1 

## Draft Guidance Letter

CD -13- XX (LD)

SUBJEC T : E85 Flexible Fuel Vehicle Weighting Factor for Model Year 2016 -2019

Vehicles

Dear Manufacturer:

Under EPA’s light-duty vehicle greenhouse gas (GHG) program, starting with the 2016 model

year, the regulations describe two pathways for determining the GHG value for a gasoline-E85 flexible fuel vehicle (FFV). The default approach is to use the value determined for operation on gasoline (see 40 CFR 600.510- 12(j)(2)(vi)) . The alternative is to comb ine the gasoline and E85 GHG values together in a way that accounts for the real -world use of E85 with a weighting factor (this weighting factor is described as “F” in the regulations (see 40 CFR 600.510- 12(j)(2)(vi) and (k) ).

The regulations describe two different approaches that may be used to determine the value of F. First, upon written request from a manufacturer, EPA “will determine and publish by written guidance an appropriate value of F for each requested alternative fuel based on the

Administra tor’s assessment of real

- world use of the alternative fuel” (see 40 CFR 60 0.510- 12(k)(1 )). Second, a manufacturer may submit its own data to EPA that demonstrates the realworld use of the alternative fuel and determines an appropriate value of F specific to their

vehicles (see 40 CFR 600.510- 12(k)(2))

.

Several manufacturers have requested that EPA determine a value of F for E85 to apply to 2016 model year FFVs, and that EPA publish guidance as early as possible. EPA is therefore issuing this guidance as directed by 40 CFR 600.510- 12(k)(1).

For the 2016 model year, manufacturers may use F=0.2 in the calculation described in 40 CFR

600.510- 12(j)(2)(vi). This is optional; manufacturers may always continue to use the default value of 0, thus ignoring the E85 carbon

- related exhaust emissions ( CREE ) value. M anufacturers may continue to use F= 0.2 through the 2019 model year, unless EPA revises the weighting

factor. EPA will establish a different value of F for model years 2017 through 2019 in future guidance if additional information or data suggests a change is needed. The derivation of F=0.2

is described in the attachment to this letter. The 0.2 F factor may not be used beyond the 2019 model year

. EPA will address a n F factor for these later model years as part of a future EPA

action.

The equation using the F factor is described in 40 CFR 600.510- 12(j)(2)(vi) as follows:

CREE = ( F × CREE alt ) + � ( 1 − F ) × CREE gas �

,

where CREE alt is the CREE value calculated for the model type using the alternative fuel (in this2 case E85) and CREE gas is the CREE value calculated for the model type while operating on gasoline. For example, for an FFV emitting 330 g/mi CREE when tested on E85 and 350 g/mile CREE when tested on conventional gasoline, the CREE value fo r the FFV model type that would be used in the fleet average calculations under 600.510-12 would be calculated as follows:

CREE = ( 0.2 × 330 ) + ( 0.8 × 350 ) = 346 g / mi

There are several important things to note for manufacturers electing to use this F value:

1. Do not apply a factor of 0.15 to the E85 CREE value before combining with the gasoline CREE value. The requirements to use a multiplier of 0.15 for purposes of the greenhouse gas emissions standards extend only through the 2015 model year (see 40

CFR 600.510- 12(j)(2)(iv) and (vi))

.

2. Manufacturers electing to use this F value must apply it to all gasoline -E85 FFVs, regardless of the relative E85 and gasoline emission values . In other words, this value may not be used solely on FFVs where the E85 CREE value is lower than the gasoline

CREE value.

3. Manufacturers may choose to use either F=0.2 or F=0 on a model year by model year basis, but both values may not be used within a single model year. For example, using F=0.2 for the 2016 model year does not prevent a manufacturer from using F=0 for 2017 model year vehicles, or vice versa.

4. Manufacturers continue to retain the option of collecting their own data demonstrating

the real -world use of E85 in specific FFV model types and re questing that EPA determine a unique F factor for use in the equation for those model types (see 40 CFR 600.510- 12(k)(2)).

If you have any questions about this guidance , please contact your certification team representative.3 Enclosure to CD -13- XX

Determination of Weighting Factor for Testing E85 Flexible Fuel Vehicles (FFV) for MYs

2016- 2019 Vehicles Under the Light

- duty Greenhouse Gas Emissions Program

1. Introduction

This document provides the supporting analysis and rationale for the weighting factor being established by EPA under the light-duty vehicle greenhouse gas (GHG) program to be used to weight E85 flexible fuel vehicle (FFV) CO 2 emissions when tested with both gasoline and E85 (amixture of 85 percent ethanol and gasoline). Beginning in model year (MY) 2016, EPA’s lightduty vehicle GHG program no longer allows FFV credits, but instead the GHG compliance values of an FFV must be based on actual emissions performance of the FFV on both gasoline and the alternative fuel, weighted by the actual use of these fuels by the FFV. EPA is establishing this factor at a level of 0.2 for MY 2016, based on EPA’s assessment of the projected av erage real world use of E85 over the lifetime of MY 2016 FFVs. The weighted CO 2 emissions level will be used as the certification CO 2 level to be used for that vehicle model in determining the overall fleet average CO 2 emissions for the manufacturer’s MY 2016 fleet. This means EPA is projecting that 20 percent of a MY 2016 FFV’s lifetime miles driven will be fueled on E85 and 80 percent will be fueled on conventional gasoline. The 0.2 factor represents an average value across a broad range of scenarios e valuated and is not based on any one primary scenario. EPA is establishing this weighting factor upon written request from auto manufacturers per the regulatory provisions contained in 40 CFR Part 86 600.510- 12(k)(1). These regulatory provisions were established as part of the rulemaking setting GHG and corporate average fuel economy (CAFE) standards for MY 2012-2016 light-duty vehicles. 1

Section 2 of this document provides background information on how FFVs are treated in MYs 2012-2015, why EPA is establishing the weighting factor for MY 2016, and how it will be used in determining FFV CO 2 emissions levels for MY 2016. Section 2 also briefly discusses EPA’s plans for establishing weighting factors for MY 2017 and later. Section 3 provides a comparison of EPA’s approach with that of the CAFE program for MY 2016 and later. Section 4 provides the analysis on which EPA is basing the MY 2016 weighting factor. As discussed below, in the

absence of EPA action to establish a revised F factor for MY 2017 and lat er, manufacturers may continue to use the 0.2 value established for MY 2016 in these later years.

1 75 FR 25342, 25432-25434 (May 7, 2010). The tailpipe GHG emissions used for compliance

with the CO 2 standards described in 40 CFR 86.1818 are the carbon-containing emissions (generally, CO 2 , hydrocarbons, and carbon monoxide), which are summed based on the carbonweight fraction of each component into a value described in the regulations as the “carbonrelated exhaust emissions” (CREE). For simplicity, however, in this support document, we are using the term CO 2 instead of CREE, as CO 2 is more broadly und erstandable and makes up the vast majority of the total carbon emissions from vehicles.4 2. Treatment of Flexible Fueled Vehicles under the EPA Model Year 2012 -2016 LD GHG

Rule

2.1. Background on Model Years 2012-2015

As discussed in the MY 2012-2016 Final Rule, EPA allow s FFV compliance values corresponding to the compliance values allowed by CAFE during the period from MYs 2012 to

2015. These are commonly called FFV credits. Several manufacturers had already taken the availability of FFV credits into account in their near-term planning for CAFE and this reliance

needed to be considered in assessing necessary lead time for the CO 2 standards. Manufacturers commented during the rulemaking that the credits are necessary in allowing them to transition to

the new standards. EPA thus allow ed these credits, in the near term, help ing to provide adequate lead time for manufacturers to implement the new multi

- year standards . This also helps to harmonize the GHG and the CAFE programs during these interim years. 2

As under CAFE as required by EPCA, 3 EPA bases MY 2012-2015 FFV CO 2 emissions on a 50/50 weighting of the measured CO 2 emissions when the vehicle is tested on gasoline and with E85. This approach essentially assum es that over the life of the FFV, 50% of their operation is on the alternative fuel and 50% of the operation is on conventional fuel, resulting in CO 2 emissions that are based on an arithmetic average of alternative fuel and conventional fuel CO 2 emissions. In addition, t he measured CO 2 emissio ns on the alternative fuel ar e multiplied by a

0.15 volumetric conversion factor. Through this mechanism a gallon of alternative fuel is deemed to contain 0.15 gallons of fuel. For example, for a flexible- fuel vehicle that emitted 330 g/mi CO 2 operating on E85 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:



## ( ) 

## [ ] mi g CO /8.199 2 35015.0330

2 = +×

=

For MYs 2012-2015, EPA also established FFV credit limits or caps equivalent to the credi t caps
established for CAFE under EPCA/EISA. The FFV credit cap s for CAFE are 1.2 mpg for model years 2012-2014 and 1.0 mpg for model year 2015. 4 The CO 2 FFV credits limits for MY 2012

- 2015 are based on a manufacturer’s fleet

- average performance. For ex ample, if a manufacturer’s

2012 car fleet average standard was 260 g/mile (34.2 mpg), the credits that could be used to meet

this standard in CO 2 terms would be limited to 9.5 g/mile (34.2 mpg – 1.2 mpg = 33.0 mpg = 269.5 g/mile) and if it were 270 g/mile the limit would be 10.2 g/mile. This caps the impact that FFV credits may have on a manufacturer’s fleet average emissions level.

Both the 50/50 weighting and the use of the 0.15 volumetric conversion factor were an established part of the CAFE program prior to the MY 2012-2016 rulemaking. 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

2 75 FR 25432 (May 7, 2010).

3 49 U.S.C 32905 (b).

4 49 U.S.C 32906 (a).5 vehicle were assumed to operate on the alternative fuel at all times. This represents a “credit” being provided to FFVs for MYs 2012-2015.

In the MY 2012-2016 rule, f or the longer term

, EPA determined that there is adequate lead time

to meet GHG standards with out the use of FFV credits. Therefore, beginning in MY2016, the FFV credits as described above for MY2012-2015 are no longer available for EPA’s GHG program. Rather, GHG compliance values will be based on actual emissions performance of the

FFV on conven tional and alternative fuels, weighted by the actual use of these fuels in the FFVs. Starting with model year 2016, under the EPA GHG program manufacturers are no longer allowed to base FFV emissions on the use of the 0.15 factor described above, and on t he use of an assumed 50% usage of alternative fuel. Instead, EPA’s program ensure s that FFV emissions

are based on demonstrated emissions performance. The approach for MY 2016 and later is

discussed in further detail below.

2.2. Background on MY 2016 and L ater

For MY 2016 and later model years, EPA ’s program treat s FFVs similarly to conventional fueled

vehicles in that FFV emissions will be based on measured CO 2 results from emission s testing on

the fuel s on which it operates. Also, in calculating the emi ssions performance of an FFV,

manufacturer s may base FFV emissions on vehicle testing based on the alternative fuel

emissions if there is a demonstration that the alternative fuel is likely to actually be used in the

vehicles . Performance will otherwise b e calculated assuming use only of conventional fuel. The

manufacturer must estimate the ratio of operation that will be on the alternative fuel compared to the conventional fuel. As shown in the equation below, t he ratio (F) will be used to weight the

CO 2 emissions performance over the 2

- cycle test s on the two fuels. The 0.15 conversion factor (discussed in previous section) will no longer be included in the CO 2 emissions calculation.

CO 2 = F x CO 2 E85 + (1

- F) x CO 2 E0

For example, for an FFV emitting 33 0 g/mi CO 2 when tested on E85 and 350 g/mile CO 2 when tested on conventional gasoline, with an estimated vehicle miles travelled (VMT) split of 20 percent on E85 and 80 percent on gasoline, the CO 2 emissions for the FFV would be calculated

as follows:



### g/mi 346)3508.0()3302.0( 2 

### =×+×= CO

One option EPA finalized in the MY 2012-2016 rule is for EPA to establish the weighting factor

based on a national average approach considering national E85 fuel use. The MY 2012-2016 final rule regulations provided that upon a manufacturer’s written request, EPA “will determine and publish by written guidance an appropriate value of F for each requested alternative fuel based on the Administrator’s assessment of real-world use of the alternative fuel,” where F is the weighting factor to be used to weight the CO 2 emissions of the FFV on gasoline and on the alternative fuel (a value of 0.2 in the above example). 5 Manufacturers could then use the EPA-

5 40 CFR § 86 600.510- 12(k)(1).6 determined value a long with their vehicle emissions test results demonstrating emissions on E85, which are typically lower, to determine the emissions compliance values for FFVs

.

The preamble to the MY 2012-2016 proposal and final rule discussed an approach where EPA

would conduct an analysis of vehicle miles travelled (VMT) by year for all FFVs using its emissions inventory MOVES model. 6 Using the VMT ratios and the overall E85 sales, E85

usage would be assigned to each vehicle. This method accounts for the VMT of new F FVs and FFVs already in the existing fleet using VMT data in the model and the EPA model would be

used to determine the ratio of E85 and gasoline for new vehicles being sold. EPA noted that

fluctuations in E85 sales and FFV sales would be taken into accou nt to adjust the manufacturers’

E85 actual use estimates annually. EPA also noted that it planned to make the assigned fuel usage factor available through guidance prior to the start of MY 2016 and adjust it as necessary.

In lieu of using EPA’s estim ated fuel usage factor based on the national average analysis,

manufacturers have a second option of presenting their own data for consideration as the basis

for evaluating fuel usage

. As specified in the regulations, “the manufacturer may optionally

submi t to the Administrator its own demonstration regarding the real

- world use of the alternative fuel in their own vehicles and its own estimate of the appropriate value of F.” 7 M anufacturers

must present a statistical analysis of alternative fuel usage data collected on actual vehicle operation. EPA did not attempt 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. 8

It is important to note that although the FFV weighting factor is needed prior to MY 2016 certification, it must be based on the projected use of the alternative fuel over the life of the MY 2016 vehicles. In a situation where the amount of alternative fuel being used and the sales of FFVs were stable, EPA could potentially base the weighting factor on an estimate of what the

factor is for vehicles in -use today. Based on current limited usage of E85, the F factor would be near zero. However, both the amount of ethanol being used and the sales of FFVs are currently in a state of considerable change. Under the Renewable Fuel Standard (RFS) program, the amount of ethanol to be consumed is projected to increase significantly over the next several years. Als o, the production of FFVs has increased steadily over the last several years and we expect some growth in sales is likely to continue. There is currently a great deal of uncertainty both in the amount of E85 that is likely to be consumed year by year and the number of FFVs that will be sold. To address this uncertainty for both FFV sales and E85 volumes, EPA evaluated a range of scenarios for both FFV sales and E85 volumes on which to base the weighting factor rather than a single or primary scenario, as discussed in Section 4 below.

The MY 2012-2016 rule discussed an approach where EPA would establish the weighting factor prior to the beginning of MY 2016 (which begins on January 2, 2015) and adjust it annually as

6 74 FR 49454, 49532 (September 28, 2009) and 75 FR 25434 (May 7, 2010).

7 40 CFR § 86 600.510- 12(k)(2).

8 75 FR 25434 (May 7, 2010).7 necessary. 9 In the MY 2017-2025 rule, automakers submitted comments requesting early guidance on the F factor so that automakers would have the relevant information needed for development of compliance plans. EPA believes that it is important to establish the weighting factor for MY 2016 now to provide manufacturers with as much lead time and certainty as possible for planning for MY 2016. In the MY 2017-2025 final rule, EPA reiterated its commitment to issue early guidance “well in advance” of each model year. 10 As discussed below, EPA pla ns to revisit the weighting factor as necessary for MY 2017 and later as new data warrants a possible revision of the value. In the absence of EPA action to establish a revised F factor, manufacturers may continue to use the 0.2 value established for MY 2016 in MYs 2017-

2019.

2.3. Potential Impact of the Weighting Factor

The table below provides CO 2 results for a sample of MY 2013 FFV models. In many cases,

CO 2 levels on E85 are in the range of 2 to 7 percent better than on conventional gasoline and it

wo uld be to the manufacturer’s advantage to weight in the lower emissions of the E85 operation. 11 For vehicles with CO 2 emissions in the 200-300 g/mile range and achieving a 5 to 10 percent benefit on E85 (assuming manufacturers optimize CO 2 performance on E85) compared to conventional gasoline, using an E85 weighting factor of 0.2 would lower the

vehicle’s CO 2 level by about 2 -6 g/mile, depending on the vehicle’s CO 2 levels.

CO 2 Emissions on Gasoline and E85 for Selected Model Year 2013 Veh icles 12

CO2 Difference

Make Model Engine/Trans Gas oline E85 g/mi %

Chrysler 200 6 cyl 3.6L Auto 304 295 9 3%

Chrysler 300 6 cyl 3.6L Auto 296 287 9 3%

Chrysler Town & Country 6 cyl 3.6L Auto 349 351 -2

- 1%

Chrysler Durango 4WD 6 cyl 3.6L Auto 370 353 17 5%

Chrysler RAM 1500 4WD 8 cyl 4.7L Auto 438 454

- 16

- 4%

Ford E150 Van FFV 8 cyl 4.6L Auto 477 466 11 2%

Ford E350 Van FFV 8 cyl 5.4L Auto 524 488 36 7%

Ford F150 Pickup 2WD FFV 6 cyl 3.7L Auto 363 346 17 5%

Ford Focus SFE FWD FFV 4 cyl 2.0L Auto 203 206 -3

- 1%

9 75 FR 25434 (May 7, 2010).

10 77 FR 62624, 62830 (October 15, 2012).

11 Lower g/mile emissions on E85 are attributable to a number of factors, including the chemical makeup of the fuel and the efficiency of the engine while operating on this fuel.

12 These values are not the official values for these models under the EPA GHG p rogram. The values in this table are estimates derived from data submitted for vehicle labeling. Official values calculated for compliance with the GHG program are based on additional data and on the final sales volumes after the model year is over. Final compliance values for 2013 models will be determined by manufacturers and submitted to EPA in early 2014.8 Ford Explorer FFV 2WD 6 cyl 3.5L Auto 346 330 16 5%

GM Buick LaCrosse 6 cyl 3.6L Auto 332 324 8 2%

GM C15 Silverado 2D 8 cyl 4.8L Auto 441 419 22 5%

GM C1500 Suburban 2WD 8 cyl 5.3L Auto 404 382 22 5%

GM Impala 6 cyl 3.6L Auto 314 292 22 7%

GM K1500 Yukon Denali

AWD 8 cyl 6.2L Auto 581 538 43 7%

A s the data above indicate, there is a range of CO 2 performance on E85 compared to gasoline,

and in a few cases FFV CO 2 emissions are worse on E85. Currently, because credits are calculated using a 0.15 factor (E85 CO 2 levels are multiplied by 0.15 in the calculation) and total credits are capped, there is not an incentive for manufacturers to optimize CO 2 emissions performance on E85. EPA believes that its approach for MY 2016 and later provides manufacturers with an incentive to optimize FFV emissions pe rformance not only on gasoline but also on the alternative fuel. EPA also notes that manufacturers choosing to use a weighting factor must use that weighting factor for the alternative fuel for all of their FFVs including any that have worse emissions performance on E85. Otherwise, the default is to base FFV emissions only on conventional gasoline.

3. Comparison with CAFE Program Treatment of Flexible Fueled Vehicles for MY 2016

and Later

49 U.S.C. specifies how the fuel economy of dual fuel vehicles, including E85 FFVs, is to be calculated for the purposes of CAFE through the 2019 model year. In MY 2016 and later under CAFE, manufacturers continue to calculate credits using a 50/50 harmonic average of the fuel economy for the alternative fuel and the conv entional fuel, irrespective of actual usage of each fuel. In addition, the fuel economy value for the alternative fuel continues to be significantly increased by dividing it by 0.15.

In addition, as required by 49 U.S.C. 32906, CAFE continues to inc lude a cap on the increase in fleet average mpg from FFV credits for MYs 2016-2019, which decreases each year as shown in the table below. The cap applies separately for domestic passenger cars, import passenger cars, and light-duty trucks.

Model Year Cr edit Cap (mpg)

2016 0.8

2017 0.6

2018 0.4

2019 0.2

In the MY 2017-2025 CAFE rulemaking, a new approach for FFVs was established for model years 2020 and later. 13 After MY 2019, CAFE will weight the FFV fuel economy on

13 77 FR 62830-62831 and 63127-63130 (October 15, 2012).9 conventional gasoline and E85 in its harmonic average of the two values using the same real world weighting factor F that is used by manufacturers under the EPA program (rather than assuming a 50/50 weighting). This F factor would either be established by EPA or by the manufacturer under the process options described above (or zero if no factor is established). Weighting the fuel economy to better reflect real world usage is a major change from the approach mandated by 49 U.S.C. 32905 and it orients the ca lculation more to the real world impact on petroleum usage, consistent with the statute’s overarching purpose of petroleum conservation. The CAFE program retains the 0.15 divisor for MYs 2020 and later, whereas the GHG program does not include the 0.15 factor. Retaining the 0.15 divisor in CAFE for dual fuel vehicles is consistent with the procedures established by Congress for dedicated alternative fuel vehicles. As with the EPA program, there is no credit cap in the CAFE program for MY 2020

and later u nder this new approach finalized in the MY 2017-2025 rule.

4. Analysis of E85 F Factor for MY 2016 Vehicles

4.1. Analytic Methods

There is significant uncertainty regarding projecting future ethanol use and FFV sales over the

lifetime of MY 2016 vehicles. Thus , we analyzed several possible scenarios. We considered four different factors in estimating national average consumption of E85 by FFVs. These factors ( Figure 1 ) are (a) the total motor gasoline demand, (b) the total volume of ethanol, (c) the form of the ethanol-gasoline blend distributed to the consumer, and (d) the number of vehicles which consume the E85. These factors interact; as an example, both the number of FFVs and the volume of ethanol determine how much E85 is produced and sold.

Figure 1 – Factors in E85 Demand

Consideration 1 Total Motor Gasoline Demand

Consideration 2 Total Gasoline Used Total Ethanol Used

Consideration 3 E10 Used E15 Used E85 Used

Consideration 4 E85 capable v ehicle population Other vehicle population

There is uncertainty about each of these future projections. With regard to ethanol, the US market is nearing the “E10 blend wall” or the point at which ethanol blends above E10 will be necessary in order to absorb the quantity of ethanol that is projected to meet the requirements of the RFS program. Projecting the future volumes of different ethanol blends higher than E10 is

uncertain. 14 On the vehicle side, there is significant uncertainty with regard to the continued

14 For a discussion of the different combinations of E10, E15, and E85 that might result from the RFS volume requirements see the RFS2 final rule at 75 FR 14760-14763 (March 26, 2010).10 production rates of flex fueled vehicles. 15 These complexities and considerations are discussed in the following sections.

To compensate for this uncertainty, rather than focusing on a single scenario, this document evaluates a range of scenarios that bracket the possible outcomes. The remaining sections discuss inputs and present analysis for twelve different scenarios. We analyze two assumptions about the total quantity of ethanol, two assumptions about the different ethanol-gasoline blends, and three assumptions regarding future FFV sales.

4.1.1. Model Framework

This analysis was conducted using an updated version of the OMEGA model used in the MY 2017-2025 LD GHG rulemaking. The OMEGA benefits post processor spreadsheet (version 1.4.1) 16 was extended to conduct the fuel volume calculations needed for this analysis. 17 For this analysis, we also normalized the light duty energy demand (consideration 1 above) to the motor gasoline (including E85) demand presented in the Early Release of the Energy Information Administration’s (EIA's) Annual Energy Outlook (AEO), hereafter called AEO 2013ER. 18 Thus, the population and VMT models in OMEGA are used to determine the allocation of energy between vehicle MYs, but not the overall amount of energy. Other than these changes, the inputs are either identical to those used in the rulemaking, or as described in the next sections. For this analysis, the LDGHG 2017-2025 rulemaking’s scenario of the MY2010 base fleet was

used.

In the basic calculation of the F factor, the OMEGA model is given inputs as to the total number of FFVs sold each year, the total amount of ethanol used in each calendar year, and assumptions about E10/E15 usage. In the calculation, total energy, total ethanol, and E15 volumes are fixed as inputs, while the E10 and E85 volumes float in order to absorb the total ethanol volume (Figure 2). The model is used to calculate the total gallons of E85 required to consume the input ethanol quantity, and the fraction of miles the FFVs would need to run on ethanol in order to

consume that fuel. This fraction is the “F factor” described above.

15 Of note, this analysis uses FFV production volume as an input, and outputs an expected E85 usage fraction. This fraction, through the resulting vehicle credit, in turn circularly influences the FFV production volume.

16 OMEGA Model v1.4.1 (http ://www.epa.gov/omswww/climate/models.htm ).

17 http://www.epa.gov/otaq/regs/ld -hwy/greenhouse/ld- ghg.ht m

. 18 See Table 45 for total energy volumes and Table 17 of AEO 2013ER for projected renewable

volumes.11 Figure 2 - Calculation Dynamics

In this calculation, we neglect the marginal change in FFV energy demand as a result of the change in fuels. While an increase in E85 usage could decrease the total energy demand of the FFVs, this effect is small, and is a secondary consideration in this calculation. This conservative assumption marginally biases the F factor to a lower number.

4.1.2. FFV Sales Projections

One of the difficulties in estimating the F factor is estimating the number of FFVs that will be sold in future years. As discussed below, there is a historic relationship between an incentive for FFV production (the CAFE credit) and the production of FFVs. However, we have no direct estimate of the relationship between the credit size and the production of FFVs, particularly in the context of a fleetwide standard that becomes increasingly stringent.

There is a likely equilibrium with regard to the compliance benefit for the manufacturer and the production of FFVs. There is a direct relationship between the F factor and the incentive for12 building FFVs, but an inverse relationship between number of FFVs sold and the F factor. With a fixed pool of ethanol, additional FFV sales decrease the value of the F factor per vehicle, as the additional vehicles reduce the amount of E85 that each individual vehicle will consume ( Figure

3 ). Thus, at some level of sales and stringency, the cost for producing an FFV will be greater than the value received for producing it. In the absence of other factors, manufacturers are unlikely to build FFVs if the increased production costs exceed the compliance benefit.

Equation 1: Compliance Benefit ∝ Gallons of E85 / FFV population

Figure 3 – Relationship of FFV Sales and Compliance Benefit (Constant Ethanol Volume)

With these guiding concepts, we evaluated a range of FFV production forecasts.

4.1.2.1. Existing Projections

With regard to existing projections of FFV production, we are aware only of the Department of Energy / Energy Information Administration (EIA) projections of FFV sales. EIA projects FFVs as approximately 8% of light duty sales between 2012 and 2030. 19 These sales projections are based on assumptions regarding the CA FE credit value, and therefore are not a credible sole source for this analysis. As a consequence, we elected to derive a reasonable series of production projections.

19 AEO 2013, table 57. http://www.eia.gov/forecasts/aeo/er/supplement/suptab_57.xlsx.13 4.1.2.2. Projections Made for this A nalysis

Several elements feed into the projections of FFV production presented here. Historic FFV production and conversion volumes ( Figure 4 ) have grown over time, but cannot clearly be extrapolated as this growth in FFV p roduction is tied to economic and other factors that may not necessarily be present in the future. However, the gradual increase in FFV production does demonstrate the industry ability to scale the production of FFVs.

Figure 4 – Historic FFV Production

EPA reviewed production data submitted by manufacturers as part of the annual certification and compliance process. In MY 2011, FFV production was dominated by General Motors, Ford, and Chrysler. While these three domestic manufacturers produced approximately 40% of their fleet as FFVs, US production as a whole was at 17%. As seen below ( Table 1 ), other manufacturers do not produce sign ificant total numbers of FFVs relative to their own fleet, or the nation as a

whole.14 Table 1 – MY 2011 FFV Production

Manufacturer Units

Produced % Total US FFV

Production % Manufacturer LD

Production

Chrysler 392,393 19% 36%

Ford 547,605 26% 29%

General Motors 1,075,809 51% 44%

Mazda 398 0% 0%

Mercedes 25,675 1% 11%

Nissan 24,294 1% 3%

SAAB 1,539 0% 41%
Toyota 27,578 1% 1%
Volkswagen 809 0% 0%

Fleet 2,096,100 100% 17%

EPA further examined the manufacturer vehicle production data to determine if the data supported particular projections of FFV sales. EPA attempted to identify a production cutpoint or other metric based on current data that could be applied across the fleet to determine a reasonable projection of potential future FFV sales. While the division of manufacturers between FFV producers and non-producers is clear, there is no such line amongst vehicle production. FFVs are applied in both high volume and low volume vehicles, and the same engine is frequently used in both FFV and non- FFV applications, sometimes in the same vehicle model. While FFVs production historically tended to be focused on light trucks, there are currently several passenger car models that are FFVs. EPA was not able to identify a production cut point or other metric that could be applied across the fleet to project potential future FFV

sales. Manufacturer c onsiderations beyond those discussed here are likely to drive future trends, however, these considerations likely differ by manufacturer and application.

4.1.2.3. Projections

Given the lack of clarity in industry trends for FFV production, we created three projections – lower FFV sales, mid FFV sales, and a higher FFV sales scenario. All three scenarios rise from

the current sales level to a maximum sales fraction in MY 2020.

The high sales scenario assumes that FFVs reach 50% of light duty sales by 2020. This could happen if, for example, the incentive was sufficient to induce domestic manufacturers to produce 70% FFVs and foreign manufacturers to produce 40% FFVs. This would be a 35% increase in the use of FFV technology for the industry, which is well in- lin e with the pace of technology change in the industry during this time period. As a recent example, the fuel economy trends report indicates that six speed transmissions have gone from 3%to 52% % of the fleet in seven

years. 20

However, while this high production scenario is feasible, we consider it on the upper range of likely scenarios. Many factors suggest that there is a likely production bound below the

20 EPA. Light -Duty Automotive Technology, Carbon Dioxide Emissions, and Fuel Economy Trends: 1975 Through 2011. http://www.epa.gov/otaq//cert/mpg/fetrends/2012/420r12001a.pdf.15 maximum possible 100% FFV. Two factors contribute significantly. Most notably, a projection of 100% production would significantly decrease the size of the FFV incentive ( Figure 3 ). Further, there are currently incentives under both GHG and CAFE programs for production of FFVs, and these vehicles are not currently produced by all manufacturers, and occupy only 17% of sales. 100 percent production of FFVs would suggest that there are drivers or incentives other than the credit which lead toward FFV production, and the data from VERIFY, and the low current usage of E85 do not support this argument.

There are also technical considerations arguing for an upper sales projection of less than 100%. Foremost, MY 2011 suggests that not all manufacturers will immediately begin serious pursuit of FFV production. While FFV technology need not be implemented at redesign, it does require some lead time for the manufacturer. Also, there could be technical challenges as manufacturers integrate new technologies such as turbo- charged gasoline direct injection into the fleet. There is also additional emissions testing and calibration associated with FFV production. Finally, there may be technical challenges with meeting criteria pollutant emission standards for FFVs in some applications.

While a scenario of 100% production may be unlikely, we consider the 50% scenario a reasonable upper production scenario.

We also analyze two lower production scenarios. Setting a lower production volume for FFVs is challenging. We assume that the manufacturer’s desire to obtain the compliance benefit from use

of FFV E85 emission values will increase as the fleetwide standard continues to increase in stringency. Lower production scenarios also increase the value of the F factor on a per vehicle basis for a given volume of E85, since each vehicle would need to consume more E85 to use up to the total E85 volume, which increase the incentive to produce more FFVs.

We assume that the fleet average percentage of FFVs is also indicative of the relative FFV production of both cars and light trucks. 21 While historically, a larger proportion of FFVs have been light trucks, as the fraction of the fleet increases, this may not hold true.

21 As in the final rulemaking, the baseline fleet used in this analysis (MY2010) is projected to range from approximately 64% cars to 67% cars during this timeframe. Thus, the projected FFVs will also be 64% to 67% cars during this time frame. Outside of FFVs, the fleet is projected to be exactly the same in all three of these scenarios.16 4.1.3. Total Ethanol Volume Projections

We consider two different total ethanol projections. In the first, the mid

- ethanol case from the RFS2 rulemaking 22 , the full volume requirements of the RFS program are met in all years and the volume of ethanol used to meet those requirements (as opposed to other typ es of renewable fuel) are in the middle of the range of possible outcomes. In the second, we rely on the latest available EIA projection of ethanol production and use from AEO 2013ER for an alternate projection of future ethanol volume 23 . We consider these two scenarios reasonable bounds on the potential future volumes of ethanol.

22 Also known as the "Primary Control Case" in the RFS2 final rule. See 75 FR 14741 (March 26, 2010).

23 See Table 11 of AEO 2013ER for projected ethanol volumes.17 Figure 5 – Ethanol Volume Projections

4.1.4. Ethanol Use Scenarios

In addition to overall ethanol volume there is also uncertainty regarding how much ethanol may be consumed as E15. Currently E15 is being consumed in very small volumes but it has been on the market for only a short time and availability is still very limited. For a specified volume of total ethanol, if E15 use grows significantly, the amount of ethanol consumed as E85 would necessarily decrease, thus resulting in a lower F factor. Therefore, the amount of E15 potentially consumed in the future is another significant point of uncertainty for EPA’s analysis. In an attempt to bracket t he potential ethanol use in the future, we consider two different allocations of ethanol for this analysis: an aggressive E15 case, and a case that assumes no E15 usage.

The aggressive E15 case first assumes a usage level of 8% in 2017 for MY2001+ non- FFV vehicles. This usage in 2017 is largely based on areas that already have incentives or infrastructure for selling or using ethanol blends beyond the E10 level. In the following years, as infrastructure and local/state programs become better equipped to handle E15 blends, we assume E15 usage in this first case increases dramatically to 50% by 2020 (again for MY2001+ non- FFV vehicles). Farther into the future, we assume for this case that E15 is substantially the only fuel consumed by MY2001+ non- FFV vehicle s, reaching a usage of 90% by 2022 and 95% by 2025. Any remaining E10 in the fuel supply for this case is consumed almost entirely in non-road, marine and off-road vehicles and equipment.

In the second case, E15 is not considered as a blend for this analysis. Any ethanol beyond blending at an E10 level would be used in FFVs. While one could consider scenarios that18 include other ethanol blends, such as E30 use in FFVs, we did not do so for the purposes of this analysis.

We assume that each gallon of E85 is 83% ethanol. While inconsistent with market practices, 24
this assures alignment between the emissions test which relies on E85 certification fuel with 83% ethanol and the analytic ass umptions made here.

4.1.4.1. Infrastructure

In projecting the frequency with which model year 2016 FFVs would be fueled on E85, the four volume scenarios that we analyzed place bounds on the total volume of ethanol that would need

to be consumed under the RFS mandates and the relative volumes of E15 versus E85. Taken together, these volume scenarios provide a representation of potential real-world use of E85 over the lifetime of model year 2016 FFVs in the context of potential E10 and E15 use across the

fleet. While the number of retail stations having blender pumps that dispense E85 would need to

increase at a rate consistent with that estimated in the RFS 2 final rule (at least 23,000 stations by 2022) 25 , we believe that such increases are within the capabiliti es of the industry.

4.2. Limits of this Analysis

This analysis is limited by the quality of its input projections, where there is varying certainty about the inputs and some of the inputs are unlikely to occur in concert. As an example, a high

ethanol volum e scenario is unlikely to occur simultaneously with few FFV sales. Similarly, low

24 Actual E85 average ethanol fraction is likely closer to 74%. See footnote 157 at 75 FR 14762 (March 26, 2010).

25 See 75 FR 14758 – 14759 (March 26, 2010).19 ethanol volumes along with high FFV sales are also unlikely, since there would be insufficient E85 to fuel these vehicles, and little incentive to build them.

We also assum e that the E85 consumption is an equivalent fraction of each MYs FFV fuel consumption during each calendar year. For example, in calendar year (CY) 2020, MY 2020 and MY2007 consume different amounts of energy (proportional to their VMT and efficiencies), but all onroad FFVs consume the same fraction of that energy as E85.

4.3. Results

The CY results are weighted by the survival weighted VMT accumulation rate of MY 2016 vehicles over the first 15 years of life (approximately 80-85% of projected lifetime driving depending on whether cars or trucks are considered). 26 Focusing on the first fifteen years (through 2030) is neither a clearly conservative or aggressive assumption, as it depends on the relationship between ethanol production and consumption in later yea rs and earlier years. However, focusing on the first fifteen years allows us to limit the need to project the far future.

Figure 6 – VMT Weighting

We ran the OMEGA model using each combination of the assumptions above, and cal culated an

F factor for each CY ( Figure 7 , Figure 8) . This F factor was weighted by the VMT accrual rate

26 EPA Final Rulemaking to Establish Light-DutyVehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards Regulatory Impact Analysis. http://www.epa.gov/omswww/climate/regulations/420r10009.pdf20 shown above ( Figure 6 ) , and calculated for each scenario ( Table 2 ). 27 As a reminder, in each of the following two figures, there are six lines leading to a total of twelve scenarios analyzed. We looked at two different ethanol volume scenarios, two different ethanol usage scenarios, and

three different sales scenarios.

Figure 7 – Results from RFS2 Ethanol Scenarios

27 The VMT accrual rate shown here is a production weighted mix of cars and trucks. While the VMT for cars and trucks differ, their relative accrual rates do not significantly differ, and for simplicity, a single rate is used.21 Figure 8 – Results from AEO2013 ER Ethanol Scenarios

Table 2 – VMT Weighted MY 2016 F Factors

Ethanol

Scenario Use Scenario Sales

Scenario Usage

Factor

1

RFS2 E15 Higher 21%

2 Middle 25%

3 Lower 32%

4

No E15 Higher 32%

5 Middle 39%

6 Lower 49%

7

AEO2013ER E15 Higher 6%

8 Middle 6%

9 Lower 7%

10

No E15 Higher 16%

11 Middle 19%

12 Lower 23%
Average

-- -- -- 23%

The overall average F Factor with these scenarios is 23%. We note that in most cases, the F Factor does not vary widely across FFV sales scenarios. Most of the variation is between different assumptions about total ethanol volume and the degree of E15 use. Also, some of the22 twelve scenarios are less likely. If the AEO 2013 high sales scenarios and RFS low sales scenarios were disregarded as highly unlikely, the average F factor rate is 22%.

The likelihood of each of these scenarios is a matter of interpretation. As an example, in the AEO 2013 ER with E15 scenarios, there are lower ethanol levels and less need for E85. In the RFS2, low FFV sales, no E15 scenario, there would be a large volume of ethanol and few options of how to utilize it. If both of these cases are disregarded, the range in values is reduced to 16% to 39%. This indicates that the plausible range for real world usage of E85 is somewhat broad. However, we also note that current real world usage is near zero, and we include all of

t hese scenarios in the assessment as a way to bound the exercise and consider a reasonable range of future possibilities.

Rather than selecting one of the scenarios above as a primary analysis on which to base the MY 2016 F factor, EPA has averaged all of the scenarios and is using the average as the basis for the F factor. The average would produce an F factor of 0.23. To be conservative on the side of environmental protection in light of the uncertainty in the analysis, EPA is rounding this value down to 0.2 for MY 2016. EPA ran the same analysis described above for MYs 2017-2019 and the resulting F factor value was 0.23 for MYs 2017 and 0.22 for MYs 2018-2019, essentially the same value as projected for MY 2016. Therefore, in the absence of new data and information, EPA believes the 0.2 F factor would be appropriate for MYs 2017-2019. EPA plans to revisit the weighting factor as necessary for MY 2017 and later as new data warrants a possible revision

of the value. In the absence of EPA action to est ablish a revised F factor, manufacturers may

continue to use the 0.2 value established for MY 2016 in MYs 2017-2019. EPA believes that it is premature to evaluate MYs 2020 and later, and the 0.2 F factor may not be used beyond MY

2019. An F factor for th ese later years will need to be established as part of a future EPA action.

5. Conclusion

EPA is establishing the E85 weighting factor to be used by manufacturers in weighting CO 2 emissions on E85 and conventional gasoline for purposes of FFV certification. The F factor is

based on the assessment of real

- world fuel use over the life of the average FFV. Because the factor represents a real world assessment of the E85 used by an FF V over its lifetime, EPA must base the F factor on projections of future ethanol use and FFV production. Due to inherent uncertainty in making these projections, especially in the case of ethanol use, EPA has analyzed a range of ethanol fuel use and FFV p roduction scenarios. The analysis provides a range of possible E85 usage factors on which to base the F factor, and EPA believes the scenarios reasonably bound the likely real-world value. Rather than selecting one of the scenarios as a primary analysis on which to base the MY 2016 F factor, EPA has averaged all of the scenarios and is using the average as the basis for the F factor. The average would produce an F factor of 0.23. To be conservative on the side of environmental protection in light of the uncertainty in the analysis, EPA is rounding this value down to 0.2 for MY 2016. EPA plans to establish a revised factor for MY 2017 and later in a future action if additional data suggests an adjustment

to the factor is needed. If EPA does not take act ion to revise the weighting factor, manufacturers may continue to use the 0.2 factor in MYs 2017-2019.