From: "Achanta, Chandana L." <Chandana_L._Achanta@omb.eop.gov> 

To: "'james.tamm@dot.gov' (james.tamm@dot.gov)" <james.tamm@dot.gov>, "Jim.Simons@dot.gov" 

<Jim.Simons@dot.gov>, "rebecca.yoon@dot.gov" <rebecca.yoon@dot.gov>, Ed Nam/AA/USEPA/US@EPA, Robin 

Moran/AA/USEPA/US@EPA, "Timothy.Mullins@dot.gov" <Timothy.Mullins@dot.gov> 

Date: 07/27/2012 03:34 PM 

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

Hello All 

 

Please find attached initial interagency working comments received on draft final rule “Joint Rulemaking to 

Establish Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy 

Standards” under EO 12866 and EO 13563 review. They are for your consideration and are subject to further 

policy review. We may follow-up with additional interagency comments soon. 

 

Please feel free to contact us if you have any questions. 

 

Thanks. 

Chandana 

 

Summary of interagency comments on draft 2017-2025 final rule under EO 12866 and EO 13563 review.pdf 

From: Ed Nam/AA/USEPA/US 

To: "Achanta, Chandana L." <Chandana_L._Achanta@omb.eop.gov> 

Cc: William Charmley/AA/USEPA/US@EPA, Robin Moran/AA/USEPA/US@EPA, Steven 

Silverman/DC/USEPA/US@EPA 

Date: 08/03/2012 06:09 PM 

Subject: EPA response to OMB comments 

Chandana, 

Thank you for the Interagency comments. 

Attached are our responses, as well as the relevant changes to our RIA Chapter 8. 

-Ed 

-Edward Nam, PhD 

Director, Light Duty Vehicle and Small Engine Center 

Office of Transportation and Air Quality 

US Environmental Protection Agency 

2000 Traverwood Dr. 

Ann Arbor, MI 48105 

734-214-4613 nam.ed@epa.gov 

 

Responses to Interagency Comments from July 27 2012_080312_EPAversion.docx 

 

RIA Chp 8 08 03 2012 to OMB.docx 
Summary of interagency working comments received on draft final rule under EO 12866 and EO 13563

review. Subject to further policy review.  

1

Below is a summary of interagency working comments received during EO 12866 and EO 13563 

review of the draft final rule “Joint Rulemaking to Establish Light-Duty Vehicle Greenhouse Gas 

Emission Standards and Corporate Average Fuel Economy Standards”. They are for your 

consideration and subject to further policy review. Please contact if there are any questions. 

1) Sales/Employment Analysis 

In general, interagency commenters believe that the sales analysis does not currently provide an 

estimate of the best or most likely impact of the rule on vehicle sales. Quantitative estimates of 

particular impacts should comply with the principles of Executive Orders 12866 and 13563 and 

OMB Circular A-4, “Regulatory Analysis.” OMB Circular A-4 requires, among other things, the 

use of best (i.e., most likely) estimates. OMB Circular A-4 also states that agencies “should 

provide documentation that the analysis is based on the best reasonably obtainable scientific, 

technical, and economic information available.” 

These commenters believe that the agencies’ current projections of increased sales are not best or 

most likely estimates, and are not based on the best available scientific, technical, or economic 

information. Instead, the agencies appear to rely exclusively on the possibility that consumers 

will, as a result of the rule and only as a result of the rule, become more responsive to, and 

therefore place a greater value on, a given amount of fuel savings. While this is indeed possible, 

the agencies present no assessment of its likelihood in the RIA or the Preamble. The analysis 

also does not appear to specify how much learning occurs – and by how much more consumers 

will value fuel economy - during the2017-25 period. Furthermore, the analysis appears to 

implicitly assume no such learning has taken place or will take place at any time leading up to 

2017. In other words, neither consistently high gasoline prices, nor the new and improved fuel 

economy labels on new vehicles, nor the large increase in standards set to take place between 

2012 and 2016 is assumed to have any effect on consumer appreciation of fuel economy or their 

choices in the marketplace. The agencies have not provided any empirical evidence or solid 

theoretical basis in the analyses to assume this combination of events and lack thereof is likely to 

be the case. 

OMB Circular A-4 states that “A good analysis should be transparent and [agency] results must 

be reproducible. [Agency] should clearly set out the basic assumptions, methods, and data 

underlying the analysis and discuss the uncertainties associated with the estimates. A qualified 

third party reading the analysis should be able to understand the basic elements of [agency] 

analysis and the way in which [agency] developed your estimates. Interagency commenters 

request that the agencies make the analysis transparent and base all assumptions on empirical 

evidence that is reproducible by third parties. 

As the analysis points out, there is some empirical evidence indicating that consumers appear to 

consistently undervalue future fuel savings, which is the reason the overall fuel savings from the 
Summary of interagency working comments received on draft final rule under EO 12866 and EO 13563

review. Subject to further policy review.  

2

rule are higher than its costs. Elsewhere in the preamble, the reasons for this undervaluation are 

discussed at length, and appear, pending further review, to be consistent with the literature on 

this subject. However, this phenomenon alone is not sufficient to expect that the rule will lead to 

increased vehicle sales. Thus, at a minimum, these commenters request an additional analysis of 

the effect of the rule on vehicle sales (and corresponding employment effects) under the 

alternative assumption that the market for vehicles and for fuel economy behaves like a 

competitive market with the lone exception (discussed elsewhere in the package) that vehicle 

purchasers do not fully value the fuel savings over the entire life of the vehicle. In other words, 

for example, this analysis would not assume, implicitly or explicitly, any failings on the part of 

manufacturers to maximize profits or that consumer preferences regarding fuel economy would 

change as a result of the rule. 

Commenters believe this analysis would be relatively simple and straightforward. The rule 

would have no effect on sales in cases where consumers place a value on fuel savings that is 

greater than the increased vehicle cost. Under the foregoing assumptions, those sales would 

occur in the absence of the rule. Therefore no new analysis is necessary to represent this 

scenario. On the other hand, sales would decline in cases where consumers value the fuel 

savings at less than the increased vehicle cost. However, commenters believe the agencies have 

already analyzed the rule under this scenario, or could easily do so. 

2) Additional interagency comment on sales analysis: 

a. Interagency commenters request that the agencies explain how estimates of 

consumer pay back periods affect the sales forecasts. 

b. Also, commenters request clarity on why absolute resale values for vehicles are 

used in calculating pay back periods. Commenters request clarity on why they 

should not be incremental resale values, presumably because consumers would 

have owned other vehicles before purchasing new ones. 

3) Baseline 

Interagency commenters find that the agencies’ baseline assumption about fuel 

economy—that manufacturers do not make any increases in fuel economy beyond those 

required to meet 2016 CAFÉ standards—does not seem plausible. At least in the short 

term consumers seemed to have been very responsive in their purchasing decisions to the 

gas price spikes within the last few years. So long as consumers place any value on 

added fuel economy, manufacturers are expected to produce some fuel economy 

improvements even absent the new rule. In its October 2011 joint analysis, the 

agencies examined the impact of an alternative baseline in which manufacturers 

implemented all technologies that would yield enough fuel savings to pay for themselves 

within a year. This may be a more reasonable baseline, not only for analyzing the sales 

and employment impacts of the rule, but also for assessing the rule’s likely costs and 

benefits. These commenters strongly recommend that the agencies adopt the alternative 

non-flat baseline in the primary case. 
Summary of interagency working comments received on draft final rule under EO 12866 and EO 13563

review. Subject to further policy review.  

3

4) On page 88 of the first part of the original draft final regulation, EPA refers to the State 

of Massachusetts v. EPA decision. Interagency commenters note that the decision should 

be styled either Massachusetts v. EPA or Commonwealth of Massachusetts v. 

EPA. Also, the case should be cited in full here on page 88 (which is its first mention) 

rather than later on page 94. Also, the reference on page 7 of the first part of the original 

regulation and on page 42 of the second part of the original regulation to the 

Administrative Procedures Act should be revised to drop the “s.” 

5) Learning: 

a. Interagency commenters request that the agencies provide the cost estimates 

without learning effects incorporated. Additionally, commenters request agencies 

to summarize how much cost reduction (percentage wise) is due to learning over 

some representative time periods in the analysis, such as perhaps 2021 and 2025. 

6) Agency employment analysis: although we expect the interagency commenters to have 

additional comment on the employment analysis, from a presentation point of view 

commenters note that the job estimates are added across years. Commenters request 

clarity on whether they are jobs or job-years. 

7) Small volume manufactures. Interagency commenters request that the agencies: 

a) Expand the threshold for “small volume” manufacturers from 5,000 sales to 10,000 

sales, consistent with NHTSA’s program under EPCA, which is not being changed in 

this regulation. 

b) Otherwise harmonize the NHTSA and EPA alternative standards development 

process. As described on P53 of the preamble, it appears that the two agencies have 

chosen different cutoffs and will run separate processes for determining alternative 

standards. The agencies are highly encouraged to harmonize this process, and to 

follow the well-understood NHTSA process for exempting and setting maximum 

feasible alternative standards or small volume manufacturers. 
*** E.O. 12866 Review ***

1 

EPA Responses to Interagency Comments on the draft Joint Final 

Rulemaking for Model Year 2017-2025 GHG and CAFE Standards, 

received on July 27, 2012 

DRAFT Response 8-2-12 

Interagency Comment # 1) Sales/Employment Analysis

In general, interagency commenters believe that the sales analysis does not currently provide an 

estimate of the best or most likely impact of the rule on vehicle sales. Quantitative estimates of 

particular impacts should comply with the principles of Executive Orders 12866 and 13563 and OMB 

Circular A-4, “Regulatory Analysis.” OMB Circular A-4 requires, among other things, the use of best (i.e., 

most likely) estimates. OMB Circular A-4 also states that agencies “should provide documentation that 

the analysis is based on the best reasonably obtainable scientific, technical, and economic information 

available.” 

These commenters believe that the agencies’ current projections of increased sales are not best or 

most likely estimates, and are not based on the best available scientific, technical, or economic 

information. Instead, the agencies appear to rely exclusively on the possibility that consumers will, as a 

result of the rule and only as a result of the rule, become more responsive to, and therefore place a 

greater value on, a given amount of fuel savings. While this is indeed possible, the agencies present no 

assessment of its likelihood in the RIA or the Preamble. The analysis also does not appear to specify how 

much learning occurs – and by how much more consumers will value fuel economy - during the2017-25 

period. Furthermore, the analysis appears to implicitly assume no such learning has taken place or will 

take place at any time leading up to 2017. In other words, neither consistently high gasoline prices, nor 

the new and improved fuel economy labels on new vehicles, nor the large increase in standards set to 

take place between 2012 and 2016 is assumed to have any effect on consumer appreciation of fuel 

economy or their choices in the marketplace. The agencies have not provided any empirical evidence or 

solid theoretical basis in the analyses to assume this combination of events and lack thereof is likely to 

be the case. 

OMB Circular A-4 states that “A good analysis should be transparent and [agency] results must be 

reproducible. [Agency] should clearly set out the basic assumptions, methods, and data underlying the 

analysis and discuss the uncertainties associated with the estimates. A qualified third party reading the 

analysis should be able to understand the basic elements of [agency] analysis and the way in which 

[agency] developed your estimates. Interagency commenters request that the agencies make the 

analysis transparent and base all assumptions on empirical evidence that is reproducible by third 

parties. 

As the analysis points out, there is some empirical evidence indicating that consumers appear to 

consistently undervalue future fuel savings, which is the reason the overall fuel savings from the rule are 

higher than its costs. Elsewhere in the preamble, the reasons for this undervaluation are discussed at

length, and appear, pending further review, to be consistent with the literature on this subject. 

However, this phenomenon alone is not sufficient to expect that the rule will lead to increased vehicle 

sales. Thus, at a minimum, these commenters request an additional analysis of the effect of the rule on 

vehicle sales (and corresponding employment effects) under the alternative assumption that the market 

for vehicles and for fuel economy behaves like a competitive market with the lone exception (discussed
*** E.O. 12866 Review ***

2 

elsewhere in the package) that vehicle purchasers do not fully value the fuel savings over the entire life 

of the vehicle. In other words, for example, this analysis would not assume, implicitly or explicitly, any 

failings on the part of manufacturers to maximize profits or that consumer preferences regarding fuel 

economy would change as a result of the rule. 

Commenters believe this analysis would be relatively simple and straightforward. The rule would have 

no effect on sales in cases where consumers place a value on fuel savings that is greater than the 

increased vehicle cost. Under the foregoing assumptions, those sales would occur in the absence of the

rule. Therefore no new analysis is necessary to represent this scenario. On the other hand, sales would 

decline in cases where consumers value the fuel savings at less than the increased vehicle cost. 

However, commenters believe the agencies have already analyzed the rule under this scenario, or could 

easily do so. 

EPA Response:

• These comments from interagency commenters imply that the methodology utilized by 

the agencies to assess vehicle sales is novel and new, and has not been through the 

rigorous interagency review process required by Executive Order 12866, and these 

comments also imply the methodology does not meet the guidance of OMB Circular A4. The methodology utilized has been used by NHTSA in three previous CAFE 

rulemakings and in the joint EPA-NHTSA rulemaking for MY2012-2016 GHG and CAFE 

standards. 

o The methodology utilized by the agencies for this MY2017-2025 final rule has 

been through interagency reviews that were successfully concluded by OMB at 

least 7 previous times over the past ten years, as listed below 

 MY 2005-2007 CAFE Light-Truck Final Rule – Final Economic Assessment - 

pp. VII-13 to VII-15 

 MY 2008-2011 CAFE Light-Truck Proposal – PRIA pp VII-8 to VII-12 

 MY 2008-2011 CAFE Light-Truck Final Rule – 71FR17591, FRIA pp. VII-11 

to VII-18 

 MY 2011-2015 CAFE Proposal – 73FR24451, PRIA pp VII-41 to VII-52 

 MY 2011 CAFE Final Rule – 74FR14738, FRIA pp VII-12 to VII-17 

 MY 2012-2016 CAFE/GHG Proposal – 74FR49608-49609, 74FR49720-

49721, NHTSA PRIA pp. 336-340, EPA DRIA pp 8-1 to 8-4 

 MY 2012-2016 CAFE/GHG Final Rule – 74FR22517-22519, 74FR25649-

25651, NHTSA FRIA pp. 346-354, EPA FRIA pp 8-1 to 8-4 

o In a number of these rulemakings, NHTSA forecasted a decrease in vehicle sales, 

while in others NHTSA, or EPA and NHTSA, projected an increase in vehicle sales. 

We are utilizing the same basic methodology in this final rule. Given that the 

methodology used in the previous four rulemakings seems to have met the E.O. 

and Circular directives (since OMB concluded review on all of those 

rulemakings), we do not understand interagency commenters’ statements that 

the same assessment methodology suddenly does not meet those directives. 

We believe that it does. 
*** E.O. 12866 Review ***

3 

• While the 2012-2016 final rule estimated potential impacts on vehicle sales only utilizing 

a 5-year fuel savings time frame, EPA also has included a 3-year and 7-year time frames 

in the draft FRM to show what could happen to vehicle sales under both a shorter and 

longer timeframe for the consumer at the time of vehicle purchase. All three of these 

time frames (3, 5, 7 years) were analyzed using both a 3% and a 7% discount rate. 

• In response to the interagency comments, EPA will include a discussion in the final rule 

of where the 'balance point' is, with respect to the impact of the time horizon the 

average consumer would need to consider in when making a vehicle purchase decision 

for the impact on vehicle sales to be zero, and thus if the time horizon is less then this 

value, we would project the impact of the rule would be to decrease vehicle sales, and if 

the time horizon is longer than the balance point, the projected impact of the rule 

would be to increase vehicle sales. This discussion would be in addition to the existing 

presentation of vehicle sales impacts utilizing a 3-, 5-, and 7-year time horizon. 

Interagency Comment # 2) Additional interagency comment on sales analysis

a. Interagency commenters request that the agencies explain how estimates of consumer pay back 

periods affect the sales forecasts. 

b. Also, commenters request clarity on why absolute resale values for vehicles are used in calculating

pay back periods. Commenters request clarity on why they should not be incremental resale values, 

presumably because consumers would have owned other vehicles before purchasing new ones. 

EPA Response:

EPA’s vehicle sales analysis compares two effects. On the one hand, the vehicles designed to 

meet the standards will become more expensive, which would, by itself, discourage sales. This increase 

in costs has other effects on consumers as well: if vehicle prices increase, consumers will face higher 

insurance costs and sales tax, and additional finance costs if the vehicle is bought on credit. In addition, 

the resale value of the vehicles will increase. EPA only uses the incremental increases in cost (e.g.

technology cost, insurance and sales tax increases) of the vehicle as a result of the rule in assessing the 

additional resale value of the vehicle. On the other hand, the vehicles will have improved fuel economy 

and thus lower operating costs. The question EPA is addressing in this final rule is - which of these 

effects dominates for potential vehicle buyers when they are considering a purchase will determine the

effect on sales? Assessing the net effect of these two competing effects is uncertain, as it rests on how 

consumers value fuel savings at the time of purchase among a variety of other factors. 

As discussed in the draft Final Rule, EPA uses the price elasticity of demand of -1 for vehicles as 

the basis for our vehicle sales impact estimates, we assumed that the consumer would take into account

both the higher vehicle purchase costs as well as some of the fuel savings benefits when deciding 

whether to purchase a new vehicle based upon the vehicles’ “effective price”. The incremental cost 

increase of a new vehicle would be offset by reduced fuel expenditures over a certain period of time 

(i.e., the “payback period”). For the purposes of this rulemaking, EPA uses a five-year payback period, 

which is consistent with the length of a typical new light-duty vehicle loan, and is similar to the average 

time that a new vehicle purchaser holds onto the vehicle, but we report results with three and seven 
*** E.O. 12866 Review ***

4 

year payback periods. The longer the payback period that consumers consider in the vehicle purchase 

decision, the greater the value of the fuel savings. The greater the value or fuel savings, the more likely 

consumers will purchase a new vehicle. Thus, if consumers consider longer payback periods, this will 

lead to an increase in vehicle sales. 

Interagency Comment # 3) Baseline

Interagency commenters find that the agencies’ baseline assumption about fuel economy—that 

manufacturers do not make any increases in fuel economy beyond those required to meet 2016 CAFÉ 

standards—does not seem plausible. At least in the short term consumers seemed to have been very 

responsive in their purchasing decisions to the gas price spikes within the last few years. So long as

consumers place any value on added fuel economy, manufacturers are expected to produce some fuel 

economy improvements even absent the new rule. In its October 2011 joint analysis, the agencies 

examined the impact of an alternative baseline in which manufacturers implemented all technologies 

that would yield enough fuel savings to pay for themselves within a year. This may be a more reasonable 

baseline, not only for analyzing the sales and employment impacts of the rule, but also for assessing the 

rule’s likely costs and benefits. These commenters strongly recommend that the agencies adopt the 

alternative non-flat baseline in the primary case. 

EPA Response:

• Interagency commenters have incorrectly stated that the joint NPRM included a joint 

analysis which examined an alternative baseline that would include technologies that 

would pay back within one year. Only NHTSA included such a sensitivity assessment. 

EPA did not include such an assessment because our review of the historical data and 

the empirical evidence in the literature does not support such a hypothetical scenario 

• EPA provides a lengthy justification for a flat baseline (relative to MY 2016) in both the 

preamble and Draft RIA for the NPRM, as well as in the draft final rule preamble and 

Final RIA. We summarize that information below: 

o EPA Trends data for 1986-2003, when fuel economy standards and fuel prices 

were relatively stable, show that there was no over compliance except by some 

Japanese manufacturers who over complied simply because they were making 

smaller vehicles that naturally over complied with a flat standard. 

o The historical evidence is clear that fuel economy levels rise only based on either 

higher standards or rising fuel prices. 

o In the context of the baseline question, there would be no standards to promote 

higher fuel economy beyond 2016, and AEO fuel price projections for 2017-2025 

are very similar to today’s levels. 

o A “non-flat” baseline would mean that market-driven fuel economy would go 

beyond the 35.5 mpg level established by the 2016 standard. 

• EPA requested public comment on the flat baseline 

o 5 commenters supported a flat baseline 

 ACEEE, EDF, ICCT, NRDC, and Sierra Club. We include the excerpts from 

these comments in the Appendix to this response. 

o No commenter supported a non-flat baseline 
*** E.O. 12866 Review ***

5 

o No interagency commenter is questioning the AEO projection of future fuel 

prices, which projection supports use of a flat baseline 

• EPA/NHTSA briefed the interagency group on this issue on June 14, 2012 and on our 

approach for the final rule, and we received little feedback at the briefing. 

• Based on our lengthy rationale, unanimously supportive public comments, and lack of 

any persuasive, empirically based rationale for a non-flat baseline, EPA declines to 

change its assumption of a flat baseline based on the hypothetical arguments of one or 

more interagency commenters. 

Interagency Comment # 4 

On page 88 of the first part of the original draft final regulation, EPA refers to the State of Massachusetts 

v. EPA decision. Interagency commenters note that the decision should be styled either Massachusetts 

v. EPA or Commonwealth of Massachusetts v. EPA. Also, the case should be cited in full here on page 88

(which is its first mention) rather than later on page 94. Also, the reference on page 7 of the first part of 

the original regulation and on page 42 of the second part of the original regulation to the Administrative 

Procedures Act should be revised to drop the “s.” 

EPA Response:

EPA appreciates these suggestions, and we will make the changes to these citations. 

Interagency Comment # 5) Learning

a. Interagency commenters request that the agencies provide the cost estimates without learning 

effects incorporated. Additionally, commenters request agencies to summarize how much cost 

reduction (percentage wise) is due to learning over some representative time periods in the analysis, 

such as perhaps 2021 and 2025. 

EPA Response:

For the MYs 2017-2025 final rule, EPA is following the same methodology toward learning as 

used in the MYs 2012-2016 final rule and the proposal to this rule. This is also the same methodology as 

used in the MYs 2014-2018 Heavy-duty GHG final rule and is essentially the same methodology as used 

in more then a dozen mobile source rulemakings finalized by EPA since the mid-1990s. The approach 

utilized in the draft final rule is supported by the economic literature, as detailed in this final rule, and in 

the 2012-2016 final rule. In the proposal to this rule, we requested comment on our learning impacts

and received nothing substantive that questioned the presence of learning in the auto industry. The 

only comment we received was from the Alliance of Automobile Manufacturers and their concern was 

not about learning effects, but rather about the difficulty in estimating technology costs so far into the 

future. EPA has included sensitivities in the proposal and for the final rule showing the costs of the rule 

should learning effects be both 50% higher and 50% lower. We present the results in Chapter 3 of the 

draft and final RIAs (where we also present several other sensitivities surrounding technology costs). 

Lastly, the interagency commenters provide no evidence to support a sensitivity assessment which 

includes no impact of manufacturer learning-by-doing, which is an approach that is clearly not 
*** E.O. 12866 Review ***

6 

supported by the economic literature, For these reasons, EPA does not agree that presenting costs 

estimates without incorporating learning effects would be appropriate. 

Regarding the cost reduction due to learning from 2021 to 2025, to perform such an analysis 

properly would be very time consuming as it would require manipulating our modeling approach and rerunning the OMEGA model several times. In general though, we believe that the result would not be 

large given that the majority of our technologies are well along the flat portion of the learning curve in 

the 2021-2025 timeframe. The primary technologies that are still on the steep portion of the curve 

would be EV/PHEV battery packs and the second level of lower rolling resistance tires (LRRT2). As 

regards LRRT2, the penetration rates are high but the costs are only on the order of $40-$70 so would 

have little impact on the cost of the rule. As regards EV/PHEV, the effects on costs would be larger given 

the magnitude of the technology costs, but the penetration rates are so low as to have little impact on 

the cost of the rule. 

Interagency Comment # 6 

Agency employment analysis: although we expect the interagency commenters to have additional 

comment on the employment analysis, from a presentation point of view commenters note that the job 

estimates are added across years. Commenters request clarity on whether they are jobs or job-years. 

EPA Response:

EPA estimates employment impacts of the rule based upon the amount of labor that will 

required to install the new technologies on new vehicles to achieve the fuel economy standards. Jobyears is a way to calculate the amount of work needed to complete a specific task. For example, a jobyear is one year of work for one person; a new construction job that lasts five years is five job-years. Job 

years is a more precise measure than jobs because an individual job may last for six months or a year or 

forever. We agree with the commenter that we should report employment impacts in job years, as it a 

more precise measure of the projected employment impacts and it corresponds more closely to the 

estimates of the increase in the amount of labor from the rule. We will make the necessary 

clarifications to the package. 

Interagency Comment # 7) Small volume manufactures 

Interagency commenters request that the agencies: 

a) Expand the threshold for “small volume” manufacturers from 5,000 sales to 10,000 sales, consistent 

with NHTSA’s program under EPCA, which is not being changed in this regulation. 

b) Otherwise harmonize the NHTSA and EPA alternative standards development process. As described 

on P53 of the preamble, it appears that the two agencies have chosen different cutoffs and will run 

separate processes for determining alternative standards. The agencies are highly encouraged to 

harmonize this process, and to follow the well-understood NHTSA process for exempting and setting 

maximum feasible alternative standards or small volume manufacturers. 

EPA Response:
*** E.O. 12866 Review ***

7 

Sales Threshold

EPA has historically, under the Clean Air Act, evaluated production exclusively in the U.S. market 

for establishing thresholds for provisions for smaller companies. This is because companies’ domestic

activities are obviously the most relevant metric for assessing the amount of lead time they need to 

meet standards which apply exclusively to motor vehicle domestic operation. The EISA threshold of 

10,000 sales is for the worldwide market. EPA established the 5,000 vehicle U.S. sales threshold as the 

cutpoint for defining small volume manufacturers in the MY 2012-2016 rule after detailed discussions 

with potential SVMs. The MY 2012-2016 rule exempted these manufacturers with a requirement that 

the SVMs make a good faith effort to purchase credits. Aston Martin, Lotus, and McLaren currently 

qualify for the SVM provisions under the MY 2012-2016 program (5,000 vehicle sales). These companies 

are similarly situated for purposes of these rules (technology needed to meet standards, lead time 

needed, inability to average across fleet, small number of vehicle platforms, etc), and using a metric

which does not treat the companies similarly would raise significant issues of legal arbitrariness. 

EPA proposed to continue using the 5,000 U.S. sales threshold to define eligibility for the MY 

2017-2025 SVM program. Departing from the threshold would have created in inconsistency between 

the MY 2012-2016 program and the MY 2017-2025 program. EPA received only supportive comments 

from SVMs regarding this proposal; EPA did not receive any public comments supporting the use of a 

10,000 worldwide sales threshold for the SVM GHG program. 

The interagency comment above mistakenly suggests that changing the threshold from U.S. 

sales of 5,000 vehicles to world-wide sales of 10,000 vehicles would be an expansion of the criteria. The 

opposite is true. . Of the three eligible companies under the GHG program, Lotus would no longer be 

eligible as an SVM under the GHG program because the worldwide sales of its parent company, Proton, 

are over 10,000 vehicles. Changing the criteria would effectively revoke Lotus’s SVM eligibility. The 

change was not proposed and we did not receive comments recommending it. Therefore, Lotus would 

be excluded without any notice or opportunity for comment, as well as substantive arbitrariness as note 

above. Note that there are minimal practical consequences of the small manufacturer metric under the 

CAFE program. Lotus has often paid fines to comply with CAFE, and they do not have company specific 

standards. Further, California has adopted EPA’s SVM provisions in their entirety including the 5,000

vehicle U.S. sales threshold, again with support from the SVMs. EPA believes the recommended change 

to be unjustified by the record. Put another way, harmonization in and of itself cannot justify an 

otherwise arbitrary decision or excuse procedural error.

Alternative Standards Development Process

As noted in the proposal (see 75 FR 74989), EPA reviewed the data and application 

requirements of existing case-by-case approaches including CAFE, CARB, and the European Union 

programs, and we believe EPA has harmonized as much as possible with these programs given what we 

need to make a determination under the CAA. It is critical that EPA have the information needed to 

efficiently establish case-by-case standards that meet CAA requirements and provide maximum leadtime to the SVM. EPA proposed timing that would align with a MY 2017 start date. Under the CAFE 

program, the timing of establishing alternative standards is uncertain. Manufacturers are not required 

to pay fines while their applications are under review by NHTSA. Also, manufacturers may opt to pay 

fines in lieu of pursuing an alternative standard under CAFE. Fine paying is not an option under the CAA. 

Also, EPA’s process allows standards to be established for up to five years at a time, providing additional 

certainty for the manufacturer.

SVMs are fully supportive of the process proposed by EPA noting “The SVM provisions should be 

promulgated as proposed.” SVMs also noted in their comments that the proposed approach “would 

align EPA’s approach with that of NHTSA, the EU, and CARB.” As with the eligibility criteria, there has 
*** E.O. 12866 Review ***

8 

been no public notice regarding the recommended change and no reason to dramatically change our 

approach. Finally, CARB has already adopted EPA’s SVM provisions. 

 
*** E.O. 12866 Review ***

9 

Appendix A: Excerpts from all public comments regarding the issue of 

the use of a "flat" versus an increasing baseline 

International Council on Clean Transportation (ICCT) comments, pages 18-19

6) Baseline Assumption Sensitivity Case 

There is a difference between how EPA and NHTSA handled the modeled Reference Fleet 

Scenario. EPA projects that in the absence of the proposed GHG and CAFE standards, the 

reference case fleet in MY 2017–2025 would have fleetwide GHG emissions performance no

better than that projected to be necessary to meet the MY 2016 standards.

22 

While NHTSA used the same baseline assumptions for their primary analyses, they also 

conducted a sensitivity analysis with an alternative baseline, which assumed that fuel 

economy would continue to increase after 2016 without regulation.23 NHTSA stated: 

“The assumption is that the market would drive manufacturers to put technologies 

into their vehicles that they believe consumers would value and be willing to pay 

for.” 

Again, while sensitivity analyses can illuminate the impacts of important uncertainties, there is 

little or no evidence supporting this particular case. Except during the oil crisis in the 1970s 

and a brief period for passenger cars in the late 2010s, the market has never driven 

improvements in vehicle fuel economy. Even these two examples are not relevant to the 

current situation. The demand for higher fuel economy in the 1970s was driven primarily by

fears of oil unavailability and ongoing future increases in fuel price. The modest increase in 

passenger cars in the late 2010s followed 20 years of unchanging CAFE standards. Thus, 

NHTSA’s sensitivity analysis inappropriately calculates a lower estimate of net benefits of the 

rule. 

The proposed 2017---25 standards follow aggressive increases in standards from 2011 through 

2016. Further, the change to a footprint---based standard means that all manufacturers must 

increase the efficiency of their vehicles to comply, even manufacturers of primarily smaller

vehicles. Thus, the 2012---16 standards have already driven the market 

beyond the level of efficiency it would have demanded in the absence of standards. 

The reason why efficiency standards are effective and needed is consumer discounting of 

uncertain, future fuel savings, as explained above. Efficiency standards move the market from 

the level of efficiency demanded by loss averse consumers to the level of efficiency desired by 

society. It will be many years after 2016 before additional technology development and lower 

cost will finally fall to the level demanded by consumers from the higher level demanded by 

society through efficiency standards. The historical precedent is that it took 20 years of 

unchanging CAFE standards combined with high real and nominal fuel prices before the market 

started to demand additional fuel economy for passenger cars in the late 2000s. 
*** E.O. 12866 Review ***

10 

ICCT recommends that the sensitivity analysis for market--driven increases in efficiency after

2016 be removed from the Final Rule.

American Council for an Energy Efficient Economy (ACEEE) comments, pages 2-3

Baseline and Other Scenarios 

The agencies’ baseline scenario assumes that fuel economy remains at 2016 levels absent the 

proposed new standards. However, NHTSA also “examines the impact of an alternative ‘market-driven’ 

baseline, which allows for some increases in fuel economy due to ‘voluntary overcompliance’ beyond 

the MY 2016 levels” (NPRM p.75167). NHTSA requests comment on this alternative baseline. 

There is little historical basis for a scenario in which there is a sustained increase in fuel 

economy in the absence of increases in standards. Public interest in fuel economy does shift with fuel

prices, but even that interest typically has followed from large, rapid changes in price and has been 

short-lived. The fuel prices on which the various agency analyses are largely based are EIA projections 

and do not contain dramatic increases in price. Under these conditions, manufacturers not constrained 

by fuel economy standards historically have employed technological advances to increase vehicle power 

and acceleration, rather than to improve fuel economy. 

Incorrect specification of the baseline scenario will lead to an incorrect valuation of the 

proposed standards. An alternative baseline such as the one considered by NHTSA will reduce 

manufacturers’ costs to meet the standards, because some of the added technology required to meet 

the standard will already appear in the baseline. At the same time, the benefits attributable to the 

standards will decline. The net effect is a reduction in the cost-effectiveness of the standards, because 

the most cost-effective technologies are the ones that will appear in the alternative baseline scenario, 

leaving the more expensive technologies for the rule to bring into the market. 

The same issue arises from EIA’s AEO 2012 Early Release (EIA 2012), which projects an increase 

in new vehicle fuel economy after 2016 without adoption of the proposed rule, and without major 

increases in fuel prices. Roughly one-quarter of the reduction in new vehicles’ fuel consumption that 

would result from the proposed standards appears in the AEO 2012 Reference Case. Hence it is all the 

more important that NHTSA clarify that the baseline scenario used in the NPRM should be the basis for 

evaluating the benefits of the final rule. 

The agencies state: “Because both input and output sheets from our modeling are public, 

stakeholders can verify and check EPA’s and NHTSA’s modeling, and perform their own analyses with 

these datasets.” (NPRM p.74904). We were unable to find the relevant OMEGA output sheets, however. 

These should be made available. 

Recommendations 

Clarify that the baseline scenario used to evaluate the benefits of the rule will not assume 

“voluntary over-compliance” by manufacturers after 2016. 

Make available on the EPA web site the OMEGA outputs for the various scenarios 

considered. 

Natural Resource Defense Council (NRDC) Comments, page 18

A. Baseline Projection

NRDC supports the baseline forecast for MY 2017 and beyond that assumes manufacturers 

meet but do not exceed the MY 2016 standards. Voluntary overcompliance—in which 

manufacturers apply efficiency technology in excess of what is needed to meet the MY 2016 

standard—is possible but too uncertain to be incorporated in a baseline projection. Rapidly 
*** E.O. 12866 Review ***

11 

rising fuel prices are potentially a reason for overcompliance but during periods of only 

modest average annual price increases, overcompliance was not widespread. In the 1990’s 

and early 2000’s, real motor gasoline prices rose at an average rate of 4 percent per year41 yet 

full-line manufacturers, such as the GM, Ford and Chrysler, applied just enough technology to 

meet the standards. 42 From 2017 to 2035, EIA projects motor gasoline prices that increase at 

a lower rate of about 1 percent per year.43 With the projected low rate of annual price growth,

the modification of the 2016 baseline is unjustified. 

Further, NRDC disagrees with NHTSA that a sensitivity analysis of voluntary overcompliance is 

warranted, and we recommend that it be excluded from the final rule. The voluntary 

overcompliance analysis is counter-productive to the goals of maximizing petroleum 

reductions as required by EPCA. 

If, in future rulemakings, the baseline was altered to account for voluntary overcompliance— 

assuming it can be reasonably justified as highly likely—NHTSA would be inclined to set a lower 

standard than what could be achieved with appropriate cost-effective technology application. 

The achievement of overcompliance assumes that low-cost efficiency technologies are applied 

by manufacturers first (NHTSA assumes a 1-year payback). The remaining technologies to be 

driven by the standard would therefore be more expensive, increasing the costs associated 

with the standards. The standards themselves would also be associated with lower benefits 

because the savings from lower-cost technologies would be assigned to the market instead of 

the standard. The resulting reduced benefit-to-cost ratio would be a dampening force on 

efforts to maximize fuel efficient technology adoption and could push down the standard 

stringency. 

If, during this scenario of a weaker standard, automakers did not overcomply, U.S. petroleum 

consumption would be higher and counter to the mandate of EPCA. To avoid this situation, 

NHTSA and EPA should continue to use a baseline that assumes automakers do not 

overcomply. This ensures that standards are set as strong as possible, and it provides greater 

certainty that needed oil consumption and GHG emission reductions will be achieved.

EDF Comments, page 9

B. FLAT 2016 BASELINE 

EDF supports EPA’s proposal to assume the reference case fleet in MY 2017–2025 

would have fleet wide GHG emissions performance no better than that projected to be 

necessary to meet the MY 2016 standards. Because EPA is using AEO2011 fuel price 

forecasts, which project relatively stable fuel prices over the next 15 years, it is 

reasonable to assume that manufacturers will not overcomply with the 2016 standards 

and/or consumers will not demand fuel economy greater than the 2016 standard. It is also 

reasonable to assume that fleetwide overcompliance will not occur because any voluntary overcompliance by one company would generate credits that could be sold to other companies to 
*** E.O. 12866 Review ***

12 

substitute for their more expensive compliance technologies. Therefore, the ability to buy and 

sell credits would eliminate any over-compliance for the overall fleet. 

Sierra Club Comments, page 7

Use a flat baseline in assessing post 2016 fuel efficiency: NHTSA is taking comment on the notion that 

the post-2016 baseline for vehicle standards should assume “market driven” improvements in fuel 

economy absent standards and account for those improvements in the baseline.23 The Knittel study, 

referenced above, in addition to the historic trend are evidence 

that absent standards automakers will not increase gas mileage. Leading up to 2008, automakers 

were not prepared for increasing fuel prices and shifting consumer preferences. The 

consequences to the auto industry and the economy were devastating. 

NHTSA’s consideration that new vehicle labels that will provide consumers with more detailed 

information on mileage and savings and that this will influence consumer choices24 is insufficient basis 

for using a baseline that presumes automakers will apply technologies to meaningfully improve gas 

mileage beyond 2016 absent strong final 2017-2025 standards. While some automakers may 

voluntarily “over-comply” with the 2012-16 program due to market forces, over- compliance in one 

segment of a fleet (cars for example) could be used to offset lower mileage vehicles such as larger 

pickups and SUVs. In addition, because the compliance with the program allows for banking, trading 

and carry-forward and backward credits, any presumption that automakers will improve fuel economy 

after 2016 could be part of a compliance strategy that includes the 2012-16 model years or planned 

compliance with these proposed standards.25 Over-compliance across the entire fleet heading into the 

mid-term review included in the NPRM would support strengthening the overall program. The agencies 

should use a flat baseline beyond 2016.26
MY 2017 and Later - Regulatory Impact Analysis 

8-1 

Chapter 8: Vehicle Sales and Employment Impacts 

8.1 Vehicle Sales Impacts 

8.1.1 How Vehicle Sales Impacts were Estimated for this Rule 

The vehicle sales impacts discussed in Section III.H.11.a of the preamble and 

presented below in Table 8.1-1 and Table 8.1-2 were derived using the following 

methodology. For additional discussion of the assumptions used in the vehicles sales impacts, 

see Section III.H.11 of the preamble and TSD Chapter 4.2.12. The analysis conducted for this 

rule does not have the precision to examine effects on individual manufacturers or different 

vehicle classes. 

The analysis compares two competing effects. On the one hand, as a result of this 

rule, the vehicles will become more expensive, which would, by itself, discourage sales. On 

the other hand, the vehicles will have improved fuel economy and thus lower operating costs, 

which makes them more attractive to consumers. As discussed in Preamble III.H.1.a, there 

are many competing hypotheses for why private markets not providing what appear to be 

cost-effective energy-saving technologies, for vehicles as well as for other energyconservation technologies. There are few empirical studies testing these hypotheses, though. 

As discussed more fully in Preamble III.H.11.a, it is possible that enacting this rule can 

contribute to increased vehicle sales by encouraging coordination among automakers to 

improve fuel economy that would not happen in the absence of the rule. The results presented 

in this analysis depend on the assumption that private markets will not themselves provide all 

the fuel economy that this rule will require, but that it is possible the rule may nevertheless 

lead to vehicles that consumers will buy in greater numbers than in the absence of the rule. 

The parameters of this analysis are discussed in greater detail in TSD Chapter 4.2.13. 

These include baseline vehicle prices for MY 2011, insurance costs, finance rates, and sales 

taxes. 

The analysis starts with the reference prices for vehicles. The starting vehicle value 

($27,953 average) in 2010$ for model year 2011 has added to it the costs of meeting the MY 

2016 standards, to develop baseline “prices” for MY 2017-25. We assume that these costs are 

fully passed along to consumers. This assumption is appropriate for cost increases in 

perfectly competitive markets. In less than perfectly competitive markets, though, it is likely 

that the cost increase is split between consumers and automakers, and possibly suppliers, and 

the price is not likely to increase as much as costs.

1

 Thus, the assumption of full cost passthrough may be an overestimate, and price may not increase as much as estimated here. For 

the costs of meeting the MY 2016 standards over the period 2017-25, we interpolate linearly 

between the MY 2016 costs in the MY 2012-16 rule ($948 average) and the costs of 

achieving the MY 2016 standards in MY 2021 and 2025 described in RIA Table 3.9-1. 

The next step in the analysis uses the per-vehicle technology cost estimates developed 

in OMEGA and described in Chapter 5 of this RIA. As above, we assume that this full cost is 

passed along into price. For the vehicle sales estimate, we adjust this cost increase for other 

Deleted: ,

Deleted: , and Economy-Wide

Deleted: will itself encourage consumer awareness 

of and appreciation for more

Deleted: , through

Deleted: process

Deleted: social learning
Chapter 8 

8-2 

effects on the consumer. We assume that the consumer holds onto this vehicle for 5 years and 

then sells it. This period is consistent with the length of a typical new light-duty vehicle loan, 

and is similar to the average time that a new vehicle purchaser holds onto the vehicle; it has 

also been used by NHTSA in previous CAFE rulemakings.

A

 The higher vehicle price is 

likely to lead to an increase in sales tax, insurance, and vehicle financing costs, as well as 

increases in the resale value of the vehicle. These factors weigh against each other: the 

higher sales tax and insurance costs increase costs to consumers; the higher resale value 

allows consumers to recover a portion of these costs; and the effects of financing depend on 

the interest rate available for borrowing relative to the discount rate. 

The increase in insurance costs is estimated from the average value of collision plus 

comprehensive insurance as a proportion of average new vehicle price. TSD Chapter 4.2.13 

describes our sources. The present value of 5 years of insurance is 8% of the initial vehicle 

costs with a 3% discount rate, and 7.4% with a 7% discount rate. 

The average sales tax, as described in TSD Chapter 4.2.13, is estimated to be 5.46 

percent. This value is assumed to be a one-time cost incurred when the vehicle is purchased. 

As described in TSD 4.2.12, the finance rates come from estimates provided by Global 

Insight and range, in real terms, between 3.7 and 5.4 percent between 2017 and 2025; we use 

the estimated rate for each year. One commonly cited figure for the proportion of auto 

purchases using financing is 70 percent;2

 applying that fraction to this cost increase results in 

an addition of 2 to 7 percent in financing costs with a 3 percent discount rate, and a reduction 

of 4 to 9 percent for a 7 percent discount rate. 

The average resale price of a vehicle after 5 years is based on an estimate from 

Consumer Reports in 2008 that the average vehicle depreciates about 65 percent3 over 5 

years, producing a resale value of 35 percent of the original price. Because the consumer can 

recover that amount after 5 years, it reduces the effect of the increased cost of the vehicle. 

Discounted to a present value at a 3 percent interest rate, the increase in price should be worth 

about 30 percent to the vehicle purchaser (25 percent at a 7 percent discount rate). This 

approach is premised on the idea that the resale value of a vehicle is directly proportional to 

the initial value, and that proportion does not change. 

The adjustment factors are the sum of the effects of sales tax, insurance costs, finance 

costs, and resale value, and vary from 0.84 to 0.89 with a 3 percent discount rate, and from 

0.81 to 0.85 with a 7 percent discount rate. These are multiplied by the technology cost 

increase to estimate the change in vehicle price. 

 

A

 As discussed further in Chapter 8.1.2.5, there is not a consensus in the literature on how consumers consider 

fuel economy in their vehicle purchases. Results are inconsistent, possibly due to fuel economy not being a 

major focus of many of the studies, and possibly due to sensitivity of results to modeling and data used. A 

survey by Greene (Greene, David L. “How Consumers Value Fuel Economy: A Literature Review.” EPA 

Report EPA-420-R-10-008, March 2010 (Docket EPA-HQ-OAR-2009-0472-11575)) finds that estimates in the 

literature of the value that consumers place on fuel economy when buying a vehicle range from negative – 

consumers would pay to reduce fuel economy – to more than 1000 times the value of fuel savings. 
MY 2017 and Later - Regulatory Impact Analysis 

8-3 

The fuel cost savings are based on the assumption that vehicle buyers consider five 

years’ worth of fuel savings when contemplating a vehicle purchase, with sensitivity analyses 

using three and seven years. The analysis is done for each model year, using post-tax fuel 

savings (because vehicle owners only see post-tax prices) and including rebound impacts. 

Chapter 5.4 of this RIA discusses the source of aggregate fuel savings, in dollars, for each 

model year by year. These values are divided by the total number of the vehicles produced to 

get per-vehicle savings per year for the first five years of the vehicle’s life. This method 

ignores the few vehicles of the new model year that are scrapped. Because incorporating 

scrappage would reduce the denominator, and thus increase per-vehicle fuel savings, it 

underestimates per-vehicle fuel savings by a small amount. For each model year, the first five 

years of fuel savings (or three or seven years for sensitivity analysis) are discounted and 

summed to produce the present value of fuel savings for that vintage vehicle. For instance, 

the 2017 fuel savings per vehicle are the present value in year 2017 of fuel savings estimated 

for 2017 through 2021 for the five-year estimate; through 2019 for the three-year estimate; 

and through 2023 for the seven-year estimate. 

The fuel cost savings are subtracted from the increase in costs associated with the rule 

to get the “effective” price change, an estimate of how potential vehicle buyers perceive the 

balancing between increased up-front costs and future fuel savings. The higher cost leads 

consumers to purchase fewer new vehicles, but the fuel savings can counteract this effect. 

This calculation uses an elasticity of demand for new vehicles of -1:4

 that is, an increase of 

1% in the price of a new vehicle will lead to a 1% reduction in new vehicle sales. This 

elasticity is generally considered to be a short-run elasticity, reflecting the immediate impacts 

of an immediate price change on vehicle sales. For a durable good such as an auto, the 

elasticity may be smaller in the long run: though people may be able to change the timing of 

their purchase when price changes in the short run, they must eventually make the investment. 

Using a smaller elasticity would reduce the magnitude of the estimates presented here for 

vehicle sales, but it would not change the direction. A short-run elasticity is more valid for 

initial responses to changes in price, but, over time, a long-run elasticity may better reflect 

behavior; thus, the results presented for the initial years of the program may be more 

appropriate for modeling with the short-run elasticity than the later years of the program. A 

search of the literature has not found studies more recent than the 1970s that specifically 

investigate long-run elasticities.B This change in effective price as a percent of the average 

price of a new vehicle, with the elasticity of demand of -1, is the negative of the percent 

change in vehicle purchases. The net effect of this calculation on vehicle purchases is in 

Table 8.1-1. Positive numbers indicate increases in vehicle sales; negative numbers indicate 

decreases. 

 

B

 E.g., Hymans, Saul H. “Consumer Durable Spending: Explanation and Prediction.” Brookings Papers on

Economic Activity 1 (1970): 173-206. 

http://www.brookings.edu/~/media/Files/Programs/ES/BPEA/1970_2_bpea_papers/1970b_bpea_hymans_ackley

_juster.pdf finds a short-run elasticity of auto expenditures (not sales) with respect to price of 0.78 50 1.17, and a 

long-run elasticity of 0.3 to 0.46. 
Chapter 8 

8-4 

Table 8.1-1 New Vehicle Sales Impacts Taking into Account Five Years of Fuel Savings

CHANGE IN 

VEHICLE 

SALES, 3% 

% CHANGE CHANGE IN 

VEHICLE 

SALES, 7%

% CHANGE 

2017 47,800 0.3% 37,600 0.2%

2018 110,700 0.7% 88,900 0.6%

2019 192,400 1.2% 158,100 1.0%

2020 290,900 1.8% 242,200 1.5%

2021 439,900 2.7% 368,800 2.3%

2022 486,900 3.0% 398,500 2.4%

2023 535,700 3.2% 430,700 2.6%

2024 600,300 3.5% 477,600 2.8%

2025 760,000 4.4% 615,600 3.6%

TOTAL 3,464,600 2.4% 2,818,000 1.9%

Table 8.1-1 shows vehicle sales increasing in all years, due to five years of fuel 

savings exceeding the adjusted technology costs for all years. 

Because of the uncertainties over the number of years of fuel savings that consumers 

will take into consideration when buying new vehicles, we have replicated the above analysis 

for three- and seven-year payback periods. These results are presented in Table 8.1-2 and 

Table 8.1-3, below, respectively. 

Table 8.1-2 New Vehicle Sales Impacts Taking into Account Three Years of Fuel Savings

CHANGE IN 

VEHICLE 

SALES, 3% 

% CHANGE CHANGE IN 

VEHICLE 

SALES, 7%

% CHANGE 

2017 1,700 0.0% -1,300 0.0%

2018 12,700 0.1% 6,300 0.0%

2019 41,300 0.3% 30,700 0.2%

2020 80,200 0.5% 64,600 0.4%

2021 134,800 0.8% 111,600 0.7%

2022 94,100 0.6% 67,300 0.4%

2023 61,200 0.4% 30,800 0.2%

2024 40,900 0.2% 6,000 0.0%

2025 113,300 0.7% 70,400 0.4%

TOTAL 580,200 0.4% 386,300 0.3%

Table 8.1-2 shows the same calculations under the assumption that consumers 

consider only three years of fuel savings when considering new vehicles. Sales increase for 

every year, except, in 2017, the sales impacts are essentially zero. Sales increases are smaller 

than those for the five-year payback scenario. There is a break even payback period point at 
MY 2017 and Later - Regulatory Impact Analysis 

8-5 

which the impact on sales would be zero. That point, for 2025 model year vehicles, would be 

2.7 years assuming a 3% discount rate and 2.8 years assuming a 7% discount rate. EPA 

anticipates that with the new fuel economy label and increasing consumer experience with the 

benefits of improved fuel economy as a result of the MY 2012-2016 light-duty vehicle 

standards, that consumers will be likely to value fuel economy more than with a 2.7 or 2.8 

year payback period.

Table 8.1-3 New Vehicle Sales Impacts Taking into Account Seven Years of Fuel Savings

CHANGE IN 

VEHICLE 

SALES, 3% 

% CHANGE CHANGE IN 

VEHICLE 

SALES, 7%

% CHANGE 

2017 88,500 0.6% 69,400 0.4%

2018 197,000 1.3% 156,300 1.0%

2019 326,400 2.1% 262,800 1.7%

2020 479,200 3.0% 389,300 2.4%

2021 711,400 4.4% 580,900 3.6%

2022 834,500 5.1% 670,100 4.1%

2023 954,500 5.7% 758,000 4.6%

2024 1,096,000 6.5% 864,900 5.1%

2025 1,326,100 7.7% 1,058,100 6.1%

TOTAL 6,013,600 4.1% 4,809,800 3.3%

Table 8.1-3 shows the same calculations under the assumption that consumers 

consider seven years of fuel savings when considering new vehicles. Sales increase for every 

year, and by more than under the three- or five-year payback scenarios. 

These calculations focus on changes in effective price as the explanatory variable for 

changes in aggregate new vehicle sales. This is a simplification, since consumers typically 

consider a number of factors in addition to effective price when they decide on purchasing 

vehicles. Some of the factors that might affect consumer vehicle purchases include changing 

market conditions and changes in vehicle characteristics that might accompany improvements 

in fuel economy. These complications add considerable uncertainty to our vehicle sales 

impact analysis. Also, the analysis looks at an average consumer and does not take into 

account that individual consumer circumstances—such as how much they drive each year—

could vary, thereby influencing the purchase patterns of vehicles.

Deleted: This calculation focuses 
Chapter 8 

8-6 

References 

1

 See, for instance, Gron, Ann, and Deborah Swenson, 2000. “Cost Pass-Through in the U.S. 

Automobile Market,” Review of Economics and Statistics 82: 316-324 (Docket EPA-HQOAR-2010-0799-0675). 

2

 Bird, Colin. “Should I Pay Cash, Lease or Finance My New Car?”, 

http://www.cars.com/go/advice/Story.jsp?section=fin&story=should-i-paycash&subject=loan-quick-start&referer=advice&aff=sacbee , July 12, 2011, citing CNW 

Marketing Research. Accessed 9/27/11. (Docket EPA-HQ-OAR-2010-0799-0683).

3

 Consumer Reports, August 2008,“What That Car Really Costs to Own,” 

http://www.consumerreports.org/cro/cars/pricing/what-that-car-really-costs-to-own-4-

08/overview/what-that-car-really-costs-to-own-ov.htm , accessed April 23, 2009 (Docket 

EPA-HQ-OAR-2010-0799-0684). 

4

 Kleit A.N., 1990, “The Effect of Annual Changes in Automobile Fuel Economy Standards,” 

Journal of Regulatory Economics 2: 151-172 (Docket EPA-HQ-OAR-2010-0799-0672); 

McCarthy, Patrick S., 1996. “Market Price and Income Elasticities of New Vehicle 

Demands.” Review of Economics and Statistics 78: 543-547 (Docket EPA-HQ-OAR-2010-

0799-0673); Goldberg, Pinelopi K., 1998. “The Effects of the Corporate Average Fuel 

Efficiency Standards in the US,” Journal of Industrial Economics 46(1): 1-33 (Docket EPAHQ-OAR-2010-0799-0666); Greene, David L., “Feebates, Footprints and Highway Safety,” 

Transportation Research Part D 14 (2009): 375-384 (Docket EPA-HQ-OAR--0685). 

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