DEPARTMENT OF TRANSPORTATION 

U.S. ENVIRONMENTAL PROTECTION AGENCY 

MYs 2021-2026 SAFE Vehicles Rule Proposal – Compliance Flexibilities 

Compliance with NHTSA’s CAFE and EPA’s CO2 standards is measured as a fleet-wide 

average. Compliance depends on two things: first, how well any given vehicle model performs 

relative to its target; second, how many of each vehicle model a manufacturer sells. 

While no given model needs to precisely meet its target if a manufacturer finds itself producing 

and selling large numbers of vehicles that fall well short of their targets, it will have to find a 

way of offsetting that shortfall, either by increasing production of vehicles that overperform their 

targets, or by taking advantage of compliance flexibilities. 

Compliance flexibilities for the CAFE and CO2 programs have a great deal of theoretical 

attractiveness: if properly designed, they can help to reduce overall regulatory costs while 

maintaining or improving programmatic benefits. If poorly constructed, they create significant 

potential for market distortion. To the extent that there is a market demand for vehicles with 

lower CO2 emissions and higher fuel economy, compliance flexibilities may create competitive 

disadvantages for some manufacturers if they become overly reliant on flexibilities rather than 

simply improving their vehicles’ performance to meet that market demand. 

If standards are set at levels that are genuinely appropriate and maximum feasible, then the need 

for extensive compliance flexibilities should be low. 

One category of compliance flexibilities includes credit mechanisms for overcompliance with 

the standards. 

• These include the ability to carry credits back to past model years or forward to future 

model years, the ability to transfer credits between car and truck fleets, and the ability for 

manufacturers to trade credits amongst themselves. 

Another category of compliance flexibilities are incentives that address gaps in compliance 

test procedures. 

• The Energy Policy and Conservation Act requires NHTSA to measure vehicle fuel 

economy using the 2-cycle test, which does not account for fuel economy gains due to 

efficient air conditioning systems, or other technologies that cannot be accounted for “on 

cycle,” such as aerodynamic technologies. NHTSA allows manufacturers to earn “fuel 

consumption improvement values” for these A/C efficiency and “off cycle” 

improvements, where the efficiency gains have been quantified in more advanced test 

procedures. EPA also allows improvements for the same technologies, which are 

accounted for as “credits” towards compliance. 
 

 

 

 

 

• The agencies examined two regulatory alternatives that removed the incentives for gaps 

in compliance test procedures. 

A third category of compliance flexibilities are incentives that encourage the application of 

specific technologies, and incentives that encourage alternative fueled vehicles. 

• For example, for each electric vehicle from model years 2017-2019 sold, EPA gives the 

automaker credit for selling two such vehicles—thereby increasing fleetwide 

compliance. Similarly, both agencies provide an incentive for manufacturers 

that build hybrid or advanced technology pickup trucks. 

The agencies discuss all of these flexibilities in the NPRM, and seek public comment on a 

wide array of options that range from ending these incentives to expanding them. 

• On one end of the spectrum, the NPRM requests comment on ending the CAFE credit 

trading program, and on the alternatives that remove the A/C efficiency and off-cycle 

improvement provisions. 

• On the other end, the NPRM requests comment on extending credit multipliers for 

advanced technology vehicles, extending the hybrid pickup truck credit provision to all 

passenger cars and light trucks. 

• And, while the agencies previously expressed concerns with providing credits for 

connected or autonomous vehicles in previous rules, this NPRM provides additional 

information and requests comment on that issue. 

NHTSA and EPA are seeking public comment on a wide range of options—including those 

relating to the current compliance credit system and to options for curtailing, reforming, or 

expanding it. 

EPA-420-F-18-905

August 2, 2018