pounds GVWR, as these categories of motor 
vehicles are defined in the California Code of Regulations, Title 13, 
Division 3, Chapter 1, Article 1, Section 1900.
* * * * *

PART 600--FUEL ECONOMY AND GREENHOUSE GAS EXHAUST EMISSIONS OF 
MOTOR VEHICLES

    18. The authority citation for part 600 continues to read as 
follows:

    Authority:  49 U.S.C. 32901--23919q, Pub. L. 109-58.

Subpart B--[Amended]

    19. Section 600.002 is amended by revising the definitions of 
``combined fuel economy'' and ``fuel economy'' to read as follows:


Sec.  600.002  Definitions.

* * * * *
    Combined fuel economy means:
    (1) The fuel economy value determined for a vehicle (or vehicles) 
by harmonically averaging the city and highway fuel economy values, 
weighted 0.55 and 0.45, respectively.
    (2) For electric vehicles, for the purpose of calculating average 
fuel economy pursuant to the provisions of part 600, subpart F, the 
term means the equivalent petroleum-based fuel economy value as 
determined by the calculation procedure promulgated by the Secretary of 
Energy. For the purpose of labeling pursuant to the provisions of part 
600, subpart D, the term means the fuel economy value as determined by 
the procedures specified in Sec.  600.116-12.
* * * * *
    Fuel economy means:
    (1) The average number of miles traveled by an automobile or group 
of automobiles per volume of fuel consumed as calculated in this part; 
or
    (2) For the purpose of calculating average fuel economy pursuant to 
the

[[Page 75388]]

provisions of part 600, subpart F, fuel economy for electrically 
powered automobiles means the equivalent petroleum-based fuel economy 
as determined by the Secretary of Energy in accordance with the 
provisions of 10 CFR part 474. For the purpose of labeling pursuant to 
the provisions of part 600, subpart D, the term means the fuel economy 
value as determined by the procedures specified in Sec.  600.116-12.
* * * * *
    20. Section 600.111-08 is amended by revising the introductory text 
to read as follows:


Sec.  600.111-08  Test procedures.

    This section provides test procedures for the FTP, highway, US06, 
SC03, and the cold temperature FTP tests. Testing shall be performed 
according to test procedures and other requirements contained in this 
part 600 and in part 86 of this chapter, including the provisions of 
part 86, subparts B, C, and S. Test hybrid electric vehicles using the 
procedures of SAE J1711 (incorporated by reference in Sec.  600.011). 
For FTP testing, this generally involves emission sampling over four 
phases (bags) of the UDDS (cold-start, transient, warm-start, 
transient); however, these four phases may be combined into two phases 
(phases 1 + 2 and phases 3 + 4). Test plug-in hybrid electric vehicles 
using the procedures of SAE J1711 (incorporated by reference in Sec.  
600.011) as described in Sec.  600.116-12. Test electric vehicles using 
the procedures of SAE J1634 (incorporated by reference in Sec.  
600.011) as described in Sec.  600.116-12.
* * * * *
    21. Section 600.113-12 is amended by revising paragraphs 
(g)(2)(iv)(C) and (j) through (m) to read as follows:


Sec.  600.113-12  Fuel economy, CO2 emissions, and carbon-
related exhaust emission calculations for FTP, HFET, US06, SC03 and 
cold temperature FTP tests.

* * * * *
    (g) * * *
    (2) * * *
    (iv) * * *
    (C) For the 2012 through 2016 model years only, manufacturers may 
use an assigned value of 0.010 g/mi for N2O FTP and HFET 
test values. This value is not required to be adjusted by a 
deterioration factor.
* * * * *
    (j)(1) For methanol-fueled automobiles and automobiles designed to 
operate on mixtures of gasoline and methanol, the fuel economy in miles 
per gallon of methanol is to be calculated using the following 
equation:

mpg = (CWF x SG x 3781.8)/((CWFexHC x HC) + (0.429 x CO) + 
(0.273 x CO2) + (0.375 x CH3OH) + (0.400 x HCHO))

Where

CWF = Carbon weight fraction of the fuel as determined in paragraph 
(f)(2)(ii) of this section and rounded according to paragraph (g)(3) 
of this section.
SG = Specific gravity of the fuel as determined in paragraph 
(f)(2)(i) of this section and rounded according to paragraph (g)(3) 
of this section.
CWFexHC = Carbon weight fraction of exhaust hydrocarbons 
= CWF as determined in paragraph (f)(2)(ii) of this section and 
rounded according to paragraph (g)(3) of this section (for M100 
fuel, CWFexHC = 0.866).
HC = Grams/mile HC as obtained in paragraph (g)(1) of this section.
CO = Grams/mile CO as obtained in paragraph (g)(1) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g)(1) of this section.
CH3OH = Grams/mile CH3OH (methanol) as 
obtained in paragraph (g)(1) of this section.
HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph 
(g)(1) of this section.

    (2)(i) For 2012 and later model year methanol-fueled automobiles 
and automobiles designed to operate on mixtures of gasoline and 
methanol, the carbon-related exhaust emissions in grams per mile while 
operating on methanol is to be calculated using the following equation 
and rounded to the nearest 1 gram per mile:

CREE = (CWFexHC/0.273 x HC) + (1.571 x CO) + (1.374 x 
CH3OH) + (1.466 x HCHO) + CO2

Where:

CREE means the carbon-related exhaust emission value as defined in 
Sec.  600.002.
CWFexHC = Carbon weight fraction of exhaust hydrocarbons 
= CWF as determined in paragraph (f)(2)(ii) of this section and 
rounded according to paragraph (g)(3) of this section (for M100 
fuel, CWFexHC = 0.866).
HC = Grams/mile HC as obtained in paragraph (g)(2) of this section.
CO = Grams/mile CO as obtained in paragraph (g)(2) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g)(2) of this section.
CH3OH = Grams/mile CH3OH (methanol) as 
obtained in paragraph (g)(2) of this section.
HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph 
(g)(2) of this section.

    (ii) For manufacturers complying with the fleet averaging option 
for N2O and CH4 as allowed under Sec.  86.1818 of 
this chapter, the carbon-related exhaust emissions in grams per mile 
for 2012 and later model year methanol-fueled automobiles and 
automobiles designed to operate on mixtures of gasoline and methanol 
while operating on methanol is to be calculated using the following 
equation and rounded to the nearest 1 gram per mile:

CREE = [(CWFexHC/0.273) x NMHC] + (1.571 x CO) + (1.374 x 
CH3OH) + (1.466 x HCHO) + CO2 + (298 x 
N2O) + (25 x CH4)

Where:

CREE means the carbon-related exhaust emission value as defined in 
Sec.  600.002.
CWFexHC = Carbon weight fraction of exhaust hydrocarbons 
= CWF as determined in paragraph (f)(2)(ii) of this section and 
rounded according to paragraph (g)(3) of this section (for M100 
fuel, CWFexHC = 0.866).
NMHC = Grams/mile HC as obtained in paragraph (g)(2) of this 
section.
CO = Grams/mile CO as obtained in paragraph (g)(2) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g)(2) of this section.
CH3OH = Grams/mile CH3OH (methanol) as 
obtained in paragraph (g)(2) of this section.
HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph 
(g)(2) of this section.
N2O = Grams/mile N2O as obtained in paragraph 
(g)(2) of this section.
CH4 = Grams/mile CH4 as obtained in paragraph 
(g)(2) of this section.

    (k)(1) For automobiles fueled with natural gas and automobiles 
designed to operate on gasoline and natural gas, the fuel economy in 
miles per gallon of natural gas is to be calculated using the following 
equation:
[GRAPHIC] [TIFF OMITTED] TP01DE11.732

Where:

mpge = miles per gasoline gallon equivalent of natural 
gas.
CWFHC/NG = carbon weight fraction based on the 
hydrocarbon constituents in the natural gas fuel as obtained in 
paragraph (f)(3) of this section and rounded according to paragraph 
(g)(3) of this section.
DNG = density of the natural gas fuel [grams/ft\3\ at 68 
[deg]F (20 [deg]C) and 760 mm Hg (101.3

[[Page 75389]]

kPa)] pressure as obtained in paragraph (g)(3) of this section.
CH4, NMHC, CO, and CO2 = weighted mass exhaust 
emissions [grams/mile] for methane, non-methane HC, carbon monoxide, 
and carbon dioxide as obtained in paragraph (g)(2) of this section.
CWFNMHC = carbon weight fraction of the non-methane HC 
constituents in the fuel as determined from the speciated fuel 
composition per paragraph (f)(3) of this section and rounded 
according to paragraph (g)(3) of this section.
CO2NG = grams of carbon dioxide in the natural gas fuel 
consumed per mile of travel.

CO2NG = FCNG x DNG x WFCO2

Where:
[GRAPHIC] [TIFF OMITTED] TP01DE11.733

= cubic feet of natural gas fuel consumed per mile
Where:

CWFNG = the carbon weight fraction of the natural gas 
fuel as calculated in paragraph (f)(3) of this section.
WFCO2 = weight fraction carbon dioxide of the natural gas 
fuel calculated using the mole fractions and molecular weights of 
the natural gas fuel constituents per ASTM D 1945 (incorporated by 
reference in Sec.  600.011).

(2)(i) For automobiles fueled with natural gas and automobiles designed 
to operate on gasoline and natural gas, the carbon-related exhaust 
emissions in grams per mile while operating on natural gas is to be 
calculated for 2012 and later model year vehicles using the following 
equation and rounded to the nearest 1 gram per mile:

CREE = 2.743 x CH4 + CWFNMHC/0.273 x NMHC + 1.571 
x CO + CO2

Where:

CREE means the carbon-related exhaust emission value as defined in 
Sec.  600.002.
CH4 = Grams/mile CH4 as obtained in paragraph 
(g)(2) of this section.
NMHC = Grams/mile NMHC as obtained in paragraph (g)(2) of this 
section.
CO = Grams/mile CO as obtained in paragraph (g)(2) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g)(2) of this section.
CWFNMHC = carbon weight fraction of the non-methane HC 
constituents in the fuel as determined from the speciated fuel 
composition per paragraph (f)(3) of this section and rounded 
according to paragraph (f)(3) of this section.

    (ii) For manufacturers complying with the fleet averaging option 
for N2O and CH4 as allowed under Sec.  86.1818 of 
this chapter, the carbon-related exhaust emissions in grams per mile 
for 2012 and later model year automobiles fueled with natural gas and 
automobiles designed to operate on gasoline and natural gas while 
operating on natural gas is to be calculated using the following 
equation and rounded to the nearest 1 gram per mile:

CREE = (25 x CH4) + [(CWFNMHC/0.273) x NMHC] + 
(1.571 x CO) + CO2 + (298 x N2O)

Where:

CREE means the carbon-related exhaust emission value as defined in 
Sec.  600.002.
CH4 = Grams/mile CH4as obtained in paragraph 
(g)(2) of this section.
NMHC = Grams/mile NMHC as obtained in paragraph (g)(2) of this 
section.
CO = Grams/mile CO as obtained in paragraph (g)(2) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g)(2) of this section.
CWFNMHC = carbon weight fraction of the non-methane HC 
constituents in the fuel as determined from the speciated fuel 
composition per paragraph (f)(3) of this section and rounded 
according to paragraph (f)(3) of this section.
N2O = Grams/mile N2O as obtained in paragraph 
(g)(2) of this section.

(l)(1) For ethanol-fueled automobiles and automobiles designed to 
operate on mixtures of gasoline and ethanol, the fuel economy in miles 
per gallon of ethanol is to be calculated using the following equation:

mpg = (CWF x SG x 3781.8)/((CWFexHCx HC) + (0.429 x CO) + 
(0.273 x CO2) + (0.375 x CH3OH) + (0.400 x HCHO) 
+ (0.521 x C2H5OH) + (0.545 x 
C2H4O))

Where:

CWF = Carbon weight fraction of the fuel as determined in paragraph 
(f)(4) of this section and rounded according to paragraph (f)(3) of 
this section.
SG = Specific gravity of the fuel as determined in paragraph (f)(4) 
of this section and rounded according to paragraph (f)(3) of this 
section.
CWFexHC = Carbon weight fraction of exhaust hydrocarbons 
= CWF as determined in paragraph (f)(4) of this section and rounded 
according to paragraph (f)(3) of this section.
HC = Grams/mile HC as obtained in paragraph (g)(1) of this section.
CO = Grams/mile CO as obtained in paragraph (g)(1) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g)(1) of this section.
CH3OH = Grams/mile CH3OH (methanol) as 
obtained in paragraph (g)(1) of this section.
HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph 
(g)(1) of this section.
C2H5OH = Grams/mile 
C2H5OH (ethanol) as obtained in paragraph 
(g)(1) of this section.
C2H4O = Grams/mile C2H4O 
(acetaldehyde) as obtained in paragraph (g)(1) of this section.

    (2)(i) For 2012 and later model year ethanol-fueled automobiles and 
automobiles designed to operate on mixtures of gasoline and ethanol, 
the carbon-related exhaust emissions in grams per mile while operating 
on ethanol is to be calculated using the following equation and rounded 
to the nearest 1 gram per mile:

CREE = (CWFexHC/0.273 x HC) + (1.571 x CO) + (1.374 x 
CH3OH) + (1.466 x HCHO) + (1.911 x 
C2H5OH) + (1.998 x C2H4O) + 
CO2

Where:

CREE means the carbon-related exhaust emission value as defined in 
Sec.  600.002.
CWFexHC = Carbon weight fraction of exhaust hydrocarbons 
= CWF as determined in paragraph (f)(4) of this section and rounded 
according to paragraph (f)(3) of this section.
HC = Grams/mile HC as obtained in paragraph (g)(2) of this section.
CO = Grams/mile CO as obtained in paragraph (g)(2) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g)(2) of this section.
CH3OH = Grams/mile CH3OH (methanol) as 
obtained in paragraph (g)(2) of this section.
HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph 
(g)(2) of this section.
C2H5OH = Grams/mile 
C2H5OH (ethanol) as obtained in paragraph 
(g)(2) of this section.
C2H4O = Grams/mile C2H4O 
(acetaldehyde) as obtained in paragraph (g)(2) of this section.

    (ii) For manufacturers complying with the fleet averaging option 
for N2O and CH4 as allowed under Sec.  86.1818 of 
this chapter, the carbon-related exhaust emissions in grams per mile 
for 2012 and later model year ethanol-fueled automobiles and 
automobiles designed to operate on mixtures of gasoline and ethanol 
while operating on ethanol is to be calculated using the following 
equation and rounded to the nearest 1 gram per mile:

CREE = [(CWFexHC/0.273) x NMHC] + (1.571 x CO) + (1.374 x 
CH3OH) + (1.466 x HCHO) + (1.911 x 
C2H5OH)

[[Page 75390]]

+ (1.998 x C2H4O) + CO2 + (298 x 
N2O) + (25 x CH4)

Where:

CREE means the carbon-related exhaust emission value as defined in 
Sec.  600.002.
CWFexHC = Carbon weight fraction of exhaust hydrocarbons 
= CWF as determined in paragraph (f)(4) of this section and rounded 
according to paragraph (f)(3) of this section.
NMHC = Grams/mile HC as obtained in paragraph (g)(2) of this 
section.
CO = Grams/mile CO as obtained in paragraph (g)(2) of this section.
CO2 = Grams/mile CO2 as obtained in paragraph 
(g)(2) of this section.
CH3OH = Grams/mile CH3OH (methanol) as 
obtained in paragraph (g)(2) of this section.
HCHO = Grams/mile HCHO (formaldehyde) as obtained in paragraph 
(g)(2) of this section.
C2H5OH = Grams/mile 
C2H5OH (ethanol) as obtained in paragraph 
(g)(2) of this section.
C2H4O = Grams/mile C2H4O 
(acetaldehyde) as obtained in paragraph (g)(2) of this section.
N2O = Grams/mile N2O as obtained in paragraph 
(g)(2) of this section.
CH4 = Grams/mile CH4 as obtained in paragraph 
(g)(2) of this section.

    (m) Manufacturers shall determine CO2 emissions and 
carbon-related exhaust emissions for electric vehicles, fuel cell 
vehicles, and plug-in hybrid electric vehicles according to the 
provisions of this paragraph (m). Subject to the limitations on the 
number of vehicles produced and delivered for sale as described in 
Sec.  86.1866 of this chapter, the manufacturer may be allowed to use a 
value of 0 grams/mile to represent the emissions of fuel cell vehicles 
and the proportion of electric operation of a electric vehicles and 
plug-in hybrid electric vehicles that is derived from electricity that 
is generated from sources that are not onboard the vehicle, as 
described in paragraphs (m)(1) through (3) of this section. For 
purposes of labeling under this part, the CO2 emissions for 
electric vehicles shall be 0 grams per mile. Similarly, for purposes of 
labeling under this part, the CO2 emissions for plug-in 
hybrid electric vehicles shall be 0 grams per mile for the proportion 
of electric operation that is derived from electricity that is 
generated from sources that are not onboard the vehicle. For 
manufacturers no longer eligible to use 0 grams per mile to represent 
electric operation, the provisions of this paragraph (m) shall be used 
to determine the non-zero value for CREE for purposes of meeting the 
greenhouse gas emission standards described in Sec.  86.1818 of this 
chapter.
    (1) For electric vehicles, but not including fuel cell vehicles, 
the carbon-related exhaust emissions in grams per mile is to be 
calculated using the following equation and rounded to the nearest one 
gram per mile:

CREE = CREEUP - CREEGAS

Where:

CREE means the carbon-related exhaust emission value as defined in 
Sec.  600.002, which may be set equal to zero for eligible 2012 
through 2025 model year electric vehicles for a certain number of 
vehicles produced and delivered for sale as described in Sec.  
86.1866-12(a) of this chapter.
[GRAPHIC] [TIFF OMITTED] TP01DE11.734

Where:

EC = The vehicle energy consumption in watt-hours per mile, 
determined according to procedures established by the Administrator 
under Sec.  600.116-12.
GRIDLOSS = 0.93 (to account for grid transmission losses).
AVGUSUP = 0.642 for the 2012 through 2016 model years, and 0.574 for 
2017 and later model years (the nationwide average electricity 
greenhouse gas emission rate at the powerplant, in grams per watt-
hour).
    TargetCO2 = The CO2Target Value determined 
according to Sec.  86.1818 of this chapter for passenger automobiles 
and light trucks, respectively.

    (2) For plug-in hybrid electric vehicles the carbon-related exhaust 
emissions in grams per mile is to be calculated according to the 
provisions of Sec.  600.116, except that the CREE for charge-depleting 
operation shall be the sum of the CREE associated with gasoline 
consumption and the net upstream CREE determined according to paragraph 
(m)(1)(i) of this section, rounded to the nearest one gram per mile.
    (3) For 2012 and later model year fuel cell vehicles, the carbon-
related exhaust emissions in grams per mile shall be calculated using 
the method specified in paragraph (m)(1) of this section, except that 
CREEUP shall be determined according to procedures 
established by the Administrator under Sec.  600.111-08(f). As 
described in Sec.  86.1866 of this chapter the value of CREE may be set 
equal to zero for a certain number of 2012 through 2025 model year fuel 
cell vehicles.
* * * * *
    22. Section 600.116-12 is amended as follows:
    a. By revising the heading.
    b. By revising paragraph (a) introductory text.
    c. By adding paragraph (c).
    The revisions and additions read as follows:


Sec.  600.116-12  Special procedures related to electric vehicles, 
hybrid electric vehicles, and plug-in hybrid electric vehicles.

    (a) Determine fuel economy values for electric vehicles as 
specified in Sec. Sec.  600.210 and 600.311 using the procedures of SAE 
J1634 (incorporated by reference in Sec.  600.011), with the follo wing 
clarifications and modifications:
* * * * *
    (c) Determining the proportion of recovered braking energy for 
hybrid electric vehicles. Hybrid electric vehicles tested under this 
part may determine the proportion of braking energy recovered over the 
FTP relative to the total available braking energy required over the 
FTP. This determination is required for pickup trucks accruing credits 
for implementation of hybrid technology under Sec.  86. 1866-12(e)(2), 
and requires the measurement of electrical current (in amps) flowing 
into the hybrid system battery for the duration of the test.
    (1) Calculate the theoretical maximum amount of energy that could 
be recovered by a hybrid electric vehicle over the FTP test cycle, 
where the test cycle time and velocity points are expressed at 10 Hz, 
and the velocity (miles/hour) is expressed to the nearest 0.01 miles/
hour, as follows:
    (i) For each time point in the 10 Hz test cycle (i.e., at each 0.1 
seconds):
    (A) Determine the road load power in kilowatts using the following 
equation:

[[Page 75391]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.736


Where:

A, B, and C are the vehicle-specific dynamometer road load 
coefficients in lb-force, lb-force/mph, and lb-force/mph\2\, 
respectively; and
Vmph = velocity in miles/hour, expressed to the nearest 
0.01 miles/hour.

    (B) Determine the applied deceleration power in kilowatts using the 
following equation. Positive values indicate acceleration and negative 
values indicate deceleration.
[GRAPHIC] [TIFF OMITTED] TP01DE11.737

Where:

ETW = the vehicle Emission Test Weight (lbs);
V = velocity in miles/hour, rounded to the nearest 0.01 miles/hour;
Vt+1 = the velocity in miles/hour at the next time point 
in the 10 Hz speed vs. time table, rounded to the nearest 0.01 
miles/hour.

    (C) Determine braking power in kilowatts using the following 
equation.
[GRAPHIC] [TIFF OMITTED] TP01DE11.738

Where:
Paccel = the value determined in paragraph (c)(1)(i)(B) 
of this section;
Proadload = the value determined in paragraph 
(c)(1)(i)(A) of this section; and
Pbrake = 0 if Paccel is greater than or equal 
to Proadload.

    (ii) [Reserved]
    (2) The total maximum braking energy (Ebrake) that could 
theoretically be recovered is equal to the absolute value of the sum of 
all the values of Pbrake determined in paragraph c)(1)(i)(C) 
of this section, divided by 36,000 and rounded to the nearest 0.01 
kilowatt hours.
    (3) Calculate the actual amount of energy recovered by a hybrid 
electric vehicle when tested on the FTP according to the provisions of 
this part.
    (i) Measure the state of charge, in Amp-hours, of the hybrid 
battery system at each second of the FTP.
    (ii) Calculate the change in the state of charge (current in Watt 
hours) at each second of the test using the following equation:
[GRAPHIC] [TIFF OMITTED] TP01DE11.739

Where:

dSOC = the change in the state of charge of the hybrid battery 
system, in Watt hours;
AHt = the state of charge of the battery system, in Amp 
hours, at time t in the test;
AHt-1 = the state of charge of the battery system, in Amp 
hours, at time t-1 in the test; and
V = the nominal voltage of the hybrid battery system.

    (iii) Depending on the equipment and methodology used by a 
manufacturer, batter charging during the test may be represented by 
either a negative current or by a positive current. Determine the total 
energy recovered by the hybrid battery system as follows:
    (A) If battery charging is represented by positive current, then 
the total energy recovered by the hybrid battery system, in kilowatt 
hours, is the sum of the positive current values for each second of the 
test determined in paragraph (c)(3)(ii) of this section, divided by 
1,000 and rounded to the nearest 0.01 kilowatt hours.
    (B) If battery charging is represented by negative current, then 
the total energy recovered by the hybrid battery system, in kilowatt 
hours, is the absolute value of the sum of the negative current values 
for each second of the test determined in paragraph (c)(3)(ii) of this 
section, divided by 1,000 and rounded to the nearest 0.01 kilowatt 
hours.
    (4) The percent of braking energy recovered by a hybrid system 
relative to the total available energy is determined by the following 
equation, rounded to the nearest one percent:
[GRAPHIC] [TIFF OMITTED] TP01DE11.740

Where:

Erec = The actual total energy recovered, in kilowatt 
hours, as determined in paragraph (c)(2)(iii) of this section; and
Emax = The theoretical maximum amount of energy, in 
kilowatt hours, that could be recovered by a hybrid electric vehicle 
over the FTP test cycle, as determined in paragraph (c)(2) of this 
section.

    23. Section 600.303-12 is amended as follows:
    a. By revising the introductory text.
    b. By revising paragraph (b) introductory text.
    c. By revising paragraph (b)(6).
    d. By revising paragraph (c).
    The revisions read as follows:


Sec.  600.303-12  Fuel economy label--special requirements for 
flexible-fuel vehicles.

    Fuel economy labels for flexible-fuel vehicles must meet the 
specifications described in Sec.  600.302, with the modifications 
described in this section. This section describes how to label 
flexible-fuel vehicles equipped with gasoline engines. If the vehicle 
has a diesel engine, all the references to ``gas'' or ``gasoline'' in 
this section are understood to refer to ``diesel'' or ``diesel fuel'', 
respectively. All values described in this section are based on 
gasoline operation, unless otherwise specifically noted.
* * * * *

[[Page 75392]]

    (b) Include the following elements instead of the information 
identified in Sec.  600.302-12(c)(1):
* * * * *
    (6) Add the following statement after the statements described in 
Sec.  600.302-12(c)(2): ``Values are based on gasoline and do not 
reflect performance and ratings based on E85.'' Adjust this statement 
as appropriate for vehicles designed to operate on different fuels.
    (c) You may include the sub-heading ``Driving Range'' below the 
combined fuel economy value, with range bars below this sub-heading as 
follows:
    (1) Insert a horizontal range bar nominally 80 mm long to show how 
far the vehicle can drive from a full tank of gasoline. Include a 
vehicle logo at the right end of the range bar. Include the following 
left-justified expression inside the range bar: ``Gasoline: x miles''. 
Complete the expression by identifying the appropriate value for total 
driving range from Sec.  600.311.
    (2) Insert a second horizontal range bar as described in paragraph 
(c)(1) of this section that shows how far the vehicle can drive from a 
full tank with the second fuel. Establish the length of the line based 
on the proportion of driving ranges for the different fuels. Identify 
the appropriate fuel in the range bar.
    24. Section 600.311-12 is amended as follows:
    a. By revising paragraph (c)(1).
    b. By revising paragraph (e)(3)(vii).
    c. By adding paragraph (e)(4).
    The revisions and addition read as follows:


Sec.  600.311-12  Determination of values for fuel economy labels.

* * * * *
    (c) * * *
    (1) For vehicles with engines that are not plug-in hybrid electric 
vehicles, calculate the fuel consumption rate in gallons per 100 miles 
(or gasoline gallon equivalent per 100 miles for fuels other than 
gasoline or diesel fuel) with the following formula, rounded to the 
first decimal place:

Fuel Consumption Rate = 100/MPG

Where:

MPG = The value for combined fuel economy from Sec.  600.210-12(c), 
rounded to the nearest whole mpg.
* * * * *
    (e) * * *
    (3) * * *
    (vii) Calculate the annual fuel cost based on the combined values 
for city and highway driving using the following equation:

Annual fuel cost = ($/milecity x 0.55 + $/milehwy x 0.45) x Average 
Annual Miles

    (4) Round the annual fuel cost to the nearest $50 by dividing the 
unrounded annual fuel cost by 50, then rounding the result to the 
nearest whole number, then multiplying this rounded result by 50 to 
determine the annual fuel cost to be used for purposes of labeling.
* * * * *
    25. Section 600.510-12 is amended as follows:
    a. By removing and reserving paragraph (b)(3)(iii).
    b. By adding paragraph (b)(4).
    c. By revising paragraph (c).
    d. By revising paragraph (g)(1) introductory text.
    e. By revising paragraph (g)(3).
    f. By revising paragraph (h) introductory text.
    g. By revising paragraph (j)(2)(vii).
    h. By revising paragraph (k).
    The addition and revisions read as follows:


Sec.  600.510-12  Calculation of average fuel economy and average 
carbon-related exhaust emissions.

* * * * *
    (b) * * *
    (4) Emergency vehicles may be excluded from the fleet average 
carbon-related exhaust emission calculations described in paragraph (j) 
of this section. The manufacturer should notify the Administrator that 
they are making such an election in the model year reports required 
under Sec.  600.512 of this chapter. Such vehicles should be excluded 
from both the calculation of the fleet average standard for a 
manufacturer under 40 CFR 86.1818-12(c)(4) and from the calculation of 
the fleet average carbon-related exhaust emissions in paragraph (j) of 
this section.
    (c)(1) Average fuel economy shall be calculated as follows:
    (i) Except as allowed in paragraph (d) of this section, the average 
fuel economy for the model years before 2017 will be calculated 
individually for each category identified in paragraph (a)(1) of this 
according to the provisions of paragraph (c)(2) of this section.
    (ii) Except as permitted in paragraph (d) of this section, the 
average fuel economy for the 2017 and later model years will be 
calculated individually for each category identified in paragraph 
(a)(1) of this section using the following equation:
[GRAPHIC] [TIFF OMITTED] TP01DE11.741


Where:

Average MPG = the fleet average fuel economy for a category of 
vehicles;
MPG = the average fuel economy for a category of vehicles determined 
according to paragraph (c)(2) of this section;
AC = Air conditioning fuel economy credits for a category of 
vehicles, in gallons per mile, determined according to paragraph 
(c)(3)(i) of this section;
OC = Off-cycle technology fuel economy credits for a category of 
vehicles, in gallons per mile, determined according to paragraph 
(c)(3)(ii) of this section; and
PU = Pickup truck fuel economy credits for the light truck category, 
in gallons per mile, determined according to paragraph (c)(3)(iii) 
of this section.

    (2) Divide the total production volume of that category of 
automobiles by a sum of terms, each of which corresponds to a model 
type within that category of automobiles and is a fraction determined 
by dividing the number of automobiles of that model type produced by 
the manufacturer in the model year by:
    (i) For gasoline-fueled and diesel-fueled model types, the fuel 
economy calculated for that model type in accordance with paragraph 
(b)(2) of this section; or
    (ii) For alcohol-fueled model types, the fuel economy value 
calculated for that model type in accordance with paragraph (b)(2) of 
this section divided by 0.15 and rounded to the nearest 0.1 mpg; or
    (iii) For natural gas-fueled model types, the fuel economy value 
calculated for that model type in accordance with paragraph (b)(2) of 
this section divided by 0.15 and rounded to the nearest 0.1 mpg; or
    (iv) For alcohol dual fuel model types, for model years 1993 
through 2019, the harmonic average of the following two terms; the 
result rounded to the nearest 0.1 mpg:

[[Page 75393]]

    (A) The combined model type fuel economy value for operation on 
gasoline or diesel fuel as determined in Sec.  600.208-12(b)(5)(i); and
    (B) The combined model type fuel economy value for operation on 
alcohol fuel as determined in Sec.  600.208-12(b)(5)(ii) divided by 
0.15 provided the requirements of paragraph (g) of this section are 
met; or
    (v) For alcohol dual fuel model types, for model years after 2019, 
the combined model type fuel economy determined according to the 
following equation and rounded to the nearest 0.1 mpg:
[GRAPHIC] [TIFF OMITTED] TP01DE11.742


Where:

F = 0.00 unless otherwise approved by the Administrator according to 
the provisions of paragraph (k) of this section;
MPGA = The combined model type fuel economy for operation 
on alcohol fuel as determined in Sec.  600.208-12(b)(5)(ii) divided 
by 0.15 provided the requirements of paragraph (g) of this section 
are met; and
MPGG = The combined model type fuel economy for operation 
on gasoline or diesel fuel as determined in Sec.  600.208-
12(b)(5)(i).

    (vi) For natural gas dual fuel model types, for model years 1993 
through 2019, the harmonic average of the following two terms; the 
result rounded to the nearest 0.1 mpg:
    (A) The combined model type fuel economy value for operation on 
gasoline or diesel as determined in Sec.  600.208-12(b)(5)(i); and
    (B) The combined model type fuel economy value for operation on 
natural gas as determined in Sec.  600.208-12(b)(5)(ii) divided by 0.15 
provided the requirements of paragraph (g) of this section are met; or
    (vii) For natural gas dual fuel model types, for model years after 
2019, the combined model type fuel economy determined according to the 
following formula and rounded to the nearest 0.1 mpg:
[GRAPHIC] [TIFF OMITTED] TP01DE11.743

Where:

MPGCNG = The combined model type fuel economy for 
operation on natural gas as determined in Sec.  600.208-12(b)(5)(ii) 
divided by 0.15 provided the requirements of paragraph (g) of this 
section are met; and
MPGG = The combined model type fuel economy for operation 
on gasoline or diesel fuel as determined in Sec.  600.208-
12(b)(5)(i).
UF = A Utility Factor (UF) value selected from the following table 
based on the driving range of the vehicle while operating on natural 
gas. Determine the vehicle's driving range in miles by multiplying 
the combined fuel economy as determined in Sec.  600.208-
12(b)(5)(ii) by the vehicle's usable fuel storage capacity (as 
defined at Sec.  600.002 and expressed in gasoline gallon 
equivalents), and rounding to the nearest 10 miles.

[[Page 75394]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.744


[[Page 75395]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.745

    (3) Fuel consumption improvement. Calculate the separate air 
conditioning, off-cycle, and pickup truck fuel consumption improvement 
as follows:
    (i) Air conditioning fuel consumption improvements are calculated 
separately for each category identified in paragraph (a)(1) of this 
section using the following equation:
[GRAPHIC] [TIFF OMITTED] TP01DE11.746

Where:

FE Credit = the fleet production-weighted total value of air 
conditioning efficiency credits for all air conditioning systems in 
the applicable fleet, expressed in gallons per mile;
ACCredit = the total of all air conditioning efficiency credits for 
the vehicle category, in megagrams, from 40 CFR 86.1866-12(c)(3);
VLM = vehicle lifetime miles, which for passenger automobiles shall 
be 195,264 and for light trucks shall be 225,865; and
Production = the total production volume for the category of 
vehicles (either passenger automobiles or light trucks).

    (ii) Off-cycle technology fuel consumption improvements are 
calculated separately for each category identified in paragraph (a)(1) 
of this section using the following equation:
[GRAPHIC] [TIFF OMITTED] TP01DE11.747

Where:

FE Credit = the fleet production-weighted total value of off-cycle 
technology credits for all off-cycle technologies in the applicable 
fleet, expressed in gallons per mile;
OCCredit = the total of all off-cycle technology credits for the 
vehicle category, in megagrams, from 40 CFR 86.1866-12(d)(5);
VLM = vehicle lifetime miles, which for passenger automobiles shall 
be 195,264 and for light trucks shall be 225,865; and
Production = the total production volume for the category of 
vehicles (either passenger automobiles or light trucks).

    (iii) Full size pickup truck fuel consumption improvements are 
calculated for the light truck category identified in paragraph (a)(1) 
of this section using the following equation:
[GRAPHIC] [TIFF OMITTED] TP01DE11.748


[[Page 75396]]


Where:

FE Credit = the fleet production-weighted total value of full size 
pickup truck credits for the light truck fleet, expressed in gallons 
per mile;
PUCredit = the total of all full size pickup truck credits, in 
megagrams, from 40 CFR 86.1866-12(e)(4); and
Production = the total production volume for the light truck 
category.
* * * * *
    (g)(1) Dual fuel automobiles must provide equal or greater energy 
efficiency while operating on the alternative fuel as while operating 
on gasoline or diesel fuel to obtain the CAFE credit determined in 
paragraphs (c)(2)(iv) and (v) of this section or to obtain the carbon-
related exhaust emissions credit determined in paragraphs (j)(2)(ii) 
and (iii) of this section. The following equation must hold true:

    Ealt/Epet >= 1

Where:

Ealt = [FEalt/(NHValtx 
Dalt)] x 10\6\ = energy efficiency while operating on 
alternative fuel rounded to the nearest 0.01 miles/million BTU.
Epet = [FEpet/(NHVpetx 
Dpet)] x 10\6\ = energy efficiency while operating on 
gasoline or diesel (petroleum) fuel rounded to the nearest 0.01 
miles/million BTU.
FEalt is the fuel economy [miles/gallon for liquid fuels 
or miles/100 standard cubic feet for gaseous fuels] while operated 
on the alternative fuel as determined in Sec.  600.113-12(a) and 
(b).
FEpet is the fuel economy [miles/gallon] while operated 
on petroleum fuel (gasoline or diesel) as determined in Sec.  
600.113-12(a) and (b).
NHValt is the net (lower) heating value [BTU/lb] of the 
alternative fuel.
NHVpet is the net (lower) heating value [BTU/lb] of the 
petroleum fuel.
Dalt is the density [lb/gallon for liquid fuels or lb/100 
standard cubic feet for gaseous fuels] of the alternative fuel.
Dpet is the density [lb/gallon] of the petroleum fuel.
* * * * *
    (3) Dual fuel passenger automobiles manufactured during model years 
1993 through 2019 must meet the minimum driving range requirements 
established by the Secretary of Transportation (49 CFR part 538) to 
obtain the CAFE credit determined in paragraphs (c)(2)(iv) and (v) of 
this section.
    (h) For model years 1993 and later, and for each category of 
automobile identified in paragraph (a)(1) of this section, the maximum 
increase in average fuel economy determined in paragraph (c) of this 
section attributable to dual fuel automobiles, except where the 
alternative fuel is electricity, shall be as follows:
[GRAPHIC] [TIFF OMITTED] TP01DE11.749

BILLING CODE 4910-59-C
* * * * *
    (j) * * *
    (2) * * *
    (vii) For natural gas dual fuel model types, for model years 2016 
and later, the combined model type carbon-related exhaust emissions 
value determined according to the following formula and rounded to the 
nearest gram per mile:
[GRAPHIC] [TIFF OMITTED] TP01DE11.750

Where:

CREECNG = The combined model type carbon-related exhaust emissions 
value for operation on natural gas as determined in Sec.  600.208-
12(b)(5)(ii); and
CREEGAS = The combined model type carbon-related exhaust emissions 
value for operation on gasoline or diesel fuel as determined in 
Sec.  600.208-12(b)(5)(i).
UF = A Utility Factor (UF) value selected from the following table 
based on the

[[Page 75397]]

driving range of the vehicle while operating on natural gas. 
Determine the vehicle's driving range in miles by multiplying the 
combined fuel economy as determined in Sec.  600.208-12(b)(5)(ii) by 
the vehicle's usable fuel storage capacity (as defined at Sec.  
600.002 and expressed in gasoline gallon equivalents), and rounding 
to the nearest 10 miles.
[GRAPHIC] [TIFF OMITTED] TP01DE11.751


[[Page 75398]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.752

BILLING CODE 4910-59-C
    (k) Alternative in-use weighting factors for dual fuel model types. 
Using one of the methods in either paragraph (k)(1) or (2) of this 
section, manufacturers may request the use of alternative values for 
the weighting factor F in the equations in paragraphs (c)(2)(v) and 
(j)(2)(vi) of this section. Unless otherwise approved by the 
Administrator, the manufacturer must use the value of F that is in 
effect in paragraphs (c)(2)(v) and (j)(2)(vi) of this section.
    (1) Upon written request from a manufacturer, the Administrator 
will determine and publish by written guidance an appropriate value of 
F for each requested alternative fuel based on the Administrator's 
assessment of real-world use of the alternative fuel. Such published 
values would be available for any manufacturer to use. The 
Administrator will periodically update these values upon written 
request from a manufacturer.
    (2) The manufacturer may optionally submit to the Administrator its 
own demonstration regarding the real-world use of the alternative fuel 
in their vehicles and its own estimate of the appropriate value of F in 
the equations in paragraphs (c)(2)(v) and (j)(2)(vi) of this section. 
Depending on the nature of the analytical approach, the manufacturer 
could provide estimates of F that are model type specific or that are 
generally applicable to the manufacturer's dual fuel fleet. The 
manufacturer's analysis could include use of data gathered from on-
board sensors and computers, from dual fuel vehicles in fleets that are 
centrally fueled, or from other sources. The analysis must be based on 
sound statistical methodology and must account for analytical 
uncertainty. Any approval by the Administrator will pertain to the use 
of values of F for the model types specified by the manufacturer.
    26. Section 600.514-12 is amended by revising paragraphs (b)(1)(v) 
and (vii) and adding paragraphs (b)(1)(viii) and (ix) to read as 
follows:


Sec.  600.514-12  Reports to the Environmental Protection Agency.

* * * * *
    (b) * * *
    (1) * * *
    (v) A description of the various credit, transfer and trading 
options that will be used to comply with each applicable standard 
category, including the amount of credit the manufacturer intends to 
generate for air conditioning leakage, air conditioning efficiency, 
off-cycle technology, advanced technology vehicles, hybrid or low 
emission full-size pickup trucks, and various early credit programs;
* * * * *
    (vii) A summary by model year (beginning with the 2009 model year) 
of the number of electric vehicles, fuel cell vehicles and plug-in 
hybrid vehicles using (or projected to use) the advanced technology 
vehicle credit and incentives program;
    (viii) The methodology which will be used to comply with 
N2O and CH4 emission standards;
    (ix) Notification of the manufacturer's intent to exclude emergency 
vehicles from the calculation of fleet average standards and the end-
of-year fleet average, including a description of the excluded 
emergency vehicles and the quantity of such vehicles excluded.
* * * * *

Title 49

National Highway Traffic Safety Administration

    In consideration of the foregoing, under the authority of 49 U.S.C. 
32901, 32902, and 32903, and delegation of authority at 49 CFR 1.50, 
NHTSA proposes to amend 49 CFR Chapter V as follows:

PART 523--VEHICLE CLASSIFICATION

    27. The authority citation for part 523 continues to read as 
follows:

    Authority: 49 U.S.C. 32901, delegation of authority at 49 CFR 
1.50.

    28. Revise Sec.  523.2 to read as follows:


Sec.  523.2  Definitions.

    Approach angle means the smallest angle, in a plane side view of an 
automobile, formed by the level surface

[[Page 75399]]

on which the automobile is standing and a line tangent to the front 
tire static loaded radius arc and touching the underside of the 
automobile forward of the front tire.
    Axle clearance means the vertical distance from the level surface 
on which an automobile is standing to the lowest point on the axle 
differential of the automobile.
    Base tire (for passenger automobiles, light trucks, and medium duty 
passenger vehicles) means the tire that has the highest production 
sales volume that is installed by the vehicle manufacturer on each 
vehicle configuration of a model type.
    Basic vehicle frontal area is used as defined in 40 CFR 86.1803.
    Breakover angle means the supplement of the largest angle, in a 
plan side view of an automobile, that can be formed by two lines 
tangent to the front and rear static loaded radii arcs and intersecting 
at a point on the underside of the automobile.
    Cab-complete vehicle means a vehicle that is first sold as an 
incomplete vehicle that substantially includes the vehicle cab section 
as defined in 40 CFR 1037.801. For example, vehicles known commercially 
as chassis-cabs, cab-chassis, box-deletes, bed-deletes, and cut-away 
vans are considered cab-complete vehicles. A cab includes a steering 
column and a passenger compartment. Note that a vehicle lacking some 
components of the cab is a cab-complete vehicle if it substantially 
includes the cab.
    Cargo-carrying volume means the luggage capacity or cargo volume 
index, as appropriate, and as those terms are defined in 40 CFR 
600.315-08, in the case of automobiles to which either of these terms 
apply. With respect to automobiles to which neither of these terms 
apply, ``cargo-carrying volume'' means the total volume in cubic feet, 
rounded to the nearest 0.1 cubic feet, of either an automobile's 
enclosed non-seating space that is intended primarily for carrying 
cargo and is not accessible from the passenger compartment, or the 
space intended primarily for carrying cargo bounded in the front by a 
vertical plane that is perpendicular to the longitudinal centerline of 
the automobile and passes through the rearmost point on the rearmost 
seat and elsewhere by the automobile's interior surfaces.
    Class 2b vehicles are vehicles with a gross vehicle weight rating 
(GVWR) ranging from 8,501 to 10,000 pounds (lbs).
    Class 3 through Class 8 vehicles are vehicles with a GVWR of 10,001 
lbs or more, as defined in 49 CFR 565.15.
    Commercial medium- and heavy-duty on-highway vehicle means an on-
highway vehicle with a GVWR of 10,000 lbs or more, as defined in 49 
U.S.C. 32901(a)(7).
    Complete vehicle means a vehicle that requires no further 
manufacturing operations to perform its intended function and is a 
functioning vehicle that has the primary load-carrying device or 
container (or equivalent equipment) attached or is designed to pull a 
trailer. Examples of equivalent equipment include fifth wheel trailer 
hitches, firefighting equipment, and utility booms.
    Curb weight is defined the same as vehicle curb weight in 40 CFR 
86.1803-01.
    Departure angle means the smallest angle, in a plane side view of 
an automobile, formed by the level surface on which the automobile is 
standing and a line tangent to the rear tire static loaded radius arc 
and touching the underside of the automobile rearward of the rear tire.
    Final stage manufacturer has the meaning given in 49 CFR 567.3.
    Footprint is defined as the product of track width (measured in 
inches, calculated as the average of front and rear track widths, and 
rounded to the nearest tenth of an inch) times wheelbase (measured in 
inches and rounded to the nearest tenth of an inch), divided by 144 and 
then rounded to the nearest tenth of a square foot. For purposes of 
this definition, ``track width'' is the lateral distance between the 
centerlines of the base tires at ground, including the camber angle. 
For purposes of this definition, ``wheelbase'' is the longitudinal 
distance between front and rear wheel centerlines.
    Full-size pickup truck means a light truck or medium duty passenger 
vehicle that meets the requirements specified in 40 CFR 86.1866-12(e).
    Gross combination weight rating (GCWR) means the value specified by 
the manufacturer as the maximum allowable loaded weight of a 
combination vehicle (e.g., tractor plus trailer).
    Gross vehicle weight rating (GVWR) means the value specified by the 
manufacturer as the maximum design loaded weight of a single vehicle 
(e.g., vocational vehicle).
    Heavy-duty engine means any engine used for (or which the engine 
manufacturer could reasonably expect to be used for) motive power in a 
heavy-duty vehicle. For purposes of this definition in this part, the 
term ``engine'' includes internal combustion engines and other devices 
that convert chemical fuel into motive power. For example, a fuel cell 
and motor used in a heavy-duty vehicle is a heavy-duty engine.
    Heavy-duty off-road vehicle means a heavy-duty vocational vehicle 
or vocational tractor that is intended for off-road use meeting either 
of the following criteria:
    (1) Vehicles with tires installed having a maximum speed rating at 
or below 55 mph.
    (2) Vehicles primarily designed to perform work off-road (such as 
in oil fields, forests, or construction sites), and meeting at least 
one of the criteria of paragraph (2)(i) of this definition and at least 
one of the criteria of paragraph (2)(ii) of this definition.
    (i) Vehicles must have affixed components designed to work in an 
off-road environment (for example, hazardous material equipment or 
drilling equipment) or be designed to operate at low speeds making them 
unsuitable for normal highway operation.
    (ii) Vehicles must:
    (A) Have an axle that has a gross axle weight rating (GAWR), as 
defined in 49 CFR 571.3, of 29,000 pounds or more;
    (B) Have a speed attainable in 2 miles of not more than 33 mph; or
    (C) Have a speed attainable in 2 miles of not more than 45 mph, an 
unloaded vehicle weight that is not less than 95 percent of its GVWR, 
and no capacity to carry occupants other than the driver and operating 
crew.
    Heavy-duty vehicle means a vehicle as defined in Sec.  523.6.
    Incomplete vehicle means a vehicle which does not have the primary 
load carrying device or container attached when it is first sold as a 
vehicle or any vehicle that does not meet the definition of a complete 
vehicle. This may include vehicles sold to secondary vehicle 
manufacturers. Incomplete vehicles include cab-complete vehicles.
    Innovative technology means technology certified as such under 40 
CFR 1037.610.
    Light truck means a non-passenger automobile as defined in Sec.  
523.5.
    Medium duty passenger vehicle means a vehicle which would satisfy 
the criteria in Sec.  523.5 (relating to light trucks) but for its 
gross vehicle weight rating or its curb weight, which is rated at more 
than 8,500 lbs GVWR or has a vehicle curb weight of more than 6,000 lbs 
or has a basic vehicle frontal area in excess of 45 square feet, and 
which is designed primarily to transport passengers, but does not 
include a vehicle that:
    (1) Is an ``incomplete vehicle''' as defined in this subpart; or

[[Page 75400]]

    (2) Has a seating capacity of more than 12 persons; or
    (3) Is designed for more than 9 persons in seating rearward of the 
driver's seat; or
    (4) Is equipped with an open cargo area (for example, a pick-up 
truck box or bed) of 72.0 inches in interior length or more. A covered 
box not readily accessible from the passenger compartment will be 
considered an open cargo area for purposes of this definition.
    Mild hybrid gasoline-electric vehicle means a vehicle as defined by 
EPA in 40 CFR 86.1866-12(e).
    Motor home has the meaning given in 49 CFR 571.3.
    Motor vehicle has the meaning given in 40 CFR 85.1703.
    Passenger-carrying volume means the sum of the front seat volume 
and, if any, rear seat volume, as defined in 40 CFR 600.315-08, in the 
case of automobiles to which that term applies. With respect to 
automobiles to which that term does not apply, ``passenger-carrying 
volume'' means the sum in cubic feet, rounded to the nearest 0.1 cubic 
feet, of the volume of a vehicle's front seat and seats to the rear of 
the front seat, as applicable, calculated as follows with the head 
room, shoulder room, and leg room dimensions determined in accordance 
with the procedures outlined in Society of Automotive Engineers 
Recommended Practice J1100a, Motor Vehicle Dimensions (Report of Human 
Factors Engineering Committee, Society of Automotive Engineers, 
approved September 1973 and last revised September 1975).
    (1) For front seat volume, divide 1,728 into the product of the 
following SAE dimensions, measured in inches to the nearest 0.1 inches, 
and round the quotient to the nearest 0.001 cubic feet.
    (i) H61-Effective head room--front.
    (ii) W3--Shoulder room--front.
    (iii) L34--Maximum effective leg room-accelerator.
    (2) For the volume of seats to the rear of the front seat, divide 
1,728 into the product of the following SAE dimensions, measured in 
inches to the nearest 0.1 inches, and rounded the quotient to the 
nearest 0.001 cubic feet.
    (i) H63--Effective head room--second.
    (ii) W4--Shoulder room--second.
    (iii) L51--Minimum effective leg room--second.
    Pickup truck means a non-passenger automobile which has a passenger 
compartment and an open cargo area (bed).
    Recreational vehicle or RV means a motor vehicle equipped with 
living space and amenities found in a motor home.
    Running clearance means the distance from the surface on which an 
automobile is standing to the lowest point on the automobile, excluding 
unsprung weight.
    Static loaded radius arc means a portion of a circle whose center 
is the center of a standard tire-rim combination of an automobile and 
whose radius is the distance from that center to the level surface on 
which the automobile is standing, measured with the automobile at curb 
weight, the wheel parallel to the vehicle's longitudinal centerline, 
and the tire inflated to the manufacturer's recommended pressure.
    Strong hybrid gasoline-electric vehicle means a vehicle as defined 
by EPA in 40 CFR 86.1866-12(e).
    Temporary living quarters means a space in the interior of an 
automobile in which people may temporarily live and which includes 
sleeping surfaces, such as beds, and household conveniences, such as a 
sink, stove, refrigerator, or toilet.
    Van means a vehicle with a body that fully encloses the driver and 
a cargo carrying or work performing compartment. The distance from the 
leading edge of the windshield to the foremost body section of vans is 
typically shorter than that of pickup trucks and sport utility 
vehicles.
    Vocational tractor means a tractor that is classified as a 
vocational vehicle according to 40 CFR 1037.630.
    Vocational vehicle means a vehicle that is equipped for a 
particular industry, trade or occupation such as construction, heavy 
hauling, mining, logging, oil fields, refuse and includes vehicles such 
as school buses, motorcoaches and RVs.
    Work truck means a vehicle that is rated at more than 8,500 pounds 
and less than or equal to 10,000 pounds gross vehicle weight, and is 
not a medium-duty passenger vehicle as defined in 40 CFR 86.1803 
effective as of December 20, 2007.

PART 531--PASSENGER AUTOMOBILE AVERAGE FUEL ECONOMY STANDARDS

    29. The authority citation for part 531 continues to read as 
follows:

    Authority:  49 U.S.C. 32902; delegation of authority at 49 CFR 
1.50.

    30. Amend Sec.  531.5 by revising paragraph (a) Introductory text, 
revising paragraphs (b), (c), and (d), redesignating paragraph (e) as 
paragraph (f), and adding a new paragraph (e) to read as follows:


Sec.  531.5  Fuel economy standards.

    (a) Except as provided in paragraph (e) of this section, each 
manufacturer of passenger automobiles shall comply with the fleet 
average fuel economy standards in Table I, expressed in miles per 
gallon, in the model year specified as applicable:
* * * * *
    (b) For model year 2011, a manufacturer's passenger automobile 
fleet shall comply with the fleet average fuel economy level calculated 
for that model year according to Figure 1 and the appropriate values in 
Table II.
[GRAPHIC] [TIFF OMITTED] TP01DE11.753

Where:

N is the total number (sum) of passenger automobiles produced by a 
manufacturer;
Ni is the number (sum) of the ith passenger automobile model 
produced by the manufacturer; and

[[Page 75401]]

Ti is the fuel economy target of the ith model passenger 
automobile, which is determined according to the following formula, 
rounded to the nearest hundredth:
[GRAPHIC] [TIFF OMITTED] TP01DE11.754

Where:

Parameters a, b, c, and d are defined in Table II;
e = 2.718; and
x = footprint (in square feet, rounded to the nearest tenth) of the 
vehicle model.
[GRAPHIC] [TIFF OMITTED] TP01DE11.755

    (c) For model years 2012-2025, a manufacturer's passenger 
automobile fleet shall comply with the fleet average fuel economy level 
calculated for that model year according to Figure 2 and the 
appropriate values in Table III.
[GRAPHIC] [TIFF OMITTED] TP01DE11.756

Where:

CAFErequired is the fleet average fuel economy standard for a given 
fleet (domestic passenger automobiles or import passenger 
automobiles);
Subscript i is a designation of multiple groups of automobiles, 
where each group's designation, i.e., i = 1, 2, 3, etc., represents 
automobiles that share a unique model type and footprint within the 
applicable fleet, either domestic passenger automobiles or import 
passenger automobiles;
Productioni is the number of passenger automobiles produced for sale 
in the United States within each ith designation, i.e., which share 
the same model type and footprint;
TARGETi is the fuel economy target in miles per gallon (mpg) 
applicable to the footprint of passenger automobiles within each ith 
designation, i.e., which share the same model type and footprint, 
calculated according to Figure 3 and rounded to the nearest 
hundredth of a mpg, i.e., 35.455 = 35.46 mpg, and the summations in 
the numerator and denominator are both performed over all models in 
the fleet in question.
Figure 3:
[GRAPHIC] [TIFF OMITTED] TP01DE11.757


[[Page 75402]]


Where:

TARGET is the fuel economy target (in mpg) applicable to vehicles of 
a given footprint (FOOTPRINT, in square feet);
Parameters a, b, c, and d are defined in Table III; and
The MIN and MAX functions take the minimum and maximum, 
respectively, of the included values.
BILLING CODE 4910-59-P
[GRAPHIC] [TIFF OMITTED] TP01DE11.758

    (d) In addition to the requirements of paragraphs (b) and (c) of 
this section, each manufacturer shall also meet the minimum fleet 
standard for domestically manufactured passenger automobiles expressed 
in Table IV:

[[Page 75403]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.759

    (e) For model years 2022-2025, each manufacturer shall comply with 
the standards set forth in paragraphs (c) and (d) in this section, if 
NHTSA determines in a rulemaking, initiated after January 1, 2017, and 
conducted in accordance with 49 U.S.C. 32902, that the standards in 
paragraphs (c) and (d) are the maximum feasible standards for model 
years 2022-2025. If, for any of those model years, NHTSA determines 
that the maximum feasible standard for passenger cars and the 
corresponding minimum standard for domestically manufactured passenger 
cars should be set at a different level, manufacturers shall comply 
with those different standards in lieu of the standards set forth for 
those model years in paragraphs (c) and (d), and NHTSA will revise this 
section to reflect the different standards.
* * * * *
    31. Amend Sec.  531.6 by revising paragraph (a) to read as follows:


Sec.  531.6  Measurement and calculation procedures.

    (a) The fleet average fuel economy performance of all passenger 
automobiles that are manufactured by a manufacturer in a model year 
shall be determined in accordance with procedures established by the 
Administrator of the Environmental Protection Agency under 49 U.S.C. 
32904 and set forth in 40 CFR part 600. For model years 2017 to 2025, a 
manufacturer is eligible to increase the fuel economy performance of 
passenger cars in accordance with procedures established by EPA set 
forth in 40 CFR part 600, including any adjustments to fuel economy EPA 
allows, such as for fuel consumption improvements related

[[Page 75404]]

to air conditioning efficiency and off-cycle technologies.
* * * * *
    32. Revise Appendix A to part 531 to read as follows:

Appendix to Part 531--Example of Calculating Compliance Under Sec.  
531.5(c)

    Assume a hypothetical manufacturer (Manufacturer X) produces a 
fleet of domestic passenger automobiles in MY 2012 as follows:
[GRAPHIC] [TIFF OMITTED] TP01DE11.760


[[Page 75405]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.761


[[Page 75406]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.762

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[[Page 75407]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.763


[[Page 75408]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.764

PART 533--LIGHT TRUCK FUEL ECONOMY STANDARDS

    33. The authority citation for part 531 continues to read as 
follows:

    Authority:  49 U.S.C. 32902; delegation of authority at 49 CFR 
1.50.

    34. Amend Sec.  533.5 by revising paragraphs (a), (f), (g), (h), 
(i) and adding paragraphs (j) and (k) to read as follows:


Sec.  533.5  Requirements.

    (a) Each manufacturer of light trucks shall comply with the 
following fleet average fuel economy standards, expressed in miles per 
gallon, in the model year specified as applicable:
BILLING CODE 4910-59-P

[[Page 75409]]

[GRAPHIC] [TIFF OMITTED] TP01DE11.765

[GRAPHIC] [TIFF OMITTED] TP01DE11.766


[[Page 75410]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.767


[[Page 75411]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.768

Where:

N is the total number (sum) of light trucks produced by a 
manufacturer;
Ni is the number (sum) of the ith light truck model type 
produced by a manufacturer; and
Ti is the fuel economy target of the ith light truck 
model type, which is determined according to the following formula, 
rounded to the nearest hundredth:

[GRAPHIC] [TIFF OMITTED] TP01DE11.769

Where:

Parameters a, b, c, and d are defined in Table V;
e = 2.718; and
x = footprint (in square feet, rounded to the nearest tenth) of the 
model type.

[GRAPHIC] [TIFF OMITTED] TP01DE11.770

Where:

CAFErequired is the fleet average fuel economy standard for a given 
light truck fleet;
Subscript i is a designation of multiple groups of light trucks, 
where each group's designation, i.e., i = 1, 2, 3, etc., represents 
light trucks that share a unique model type and footprint within the 
applicable fleet.
Productioni is the number of light trucks produced for sale in the 
United States within each ith designation, i.e., which share the 
same model type and footprint;
TARGETi is the fuel economy target in miles per gallon (mpg) 
applicable to the footprint of light trucks within each ith 
designation, i.e., which share the same model type and footprint, 
calculated according to either Figure 3 or Figure 4, as appropriate, 
and rounded to the nearest hundredth of a mpg, i.e., 35.455 = 35.46 
mpg, and the summations in the numerator and denominator are both 
performed over all models in the fleet in question.


[[Page 75412]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.771

Where:

TARGET is the fuel economy target (in mpg) applicable to vehicles of 
a given footprint (FOOTPRINT, in square feet);
Parameters a, b, c, and d are defined in Table VI; and
The MIN and MAX functions take the minimum and maximum, 
respectively, of the included values.

[GRAPHIC] [TIFF OMITTED] TP01DE11.772


[[Page 75413]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.773

* * * * *
    (f) For each model year 1996 and thereafter, each manufacturer 
shall combine its captive imports with its other light trucks and 
comply with the fleet average fuel economy standard in paragraph (a) of 
this section.
    (g) For model years 2008-2010, at a manufacturer's option, a 
manufacturer's light truck fleet may comply with the fuel economy 
standard calculated for each model year according to Figure 1 and the 
appropriate values in Table V, with said option being irrevocably 
chosen for that model year and reported as specified in Sec.  537.8.
    (h) For model year 2011, a manufacturer's light truck fleet shall 
comply with the fleet average fuel economy standard calculated for that 
model year according to Figure 1 and the appropriate values in Table V.
    (i) For model years 2012-2016, a manufacturer's light truck fleet 
shall comply with the fleet average fuel economy standard calculated 
for that model year according to Figures 2 and 3 and the appropriate 
values in Table VI.
    (j) For model years 2017-2025, a manufacturer's light truck fleet 
shall comply with the fleet average fuel economy standard calculated 
for that model year according to Figures 2 and 4 and the appropriate 
values in Table VII.
    (k) For model years 2022-2025, each manufacturer shall comply with 
the standards set forth in paragraph (j) of this section, if NHTSA 
determines in a rulemaking, initiated after January 1, 2017, and 
conducted in accordance with 49 U.S.C. 32902, that the standards in 
paragraph (j) are the maximum feasible standards for model years 2022-
2025. If, for any of those model years, NHTSA determines that the 
maximum feasible standard for light trucks should be set at a different 
level, manufacturers shall comply with those different standards in 
lieu of the standards set forth for those model years in paragraph (j), 
and NHTSA will revise this section to reflect the different standards.
* * * * *
    35. Amend Sec.  533.6 by revising paragraph (b) to read as follows:


Sec.  533.6  Measurement and calculation procedures.

* * * * *
    (b) The fleet average fuel economy performance of all vehicles 
subject to part 533 that are manufactured by a manufacturer in a model 
year shall be determined in accordance with procedures established by 
the Administrator of the Environmental Protection Agency under 49 
U.S.C. 32904 and set forth in 40 CFR part 600. For model years 2017 to 
2025, a manufacturer is eligible to increase the fuel economy 
performance of light trucks in accordance with procedures established 
by EPA and set forth in 40 CFR part 600, including any adjustments to 
fuel economy EPA allows, such as for fuel consumption improvements 
related to air conditioning efficiency, off-cycle technologies, and 
hybridization and other over-compliance for full-size pickup trucks.
    36. Redesignate Appendix A to part 533 as Appendix to part 533 and 
revise it to read as follows:

[[Page 75414]]

Appendix to Part 533--Example of Calculating Compliance Under Sec.  
533.5(i)

    Assume a hypothetical manufacturer (Manufacturer X) produces a 
fleet of light trucks in MY 2012 as follows:
[GRAPHIC] [TIFF OMITTED] TP01DE11.775


[[Page 75415]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.776


[[Page 75416]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.777


[[Page 75417]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.778

[GRAPHIC] [TIFF OMITTED] TP01DE11.779


[[Page 75418]]


[GRAPHIC] [TIFF OMITTED] TP01DE11.780

Where:

TARGET is the fuel economy target (in mpg) applicable to vehicles of 
a given footprint (FOOTPRINT, in square feet);
Parameters a, b, c, d, e, f, g, and h are defined in Table VII; and
The MIN and MAX functions take the minimum and maximum, 
respectively, of the included values.

PART 536--TRANSFER AND TRADING OF FUEL ECONOMY CREDITS

    37. Revise the authority citation for part 536 to read as follows:

    Authority:  49 U.S.C. 32903; delegation of authority at 49 CFR 
1.50.

    38. Amend Sec.  536.4 by revising paragraph (c) to read as follows:


Sec.  536.4  Credits.

* * * * *
    (c) Adjustment factor. When traded or transferred and used, fuel 
economy credits are adjusted to ensure fuel oil savings is preserved. 
For traded credits, the user (or buyer) must multiply the calculated 
adjustment factor by the number of its shortfall credits it plans to 
offset in order to determine the number of equivalent credits to 
acquire from the earner (or seller). For transferred credits, the user 
of credits must multiply the calculated adjustment factor by the number 
of its shortfall credits it plans to

[[Page 75419]]

offset in order to determine the number of equivalent credits to 
transfer from the compliance category holding the available credits. 
The adjustment factor is calculated according to the following formula:
[GRAPHIC] [TIFF OMITTED] TP01DE11.781

Where:
A = Adjustment factor applied to traded and transferred credits;
VMTe = Lifetime vehicle miles traveled as provided in the 
following table for the model year and compliance category in which 
the credit was earned;
VMTu = Lifetime vehicle miles traveled as provided in the 
following table for the model year and compliance category in which 
the credit is used for compliance;
[GRAPHIC] [TIFF OMITTED] TP01DE11.782

MPGse = Required fuel economy standard for the originating (earning) 
manufacturer, compliance category, and model year in which the 
credit was earned;
MPGae = Actual fuel economy for the originating manufacturer, 
compliance category, and model year in which the credit was earned;
MPGsu = Required fuel economy standard for the user (buying) 
manufacturer, compliance category, and model year in which the 
credit is used for compliance; and
MPGau = Actual fuel economy for the user manufacturer, compliance 
category, and model year in which the credit is used for compliance.

    39. Amend Sec.  536.9 by revising paragraph (c) to read as follows:


Sec.  536.9  Use of credits with regard to the domestically 
manufactured passenger automobile minimum standard.

* * * * *
    (c) Transferred or traded credits may not be used, pursuant to 49 
U.S.C. 32903(g)(4) and (f)(2), to meet the domestically manufactured 
passenger automobile minimum standard specified in 49 U.S.C. 
32902(b)(4) and in 49 CFR 531.5(d).
* * * * *
    40. Amend Sec.  536.10 by revising the section heading and 
paragraphs (b) and (c) and adding paragraph (d) to read as follows:


Sec.  536.10  Treatment of dual-fuel and alternative-fuel vehicles.

* * * * *
    (b) If a manufacturer's calculated fuel economy for a particular 
compliance category, including any statutorily-required calculations 
for alternative fuel and dual fuel vehicles, is higher or lower than 
the applicable fuel economy standard, manufacturers will earn credits 
or must apply credits or pay civil penalties equal to the difference 
between the calculated fuel economy level in that compliance category 
and the applicable standard. Credits earned are the same as any other 
credits, and may be held, transferred, or traded by the manufacturer 
subject to the limitations of the statute and this regulation.
    (c) For model years up to and including MY 2019, if a manufacturer 
builds enough dual fuel vehicles (except plug-in electric vehicles) to 
improve the calculated fuel economy in a particular compliance category 
by more than the limits set forth in 49 U.S.C. 32906(a), the 
improvement in fuel economy for compliance purposes is restricted to 
the statutory limit. Manufacturers may not earn credits nor reduce the 
application of credits or fines for calculated improvements in fuel 
economy based on dual fuel vehicles beyond the statutory limit.
    (d) For model years 2020 and beyond, a manufacturer must calculate 
the fuel economy of dual fueled vehicles in accordance with 40 CFR 
600.510-12(c)(2)(v) and (vii).

PART 537--AUTOMOTIVE FUEL ECONOMY REPORTS

    41. The authority citation for part 537 continues to read as 
follows:

    Authority:  49 U.S.C. 32907, delegation of authority at 49 CFR 
1.50.

    42. Amend Sec.  537.5 by revising paragraph (c)(4) to read as 
follows:
* * * * *
    (c) * * *
    (4) Be submitted on CD or by email with the contents in a pdf or MS 
Word format except the information required in 537.7 must be provided 
in a MS Excel format. Submit 2 copies of the CD to: Administrator, 
National Highway Traffic Administration, 1200 New Jersey Avenue SW., 
Washington, DC 20590, or submit reports electronically to the following 
secure email address: cafe@dot.gov;
* * * * *
    43. Amend Sec.  537.7 by revising paragraphs (b)(3), (c)(4), and 
(c)(5) to read as follows:


Sec.  537.7  Pre-model year and mid-model year reports.

* * * * *
    (b) * * *
    (3) State the projected required fuel economy for the 
manufacturer's passenger automobiles and light trucks

[[Page 75420]]

determined in accordance with 49 CFR 531.5(c) and 49 CFR 533.5 and 
based upon the projected sales figures provided under paragraph (c)(2) 
of this section. For each unique model type and footprint combination 
of the manufacturer's automobiles, provide the information specified in 
paragraph (b)(3)(i) and (ii) of this section in tabular form. List the 
model types in order of increasing average inertia weight from top to 
bottom down the left side of the table and list the information 
categories in the order specified in paragraphs (i) and (ii) of this 
section from left to right across the top of the table. Other formats, 
such as those accepted by EPA, which contain all of the information in 
a readily identifiable format are also acceptable.
    (i) In the case of passenger automobiles:
    (A) Beginning model year 2013, base tire as defined in 49 CFR 
523.2,
    (B) Beginning model year 2013, front axle, rear axle and average 
track width as defined in 49 CFR 523.2,
    (C) Beginning model year 2013, wheelbase as defined in 49 CFR 
523.2, and
    (D) Beginning model year 2013, footprint as defined in 49 CFR 
523.2.
    (ii) In the case of light trucks:
    (A) Beginning model year 2013, base tire as defined in 49 CFR 
523.2,
    (B) Beginning model year 2013, front axle, rear axle and average 
track width as defined in 49 CFR 523.2,
    (C) Beginning model year 2013, wheelbase as defined in 49 CFR 
523.2, and
    (D) Beginning model year 2013, footprint as defined in 49 CFR 
523.2.
* * * * *
    (c) * * *
    (4) (i) Loaded vehicle weight;
    (ii) Equivalent test weight;
    (iii) Engine displacement, liters;
    (iv) SAE net rated power, kilowatts;
    (v) SAE net horsepower;
    (vi) Engine code;
    (vii) Fuel system (number of carburetor barrels or, if fuel 
injection is used, so indicate);
    (viii) Emission control system;
    (ix) Transmission class;
    (x) Number of forward speeds;
    (xi) Existence of overdrive (indicate yes or no);
    (xii) Total drive ratio (N/V);
    (xiii) Axle ratio;
    (xiv) Combined fuel economy;
    (xv) Projected sales for the current model year;
    (xvi) Air conditioning efficiency improvement technologies used to 
acquire the incentive in 40 CFR 86.1866 and the amount of the 
incentive;
    (xvii) Full-size pickup truck technologies used to acquire the 
incentive in 40 CFR 86.1866 and the amount of the incentive;
    (xviii) Off-cycle technologies used to acquire the incentive in 40 
CFR 86.1866 and the amount of the incentive;
    (xix) (A) In the case of passenger automobiles:
    (1) Interior volume index, determined in accordance with subpart D 
of 40 CFR part 600;
    (2) Body style;
    (B) In the case of light trucks:
    (1) Passenger-carrying volume;
    (2) Cargo-carrying volume;
    (xx) Frontal area;
    (xxi) Road load power at 50 miles per hour, if determined by the 
manufacturer for purposes other than compliance with this part to 
differ from the road load setting prescribed in 40 CFR 86.177-11(d);
    (xxii) Optional equipment that the manufacturer is required under 
40 CFR parts 86 and 600 to have actually installed on the vehicle 
configuration, or the weight of which must be included in the curb 
weight computation for the vehicle configuration, for fuel economy 
testing purposes.
    (5) For each model type of automobile which is classified as a non-
passenger vehicle (light truck) under part 523 of this chapter, provide 
the following data:
    (i) For an automobile designed to perform at least one of the 
following functions in accordance with 523.5 (a) indicate (by ``yes'' 
or ``no'') whether the vehicle can:
    (A) Transport more than 10 persons (if yes, provide actual 
designated seating positions);
    (B) Provide temporary living quarters (if yes, provide applicable 
conveniences as defined in 523.2);
    (C) Transport property on an open bed (if yes, provide bed size 
width and length);
    (D) Provide, as sold to the first retail purchaser, greater cargo-
carrying than passenger-carrying volume, such as in a cargo van and 
quantify the value; if a vehicle is sold with a second-row seat, its 
cargo-carrying volume is determined with that seat installed, 
regardless of whether the manufacturer has described that seat as 
optional; or
    (E) Permit expanded use of the automobile for cargo-carrying 
purposes or other non passenger-carrying purposes through:
    (1) For non-passenger automobiles manufactured prior to model year 
2012, the removal of seats by means installed for that purpose by the 
automobile's manufacturer or with simple tools, such as screwdrivers 
and wrenches, so as to create a flat, floor level, surface extending 
from the forward-most point of installation of those seats to the rear 
of the automobile's interior; or
    (2) For non-passenger automobiles manufactured in model year 2008 
and beyond, for vehicles equipped with at least 3 rows of designated 
seating positions as standard equipment, permit expanded use of the 
automobile for cargo-carrying purposes or other nonpassenger-carrying 
purposes through the removal or stowing of foldable or pivoting seats 
so as to create a flat, leveled cargo surface extending from the 
forward-most point of installation of those seats to the rear of the 
automobile's interior.
    (ii) For an automobile capable of off-highway operation, identify 
which of the features below qualify the vehicle as off-road in 
accordance with 523.5 (b) and quantify the values of each feature:
    (A) 4-wheel drive; or
    (B) A rating of more than 6,000 pounds gross vehicle weight; and
    (C) Has at least four of the following characteristics calculated 
when the automobile is at curb weight, on a level surface, with the 
front wheels parallel to the automobile's longitudinal centerline, and 
the tires inflated to the manufacturer's recommended pressure. The 
exact value of each feature should be quantified:
    (1) Approach angle of not less than 28 degrees.
    (2) Breakover angle of not less than 14 degrees.
    (3) Departure angle of not less than 20 degrees.
    (4) Running clearance of not less than 20 centimeters.
    (5) Front and rear axle clearances of not less than 18 centimeters 
each.
* * * * *
    44. Amend Sec.  537.8 by revising paragraph (a)(3) to read as 
follows:


Sec.  537.8  Supplementary reports.

    (a) * * *
    (3) Each manufacturer whose pre-model year report omits any of the 
information specified in Sec.  537.7 (b), (c)(1) and (2), or (c)(4) 
shall file a supplementary report containing the information specified 
in paragraph (b)(3) of this section.
* * * * *

    Dated: November 16, 2011.
Ray LaHood,
Secretary, Department of Transportation.
    Dated: November 16, 2011.
Lisa P. Jackson,
Administrator, Environmental Protection Agency.
[FR Doc. 2011-30358 Filed 11-30-11; 8:45 am]
BILLING CODE 4910-59-P


