From: William Charmley/AA/USEPA/US To: "Achanta, Chandana L." <Ch andana_L._Achanta@ omb.eop.gov> Cc: Ed Nam/AA/USEPA/US@EPA, Elizabeth Kopits/DC/USE PA/US@EPA, james.tamm@dot.gov, Paul Balserak/D C Ed Nam/AA/USEPA/US@EPA Date: 03/26/2010 12:12 AM Subject: Two preamble text edits discussed today - AEO 2010 discussi on and the 41 sq. foot and smaller part of the pass e



### Chandana -

As we disussed Thursday afternoon, EPA and NHTSA will be getting OMB revisions to the entire rulemaking package later in the day on Friday. However, we agreed to try and get you the specific edits on a few issues by mid-morning Friday.

Two of those issue are in the attachment. These are our suggested edits to Preamble Section II discussing the agencies use of AEO 2010 early release, as well as expanding the discussion of the 41 square foot cut point for flattening the footprint curves.

thanks Bill

[attachment "Text edit excerpts for interagency review on 3.26.2010, final.doc" deleted by Tad Wysor/AA/USEPA/US]Text edit excerpts for interagency review.

The following are two of the text edits which EPA and NHTSA agreed to provide by Friday morning.



### Discussion of the use of AEO 2010 early release in Section II.B. of the preamble:

II.B.3. How Did the Agencies Develop th e Projected MY 2011-2016 Vehicle Fleet?

EPA and NHTSA have based the projection of tota l car and total light truck sales for MYs 2011- 2016 on projections made by the Department of Energy’s Energy Information Administration (EIA). 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. In the proposal, the agencies used the three reports published by EIA as part of the AEO 2009. We also stated that updated versions of these reports could be used in the final rules should AEO timely issue a new version. EIA published an early version of its AEO 2010 in December 2009, and the agencies are making use of it in this final rulemaking. The differences in projected sales in the 2009 report (used in the NPRM) and the early 2010 report are very small, so NHTSA and EPA have decided to simply scale the NPRM volumes for cars and trucks (in the aggregate) to match those in the 2010 report. We thus employ the sales projections from the scaled updated 2009 Annual Energy Outlook, which is equivalent to AEO 2010 Early Release, for the final rule. The scaling factors for each model year ar e presented in Chapter 1 of the Joint TSD for this

final rule.

The agencies recognize that AEO 2010 Early Release does include some impacts of future projected increases in CAFE stringency. We have closely examined the difference between AEO 2009 and AEO 2010 Early Release and we believe the difference s in total sales and the car/truck split attributed
to considerations of the standard in the final rule are small. 1

In the AEO 2010 Early Release, EIA projects that total light-duty vehicle sales will gradually recover from their currently depressed levels by around 2013. In 2016, car sales are projected to be 9.4 million (57 percent) and truck sales are projected to be 7.1 million (43 percent). Although the total level of sales of 16.5 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 higher fuel prices, as well as EISA’s requirement that the new vehicle fleet average at least 35 mpg by MY 2020.

1 The agencies have also looked at the impact of the rule in EIA’s projection, and concluded that the impact was small. EPA and NHTSA have evaluated the differences between the AEO 2010 (early draft) and AEO 2009 and found little difference in the fleet projections (or fuel prices). This analysis can be found in the memo to the docket: (Docket EPA-HQ-OAR-2009-0472).The agencies note that AEO does not represent the fleet at a level of detail sufficient to explicitly account for the reclassification—promulgated as part of NHTSA’s final rule for MY 2011 CAFE standards—of a number of 2-wheel drive sport utility vehicles from the truck fleet to the car fleet for MYs 2011 and after. Sales projections of cars and trucks for future model years can be found in the Joint TSD for these final

rules.



### Expanded discussion of the 41 square
‐ foot cutpoint for passenger cars in Section II.C. of the preamble:

II.C. Development of Attribute-Based Curve Shapes

In the NPRM, NHTSA and EPA proposed to set attribute-based CAFE and CO 2 standards that are defined by a mathematical function for MYs 2012-2016 passenger cars and light trucks. EPCA, as amended by EISA, expressly requires that CAFE standa rds 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. 2 The CAA has no such requirement, though in past rules, EPA has relied on both universal and attribute-based standards (e.g., for nonroad engines, EPA uses the attribute of horsepower). However, given the advantages of using attribute-based standards and given the goal of coordinating and harmonizing CO 2 standards promulgated under the CAA and CAFE standards promulgated under EPCA, EPA also proposed to issue standards that are attribute-based and defined by mathematical functions. There was consensus in the public comments that EPA should develop attribute-based CO 2 standards.

Comments received in response to the agencies’ decision to base standards on vehicle footprint were largely supportive. Several commenters (BMW, NADA, NESCAUM) expressed support for attribute-based (as opposed to flat or universal) st andards generally, and agreed with EPA’s decision to harmonize with NHTSA in this respect. Many commenters (Aluminum Association, BMW, ICCT, NESCAUM, NY DEC, Schade, Toyota) also supported the agencies’ decision to continue setting CAFE standards, and begin setting GHG standards, on the basis of vehicle footprint, although one commenter (NJ DEP) opposed the use of footprint due to concern that it encourages manufacturers to upsize vehicles and undercut the gains of the standard. Of the commenters supporting the use of footprint, several

focused on the benefits of harmonization—both betwee n EPA and NHTSA, and between the U.S. and the rest of the world. BMW commented, for example, th at many other countries use weight-based standards rather than footprint-based. While BMW did not object to NHTSA’s and EPA’s use of footprint-based standards, it emphasized the impact of this non-harmonization on manufacturers who sell vehicles globally, and asked the agencies to consider these effects. NADA supported the use of footprint, but cautioned that the agencies must be careful in setting the footprint curve for light trucks to ensure that manufacturers can continue to provide functi onality like 4WD and towing/hauling capacity.

2 49 U.S.C. 32902(a)(3)(A).Some commenters requested that the agencies consider other or mo re attributes in addition to footprint, largely reiterating comments submitted to the MYs 2011-2015 CAFE NPRM. Cummins supported the agencies using a secondary attribute to account for towing and hauling capacity in large trucks, for example, while Ferrari asked the agencies to consider a multi-attribute approach incorporating curb weight, maximum engine power or torque, and/or engine displacement, as it had requested in theprevious round of CAFE rulemaking. An individual, Mr. Kenneth Johnson, commented that weightbased standards would be preferable to footprint-based ones, because weight correlates better with fuel economy than footprint, because the use of footprint does not necessarily guarantee safety the way the agencies say it does, and because weight-based standards would be fairer to manufacturers.

In response, EPA and NHTSA continue to believe that the benefits of footprint-attribute-based standards outweigh any potential drawbacks raised by commenters, and that harmonization between the two agencies should be the overriding goal on this issue. As discussed by NHTSA in the MY 2011 CAFE final rule, 3 the agencies believe that the possibility of gaming is lowest with footprint-based standards, as opposed to weight-based or multi-attrib ute-based standards. Spec ifically, standards that incorporate weight, torque, power, towing capability, a nd/or off-road capability in addition to footprint would not only be significantly more complex, but by providing degrees of freedom with respect to more easily-adjusted attributes, they would make it less ce rtain that the future fleet would actually achieve the average fuel economy and CO 2 levels projected by the agencies. 

### 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 rule. The agencies are therefore finalizing MYs 2012- 2016 CAFE and GHG standards based on footprint.”

...... [late in this same section II.C ]

Before fitting the sloped portion of the cons trained linear form, NHTSA and EPA selected footprints above and below which to apply constraints (i.e., minimum and maximum values) on the function. The agencies believe that the linear form performs well in describing the observed relationship between footprint and fuel consumption or CO 2 emissions for vehicle models within the footprint ranges covering most vehicle models, but that the single (a s opposed to piecewise) linear form does not perform well in describing this relationship for the smallest and largest vehicle models. For passenger cars, the agency noted that several manufacturers offer smal l, 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 ch aracteristics that could make it technologically infeasible and/or economically imprac ticable for manufacturers focusing on such vehicles

3 See 74 FR 14359 (Mar. 30, 2009).to achieve the very challenging average requirements th at could apply in the absence of a constraint, EPA and NHTSA proposed to “cut off” the linear portion of the passenger car function at 41 square feet. 

### The agencies recognize that for manufacturers who make small vehicles in this size range, there is some incentive to downsize to make it easier to meet the target. However, at the same time, the agencies believe that there is a limit to the market for ever-smaller cars. 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 41sq ft to be
downsized even further is extremely small , and that the incentive to downsize, if present, will be

minimal

. For consistency, the agency proposed to ”cut off” the light truck function at the same footprint

, although no light trucks are currently offered below 41 square feet. The agencies further noted that above 56 square feet, the only passenger car model 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. NHTSA and EPA therefore also proposed to “cut off” the linear portion of the passenger car function at 56 square feet. Finally, the agencies noted that although public information is limited regarding the sales volumes of the many different configurations (cab desi gns and bed sizes) of pickup trucks, most of the largest pickups (e.g., the Ford F-150, GM Sierra/Silv erado, Nissan Titan, and Toyota Tundra) appear to fall just above 66 square feet in footprint. EPA a nd NHTSA therefore proposed to “cut off” the linear portion of the light truck function at 66 square feet. Deleted: do the same

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