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differences in how agencies apply technologies to vehicles in their respective models, we report the ranges
for the effectiveness values used in each model. While the agencies believe that
the ideal estimates for the final rule
would be based on tear down studies or BOM approach and subjected to a transparent peer-reviewed process,
NHTSA and EPA are confident that the thorough review conducted, led to the best available conclusion regarding technology costs and effectiveness estimates for the current rulemaking and resulted in excellent consistency between the agencies’ respective analyses for developing the CAFE and

CO 2 standards.

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 potentiallylimitless spectrum of possible values that could result from adding the technology to different vehicles. For example, while the agencies have estimated an effectiveness of 0.5 percent 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 CO 2 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 CO 2 emissions, but it is also highly dependent on vehicle-specific functional objectives. For purposes of this NPRM, 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. However, the agencies seek comment on whether additional levels of specificity beyond that already provided would improve the analysis for the final rule, and if so, how those levels of specificity should be analyzed.

Chapter 3 of the draft Joint Technical Support Document contains a detailed description of our assessment of vehicle technology cost and effectiveness estimates. The agencies note that the technology costs included in this NPRM take into account only those associated
with the initial build of the vehicle. The agencies seek comment on the additional lifetime costs, if any, associated with the implementation of advanced technologies including warranty costs, and maintenance and replacement costs such as replacement costs for low rolling resistance tires, low friction lubricants, and hybrid batteries,
and maintenance on diesel aftertreatment components.

F. Joint Economic Assumptions

The agencies’ preliminary analysis of
alternative CAFE and GHG standards for the model years covered by this proposed rulemaking rely on a range of forecast information, economic estimates, and input parameters. This section briefly describes the agencies’ preliminary choices of specific parameter values. These proposed economic values play a significant role in determining the benefits of both
CAFE and GHG standards.

In reviewing these variables and the agency’s estimates of their values for purposes of this NPRM, NHTSA and EPA reconsidered previous comments
that NHTSA had received and reviewed newly available literature. As a consequence, the agencies elected to revise some economic assumptions and parameter estimates, while retaining others. Some of the most important changes, which are discussed in greater detail in the agencies’ respective sections below, as well as in Chapter 4 of the joint TSD and in Chapter VIII of NHTSA’s PRIA and Chapter 8 of EPA’s DRIA, include significant revisions to the markup factors for technology costs; reducing the rebound effect from 15 to 10 percent; and revising the value of reducing CO 2 emissions based on recent interagency efforts to develop estimates of this value for government-wide use. The agencies seek comment on the economic assumptions described below.

• Costs of fuel economy-improving technologies—These estimates are presented in summary form above and in more detail in the agencies’ respective sections of this preamble, in Chapter 3 of the joint TSD, and in the agencies’ respective RIAs. The technology cost estimates used in this analysis are intended to representmanufacturers’ direct costs for highvolume production of vehicles with these technologies and sufficient experience with their application so that all cost reductions due to ‘‘learning curve’’ effects have been fully realized. Costs are then modified by applying near-term indirect cost multipliers ranging from 1.11 to 1.64 to the
estimates of vehicle manufacturers’ direct costs for producing or acquiring each technology to improve fuel economy, depending on the complexity of the technology and the time frame
over which costs are estimated.

• Potential opportunity costs of improved fuel economy —This estimate 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
assume that these vehicle attributes do not change, and include the cost of maintaining these attributes as part of the cost estimates for technologies. However, it is possible that the technology cost estimates do not include adequate allowance for the necessary efforts by manufacturers to maintain vehicle performance, carrying capacity, and utility while improving fuel economy and reducing GHG emissions. While, in principle,
consumer vehicle demand models can measure these effects, these models do not appear to be robust across specifications, since authors derive a wide range of willingness-to-pay values for fuel economy from these models, and there is not clear guidance from the literature on whether one specification is clearly preferred over another. Thus, the agencies seek comment on how 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 vehicle attributes such asperformance, passenger- and cargocarrying capacity, or other dimensions of utility.

• 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 NHTSA and EPA to establish compliance with the proposed CAFE and GHG standards. The agencies use an on-road fuel economy gap for light-duty vehicles of 20 percent lower than published fuel economy levels. 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 mpgVerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00052 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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(20*.80). 92 NHTSA previously used this estimate in its MY 2011 final rule, and the agencies confirmed it based on independent analysis for use in this

NPRM.

• 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. The agencies relied on the most recent fuel price projections from the U.S. Energy Information Administration’s (EIA) Annual Energy Outlook (AEO) for this analysis. Specifically, the agencies used the AEO 2009 (April 2009 release)
Reference Case forecasts of inflationadjusted (constant-dollar) retail gasoline and diesel fuel prices, which represent the EIA’s most up-to-date estimate of the most likely course of future prices for petroleum products. 93

EIA’s Updated Reference Case reflects
the effects of the American Reinvestment and Recovery Act of 2009,
as well as the most recent revisions to the U.S. and global economic outlook. In addition, it also reflects the provisions of the Energy Independence and Security Act of 2007 (EISA), including the requirement that the combined mpg level of U.S. cars and light trucks reach 35 miles per gallon by model year 2020. Because this provision would be expected to reduce future U.S. demand for gasoline and other fuels,
there is some concern about whether the AEO 2009 forecast of fuel prices already partly reflects the increases in CAFE standards considered in this rule, and thus whether it is suitable for valuing the projected reductions in fuel use. In response to this concern, the agencies
note that EIA issued a revised version of AEO 2008 in June 2008, which modified its previous December 2007 Early
Release of AEO 2008 to reflect the effects of the recently-passed EISA legislation. 94 The fuel price forecasts reported in EIA’s Revised Release of AEO 2008 differed by less than one cent per gallon over the entire forecast period (2008–230) from those previously issued

92 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.

93 Energy Information Administration, Annual Energy Outlook 2009, Revised Updated Reference Case (April 2009), Table 12. Available at http:// www.eia.doe.gov/oiaf/servicerpt/stimulus/excel/
aeostimtab

_ 12.xls (last accessed July 26, 2009).

94 Energy Information Administration, Annual Energy Outlook 2008, Revised Early Release (June 2008), Table 12. Available at http:// www.eia.doe.gov/oiaf/archive/aeo08/excel/
aeotab

_ 12.xls (last accessed September 12, 2009). as part of its initial release of AEO 2008. Thus, the agencies are reasonably confident that the fuel price forecasts presented in AEO 2009 and used to analyze the value of fuel savings projected to result from this rule are not unduly affected by the CAFE provisions of EISA, and therefore do not cause a baseline problem. Nevertheless, the agencies request comment on the use of the AEO 2009 fuel price forecasts, and particularly on the potential impact of
the EISA-mandated CAFE improvements on these projections.

• Consumer valuation of fuel economy and payback period —In estimating the value of fuel economy improvements that would result from
alternative CAFE and GHG standards to potential vehicle buyers, the agencies assume that buyers value the resulting fuel savings over only part of the expected lifetime 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 using rates of 3% and 7%. 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. 95 The agencies
relied on the AEO 2009 Reference Case for forecasts of total vehicle sales, while the baseline market forecast developed by the agencies ( see Section II.B) divided total projected sales into sales of cars and light trucks.

• Vehicle survival assumptions— Wethen applied updated values of agespecific survival rates for cars and light trucks to these adjusted forecasts of passenger car and light truck sales to
determine the number of these vehicles remaining in use during each year of their expected lifetimes.

95 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 July 27, 2009). • Total vehicle use—We then
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 Transportation Survey (NHTS), 96 adjusted to account for the effect 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 growth in annual car and light truck mileage at each age that is necessary for total car and light truck travel to increase at the
rates forecast in the AEO 2009 Reference Case. The growth rate in average annual car and light truck use produced by this calculation is approximately 1.1 percent

per year. 97 This rate was applied to the mileage figures derived from the 2001 NHTS to estimate annual mileage during each year of the expected
lifetimes of MY 2012–2016 cars and light trucks. 98

• Accounting for the rebound effect of higher fuel economy —The rebound
effect refers to the fraction of fuel savings expected to result from an increase in vehicle fuel economy— particularly an increase required by the adoption of higher CAFE and GHG standards—that is offset by additional
vehicle use. The increase in vehicle use occurs because higher fuel economy reduces the fuel cost of driving, 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 slightly more. For purposes of this NPRM, the agencies have elected to use a 10 percent rebound effect in their analyses of fuel savings and other benefits from higher standards.

• Benefits from increased vehicle

use—The increase in vehicle use from the rebound effect provides additional benefits to their owners, who may make more frequent trips or travel farther to
reach more desirable destinations. This

96 For a description of the Survey, see http:// nhts.ornl.gov/quickStart.shtml (last accessed July 27, 2009).

97 It was not possible to estimate separate growth rates in average annual use for cars and light trucks, because of the significant reclassification of light truck models as passenger cars discussed previously.

98 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 for passenger cars and about 16 percent for light trucks.VerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00053 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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additional travel provides benefits to drivers and their passengers by improving their access to social and economic opportunities away from
home. The benefits from increased
vehicle use include both the fuel expenses associated with this additional travel, and the consumer surplus it provides. We estimate the economic value of the consumer surplus provided by added driving 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. Because it depends on the extent of improvement in fuel economy, the value of benefits from increased vehicle use changes by model year and varies among alternative
standards.

• The value of increased 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 thus provides some additional benefits
to their owners. No direct estimates of the value of extended vehicle range are readily available, so the agencies’ analysis calculates the reduction in the annual number of required refueling cycles that results from improved fueleconomy, and applies DOTrecommended values of travel time savings to convert the resulting time savings to their economic value. 99 The agencies invite comment on the assumptions used in this analysis. Please see the Chapter 4 of the draft Joint TSD for details.

• Added costs from congestion,
crashes and noise—Although it provides some benefits to drivers,
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 on 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 during peak periods. These added delays impose higher costs on drivers and other vehicle occupants in
the form of increased travel time and operating expenses, increased costs

99 Department of Transportation, Guidance Memorandum, ‘‘The Value of Saving Travel Time: Departmental Guidance for Conducting Economic Evaluations,’’ Apr. 9, 1997. http://ostpxweb.dot.gov/ policy/Data/VOT97guid.pdf (last accessed October 20, 2007); update available at http://ostpxweb.dot. gov/policy/Data/VOTrevision1

_2-11-03.pdf (last accessed October 20, 2007). 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 the increased external costs caused by added driving due to the
rebound effect. 100

• Petroleum consumption and import
externalities—U.S. consumption and imports of 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. In economics literature on this subject, these costs include (1) higher prices for petroleum products resulting from the effect of

U.S. oil import demand on the world oil price (‘‘monopsony costs’’); (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. 101 Reducing

U.S. imports of crude petroleum or refined fuels can reduce the magnitude of these external costs. Any reduction in
their total value that results from lower fuel consumption and petroleum imports represents an economic benefit of setting more stringent standards over
and above the dollar value of fuel savings itself. The agencies do not include a value for monopsony costs in
order to be consistent with their use of a global value for the social cost of carbon. Based on a recently-updated ORNL study, we estimate that each gallon of fuel saved that results in a reduction in U.S. petroleum imports (either crude petroleum or refined fuel) will reduce the expected costs of oil supply disruptions to the U.S. economy by $0.169 (2007$). The agencies do not include savings in budgetary outlays to support U.S. military activities among the benefits of higher fuel economy and the resulting fuel savings. Each gallon of

100 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 July 29, 2009).

101 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. 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. 102

• Air pollutant emissions

Æ Impacts on criteria air pollutant

emissions—While reductions in domestic fuel refining and distribution that result from lower fuel consumption
will reduce U.S. emissions of criteria pollutants, additional vehicle use
associated with the rebound effect will increase emissions of these pollutants.
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. Criteria air pollutants emitted by vehicles and during fuel production include carbon monoxide (CO), hydrocarbon compounds (usually referred to as ‘‘volatile organic compounds,’’ or VOC), nitrogen oxides (NO X), fine particulate matter (PM 2.5 ), and sulfur oxides (SO X). It is assumed that the emission rates (per mile) stay constant for future year vehicles.

Æ EPA and NHTSA estimate the
economic value of the human health benefits associated with reducing exposure to PM 2.5 using a ‘‘benefit-perton’’ method. These PM 2.5 -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 PM 2.5 , or one ton of a pollutant that contributes to secondarily-formed PM 2.5 (such as NO X , SO X , and VOCs), from a specified source. Chapter 4.2.9 of the Technical Support Document that accompanies this proposal includes a description of
these values.

Reductions in GHG 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. By reducing the volume of fuel consumed by passenger cars and light trucks, higher standards will thus reduce GHG emissions generated by fuel use, as well as throughout the fuel supply cycle. The agencies estimated the increases of
GHGs other than CO 2, including

102 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%imported crude petroleum and 10% domesticallyproduced 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% =

0.50gallons + 0.45 gallons = 0.95 gallons.VerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00054 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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methane and nitrous oxide, from result of uncertainties about future values used in the agencies’ respective additional vehicle use by multiplying economic growth, climate sensitivity to analyses may be aggregated, expanded, the increase in total miles driven by cars GHG emissions, procedures used to or have other relevant adjustments. See and light trucks of each model year and model the economic impacts of climate the respective RIAs for details. The age by emission rates per vehicle-mile change, and the choice of discount rates. agencies seek comment on the economic for these GHGs. These emission rates, EPA and NHTSA’s coordinated assumptions presented in the table and which differ between cars and light proposals present a set of interim SCC discussed below. trucks as well as between gasoline and values reflecting a Federal interagency In addition, the agencies have diesel vehicles, were estimated by EPA group’s interpretation of the relevant conducted a range of sensitivities and using its recently-developed Motor climate economics literature. Sections present them in their respective RIAs. Vehicle Emission Simulator (Draft III.H and IV.C.3 provide more detail For example, NHTSA has conducted a MOVES 2009). 103 Increases in emissions about SCC. sensitivity analysis on several of non-CO 2 GHGs are converted to • Discounting future benefits and assumptions including (1) forecasts of equivalent increases in CO 2 emissions costs—Discounting future fuel savings future fuel prices, (2) the discount rate using estimates of the Global Warming and other benefits is intended to applied to future benefits and costs, (3) Potential (GWP) of methane and nitrous account for the reduction in their value the magnitude of the rebound effect, (4) oxide. to society when they are deferred until the value to the U.S. economy of

Æ Economic value of reductions in some future date, rather than received

CO2 emissions—EPA and NHTSA immediately. The discount rate reducing carbon dioxide emissions, (5) assigned a dollar value to reductions in expresses the percent decline in the the monopsony effect, and (6) the

CO 2 emissions using the marginal dollar value of these benefits—as viewed from reduction in external economic costs
value (i.e., cost) of climate-related today’s perspective—for each year they resulting from lower U.S. oil imports. damages resulting from carbon are deferred into the future. In This information is provided in emissions, also referred to as ‘‘social evaluating the non-climate related NHTSA’s PRIA. The agencies will cost of carbon’’ (SCC). The SCC is benefits of the proposed standards, the consider additional sensitivities for the intended to measure the monetary value agencies have employed discount rates final rule as appropriate, including society places on impacts resulting from of both 3 percent and 7 percent. sensitivities on the markup factors increased GHGs, such as property For the reader’s reference, Table applied to direct manufacturing costs to damage from sea level rise, forced II.F.1–1 below summarizes the values account for indirect costs (i.e., the migration due to dry land loss, and used to calculate the impacts of each Indirect Cost Markups (ICMs) which are mortality changes associated with proposed standard. The values discussed in Sections III and IV), and vector-borne diseases. Published presented in this table are summaries of the learning curve estimates used in this estimates of the SCC vary widely as a the inputs used for the models; specific analysis.



### TABLE 

### II.F.1–1—E CONOMIC 

### VALUES FOR 

### B ENEFITS 

### C OMPUTATIONS 

### (2007$)

Fuel Economy Rebound Effect ....................................................................................................

........................................................ ‘‘Gap’’ between test and on-road MPG ...........................................................................................

.................................................... Value of refueling time per ($ per vehicle-hour) ...............................................................................

.................................................. Annual growth in average vehicle use ...........................................................................................

..................................................... Fuel Prices (2012–50 average, $/gallon): Retail gasoline price ..........................................................................................................

........................................................... Pre-tax gasoline price .........................................................................................................

.......................................................... Economic Benefits from Reducing Oil Imports ($/gallon): ‘‘Monopsony’’ Component ........................................................................................................

.................................................... Price Shock Component ..........................................................................................................

..................................................... Military Security Component ....................................................................................................

.................................................... Total Economic Costs ($/gallon) ................................................................................................

.................................................. Emission Damage Costs (2020, $/ton or $/metric ton):
Carbon monoxide ................................................................................................................

......................................................... Volatile organic compounds (VOC) ...............................................................................................

............................................... Nitrogen oxides (NO X)—vehicle use ..................................................................................................................

.......................... Nitrogen oxides (NO X)—fuel production and distribution .............................................................................................

............... Particulate matter (PM 2.5 )—vehicle use ..................................................................................................................

..................... Particulate matter (PM 2.5 )—fuel production and distribution .............................................................................................

........... Sulfur dioxide (SO 2) ......................................................................................................................................................................

Carbon dioxide (CO 2) ...................................................................................................................................................................
Annual Increase in CO 2 Damage Cost ....................................................................................................................

.................... External Costs from Additional Automobile Use ($/vehicle-mile): Congestion ....................................................................................................................................................................................

Accidents ......................................................................................................................................................................................
Noise .............................................................................................................................................................................................
Total External Costs ...........................................................................................................

.......................................................... External Costs from Additional Light Truck Use ($/vehicle-mile): 10%
20%
24.64
1.1%

3.77
3.40

0.00
0.17
0.00
0.17

0 1,283 5,116 5,339 238,432 292,180

30,896

5
10

20

34

56

3%

0.054

0.023

0.001

0.078

........................

103 The MOVES model assumes that the per-mile occur during catalytic after-treatment of engine vehicle travel, are assumed to be unaffected by rates at which cars and light trucks emit these GHGs exhaust, and are thus independent of vehicles’ fuel changes in fuel economy. are determined by the efficiency of fuel combustion consumption rates. Thus MOVES’ emission factors during engine operation and chemical reactions that for these GHGs, which are expressed per mile ofVerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00055 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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TABLE 

### II.F.1–1—E CONOMIC 

### VALUES FOR 

### B ENEFITS 

### C OMPUTATIONS 

### (2007$)—Continued

Congestion ....................................................................................................................................................................................

Accidents ......................................................................................................................................................................................

Noise .............................................................................................................................................................................................
Total External Costs ...........................................................................................................

.......................................................... Discount Rates Applied to Future Benefits ......................................................................................................................................... 0.048

0.026

0.001

0.075 3%, 7%

III. EPA Proposal for Greenhouse Gas
Vehicle Standards

A. Executive Overview of EPA Proposal

1. Introduction

The Environmental Protection Agency (EPA) is proposing to establish greenhouse gas emissions standards for the largest sources of transportation greenhouse gases—light-duty vehicles, light-duty trucks, and medium-duty passenger vehicles (hereafter light vehicles). These vehicle categories, which include cars, sport utility vehicles, minivans, and pickup trucks used for personal transportation, are responsible for almost 60% of all U.S. transportation related greenhouse gas emissions. This action represents the first-ever proposal by EPA to regulate vehicle greenhouse gas emissions under the Clean Air Act (CAA) and would establish standards for model years 2012 and later light vehicles sold in the U.S.

EPA is proposing three separate standards. The first and most important is a set of fleet-wide average carbon dioxide (CO 2 ) emission standards for
cars and trucks. These standards are
based on CO 2 emissions-footprint curves, where each vehicle has a
different CO 2 emissions compliance target depending on its footprint value.
Vehicle CO 2 emissions would be measured over the EPA city and highway tests. The proposed standard
allows for credits based on demonstrated improvements in vehicle air conditioner systems, including both efficiency and refrigerant leakage improvement, which are not captured by the EPA tests. The EPA projects that the average light vehicle tailpipe CO 2 level in model year 2011 will be 326 grams per mile while the average vehicle tailpipe CO 2 emissions compliance level for the proposed model year 2016 standard will be 250 grams per mile, an average reduction of 23 percent from today’s CO 2 levels.

EPA is also proposing standards that will cap tailpipe nitrous oxide (N 2 O) and methane (CH4 ) emissions at 0.010 and 0.030 grams per mile, respectively. Even after adjusting for the higher relative global warming potencies of these two compounds, nitrous oxide and methane emissions represent less than one percent of overall vehicle greenhouse gas emissions from new vehicles. Accordingly, the goal of these two proposed standards is to limit any potential increases in the future and not to force reductions relative to today’s
low levels.

This proposal represents the secondphase of EPA’s response to the Supreme
Court’s 2007 decision in Massachusetts

v. EPA 104 which found that greenhouse gases were air pollutants for purposes of
the Clean Air Act. The Court held that
the Administrator must determine
whether or not emissions from new
motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare, or whether the science is too
uncertain to make a reasoned decision. The Court further ruled that, in make these decisions, the EPA Administrator is required to follow the language of section 202(a) of the CAA. The Court remanded the case back to the Agency for reconsideration in light of its finding.

The Administrator responded to the Court’s remand by issuing two proposed findings under section 202(a) of the
Clean Air Act. 105 First, the Administrator proposed to find that the science supports a positive endangerment finding that a mix of certain greenhouse gases in the atmosphere endangers the public health
and welfare of current and future generations. This is referred to as the endangerment finding. Second, the Administrator proposed to find that the emissions of four of these gases—carbon dioxide, methane, nitrous oxide, and hydrofluorocarbons—from new motor vehicles and new motor vehicle engines contribute to the atmospheric concentrations of these key greenhouse gases and hence to the threat of climate change. This is referred to as the cause and contribute finding. Finalizing this proposed light vehicle regulations is contingent upon EPA finalizing both the endangerment finding and cause or

104 549 U.S. 497 (2007 ). For further information

on Massachusetts v. EPA see the July 30, 2008 Advance Notice of Proposed Rulemaking, ‘‘Regulating Greenhouse Gas Emissions under the Clean Air Act’’, 73 FR 44354 at 44397. There is a comprehensive discussion of the litigation’s history, the Supreme Court’s findings, and subsequent actions undertaken by the Bush Administration and the EPA from 2007–2008 in response to the Supreme Court remand.

105 74 FR 18886, April 24, 2009. contribute finding. Sections III.B.1 through III.B.4 below provide more details on the legal and scientific bases for this proposal.

As discussed in Section I, this GHG proposal is part of a joint National Program such that a large majority of the projected benefits are achieved jointly with NHTSA’s proposed CAFE rule
which is described in detail in Section IV of this preamble. EPA’s proposal projects total carbon dioxide emissions savings of nearly 950 million metric tons, and oil savings of 1.8 billion
barrels over the lifetimes of the vehicles sold in model years 2012–2016. EPA projects net societal benefits of $192 billion at a 3 percent discount rate for these same vehicles, or $136 billion at a 7 percent discount rate (both values assume a $20/ton SCC value). Accordingly, these proposed light vehicle greenhouse gas emissions standards would make an important ‘‘first step’’ contribution as part of theNational Program toward meeting longterm greenhouse gas emissions and import oil reduction goals, while providing important economic benefits
as well.

2. Why is EPA Proposing this Rule?

This proposal addresses only light vehicles. EPA is addressing light vehicles as a first step in control of greenhouse gas emissions under the Clean Air Act for four reasons. First, light vehicles are responsible for almost 60% of all mobile source greenhouse gas emissions, a share three times larger than any other mobile source subsector, and represent about one-sixth of all U.S. greenhouse gas emissions. Second, technology exists that can be readily and cost-effectively applied to these vehicles to reduce greenhouse gas emissions in the near term. Third, EPA already has an existing testing and compliance program for these vehicles,
refined since the mid-1970s for
emissions certification and fuel economy compliance, which would require only minor modifications to accommodate greenhouse gas emissions regulations. Finally, this proposal is an important first step in responding to the Supreme Court’s ruling in
Massachusetts vs. EPA . In addition, EPA is currently evaluating controls for
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by this proposal, and is reviewing seven petitions submitted by various States and organizations requesting that EPA
use its Clean Air Act authorities to take action to reduce greenhouse gas emissions from aircraft (under § 231(a)(2)), ocean-going vessels (under § 213(a)(4)), and other nonroad engines and vehicle sources (also under § 213(a)(4)).

a. Light Vehicle Emissions Contribute to
Greenhouse Gases and the Threat of Climate Change

Greenhouse gases are gases in the atmosphere that effectively trap some of
the Earth’s heat that would otherwise escape to space. Greenhouse gases are both naturally occurring and anthropogenic. The primary greenhouse gases of concern are directly emitted by
human activities and include carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons,
and sulfur hexafluoride.

These gases, once emitted, remain in the atmosphere for decades to centuries. Thus, they become well mixed globally in the atmosphere and their
concentrations accumulate when
emissions exceed the rate at which natural processes remove greenhouse gases from the atmosphere. The heating effect caused by the human-induced buildup of greenhouse gases in the atmosphere is very likely 106 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 detailed explanation of observed and projected changes in greenhouse gases and climate change and its impact on health, society, and the environment is included in EPA’s technical support document for the recently released Proposed Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean

Air Act. 107

106 According to Intergovernmental Panel on Climate Change (IPCC) terminology, ‘‘very likely’’ conveys a 90 to 99 percent probability of occurrence. ‘‘Virtually certain’’ conveys a greater than 99 percent probability, ‘‘likely’’ conveys a 66 to 90 percent probability, and ‘‘about as likely as not’’ conveys a 33 to 66 percent probability.

107 74 FR18886, April 24, 2009. Both the Federal Register Notice and the Technical Support Document for this rulemaking are found in the Transportation sources represent a large and growing share of United States greenhouse gases and include automobiles, highway heavy duty trucks, airplanes, railroads, marine vessels and a variety of other sources. In 2006, all transportation sources emitted 31.5% of all U.S. greenhouse gases, and were the fastest-growing source of greenhouse gases in the U.S., accounting
for 47% of the net increase in total U.S. greenhouse gas emissions from 1990–

2006. 108 The only sector with larger greenhouse gas emissions was electricity generation which emitted 33.7% of all U.S. greenhouse gases.

Light vehicles emit four greenhouse gases: carbon dioxide, methane, nitrous oxide and hydrofluorocarbons. Carbon dioxide (CO 2 ) is the end product of fossil fuel combustion. During combustion, the carbon stored in the

fuels is oxidized and emitted as CO 2 and

smaller amounts of other carbon compounds. 109 Methane (CH4 )

emissions are a function of the methane content of the motor fuel, the amount of hydrocarbons passing uncombustedthrough the engine, and any postcombustion control of hydrocarbon emissions (such as catalytic converters). 110 Nitrous oxide (N 2 O) (and nitrogen oxide (NO X)) 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 NO X , carbon monoxide (CO) and hydrocarbon emissions can promote the formation of

N 2 O. 111 Hydrofluorocarbons (HFC) emissions 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

public docket for this rulemaking. Docket is EPA–

OAR–2009–0171.

108 Inventory of U.S. Greenhouse Gases and Sinks:

1990–2006.

109 Mobile source carbon dioxide emissions in 2006 equaled 26 percent of total U.S. CO 2 emissions.

110 In 2006, methane emissions equaled 0.32 percent of total U.S. methane emissions Nitrous oxide is a product of the reaction that occurs between nitrogen and oxygen during fuel

combustion.

111 In 2006, nitrous oxide emissions for these sources accounted for 8 percent of total U.S. nitrous

oxide emissions. systems, during operations, and during decommissioning and disposal. 112

b. Basis for Action Under 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.’’ As noted above, the Administrator has proposed to find that the air pollution of elevated levels of greenhouse gas concentrations may reasonably be anticipated to endanger public health and welfare. 113 The Administrator has proposed to define the air pollution to be the elevated
concentrations of the mix of six GHGs: carbon dioxide (CO 2 ), methane (CH4 ), nitrous oxide (N 2 O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF 6 ). The Administrator has further proposed to find under CAA section 202(a) that CO 2, methane, N 2 O and HFC emissions from new motor vehicles and engines contribute to this air pollution. This preamble describes proposed standards
that would control emissions of CO 2 , HFCs, nitrous oxide, and methane. Standards for these GHGs would only be
finalized if EPA determines that the criteria have been met for endangerment by the air pollution, and that emissions
of GHGs from new motor vehicles or engines ‘‘cause or contribute’’ to that air pollution. In that case, section 202(a)
would authorize EPA to issue standards applicable to emissions of those pollutants. For further discussion of EPA’s authority under section 202(a), see Section I.C.2 of the proposal.

There are a variety of other CAA Title II provisions that are relevant to
standards established under section 202(a). As noted above, the standards are applicable to motor vehicles for their
useful life. EPA has the discretion in determining what standard applies over the useful life. For example, EPA may set a single standard that applies both
when the vehicles are new and throughout the useful life, or where appropriate may set a standard that varies during the term of useful life, such as a standard that is more stringent in the early years of the useful life and less stringent in the later years.

112 In 2006 HFC from these source categories equaled 56 percent of total U.S. HFC emissions, making it the single largest source category of U.S.

HFC emissions.

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The standards established under CAA section 202(a) are implemented and enforced through various mechanisms. Manufacturers are required to obtain an EPA certificate of conformity with the section 202 regulations before they may
sell or introduce their new motor vehicle into commerce, according to CAA section 206(a). The introduction
into commerce of vehicles without a certificate of conformity is a prohibited act under CAA section 203 that may subject a manufacturer to civil penalties and injunctive actions ( see CAA sections 204 and 205). Under CAA section 206(b), EPA may conduct testing of new production vehicles to determinecompliance with the standards. For inuse vehicles, if EPA determines that a
substantial number of vehicles do not conform to the applicable regulations
then the manufacturer must submit and implement a remedial plan to address the problem ( see CAA section 207(c)).
There are also emissions-based
warranties that the manufacturer must implement under CAA section 207(a).

c. EPA’s Greenhouse Gas Proposal Under Section 202(a) Concerning Endangerment and Cause or Contribute Findings

EPA’s Administrator recently signed a proposed action with two distinct findings regarding greenhouse gases under section 202(a) of the Clean Air Act. This action is called the Proposed Endangerment and Cause or Contribute Findings for Greenhouse Gases under the Clean Air Act (Endangerment Proposal). 114 The Administrator proposed an affirmative endangerment finding that the current and projected concentrations of a mix of six key greenhouse gases—carbon dioxide (CO 2 ), methane (CH4 ), nitrous oxide (N 2 O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride(SF 6 )—in the atmosphere threaten the public health and welfare of current and future generations. She also proposed to find that the combined emissions of four of the gases—carbon dioxide, methane, nitrous oxide and hydrofluorocarbons from new motor vehicles and motor vehicle engines— contribute to the atmospheric concentrations of these greenhouse gases and therefore to the climate change problem.

Specifically, the Administrator proposed, after a thorough examination
of the scientific evidence on the causes and impact of current and future climate change, to find that the science compellingly supports a positive finding that atmospheric concentrations of these greenhouse gases result in air pollution which may reasonably be anticipated to endanger both public health and welfare. In her proposed finding, the Administrator relied heavily upon the major findings and conclusions from the
recent assessments of the U.S. Climate Change Science Program and the U.N. Intergovernmental Panel on Climate Change. 115 The Administrator proposed a positive endangerment finding after considering both observed and projected future effects of climate change, key uncertainties, and the full range of risks and impacts to public health and welfare occurring within the United States. In addition, the proposed finding noted that the evidence concerning risks and impacts occurring outside the U.S. provided further support for the proposed finding.

The key scientific findings supporting the proposed endangerment finding are
that: —Concentrations of greenhouse gases

are at unprecedented levels compared to recent and distant past. These high concentrations are the unambiguous result of anthropogenic emissions and are very likely the cause of the observed increase in average temperatures and other climatic changes. —The effects of climate change

observed to date and projected to
occur in the future include more frequent and intense heat waves, more severe wildfires, degraded air quality, heavier downpours and flooding, increasing drought, greater sea level rise, more intense storms, harm to water resources, harm to agriculture, and harm to wildlife and ecosystems. These impacts are effects on public
health and welfare within the meaning of the Clean Air Act. With regard to new motor vehicles and engines, the Administrator also proposed a finding that the combined emissions of four greenhouse gases— carbon dioxide, methane, nitrous oxide and hydrofluorocarbons—from new motor vehicles and engines contributes to this air pollution, i.e., the atmospheric concentrations of the mix of six greenhouse gases which create the threat of climate change and its impacts. Key facts supporting the proposed cause and contribute finding for on-highway vehicles regulated under section 202(a)
of the Clean Air Act are that these sources are responsible for 24% of total U.S. greenhouse gas emissions, and more than 4% of total global greenhouse gas emissions. 116 The Administrator
also considered whether emissions of each greenhouse gas individually, as a separate air pollutant, would contribute to this air pollution.

If the Administrator makes affirmative findings under section 202(a) on both endangerment and cause or contribute,
then EPA is to issue standards ‘‘applicable to emission’’ of the air pollutant or pollutants that EPA finds causes or contributes to the air pollution that endangers public health and welfare. The Endangerment Proposal invited public comment on whether the air pollutant should be considered the group of GHGs, or whether each GHG should be treated as a separate air pollutant. Either way, the emissions standards proposed today would satisfy the requirements of section 202(a) as the Administrator has significant discretion
in how to structure the standards that apply to the emission of the air pollutant or air pollutants at issue. For example, under either approach EPA
would have the discretion under section 202(a) to adopt separate standards for each GHG, a single composite standard covering various gases, or any combination of these. In this rulemaking EPA is proposing separate standards for nitrous oxide and methane, and a CO 2 standard that provides for credits based on reductions of HFCs, as the appropriate way to issue standards applicable to emissions of these GHGs.

3. What is EPA Proposing?

a. Proposed Light-Duty Vehicle, LightDuty Truck, and Medium-Duty Passenger Vehicle Greenhouse Gas Emission Standards and Projected Compliance Levels

The CO 2 emissions standards are by far the most important of the three standards and are the primary focus of this summary. EPA is proposing an attribute-based approach for the CO 2 fleet-wide standard (one for cars and one for trucks), based on vehicle footprint as the attribute. These curves
establish different CO 2 emissions targets for each unique car and truck footprint. Generally, the larger the vehicle footprint, the higher the corresponding
vehicle CO 2 emissions target. Table III.A.3–1 shows the greenhouse gas standards for light vehicles that EPA is proposing for model years (MY) 2012
and later:

114 74 FR 18886 (April 24, 2009). 115 The U.S. Climate Change Science Program 116 This figure includes the greenhouse gas (CCSP) is now called the U.S. Global Change contributions of light vehicles, heavy duty vehicles, Research Program (GCRP). and remaining on-highway mobile sources.VerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00058 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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TABLE 

### III.A.3–1—P ROPOSED 

### I NDUSTRY

### -W IDE 

### G REENHOUSE 

### G AS 

### E MISSIONS 

### S TANDARDS

Standard/covered pollutants Form of standard Level of standard Credits Test cycles

CO 2 Standard 117 : Tailpipe CO 2

................

N 2O Standard: Tailpipe N 2O .....................
CH 4 Standard: Tailpipe CH 4

...................... Fleetwide average footprint CO 2 -curves for cars and trucks.

Cap per vehicle ........... Cap per vehicle ........... See footprint—CO 2 curves in Figure I.C– 1 for cars and Figure
I.C–2 for trucks.

0.010 g/mi ................... 0.030 g/mi ................... CO 2 -e credits 118

.........

None ...........................

None ........................... EPA 2-cycle (FTP and HFET test cycles),with separate mechanisms for A/C credits. 119

EPA FTP test.

EPA FTP test.

One important flexibility associated with the proposed CO 2 standard is the proposed option for manufacturers to
obtain credits associated with improvements in their air conditioning systems. As will be discussed in greater detail in later sections, EPA is establishing test procedures and design criteria by which manufacturers can demonstrate improvements in both air conditioner efficiency (which reduces vehicle tailpipe CO 2 by reducing the load on the engine) and air conditioner refrigerants (using lower global warming potency refrigerants and/or improving system design to reduce GHG emissions associated with leaks). Neither of these strategies to reduce GHG emissions from
air conditioners would be reflected in
the EPA FTP or HFET tests. These improvements would be translated to a g/mi CO 2 -equivalent credit that can be
subtracted from the manufacturer’s tailpipe CO 2 compliance value. EPA expects a high percentage of manufacturers to take advantage of thisflexibility to earn air conditioningrelated credits for MY2012–2016 vehicles such that the average credit earned is about 11 grams per mile CO 2– equivalent in 2016.

A second flexibility being proposed is

CO 2 credits for flexible and dual fuel vehicles, similar to the CAFE credits for
such vehicles which allow manufacturers to gain up to 1.2 mpg in their overall CAFE ratings. The Energy Independence and Security Act of 2007 (EISA) mandated a phase-out of these
flexible fuel vehicle CAFE credits beginning in 2015, and ending after 2019. EPA is proposing to allow comparable CO 2 credits for flexible fuel vehicles through MY 2015, but for MY 2016 and beyond, EPA is proposing to
treat flexible and dual fuel vehicles on

a CO 2 -performance basis, calculating the
overall CO 2 emissions for flexible and
dual fuel vehicles based on a fuel useweighted average of the CO 2 levels on gasoline and on a manufacturer’s demonstrated actual usage of the
alternative fuel in its vehicle fleet.

Table III.A.3–2 summarizes EPA projections of industry-wide 2-cycle

CO 2 emissions and fuel economy levels that would be achieved by manufacturer compliance with the proposed GHG
standards for MY2012–2016.

For MY2011, Table III.A.3–2 uses the projected NHTSA compliance values for its MY2011 CAFE standards of 30.2 mpg for cars and 24.1 mpg for trucks, converted to an equivalent combined
car and truck CO 2 level of 325 grams per
mile. 120 EPA believes this is a
reasonable estimate with which to compare the proposed MY2012–2016

CO 2 emission standards. Identifying the proper MY2011 estimate is complicated for many reasons, among them being the
turmoil in the current automotive
market for consumers and manufacturers, uncertain and volatile oil and gasoline prices, the ability of
manufacturers to use flexible fuel
vehicle credits to meet MY2011 CAFE standards, and the fact that most manufacturers have been surpassing CAFE standards (particularly the car standard) in recent years. Taking all of these considerations into account, EPA believes that the MY2011 projected CAFE compliance values, converted to

CO 2 emissions levels, represent a
reasonable estimate. Table III.A.3–2 shows projected industry-wide average CO 2 emissions values. The Projected CO 2 Emissions for the Footprint-Based Standard column
shows the CO 2 g/mi level corresponding with the footprint standard that must be met. It is based on the proposed CO 2 - footprint curves and projected footprint values, and will decrease each year to 250 grams per mile (g/mi) in MY2016. For MY2012–2015, the emissions impact of the projected utilization of flexible fuel vehicle (FFV) credits and the temporary lead-time allowance alternative standard (TLAAS, discussed below) are shown in the next two columns. Neither of these programs is proposed to be available in MY2016. The Projected CO 2 Emissions column gives the CO 2 emissions levels projected to be achieved given use of the flexible fuel credits and temporary lead-time allowance program. This column shows that, relative to the MY 2011 estimate, EPA projects that MY2016 CO 2 emissions will be reduced by 23 percent over five years. The Projected A/C Credit column represents the industry wide average air conditioner credit manufacturers are expected to earn on an equivalent CO 2 gram per mile basis in a given model year. In MY2016, the projected A/C credit of 10.6 g/mi represents 14 percent of the 75 g/mi CO 2 emissions reductions associated with the proposed standards. The Projected 2-cycle CO 2 Emissions column shows the projected CO 2 emissions as measured over the EPA 2-cycle tests, which would allow compliance with the standard assuming utilization of the projected FFV, TLAAS, and A/C credits.

117 While over 99 percent of the carbon in

automotive fuels is converted to CO 2 in a properly functioning engine, compliance with the CO 2 standard will also account for the very small levels of carbon associated with vehicle tailpipe hydrocarbon (HC) and carbon monoxide (CO)
emissions, converted to CO 2 on a mass basis, as

discussed further in section x. 118 CO 2-e refers to CO 2-equivalent, and is a metric
that allows non-CO 2 greenhouse gases (such as hydrofluorocarbons used as automotive air conditioning refrigerants) to be expressed as an equivalent mass (i.e., corrected for relative global warming potency) of CO 2 emissions.

119 FTP is the Federal Test Procedure which uses what is commonly referred to as the ‘‘city’’ driving schedule, and HFET is the Highway Fuel Economy Test which uses the ‘‘highway’’ driving schedule. Compliance with the CO 2 standard will be based on the same 2-cycle values that are currently used for CAFE standards compliance; EPA projects that

fleet-wide in-use or real world CO 2 emissions are approximately 25 percent higher, on average, than 2-cycle CO 2 values.

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TABLE 

### III.A.3–2—P ROJECTED 

### F LEETWIDE 

### CO 2 

### E MISSIONS 

### VALUES 

### ( GRAMS PER MILE 

### )

Projected

Model year CO 2 emissions for the

footprintbased Projected FFV credit Projected TLAAS credit Projected CO 2 emissions Projected A/C credit Projected 2-cycle CO 2

emissions

standard

2011 .................................................................................

.................... .................... .. .................. (325)

.................... (325)

2012 ................................................................................. 295 6 0.3 302 3.1 305

2013 ................................................................................. 286 5.7 0.2 291 5.0 296

2014 ................................................................................. 276 5.4 0.2 281 7.5 289

2015 ................................................................................. 263 4.1 0.1 267 10.0 277

2016

................................................................................. 250 0 0 250 10.6 261

EPA is also proposing a series of flexibilities for compliance with the CO 2 standard which are not expected to significantly affect the projected compliance and achieved values shown above, but which should significantly reduce the costs of achieving those
reductions. These flexibilities include the ability to earn: annual credits for a manufacturer’s over-compliance with its unique fleet-wide average standard, early credits from MY2009–2011, credits for early introduction of advanced technology vehicles, credit for ‘‘off-cycle’’ CO 2 reductions not reflected

in CO 2/fuel economy tests, as well as the carry-forward and carry-backward of credits, the ability to transfer credits
between a manufacturer’s car and truck fleets, and a temporary lead-time
allowance alternative standard (included in the tables above) that will permit manufacturers with less than 400,000 vehicles produced in MY 2009 to designate a fraction of their vehicles to meet a 25% higher CO 2 standard for MY 2012–2015. All of these proposed flexibilities are discussed in greater
detail in later sections.

EPA is also proposing caps on the tailpipe emissions of nitrous oxide (N 2 O) and methane (CH4 )—0.010 g/mi
for N 2 O and 0.030 g/mi for CH4—over the EPA FTP test. While N 2 O and CH4 can be potent greenhouse gases on a relative mass basis, their emission levels from modern vehicle designs are extremely low and represent only about 1% of total light vehicle GHG emissions. These cap standards are designed to
ensure that N 2 O and CH4 emissions levels do not rise in the future, rather than to force reductions in the already low emissions levels. Accordingly, these standards are not designed to require automakers to make any changes in current vehicle designs, and thus EPA is not projecting any environmental or economic impacts associated with these proposed standards.

EPA has attempted to build on existing practice wherever possible in designing a compliance program for the proposed GHG standards. In particular, the program structure proposed will streamline the compliance process for both manufacturers and EPA by enabling manufacturers to use a single data set to satisfy both the new GHG and CAFE testing and reporting requirements. Timing of certification, model-level testing, and other compliance activities also follow current practices established under the Tier 2 and CAFE programs.

b. Environmental and Economic Benefits and Costs of EPA’s Proposed
Standards

In Table III.A.3–3 EPA presents
estimated annual net 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 a 3% and a 7% discount rate. As discussed previously, EPA recognizes that much of these same
costs and benefits are also attributed to the proposed CAFE standard contained in this joint proposal.



### TABLE 

### III.A.3–3—P ROJECTED 

### Q UANTIFIABLE 

### B ENEFITS AND 

### C OSTS FOR 

### P ROPOSED 

### CO 2 

### S TANDARD
[(In million 2007 $s) [Note: B = unquantified benefits]

2020 2030 2040 2050 NPV, 3% NPV, 7%

Quantified Annual Costs a

........................ ¥ $25,100

¥ $72,500

¥ $105,700

¥ $146,100

¥ $1,287,600

¥ $529,500

Benefits from Reduced GHG Emissions at each assumed SCC value:

SCC 5% ............................................ 1,200 3,300 5,700 9,500 69,200 28,600
SCC 5% Newell-Pizer ....................... 2,500 6,600 11,000 19,000 138,400 57,100
SCC from 3% and 5% ...................... 4,700 12,000 22,000 36,000 263,000 108,500
SCC 3% ............................................ 8,200 22,000 38,000 63,000 456,900 188,500
SCC 3% Newell-Pizer ....................... 14,000 36,000 63,000 100,000 761,400 314,200

Other Quantified Externalities

PM 2

. 5 Related Benefits bcd

...................... 1,400 3,000 4,600 6,700 59,800 26,300 Energy Security Impacts (price shock) .... 2,300 4,800 6,200 7,800 85,800 38,800 Reduced Refueling .................................. 2,500 4,900 6,400 8,000 89,600 41,000 Value of Increased Driving e

.................... 4,900 10,000 13,600 18,000 184,700 82,700 Accidents, Noise, Congestion ..................

¥ 2,400

¥ 4,900

¥ 6,300

¥ 7,900

¥ 88,200

¥ 40,200

Quantified Net Benefits at each assumed SCC value:

SCC 5% ............................................ 35,000 93,600 135,900 188,200 1,688,500 706,700
SCC 5% Newell-Pizer ....................... 36,300 96,900 141,200 197,700 1,757,700 735,200
SCC from 3% and 5% ...................... 38,500 102,300 152,200 214,700 1,882,300 786,600VerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00060 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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TABLE 

### III.A.3–3—P ROJECTED 

### Q UANTIFIABLE 

### B ENEFITS AND 

### C OSTS FOR 

### P ROPOSED 

### CO 2 

### S TANDARD

### —Continued

[(In million 2007 $s) [Note: B = unquantified benefits]

2020 2030 2040 2050 NPV, 3% NPV, 7%

SCC 3% ............................................ 42,000 112,300 168,200 241,700 2,076,200 866,600
SCC 3% Newell-Pizer ....................... 47,800 126,300 193,200 278,700 2,380,700 992,300

a Quantified annual costs are negative because fuel savings are included as negative costs ( i.e. , positive savings). Since the fuel savings outweigh the vehicle technology costs, the costs of as presented here are actually negative ( i.e. , they represent savings).

b Note that the co-pollutant impacts associated with the standards presented here do not include the full complement of endpoints that, if quantified and monetized, would change the total monetized estimate of rule-related impacts. Instead, the co-pollutant benefits are based on benefitper-ton values that reflect only human health impacts associated with reductions in PM 2

. 5 exposure. Ideally, human health and environmental benefits would be based on changes in ambient PM 2

. 5 and ozone as determined by full-scale air quality modeling. However, EPA was unable to conduct a full-scale air quality modeling analysis in time for the proposal. EPA does intend to more fully capture the co-pollutant benefits for the analysis of the final standards.

c The PM 2

. 5 -related benefits (derived from benefit-per-ton values) 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 145% (nearly two-and-a-half times) larger.

d The PM 2

. 5 -related benefits (derived from benefit-per-ton values) presented in this table assume a 3% discount rate in the valuation of p remature mortality to account for a twenty-year segmented cessation lag. If a 7% discount rate had been used, the values would be approximately 9% lower.

e Calculated using pre-tax fuel prices.

4. Basis for the Proposed GHG Standards Under Section 202(a)

EPA statutory authority under section 202(a)(1) of the Clean Air Act (CAA) is
discussed in more detail in Section

I.C.2. The following is a summary of the basis for the proposed standards under section 202(a), which is discussed in more detail in the following portions of

Section III.

With respect to CO 2 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 proposed 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’s projection of the technology that would be used to comply with the proposed
standards indicates that manufacturers will be able to meet the proposed standards by employing a wide variety of technology that is already commercially available and can be incorporated into their vehicle at the time of redesign. In addition to the use of the manufacturers’ redesign cycle, EPA’s analysis also takes into account
certain flexibilities that will facilitate compliance especially in the early years of the program when potential lead time constraints are most challenging. These flexibilities include averaging, banking, and trading of various types of credits. For the industry as a whole, EPA’s projections indicate that the proposed standards can be met using technology
that will be available in the lead-time provided. To account for additional lead-time
concerns for various manufacturers of typically higher performance vehicles,EPA is proposing a Temporary Leadtime Allowance that will further facilitate compliance for limited
volumes of such vehicles in the program’s initial years. For a few very small volume manufacturers, EPA projects that manufacturers will likely comply using a combination of credits and technology.

EPA has also 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 standard practices such as making major changes to model 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 from this analysis to be well within a reasonable range in light
of the emissions reductions and benefits received. 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.

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 2012–2016 vehicles we estimate GHG reductions of approximately 950
million metric tons CO 2 eq. and fuel
reductions of 1.8 billion barrels of oil. These are important and significant reductions that would be achieved by the proposed standards. EPA has also analyzed a variety of other impacts of the standards, ranging from the
standards’ effects on emissions of nonGHG pollutants, impacts on noise, energy, safety and congestion. EPA has also quantified the cost and benefits of the proposed standards, to the extent practicable. Our analysis to date indicates that the overall quantified benefits of the proposed standards far outweigh the projected costs. Utilizing a 3% discount rate and a $20 per ton
social cost of carbon we estimate the
total net social benefits over the life of the model year 2012–2016 vehicles is $192 billion, and the net present value
of the net social benefits of the standards through the year 2050 is $1.9
trillion dollars. These values are estimated at $136 billion and $787 billion, respectively, using a 7% discount rate and the $20 per ton SCC
value.

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 proposed standards satisfy this requirement, as discussed above. 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 rule. In summary, given the technical feasibility of the standard, the moderate cost per vehicle in light of the savings
in fuel costs over the life time of the vehicle, the very significant reductionsVerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00061 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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in emissions and in oil usage, and the significantly greater quantified benefits compared to quantified costs, EPA is confident that the proposed 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 (D.C. 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 (D.C. 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 (D.C. Cir. 2002) (same).

EPA recognizes that the vast majority of technology which we are considering for purposes of setting standards under section 202(a) is commercially available and already being utilized to a limited extent across the fleet. The vast majority
of the emission reductions which would result from this proposed rule would
result from the increased use of these technologies. EPA also recognizes that this proposed rule would enhance the development and limited use of more advanced technologies, such as PHEVs and EVs. 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 has
therefore evaluated two sets of alternative standards, one more stringent than the proposed standards and one less stringent.

The alternatives are 4% per year
increase in standards which would be less stringent than our proposal and a 6% per year increase in the standards which would be more stringent than our proposal. EPA is not proposing either of these. As discussed in Section III.D.7, the 4% per year compared to the proposal forgoes CO 2 reductions which
can be achieved at reasonable costs and are achievable by the industry within the rule’s timeframe. The 6% per year alternative requires a significant increase in the projected required technology which may not be
achievable in this timeframe due to the limited available lead time and the
current difficult financial condition of the automotive industry. ( See Section

III.D.7for a detailed discussion of why EPA is not proposing either of the alternatives.) EPA thus believes that it is appropriate to propose the CO 2 standards discussed above. EPA invites comment on all aspects of this judgment, as well as comment on the
alternative standards.

EPA is also proposing standards for

N 2 O and CH4 . EPA has designed these standards to act as emission rate (i.e.

, gram per mile) caps and to avoid future increases in light duty vehicle
emissions. As discussed in Section III.B.6, N 2 O and CH4 emissions are already generally well controlled by current emissions standards, and EPA has not identified clear technological steps available to manufacturers today that would significantly reduce current emission levels for the vast majority of vehicles manufactured today (i.e.

, stoichiometric gasoline vehicles). However, for both N 2 O and CH4 , some vehicle technologies (and, for CH4 , use of natural gas fuel) could potentially
increase emissions of these GHGs in the future, and EPA believes it is important that this be avoided. EPA expects that, almost universally across current car and truck designs, manufacturers will be able to meet the ‘‘cap’’ standards with little if any technological improvements or cost. EPA has designed the level of the N 2 O and CH4 standards with the intent that
manufacturers would be able to meet them without the need for technological improvement; in other words, these emission standards are designed to be ‘‘anti-backsliding’’ standards.

B. Proposed GHG Standards for LightDuty Vehicles, Light-Duty Trucks, and Medium-Duty Passenger Vehicles

EPA is proposing new emission standards to control greenhouse gases (GHGs) from light-duty vehicles. First, EPA is proposing emission standards for carbon dioxide (CO 2 ) on a gram per mile (g/mile) basis that would apply to a manufacturer’s fleet of cars, and a separate standard that would apply to a
manufacturer’s fleet of trucks. CO 2 is the primary pollutant resulting from the combustion of vehicular fuels, and the
amount of CO 2 emitted is directly
correlated to the amount of fuel consumed. Second, EPA is providing
auto manufacturers with the opportunity to earn credits toward the fleet-wide average CO 2 standards for improvements to air conditioning systems, including both hydrofluorocarbon (HFC) refrigerant losses (i.e. , system leakage) and indirect CO 2 emissions related to the increased load on the engine. Third, EPA is proposing separate emissions standards for two other GHG pollutants: Methane (CH4 ) and nitrous oxide (N 2 O). CH4 and

N 2 O emissions relate closely to the design and efficient use of emission control hardware (i.e. , catalytic converters). The standards for CH4 and

N 2 O would be set as a cap that would limit emissions increases and prevent backsliding from current emission levels. 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 vehicles or simply as vehicles. In this preamble section passenger cars may bereferred to simply as ‘‘cars’’, and lightduty trucks and MDPVs as ‘‘light
trucks’’ or ‘‘trucks.’’ 121

EPA is establishing a system of averaging, banking, and trading of credits integral to the fleet averaging approach, based on manufacturer fleet average CO 2 performance, as discussed in Section III.B.4. This approach is similar to averaging, banking, and trading (ABT) programs EPA has established in other programs and is also similar to provisions in the CAFE program. In addition to traditional ABT
credits based on the fleet emissions average, EPA is also proposing to include A/C credits as an aspect of the standards, as mentioned above. EPA is also proposing several additional credit provisions that apply only in the initial model years of the program. These include flex fuel vehicle credits, credits
based on the use of advanced technologies, and generation of credits prior to model year 2012. The proposed
A/C credits and additional credit opportunities are described in Section

III.C. These credit programs would provide flexibility to manufacturers, which may be especially important during the early transition years of the program. EPA is also proposing to allow a manufacturer to carry a deficit into the
future for a limited number of model years. A parallel provision, referred to as credit carry-back, is proposed as part of the CAFE program.

1. What Fleet-Wide Emissions Levels Correspond to the CO 2 Standards?

The proposed attribute-based CO 2 standards, if made final, are projected to achieve a national fleet-wide average, covering both light cars and trucks, of

121 As described in Section III.B.2., EPA is proposing for purposes of GHG emissions standards to use the same vehicle category definitions as are used in the CAFE program.VerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00062 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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250 grams/mile of CO 2 in model year (MY) 2016. This includes CO 2 - equivalent emission reductions from A/C improvements, reflected as credits
in the standard. The standards would begin with MY 2012, with a generally linear increase in stringency from MY 2012 through MY 2016. EPA is proposing separate standards for cars and light trucks. 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 will 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 may generate credits from cars and use them for compliance with the truck
standard. Such transfer of credits
between cars and trucks is not reflected in the table below. In Section III.F, the year-by-year estimate of emissions reductions that are projected to be achieved by the proposed standards are
discussed.

In general, the proposed schedule of standards acts as a phase-in to the MY 2016 standards, and reflectsconsideration of the appropriate leadtime for each manufacturer to implement the requisite emission reductions technology across its product
line. 122 Note that 2016 is the final model year in which standards become more stringent. The 2016 CO 2 standards would remain in place for 2017 and later model years, until revised by EPA in a future rulemaking.

EPA estimates that, on a combined fleet-wide national basis, the proposed

2016 MY standards would achieve a level of 250 g/mile CO 2 , including CO 2 - equivalent credits from A/C related reductions. The derivation of the 250 g/

mile estimate is described in Section

III.B.2.

EPA has estimated the overall fleetwide CO 2 -equivalent emission 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 III.B.1–1 and III.B.1–2 provide these estimates for each

manufacturer. 123



### TABLE 

### III.B.1–1—E STIMATED 

### F LEET 

### CO 2 

### -E QUIVALENT 

### L EVELS 

### C ORRESPONDING TO THE 

### P ROPOSED 

### S TANDARDS FOR 

### C ARS

Manufacturer Model year

2012 2013 2014 2015 2016

BMW ............................................................................................................................

.............................. 265 257 249 238 227 Chrysler .......................................................................................................................

............................... 266 259 251 242 231
Daimler ........................................................................................................................

............................... 270 263 257 245 234
Ford ...........................................................................................................................

................................. 266 259 251 239 228
General Motors .................................................................................................................

......................... 266 258 250 239 228
Honda ..........................................................................................................................

.............................. 259 251 244 232 221 Hyundai ........................................................................................................................

.............................. 260 252 244 233 221
Kia ............................................................................................................................

.................................. 262 253 246 235 223
Mazda ..........................................................................................................................

.............................. 258 250 243 231 220
Mitsubishi .....................................................................................................................

.............................. 255 247 240 228 217
Nissan .........................................................................................................................

............................... 263 255 247 236 225
Porsche ........................................................................................................................

.............................. 242 234 227 215 204
Subaru .........................................................................................................................

.............................. 252 244 237 225 214
Suzuki .........................................................................................................................

............................... 244 236 229 217 206
Tata ...........................................................................................................................

................................. 286 278 271 259 248 Toyota .........................................................................................................................

............................... 257 250 242 231 220 Volkswagen .....................................................................................................................

........................... 254 246 239 228 217



### TABLE 

### III.B.1–2—E STIMATED 

### F LEET 

### CO 2 

### -E QUIVALENT 

### L EVELS 

### C ORRESPONDING TO THE 

### P ROPOSED 

### S TANDARDS FOR 

### L IGHT 

### T RUCKS

Manufacturer Model year

2012 2013 2014 2015 2016

BMW ............................................................................................................................

.............................. 334 324 313 298 283 Chrysler .......................................................................................................................

............................... 349 339 329 315 300
Daimler ........................................................................................................................

............................... 346 334 323 308 293
Ford ...........................................................................................................................

................................. 363 352 343 329 314
General Motors .................................................................................................................

......................... 372 361 351 337 322
Honda ..........................................................................................................................

.............................. 333 322 311 295 280 Hyundai ........................................................................................................................

.............................. 330 320 308 293 278
Kia ............................................................................................................................

.................................. 341 330 319 303 288
Mazda ..........................................................................................................................

.............................. 321 311 300 286 271
Mitsubishi .....................................................................................................................

.............................. 320 310 299 284 269
Nissan .........................................................................................................................

............................... 352 341 332 318 303
Porsche ........................................................................................................................

.............................. 338 327 316 301 286
Subaru .........................................................................................................................

.............................. 319 308 297 282 267
Suzuki .........................................................................................................................

............................... 324 313 301 286 271
Tata ...........................................................................................................................

................................. 326 316 305 289 275 Toyota .........................................................................................................................

............................... 342 332 320 305 291

122 See CAA section 202(a)(2). 123 These levels do not include the effect of and trucks, temporary lead time allowance, or any flexible fuel credits, transfer of credits between cars other credits.VerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00063 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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### 49515

TABLE 

### III.B.1–2—E STIMATED 

### F LEET 

### CO 2 

### -E QUIVALENT 

### L EVELS 

### C ORRESPONDING TO THE 

### P ROPOSED 

### S TANDARDS FOR 

### L IGHT 

### T RUCKS

### —Continued

Manufacturer Model year

2012 2013 2014 2015 2016

Volkswagen .....................................................................................................................

........................... 344 333 322 307 292

These estimates were aggregated based on projected production volumes into the fleet-wide averages for cars and trucks (Table III.B.1–3). 124



### TABLE 

### III.B.1–3—E STIMATED 

### F LEET



### WIDE 

### CO 2 

### -E QUIVALENT 

### L EVELS 

### C ORRESPONDING TO THE 

### P ROPOSED 

### S TANDARDS

Cars Trucks

Model year CO 2 (g/mi) CO 2 (g/mi)

2012

.......... 261 352
2013

.......... 254 341
2014

.......... 245 331
2015

.......... 234 317
2016 and

later

....... 224 303

As shown in Table III.B.1–3, fleetwide CO 2 -equivalent emission levels for cars under the proposed approach are projected to decrease from 261 to 224 grams per mile between MY 2012 and MY 2016. Similarly, fleet-wide CO 2 - equivalent emission levels for trucks are projected to decrease from 352 to 303 grams per mile. These numbers do not
include the effects of other flexibilities and credits in the program. The
estimated achieved values can be found in Chapter 5 of the Draft Regulatory Impact Analysis (DRIA).

EPA has also estimated the average
fleet-wide levels for the combined car
and truck fleets. These levels are provided in Table III.B.1–4. As shown, the overall fleet average CO 2 level is expected to be 250 g/mile in 2016.



### TABLE 

### III.B.1–4—E STIMATED 

### F LEET



### WIDE 

### C OMBINED 

### CO 2 

### -E QUIVALENT 

### L EVELS 

### C ORRESPONDING TO THE 

### P ROPOSED 

### S TANDARDS

Combined car and truck

Model year CO 2 (g/mi)

2012 ......................................
2013 ......................................
2014 ......................................
2015 ......................................
2016 ...................................... 295
286
276
263
250

124 Due to rounding during calculations, the
estimated fleet-wide CO 2-equivalent levels may vary by plus or minus 1 gram. As noted above, EPA is proposing
standards that would result in increasingly stringent levels of CO 2 control from MY 2012 though MY 2016—applying the CO 2 footprint curves applicable in each model year to the vehicles expected to be sold in each model year produces fleet-wide annual
reductions in CO 2 emissions. As explained in Section III.D below and the relevant support documents, EPA believes that the proposed level of improvement achieves important CO 2 emissions reductions through the application of feasible control technology at reasonable cost, considering the needed lead time for this program. EPA further believes that the proposed averaging, banking and trading provisions, as well as other credit-generating mechanisms, allow
manufacturers further flexibilities which reduce the cost of the proposed

CO 2 standards and help to provide adequate lead time. EPA believes this approach is justified under section 202(a) of the Clean Air Act.

EPA has analyzed the feasibility under the CAA of achieving the proposed CO 2 standards, based on projections of what actions manufacturers are expected to take to
reduce emissions. The results of the analysis are discussed in detail in
Section III.D below and in the DRIA. EPA also presents the estimated costs and benefits of the proposed car and
truck CO 2 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 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 and NHTSA place important weight on the fact that during
MYs 2012–2016 manufacturers are expected to redesign and upgrade their light-duty vehicle products (and in some cases introduce entirely new vehicles not on the market today). Over these five model years there would be an opportunity for manufacturers to evaluate almost every one of their vehicle model platforms and add technology in a cost-effective way to control GHG emissions and improve fuel economy. This includes redesign of the air conditioner systems in ways that
will further reduce GHG emissions. The time-frame and levels for the proposed standards, as well as the ability to average, bank and trade credits and carry a deficit forward for a limited time, are expected to provide
manufacturers the time needed to incorporate technology that will achieve GHG reductions, and to do this as part of the normal vehicle redesign process. This is an important aspect of the proposal, as it would avoid the much higher costs that would occur if manufacturers needed to add or change technology at times other than these scheduled redesigns. This time period would also provide manufacturers the opportunity to plan for compliance using a multi-year time frame, again in
accord with their normal business practice.

Consistent with the requirement of CAA section 202(a)(1) that standards be applicable to vehicles ‘‘for their useful life,’’ EPA is proposing CO 2 vehicle standards that 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 miles, whichever first occurs, for all Tier 2 light-duty vehicles and light-duty
trucks. 125 Tier 2 refers to EPA’s standards for criteria pollutants such as

NO X , HC, and CO. EPA is proposing

new CO 2 standards for the same group of vehicles, and therefore the Tier 2 useful life would apply for CO 2 standards as well. The in-use emission standard will be 10% higher than the certification standard, to address issues of production variability and test-to-test variability. The in-use standard is
discussed in Section III.E.

EPA is proposing to measure CO 2 for certification and compliance purposes using the same test procedures currently used by EPA for measuring fuel economy. These procedures are the Federal Test Procedure (FTP or ‘‘city’’ test) and the Highway Fuel Economy

125 See 65 FR 6698 (February 10, 2000).VerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00064 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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Test (HFET or ‘‘highway’’ test). 126 This corresponds with the data used to develop the footprint-based CO 2 standards, since the data on control technology efficiency was also developed in reference to these test procedures. Although EPA recently updated the test procedures used for fuel economy labeling, to better reflect the actual in-use fuel economy achieved by vehicles, EPA is not proposing to use these test procedures for the CO 2 standards proposed here, given the lack of data on control technology effectiveness under these procedures. 127 As stated in Section I, EPA and NHTSA invite comments on potential
amendments to the CAFE and GHG test procedures, including but not limited to air conditioner-related emissions, that could be implemented beginning in MY

2017.

EPA proposes to include hydrocarbons (HC) and carbon monoxide (CO) in its CO 2 emissions
calculations on a CO 2 -equivalent basis. It is well accepted that HC and CO are typically oxidized to CO 2 in the atmosphere in a relatively short period of time and so are effectively part of the

CO 2 emitted by a vehicle. In terms of standard stringency, accounting for the carbon content of tailpipe HC and CO emissions and expressing it as CO 2 - equivalent emissions would add less than one percent to the overall CO 2 - equivalent emissions level. This will also ensure consistency with CAFE
calculations since HC and CO are
included in the ‘‘carbon balance’’ methodology that EPA uses to determine fuel usage as part of calculating vehicle fuel economy levels.

2. What Are the CO 2 Attribute-Based
Standards?

EPA proposes to use the same vehicle category definitions that are used in the CAFE program for the 2011 model year
standards. 128 The CAFE vehicle category definitions differ slightly from the EPA definitions for cars and light trucks used for the Tier 2 program, as well as other EPA vehicle programs. Specifically, NHTSA’s reconsideration of the CAFE program statutory language has resulted in many two-wheel drive SUVs under 6000 pounds gross vehicle weight being reclassified as cars under the CAFE program. The proposed approach of using CAFE definitions allows EPA’s proposed CO 2 standards and the proposed CAFE standards to be
harmonized across all vehicles. In other words, vehicles would be subject to
either car standards or truck standards under both programs, and not car standards under one program and trucks
standards under the other.

EPA is proposing separate car and truck standards, that is, vehicles defined as cars have one set of footprint-based
curves for MY 2012–2016 and vehicles
defined as trucks have a different set for MY 2012–2016. In general, for a given footprint the CO 2 g/mi target for trucks is less stringent then for a car with the same footprint.

EPA is not proposing a single fleet
standard where all cars and trucks are measured against the same footprint curve for several reasons. First, some vehicles classified as trucks (such as pick-up trucks) have certain attributes
not common on cars which attributes contribute to higher CO 2 emissions— notably high load carrying capability and/or high towing capability. Due to these differences, it is reasonable to separate the light-duty vehicle fleet into two groups. Second, EPA would like to harmonize key program design elements
of the GHG standards with NHTSA’s CAFE program where it is reasonable to do so. NHTSA is required by statute to set separate standards for passenger cars and for non-passenger cars.

Finally, most of the advantages of a single standard for all light duty vehicles are also present in the two-fleet standards proposed here. Because EPA is proposing to allow unlimited credit transfer between a manufacturer’s car and truck fleets, the two fleets can essentially be viewed as a single fleet
when manufacturers consider compliance strategies. Manufacturers
can thus choose on which vehicles within their fleet to focus GHG reducing technology and then use credit transfers as needed to demonstrate compliance, just as they would if there was a single
fleet standard. The one benefit of a single light-duty fleet not captured by a two-fleet approach is that a single fleet prevents potential ‘‘gaming’’ of the car and truck definitions to try and design
vehicles which are more similar to passenger cars but which may meet the regulatory definition of trucks. Although this is of concern to EPA, we do not
believe at this time that concern is sufficient to outweigh the other reasons for proposing separate car and truck fleet standards. EPA requests comment on this approach.

For model years 2012 and later, EPA is proposing a series of CO 2 standards that are described mathematically by a family of piecewise linear functions (with respect to vehicle footprint). The
form of the function is as follows:

CO 2 = a, if x ≤ l

CO 2 = cx + d, if l < x ≤ h

CO 2 = b, if x > h

Where:

CO 2 = the CO 2 target value for a given footprint (in g/mi)
a = the minimum CO 2 target value (in g/mi)
b = the maximum CO 2 target value (in g/mi) c = the slope of the linear function (in g/mi per sq ft) d = is the zero-offset for the line (in g/mi CO 2 ) x = footprint of the vehicle model (in square feet, rounded to the nearest tenth) l & h are the lower and higher footprint limits, constraints, or the boundary (‘‘kinks’’) between the flat regions and the intermediate sloped line.
EPA’s proposed parameter values that define the family of functions for the proposed CO 2 fleetwide average car and
truck standards are as follows:



### TABLE 

### III.B.2–1—P ARAMETER 

### VALUES FOR 

### C ARS

[For CO 2 gram per mile targets]

Model year a b c d Lower constraint Upper constraint

2012

......................................................... 242 313 4.72 48.8 41 56

2013

......................................................... 234 305 4.72 40.8 41 56

2014

......................................................... 227 297 4.72 33.2 41 56

2015

......................................................... 215 286 4.72 22.0 41 56

2016 and later .......................................... 204 275 4.72 10.9 41 56

126 EPA established the FTP for emissions to fuel economy measurement and added the procedures to calculate fuel economy values both measurement in the early 1970s. In 1976, in HFET. 126 The provisions in the 1976 regulation, for labeling and for CAFE purposes. response to the Energy Policy and Conservation Act effective with the 1977 model year, established 127 See 71 FR 77872, December 27, 2006.
(EPCA) statute, EPA extended the use of the FTP 128 See 49 CFR part 523.VerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00065 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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### 49517

TABLE 

### III.B.2–2—P ARAMETER 

### VALUES FOR 

### T RUCKS

[For CO 2 gram per mile targets]

Model year a b c d Lower constraint Upper constraint

2012

......................................................... 298 399 4.04 132.6 41 66

2013

......................................................... 287 388 4.04 121.6 41 66

2014

......................................................... 276 377 4.04 110.3 41 66

2015

......................................................... 261 362 4.04 95.2 41 66
2016 and later .......................................... 246 347 4.04 80.4 41 66

The equations can be shown graphically for each vehicle category, as shown in Figures III.B.2–1 and III.B.2–

2. These standards (or functions)
decrease from 2012–2016 with a vertical shift. A more detailed description of the development of the attribute based standard can be found in Chapter 2 of the Draft Joint TSD. More background
discussion on other alternative attributes and curves EPA explored can

be found in the EPA DRIA. EPA recognizes that the CAA does not

mandate that EPA use an attribute based standard, as compared to NHTSA’s obligations under EPCA. The EPAbelieves that proposing a footprintbased program will harmonize EPA’s proposed program and the proposed CAFE program as a single national program, resulting in reduced compliance complexity for
manufacturers. EPA’s reasons for proposing to use an attribute based
standard are discussed in more detail in the Joint TSD. Comments are requestedon this proposal to use the attributebased approach for regulating tailpipe

CO 2 emissions.

**BILLING CODE 4910–59–P**VerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00066 Fmt 4701 Sfmt 4725 E:\FR\FM\28SEP2.SGM 28SEP2EP28SE09.010</GPH>mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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**BILLING CODE 4910–59–C** CO 2 standards. Section III.E explains profile of various models, and in-use

3. Overview of How EPA’s Proposed EPA’s proposed approach for standards that would apply to the

CO 2 Standards Would Be Implemented certification and compliance in detail. various models that make up the

for Individual Manufacturers EPA is proposing two kinds of manufacturer’s fleet. Although this is standards—fleet average standards similar in concept to the current light- This section provides a brief overview determined by a manufacturer’s fleet duty vehicle Tier 2 program, there are of how EPA proposes to implement theVerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00068 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

### 49520 Federal Register / Vol. 74, No. 186 / Monday, September 28, 2009 / Proposed Rules

important differences. In explaining EPA’s proposal for the CO 2 standards, it
is useful to summarize how the Tier 2 program works.

Under Tier 2, manufacturers select a test vehicle prior to certification and test
the vehicle and/or its emissions
hardware to determine both its emissions performance when new and the emissions performance expected at
the end of its useful life. Based on this testing, the vehicle is assigned to one of several specified bins of emissions levels, identified in the Tier 2 rule, and
this bin level becomes the emissions standard for the test group the test vehicle represents. All of the vehicles in the group must meet the emissions level for that bin throughout their useful life. The emissions level assigned to the bin is also used in calculating the manufacturer’s fleet average emissions performance.

Since compliance with the Tier 2 fleet average depends on actual test group sales volumes and bin levels, it is not possible to determine compliance at the time the manufacturer applies for and receives a certificate of conformity for a test group. Instead, at certification, the
manufacturer demonstrates that the vehicles in the test group are expected to comply throughout their useful life with the emissions bin assigned to that test group, and makes a good faith demonstration that its fleet is expected to comply with the Tier 2 average when the model year is over. EPA issues a certificate for the vehicles covered by the test group based on this demonstration, and includes a condition
in the certificate that if the manufacturer does not comply with the fleet average then production vehicles from that test group will be treated as not covered by
the certificate to the extent needed to bring the manufacturer’s fleet average into compliance with Tier 2.

EPA proposes to retain the Tier 2 approach of requiring manufacturers to demonstrate in good faith at the time of certification that models in a test group will meet applicable standards throughout useful life. EPA also proposes to retain the practice of conditioning certificates upon attainment of the fleet average standard. However, there are several important differences between a Tier 2 type of program and the CO 2 standards program EPA is proposing. These differences and resulting modifications to certification
are summarized below and are
described in detail in Section III.E.

EPA is proposing to certify test groups as it does for Tier 2, with the CO 2 emission results for the test vehicle as
the initial or default standard for all of the models in the test group. However, manufacturers would later substitute
test data for individual models in that test group, based on the model level fuel economy testing that typically occurs through the course of the model year.
This model level data would then be used to assign a distinct certification level for that model, instead of the initial test group level. These model
level results would then be used to calculate the fleet average after the end of production. 129 The option to
substitute model level test data for the test group data is at the manufacturer’s discretion, except they are required as under the CAFE test protocols to test, at a minimum, enough models to represent 90 percent of their production. The test group level would continue to apply for any model that is not covered by model level testing. A related difference is that the fleet average calculation for Tier 2 is based on test group bin levels and test group sales whereas under this proposal
the CO 2 fleet level would be based ona combination of test group and modellevel emissions and model-level production. For the new CO 2 standards, EPA is proposing to use production rather than sales in calculating the fleet average in order to more closely conform with CAFE, which is a production-based program. EPA does not expect any significant
environmental effect because there is little difference between production and sales, and this will reduce the complexity of the program for
manufacturers.

4. Averaging, Banking, and Trading
Provisions for CO 2 Standards

As explained above, a fleet average

CO 2 program for passenger cars and light trucks is proposed. EPA has implemented similar averaging programs for a range of motor vehicle types and pollutants, from the Tier 2 fleet average for NO X to motorcycle hydrocarbon (HC) plus oxides of nitrogen (NO X) emissions to NO X and particulate matter (PM) emissions from heavy-duty engines. 130 The proposed program would operate much like EPA’s existing averaging programs in that
manufacturers would calculate

129 The final in-use vehicle standards for each
model would also be based on the model-level fuel economy testing. As discussed in Section III.E.4, an in-use adjustment factor would be applied to the
model level results to determine the in-use standard that would apply during the useful life of the
vehicle.

130 For example, see the Tier 2 light-duty vehicle emission standards program (65 FR 6698, February 10, 2000), the 2010 and later model year motorcycle emissions program (69 FR 2398, January 15, 2004), and the 2007 and later model year heavy-duty engine and vehicle standards program (66 FR 5001, January 18, 2001). production-weighted fleet average emissions at the end of the model year and compare their fleet average with a fleet average standard to determine compliance. As in other EPA averaging programs, the Agency is also proposing a 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, using their typical redesign schedules.

Averaging, Banking, and Trading (ABT) of emissions credits has 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. 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 lead-time or technical feasibility, allowing EPA to set a standard that is either numerically more stringent or goes into effect earlier than could have been justified otherwise. This provides important
environmental benefits at the same time it increases flexibility and reduces costs for the regulated industry.

This section discusses generation of credits by achieving a fleet average CO 2 level that is lower than the
manufacturer’s CO 2 fleet average standard. EPA is proposing a variety of additional ways credits may be generated by manufacturers. Section

III.Cdescribes these additional opportunities to generate credits in detail. EPA is proposing that credits could be earned through A/C system improvements beyond a specified baseline. Credits can also be generated by producing alternative fuel vehicles, by producing advanced technology vehicles including electric vehicles, plug-in hybrids, and fuel cell vehicles, and by using technologies that improve off-cycle emissions. In addition, EPA is proposing that early credits could be generated prior to the proposed program’s MY 2012 start date. The credits would be used in calculating the fleet averages at the end of the model year, with the exception of early credits which would be tracked separately. These proposed credit generating opportunities are described below in

Section III.C.

As explained earlier, manufacturers would determine the fleet average standard that would apply to their car
fleet and the standard for their truck fleet from the applicable attribute-based
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balance would be determined by comparing their fleet average with the
manufacturer’s CO 2 standard for that model year. The standard would be calculated from footprint values on the attribute curve and actual production levels of vehicles at each footprint. A manufacturer would generate credits if
its car or truck fleet achieves a fleet average CO 2 level lower than its standard and would generate debits if its fleet average CO 2 level is above that standard. At the end of the model year,
each manufacturer would calculate a production-weighted fleet average for each averaging set, cars and trucks. A
manufacturer’s car or truck fleet that achieves a fleet average CO 2 level lower than its standard would generate credits, and if its fleet average CO 2 level
is above that standard its fleet would generate debits.

EPA is proposing to account for the difference in expected lifetime vehicle miles traveled (VMT) between cars and trucks in order to preserve CO 2 reductions when credits are transferred between cars and trucks. As directed by EISA, NHTSA accomplishes this in the CAFE program by using an adjustment factor that is applied to credits when they are transferred between car and truck compliance categories. The CAFE adjustment factor accounts for two
different influences that can cause the
transfer of car and truck credits (expressed in tenths of a mpg), if left unadjusted, to potentially negate fuel reductions. First, mpg is not linear with fuel consumption, i.e. , a 1 mpg improvement above a standard will imply a different amount of actual fuel consumed depending on the level of the standard. Second, NHTSA’s conversion corrects for the fact that the typical
lifetime miles for cars is less than that for trucks, meaning that credits earned for cars and trucks are not necessarily equal. NHTSA’s adjustment factor essentially converts credits into vehicle lifetime gallons to ensure preservation of fuel savings and the transfer credits on an equal basis, and then converts back to the statutorily required credit units of tenths of a mile per gallon. To convert to gallons NHTSA’s conversion must take into account the expected lifetime mileage for cars and trucks. Because EPA is proposing standards that are expressed on a CO 2 gram per mile basis, which is linear with fuel consumption, EPA’s credit calculations
do not need to account for the first issue noted above. However, EPA is proposing to account for the second issue by expressing credits when they are generated in total lifetime megagrams (metric tons), rather than through the use of conversion factors that would apply at certain times. In this way credits could be freely exchanged between car and truck compliance categories without adjustment. Additional detail regarding this approach, including a discussion of the vehicle lifetime mileage estimates
for cars and trucks can be found in
Section III.E.5. A discussion of the
estimated vehicle lifetime miles traveled can be found in Chapter 4 of the draft Joint Technical Support Document. EPA requests comment on the proposed approach.

A manufacturer that generates credits in a given year and vehicle category could use those credits in essentially four ways, although with some limitations. These provisions are very similar to those of other EPA averaging, banking, and trading programs. These provisions have the potential to reduce costs and compliance burden, and support the feasibility of the standards being proposed in terms of lead time and orderly redesign by a manufacturer, thus promoting and not reducing the environmental benefits of the program.

First, the manufacturer would have to offset any deficit that had accrued in that averaging set in a prior model year
and had been carried over to the current model year. In such a case, the manufacturer would be obligated to use any current model year credits to offset
that deficit. This is referred to in the CAFE program as credit carry-back. EPA’s proposed deficit carry-forward, or credit carry-back provisions are described further, below.

Second, after satisfying any needs to offset pre-existing deficits within a vehicle category, remaining credits could be banked, or saved for use in future years. EPA is proposing that credits generated in this program be
available to the manufacturer for use in any of the five years after the year in which they were generated, consistent with the CAFE program under EISA.This is also referred to as a credit carryforward provision. For other new emission control programs, EPA has sometimes initially restricted credit life to allow time for the Agency to assess whether the credit program is functioning as intended. When EPA first offered averaging and banking provisions in its light-duty emissions control program (the National Low Emission Vehicle Program), credit life was restricted to three years. The same is true of EPA’s early averaging and banking program for heavy-duty engines. As these programs matured and were subsequently revised, EPA became confident that the programs were functioning as intended and that the standards were sufficiently stringent to
remove the restrictions on credit life.

EPA is therefore acting consistently with our past practice in proposing to reasonably restrict credit life in this new program. The Agency believes, subject to consideration of public comment, that a credit life of five years represents an appropriate balance between promoting orderly redesign and upgrade of the emissions control technology in the manufacturer’s fleet and the policy goal of preventing large numbers of credits accumulated early in the program from interfering with the incentive to develop and transition to
other more advanced emissions control technologies. As discussed below in Section III.C, EPA is proposing that any early credits generated by a manufacturer, beginning as soon as MY2009, would also be subject to the fiveyear credit carry-forward restriction based on the year in which they are generated. This would limit the effect of the early credits on the long-term emissions reductions anticipated to result from the proposed new standards.

Third, EPA is proposing to allow
manufacturers to transfer credits between the two averaging sets, passenger cars and trucks, within a manufacturer. For 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’s not meeting the truck fleet average standard in a given year. EPA believes that such cross-category use of credits by a manufacturer would provide important additional flexibility in the transition to emissions control technology without affecting overall emission reductions.

Finally, accumulated credits could be
traded to another vehicle manufacturer. As with intra-company credit use, such inter-company credit trading would provide flexibility in the transition to emissions control technology without affecting overall emission reductions. Trading credits to another vehicle
manufacturer would be a straightforward process between the two manufacturers, but could also involve third parties that could serve as credit
brokers. Brokers would not own the credits at any time. These sorts of exchanges are typically allowed under EPA’s current emission credit programs,

e.g. , the Tier 2 light-duty vehicle NO Xfleet average standard and the heavyduty engine NO X fleet average standards, although manufacturers have seldom made such exchanges. EPA seeks comment on enhanced reporting requirements or other methods that could help EPA assess validity ofVerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00070 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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credits, especially those obtained from third-party credit brokers

If a manufacturer had a deficit at the end of a model year—that is, its fleet average level failed to meet the required fleet average standard—EPA proposes that the manufacturer could carry that deficit forward (also referred to credit carry-back) for a total of three model years after the model year in which that deficit was generated. As noted above, such a deficit carry-forward could only occur after the manufacturer applied any banked credits or credits from another averaging set. If a deficit still
remained after the manufacturer had applied all available credits, and the
manufacturer did not obtain credits elsewhere, the deficit could be carried over for up to three model years. No
deficit could be carried into the fourth model year after the model year in which the deficit occurred. Any deficit from the first model year that remained after the third model year would thus
constitute a violation of the condition on the certificate, which would
constitute a violation of the Clean Air Act and would be subject to
enforcement action.

In the Tier 2 rulemaking proposal, EPA proposed to allow deficits to be carried forward for one year. In their comments on that proposal, manufacturers argued persuasively that by the time they can tabulate their average emissions for a particular model year, the next model year is likely to be well underway and it is too late to make calibration, marketing, or production mix changes to adjust that year’s credit generation. Based on those comments,
in the Tier 2 final rule EPA finalized provisions that allowed the deficit to be carried forward for a total of three years.
EPA continues to believe that three years is an appropriate amount of time that gives the manufacturers adequate time to respond to a deficit situation but does not create a lengthy period of prolonged non-compliance with the fleet average standards. 131 Subsequent EPA emission control programs that incorporate ABT provisions ( e.g. , the Mobile Source Air Toxics rule) haveprovided this three-year deficit carryforward provision for this reason. 132

The proposed averaging, banking, and trading provisions are generally
consistent with those included in the CAFE program, with a few notable exceptions. As with EPA’s proposedapproach, CAFE allows five year carryforward of credits and three year carryback. Transfers of credits across a manufacturer’s car and truck averaging

131 See 65 FR 6745 (February 10, 2000).

132 See 71 FR 8427 (February 26, 2007). 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, and transferred credits may not be used to meet the CAFE minimum domestic passenger car standard. CAFE allows credit trading, but again, traded credits cannot be used
to meet the minimum domestic passenger car standard. EPA is not proposing these constraints on the use
of transferred credits.

Additional details regarding the averaging, banking, and trading provisions and how EPA proposes to implement these provisions can be
found in Section III.E.

5. CO 2 Optional Temporary Lead-time
Allowance Alternative Standards

EPA is proposing a limited and narrowly prescribed option, called the Temporary Lead-time Allowance Alternative Standards (TLAAS), to provide additional lead time for a
certain subset of manufacturers. This option is designed to address two different situations where we project that more lead time is needed, based on
the level of emissions control technology and emissions control performance currently exhibited by
certain vehicles. One situation involves manufacturers who have traditionally paid CAFE fines instead of complying with the CAFE fleet average, and as a result at least part of their vehicle production currently has significantly higher CO 2 and lower fuel economy levels than the industry average. More lead time is needed in the program’s initial years to upgrade these vehicles to meet the aggressive CO 2 emissions performance levels required by the proposal. The other situation involves
manufacturers who have a limited line
of vehicles and are unable to take advantage of averaging of emissions performance across a full line of production. For example, some smaller volume manufacturers focus on high performance vehicles with higher CO 2 emissions, above the CO 2 emissions target for that vehicle footprint, but do not have other types of vehicles in their production mix with which to average. Often, these manufacturers also pay fines under the CAFE program rather than meeting the applicable CAFEstandard. Because voluntary noncompliance is impermissible for the GHG standards proposed under the CAA, both of these types of
manufacturers need additional lead time to upgrade vehicles and meet the proposed standards. EPA is proposing an optional, temporary alternative standard, which is only slightly less stringent, and limited to the first four model years (2012—2015) of the National Program, so that these
manufacturers can have sufficient lead time to meet the tougher MY 2016 GHG standards, while preserving consumer choice of vehicles during this time.

In MY 2016, the TLAAS option ends, and all manufacturers, regardless of size, and domestic sales volume, must comply with the same CO 2 standards, while under the CAFE program companies would continue to be allowed to pay civil penalties in lieu of complying with the CAFE standards. However, because companies must meet
both the CAFE standards and the EPA

CO 2 standards, the National Program will have the practical impact of providing a level playing field for all companies beginning in MY 2016—a
situation which has never existed under the CAFE program. This option thereby results in more fuel savings and CO 2 reductions than would be the case under the CAFE program.

EPA projects that the environmental impact of the proposed TLAAS program will be very small. If all companies eligible to use the TLAAS use it to the maximum extent allowed, total GHG emissions from the proposal will increase by less than 0.4% over the
lifetime of the MY 2012–2016 vehicles. EPA believes the impact will be even smaller, as we do not expect all of the eligible companies to use this option, and we do not expect all companies who do use the program will use it to the maximum extent allowed, as we have included provisions which discourage companies from using the TLAAS any longer than it is needed.

EPA has structured the TLAAS option to provide more lead time in these kinds of situations, but to limit the program so that it would only be used in situations
where these kinds of lead time concerns arise. Based on historic data on sales, EPA is using a specific historic U.S. sales volume as the best way to identify the subset of production that falls into this situation. Under the TLAAS, these
manufacturers would be allowed to produce up to but no more than 100,000 vehicles that would be subject to a somewhat less stringent CO 2 standard. This 100,000 volume is not an annual limit, but is an absolute limit for the
total number of vehicles which can use the TLAAS program over the model years 2012–2015. Any additional production would be subject to the same standards as any other manufacturer. In addition, EPA is imposing a variety of
restrictions on the use of the TLAAS program, discussed in more detail below, to ensure that only
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for the kinds of reasons noted above are likely to use the program. Finally, the program is temporary and expires at the end of MY 2015. A more complete discussion of the program is provided below. EPA believes the proposed program reasonably addresses a real world lead time constraint, and does it in a way that balances the need for more lead time with the need to minimize any resulting loss in potential emissions
reductions. EPA invites comment as to whether its proposal is the best way to
balance these concerns.

EPA proposes to establish a TLAAS for a specified subset of manufacturers. There are two types of companies who
would make use of TLAAS—those manufacturers who have paid CAFE fines in recent years, and who need additional lead-time to incorporate the needed technology; and those companies who are not full-line manufacturers, who have a smaller range of models and vehicle types, who may need additional lead-time as well. This alternative standard would apply
to manufacturers with total U.S. sales of less than 400,000 vehicles per year, using 2009 model year final sales numbers to determine eligibility for
these alternative standards. EPA
reviewed the sales volumes of manufacturers over the last few years,
and determined that manufacturers below this level typically fit the characteristics discussed above, and
manufacturers above this level did not. Thus, EPA chose this level because it functionally identifies the group of manufacturers described above, recognizing that there is nothing intrinsic in the sales volume itself that
warrants this allowance. EPA was not able to identify any other objective criteria that would more appropriately identify the manufacturers and vehicle
fleets described above.

EPA is proposing that manufacturers qualifying for TLAAS would be allowed to meet slightly less stringent standards
for a limited number of vehicles for model years 2012–2015. Specifically, an eligible manufacturer could have a total of up to 100,000 units of cars and trucks combined over model years 2012–2015, and during those model years those vehicles would be subject to a standard

1.25 times the standard that would otherwise apply to those vehicles under the primary program. In other words, the footprint curves upon which the
individual manufacturer standards for
the TLAAS fleets are based would be less stringent by a factor of 1.25 for up to 100,000 of an eligible manufacturer’s vehicles for model years 2012–2015. As noted, this approach seeks to balance the need to provide additional lead-time without reducing the environmental benefits of the proposed program. EPA believes that 100,000 units over four model years achieves an appropriate balance as the emissions impact is quite small, but does provide companies with some flexibility during MY 2012–2015. For example, for a manufacturer producing 400,000 vehicles per year, this would be a total of up to 100,000 vehicles out of a total production of up to 1.6 million vehicles over the four year period, or about 6 percent of total production.

Manufacturers with no U.S. sales in model year 2009 would not qualify for the TLAAS program. Manufacturers meeting the cut-point of 400,000 for MY 2009 but with U.S. directed production above 400,000 in any subsequent model years would remain eligible for the TLAAS program. Also, the total sales number applies at the corporate level, so if a corporation owns several vehicle brands the aggregate sales for the corporation would be used. These provisions would help prevent gaming of the provisions through corporate restructuring. Corporate ownership or control relationships would be based on
determinations made under CAFE for model year 2009. In other words, corporations grouped together for purposes of meeting CAFE standards, would be grouped together for determining whether or not they are eligible under the 400,000 vehicle cut point.

EPA derived the 100,000 maximum
unit set aside number based on a gradual phase-out schedule shown in Table III.B.5–1, below. However,
individual manufacturers’ situations will vary significantly and so EPA believes a flexible approach that allows
manufacturers to use the allowance as they see fit during these model years would be most appropriate. As another example, an eligible manufacturer could also choose to apply the TLAAS program to an average of 25,000 vehicles per year, over the four-year period. Therefore, EPA is proposing that a total of 100,000 vehicles of an eligible manufacturer, with any combination of cars or trucks, could be subject to the alternative standard over the four year period without restrictions.



### TABLE 

### III.B.5–1—TLAAS E XAMPLE 

### V EHICLE 

### P RODUCTION 

### VOLUMES

Model year 2012 2013 2014 2015

Sales Volume ........................................................................... 40,000 30,000 20,000 10,000

The TLAAS vehicles would be separate car and truck fleets for that model year and would be subject to the less stringent footprint-based standards of 1.25 times the primary fleet average that would otherwise apply. The
manufacturer would determine what vehicles are assigned to these separate averaging sets for each model year. EPA is proposing that credits from the primary fleet average program can be
transferred and used in the TLAAS program. Credits within the TLAAS program may also be transferred
between the TLAAS car and truck averaging sets for use through 2015 when the TLAAS would end. However, credits generated under TLAAS would not be allowed to be transferred or traded to the primary program. Therefore, any unused credits under TLAAS would expire after model year 2015. EPA believes that this is necessary to limit the program to situations where it is needed and to prevent the allowance from being inappropriately transferred to the long-term primary

program.

EPA is concerned that some manufacturers would be able to place relatively clean vehicles in the TLAAS
to maximize TLAAS credits if credit use was unrestricted. However, any credits generated from the primary program that are not needed for compliance in the primary program, should be used to offset the TLAAS vehicles. EPA is thus proposing to restrict the use of banking and trading between companies of credits in the primary program in years in which the TLAAS is being used. For example, manufacturers using the
TLAAS in MY 2012 could not bank credits in the primary program during
MY 2012 for use in MY 2013 and later. No such restriction would be in place for years when the TLAAS is not being used. EPA also believes this provision is necessary to prevent credits from beingearned simply by removing some highemitting vehicles from the primary fleet. Absent this restriction, manufacturers
would be able to choose to use the
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able to earn credits under the primary program that could be banked or traded under the primary program without restriction. EPA is proposing two additional restrictions regarding the use of the TLAAS by requiring that for any of the 2012–2015 model years for which an eligible manufacturer would like to use the TLAAS, the manufacturer must
use two of the available flexibilities in the GHG program first in order to try and show compliance with the primary standard before accessing the TLAAS. Specifically, before using the TLAAS the manufacturer must: (1) use any banked emission credits from a previous model year; and, (2) use any available credits from the companies’ car or truck fleet for the specific model year (i.e., use credit transfer from cars to trucks or from trucks to cars, that is, before using
the TLAAS for either the car fleet or the truck fleet, make use of any available credit transfers first). EPA is requesting comments on all aspects of the proposed TLAAS program including comments on other provisions that might be
needed to ensure that the TLAAS program is being used as intended and to ensure no gaming occurs.

Finally, EPA recognizes that there will be a wide range of companies within the eligible manufacturers with sales less than 400,000 vehicles in model year 2009. Some of these companies, while having relatively small U.S. sales volumes, are large global automotive firms, including companies such as Mercedes and Volkswagen. Other companies are significantly smaller niche firms, with sales volumes closer to 10,000 vehicles per year worldwide; an example of this type of firm is Aston Martin. EPA anticipates that there are a small
number of such smaller volume manufacturers, which have claimed that they may face greater challenges in meeting the proposed standards due to their limited product lines across which to average. EPA requests comment on whether the proposed TLAAS program, as described above, provides sufficient
lead-time for these smaller firms to incorporate the technology needed to comply with the proposed GHG
standards.

6. Proposed Nitrous Oxide and Methane
Standards

In addition to fleet-average CO 2 standards, EPA is proposing separate per-vehicle standards for nitrous oxide (N 2 O) and methane (CH4 ) emissions. Standards are being proposed that would cap vehicle N 2 O and CH4 emissions at current levels. Our
intention is to set emissions standards that act to cap emissions to ensure that future vehicles do not increase their

N 2 O and CH4 emissions above levels
that would be allowed under the proposal.

EPA considered an approach of expressing each of these standards in
common terms of CO 2 -equivalent emissions and combining them into a single standard along with CO 2 and HFC emissions. California’s ‘‘Pavley’’ program adopted such a CO 2 -equivalent emissions standards approach to GHG emissions in their program. 133 However, these pollutants are largely independent of one another in terms of how they are generated by the vehicle and how they are tested for during implementation. Potential control technologies and strategies for each pollutant also differ. Moreover, an approach that provided for averaging of these pollutants could undermine the stringency of the CO 2 standards, as at this time we are proposing standards which ‘‘cap’’ N 2 O
and CH4 emissions, rather then proposing a level which is either at the industry fleet-wide average or which
would result in reductions from these pollutants. It is possible that once EPA begins to receive more detailed
information on the N 2O and CH4 performance of the new vehicle fleet as a result of this proposed rule (if it were to be finalized as proposed) that for a future action for model years 2017 and
later EPA could consider a CO 2- equivalent standard which would not result in any increases in GHG
emissions due to the current lack of
detailed data on N 2 O and CH4 emissions performance. In addition, EPA seeks
comment on whether a CO 2 -equivalent
emissions standard should be considered for model years 2012 through 2016, and whether there are advantages or disadvantages to such an approach, including potential impacts
on harmonization with CAFE standards.

Almost universally across current car and truck designs, both gasoline- and diesel-fueled, these emissions are relatively low, and our intent is to not require manufacturers to make technological improvements in order to
reduce N 2 O and CH4 at this time. However, it is important that future vehicle technologies or fuels do not result in increases in these emissions, and this is the intent of the proposed ‘‘cap’’ standards.

EPA requests comments on our approach to regulating N 2 O and CH4 emissions including the appropriateness

133 California Environmental Protection Agency Air Resources Board, Staff Report: Initial Statement of Reasons for Proposed Rulemaking Public Hearing To Consider Adoption Of Regulations To Control Greenhouse Gas Emissions From Motor Vehicles, August 6, 2004. of ‘‘cap’’ standards as opposed to ‘‘technology-forcing’’ standards, the technical bases for the proposed N 2 O
and CH4 standards, the proposed test procedures, and timing. Specifically,
EPA seeks comment on the appropriateness of the proposed levels
of the N 2 O and CH4 standards to accomplish our stated intent. In addition, EPA seeks comment on any
additional emissions data on N 2 O and

CH4 from current technology vehicles.

a. Nitrous Oxide (N 2 O) Exhaust
Emission Standard

N 2 O is a global warming gas with a high global warming potential. 134 It accounts for about 2.7% of the current greenhouse gas emissions from cars andlight trucks. EPA is proposing a pervehicle N 2 O emission standard of 0.010 g/mi, measured over the traditional FTP vehicle laboratory test cycles. The
standard would become effective in model year 2012 for all light-duty cars and trucks. Averaging between vehicles
would not be allowed. The standard is designed to prevent increases in N 2 O emissions from current levels, i.e. a nobacksliding standard.

N 2 O is emitted from gasoline and diesel vehicles mainly during specific catalyst temperature conditions
conducive to N 2 O formation. Specifically, N 2 O can be generated during periods of emission hardware warm-up when rising catalyst temperatures pass through the temperature window when N 2 O formation potential is possible. For current Tier 2 compatible gasoline engines with conventional three-way catalyst technology, N 2O is not generally produced in significant amounts because the time the catalyst spends atthe critical temperatures during warmup is short. This is largely due to the need to quickly reach the higher temperatures necessary for high catalyst efficiency to achieve emission compliance of criteria pollutants. N 2 O is a more significant concern with diesel vehicles, and potentially future gasoline lean-burn engines, equipped with advanced catalytic NO X emissions control systems. These systems can but need not be designed in a way that emphasizes efficient NO X control while allowing the formation of significant quantities of N 2 O. Excess oxygen present in the exhaust during lean-burn
conditions in diesel or lean-burn gasoline engines equipped with these advanced systems can favor N 2 O formation if catalyst temperatures are not carefully controlled. Without

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specific attention to controlling N 2 O emissions in the development of such

new NO X control systems, vehicles
could have N 2 O emissions many times greater than are emitted by current gasoline vehicles.

EPA is proposing an N 2 O emission
standard that EPA believes would be met by current-technology gasoline vehicles at essentially no cost. As noted,

N 2 O formation in current catalyst systems occurs, but the emission levels are low, because the time the catalyst spends at the critical temperatures during warm-up when N 2 O can form is short. At the same time, EPA believes that the proposed standard would ensure that the design of advanced NO X control systems, especially for future diesel and lean-burn gasoline vehicles,
would control N 2 O emission levels.
While current NO X control approaches
used on current Tier 2 diesel vehicles
do not tend to form N 2 O emissions, EPA believes that the proposed standards would discourage any new emission control designs that achieve criteria emissions compliance at the cost of
increased N 2 O emissions. Thus, the proposed standard would cap N 2 O emission levels, with the expectation that current gasoline and diesel vehicle control approaches that comply with the
Tier 2 vehicle emission standards for

NO X would not increase their emission levels, and that the cap would ensure that future vehicle designs would appropriately control their emissions of

N 2 O. The proposed N 2 O level is approximately two times the average

N 2 O level of current gasoline passenger cars and light-duty trucks that meet the

Tier 2 NO X standards. 135 Manufacturers typically use design targets for NO X emission levels of about 50% of the standard, to account for in-use
emissions deterioration and normal testing and production variability, and manufacturers are expected to utilize a similar approach for N 2 O emission compliance. EPA is not proposing a more stringent standard for current gasoline and diesel vehicles because the stringent Tier 2 program and the
associated NO X fleet average requirement already result in significant

N 2 O control, and does not expect

current N 2 O levels to rise for these vehicles. EPA requests comment on this
technical assessment of current and potential future N 2 O formation in cars
and trucks.

While EPA believes that manufacturers will likely be able to acquire and install N 2 O analytical

135 Memo to docket ‘‘Deriving the standard from EPA’s MOVES model emission factors, ’’ December

2007. equipment, the agency also recognizes that some companies may face challenges. Given the short lead-time for this rule, EPA proposes that manufacturers be able to apply for a certificate of conformity with the N 2 O standard for model year 2012 based on a compliance statement based on good engineering judgment. For 2013 and later model years, manufacturers would
need to submit measurements of N 2O for compliance purposes.

Diesel cars and light trucks with advanced emission control technology are in the early stages of development and commercialization. As this segment of the vehicle market develops, the proposed N 2 O standard would require manufacturers to incorporate control strategies that minimize N 2O formation. Available approaches include using electronic controls to limit catalyst conditions that might favor N 2 O
formation and consider different catalyst formulations. While some of these approaches may have modest associated costs, EPA believes that they will be small compared to the overall
costs of the advanced NO X control technologies already required to meet
Tier 2 standards.

Vehicle emissions regulations do not currently require testing for N 2 O, and
most test facilities do not have equipment for its measurement. Manufacturers without this capability would need to acquire and install appropriate measurement equipment. However, EPA is proposing four N 2 O measurement methods, all of which are commercially available today. EPA expects that most manufacturers would use photo-acoustic measurement equipment, which the Agency estimates
would result in a one-time cost of about $50,000–$60,000 for each test cell that would need to be upgraded.

Overall, EPA believes that manufacturers of cars and light trucks, both gasoline and diesel, would meet the proposed standard without implementing any significantly new technologies, and there are not expected to be any significant costs associated with this proposed standard.

b. Methane (CH4 ) Exhaust Emission
Standard

CH4 (or methane) is greenhouse gas with a high global warming potential. 136 It accounts for about 0.2% of the greenhouse gases from cars and light
trucks.

EPA is proposing a CH4 emission standard of 0.030 g/mi as measured on the FTP, to apply beginning with model

136 CH4 has a GWP of 21 according to the IPCC Second Assessment Report (SAR). year 2012 for both cars and trucks. EPA
believes that this level for the standard would be met by current gasoline and diesel vehicles, and would prevent large
increases in future CH4 emissions in the
event that alternative fueled vehicles with high methane emissions, like some past dedicated compressed natural gas (CNG) vehicles, become a significant part of the vehicle fleet. Currently EPA does not have separate CH4 standards because unlike other hydrocarbons it does not contribute significantly to ozone formation, 137 However CH4 emissions levels in the gasoline and diesel car and light truck fleet have nevertheless generally been controlled by the Tier 2 non-methane organic gases (NMOG) emission standards. However,
without an emission standard for CH4 , future emission levels of CH4 cannot be guaranteed to remain at current levels as vehicle technologies and fuels evolve.

The proposed standard would cap

CH4 emission levels, with the expectation that current gasoline vehicles meeting the Tier 2 emission
standards would not increase their levels, and that it would ensure that
emissions would be addressed if in the
future there are increases in the use of natural gas or any other alternative fuel.
The level of the standard would generally be achievable through normal emission control methods already required to meet Tier 2 program
emission standards for NMOG and EPA is therefore not attributing any cost to this part of this proposal. Since CH4 is produced in gasoline and diesel engines similar to other hydrocarbon components, controls targeted at reducing overall NMOG levels generally also work at reducing CH4 emissions. Therefore, for gasoline and diesel vehicles, the Tier 2 NMOG standards will generally prevent increases in CH4 emissions levels from today. CH4 from Tier 2 light-duty vehicles is relatively low compared to other GHGs largely due to the high effectiveness of previous National Low Emission Vehicle (NLEV) and current Tier 2 programs in controlling overall HC emissions.

The level of the proposed standard is approximately two times the averageTier 2 gasoline passenger cars and lightduty trucks level. 138 As with N 2 O, this proposed level recognizes that manufacturers typically set emission design targets at about 50% of the standard. Thus, EPA believes the proposed standard would be met by

137 But see Ford Motor Co. v. EPA, 604 F. 2d 685 (D.C. Cir. 1979) (permissible for EPA to regulate

CH4 under CAA section 202 (b)).

138 Memo to docket ‘‘Deriving the standard from EPA’s MOVES model emission factors, ’’ December

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current gasoline vehicles. Similarly, since current diesel vehicles generally
have even lower CH4 emissions than gasoline vehicles, EPA believes that diesels would also meet the proposed standard. However, EPA also believes
that to set a CH4 emission standard more stringent than the proposed standard could effectively make the Tier 2 NMOG standard more stringent.

In recent model years, a small number of cars and light trucks were sold that were designed for dedicated use of compressed natural gas (CNG) that met
Tier 2 emission standards. While emission control designs on these recent
dedicated CNG-fueled vehicles
demonstrate CH4 control as effective as gasoline or diesel equivalent vehicles, CNG-fueled vehicles have historically produced significantly higher CH4 emissions than gasoline or diesel
vehicles. This is because their CNG fuel is essentially methane and any unburned fuel that escapes combustion and not oxidized by the catalyst is emitted as methane. However, even if
these vehicles meet the Tier 2 NMOG standard and appear to have effective

CH4 control by nature of the NMOG controls, Tier 2 standards do not require

CH4 control. While the proposed CH4 cap standard should not require any different emission control designs beyond what is already required to meet
Tier 2 NMOG standards on a dedicated CNG vehicle, the cap will ensure that systems maintain the current level of

CH4 control. EPA is not proposing more stringent CH4 standards because the
same controls that are used to meet Tier
2 NMOG standards should result in
effective CH4 control. Increased CH4 stringency beyond proposed levels could inadvertently result in increased Tier 2 NMOG stringency absent an emission control technology unique to

CH4 . Since CH4 is already measured under the current Tier 2 regulations (so that it may be subtracted to calculate non-methane hydrocarbons), the proposed standard would not result in additional testing costs. EPA requests comment on whether the proposed cap standard would result in any significant technological challenges for makers of
CNG vehicles.

7. Small Entity Deferment

EPA is proposing to defer setting GHG
emissions standards for small entities meeting the Small Business Administration (SBA) criteria of a small
business as described in 13 CFR

121.201. EPA would instead consider appropriate GHG standards for these entities as part of a future regulatory
action. This includes small entities in three distinct categories of businesses for light-duty vehicles: small volume manufacturers, independent commercial importers (ICIs), and alternative fuel
vehicle converters. EPA has identified
about 13 entities that fit the Small Business Administration (SBA) criterion
of a small business. EPA estimates there are 2 small volume manufacturers, 8 ICIs, and 3 alternative fuel vehicle converters currently 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 proposed deferment will have a negligible impact on the GHG emissions reductions from the proposed standards. Further detail is provided in Section III.I.3, below.

To ensure that EPA is aware of which companies would be deferred, EPA is proposing that such entities submit a declaration to EPA containing a detailed written description of how that manufacturer qualifies as a small entity under the provisions of 13 CFR 121.201.
Because such entities are not automatically exempted from other EPA regulations for light-duty vehicles and light-duty trucks, absent such a declaration, EPA would assume that the entity was subject to the greenhouse gas control requirements in this GHG proposal. The declaration would need to
be submitted at time of vehicle
emissions certification under the EPA Tier 2 program. 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. EPA expects that the additional paperwork burden associated with completing and submitting a small entity declaration to gain deferral from the proposed GHG standards would be negligible and easily done in the context of other routine submittals to EPA. However,
EPA has accounted for this cost with a
nominal estimate included in the Information Collection Request completed under the Paperwork
Reduction Act. Additional information can be found in the Paperwork
Reduction Act discussion in Section

III.I.2.

C. Additional Credit Opportunities for

CO2 Fleet Average Program

The standards being proposed represent a significant multi-year challenge for manufacturers, especially in the early years of the program. Section III.B.4 described EPA proposals for how manufacturers could generate credits by achieving fleet average CO 2 emissions below the fleet average standard, and also how manufacturers could use credits to comply with
standards. As described in Section III.B.4, credits could be carried forward five years, carried back three years, transferred between vehicle categories,
and traded between manufacturers. The credits provisions proposed below would provide manufacturers with additional ways to earn credits starting in MY 2012. EPA is also proposing early credits provisions for the 2009–2011 model years, as described below in

Section III.C.5.

The provisions proposed below would provide additional flexibility, especially in the early years of the program. This flexibility helps to
address issues of lead-time or technical feasibility for various manufacturers and in several cases provides an incentive for promotion of technology pathways that warrant further development, whether or not they are an important or central technology on which critical features of this program are premised. EPA is proposing a variety of credit opportunities because manufacturers are not likely to be in a position to use every credit provision. EPA expects that manufacturers are likely to select the credit opportunities that best fit their future plans. EPA believes it is critical that manufacturers have options to ease
the transition to the final MY 2016 standards. At the same time, EPA believes these credit programs must be designed in a way to ensure that they
achieve emission reductions that
achieve real-world reductions over the full useful life of the vehicle (or, in the
case of FFV credits and Advanced Technology credits, to incentivize the
introduction of those vehicle technologies) and are verifiable. In addition, EPA wants to ensure these credit programs do not provide an opportunity for manufacturers to earn
‘‘windfall’’ credits. EPA seeks comments on how to best ensure these objectives are achieved in the design of the credit programs. EPA requests comment on all aspects of these proposed credits provisions.

1. Air Conditioning Related Credits

EPA proposes that manufacturers be able to generate and use credits for improved air conditioner (A/C) systems in complying with the CO 2 fleetwide average standards described above. EPA expects that most manufacturers will choose to utilize the A/C provisions as part of its compliance demonstration (and for this reason cost of compliance
with A/C related emission reductions are assumed in the cost analysis). The A/C provisions are structured as credits,
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compliance using 2-cycle tests (see Sections III.B and III.E.). Those tests do not measure either A/C leakage or tailpipe CO 2 emissions attributable to A/C load (see Section III.C.1.b below describing proposed alternative test procedures for assessing tailpipe CO 2 emission attributable to A/C engine load). Thus, it is a manufacturer’s option to include A/C GHG emission reductions as an aspect of its compliance demonstration. Since this is an elective alternative, EPA is referring to the A/C part of the proposal
as a credit.

EPA estimates that direct A/C GHG emissions—emissions due to the leakage of the hydrofluorocarbon refrigerant in common use today—account for 4.3% of

CO 2 -equivalent GHGs from light-duty
cars and trucks. This includes the direct leakage of refrigerant as well as the subsequent leakage associated with maintenance and servicing, and with disposal at the end of the vehicle’s life. The emissions that are impacted by leakage reductions are the direct leakage and the maintenance and servicing. Together these are equivalent to CO 2 emissions of approximately 13.6 g/mi per vehicle (this is 14.9 g/mi if end of life emissions are also included). EPA
also estimates that indirect GHG emissions (additional CO 2 emitted due to the load of the A/C system on the engine) account for another 3.9% of light-duty GHGs. 139 This is equivalent

to CO 2 emissions of approximately 14.2 g/mi per vehicle. The derivation of these figures can be found in the EPA DRIA.

EPA believes that it is important to
address A/C direct and indirect emissions because the technologies that manufacturers will employ to reduce
vehicle exhaust CO 2 will have little or no impact on A/C related emissions. Without addressing A/C-related emissions, as vehicles become more efficient, the A/C related contribution will become a much larger portion of
the overall vehicle GHG emissions.

Over 95% of the new cars and light trucks in the United States are equipped with A/C systems and, as noted, there are two mechanisms by which A/C systems contribute to the emissions of greenhouse gases: through leakage of refrigerant into the atmosphere and through the consumption of fuel to provide power to the A/C system. With leakage, it is the high global warming potential (GWP) of the current automotive refrigerant—R134a, with a
GWP of 1430—that results in the CO 2 - equivalent impact of 13.6 g/mi. 140 Due

139 See Chapter 2, section 2.2.1.2 of the DRIA.

140 The global warming potentials (GWP) used in the NPRM analysis are consistent with to the high GWP of this HFC, a small leakage of the refrigerant has a much greater global warming impact than a
similar amount of emissions of CO 2 or other mobile source GHGs.
Manufacturers can choose to reduceA/C leakage emissions by using leaktight components. Also, manufacturers can largely eliminate the global warming impact of leakage emissions by adopting systems that use an alternative, low-GWP refrigerant. 141 The A/C system
also contributes to increased CO 2 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 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 CO 2 by the engine during
combustion. This incremental CO 2 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. 142

Manufacturers can make very feasible improvements to their A/C systems to address A/C system leakage and efficiency. EPA proposes two separate credit approaches to address leakage reductions and efficiency improvements independently. A proposed 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. A proposed efficiency improvement credit would account for the various types of hardware and
control of that hardware available to

Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment Report (AR4). At this time, the IPCC Second Assessment Report (SAR) global warming potential values have been agreed upon as the official U.S. framework for addressing climate change. The IPCC SAR GWP values are used in the official U.S. greenhouse gas inventory submission to the climate change framework. When inventories are recalculated for the final rule, changes in GWP used may lead to adjustments.

141 Refrigerant emissions during maintenance and at the end of the vehicle’s life (as well as emissions during the initial charging of the system with refrigerant) are also addressed by the CAA Title VI stratospheric ozone program, as described below.

142 We will not be addressing changes to the weight of the A/C system, since the issue of CO 2 emissions from the fuel consumption of normal (non-A/C) operation, including basic vehicle weight, is inherently addressed with the primary

CO 2 standards ( See III.B above). increase the A/C system efficiency. Manufacturers would be required to attest 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 efficiency are highly cost-effective and technologically feasible. EPA expects
most manufacturers will choose to use these A/C credit provisions, although some may not find it necessary to do so.

a. A/C Leakage Credits

The refrigerant used in vehicle A/C systems can get into the atmosphere by many different means. These refrigerant emissions occur from the slow leakage over time that all closed high pressure systems will experience. Refrigerant loss occurs from permeation through hoses and leakage at connectors and other parts where the containment of the system is compromised. The rate of leakage can increase due to deterioration of parts and connections as well. In addition, there are emissions that occur during accidents and maintenance and servicing events. Finally, there are end-of-life emissions if, at the time of vehicle scrappage, refrigerant is not fully recovered.

Because the process of refrigerant leakage has similar root causes as those that cause fuel evaporative emissions from the fuel system, some of the control technologies are similar (including hose materials and connections). There are however, some
fundamental differences between the systems that require a different approach. The most notable difference is that A/C systems are completely closed systems, whereas the fuel system is not. Fuel systems are meant to be refilled as liquid fuel is consumed by the engine, while the A/C system ideally should never require ‘‘recharging’’ of the contained refrigerant. Thus it is critical that the A/C system leakages be kept to
an absolute minimum. These emissions are typically too low to accurately

measure in most current SHED chambers designed for fuel evaporative emissions measurement, especially for systems that are new or early in life. Therefore, if leakage emissions were to be measured directly, new measurement facilities would need to be built by the OEM manufacturers and very accurate new test procedures would need to be developed. Especially because there are indications that much of the industry is moving toward alternative refrigerants (post-2016 for most manufacturers), EPA is not proposing such a direct measurement approach to addressing refrigerant leakage.VerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00076 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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Instead, EPA proposes that
manufacturers demonstrate improvements in their A/C system designs and components through a design-based method. Manufacturers implementing systems expected to result in reduced refrigerant leakage would be eligible for credits that could
then be used to meet their CO 2 emission compliance requirements. The proposed ‘‘A/C Leakage Credit’’ provisions would generally assign larger credits to system designs that are expected to result in greater leakage reduction. In addition, EPA proposes that proportionately larger A/C Leakage Credits be available
to manufacturers that substitute a lowerGWP refrigerant for the current R134a refrigerant.

Our proposed method for calculating A/C Leakage Credits is based closely on an industry-consensus leakage scoring method, described below. This leakage scoring method is correlated to experimentally-measured leakage rates from a number of vehicles using the different available A/C components. Under the proposed approach,
manufacturers would choose from a menu of A/C equipment and components used in their vehicles in order to establish leakage scores which would characterize their A/C system leakage performance. The leakage score can be compared to expected fleetwide leakage rates in order to quantify improvements for a given A/C system. Credits would be generated from leakage reduction improvements that exceeded average fleetwide leakage rates.

EPA believes that the design-based approach would result in estimates of likely leakage emissions reductions that would be comparable to those that would eventually result from performance-based testing. At the same time, comments are encouraged on all developments that may lead to a robust, practical, performance-based test for measuring A/C refrigerant leakage

emissions.

The cooperative industry and government Improved Mobile Air Conditioning (IMAC) program 143 has demonstrated that new-vehicle leakage emissions can be reduced by 50%. This program has shown that this level of improvement can be accomplished by reducing the number and improving the quality of the components, fittings, seals, and hoses of the A/C system. All of these technologies are already in
commercial use and exist on some of today’s systems.

EPA is proposing that a manufacturer wishing to earn A/C Leakage Credits

143 Team 1–Refrigerant Leakage Reduction: Final Report to Sponsors, SAE, 2007. would compare the components of itsA/C system with a set of leakagereduction technologies and actions that is based closely on that being developed through IMAC and the Society of Automotive Engineers (as SAE Surface Vehicle Standard J2727, August 2008 version). The J2727 approach is developed from laboratory testing of a variety of A/C related components, and EPA believes that the J2727 leakage scoring system generally represents areasonable correlation with average realworld leakage in new vehicles. Like the IMAC approach, our proposed credit approach would associate each component with a specific leakage rate in grams per year identical to the values in J2727. A manufacturer choosing to claim Leakage Credits would sum the leakage values for an A/C system for a total A/C leakage score. EPA is proposing a formula for converting thegrams-per-year leakage score to a gramsper-mile CO 2 eq value, taking vehicle miles traveled (VMT) and the GWP of the refrigerant into account. This
formula is: Credit = (MaxCredit) * [1 ¥ (LeakScore/ AvgImpact) * (GWPRefrigerant/ 1430)]

Where: MaxCredit is 12.6 and 15.7 g/mi CO 2 eq for cars and trucks respectively. These
become 13.8 and 17.2 for cars and trucks if alternative refrigerants are used since they get additional credits for end-of-life
emissions reductions. LeakScore is the leakage score of the A/C system as measured according to methods similar to the J2727 procedure in units of g/yr. The minimum score
which is deemed feasible is fixed at 8.3 and 10.4 g/yr for cars and trucks respectively. AvgImpact is the average impact of A/C leakage, which is 16.6 and 20.7 g/yr for cars and trucks respectively. GWPRefrigerant is the global warming potential for direct radiative forcing of the refrigerant as defined by EPA (or IPCC). All of the parameters and limits of the equation are derived in the EPA DRIA. For systems using the current refrigerant, EPA proposes that these emission rates could at most be feasibly reduced by half, based on the conclusions of the IMAC study, and
consideration of emission over the full life of the vehicle. (This latter point is discussed further in the DRIA.)

As discussed above, EPA recognizes that substituting an alternative refrigerant (one with a significantly lower global warming potential, GWP), would potentially be a very effective way to reduce the impact of all forms of refrigerant emissions, including maintenance, accidents, and vehicle scrappage. To address future GHG regulations in Europe and California, systems using alternative refrigerants— including HFO1234yf, with a GWP of 4—are under serious development and have been demonstrated in prototypes by A/C component suppliers. These alternative refrigerants have remaining cost, safety and feasibility hurdles for commercial applications. 144 However, the European Union has enacted regulations phasing in alternative refrigerants with GWP less than 150 starting in 2010, and the State of California proposed providing credits for alternative refrigerant use in its GHG
rule.

Within the timeframe of 2012–2016,EPA is not expecting the use of lowGWP refrigerants to be widespread. However, EPA believes that these developments are promising, and have included in our proposed A/C Leakage Credit system provisions to account for the effective refrigerant reductions that could be expected from refrigerant substitution. The quantity of A/C Leakage Credits that would be available
would be a function of the GWP of the alternative refrigerant, with the largest credits being available for refrigerants approaching a GWP of zero. 145 For a hypothetical alternative refrigerant with a GWP of 1, effectively eliminating leakage as a GHG concern, our proposed
credit calculation method could result in maximum credits equal total average emissions, or credits of 13.4 and 17.8 g/mi CO 2 eq for cars and trucks, respectively. This option is also captured in the equation above.

It is possible that alternative refrigerants could, without compensating action by the manufacturer, reduce the efficiency of the A/C system (see discussion of the A/ C Efficiency Credit below.) However,
EPA believes that manufacturers will have substantial incentives to design their systems to maintain the efficiency of the A/C system, therefore EPA is not accounting for any potential efficiency degradation.

EPA requests comment on all aspects of our proposed A/C Leakage Credit system.

144 Although see 71 FR 55140 (Sept. 21, 2006) (proposal pursuant to section 612 of the CAA finding CO 2 and HFC 152a as acceptable refrigerant substitutes as replacements for CFC–12 in motor vehicle air conditioning systems, and stating (at 55142) that ‘‘data

... indicate that use of CO 2 and HFC 152a with risk mitigation technologies does not pose greater risks compared to other substitutes’’).

145 For example, the GWP for R152a is 120, the GWP of HFO–1234yf is 4, and the GWP of CO 2 as a refrigerant is 1.VerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00077 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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b. A/C Efficiency Credits

EPA is proposing that manufacturers that make improvements in their A/C systems to increase efficiency and thus
reduce CO 2 emissions due to A/C system operation be eligible for A/C Efficiency Credits. As with A/C Leakage Credits, manufacturers could apply A/C Efficiency Credits toward compliance
with their overall CO 2 standards.

As mentioned above, EPA estimates
that the CO 2 emissions due to A/C related loads on the engine account for approximately 3.9% of total greenhouse gas emissions from passenger vehicles in the United States. Usage of A/C systems is inherently higher in hotter and more humid months and climates; however, vehicle owners may use their A/C systems all year round in all parts of the nation. For example, people commonly use A/C systems to cool and dehumidify the cabin air for passenger comfort on hot humid days, but they also use the systems to de-humidify cabin air to assist in defogging/de-icing the front windshield and side glass in cooler weather conditions for improved visibility. A more detailed discussion of seasonal and geographical A/C usage
rates can be found in the DRIA.

Most of the additional load on the engine from A/C system operation comes from the compressor, which pumps the refrigerant around the system loop. Significant additional load on the engine may also come from electric or hydraulic fans, which are used to move air across the condenser, and from the electric blower, which is used to move air across the evaporator and into the
cabin. Manufacturers have several currently-existing technology options for improving efficiency, including more efficient compressors, fans, and motors, and systems controls that avoid over-chilling the air (and subsequently re-heating it to provide the desired air temperature with an associated loss of efficiency). For vehicles equipped withautomatic climate-control systems, realtime adjustment of several aspects of the overall system (such as engaging the full capacity of the cooling system only when it is needed, and maximizing the use of recirculated air) can result in improved efficiency. Table III.C.1–1 below lists some of these technologies and their respective efficiency improvements.

As with the A/C Leakage Credit program, EPA is interested in performance-based standards (or credits) based on measurement procedures whenever possible. While design-based assessments of expected emissions can be a reasonably robust way of quantifying emission improvements, these approaches have inherent shortcomings, as discussed forthe case of A/C leakage above. Designbased approaches depend on the quality of the data from which they are calibrated, and it is possible that apparently proper equipment may function less effectively than expected. Therefore, while the proposal uses a design-based menu approach to quantify improvements in A/C efficiency, it is also proposed to begin requiring
manufacturers to confirm that technologies applying for Efficiency Credits are measurably improving system efficiency.

EPA believes that there is a more critical need for a test procedure to quantify A/C Efficiency Credits than for Leakage Credits, for two reasons. First, the efficiency gains for various technologies are more difficult to quantify using a design-based program (like the SAEJ2727-based procedure used to generate Leakage Credits). Second, while leakage may disappear as a significant source of GHG emissions if a shift toward alternate refrigerants develops, no parallel factor exists in the case of efficiency improvements. EPA is thus proposing to phase-in a performance-based test procedure over time beginning in 2014, as discussed below. In the interim, EPA proposes a design-based ‘‘menu’’ approach for estimating efficiency improvements and, thus, quantifying A/C Efficiency
Credits.

For model years 2012 and 2013, EPA proposes that a manufacturer wishing to generate A/C Efficiency Credits for a group of its vehicles with similar A/C systems would compare several of its vehicle A/C-related components andsystems with a ‘‘menu’’ of efficiencyrelated technology improvements ( see Table III.C.1–1 below). Based on the technologies the manufacturer chooses, an A/C Efficiency Credit value would be established. This design-based approach would recognize the relationships and synergies among efficiency-related technologies. Manufacturers could receive credit based on the technologies they chose to incorporate in their A/C systems and the associated credit value for each technology. The total A/C Efficiency Credit would be the total of these values, up to a maximum feasible credit of 5.7 g/mi CO 2 eq. This would be the maximum improvement from current average efficiencies for A/C systems (see the DRIA for a full
discussion of our derivation of the proposed reductions and credit values for individual technologies and for the maximum total credit available). Although the total of the individual technology credit values may exceed 5.7 g/mi CO 2 eq, synergies among the technologies mean that the values are not additive, and thus A/C Efficiency credit could not exceed 5.7 g/mi CO 2 eq.

The EPA requests comment on adjusting the A/C efficiency credit to account for potential decreases (or increases) in efficiency when using an alternative refrigerant by using the change in the coefficient of performance. The effects may include the impact of a secondary loop system (including the incremental effect on tailpipe CO 2 emissions that the added weight of such a system would incur).



### TABLE 

### III.C.1–1 E FFICIENCY

### -I MPROVING 

### A/C T ECHNOLOGIES AND 

### C REDITS

Technology description Estimated reduction in A/C CO 2 emissions (percent) A/C Efficiency credit (g/mi CO 2)

Reduced reheat, with externally-controlled, variable-displacement compressor ........................................ 30 1.7 Reduced reheat, with externally-controlled, fixed-displacement or pneumatic variable-displacement

compressor .....................................................................................................................

.......................... 20 1.1 Default to recirculated air whenever ambient temperature is greater than 75 ° F

...................................... 30 1.7 Blower motor and cooling fan controls which limit waste energy ( e.g. pulse width modulated power

controller)

.................................................................................................................... ............................. 15 0.9 Electronic expansion valve .....................................................................................................

..................... 20 1.1Improved evaporators and condensers (with system analysis on each component indicating a COP improvement greater than 10%, when compared to previous design)

....................................................... 20 1.1 Oil Separator ..................................................................................................................

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For model years 2014 and later, EPA proposes that manufacturers seeking to generate A/C Efficiency Credits would need to use a specific performance test to confirm that the design changes were also improving A/C efficiency. Manufacturers would need to perform
an A/C CO 2 Idle Test for each A/C system (family) for which it desired to generate Efficiency Credits.
Manufacturers would need to demonstrate at least a 30% improvement over current average efficiency levels to qualify for credits. Upon qualifying on the Idle Test, the manufacturer would be eligible to use the menu approach above to quantify
the credits it would earn.

The proposed A/C CO 2 Idle Test procedure, which EPA has designed specifically to measure A/C CO 2 emissions, would be performed while the vehicle engine is at idle. This proposed laboratory idle test would be
similar to the idle carbon monoxide (CO) test that was once a part of EPA
vehicle certification. The test would
determine the additional CO 2 generated at idle when the A/C system is operated.
The A/C CO 2 Idle Test would be run with and without the A/C system cooling the interior cabin while the vehicle’s engine is operating at idle and with the system under complete control of the engine and climate control system

The proposed A/C CO 2 Idle Test is similar to that proposed in April 2009 for the Mandatory GHG Reporting Rule, with several improvements. These improvements include tighter restrictions on test cell temperatures and humidity levels in order to more closely control the loads from operation of the A/C system. EPA also made additional refinements to the required in-vehicle blower fan settings for manually controlled systems to more closely represent ‘‘real world’’ usage patterns. These details can be found in the DRIA and the regulations.

The design of the A/C CO 2 Idle Test represents a balancing of the need for performance tests whenever possible to ensure the most accurate quantification of efficiency improvements, with practical concerns for testing burden and facility requirements. EPA believes that the proposed Idle Test adds to the robust quantification of A/C credits that will result in real-world efficiencyimprovements and reductions in A/Crelated CO 2 emissions. EPA is proposing that the Idle Test be required in order to qualify for A/C Efficiency Credits beginning in 2014 to allow sufficient
time for manufacturers to make the necessary facilities improvements and
to establish a comfort level with the test. EPA also considered a more comprehensive testing approach to quantifying A/C CO 2 emissions that could be somewhat more technically robust, but would require more test time and test facility improvements for many manufacturers. This approach would be to adapt an existing test procedure, the Supplemental Federal Test Procedure (SFTP) for A/C operation, called the SC03, in specific ways for it to function
as a tool to evaluate A/C CO 2 emissions. The potential test method is described in some detail here, and EPA encourages comment on how this type of test might or might not accomplish the goals of robust performance-based testing and reasonable test burdens.

EPA designed the SC03 test to measure criteria pollutants under severe air conditioning conditions not represented in the FTP and Highway Fuel Economy Tests. EPA did not specifically design the SC03 to measure
incremental reductions in CO 2 emissions from more efficient A/C technologies. For example, due to the severity of the SC03 test environmental conditions and the relatively short duration of the SC03 cycle, it is difficult for the A/C system to achieve a
stabilized interior cabin condition that reflects incremental improvements. Many potential efficiency improvements in the A/C components and controls (i.e. , automatic recirculation and heat exchanger fan control) are specifically measured only during stabilized conditions, and therefore become difficult or impossible to measure and quantify during this test. In addition, SC03 testing is also somewhat constrained and costly due to limited number of test facilities currently capable of performing testing under the required environmental conditions.

One value of using the SC03 as thebasis for a new test to quantify A/Crelated efficiency improvements would be the significant degree of control of
test cell ambient conditions. The load placed on an A/C system, and thus the
incremental CO 2 emissions, are highly dependent on the ambient conditions in the test cell, especially temperature and humidity, as well as simulated solar load. Thus, as with the proposed Idle Test, a new SC03-based test would need to accurately and reliably control these conditions. (This contrasts with FTP testing for criteria pollutants, which does not require precise control of cell
conditions because test results are generally much less sensitive to changes in cell temperature or humidity).

However, for the purpose of quantifying A/C system efficiency improvements, EPA believes a test cell temperature less severe than the 95 ° F required by the SC03 would be appropriate. A cell temperature of 85 ° F would better align the initial cooling phase (‘‘pull-down’’) as well as the stabilized phase of A/C operation with real-world driving conditions.

Another value of an SC03-based test would be the opportunity to create operating conditions for vehicle A/C systems that in some ways would better simulate ‘‘real world’’ operation than either the proposed Idle Test or the current SC03. The SC03 test cycle, roughly 10 minutes in length, has a similar average speed, maximum speed, and percentage of time at idle as the FTP. However, since the SC03 test cycle was designed principally to measure criteria pollutants under maximum A/C load conditions, it is not long enough to allow temperatures in the passenger cabin to consistently stabilize. EPA believes that once the pull-down phase has occurred and cabin temperatures have dropped dramatically to a suitable interior comfort level, additional test cycle time would be needed to measure how efficiently the A/C system operates
under stabilized conditions.

To capture the A/C operation during stabilized operation, EPA would consider adding two phases to the SC03 test of roughly 10 minutes each. Each additional phase would simply be repeats of the SC03 drive cycle, with two exceptions. During the second phase, the A/C system would now be operating at cabin temperature at or approaching a stabilized condition. During the third phase, the A/C system would be turned off. The purpose of the third phase would be to establish the
base CO 2 emissions with no A/C loads on the engine, which would provide a
baseline for the incremental CO 2 due to A/C use. EPA would likely weight the

CO 2 g/mi results for the first and second phases of the test as follows: 50% for phase 1, and 50% for phase 2. From this average CO 2 the methodology would
subtract the CO 2 result from phase 3, yielding an incremental CO 2 (in g/mi)
due to A/C use.

EPA expects to continue working with industry, the California Air Resources Board, and other stakeholders to move toward increasingly robust performance tests for A/C and may include such changes in this final rule. EPA requests comment on all aspects of our proposed A/C Efficiency Credits program.

c. Interaction With Title VI Refrigerant Regulations

Title VI of the Clean Air Act deals with the protection of stratospheric
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substances (ODS). The rules promulgated under section 608 regulate the use and disposal of such substances during the service, repair or disposal of appliances and industrial process refrigeration. In addition, section 608 and the regulations promulgated under it, prohibit knowingly venting or releasing ODS during the course of maintaining, servicing, repairing or disposing of an appliance or industrial process refrigeration equipment. Section 609 governs the servicing of motor vehicle air conditioners (MVACs). The regulations promulgated under section 609 (40 CFR part 82, subpart B) establish standards and requirements regarding the servicing of MVACs. These regulations include establishing standards for equipment that recovers and recycles or only recovers refrigerant (CFC–12, HFC 134a, and for blends only recovers) from MVACs; requiring technician training and certification by an EPA-approved organization; establishing recordkeeping requirements; imposing sales restrictions; and prohibiting the venting of refrigerants. Section 612 requires EPA
to review substitutes for class I and class II ozone depleting substances and to
consider whether such substitutes will
cause an adverse effect to human health or the environment as compared with other substitutes that are currently or potentially available. EPA promulgated regulations for this program in 1992 and those regulations are located at 40 CFR part 82, subpart G. When reviewing substitutes, in addition to finding them acceptable or unacceptable, EPA may also find them acceptable so long as the
user meets certain use conditions. For example, all motor vehicle air conditioning system must have unique fittings and a uniquely colored label for the refrigerant being used in the system.

EPA views this proposed rule as complementing these Title VI programs, and not conflicting with them. To the
extent that manufacturers choose to reduce refrigerant leakage in order to earn A/C Leakage Credits, this would
dovetail with the Title VI section 609 standards which apply to maintenance events, and to end-of-vehicle life disposal. In fact, as noted, a benefit of the proposed A/C credit provisions is
that there should be fewer and less impactive maintenance events for MVACs, since there will be less leakage. In addition, the credit provisions would not conflict (or overlap) with the Title
VI section 609 standards. EPA also
believes the menu of leak control technologies proposed today would complement the section 612 requirements, because these control technologies would help ensure that R134a (or other refrigerants) would be
used in a manner that further minimizes potential adverse effects on human
health and the environment.

2. Flex Fuel and Alternative Fuel
Vehicle Credits

As described in this section, EPA is proposing credits for flexible-fuel vehicles (FFVs) and alternative fuel vehicles starting in the 2012 model year.
FFVs are vehicles that can run both on
an alternative fuel and conventional fuel. Most FFVs are E–85 vehicles, which can run on a mixture of up to 85 percent ethanol and gasoline. Dedicated
alternative fuel vehicles are vehicles that run exclusively on an alternative fuel ( e.g. , compressed natural gas).
EPCA includes an incentive under theCAFE program for production of dualfueled vehicles or FFVs, and dedicated
alternative fuel vehicles. 146 EPCA’s provisions were amended by the EISA to extend the period of availability of the FFV credits, but to begin phasing them out by annually reducing the
amount of FFV credits that can be used in demonstrating compliance with the
CAFE standards. 147 EPCA does not premise the availability of the FFV
credits on actual use of alternative fuel. Under EPCA, after MY 2019 no FFV
credits will be available for CAFE compliance. 148 Under EPCA, for dedicated alternative fuel vehicles, there are no limits or phase-out. EPA is proposing that FFV and Alternative Fuel Vehicle Credits be calculated as a part
of the calculation of a manufacturer’s overall fleet average fuel economy and fleet average carbon-related exhaust emissions (§ 600.510–12).

EPA is not proposing to include electric vehicles (EVs) or plug-in hybrid electric vehicles (PHEVs) in these flex fuel and alternative fuel provisions. These vehicles would be covered by the proposed advanced technology vehicle credits provisions described in Section III.C.3, so including them here would lead to a double counting of credits.

a. Model Year 2012—2015 Credits

i. FFVs For the GHG program, EPA is proposing to allow FFV credits corresponding to the amounts allowed by the amended EPCA only during the

146 49 U.S.C 32905.

147 See 49 U.S.C 32906. The mechanism by which EPCA provides an incentive for production of FFVs is by specifying that their fuel economy is determined using a special calculation procedure that results in those vehicles being assigned a higher fuel economy level than would otherwise occur. 49 U.S.C. section 32905(b). This is typically
referred to as an FFV credit.

148 49 U.S.C 32906. period from MYs 2012 to 2015. (As discussed below in Section III.E., EPA is proposing that CAFE-based FFV credits would not be permitted as part of the early credits program.) Several manufacturers have already taken the availability of FFV credits into account in their near-term future planning for
CAFE and this reliance indicates that
these credits need to be considered in considering adequacy of lead time for
the CO 2 standards. EPA thus believes that allowing these credits, in the near term, would help provide adequate lead time for manufacturers to implement the new multi-year standards, but that for the longer term there is adequate lead
time without the use of such credits.
This will also tend to harmonize the GHG and the CAFE program during these interim years. As discussed below, EPA is proposing for MY 2016 and later
that manufacturers would not receive FFV credits unless they reliably
estimate the extent the alternative fuel is actually being used by vehicles in
order to count the alternative fuel use in
the vehicle’s CO 2 emissions level
determination.

As with the CAFE program, EPA proposes to base credits on the assumption that the vehicles would operate 50% of the time on the alternative fuel and 50% of the time on conventional fuel, resulting in CO 2 emissions that are based on an arithmetic average of alternative fuel
and conventional fuel CO 2 emissions. 149 The measured CO 2 emissions on the alternative fuel would be multiplied by
a 0.15 volumetric conversion factor
which is included in the CAFE calculation as provided by EPCA. Through this mechanism a gallon of
alternative fuel is deemed to contain

0.15 gallons of fuel. EPA is proposing to take the same approach for 2012–2015model years. For example, for a flexiblefuel vehicle that emitted 330 g/mi CO 2 operating on E–85 and 350 g/mi CO 2 operating on gasoline, the resulting CO 2 level to be used in the manufacturer’s fleet average calculation would be:



### 330 × 0 15

## ) + ⎤ ⎦ ⎡ ⎣ 

## ( . 350 CO 2 

### = 2 = 199 8 g mi . /

EPA understands that by using the CAFE approach—including the 0.15
factor—the CO 2 emissions value for the vehicle is calculated to be significantly lower than it actually would be otherwise, even if the vehicle were assumed to operate on the alternative fuel at all times. This represents a ‘‘credit’’ being provided to FFVs.

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EPA notes also that the above equation and example are based on an FFV that is an E–85 vehicle. EPCA, as amended by EISA, also establishes the use of this approach, including the 0.15 factor, for all alternative fuels, not just

E–85. 150 The 0.15 factor is used for B– 20 (20 percent biofuel and 80 percent diesel) FFVs. EPCA also establishes this approach, including the 0.15 factor, for gaseous-fueled FFVs such as a vehicle able to operate on gasoline and CNG. 151 (For natural gas FFVs, EPCA establishes a factor of 0.823 gallons of fuel for every 100 cubic feet a natural gas used to calculate a gallons equivalent.) 152 The
EISA statute’s use of the 0.15 factor in this way provides a similar regulatory treatment across the various types of
alternative fuel vehicles. EPA also proposes to use the 0.15 factor for all FFVs in keeping with the goal of not disrupting manufacturers’ near-term compliance planning. EPA, in any case, expects the vast majority of FFVs to be E–85 vehicles, as is the case today.

The FFV credit limits for CAFE are

1.2 mpg for model years 2012–2014 and

1.0mpg for model year 2015. 153 In CO 2 terms, these CAFE limits translate to declining CO 2 credit limits over the four model years, as the CAFE standards increase in stringency (as the CAFE standard increases numerically, the
limit becomes a smaller fraction of the standard). EPA proposes credit limits
shown in Table III.C.2–1 based on the proposed average CO 2 standards for cars
and trucks. These have been calculated by comparing the average proposed
CAFE standards with and without the FFV credits, converted to CO 2 . EPA requests comments on this proposed approach.



### TABLE 

### III.C.2–1—FFV CO 2 

### S TANDARD 

### C REDIT 

### L IMITS 

### ( G

### /MILE 

### )

Model year Cars Trucks

2012 .......................... 9.8 17.9
2013 .......................... 9.3 17.1
2014 .......................... 8.9 16.3
2015 .......................... 6.9 12.6

EPA also requests comments on basing the calculated CO 2 credit limit on
the individual manufacturer standards calculated from the footprint curves. For example, if a manufacturer’s 2012 car standard was 260 g/mile, the credit limit

in CO 2 terms would be 9.5 g/mile and if it were 270 g/mile the limit would be

10.2 g/mile. This approach would be somewhat more complex and would

150 49 U.S.C 32905 (c).

151 49 U.S.C 32905 (d).

152 49 U.S.C section 32905 (c).

153 49 U.S.C section 32906 (a). mean that the FFV CO 2 credit limits would vary by manufacturer as their footprint based standards vary. However, it would more closely track
CAFE FFV credit limits.

ii. Dedicated Alternative Fuel
Vehicles

EPA proposes to calculate CO 2 emissions from dedicated alternative fuel vehicles for MY 2012—2015 by measuring the CO 2 emissions over the test procedure and multiplying the results by the 0.15 conversion factor described above. For example, for a
dedicated alternative fuel vehicle that would achieve 330 g/mi CO 2 while operating on alcohol (ethanol or methanol), the effective CO 2 emissions of the vehicle for use in determining the
vehicle’s CO 2 ) emissions would be
calculated as follows:

CO 2 = 330 × 0.15 = 49.5 g/mi

b. Model Years 2016 and Later

i. FFVs For 2016 and later model years, EPA proposes to treat FFVs similarly to
conventional fueled vehicles in that
FFV emissions would be based on
actual CO 2 results from emission testing
on the alternative fuel. The manufacturer would also be required to
demonstrate that the alternative fuel is actually being used in the vehicles. The
manufacturer would need to establish the ratio of operation that is on the alternative fuel compared to the
conventional fuel. The ratio would be used to weight the CO 2 emissions performance over the 2-cycle test on the
two fuels. The 0.15 conversion factor would no longer be included in the CO 2 emissions calculation. For example, for
a flexible-fuel vehicle that emitted 300 g/mi CO 2 operating on E–85 ten percent of the time and 350 g/mi CO 2 operating on gasoline ninety percent of the time,
the CO 2 emissions for the vehicles to be used in the manufacturer’s fleet average
would be calculated as follows:

CO 2 = (300 × 0.10) + (350 × 0.90)= 345 g/mi The most complex part of this approach is to establish what data are needed for a manufacturer to accurately
demonstrate use of the alternative fuel. One option EPA is considering is establishing a rebuttable presumption using a ‘‘top-down’’ approach based on national E–85 fuel use to assign credits to FFVs sold by manufacturers under this program. For example, national E–
85 volumes and national FFV sales could be used to prorate E–85 use by
manufacturer sales volumes and FFVs already in-use. EPA would conduct an analysis of vehicle miles travelled (VMT) by year for all FFVs using its emissions inventory MOVES model. Using the VMT ratios and the overall E– 85 sales, E–85 usage could be assigned
to each vehicle. This method would
account for the VMT of new FFVs and FFVs already in the existing fleet using
VMT data in the model. The model
could then be used to determine the ratio of E–85 and gasoline for new vehicles being sold. Fluctuations in E–
85 sales and FFV sales would be taken into account to adjust the credits annually. EPA believes this is a reasonable way to apportion E–85 use
across the fleet.

If manufacturers decided not to useEPA’s assigned credits based on the topdown analysis, they would have a second option of presenting their own
data for consideration as the basis for credits. Manufacturers have suggested demonstrations using vehicle on-boarddata gathering through the use of onboard sensors and computers. California’s program allows FFV credits
based on FFV use and envisioned manufacturers collecting fuel use data
from vehicles in fleets with on-site refueling. Any approach must reasonably ensure that no CO 2 emissions reductions anticipated under the program are lost.

EPA proposes that manufacturers would need to present a statistical analysis of alternative fuel usage data collected on actual vehicle operation. EPA is not attempting to specify how
the data is collected or the amount of data needed. However, the analysis
must be based on sound statistical methodology. Uncertainty in the analysis must be accounted for in a way that provides reasonable certainty that the program does not result in loss of emissions reductions. EPA requests
comment on how this demonstration could reasonably be made.

EPA recognizes that under EPCA FFV credits are entirely phased-out of the CAFE program by MY 2020, and apply in the prior years with certain limitations, but without a requirement
that the manufacturers demonstrate
actual use of the alternative fuel. Under this proposal EPA would treat FFV
credits the same as under EPCA for model years 2012–2015, but would apply a different approach starting with model year 2016. Unlike EPCA, CAA section 202(a) does not mandate that EPA treat FFVs in a specific way. Instead EPA is required to exercise its own judgment and determine an appropriate approach that best promotes the goals of this CAA section. Under these circumstances, EPA proposes to treat FFVs for model years 2012–2015 the same as under EPCA, for the lead time reasons described above. StartingVerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00081 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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with model year 2016, EPA believes the appropriate approach is to ensure that
emissions reduction credits are based upon a demonstration that emissions reductions have been achieved, to
ensure the credits are for real reductions
instead of reductions that have not likely occurred. This will promote the environmental goals of this proposal. At the same time, the ability to generate credits upon a demonstration of usage of the alternative fuel will provide an
actual incentive to see that such fuels
are used. Under the EPCA credit provision, there is an incentive to produce FFVs but no actual incentive to
ensure that the alternative fuels are used. GHG and energy security benefits are only achieved if the alternative fuel is actually used, and EPA’s approach will now provide such an incentive. This approach will promote greater use of renewable fuels, as compared to a
situation where there is a credit but no usage requirement. This is also consistent with the agency’s overall commitment to the expanded use of
renewable fuels. Therefore EPA is not proposing to phase-out the FFV program
for MYs 2016 and later but instead to base the program on real-world reductions (i.e. , actual vehicle CO 2 emissions levels based on actual use of the two fuels, without the 0.15 conversion factor specified under EISA). Based on existing certification data, E–

85 FFV CO 2 emissions are typically about 5 percent lower on E–85 than CO 2 emissions on 100 percent gasoline. However, currently there is little incentive to optimize CO 2 performance for vehicles when running on E–85. EPA believes the above approach would provide such an incentive to
manufacturers and that E–85 vehicles could be optimized through engine redesign and calibration to provide
additional CO 2 reductions. EPA requests
comments on the above.

ii. Dedicated Alternative Fuel
Vehicles

EPA proposes that for model years
2016 and later dedicated alternative fuel vehicles, CO 2 would be measured over the 2-cycle test in order to be included in a manufacturer’s fleet average CO 2 calculations. As noted above, this is different than CAFE methodology which provides a methodology for calculating a petroleum-based mpg equivalent for alternative fuel vehicles so they can be included in CAFE. However, because

CO 2 can be measured directly from
alternative fuel vehicles over the test procedure, EPA believes this is the simplest and best approach since it is consistent with all other vehicle testing under the proposed CO 2 program. 3. Advanced Technology Vehicle Credits for Electric Vehicles, Plug-in Hybrids, and Fuel Cells

EPA is proposing additional credit opportunities to encourage the early
commercialization of advanced vehicle powertrains, including electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell vehicles. These technologies have the potential for more significant reductions of GHG emissions than any technology currently in commercial use, and EPA believes that encouraging early introduction of such technologies will help to enable their wider use in the future, promoting the technology-based emission reduction goals of section 202(a)(1) of the Clean

Air Act.

EPA proposes that these advanced technology credits would take the form of a multiplier that would be applied to
the number of vehicles sold such that they would count as more than one
vehicle in the manufacturer’s fleet average. These advanced technology vehicles would then count more heavily when calculating fleet average CO 2 levels. The multiplier would not be applied when calculating the manufacturer’s foot-print-based standard, only when calculating the manufacturer’s fleet average levels. EPA proposes to use a multiplier in the range of 1.2 to 2.0 for all EVs, PHEVs, and fuel cell vehicles produced from MY 2012 through MY 2016. EPA proposes that starting in MY 2017, the multiplier would no longer be used. As described in Section III.C.5, EPA is also proposing to allow early advanced technology vehicle credits to be generated for model years 2009–2011. EPA requests comment on the level of the multiplier
and whether it should be the same value for each of these three technologies. Further, if EPA determines that a multiplier of 2.0, or another level near the higher end of this range, is appropriate for the final rule, EPA requests comment on whether the multiplier should be phased down over time, such as: 2.0 for MY 2009 through MY 2012, 1.8 in MY 2013, 1.6 in MY 2014, 1.4 in MY 2015, and 1.2 in MY 2016 (i.e. , the multiplier could phasedown by 0.2 per year). In addition, EPA requests comment on whether or not it would be appropriate to differentiate
between EVs and PHEVs for advanced technology credits. Under such an approach, PHEVs could be provided a lesser multiplier compare to EVs. Also, the PHEV multiplier could be prorated based on the equivalent electric range (i.e. , the extent to which the PHEV operates on average as an EV) of the vehicle in order to incentivize battery technology development. This approach would give more credits to ‘‘stronger’’ PHEV technology.

EPA has provided this type of credit previously, in the Tier 2 program. This approach provides an incentive for manufacturers to prove out ultra-clean technology during the early years of the program. In Tier 2, early credits for Tier 2 vehicles certified to the very cleanest bins (equivalent to California’s standards for super ultra low emissions vehicles (SULEVs) and zero emissions vehicles (ZEVs)) had a multiplier of 1.5

or 2.0. 154 The multiplier range of 1.2 to

2.0being proposed for GHGs is consistent with the Tier 2 approach. EPA believes it is appropriate to provide incentives to manufacturers to produce vehicles with very low emissions levels and that these incentives may help pave the way for greater and/or more cost
effective emission reductions from
future vehicles. EPA would like to finalize an approach which appropriately balances the benefits of encouraging advanced technologies
with the overall environmental reductions of the proposed standards as
a whole.

As with other vehicles, CO 2 for these vehicles would be determined as part of vehicle certification, based on emissions over the 2-cycle test procedures, to be included in the fleet average CO 2 levels.

For electric vehicles, EPA proposes
that manufacturers would include them in the average with CO 2 emissions of zero grams/mile both for early credits,
and for the MY 2012–2016 time frame. Similarly, EPA proposes to include as zero grams/mile of CO 2 the electric portion of PHEVs (i.e., when PHEVs are operating as electric vehicles) and fuel cell vehicles. EPA recognizes that for each EV that is sold, in reality the total emissions off-set relative to the typical gasoline or diesel powered vehicle is not zero, as there is a corresponding increase in upstream CO 2 emissions due to an increase in the requirements for electric utility generation. However, for the time frame of this proposed rule, EPA is also interested in promoting very advanced technologies such as EVs which offer the future promise of significant reductions in GHG emissions, in particular when coupled
with a broader context which would include reductions from the electricity generation. For the California Paley 1 program, California assigned EVs a CO 2 performance value of 130 g/mile, which was intended to represent the average

CO 2 emissions required to charge an EV using representative CO 2 values for the California electric utility grid. For this

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proposal, EPA is assigning an EV a value of zero g/mile, which should be
viewed as an interim solution for how
to account for the emission reduction potential of this type of vehicle, and may not be the appropriate long-term approach. EPA requests comment on this proposal and whether alternative approaches to address EV emissions should be considered, including approaches for considering the lifecycle
emissions from such advanced vehicle technologies.

The criteria and definitions for what vehicles qualify for the multiplier are provided in Section III.E. As described in Section III.E, EPA is proposing definitions for EVs, PHEVs, and fuel cell vehicles to ensure that only credible advanced technology vehicles are provided credits.

EPA requests comments on the proposed approach for advanced technology vehicle credits.

4. Off-Cycle Technology Credits

EPA is proposing an optional credit opportunity intended to apply to new and innovative technologies that reduce
vehicle CO 2 emissions, but for which
the CO 2 reduction benefits are not captured over the 2-cycle test procedure used to determine compliance with the fleet average standards (i.e., ‘‘off-cycle’’). Eligible innovative technologies would be those that are relatively newly
introduced in one or more vehicle models, but that are not yet implemented in widespread use in the light-duty fleet. EPA will not approve credits for technologies that are not innovative or novel approaches to reducing greenhouse gas emissions. Further, any credits for these off-cycletechnologies must be based on realworld GHG reductions not captured on the current 2-cycle tests and verifiable test methods, and represent average U.S. driving conditions.

Similar to the technologies used to reduce A/C system indirect CO 2 emissions such as compressor efficiency improvements, eligible technologies would not be active during the 2-cycle
test and therefore the associated improvements in CO 2 emissions would not be captured. EPA will not consider technologies to be eligible for these credits if the technology has a significant impact on CO 2 emissions
over the FTP and HFET tests. Because these technologies are not nearly so well developed and understood, EPA is not prepared to require their utilization to
meet the CO 2 standards. However, EPA is aware of some emerging and innovative technologies and concepts in various stages of development with CO 2 reduction potential that might not be adequately captured on the FTP or HFET, and that some of these technologies might merit some
additional CO 2 credit for the manufacturer. Examples include solar panels on hybrids or electric vehicles, adaptive cruise control, and active aerodynamics. EPA believes it would be appropriate to provide an incentive to encourage the introduction of these types of technologies and that a credit mechanism is an effective way to do this. This optional credit opportunity would be available through the 2016 model year.

EPA is proposing that manufacturers quantify CO 2 reductions associated with the use of the off-cycle technologies such that the credits could be applied on a g/mile equivalent basis, as is proposed for A/C system improvements.
Credits would have to be based on real
additional reductions of CO 2 emissions and would need to be quantifiable and verifiable with a repeatable methodology. Such submissions of data should be submitted to EPA subject to public scrutiny. EPA proposes that the technologies upon which the credits are based would be subject to full useful life compliance provisions, as with other
emissions controls. Unless the
manufacturer can demonstrate that thetechnology would not be subject to inuse deterioration over the useful life of the vehicle, the manufacturer would
have to 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.

As discussed below, EPA is proposing a two-tiered process for demonstrating
the CO 2 reductions of an innovative and novel technology with benefits not captured by the FTP and HFET test procedures. First, a manufacturer would
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 manufacturer would follow the protocol laid out below and in the proposed regulations. 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

CO 2 gram per mile credit. a. Technology Demonstration Using EPA 5-Cycle Methodology

As noted above, the CO 2 reduction benefit of some innovative technologies could be demonstrated using the 5-cycle approach currently used for EPA’s fuel economy labeling program. The 5-cycle methodology was finalized in EPA’s 2006 fuel economy labeling rule, 155 which provides a more accurate fuel economy label estimate to consumers starting with 2008 model year vehicles.
In addition to the FTP and HFET test procedures, the 5-cycle approach folds
in the test results from three additional test procedures to determine fuel economy. The additional test cycles include cold temperature operation, high temperature, high humidity andsolar loading, and aggressive and highspeed driving; thus these tests could be
used to demonstrate the benefit of a technology that reduces CO 2 over these types of driving and environmental conditions. Using the test results from these additional test cycles collectively with the 2-cycle data provides a more precise estimate of the average fuel economy and CO 2 emissions of a vehicle for both the city and highway independently. A significant benefit of using the 5-cycle methodology to measure and quantify the CO 2 reductions is that the test cycles are properly weighted for the expected average U.S. operation, meaning that the
test results could be used without further adjustments.

The use of these supplemental cycles may provide a method by which technologies not demonstrated on the baseline 2-cycles can be quantified. The cold temperature FTP can capture new technologies that improve the CO 2 performance of vehicles during colder weather operation. These improvements may be related to warm-up of the engine or other operation during the colder temperature. An example of such a new, innovative technology is a waste heat capture device that provides heat to the cabin interior, enabling additional engine-off operation during colder weather not previously enabled due to heating and defrosting requirements. The additional engine-off time would
result in additional CO 2 reductions that
otherwise would not have been realized without the heat capture technology.

While A/C credits for efficiency improvements will largely be captured in the A/C credits proposal through the credit menu of known efficiency improving components and controls,

155 Fuel Economy Labeling of Motor Vehicles: Revisions to Improve Calculation of Fuel Economy Estimates; Final Rule (71 FR 77872, December 27, 2006).VerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00083 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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certain new technologies may be able to use the high temperatures, humidity, and solar load of the SC03 test cycle to accurately measure their impact. An example of a new technology may be a refrigerant storage device that accumulates pressurized refrigerant during driving operation or uses recovered vehicle kinetic energy during deceleration to pressurize the refrigerant. Much like the waste heat capture device used in cold weather,
this device would also allow additional engine-off operation while maintaining appropriate vehicle interior occupant comfort levels. SC03 test data measuringthe relative impact of innovative A/Crelated technologies could be applied to the 5-cycle equation to quantify the CO 2 reductions of the technology. Another example is glazed windows. This reflects sunlight away from the cabin so that the energy required to stabilize the
cabin air to a comfortable level is decreased. The impact of these windows may be measureable on an SC03 test (with and without the window option).

The US06 cycle may be used to capture innovative technologies designed to reduce CO 2 emissions during higher speed and more aggressive acceleration conditions, but not reflected on the 2-cycle tests. An example of this is an active aerodynamic technology. This technology recognizes the benefits of reduced aerodynamic drag at higher speeds and makes changes to the vehicle at those speeds. The changes may include active front or grill air deflection devices designed to redirect
frontal airflow. Certain active suspension devices designed primarily to reduce aerodynamic drag by lowering the vehicle at higher speeds may also be measured on the US06 cycle. To properly measure these technologies on the US06, the vehicle would require unique load coefficients with and without the technologies. The different load coefficient (properly weighted for the US06 cycle) could effectively result in reduced vehicle loads at the higher speeds when the technologies are active. Similar to the previously discussed cycles, the results from the US06 test with and without the technology could then use the 5-cycle methodology to quantify CO 2 reductions.

If the 5-cycle procedures can be used
to demonstrate the innovative technology, then the process would be relatively simple. The manufacturer would simply test vehicles with and without the technology installed or operating and compare results. All 5-cycles would be tested with the technology enabled and disabled, and
the test results would be used to calculate a combined city/highway CO 2 value with the technology and without the technology. These values would be compared to determine the amount of the credit; the combined city/highway

CO 2 value with the technology operating
would be subtracted from the combined city/highway CO 2 value without the technology operating to determine the gram per mile CO 2 credit. It is likely that multiple tests of each of the five test procedures would need to be performed in order to achieve the necessary strong degree of statistical significance of the
credit determination results. This would have to be done for each model type for which a credit was being sought, unless
the manufacturer could demonstrate that the impact of the technology was independent of the vehicle configuration on which it was installed. In this case, EPA may consider allowing the test to be performed on an engine family basis or other grouping. At the end of the model year, the manufacturer
would determine the number of vehicles produced subject to each credit amount and report that to EPA in the final model year report. The gram per mile credit value determined with the 5-cycle comparison testing would be multiplied by the total production of vehicles subject to that value to determine the
total number of credits.

b. Alternative Off-Cycle Credit Methodologies

In cases where the benefit of a technological approach to reducing CO 2 emissions can not be adequately represented using existing test cycles,
EPA will work with and advise manufacturers in developing test procedures and analytical approaches to
estimate the effectiveness of the technology for the purpose of generating credits. Clearly the first step should be a thorough assessment of whether the 5- cycle approach can be used, but if the manufacturer finds that the 5-cycle process is fundamentally inadequate for the specific technology being considered by the manufacturer, then an alternative approach may be developed and submitted to EPA for approval. The demonstration program should be robust, verifiable, and capable of demonstrating the real-world emissions benefit of the technology with strong statistical significance.

The CO 2 benefit of some technologies may be able to be demonstrated with a modeling approach, using engineering principles. An example would be where a roof solar panel is used to charge the on-board vehicle battery. The amount of potential electrical power that the panel could supply could be modeled for average U.S. conditions and the units of electrical power translated to equivalent fuel energy or annualized CO 2 emission rate reduction from the captured solar energy. The CO 2 reductions from other technologies may be more challenging to quantify, especially if they are interactive with the driver, geographic location, environmental condition, or other aspect related to operation on actual roads. In these cases, 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.

Whether the approach involves onroad testing, modeling, or some other analytical approach, the manufacturer would be required to present a proposed methodology to EPA. EPA would approve the methodology and credits only if certain criteria were met.
Baseline emissions and control emissions would need to 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
would need to be on a vehicle modelspecific basis unless a manufacturer demonstrated model specific data was not necessary. Approval of the approach to determining a CO 2 benefit would not imply approval of the results of the program or methodology; when the testing, modeling, or analyses are complete the results would likewise be subject to EPA review and approval.
EPA believes that manufacturers could work together to develop testing, modeling, or analytical methods for certain technologies, similar to the SAE approach used for A/C refrigerant leakage credits.

EPA requests comments on the proposed approach for off-cycle emissions credits, including comments on how best to structure the program. EPA particularly requests comments on how the case-by-case approach to assessing off-cycle innovative technology credits could best be designed, including ways to ensure the
verification of real-world emissions benefits and to ensure transparency in the process of reviewing manufacturer’s proposed test methods.

5. Early Credit Options

EPA is proposing to allow manufacturers to generate early credits in model years 2009–2011. As described below, credits could be generated through early additional fleet average

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technology vehicle credits, and early off-cycle credits. As with other credits, early credits would be subject to a five year carry-forward limit based on the model year in which they are generated. Early credits could also be transferred between vehicle categories ( e.g., between the car and truck fleet) or traded among manufacturers without limits. The agencies note that CAFE credits earned in MYs prior to MY 2011
will still be available to manufacturers for use in the CAFE program in accordance with applicable regulations.

EPA is not proposing certification, compliance, or in-use requirements for vehicles generating early credits. MY 2009 would be complete and MY 2010 would be well underway by the time the rule is promulgated. This would make certification, compliance, and in-use requirements unworkable. As discussed below, manufacturers would be required to submit an early credits report to EPA for approval no later than the time they submit their final CAFE report for MY 2011. This report would need to include details on all early credits the manufacturer generates, why the credits are bona fide, how they are quantified, and how they can be verified.

As a general principle, EPA believes these early credit programs must be designed in a way to ensure that they are capturing real-world reductions. In addition, EPA wants to ensure these credit programs do not provide an opportunity for manufacturers to earn
‘‘windfall’’ credits that do not result in actual, surplus CO 2 emission
reductions. EPA seeks comments on how to best ensure these objectives are achieved in the design of the early credit program options.

a. Credits Based on Early Fleet Average

CO 2 Reductions

EPA is proposing opportunities for early credit generation in MYs 2009– 2011 through over-compliance with a fleet average CO 2 baseline established by EPA. EPA is proposing four pathways for doing so. Manufacturers would select one of the four paths for credit generation for the entire three year period and could not switch between pathways for different model years. For two pathways, the baseline would be set by EPA to be equivalent to
the California standards for the relevant model year. Generally, manufacturers that over-comply with those CARB
standards would earn credits. Two additional pathways, described below,
would include credits based on overcompliance with CAFE standards in States that have not adopted the
California standards.

Pathway 1 would be to earn credits by over-complying with the California equivalent baseline over the
manufacturer’s fleet of vehicles sold nationwide. Pathway 2 would be for manufacturers to generate credits against the baseline only for the fleet of
vehicles sold in California and the CAA

section 177 States. 156 This approach would include any CAA 177 States as of the date of promulgation of the Final Rule in this proceeding. Manufacturers would be required to include both cars and trucks in the program. Under Pathways 1 and 2, EPA proposes that manufacturers would be required to cover any deficits incurred against the baseline levels established by EPA during the three year period 2009–2011
before credits could be carried forward into the 2012 model year. For example,
a deficit in 2011 would have to be
subtracted from the sum of credits earned in 2009 and 2010 before any credits could be applied to 2012 (or later) model year fleets. EPA is proposing this provision to help ensure the early credits generated under this program are consistent with the credits available under the California program during these model years.

Table III.C.5–1 provides the California equivalent baselines EPA proposes to
use as the basis for CO 2 credit generation under the California-based pathways. These are the California GHG standards for the model years shown, with a 2.0 g/mile adjustment to account
for the exclusion of N 2 O and CH4 , which
are included in the California GHG standards, but not included in the credits program. Manufacturers would generate CO 2 credits by achieving fleet average CO 2 levels below these baselines. As shown in the table, the California-based early credit pathways
are based on the California vehicle categories. Also, the California-based baseline levels are not footprint-based,
but universal levels that all
manufacturers would use.
Manufacturers would need to achieve
fleet levels below those shown in the
table in order to earn credits.



### TABLE 

### III.C.5–1—CALIFORNIA 

### E QUIVALENT 

### BASELINES 

### CO 2 

### E MISSIONS 

### L EVELS FOR 

### E ARLY 

### C REDIT 

### G ENERATION

Light trucks with a LVW Passenger cars and light of 3,751 or more and a Model year trucks with an LVW of GVWR of up to 8,500 0–3,750 lbs lbs plus medium-duty passenger vehicles

2009 ...........................................................................................................................

.............. 321 437

2010 ...........................................................................................................................

.............. 299 418

2011 ...........................................................................................................................

.............. 265 388

EPA proposes that manufacturers using Pathways 1 or 2 above would use year end car and truck sales in each category. Although production data is used for the program starting in 2012, EPA is proposing to use sales data for the early credits program in order to apportion vehicles by State. This is
described further below. Manufacturers would calculate actual fleet average emissions over the appropriate vehicle fleet, either for vehicles sold nationwide for Pathway 1, or California plus 177 States sales for Pathway 2. Early CO 2 credits would be based on the difference
between the baseline shown in the table above and the actual fleet average emissions level achieved. Any early A/C credits generated by the manufacturer, described below in Section III.C.5.b, would be included in the fleet average level determination. In model year 2009, the California CO 2 standards for cars (321 g/mi CO 2 ) are only slightly more stringent than the 2009 CAFE car standard of 27.5 mpg, which is approximately equivalent to 323 g/mi CO 2 , and the California lighttruck standard (437 g/mi CO 2 ) is less stringent than the equivalent CAFE standard, recognizing that there are some differences between the way the California program and the CAFE

156 CAA 177 States refers to States that have York, Massachusetts, Maryland, Vermont, Maine, Oregon, Pennsylvania, Rhode Island, Washington, adopted the California GHG standards. At present, Connecticut, Arizona, New Jersey, New Mexico, and Washington, DC. there are thirteen CAA 177 States including NewVerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00085 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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program categorize vehicles. Under the proposed option, manufacturers would have to show that they over comply over the entire three model year time period, not just the 2009 model year, to generate early credits under either Pathways 1, 2
or 3. A manufacturer cannot use credits generated in model year 2009 unless they offset any debits from model years 2010 and 2011. EPA expects that the requirement to over comply over the entire time period covering these three model years should mean that the credits that are generated are real and
are in excess of what would have otherwise occurred. However, because of the circumstances involving the 2009 model year, in particular for companies with significant truck sales, there is some concern that under Pathways 1, 2, and 3, there is a potential for a large number of credits generated in 2009 against the California standard, in particular for a number of companies who have significantly over-achieved on CAFE in recent model years. EPA wants to avoid a situation where, contrary to expectation, some part of the early credits generated by a manufacturer are in fact not excess, where companies
could trade such credits to other manufacturers, risking a delay in the addition of new technology across the industry from the 2012 and later EPA

CO 2 standards. For this reason, EPA requests comment on the merits of prohibiting the trading of model year 2009 generated early credits between
firms. In addition, for Pathways 1 and 2, EPA proposes that manufacturers may also include alternative compliance credits earned per the California alternative compliance program. 157 These alternative compliance credits are
based on the demonstrated use of
alternative fuels in flex fuel vehicles. As with the California program, the credits would be available beginning in MY 2010. Therefore, these early alternative compliance credits would be available under EPA’s program for the 2010 and 2011 model years. FFVs would otherwise be included in the early credit fleet average based on their emissions
on the conventional fuel. This would not apply to EVs and PHEVs. The
emissions of EVs and PHEVs would be
determined as described in Section III.E.
Manufacturers could choose to either
include their EVs and PHEVs in one of the four pathways described in this section or under the early advanced technology emissions credits described below, but not both due to issues of credit double counting.

EPA is also proposing two additional early credit pathways manufacturers could select. Pathways 3 and 4incorporate credits based on overcompliance with CAFE standards for
vehicles sold outside of California and

CAA 177 States in MY 2009–2011. Pathway 3 would allow manufacturers to earn credits as under Pathway 2, plus
earn CAFE-based credits in other States. Credits would not be generated for cars
sold in California and CAA 177 States unless vehicle fleets in those States are performing better than the standards which otherwise would apply in those States, i.e. the baselines shown in Table
III.C.5–1 above.

Pathway 4 would be for manufacturers choosing to forego California-based early credits entirely and earn only CAFE-based credits
outside of California and CAA 177 States. EPA proposes that manufacturers
would not be able to include FFV credits under the CAFE-based early credit pathways since those credits do not automatically reflect actual
reductions in CO 2 emissions.

The proposed baselines for CAFEbased early pathways are provided in Table III.C.5–2 below. They are based on
the CAFE standards for the 2009–2011 model years. For CAFE standards in 2009–2011 model years that are footprint-based, the baseline would vary by manufacturer. Footprint-based
standards are in effect for the 2011 model year CAFE standards. 158 Additionally, for Reform CAFE truck standards, footprint standards are optional for the 2009–2010 model years. Where CAFE footprint-based standards are in effect, manufacturers would calculate a baseline using the footprints
and sales of vehicles outside of
California and CAA 177 States. The
actual fleet CO 2 performance calculation would also only include the vehicles
sold outside of California and CAA 177 States, and as mentioned above, may not
include FFV credits.



### TABLE 

### III.C.5–2—CAFE E QUIVALENT 

### BASELINES 

### CO 2 

### E MISSIONS 

### L EVELS FOR 

### E ARLY 

### C REDIT 

### G ENERATION

Model year Cars Trucks

2009 .........

.......................................................... 323 ................................................................... 381.*

2010 .........

.......................................................... 323 ................................................................... 376.*

2011 .........

.......................................................... Footprint-based standard ................................. Footprint-based standard.

* Would be footprint-based standard for manufacturers selecting footprint option under CAFE.

For the CAFE-based pathways, EPA proposes to use the NHTSA car and truck definitions that are in place for the model year in which credits are being generated. EPA understands that the NHTSA definitions change starting in the 2011 model year, and would therefore change part way through the early credits program. EPA further recognizes that MDPVs are not part of the CAFE program until the 2011 model year, and therefore would not be part of the early credits calculations for 2009– 2010 under the CAFE-based pathways. Pathways 2 through 4 involve splitting the vehicle fleet into two groups, vehicles sold in California and
CAA 177 States and vehicles sold outside of these States. This approach would require a clear accounting of location of vehicle sales by the
manufacturer. EPA believes it will be
reasonable for manufacturers to accurately track sales by State, based on its experience with the National Low Emissions Vehicle (NLEV) Program. NLEV required manufacturers to meet separate fleet average standards for vehicles sold in two different regions of the country. 159 As with NLEV, the
determination would be based on where the completed vehicles are delivered as a point of first sale, which in most cases
would be the dealer. 160

As noted above, EPA proposes that manufacturers choosing to generate early credits would select one of the four pathways for the entire early credits program and would not be able to switch among them. EPA proposes
that manufacturers would submit their early credits report when they submit their final CAFE report for MY 2011 (which is required to be submitted no

157 See Section 6.6.E, California Environmental Rulemaking, Public Hearing to Consider Adoption 158 74 FR 14196, March 30, 2009. Protection Agency Air Resources Board, Staff of Regulations to Control Greenhouse Gas 159 62 FR 31211, June 6, 1997. Report: Initial Statement of Reasons For Proposed Emissions From Motor Vehicles, August 6, 2004. 160 62 FR 31212, June 6, 1997.VerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00086 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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later than 90 days after the end of the The table below provides a summary comment on whether or not any of the model year). Manufacturers would have of the four fleet average-based CO 2 early pathways could be eliminated to until then to decide which pathway to credit pathways EPA is proposing. As simplify the program without select. This would give manufacturers noted above, EPA is concerned with diminishing its overall flexibility. For enough time to determine which potential ‘‘windfall’’ credits and is example, Pathway 2 may not be pathway works best for them. This seeking comments on how to best particularly useful to manufacturers if ensure the objective of achieving the California/177 State and overall timing may be necessary in cases where surplus, real-world reductions is national fleets are projected to be manufacturers earn credits in MY 2011 achieved in the design of the credit similar during these model years. EPA and need time to assess data and programs. In addition, EPA requests also requests comment on proposed prepare an early credits submittal for comments on the merits of each of these program implementation structure and final EPA approval. pathways. Specifically, EPA requests provisions.



### TABLE 

### III.C.5–3—S UMMARY OF 

### P ROPOSED 

### E ARLY 

### F LEET 

### AVERAGE 

### CO 2 

### C REDIT 

### P ATHWAYS

Common Elements .............................................................

Pathway 1: California-based Credits for National Fleet. ...

Pathway 2: California-based Credits for vehicles sold in

California plus CAA 177 States. Pathway 3: Pathway 2 plus CAFE-based Credits outside

of California plus CAA 177 States.

Pathway 4: Only CAFE-based Credits outside of California plus CAA 177 States. —Manufacturers would select a pathway. Once selected, may not switch among pathways. —All credits subject to 5 year carry-forward restrictions. —For Pathways 2–4, vehicles apportioned by State based on point of first sale.—Manufacturers earn credits based on fleet average emissions compared with California equivalent baseline set by EPA.
—Based on nationwide CO 2 sales-weighted fleet average. —Based on use of California vehicle categories. —FFV alternative compliance credits per California program may be included. —Once in the program, manufacturers must make up any deficits that are incurred

prior to 2012 in order to carry credits forward to 2012 and later. —Same as Pathway 1, but manufacturers only includes vehicles sold in California

and CAA 177 States in the fleet average calculation. —Manufacturer earns credits as provided by Pathway 2: California-based credits for

vehicles sold in California plus CAA 177 States, plus:
—CAFE-based credits allowed for vehicles sold outside of California and CAA 177

States.—For CAFE-based credits, manufacturers earn credits based on fleet average emissions compared with baseline set by EPA.
—CAFE-based credits based on NHTSA car and truck definitions.
—FFV credits not allowed to be included for CAFE-based credits. —Manufacturer elects to only earn CAFE-based credits for vehicles sold outside of

California and CAA 177 States. Earns no California and 177 State credits.—For CAFE-based credits, manufacturers earn credits based on fleet average emissions compared with baseline set by EPA.
—CAFE-based credits based on NHTSA car and truck definitions.
—FFV credits not allowed to be included for CAFE-based credits.

b. Early A/C Credits

EPA proposes that manufacturers could earn early A/C credits in MYs 2009–2011 using the same A/C system design-based EPA provisions being proposed for MYs commencing in 2012, as described in Section III.C.1, above.
Manufacturers would be able to earn early A/C CO 2 -equivalent credits by demonstrating improved A/C system performance, for both direct and
indirect emissions. To earn credits for
vehicles sold in California and CAA 177 States, the vehicles would need to be
included in one of the California-based early credit pathways described above in III.C.5.a. EPA is proposing this
constraint in order to avoid credit double counting with the California program in place in those States, which also allows A/C system credits in this
time frame. Manufacturers would fold the A/C credits into the fleet average

CO 2 calculations under the Californiabased pathway. For example, the MY 2009 California-based program car baseline would be 321 g/mile (see Table III.C.5–1). If a manufacturer under Pathway 1 had a MY 2009 car fleet average CO 2 level of 320 g/mile and then earned an additional 9 g/mile

CO 2 -equivalent A/C credit, the
manufacturers would earn a total of 10 g/mile of credit. Vehicles sold outside of
California and 177 States would be eligible for the early A/C credits
whether or not the manufacturers participate in other aspects of the early credits program.

c. Early Advanced Technology Vehicle
Credits

EPA is proposing to allow early advanced technology vehicle credits for sales of EVs, PHEVs, and fuel cell vehicles. To avoid double-counting,
manufacturers would not be allowed to generate advanced technology credits for vehicles they choose to include in Pathways 1 through 4 described in III.C.5.a, above. EPA proposes to use a similar methodology to that proposed for MYs 2012 and later, as described in Section III.C.3, above. EPA proposes to use a multiplier in the range of 1.2 to

2.0for all eligible vehicles (i.e., EVs, PHEVs, and fuel cells). Manufacturers, however, would track the number of these vehicles sold in the model years 2009—2011, and the emissions level of the vehicles, rather than a CO 2 credit.
When a manufacturer chooses to use the vehicle credits to comply with 2012 or later standards, the vehicle counts including the multiplier would be
folded into the CO 2 fleet average. For example, if a manufacturer sells 1,000 EVs in MY 2011, and if the final multiplier level were 2.0, the manufacturer would apply the multiplier of 2.0 and then be able to include 2,000 vehicles at 0 g/mile in
their MY 2012 fleet to decrease the fleet average for that model year. As with other early credits, these early advanced technology vehicle credits would be tracked by model year (2009, 2010, or 2011) and would be subject to 5 year carry-forward restrictions. Again,VerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00087 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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manufacturers would not be allowed to include the EVs, PHEVs, or fuel cell vehicles in the early credit pathways discussed above in Section III.C.5.a,
otherwise the vehicles would be double counted. As discussed in Section III.C.3, EPA is requesting comment on a multiplier in the range of 1.2 to 2.0, including a potential phase-down in the multiplier by model year 2016, if a multiplier near the higher end of this range is determined for the final rule. This request for comment also extends to the potential for early advance technology vehicle credits. EPA is also requesting comment on the appropriate gram/mile metric for EVs and fuel cellvehicles, as well as for the EV-only
contribution for a PHEV.

d. Early Off-Cycle Credits

EPA’s proposed off-cycle innovative technology credit provisions are provided in Section III.C.4. EPA requests comment on beginning these credits in the 2009–2011 time frame, provided manufacturers are able to make the necessary demonstrations outlined in Section III.C.4, above.

D. Feasibility of the Proposed CO2 Standards

This proposal is based on the need to obtain significant GHG emissions reductions from the transportation sector, and the recognition that there are cost-effective technologies to achieve
such reductions in the 2012–2016 time frame. 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
issues 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, although the technological problems and solutions involved in this rulemaking differ in some ways from prior mobile source rulemakings. Here, the focus of the emissions control technology is on reducing CO 2 and other greenhouse gases. Vehicles combust fuel to perform two basic functions: (1) Transport the vehicle, its passengers and its contents, and (2) operate various accessories during the operation of the vehicle such as the air conditioner. Technology can
reduce CO 2 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. 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.

In evaluating vehicle efficiency, we have excluded fundamental changes in vehicles’ size and utility. 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. Manufacturers may decide to alter the utility of the vehicles which they sell in response to this rule. Assessing the societal cost of such changes is very difficult as it involves assessing consumer preference for a wide range of
vehicle features.

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 almost all the systems in the design of a vehicle. As discussed below, there are many technologies that are currently available which can reduce vehicle energy consumption. These technologies are already being commercially utilized to a limited degree in the current light-duty fleet. These technologies include hybrid technologies that use higher efficiency electric motors as the power source in
combination with or instead of internal combustion engines. While already commercialized, hybrid technology continues to be developed and offers the potential for even greater efficiency improvements. Finally, there are other advanced technologies under development, such as lean burn gasoline engines, which offer the potential of improved energy generation through improvements in the basic combustion process. In addition, the available technologies are not limited to powertrain improvements but also include 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 and production 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 vehicle architecture and structural components. 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. 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 related to emissions, fuel economy, and safety regulations.

This redesign often involves a package of changes designed to work together to meet the various requirements and plans for the model for several model years after the redesign. This 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.

As discussed below, there are a wide variety of CO 2 reducing technologies involving several different systems in
the vehicle that are available for consideration. Many can involve major changes to the vehicle, such as changes to the engine block and cylinder heads, redesign of the transmission and itsVerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00088 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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packaging in the vehicle, changes in vehicle shape to improve aerodynamic efficiency and the application of aluminum in body panels to reduce mass. Logically, the incorporation of emissions control technologies would be during the periodic redesign process. This approach would allow manufacturers to develop appropriate packages of technology upgrades that combine technologies in ways that work together and fit with the overall goals of the redesign. It also allows the manufacturer to fit the process of upgrading emissions control technology into its multi-year planning process, and it avoids the large increase in resources and costs that would occur if technology had to be added outside of the redesign

process.

This proposed rule affects five years of vehicle production, model years 2012–2016. Given the now-typical five year redesign cycle, nearly all of a
manufacturer’s vehicles will be redesigned over this period. However,
this assumes that a manufacturer has sufficient lead time to redesign the first model year affected by this proposed rule with the requirements of this proposed rule in mind. In fact, the lead time available for model year 2012 is relatively short. The time between a likely final rule and the start of 2013 model year production is likely to be just over two years. At the same time, manufacturer product plans indicate that they are planning on introducing many of the technologies EPA projects could be used to show compliance with the proposed CO 2 standards in both
2012 and 2013. In order to account for the relatively short lead time available prior to the 2012 and 2013 model years, albeit mitigated by their existing plans, EPA has factored this reality into how the availability is modeled for much of the technology being considered for model years 2012–2016 as a whole. If the technology to control greenhouse gas emissions is efficiently folded into this redesign process, then EPA projects that 85 percent of each manufacturer’s sales will be able to be redesigned with many of the CO 2 emission reducing technologies by the 2016 model year, and as discussed below, to reduce
emissions of HFCs from the air
conditioner.

In determining the level of this first
ever GHG emissions standard under the CAA for light-duty vehicles, EPA proposes to use an approach that accounts for and builds on this redesign process. This provides the opportunity for several control technologies to be incorporated into the vehicle during redesign, achieving significant
emissions reductions from the model at one time. This is in contrast to what would be a much more costly approach of trying to achieve small increments of reductions over multiple years by adding technology to the vehicle piece by piece outside of the redesign process.

As described below, the vast majority of technology required by this proposal is commercially available and already being employed to a limited extent across the fleet. The vast majority of the
emission reductions which would result from this proposed rule would result
from the increased use of these technologies. EPA also believes that this proposed rule would encourage the development and limited use of more advanced technologies, such as PHEVs
and EVs.

In developing the proposed standard,
EPA built on the technical work performed by the State of California during its development of its statewide GHG program. EPA began by evaluating
a nationwide CAA standard for MY 2016 that would require the levels of technology upgrade, across the country,
which California standards would require for the subset of vehicles sold in California under Pavley 1. In essence, EPA evaluated the stringency of the California Pavley 1 program but for a national standard. As mentioned above,
and as described in detail in Section II.C of this preamble and Chapter 3 of the Joint TSD, one of the important
technical documents included in EPA
and NHTSA’s assessment of vehicle technology effectiveness and costs was the 2004 NESCCAF report which was
the technical foundation for California’s Pavley 1 standard. However, in order to evaluate the impact of standards with similar stringency on a national basis to the California program EPA chose not to evaluate the specific California standards for several reasons. First,
California’s standards are universal standards (one for cars and one for trucks), while EPA is proposing attribute-based standards using vehicle footprint. Second, California’s
definitions of what vehicles are
classified as cars and which are
classified as trucks are different from those used by NHTSA for CAFE purposes and different from EPA’s proposed classifications in this notice (which harmonizes with the CAFE definitions). In addition, there has been progress in the refinement of the
estimation of the effectiveness and cost estimation for technologies which can be applied to cars and trucks since the California analysis in 2004 which could lead to different relative stringencies
between cars and trucks than what California determined for its Pavley 1 program. There have also been improvements in the fuel economy and

CO 2 performance of the actual new
vehicle fleet since California’s 2004 analysis which EPA wanted to reflect in
our current assessment. For these reasons, EPA developed an assessment of an equivalent national new vehicle
fleet-wide CO 2 performance standards for model year 2016 which would result
in the new vehicle fleet in the State of California having CO 2 performance equal to the performance from the California Pavley 1 standards. This assessment is documented in Chapter

3.1 of the DRIA. The results of this assessment predicts that a national light-duty vehicle fleet which adopts technology that achieves performance of 250 g/mile CO 2 for model year 2016
would result in vehicles sold in
California that would achieve the CO 2 performance equivalent to the Pavley 1
standards.

EPA then analyzed a level of 250 g/mi CO 2 in 2016 using the OMEGA model, and the car and truck footprint curves relative stringency discussed in Section II to determine what technology
would be needed to achieve a fleet wide average of 250 g/mi CO 2 . As discussed
later in this section we believe this levelof technology application to the lightduty vehicle fleet can be achieved in this time frame, that such standards will produce significant reductions in GHG emissions, and that the costs for both the industry and the costs to the
consumer are reasonable. EPA also developed standards for the model years 2012 through 2015 that lead up to the
2016 level.

EPA’s independent technical assessment of the technical feasibility of the proposed MY2012–2016 standards
is described below. EPA has also
evaluated a set of alternative standards for these model years, one that is more stringent than the proposed standards and one that is less stringent. The technical feasibility of these alternative
standards is discussed at the end of this

section.

Evaluating the feasibility of these standards primarily includes 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 more 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 technologyVerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00089 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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### 49541

into their products, 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. In order to assist in this task, EPA has developed a computerized model called the Optimization Model for reducing Emissions of Greenhouse gases from Automobiles (OMEGA) model. Broadly, the model starts with a description of the future vehicle fleet, including manufacturer, sales, base CO 2 emissions, footprint and the extent to which emission control technologies are already employed. For the purpose of this analysis, over 200 vehicle platforms were used to capture the important differences in vehicle and engine design and utility of future vehicle sales of roughly 16 million units in the 2016 timeframe. The model is then provided with a list of technologies which are applicable to various types of vehicles, along with their 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 various 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 CO 2 emissions and HFC refrigerant emissions associated with air conditioner use, this task is currently
handled outside of the OMEGA model.
The model can be set to account for various types of compliance flexibilities,
such as FFV credits.

EPA invites comment on all aspects of this feasibility assessment. Both the OMEGA model and its inputs have been placed in the docket to this proposed
rule and available for review.

The remainder of this section describes the technical feasibility analysis in greater detail. Section III.D.1 describes the development of our projection of the MY 2012–2016 fleet in the absence of this proposed rule.
Section III.D.2 describes our estimates of
the effectiveness and cost of the control technologies available for application in
the 2012–2016 timeframe. Section

III.D.3 combines these technologies into packages likely to be applied at the same time by a manufacturer. In this section, the overall effectiveness of the technology packages vis-a ` -vis their
effectiveness when combined individually is described. Section III.D.4 describes the process which manufacturers typically use to apply new technology to their vehicles.
Section III.D.5 describes EPA’s OMEGA model and its approach to estimating
how manufacturers would add technology to their vehicles in order to comply with CO 2 emission standards. Section III.D.6 presents the results of the OMEGA modeling, namely the level of technology added to manufacturers’
vehicles and its cost. Section III.D.7 discusses the feasibility of the alternative 4-percent-per-year and 6- percent-per-year standards. Further
detail on all of these issues can be found in EPA and NHTSA’s draft Joint Technical Support Document as well as EPA’s draft Regulatory Impact Analysis.

1. How Did EPA Develop a Reference Vehicle Fleet for Evaluating Further CO 2 Reductions?

In order to calculate the impacts of this proposed regulation, it is necessary to project the GHG emissions
characteristics of the future vehicle fleet absent this proposed regulation. This is
called the ‘‘reference’’ fleet. EPA developed this reference fleet by determining the characteristics of a specific model year (in this case, 2008) of vehicles, called the baseline fleet, and then projecting what changes if any
would be made to these vehicles to comply with the MY2011 CAFE standards. Thus, the MY 2008 fleet is our ‘‘baseline fleet,’’ and the projection
of the baseline to MY 2011–2016 is
called the ‘‘reference fleet.’’

EPA used 2008 model year vehicles as
the basis for its baseline fleet. 2008 model year is the most recent model year for which data is publicly
available. Sources of data for the
baseline include the EPA vehicle certification data, Ward’s Automotive Group data, Motortrend.com, Edmunds.com, manufacturer product plans, and other sources to a lesser extent (such as articles about specific vehicles) revealed from Internet search engine research. EPA then projects this fleet out to the 2016 MY, taking into account factors such as changes in
overall sales volume. Section II.B describes the development of the EPA reference fleet, and further details can be found in Section II.B of this preamble and Chapter 1 of the Draft Joint TSD.

The light-duty vehicle market is currently in a state of flux due to the volatility in fuel prices over the past several years and the current economic downturn. These factors have changed the relative sales of the various types of light-duty vehicles marketed, as well as
total sales volumes. EPA and NHTSA desire to account for these changes to the degree possible in our forecast of the make-up of the future vehicle fleet. EPA wants to include improvements in fuel economy associated with the existing CAFE program. It is possible that
manufacturers could increase fuel economy beyond the level of the 2011 MY CAFE standards for marketing purposes. However, it is difficult to separate fuel economy improvements in those years for marketing purposes from those designed to facilitate compliance with anticipated CAFE or CO 2 emission standards. Thus, EPA limits fuel economy improvements in the reference fleet to those projected to result from the existing CAFE standards. The addition of technology to the baseline fleet so that it complies with the MY 2011 CAFE
standards is described later in Section III.D.4, as this uses the same methodology used to project compliance with the proposed CO 2 emission standards. In summary, the reference fleet represents vehicle characteristics
and sales in the 2012 and later model years absent this proposed rule. Technology is then added to these
vehicles in order to reduce CO 2 emissions to achieve compliance with the proposed CO 2 standards. EPA did not factor in any changes to vehicle characteristics or sales in projecting manufacturers’ compliance with this proposal.

After the reference fleet is created, the next step aggregates vehicle sales by a combination of manufacturer, vehicle platform, and engine design. As discussed in Section III.D.4 below, manufacturers implement major design changes at vehicle redesign and tend to implement these changes across a vehicle platform. 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.D.1–1.VerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00090 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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TABLE 

### III.D.1–1—V EHICLE 

### G ROUPINGS a

Vehicle description Vehicle type Vehicle description Vehicle type

Large SUV (Car) V8+ OHV .................................................. 13 Subcompact Auto I4 .................................

............................ 1 Large SUV (Car) V6 4v ........................................................ 16 Large Pickup V8+ DOHC ..........................

........................... 19 Large SUV (Car) V6 OHV .................................................... 12 Large Pickup V8+ SOHC 3v ..........................

...................... 14 Large SUV (Car) V6 2v SOHC ............................................. 9 Large Pickup V8+ OHV ..................................

...................... 13 Large SUV (Car) I4 and I5 ................................................... 7 Large Pickup V8+ SOHC ............................

......................... 10 Midsize SUV (Car) V6 2v SOHC .......................................... 8 Large Pickup V6 DOHC ...................................

.................... 18 Midsize SUV (Car) V6 S/DOHC 4v ...................................... 5 Large Pickup V6 OHV ......................................

.................... 12 Midsize SUV (Car) I4 ............................................................ 7 Large Pickup V6 SOHC 2v ......................

............................ 11 Small SUV (Car) V6 OHV ..................................................... 12 Large Pickup I4 S/DOHC ...........................

.......................... 7 Small SUV (Car) V6 S/DOHC .............................................. 4 Small Pickup V6 OHV ...................................

....................... 12 Small SUV (Car) I4 ............................................................... 3 Small Pickup V6 2v SOHC .....................

............................. 8 Large Auto V8+ OHV ............................................................ 13 Small Pickup I4 ...............................

..................................... 7 Large Auto V8+ SOHC ......................................................... 10 Large SUV V8+ DOHC ..............................

.......................... 17 Large Auto V8+ DOHC, 4v SOHC ....................................... 6 Large SUV V8+ SOHC 3v .....................................

.............. 14 Large Auto V6 OHV .............................................................. 12 Large SUV V8+ OHV ............................

............................... 13 Large Auto V6 SOHC 2/3v ................................................... 5 Large SUV V8+ SOHC .................................

....................... 10
Midsize Auto V8+ OHV ......................................................... 13 Large SUV V6 S/DOHC 4v .........................

......................... 16
Midsize Auto V8+ SOHC ...................................................... 10 Large SUV V6 OHV .................................

............................ 12 Midsize Auto V7+ DOHC, 4v SOHC .................................... 6 Large SUV V6 SOHC 2v .......................................

.............. 9
Midsize Auto V6 OHV ........................................................... 12 Large SUV I4/ .................................

..................................... 7
Midsize Auto V6 2v SOHC ................................................... 8 Midsize SUV V6 OHV .................................

......................... 12
Midsize Auto V6 S/DOHC 4v ................................................ 5 Midsize SUV V6 2v SOHC ..............................

.................... 8
Midsize Auto I4 ..................................................................... 3 Midsize SUV V6 S/DOHC 4v .................

.............................. 5 Compact Auto V7+ S/DOHC ................................................ 6 Midsize SUV I4 S/DOHC .................................

.................... 7 Compact Auto V6 OHV ......................................................... 12 Small SUV V6 OHV ................................

............................. 12 Compact Auto V6 S/DOHC 4v ............................................. 4 Minivan V6 S/DOHC ......................................

...................... 16 Compact Auto I5 ................................................................... 7 Minivan V6 OHV .............................

..................................... 12 Compact Auto I4 ................................................................... 2 Minivan I4 .................................

............................................ 7 Subcompact Auto V8+ OHV ................................................. 13 Cargo Van V8+ OHV ...................................

........................ 13 Subcompact Auto V8+ S/DOHC ........................................... 6 Cargo Van V8+ SOHC ......................................

................... 10 Subcompact Auto V6 2v SOHC ........................................... 8 Cargo Van V6 OHV ........................................

..................... 12 Subcompact Auto I5/V6 S/DOHC 4v .................................... 4

.......................................................... ..................................... ................

a I4 = 4 cylinder engine, I5 = 5 cylinder engine, V6, V7, and V8 = 6, 7, and 8 cylinder engines, respectively, DOHC = Double overhead cam, SOHC = Single overhead cam, OHV = Overhead valve, v = number of valves per cylinder, ‘‘/’’ = and, ‘‘+’’ = or larger.

As mentioned above, the second
factor which needs to be considered in developing a reference fleet against which to evaluate the impacts of this proposed rule is the impact of the 2011 MY CAFE standards, which were published earlier this year. Since the vehicles which comprise the above
reference fleet are those sold in the 2008 MY, when coupled with our sales projections, they do not necessarily
meet the 2011 MY CAFE standards.

The levels of the 2011 MY CAFE standards are straightforward to apply to future sales fleets, as is the potential fine-paying flexibility afforded by the CAFE program (i.e., $55 per mpg of shortfall). However, projecting some of the compliance flexibilities afforded by EISA and the CAFE program are less clear. Two of these compliance
flexibilities are relevant to EPA’s analysis: (1) The credit for FFVs, and (2) the limit on the transferring of credits
between car and truck fleets. The FFV credit is limited to 1.2 mpg in 2011 and EISA gradually reduces this credit, to

1.0mpg in 2015 and eventually to zero in 2020. In contrast, the limit on car truck transfer is limited to 1.0 mpg in 2011, and EISA increases this to 1.5 mpg beginning in 2015 and then to 2.0 mpg beginning in 2020. The question
here is whether to hold the 2011 MY CAFE provisions constant in the future or incorporate the changes in the FFV credit and car-truck credit trading limits
contained in EISA.

EPA decided to hold the 2011 MY
limits on FFV credit and car-truck credit trading constant in projecting the fuel economy and CO 2 emission levels of
vehicles in our reference case. This approach treats the changes in the FFV credit and car-truck credit trading provisions consistently with the other EISA-mandated changes in the CAFE
standards themselves. All EISA provisions relevant to 2011 MY vehicles are reflected in our reference case fleet, while all post-2011 MY provisions are not. Practically, relative to the alternative, this increases both the cost and benefit of the proposed standards. In our analysis of this proposed rule, any quantified benefits from the presence of FFVs in the fleet are not considered. Thus, the only impact of the
FFV credit is to reduce onroad fuel economy. By assuming that the FFV credit stays at 1.2 mpg in the future absent this rule, the assumed level of onroad fuel economy that would occur absent this proposal is reduced. As this proposal eliminates the FFV credit starting in 2016, the net result is to increase the projected level of fuel savings from our proposed standards. Similarly, the higher level of FFV credit reduces projected compliance cost for
manufacturers to meet the 2011 MY
standards in our reference case. This increases the projected cost of meeting the proposed 2012 and later standards.

As just implied, EPA needs to project the technology (and resultant costs) required for the 2008 MY vehicles to comply with the 2011 MY CAFE standards in those cases where they do not automatically do so. The technology and costs are projected using the same methodology that projects compliance with the proposed 2012 and later CO 2 standards. The description of this process is described in the following
four sections.

A more detailed description of the methodology used to develop these sales projections can be found in the Draft Joint TSD. Detailed sales projections by model year and
manufacturer can also be found in the TSD. EPA requests comments on bothVerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00091 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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### 49543

the methodology used to develop the reference fleet, as well as the
characteristics of the reference fleet.

2. What Are the Effectiveness and Costs
of CO 2 -Reducing Technologies?

EPA and NHTSA worked together to jointly develop information on the
effectiveness and cost of the CO 2 - reducing technologies, and fuel economy-improving technologies, other than A/C related control technologies. This joint work is reflected in Chapter 3 of the Draft Joint TSD and in Section II of this preamble. A summary of the
effectiveness and cost of A/C related technology is contained here. For more
detailed information on the
effectiveness and cost of A/C related technology, please refer to Section III.C of this preamble and Chapter 2 of EPA’s

DRIA.

A/C improvements are an integral part of EPA’s technology analysis and have been included in this section along with the other technology options. While
discussed in Section III.C as a credit opportunity, air conditioning-related improvements are included in Table III.D.2–1.because A/C improvements are a very cost-effective technology at reducing CO 2 (or CO 2 -equivalent) emissions. EPA expects most
manufacturers will choose to use AC improvement credit opportunities as a strategy for meeting compliance with
the CO 2 standards. Note that the costs
shown in Table III.D.2–1 do not include maintenance savings that would be expected from the new AC systems.Further, EPA does not include ACrelated maintenance savings in our cost and benefit analysis presented in Section III.H. EPA discusses the likely maintenance savings in Chapter 2 of the DRIA and requests comment on that discussion because we may include maintenance savings in the final rule
and would like to have the best
information available in order to do so. The EPA approximates that the level of
the credits earned will increase from
2012 to 2016 as more vehicles in the fleet are redesigned. The penetrations and average levels of credit are summarized in Table III.D.2–2, though the derivation of these numbers (and the breakdown of car vs. truck credits) is
described in the DRIA. As demonstrated in the IMAC study (and described in Section III.C as well as the DRIA), these
levels are feasible and achievable withtechnologies that are available and costeffective today.

These improvements are categorized as either leakage reduction, including use of alternative refrigerants, or system efficiency improvements. Unlike the majority of the technologies described in this section, A/C improvements will not be demonstrated in the test cycles used to quantify CO 2 reductions in this proposal. As described earlier, for this analysis A/C-related CO 2 reductions are
handled outside of OMEGA model and
therefore their CO 2 reduction potential is expressed in grams per mile rather than a percentage used by the OMEGA
model. See Section III.C for the method by which potential reductions are
calculated or measured. Further discussion of the technological basis for these improvements is included in Chapter 2 of the DRIA.



### TABLE 

### III.D.2–1—TOTAL 

### CO 2 

### R EDUCTION 

### P OTENTIAL AND 

### 2016 C OST FOR 

### A/C R ELATED 

### T ECHNOLOGIES

FOR 

### A LL 

### V EHICLE 

### C LASSES

[Costs in 2007 dollars]

CO 2 reduction Incremental potential compliance costs

A/C refrigerant leakage reduction ................................................................................................................... 7.5g/mi 161

....... $17 A/C efficiency improvements .......................................................................................................................... 5.7g/mi ............. 53



### TABLE 

### III.D.2–2 A/C R ELATED 

### T ECH



### NOLOGY 

### P ENETRATION AND 

### C REDIT 

### L EVELS 

### E XPECTED 

### TO 

### B E 

### E ARNED

Average Technology credit penetration over (Percent) entire fleet

2012

.......... 25 3.1

2013

.......... 40 5.0

2014

.......... 60 7.5

2015

.......... 80 10.0

2016

.......... 85 10.6

3. How Can Technologies Be Combined into ‘‘Packages’’ and What Is the Cost and Effectiveness of Packages?

Individual technologies can be used by manufacturers to achieve
incremental CO 2 reductions. However, as mentioned in Section III.D.1, EPA
believes that manufacturers are more likely to bundle technologies into

161 This represents 50% improvement in leakage and thus 50% of the A/C leakage impact potential compared to a maximum of 15 g/mi credit that can be achieved through the incorporation of a low very GWP refrigerant. ‘‘packages’’ to capture synergistic aspects and reflect progressively larger

CO 2 reductions with additions or changes to any given package. In addition, manufacturers would typically apply new technologies in packages during model redesigns—which occur once roughly every five years—rather than adding new technologies one at a
time on an annual or biennial basis. This way, manufacturers can more efficiently make use of their redesign resources and more effectively plan for changes necessary to meet future
standards.

Therefore, the approach taken here is to group technologies into packages of increasing cost and effectiveness. EPA
determined that 19 different vehicle types provided adequate representation to accurately model 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, and finally by the number of valves per cylinder. Note that each of these 19 vehicle types was mapped into one of the five classes of
vehicles mentioned in Section III.D.2. While the five classes provide adequate representation for the cost basis associated with most technology application, they do not adequately account for all existing vehicle
attributes such as base vehicle powertrain configuration and mass reduction. As an example, costs and effectiveness estimates for engine
friction reduction for the small car class were used to represent cost and effectiveness for three vehicle types: Subcompact cars, compact cars, and small multi-purpose vehicles (MPV) equipped with a 4-cylinder engine,
however the mass reduction associated for each of these vehicle types wasbased on the vehicle type salesweighted average. In another example, a vehicle type for V8 single overhead cam 3-valve engines was created to properly
account for the incremental cost in moving to a dual overhead cam 4-valveVerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00092 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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configuration. 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 serve as the basis for the standards proposed in this rule. A complete list of vehicles and their associated vehicle types is shown
above in Table III.D.1–1.

Within each of the 19 vehicle types multiple technology packages were created in increasing technology content and, hence, increasing effectiveness. Important to note is that the effort in creating the packages attempted to maintain a constant utility for each package as compared to the baseline package. As such, each package is meant to provide equivalent driver-perceived performance to the baseline package. The initial packages represent what a manufacturer will most likely implement on all vehicles, including low rolling resistance tires, low friction lubricants, engine friction reduction, aggressive shift logic, early torque converter lock-up, improved electrical accessories, and low drag brakes. 162 Subsequent packages include advanced gasoline engine and transmission technologies such as turbo/downsizing, GDI, and dual-clutch transmission. The most technologically advanced packages within a segment included HEV, PHEV and EV designs. The end result being a list of several packages for each of 19 different vehicle types from which a
manufacturer could choose in order to modify its fleet such that compliance
could be achieved. Before using these technology packages as inputs to the OMEGA model, the cost and effectiveness for the package was calculated. The first step— mentioned briefly above—was to apply the scaling class for each technology package and vehicle type combination. The scaling class establishes the cost and effectiveness for each technology with respect to the vehicle size or type. The Large Car class was provided as an example in Section III.D.2. Additional classes include Small Car, Minivan, Small Truck, and Large Truck and each of the 19 vehicle types was mapped into
one of those five classes. In the next step, the cost for a particular technology package, was determined as the sum of the costs of the applied technologies. The final step, determination of effectiveness, requires greater care due to the synergistic effects mentioned in Section III.D.2. This step is described immediately below.

Usually, the benefits of the engine and transmission technologies can be combined multiplicatively. For example, if an engine technology
reduces CO 2 emissions by five percent and a transmission technology reduces

CO 2 emissions by four percent, the benefit of applying both technologies is

8.8percent (100%

¥ (100%

¥ 4%) * (100%

¥ 5%)). In some cases, however,
the benefit of the transmission-related technologies overlaps with many of the engine technologies. This occurs because the primary goal of most of the transmission technologies is to shift operation of the engine to more efficient locations on the engine map. Some of the engine technologies have the same goal, such as cylinder deactivation. In order to account for this overlap and avoid over-estimating emissions reduction effectiveness, EPA has developed a set of adjustment factors associated with specific pairs of engine and transmission technologies.

The various transmission technologies are generally mutually exclusive. As such, the effectiveness of each transmission technology generally supersedes each other. For example, the 9.5–14.5 percent reduction in CO 2 emissions associated with the
automated manual transmission includes the 4.5–6.5 percent benefit of a 6-speed automatic transmission. Exceptions are aggressive shift logic and early torque converter lock-up. The former can be applied to any vehicle and the latter can be applied to any
vehicle with an automatic transmission.

EPA has chosen to use an engineeringapproach known as the lumpedparameter technique to determine these adjustment factors. The results from this approach were then applied directly tothe vehicle packages. The lumpedparameter technique is well documented in the literature, and the specific approach developed by EPA is detailed in Chapter 3 of the Draft Joint

TSD.

Table III.D.3–1 presents several examples of the reduction in the effectiveness of technology pairs. A complete list and detailed discussion of these synergies is presented in Chapter 3 of the Draft Joint TSD.



### TABLE 

### III.D.3–1—R EDUCTION IN 

### E FFECTIVENESS FOR 

### S ELECTED 

### T ECHNOLOGY 

### P AIRS

Reduction in combined Engine technology Transmission technology effectiveness (percent)

Intake cam phasing ..................................................................
 5 speed automatic ..........................

........................................ 0.5 Coupled cam phasing .............................................................. 5 speed automatic .............................

...................................... 0.5 Coupled cam phasing .............................................................. Aggressive shift logic ........................

...................................... 0.5 Cylinder deactivation ................................................................ 5 speed automatic .........................

.......................................... 1.0 Cylinder deactivation ................................................................ Aggressive shift logic ....................

.......................................... 0.5

Table III.D.3–2 presents several Similar packages were generated for detail in Chapter 3 of the Draft Joint examples of the CO 2 -reducing each of the 19 vehicle types and the TSD. technology vehicle packages used in the costs and effectiveness estimates for OMEGA model for the large car class. each of those packages are discussed in

162 When making reference to low friction engine changes and possible durability testing that would be done to accommodate the low friction lubricants, the technology being referred to is the lubricants, not the lubricants themselves.VerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00093 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

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TABLE 

### III.D.3–2—CO 2 

### R EDUCING 

### T ECHNOLOGY 

### V EHICLE 

### P ACKAGES FOR A 

### LARGE 

### C AR 

### E FFECTIVENESS AND 

### C OSTS IN 

### 2016

[Costs in 2007 dollars]

Engine technology Transmission technology Additional technology CO 2 reduction Package

cost

3.3L V6 .............................................. 4 speed automatic ............................ None .........................

........................ Baseline

3.0L V6 + GDI + CCP .......................
3.0L V6 + GDI + CCP + Deac ..........
3.0L V6 + GDI + CCP + Deac ..........
2.2L I4 + GDI + Turbo + DCP .......... 6 speed automatic ............................ 6 speed automatic ............................ 6 speed DCT .................................... 6 speed DCT .................................... 3% Mass Reduction .......................

.. 5% Mass Reduction ......................... 10% Mass Reduction Start-Stop ...... 10% Mass Reduction Start-Stop ...... 17.9%

20.6

34.2

34.3 $1,022
1,280 2,10 8 2,2 45

4. Manufacturers’ Application of Technology

Vehicle manufacturers often introduce major product changes together, as a package. In this manner the manufacturers can optimize their available resources, including engineering, development, manufacturing and marketing activities to create a product with multiple new features. In addition, manufacturers recognize that a vehicle will need to remain competitive over its intended life, meet future regulatory requirements, and contribute to a manufacturer’s CAFE requirements. Furthermore, automotive manufacturers are largely focused on creating vehicle platforms to limit the development of entirely new vehicles and to realize economies of scale with regard to variable cost. In very limited cases, manufacturers may implement an individual technology outside of a vehicle’s redesign cycle. In following with these industry practices, EPA has created a set of vehicle technology packages that represent the entire light duty fleet.

EPA has historically allowed
manufacturers of new vehicles or nonroad equipment to phase in available emission control technology over a number of years. Examples of this are EPA’s Tier 2 program for cars and light trucks and its 2007 and later PM
and NO X emission standards for heavyduty vehicles. In both of these rules, the major modifications expected from the
rules were the addition of exhaust aftertreatment control technologies. Some changes to the engine were expected as well, but these were not expected to affect engine size, packaging or performance. The CO 2 reduction technologies described above potentially involve much more significant changes to car and light truck designs. Many of the engine technologies involve changes to the engine block and heads. The transmission technologies could change the size and shape of the transmission and thus, packaging. Improvements to aerodynamic drag could involve body design and therefore, the dies used to produce body panels. Changes of this sort potentially involve new capital
investment and the obsolescence of existing investment.

At the same time, vehicle designs are not static, but change in major ways periodically. The manufacturers’ product plans indicate that vehicles are usually redesigned every 5 years on average. Vehicles also tend to receive a more modest ‘‘refresh’’ between major redesigns, as discussed above. Because manufacturers are already changing their tooling, equipment and designs at these times, further changes to vehicle design at these times involve a minimum of stranded capital equipment. Thus, the timing of any major technological changes is projected to coincide with changes that manufacturers would already tend to be making to their vehicles. This approach effectively avoids the need to quantify any costs associated with discarding equipment, tooling, emission and safety certification, etc. when CO 2 -reducing equipment is incorporated into a
vehicle.

This proposed rule affects five years of vehicle production, model years2012–2016. Given the now-typical fiveyear redesign cycle, nearly all of a
manufacturer’s vehicles will be redesigned over this period. However,
this assumes that a manufacturer has sufficient lead time to redesign the first model year affected by this proposed rule with the requirements of this proposed rule in mind. In fact, the lead time available for model year 2012 is relatively short. The time between a likely final rule and the start of 2013 model year production is likely to be just over two years. At the same time, the manufacturer product plans indicate that they are planning on introducing many of the technologies projected to be required by this proposed rule in both
2012 and 2013. In order to account for the relatively short lead time available prior to the 2012 and 2013 model years, albeit mitigated by their existing plans, EPA projects that only 85 percent of
each manufacturer’s sales will be able to be redesigned with major CO 2 emissionreducing technologies by the 2016 model year. Less intrusive technologies can be introduced into essentially all a
manufacturer’s sales. This resulted in three levels of technology penetration caps, by manufacturer. Common technologies ( e.g., low friction lubes, aerodynamic improvements) had a penetration cap of 100%. More advanced powertrain technologies ( e.g., stoichiometric GDI, turbocharging) had a penetration cap of 85%. The most advanced technologies considered in this analysis ( e.g., diesel engines, as well as IMA, powersplit and 2-mode hybrids) had a 15% penetration cap.

5. How Is EPA Projecting That a
Manufacturer Would Decide Between Options To Improve CO 2 Performance To Meet a Fleet Average Standard?

There are many ways for a
manufacturer to reduce CO 2 -emissions
from its vehicles. A manufacturer can choose from a myriad of CO 2 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 CO 2 emission control, there are an almost infinite number of technology combinations which produce the
desired CO 2 reduction. EPA has created a new vehicle model, the Optimization
Model for Emissions of Greenhouse gases from Automobiles (OMEGA) in
order to make a reasonable estimate of
how manufacturers will add technologies to vehicles in order to meet
a fleet-wide CO 2 emissions level. EPA has described OMEGA’s specific methodologies and algorithms in a memo to the docket for this rulemaking (Docket EPA–HQ–OAR–2009–0472).

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, CO 2 emission level, fuel type, projected sales and footprint. The model also requires thatVerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00094 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

### 49546 Federal Register / Vol. 74, No. 186 / Monday, September 28, 2009 / Proposed Rules

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, reference Section III.D.3.) In addition, the degree to which each 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 Draft 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.
Note that the five vehicle classes are not explicitly used by the model, rather the
costs and effectiveness associated with each vehicle package is based on the
associated class. This information was
described in Sections III.D.2 and III.D.3 above as well as Chapter 3 of the Draft Joint TSD. 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. Several criteria can be used to develop a reasonable ordering of technologies or packages. These are described in the Draft Joint TSD.

The third type of input data describes vehicle operational data, such as annual scrap rates and mileage accumulation rates, and economic data, such as fuel prices and discount rates. These
estimates are described in Section II.F above, Section III.H below and Chapter 4 of the Draft Joint TSD.

The fourth type of data describes the

CO 2 emission standards being modeled.
These include the CO 2 emission equivalents of the 2011 MY CAFE standards and the proposed CO 2 standards for 2016. As described in more detail below, the application of A/C technology is evaluated in a separate analysis from those technologies which impact CO 2 emissions over the 2-cycle test procedure. Thus, for the percent of vehicles that are projected to achieve A/C related reductions, the CO 2 credit associated with the projected use of improved A/C systems is used to adjust the proposed CO 2 standard which would be applicable to each manufacturer to develop a target for CO 2 emissions over the 2-cycle test which is assessed in our OMEGA modeling.

As mentioned above for the market data input file utilized by OMEGA, which characterizes the vehicle fleet, our modeling must and does account 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 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 CO 2 effectiveness requires careful, detailed analysis. The first step in this analysis is to develop a list of individual technologies which are either contained in each technology package, or would supplant the addition of the relevant portion of each technology package. An example would be a 2008 MY vehicle equipped with variable valve timing and a 6-speed automatic transmission. The
cost and effectiveness of variable valve timing would be considered to be already present for any technology packages which included the addition of variable valve timing or technologies which went beyond this technology in terms of engine related CO 2 control efficiency. An example of a technology which supplants several technologies
would be a 2008 MY vehicle which was equipped with a diesel engine. The effectiveness of this technology would be considered to be present for technology packages which included improvements to a gasoline engine, since the resultant gasoline engines
have a lower CO 2 control efficiency than the diesel engine. However, if these packages which included improvements also included improvements unrelated to the engine, like transmission improvements, only the engine related portion of the package already present
on the vehicle would be considered. The transmission related portion of the package’s cost and effectiveness would be allowed to be applied in order to comply with future CO 2 emission
standards.

The second step in this process is to
determine the total cost and CO 2 effectiveness of the technologies already present and relevant to each available package. Determining the total cost usually simply involves adding up the costs of the individual technologies present. In order to determine the total effectiveness of the technologies already present on each vehicle, the lumped parameter model described above is used. Because the specific technologies present on each 2008 vehicle are known, the applicable synergies and dis-synergies can be fully accounted for.

The third step in this process is to
divide the total cost and CO 2 effectiveness values determined in step 2 by the total cost and CO 2 effectiveness of the relevant technology packages. These fractions are capped at a value of

1.0or less, since a value of 1.0 causes the OMEGA model to not change either
the cost or CO 2 emissions of a vehicle when that technology package is added.

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 III.D.1–1. Thus, the fourth step is to
combine the fractions of the cost and effectiveness of each technology package already present on the
individual 2008 vehicles 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 CO 2 emission level. This appropriately weights vehicle models with either higher sales or CO 2 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
2011 MY CAFE standards and the proposed CO 2 standards.

Conceptually, the OMEGA model begins by determining the specific CO 2 emission standard applicable for each manufacturer and its vehicle class (i.e., car or truck). Since the proposed rule allows for averaging across a manufacturer’s cars and trucks, the
model determines the CO 2 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 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 would govern credit trading between these two vehicle
classes. For both the 2011 CAFE and

2016 CO 2 standards, these standards are
a function of each manufacturer’s sales of cars and trucks and their footprint values. When evaluating the 2011 MY CAFE standards, the car-truck trading was limited to 1.2 mpg. When evaluating the proposed CO 2 standards, the OMEGA model was run only for MY 2016. OMEGA is designed to evaluate technology addition over a completeVerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00095 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2EP28SE09.013</MATH>mstockstill on DSKH9S0YB1PROD with PROPOSALS 

### Federal Register / Vol. 74, No. 186 / Monday, September 28, 2009 / Proposed Rules 

### 49547

redesign cycle and 2016 represents the final year of a redesign cycle starting with the first year of the proposed CO 2 standards, 2012. Estimates of the technology and cost for the interim model years are developed from the model projections made for 2016. This process is discussed in Chapter 6 of EPA’s DRIA to this proposed rule. When evaluating the 2016 standards using the OMEGA model, the proposed CO 2 standard which manufacturers would
otherwise have to meet to account for the anticipated level of A/C credits generated was adjusted. On an industry wide basis, the projection shows that manufacturers would generate 11 g/mi of A/C credit in 2016. Thus, the 2016

CO 2 target for the fleet evaluated using OMEGA was 261 g/mi instead of 250 g/mi.

The cost of the improved A/C systems required to generate the 11 g/mi credit was estimated separately. This is consistent with our proposed A/C credit procedures, which would grant
manufacturers A/C credits based on their total use of improved A/C systems,
and not on the increased use of such systems relative to some base model year fleet. Some manufacturers may already be using improved A/C technology. However, this represents a
small fraction of current vehicle sales. To the degree that such systems are

i = 1 

### ManufCostEff =

Where:

ManufCostEff = Manufacturer-Based Cost Effectiveness (in dollars per kilogram

CO 2), TechCost = Marked up cost of the technology (dollars), PP = 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,
dFS i = Difference in fuel consumption due to the addition of technology times fuel price in year i,
dCO 2 = Difference in CO 2 emissions due to the addition of technology VMTi = product of annual VMT for a vehicle of age i and the percentage of vehicles of age i still on the road, 1- Gap = Ratio of onroad fuel economy to two-cycle (FTP/HFET) fuel economy

EPA describes the technology ranking methodology and manufacturer-based cost effectiveness metric in greater
detail in a technical memo to the Docket already being used, EPA is overestimating both the cost and benefit of the addition of improved A/C technology relative to the true reference fleet to a small degree.

The model then works with one
manufacturer at a time to add technologies until that manufacturer meets its applicable 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 costeffectiveness factor’’ to rank the technology packages in the order in which a manufacturer would likely apply them. Conceptually, this approach estimates the cost of adding the technology from the manufacturer’s perspective and divides it by the mass
of CO 2 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

PP 

### TechCost

− 

# ∑ [ dFS
i 

### × VMT i 

# ] ×

i + 35 

# ∑ ⎡ ⎣ 

# [ dCO 2 

# ] × VMT i 

### ⎤ ⎦ × 1

i 

### (1
− Gap )

for this proposed rule (Docket EPA–HQ– OAR–2009–0472).

When calculating the fuel savings, 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 proposal, 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.

This definition of manufacturer-based net cost-effectiveness ignores any change in the residual value of the vehicle due to the additional technology used in the rest of the analysis (3 or 7 percent). Any residual value of the additional technology which might

remain when the vehicle is sold is not

considered. The CO 2 emission reduction is the change in CO 2 emissions multiplied by the percentage of vehicles surviving after each year of use multiplied by the annual miles travelled by age, again discounted to the year of vehicle purchase.

Given this definition, the higher priority technologies are those with the

lowest manufacturer-based net costeffectiveness 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 costeffectiveness 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 costeffectiveness 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:



### 1 

## ( 1 − Gap 

## )

when the vehicle is five years old. As discussed in Chapter 1of the DRIA, 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 CO 2 level and fuel economy would retain this same percentage of value when the vehicle is five years old. However, it is less clear whether first purchasers, and thus, manufacturers would consider this residual value when ranking technologies and making vehicle purchases, respectively. For this proposal, this factor was not included in

our determination of manufacturerbased net cost-effectiveness in the analyses performed in support of this proposed rule. Comments are requested on the benefit of including an increaseVerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00096 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

### 49548 Federal Register / Vol. 74, No. 186 / Monday, September 28, 2009 / Proposed Rules

in the vehicle’s residual value after five years in the calculation of effective cost.

The values of manufacturer-based net cost-effectiveness for specific 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

CO 2 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 CO 2 reduction of a percentage an incremental reduction in fuel consumption depends on the CO 2 level of the vehicle prior to adding the technology. Chapter 1 of the DRIA of this proposed rule contains further
detail on the values of manufacturerbased net cost-effectiveness for the various technology packages.

EPA requests comment on the use of
manufacturer-based net costeffectiveness to rank CO 2 emission reduction technologies in the context of evaluating alternative fleet average
standards for this rule. EPA believes this
manufacturer-based net costeffectiveness metric is appropriate for ranking technology in this proposed program because it considers effectiveness values that may vary widely among technology packages when determining the order of technology addition. Comments are requested on this option and on any others thought to be appropriate.

6. Why Are the Proposed CO 2 Standards
Feasible?

The finding that the proposed standards would be technically feasible is based primarily on two factors. One is the level of technology needed to meet the proposed standards. The other is the cost of this technology. The focus is on the proposed standards for 2016, as this is the most stringent standard and requires the most extensive use of technology.

With respect to the level of technology required to meet the standards, EPA established technology penetration caps. As described in Section III.D.4, EPA used two
constraints to limit the model’s application of technology by
manufacturer. The first was the application of common fuel economy enablers such as low rolling resistance tires and transmission logic changes.
These were allowed to be used on all vehicles and hence had no penetration cap. The second constraint was applied to most other technologies and limited their application to 85% with the exception of the most advanced technologies ( e.g., powersplit and 2- mode hybrids) whose application was limited to 15%.

EPA used the OMEGA model to project the technology (and resultant cost) required for manufacturers to meet
the current 2011 MY CAFE standards and the proposed 2016 MY CO 2 emission standards. Both sets of standards were evaluated using the
OMEGA model. The 2011 MY CAFE standards were applied to cars and trucks separately with the transfer of credits from one category to the other allowed up to an increase in fuel economy of 1.0 mpg. Chrysler, Ford and
General Motors are assumed to utilize FFV credits up to the maximum of 1.2 mpg for both their car and truck sales.
Nissan is assumed to utilize FFV credits up to the maximum of 1.2 mpg for only their truck sales. The use of any banked credits from previous model years was
not considered. The modification of the reference fleet to comply with the 2011 CAFE standards through the application of technology by the OMEGA model is the final step in creating the final
reference fleet. This final reference fleet forms the basis for comparison for the model year 2016 standards.

Table III.D.6–1 shows the usage level of selected technologies in the 2008 vehicles coupled with 2016 sales prior to projecting their compliance with the
2011 MY CAFE standards. These technologies include converting port fuel-injected gasoline engines to direct injection (GDI), adding the ability to deactivate certain engine cylinders during low load operation (Deac), adding a turbocharger and downsizing the engine (Turbo), increasing the number of transmission speeds to 6 or, converting automatic transmissions to
dual-clutch automated manual transmissions (Dual-Clutch Trans), adding 42 volt start-stop capability (Start-Stop), and converting a vehicle to a intermediate or strong hybrid design. This last category includes three current hybrid designs: integrated motor assist (IMA), power-split (PS) and 2-mode hybrids.



### TABLE 

### III.D.6–1—P ENETRATION OF 

### T ECHNOLOGY IN 

### 2008 V EHICLES 

### W ITH 

### 2016 S ALES 

### : C ARS AND 

### T RUCKS

[Percent of sales]

GDI GDI+ deac GDI+ turbo Diesel 6 Speed or CV trans Dual clutch

trans Start-stop Hybrid

BMW ................................ 6.7 0.0 0.0 0.0 98.8 0.8 0.0 0.1 Chrysler ............................ 0.0 0.0 0.0 0.0 27.9 0.0 0.0 0.0
Daimler ............................. 6.2 0.0 0.0 6.2 74.7 11.4 0.0 0.0
Ford .................................. 0.6 0.0 0.0 0.0 28.1 0.0 0.0 0.0
General Motors ................ 3.3 0.0 0.0 0.0 13.7 0.0 0.1 0.1
Honda ............................... 1.2 0.0 0.0 0.0 4.2 0.0 0.0 2.1 Hyundai ............................ 0.0 0.0 0.0 0.0 4.9 0.0 0.0 0.0
Kia .................................... 0.0 0.0 0.0 0.0 0.9 0.0 0.0 0.0
Mazda .............................. 11.8 0.0 0.0 0.0 37.1 0.0 0.0 0.0
Mitsubishi ......................... 0.0 0.0 0.0 0.0 76.1 0.0 0.0 0.1
Nissan .............................. 17.7 0.0 0.0 0.0 33.3 0.0 0.0 0.0
Porsche ............................ 0.0 0.0 0.0 0.0 3.9 0.0 0.0 0.0
Subaru .............................. 0.0 0.0 0.0 0.0 29.0 0.0 0.0 0.0
Suzuki .............................. 0.0 0.0 0.0 0.0 100.0 0.0 0.0 0.0
Tata .................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Toyota .............................. 7.5 0.0 0.0 0.0 30.6 0.0 0.0 12.8 Volkswagen ...................... 52.2 0.0 0.0 0.1 82.8 10.9 0.0 0.0
Overall .............................. 6.4 0.0 0.0 0.1 27.1 0.6 0.0 2.8VerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00097 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

### Federal Register / Vol. 74, No. 186 / Monday, September 28, 2009 / Proposed Rules 

### 49549

As can be seen, all of these technologies except for the direct injection gasoline engines with either cylinder deactivation or turbocharging and downsizing, were already being used on some 2008 MY vehicles. High speed transmissions were the most prevalent, with some manufacturers ( e.g., BMW, Suzuki) using them on essentially all of their vehicles. Both Daimler and VW equip many of their
vehicles with automated manual transmissions, while VW makes extensive use of direct injection gasoline engine technology. Toyota has converted a significant percentage of its 2008 vehicles to strong hybrid design.

Table III.D.6–2 shows the usage level of the same technologies in the reference case fleet after projecting their compliance with the 2011 MY CAFE standards. Except for mass reduction, the figures shown represent the percentages of each manufacturer’s sales which are projected to be equipped with the indicated technology. For mass reduction, the overall mass reduction projected for that manufacturer’s sales is
shown. The last row in Table III.D.6–2 shows the increase in projected technology penetration due to compliance with the 2011 MY CAFE standards. The results of DOT’s Volpe Modeling were used to project that all manufacturers would comply with the
2011 MY standards in 2016 without the need to pay fines, with one exception. This exception was Porsche in the case of their car fleet. When projecting Porsche’s compliance with the 2011 MY CAFE standard for cars, the car fleet was
assumed to achieve a CO 2 emission level of 293.2 g/mi instead of the required 285.2 g/mi level (30.3 mpg instead of 31.2 mpg).



### TABLE 

### III.D.6–2—P ENETRATION OF 

### T ECHNOLOGY 

### U NDER 

### 2011 MY CAFE S TANDARDS IN 

### 2016 S ALES 

### : C ARS AND 

### T RUCKS

[Percent of sales]

GDI GDI+ deac GDI+ turbo 6 Speed or CV trans Dual clutch

trans Start-stop Hybrid Mass reduction (percent)

BMW ................................ 7.3 11.1 0.0 86.3 11.1 11.1 0.1 0.5 Chrysler ............................ 0.0 0.0 0.0 27.9 0.0 0.0 0.0 0.0
Daimler ............................. 16.4 10.3 14.3 45.8 36.0 24.6 0.0 0.9
Ford .................................. 0.6 0.0 0.0 28.1 0.0 0.0 0.0 0.0
General Motors ................ 3.3 0.0 0.0 13.7 0.0 0.1 0.1 0.0
Honda ............................... 1.2 0.0 0.0 4.2 0.0 0.0 2.1 0.0 Hyundai ............................ 0.0 0.0 0.0 4.9 0.0 0.0 0.0 0.0
Kia .................................... 0.0 0.0 0.0 0.9 0.0 0.0 0.0 0.0
Mazda .............................. 11.8 0.0 0.0 37.1 0.0 0.0 0.0 0.0
Mitsubishi ......................... 0.0 2.2 0.0 76.0 2.2 2.2 0.1 0.0
Nissan .............................. 17.7 0.0 0.0 33.3 0.0 0.0 0.0 0.0
Porsche ............................ 0.0 25.0 23.2 0.0 48.2 37.1 0.0 1.2
Subaru .............................. 0.0 0.0 0.0 29.0 0.0 0.0 0.0 0.0
Suzuki .............................. 4.5 0.0 0.0 100.0 0.0 0.0 0.0 0.0
Tata .................................. 14.5 60.9 0.0 14.5 60.9 60.9 0.0 2.6 Toyota .............................. 7.5 0.0 0.0 30.6 0.0 0.0 12.8 0.0 Volkswagen ...................... 51.2 6.9 11.8 60.8 29.6 18.7 0.0 0.3
Overall .............................. 6.7 1.2 0.8 25.4 2.6 2.0 2.8 0.1
Increase over 2008 MY ... 0.3 1.2 0.8

¥ 1.7 2.0 2.0 0.0 0.0

As can be seen, the 2011 MY CAFE standards, when evaluated on an industry wide basis, require only a
modest increase in the use of these technologies. Higher speed automatic transmission use actually decreases due
to conversion of these units to more efficient designs such as automated manual transmissions and hybrids. However, the impact of the 2011 MY CAFE standards is much greater on selected manufacturers, particularly BMW, Daimler, Porsche, Tata (Jaguar/ Land Rover) and VW. All of these manufacturers are projected to increase their use of advanced direct injection gasoline engine technology, advanced transmission technology, and start-stop technology. It should be noted that these manufacturers have traditionally paid fines under the CAFE program. However, with higher fuel prices and the lead-time available by 2016, these manufacturers would likely find it in their best interest to improve their fuel economy levels instead of continuing to pay fines (again with the exception of Porsche cars). While not shown, no gasoline engines were projected to be converted to diesel technology.

This 2008 baseline fleet, modified to meet 2011 standards, becomes our ‘‘reference’’ case. This is the fleet by which the control program (or 2016 rule) will be compared. Thus, it is also
the fleet that would be assumed to exist
in the absence of this rule. No air conditioning improvements are assumed for model year 2011 vehicles. The average CO 2 emission levels of this reference fleet vary slightly from 2012– 2016 due to small changes in the vehicle sales by market segments and
manufacturer. CO 2 emissions from cars range from 282–284 g/mi, while those from trucks range from 382–384 g/mi.

CO 2 emissions from the combined fleet range from 316–320. These estimates are described in greater detail in Section

5.3.2.2 of the DRIA. Conceptually, both EPA and NHTSA perform the same projection in order to develop their respective reference fleets. However, because the two agencies use two different models to modify the
baseline fleet to meet the 2011 CAFE standards, the technology added will be slightly different. The differences, however, are small since most manufacturers do not require a lot of additional technology to meet the 2011
standards.

EPA then used the OMEGA model once again to project the level of technology needed to meet the proposed

2016 CO 2 emission standards. Using the results of the OMEGA model, every manufacturer was projected to be able to meet the proposed 2016 standards with the technology described above except for four: BMW, VW, Porsche and Tata due to the OMEGA cap on technology penetration by manufacturer. For these manufacturers, the results presented below are those with the fully allowableVerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00098 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

### 49550 Federal Register / Vol. 74, No. 186 / Monday, September 28, 2009 / Proposed Rules

application of technology and not for for how these companies can achieve manufacturers are projected to improve the technology projected to enable compliance. The overall level of the air conditioning systems on 85% of compliance with the proposed technology needed to meet the proposed their 2016 sales. standards. Described below are a 2016 standards is shown in Table number of potential feasible solutions III.D.6–3. As discussed above, all



### TABLE 

### III.D.6–3—P ENETRATION OF 

### T ECHNOLOGY FOR 

### P ROPOSED 

### 2016 CO 2 

### S TANDARDS 

### : C ARS AND 

### T RUCKS

[Percent of sales]

GDI GDI+ deac GDI+ turbo 6 Speed

auto trans Dual clutch

trans Start-stop Hybrid Mass reduction

BMW ................................ 4 35 47 15 71 71 14 5 Chrysler

............................ 51 28 3 37 51 51 0 6
Daimler

............................. 3 44 39 11 73 72 13 5
Ford

.................................. 29 39 13 19 67 67 0 6
General Motors

................ 34 26 7 13 55 55 0 5
Honda

............................... 24 1 2 10 22 22 2 2 Hyundai

............................ 28 3 14 3 43 43 0 3
Kia

.................................... 37 0 5 7 35 35 0 3
Mazda .............................. 54 2 16 31 43 43 0 4
Mitsubishi

......................... 65 2 7 22 66 66 0 6
Nissan

.............................. 29 26 5 34 57 56 1 5
Porsche

............................ 7 36 49 10 70 70 15 4
Subaru

.............................. 46 4 14 0 64 51 0 4
Suzuki

.............................. 66 5 8 9 69 69 0 4
Tata

.................................. 4 81 0 14 70 70 15 6 Toyota

.............................. 37 2 0 30 33 16 13 2 Volkswagen

...................... 9 26 58 12 72 70 15 4
Overall

.............................. 30 18 10 19 49 45 4 4
Increase over 2011 CAFE 24 17 9

¥ 7 46 43 1 4

As can be seen, the overall average reduction in vehicle weight is projected to be 4%. This reduction varies across
the two vehicle classes and vehicle base weight. For cars below 2,950 pounds curb weight, the average reduction is 2.3% (62 pounds), while the average was 4.4% (154 pounds) for cars above 2,950 curb weight. For trucks below 3,850 pounds curb weight, the average reduction is 3.5% (119 pounds), while it was 4.5% (215 pounds) for trucks above 3,850 curb weight. Splitting trucks at a higher weight, for trucks below 5,000 pounds curb weight, the average reduction is 3.3% (140 pounds), while it was 6.7% (352 pounds) for trucks above 5,000 curb weight.

The levels of requisite technologies differ significantly across the various manufacturers. Therefore, several analyses were performed to ascertain
the cause. Because the baseline case
fleet consists of 2008 MY vehicle designs, these analyses were focused on these vehicles, their technology and
their CO 2 emission levels.

Comparing CO 2 emissions across manufacturers is not a simple task. In addition to widely varying vehicle styles, designs, and sizes, manufacturers have implemented fuel efficient technologies to varying degrees, as indicated in Table III.D.6–1. The projected levels of requisite technology to enable compliance with the proposed
2016 standards shown in Table III.D.6– 3 account for two of the major factors
which can affect CO 2 emissions: (1) Level of technology already being utilized and (2) vehicle size, as represented by footprint.

For example, the fuel economy of a manufacturer’s 2008 vehicles may be relatively high because of the use of advanced technology. This is the case with Toyota’s high sales of their Prius hybrid. However, the presence of this technology in a 2008 vehicle eliminates the ability to significantly reduce CO 2 further through the use of this technology. In the extreme, if a manufacturer were to hybridize a high level of its sales in 2016, it doesn’t matter whether this technology was present in 2008 or whether it would be added in order to comply with the standards. The final level of hybrid technology would be the same. Thus, the level at which technology is present in 2008 vehicles does not explain the difference in requisite technology levels
shown in Table III.D.6–3.

Similarly, the proposed CO 2 emission standards adjust the required CO 2 level according to a vehicle’s footprint, requiring lower absolute emission levels from smaller vehicles. Thus, just because a manufacturer produces larger

vehicles than another manufacturer does not explain the differences seen in

Table III.D.6–3.

In order to remove these two factors from our comparison, the EPA lumped parameter model described above was used to estimate the degree to which technology present on each 2008 MY

vehicle in our reference fleet was improving fuel efficiency. The effect of this technology was removed and each

vehicle’s CO 2 emissions were estimated

as if it utilized no additional fuel efficiency technology beyond the

baseline. The differences in vehicle size were accounted for by determining the difference between the sales-weighted average of each manufacturer’s ‘‘no technology’’ CO 2 levels to their required

CO 2 emission level under the proposed 2016 standards. The industry-wide

difference was subtracted from each manufacturer’s value to highlight which manufacturers had lower and higher than average ‘‘no technology’’

emissions. The results are shown in Figure III.D.6–1.

**BILLING CODE 4910–59–P**VerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00099 Fmt 4701 Sfmt 4725 E:\FR\FM\28SEP2.SGM 28SEP2EP28SE09.014</GPH>mstockstill on DSKH9S0YB1PROD with PROPOSALS 

### Federal Register / Vol. 74, No. 186 / Monday, September 28, 2009 / Proposed Rules 

### 49551VerDate Nov<24>2008 23:31 Sep 25, 2009 Jkt 217001 PO 00000 Frm 00100 Fmt 4701 Sfmt 4702 E:\FR\FM\28SEP2.SGM 28SEP2mstockstill on DSKH9S0YB1PROD with PROPOSALS 

### 49552 Federal Register / Vol. 74, No. 186 / Monday, September 28, 2009 / Proposed Rules

As can be seen in Table III.D.6–3 the manufacturers projected to require the greatest levels of technology also show the highest offsets relative to the industry. The greatest offset shown in Figure III.D.6–1 is for Tata’s trucks (Land Rover). These vehicles are estimated to have 100 g/mi greater CO 2 emissions than the average 2008 MY truck after accounting for differences in the use of fuel saving technology and footprint. The lowest adjustment is for Subaru’s trucks, which have 50 g/mi

CO 2 lower emissions than the average
truck.

While this comparison confirms the differences in the technology penetrations shown in Table III.D.6–3, it does not yet explain why these differences exist. Two well known factors affecting vehicle fuel efficiency are vehicle weight and performance. The footprint-based form of the proposed CO 2 standard accounts for most of the difference in vehicle weight seen in the 2008 MY fleet. However, even at the same footprint, vehicles can have varying weights. Higher performing vehicles also tend to have higher CO 2 emissions over the two-cycle test procedure. So manufacturers with higher average performance levels will tend to have higher average CO 2 emissions for any given footprint.

The impact of these two factors on each manufacturer’s ‘‘no technology’’

CO 2 emissions was estimated. First, the ‘‘no technology’’ CO 2 emissions levels were statistically analyzed to determine the average impact of weight and the ratio of horsepower to weight on CO 2 emissions. Both factors were found to be statistically significant at the 95 percent confidence level. Together, they explained over 80 percent of the variability in vehicles’ CO 2 emissions for cars and over 70 percent for trucks. These relationships were then used to adjust each vehicle’s ‘‘no technology’’

CO 2 emissions to the average weight for its footprint value and to the average horsepower to weight ratio of either the car or truck fleet. The comparison was repeated as shown in Figure III.D.6–1. The results are shown in Figure

III.D.6–2.