Subject: Summary of additional interagency working comments received on draft rule under EO 12866 review

Sent: 11/10/2011 08:11 PM EST From: "Achanta, Chandana L." [Chandana_L._Achanta@omb.eop .gov] To: William Charmley; "'Steve.Wood@dot.gov'" <Steve.Woo d@dot.gov>; "'Neil.Eisner@dot.gov'" <Neil.Eisner@dot.gov>; "''james.tamm@dot.gov' (jame s.tamm@dot.gov)'" <james.tamm@dot.gov>; "'rebecca.yoon@dot.gov'" <rebecca.yoon@dot.gov>

Please find attached additional interagency working comments received on draft NPRM under EO 12866 and EO 13563 review. They are for your consideratio n and are subject to further policy review.

Thanks. Chandana

Summary of Interagency Working Comments on draft ru le under EO 12866.pdfSubject: Responses to the November 10, 2011 interagency comm ents

Date: 11/12/2011 06:02 PM From: William Charmley/AA/USEPA/US To: "Chandana Achanta" <Chandana_L._Achanta@omb.eop.gov > Cc: "Ed Nam" <Nam.Ed@epamail.epa.gov>, "Rebecca Yoon" < rebecca.yoon@dot.gov>, "Jim Tamm"

<james.tamm@dot.gov>, "Robin Moran" <Moran.robin@ep a.gov>

Chandana

Attached are responses to the 11.10 comments

Thanks Bill

11 10 2011 Interagency Working Comments EPA NHTSA r esponse.docxSummary of Interagency Working Comments Received on Draft rule under EO 12866 review. Subject to
further policy review.

1 Below is a summary of interagency working comments received duri ng EO 12866 and EO 13563 review of the draft rule “Joint Rulemaking to Establish Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fu el Economy Standards”. They are for your consideration and subject to further policy review.

1) Interagency commenters recommend that EPA in clude a chapter in their RIA effects of learning costs and all learning assumptions . Commenters note that NHTSA includes a chapter on learning and the TSD includes more informa tion on learning, but EPA RIA
does not include this discussion.

2) Interagency commenters recommend that EPA include the following highlighted language toward the end of the NAS report section under Appendix A- Sensivitities:

“For the reasons described above, EPA has elected not to perform a sensitivity assessment based on the 2010 NAS Report.

However, we are providing the underlying studies th at were not available to be included in the NAS study for public comment. They are av ailable [insert docket number]. Also, the 2011 Ricardo study commissioned by EPA was p eered reviewed and those results are available [insert docket number].

We seek comment on the relative merits of pr oviding alternative estimates of benefits and costs of this action using the 2010 NAS Report as a starting point. Also, we seek comment on how the recommendations of the peer reviewer s of the Ricardo model can be incorporated in timely manner to be useful for the final rulemaking analysis, including:

 The appropriateness of the baseline vehicles modeled in both the NAS report and the Ricardo model and the likely effect of the assumed baseline vehicles on the benefit and cost estimates of this proposal—incl uding the potential to include a baseline model of a hybrid vehicle;

 Incremental analysis and expansion of th e technology “package definitions” to enable
evaluation of the individual effects of a variety of technologies, including incorporating appropriate weight increases or decreases specific to each technology;

 Clarification of assumptions made and th e method of simulation, including providing fuel and efficiency map data for al l engines used in simulation; and

 Calibration of the Ricardo model and the validation of model results.Summary of Interagency Working Comments Received on Draft rule under EO 12866 review. Subject to
further policy review.

2  Estimation of technologies that have nega tive costs (i.e those that reduce fuel consumption AND reduce costs).”

3) Effect of rule on the distribution of the fleet footprint . Interagency commenters
recommend that EPA and RIA include th e following description in the Preamble discussion of safety impacts:

“The standards in this proposal are intended to eliminate to comply by changing the size (i.e., footprint) of vehicles. This is a well- understood problem with prior “flat” standards, which the National Academy of Sciences conc luded [2002 report] led to adverse safety consequences, among other effects.

Nevertheless the agencies ac knowledge it is possible that changing the footprint could, under certain circumstances, be a relatively lo w-cost means of achieving compliance with the standards proposed today. This could happen in one of two ways. Manufacturers could change the size of a vehicle during the redesign cycle in order to increase overall fuel economy relative to the targ et for that particular vehicl e size. (Footnote: Suppose, for example, a 50-square-foot vehicle would ex ceed its target by 2 mpg, but a redesigned
new vehicle would cost the same but exceed the slightly larger target by 3 mpg.) Alternatively, instead of redesigning vehicl es, manufacturers could lower the price and increase production of vehicles of sizes w hose fuel economy is favorable (well above the target for that footprint) a nd/or increase the price and d ecrease production those whose fuel economy is unfavorable. For example, the ag encies note that the standard is flat for vehicles smaller than roughly 41 square feet. Further downsiz ing in this ca tegory could be a relatively low-cost way of helping ach ieve overall compliance. To the extent manufacturers engage in eith er behavior, the net result w ould be vehicles larger or smaller on average than they otherwise w ould have been in the absence of this regulation. Changes to the average size, and/ or the distribution of vehicle sizes, could also have important implications for the overall safety of the new vehicle fleet.

For various reasons, the analysis assumes this rule will not have either of the effects described above. In other words, it will have no effect on the sales-weighted distribution of vehicle footprints. In pa rticular, the analysis assumes production of vehicles with footprints where the curve is flat (i.e., be low 41 square feet) will not increase over their baseline levels (i.e., those that will exist in MY 2016) as a result of this rule. We seek comment on the appropriateness of the overall assumptions that this rule will have noSummary of Interagency Working Comments Received on Draft rule under EO 12866 review. Subject to
further policy review.

3 effect on the overall sales-wei ghted distribution of vehicle f ootprints of on the sales of vehicles smaller than 41 sq ft. Please provide data and/or other evidence to support any claim general or specific that the size distri bution of the fleet will or will not change as a
result of this rule.”

4) EPA Preamble Discussion of Clean Air Act benefits. Interagency commenters recommend that agencies remove discussion of the benefits and net benefits of previous non-GHG Clean Air Act regulations since it has no bearing on the benefits or net benefits of this rulemaking. The text has appeared in multiple other contexts, provides no new information, and takes up valuable space since commenters need to focus on the relevant text to read and provide meaningful comments.

5) Interagency commenter thanks the agencies for the following response to a previous passback:

EPA and NHTSA Response: We are not aware of empirical evidence on how or whether past fuel economy labels have changed purchase decisions. A literature review that contributed to the fuel economy labeling rule 1 points out that consumers increasingly do a great deal of research on the internet before goi ng to an auto dealer. In the pre-focus group survey results found in the final reports for the recently revised label puts some quantification to the importance of fuel economy in purchase decisions (found at www.nhtsa.gov/fuel-economy ). In addition, manufacturers often use information of this type (from NCAP or ot her labels) in their advertising. To the extent that advertising and the label improve consumers understanding of the value of fuel economy, purchase decisions could change. Until the newly revised labels enter the marketplace with MY13 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. Whether it will play a more prominent role in affecting consumer decisions is as yet unknown.

1 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

.Summary of Interagency Working Comments Received on Draft rule under EO 12866 review. Subject to
further policy review.

4 Interagency commenter recommends that ag encies summarize this response in the preamble and clarify in the preamble that agenci es do not have estimates or evidence that the label will have any effect in influencing purchase decisions.1



### Interagency Comments Provided to EPA and NHTSA on N ovember 10, 2011

regarding the 2017-2025 Light-duty GHG/CAFE NPRM

Interagency Comment 1) Interagency commenters recommend that EPA includ e a chapter in their RIA effects of learning costs and all learnin g assumptions. Commenters note that NHTSA includes a chapter on learning and the TSD includes more information on learning, but EPA RIA does not include this discussion.

EPA Response: EPA has added a discussion of the EPA use of manufa cturer learning by doing to Chapter 1 of the EPA Draft RIA, which is t he EPA Draft RIA Chapter that discusses our technology cost estimates. We also point the r eader to the Draft Joint TSD Chapter 3 for additional discussion of the cost learning curves.

Interagency Comment 2) Interagency commenters recommend that EPA includ e the following highlighted language toward the end of the NAS repo rt section under Appendix A- Sensivitities: “For the reasons described above, EPA has elected n ot to perform a sensitivity assessment based on the 2010 NAS Report.

However, we are providing the underlying studies th at were not available to be included in the NAS study for public comment. They are avail able [insert docket number]. Also, the 2011 Ricardo study commissioned by EPA was peer ed reviewed and those results are available [insert docket number]. We seek comment on the relative merits of providing alternative estimates of benefits and costs of this action using the 2010 NAS Report as a starting point. Also, we seek comment on how the recommendations of the peer reviewers of the Ricardo model can be incorporated in timely manner to be useful for the final rulemaking analysis, including:

 The appropriateness of the baseline vehicles modele d in both the NAS report and the Ricardo model and the likely effect of the assumed baseline vehicles on the benefit and cost estimates of this proposal—including the p otential to include a baseline model of a hybrid vehicle;

 Incremental analysis and expansion of the technolog y “package definitions” to enable evaluation of the individual effects of a variety o f technologies, including incorporating appropriate weight increases or decre ases specific to each technology;

 Clarification of assumptions made and the method of simulation, including providing fuel and efficiency map data for all engines used i n simulation; and

 Calibration of the Ricardo model and the validation of model results.

 Estimation of technologies that have negative costs (i.e those that reduce fuel

consumption AND reduce costs).”2

EPA Response: We have modified the discussion in the draft RIA Ch apter regarding the 2010 NAS. We have added new language which does the fol lowing;

- A more detailed list of the new studies and informa tion which EPA reviewed which were not reviewed or available to the 2010 NAS Comm ittee, and we point to the EPA docket for this information, and we point to the dr aft Joint TSD for additional discussion of this information

- We also request comment on the relative merits of E PA’s approach for estimating the cost and effectiveness for the full range of techno logies considered by EPA, and the appropriates of an alternative approach of basing E PA’s estimates principally on the 2010 NAS study’s estimates of cost and effectivenes s.

- We also request comment specifically on EPA’s use o f the 2011 Ricardo study, and we seek comment on any ways to improve our estimate s of technology effectiveness, including the use of full vehicle simulation modeli ng as was used in the 2011 Ricardo study. We point readers for the detailed discussio n of the agencies use of the 2011 Ricardo study in Chapter 3 of the draft Joint TSD, and we point the reader to review the adequacy of Ricardo’s updates to the report and the Ricardo response to comments which will be in the EPA docket.

Regarding the interagency request to request commen ts on the baseline vehicles used in the Ricardo model as it relates to the 2010 NAS stu dy. We are not aware that there are defined baseline vehicles in the 2010 NAS study. Regarding a hybrid vehicle for validation of the Ricardo results, EPA has provided a comparison asse ssment in Chapter 3 of the joint Draft TSD between of the actual fuel economy performance of t he MY2011 Sonata Hybrid and the estimates used in this proposal, which were based o n the Ricardo simulation, which shows very good agreement, see Chapter 3.3.2.3 of the draft Jo int TSD, Table 3-19. Regarding the fueling maps, EPA has provided in the Joint TSD Chapter 3 a map of the 27bar engine cooled EGR turbo-charged, downsized, GDI engine used by Ricard o for commenters to review, see Figure 3- 11 in the draft Joint TSD. We used the data from t he Ricardo model to reverse engineer that map so commenters can assess its’ appropriateness. Reg arding the “incremental analysis” comment – this comment is significantly beyond the scope of t he Ricardo project – which was specifically focused on assessing technology packages. The fina l interagency comment is not related to the Ricardo work, as that study only analyzed technolog y effectiveness.

Interagency Comment 3) Effect of rule on the distribution of the fleet fo otprint . Interagency commenters recommend that EPA and RIA include the f ollowing description in the Preamble discussion of safety impacts:

“The standards in this proposal are intended to eli minate to comply by changing the size (i.e., footprint) of vehicles. This is a well-under stood problem with prior “flat” standards, which the National Academy of Sciences c oncluded [2002 report] led to adverse safety consequences, among other effects. Nevertheless the agencies acknowledge it is possible that changing the footpr int could, under certain circumstances, be a relatively low-cost means of ac hieving compliance with the standards proposed today. This could happen in one of two ways. Manufacturers could3

change the size of a vehicle during the redesign cy cle in order to increase overall fuel economy relative to the target for that particular vehicle size. (Footnote: Suppose, for example, a 50-square-foot vehicle would exceed its target by 2 mpg, but a redesigned new vehicle would cost the same but exceed the slig htly larger target by 3 mpg.) Alternatively, instead of redesigning vehicles, man ufacturers could lower the price and increase production of vehicles of sizes whose fuel economy is favorable (well above the target for that footprint) and/or increase the pric e and decrease production those whose fuel economy is unfavorable. For example, the agenc ies note that the standard is flat for vehicles smaller than roughly 41 square feet. Furth er downsizing in this category could be a relatively low-cost way of helping achieve ove rall compliance. To the extent manufacturers engage in either behavior, the net re sult would be vehicles larger or smaller on average than they otherwise would have b een in the absence of this regulation. Changes to the average size, and/ or th e distribution of vehicle sizes, could also have important implications for the overall sa fety of the new vehicle fleet. For various reasons, the analysis assumes this rule wil l not have either of the effects described above. In other words, it will have no ef fect on the sales-weighted distribution of vehicle footprints. In particular, the analysis assumes production of vehicles with footprints where the curve is flat (i.e., below 41 square feet) will not increase over their baseline levels (i.e., those that will exist in MY 2016) as a result of this rule. We seek comment on the appropriateness of the overall assum ptions that this rule will have no effect on the overall sales-weighted distribution o f vehicle footprints of on the sales of vehicles smaller than 41 sq ft. Please provide data and/or other evidence to support any claim general or specific that the size distributio n of the fleet will or will not change as a result of this rule.”

EPA and NHTSA Response: EPA and NHTSA will add additional language to Pream ble II.G. regarding this topic and requesting comment on our assumption of no change in footprint in response to the proposed standards.

Interagency Comment 4) EPA Preamble Discussion of Clean Air Act benefits. Interagency commenters recommend that agencies remove discussio n of the benefits and net benefits of previous non-GHG Clean Air Act regulations since it has no bearing on the benefits or net benefits of this rulemaking. The text has appeared in multiple other contexts, provides no new information, and takes up valuable space since comm enters need to focus on the relevant text to read and provide meaningful comments.

EPA Response: EPA believes this discussion is useful as an overvi ew of mobile source regulations under Title II of the Clean Air Act, an d we decline the suggestion to remove it.

Interagency Comment 5) Interagency commenter thanks the agencies for the following response to a previous passback: EPA and NHTSA Response:4

We are not aware of empirical evidence on how or wh ether past fuel economy labels have changed purchase decisions. A literatur e review that contributed to the fuel economy labeling rule1 points out that con sumers increasingly do a great deal of research on the internet before going to an auto dealer. In the pre-focus group survey results found in the final reports for the recently revised label puts some quantification to the importance of fuel econo my in purchase decisions (found at www.nhtsa.gov/fuel-economy). In addition, manufacturers often use information of this type (from NCAP or other labels ) in their advertising. To the extent that advertising and the label improve consu mers understanding of the value of fuel economy, purchase decisions could cha nge. Until the newly revised labels enter the marketplace with MY13 vehicles (or optionally sooner), the agencies may not be able to determine how vehicle p urchase decisions are likely to change as a result of the new labels. Whether it will play a more prominent role in affecting consumer decisions is as yet unkn own.

Interagency commenter recommends that agencies summ arize this response in the preamble and clarify in the preamble that agencies do not have e stimates or evidence that the label will have any effect in influencing purchase decisions.

EPA and NHTSA Response: We will insert language into the EPA Preamble III a nd NHTSA Preamble IV discussing this issue.