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To: Dom Mancini From: David Bookbinder Date: July 18, 2011 Re: Greenhouse Gas Emission Standards and Fuel Efficiency Standards for Medium and Heavy- Duty Engines and Vehicles, Docket ID Nos. NHTSA- 2010 - 0079 and EPAHQ - OAR - 2010 - 0 162 (the “H eavy- D uty Rule”). Following up on our June 27 meeting, I wanted to address two issue s that we did not cover at that time concerning the NGV Multiplier provision that the natural gas vehicle interests have asked be part of the final H eavy D uty Rule. Implementatio n . Because the NGV Multiplier is identical to the provision Congress created for light - duty vehicles ( 49 U.S.C. 32905(c) ), NHTSA and EPA have already dealt with implementing it in the context of a joint NHTSA- EPA fuel economy and greenhouse gas rule. In the Light- Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards; Final Rule (75 FR 25324, May 7, 2010)(the “Light - Duty Rule”), the agencies laid out exactly how , in light of the NGV Multiplier, th at r ule would treat natural gas vehicles (“NGVs”) . Simply put, for reasons of administrative convenience EPA will use the 0.15 multiplier to calculate CO2 emissions just as NHTSA will use it to calculate fuel consumption : “As proposed, EPA will calculate CO2 emissions from dedicated alternative fuel vehicles for MY 2012 - 2015 by measuring the CO2 emissions over the test procedure and multiplying the results by the 0.15 conversion factor described above. ” Id. at 25433 . As noted, EPA would do so only for Model Years 2012 - 2015; thereafter , the NGV Multiplier would continue to be used for fuel economy calculations, with no effect on GHG methodology or compliance: for model years 2016 and later dedicated alternative fuel vehicles, CO2 will be measured over the 2 - cycle test in order to be included in a manufacturer's fleet average CO2 calculations. As noted above, this is different than CAFE methodology which provides a methodolog y for calculating a petroleum - based mpg equivalent for alternative fuel vehicles so they can be included in CAFE. Id. at 25434. Thus NHTSA and EPA were able to implement the NGV Multiplier in the Light- Duty Rule without any difficulties whatsoever, and there is no reason why the NGV Multiplier could not be included in the Heavy- Duty Rule just as easily. NGV Multiplier Magnitude

. The second issue concerns the 0.15 value for a Heavy- Duty NGV Multiplier ; as we made clear, we proposed using the 0.15 va lue because that was the number Congress deemed appropriate for NGVs

. However, we believe that there is another way to structure this multiplier, one which would also resolve a pressing issue on the GHG side of the Heavy- Duty Rule. As explained in detail in the attached document ( the “Unified Natural Gas Credit Proposal”), a . 87 NGV Multiplier, accompanied by an equivalent GHG emissions credit, would provide an elegant solution to multiple regulatory issues.2 UNIFIED NATURAL GAS CREDIT PROPOSAL The purpose of the Unified Natural Gas Credit Proposal is to simultaneously address two Heavy- Duty Rule regulatory issues: how to account for the fact that NGVs eliminate 100% of vehicle petroleum demand, and ensuring that NGVs can meet the Rule’s proposed met hane emission standard. The Natural Gas Vehicle Interests have pointed out to the agencies that the proposed methane standard is extremely stringent , an order of magnitude lower that the lowest methane emissions limit we are aware of, the current EURO -VI standard of 0.5 g/ kW h (0.37 g/bhp - hr). Comments of Natural Gas Vehicle Interests, Document No. EPA- HQ - OAR - 2010 - 0162 - 2119.1 , pp. 5 - 6. T he **only** way for natural gas engines to meet th e proposed standard will be with a combination of the most advanced catalyst technology (approximately $2,000 per vehicle) plus GHG emission credits. Id. p. 6. And the most logical place to get such credits i s from the upstream GHG emission benefits of natural gas

. According to the most rigorous analysis yet conducted, n atural gas has 30 - 50% less upstream GHG emissions than diesel

. 1 Allowing NGVs to take upstream emissions benefits into account not only solves the methane stringency issue, it fits perfectly within EPA’s policy goals. For example, natural gas upstream GHG emissions are not only lower than diesel, but those upstream e m issions are decreasing as renewable natural gas (biomethane from landfills and other sources) come s on the market

. Biomethane achieves nearly a 90 % reduction in upstream GHGs compared to diesel , and DOE estimat es future U.S. production of up to 16 billion gasoline gallons equivalent. 74 FR 24982. In contrast, diesel upstream GHG emissions are increas ing as more diesel is refined from tar sands, which increase upstream GHG emissions by up to 80%

. Accounting for upstream GHG reductions accords with EPA’s own rule that upstream GHG emissions will be included in vehicle compliance calculations. Under the LightDuty Rule , vehicles will have “compliance values calculated according to a methodology that accounts in fu ll for the net increase in upstream GHG emissions”, because “[t]here is a rational basis for EPA to account for this net difference, as that best reflects the real world effect on the air pollution problem we are addressing.” 75 FR 25436. 2

1 Compare CARB “ Detailed California - Modified GREET Pathway for Compressed Natural Gas (CNG) from North American Natural Gas ”, February 28, 2009, p.4; “ Detailed California - Modified GREET Pathway for Liquefied Natural Gas (LNG) from North American and Remote Natural Gas Sources ”, September 23, 2009, p. 5; “ Detailed California - Modified GREET Pathway for Ultra Low Sulfur Diesel (ULSD) from Average Crude Refined in California ”, February 28, 2009, p. 3. Each is available a t http://www.arb.ca.gov/fuels/lcfs/workgroups/workgroups.htm#path

. 2 EPA was referring to electric vehicles, which have higher upstream emissions than gasoline ones; in con trast, natural gas has lower upstream emissions than diesel.3

( Ironically, while EPA takes full credit for these upstream reductions in its cost- benefit analysis of the H eavy- D uty Rule -- where reduced upstream emissions are approximately 20% of the Rule’s total GHG reductions (75 FR 74282 - 83) -- EPA d id not propose t o allow manufacturers to do likewise

. ) Based on the following credit calculation, we propose a “unified” NGV credit consisting of a 13% GHG emission credit and a substantially modified NGV Multiplier of 0.87 ( i.e. , a 13% credit). Using the California A ir Resources Board’s 2009 analysis for the California Low- Carbon Fuel Standard, our calculation is as follows: Upstream GHG emissions for Ultra Low Sulfur Diesel (“USLD”): 19.81 gCO2e/MJ Upstream GHG emissions for CNG: 10.31 gCO2e/MJ Upstream GHG b enefit for CNG compared to diesel: 9.50 gCO2e/MJ Tailpipe ULSD GHG emissions : 74.9 0 gCO2e/MJ Ratio of Upstream CNG Benefit to Tailpipe ULSD emissions: **(9.50/74.9) =**  **13%** Credit: 13% of the 2017 HHD standard (460 g/bhp - hr) = **60 g/bhp**  **- hr**  13% of the 2017 MHD standard (487 g/bhp - hr) = **63 g/bhp**  **- hr**  Thus the appropriate upstream GHG credits for MY 2017 would be 60 g/bhp - hr for Heavy Heavy- Duty vehicles, and 6 3 g/bhp - hr for Medium Heavy- Duty Vehicles, representing 13% of the proposed tailpipe GHG standards for these two classes (460 and 487 g/bhp - hr, respectively). Th e magnitude of th is upstream GHG emission credit also provides the value for a modified NG V Multiplier, i.e ., 13% or 0. 87 ; giving the same value to both simplifies the regulatory requirements and, as noted above, is exactly what EPA did in the Light - Duty Rule for MY 2012 - 2015.